**Exhibit 2.2**

 

 

**AGREEMENT AND PLANOF MERGER**

** **

**by and among**

** **

**OVERLAND STORAGE,INC.,**

** **

**ZEPPOLE ACQUISITION CORP.,**

** **

**ZETTA SYSTEMS,INC.,**

** **

**the STOCKHOLDERSOF ZETTA SYSTEMS, INC.,**

** **

**GANAPATHY KRISHNAN**

**(as an Individual,as Stockholder Agent and as a Special Payee), and**

** **

**CERTAIN OTHERPERSONS AND ENTITIES NAMED HEREIN**

 

 

**August 8,2005**

 

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TABLE OF CONTENTS

 
| ARTICLE I  THE MERGER                                              |                                                                                 |
|-------------------------------------------------------------------------|--------------------------------------------------------------------------------------|
|                                                                    |                                                                                 |   |
|                                                                    | Section 1.1.  The Merger                                                        |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 1.2.  Effective Time                                                    |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 1.3.  Closing                                                           |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 1.4.  Effects of the Merger                                             |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 1.5.  Articles of Incorporation and Bylaws                              |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 1.6.  Directors and Officers                                            |   |
|                                                                    |                                                                                 |   |
| ARTICLE II  CONSIDERATION; CANCELLATION OF COMPANY STOCK           |                                                                                 |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.1.  Effect on Capital Stock                                           |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.2.  Surrender of Certificates; Lost, Stolen or Destroyed Certificates |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.3.  Stock Options and Warrants                                        |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.4.  Convertible Promissory Notes                                      |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.5.  Treasury Stock                                                    |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.6.  Shares of Dissenting Stockholders                                 |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.7.  Taking of Necessary Action; Further Action                        |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.8.  Withholding Rights                                                |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.9.  Escrow Fund and Expense Fund                                      |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 2.10.  Other Payments                                                   |   |
|                                                                    |                                                                                 |   |
| ARTICLE III  REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY |                                                                                 |
|                                                                    |                                                                                 |   |
|                                                                    | Section 3.1.  Organization and Qualification                                    |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 3.2.  Subsidiaries                                                      |   |
|                                                                    |                                                                                 |   |
|                                                                    | Section 3.3. Capital Structure                                                  |   |

 

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|   | Section 3.4. Approval of Merger                                                                |   |
|--------|-----------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                |   |
|   | Section 3.5.  Authority                                                                        |   |
|   |                                                                                                |   |
|   | Section 3.6.  No Conflict                                                                      |   |
|   |                                                                                                |   |
|   | Section 3.7.  Consents                                                                         |   |
|   |                                                                                                |   |
|   | Section 3.8.  Books and Records                                                                |   |
|   |                                                                                                |   |
|   | Section 3.9.  Company Financial Statements                                                     |   |
|   |                                                                                                |   |
|   | Section 3.10.  No Undisclosed Liabilities                                                      |   |
|   |                                                                                                |   |
|   | Section 3.11.  No Off-Balance Sheet Arrangements                                               |   |
|   |                                                                                                |   |
|   | Section 3.12.  Disclosure Controls                                                             |   |
|   |                                                                                                |   |
|   | Section 3.13.  No Changes                                                                      |   |
|   |                                                                                                |   |
|   | Section 3.14. Tax Matters                                                                      |   |
|   |                                                                                                |   |
|   | Section 3.15. Restrictions on Business Activities                                              |   |
|   |                                                                                                |   |
|   | Section 3.16.  Title of Properties; Absence of Liens and Encumbrances; Condition of  Equipment |   |
|   |                                                                                                |   |
|   | Section 3.17. Intellectual Property                                                            |   |
|   |                                                                                                |   |
|   | Section 3.18. Agreements, Contracts and  Commitments                                           |   |
|   |                                                                                                |   |
|   | Section 3.19.  Related Party Transactions                                                      |   |
|   |                                                                                                |   |
|   | Section 3.20.  Governmental Authorization                                                      |   |
|   |                                                                                                |   |
|   | Section 3.21.  Litigation                                                                      |   |
|   |                                                                                                |   |
|   | Section 3.22. Accounts Receivable,  Customers and Inventory                                    |   |
|   |                                                                                                |   |
|   | Section 3.23.  Minute Books                                                                    |   |
|   |                                                                                                |   |
|   | Section 3.24.  Environmental Matters                                                           |   |
|   |                                                                                                |   |
|   | Section 3.25. Brokers’ and Finders’ Fees                                             |   |
|   |                                                                                                |   |
|   | Section 3.26.  Employee Benefit Plans and Compensation                                         |   |
|   |                                                                                                |   |
|   | Section 3.27.  Insurance                                                                       |   |
|   |                                                                                                |   |
|   | Section 3.28. Compliance With Laws;  Relations With Governmental Entities                      |   |

 

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|                                                                  | Section 3.29.  Warranties                                                       |   |
|-----------------------------------------------------------------------|--------------------------------------------------------------------------------------|--------|
|                                                                  |                                                                                 |   |
|                                                                  | Section 3.30.  Complete Copies of Materials                                     |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 3.31.  Customer Relations                                               |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 3.32.  Parent Stock Ownership                                           |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 3.33.  Representations Complete                                         |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 3.34.  Equity Ownership                                                 |   |
|                                                                  |                                                                                 |   |
| ARTICLE IV  PARENT AND MERGER SUB REPRESENTATIONS AND WARRANTIES |                                                                                 |
|                                                                  |                                                                                 |   |
|                                                                  | Section 4.1.  Entity Status                                                     |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 4.2.  Power and Authority; Enforceability                               |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 4.3.  No Violation                                                      |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 4.4.  Brokers’ Fees                                                |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 4.5.  Merger Sub                                                        |   |
|                                                                  |                                                                                 |   |
| ARTICLE V COVENANTS  RELATED TO CONDUCT OF BUSINESS              |                                                                                 |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.1.  Conduct of Business of the Company Until Closing                  |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.2. Reasonable Efforts and Further  Assurances                         |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.3. Certain Tax Matters                                                |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.4. Access to Information                                              |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.5. No Solicitation                                                    |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.6. Public Announcements; Employee  Announcements                      |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.7. Notification of Certain Matters                                    |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 5.8. Return of Company Property                                         |   |
|                                                                  |                                                                                 |   |
| ARTICLE VI  CONDITIONS TO CLOSING                                |                                                                                 |
|                                                                  |                                                                                 |   |
|                                                                  | Section 6.1. Conditions to Obligations of Each  Party Under This Agreement      |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 6.2. Additional Conditions to the  Obligations of Parent and Merger Sub |   |
|                                                                  |                                                                                 |   |
|                                                                  | Section 6.3. Additional Conditions to the  Obligations of the Company           |   |

 

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| ARTICLE VII  SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION |                                                                     |
|-------------------------------------------------------------------------------|--------------------------------------------------------------------------|
|                                                                          |                                                                     |   |
|                                                                          | Section 7.1. Survival of Representations,  Warranties and Covenants |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.2. Indemnification; Escrow Fund;  Expense Fund            |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.3. Limitation on Indemnification                          |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.4. Indemnification Procedures                             |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.5. Stockholder Agent                                      |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.6. Resolution of Conflicts                                |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.7.  No Contribution                                       |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.8. Fraud; Willful Misrepresentation                       |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.9. Remedies Cumulative                                    |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 7.10. Purchase Price Adjustment                             |   |
|                                                                          |                                                                     |   |
| ARTICLE VIII  POST-CLOSING COVENANTS                                     |                                                                     |
|                                                                          |                                                                     |   |
|                                                                          | Section 8.1. Company Intellectual Property                          |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 8.2. Cooperation                                            |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 8.3. Non-Disclosure and Non-Compete                         |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 8.4. Employees; Employee Benefits                           |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 8.5. Indemnification of Directors and  Officers             |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 8.6. Attorney-Client Privilege and Legal  Files             |   |
|                                                                          |                                                                     |   |
| ARTICLE IX  EMPLOYEES                                                    |                                                                     |
|                                                                          |                                                                     |   |
|                                                                          | Section 9.1. Transferred Employees                                  |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 9.2. Employee Benefit Arrangements                          |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 9.3. Compliance with Applicable Law and  Other Obligations  |   |
|                                                                          |                                                                     |   |
|                                                                          | Section 9.4. No Benefit to the Company Employees  Intended          |   |
|                                                                          |                                                                     |   |
| ARTICLE X  TERMINATION                                                   |                                                                     |
|                                                                          |                                                                     |   |
|                                                                          | Section 10.1. Circumstances for Termination                         |   |

 

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|                                                                       | Section 10.2. Effect of Termination                                |   |
|----------------------------------------------------------------------------|-------------------------------------------------------------------------|--------|
|                                                                       |                                                                    |   |
| ARTICLE XI  MISCELLANEOUS                                             |                                                                    |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.1. Entire Agreement                                     |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.2. Parties In Interest                                  |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.3. Assignment; Amendment                                |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.4. Notices                                              |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.5. Specific Performance                                 |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.6. Submission to Jurisdiction; No Jury  Trial           |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.7. Time                                                 |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.8. Counterparts                                         |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.9. Governing Law                                        |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.10. Expenses                                            |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.11. Certain Taxes                                       |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.12. Extensions; Waiver                                  |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.13.  Severability                                       |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.14. Incorporation of Exhibits and  Disclosure Schedules |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.15.  Construction                                       |   |
|                                                                       |                                                                    |   |
|                                                                       | Section 11.16. Definitions                                         |   |
|                                                                       |                                                                    |   |
| EXHIBITS                                                                   |                                                                    |
|                                                                       |                                                                    |   |
| Exhibit A –  Voting Agreement                                    |                                                                    |
| Exhibit B –  Escrow Agreement                                    |                                                                    |
| Exhibit C –  Merger Certificate                                  |                                                                    |
| Exhibit D-1  – Officer’s Certificate                        |                                                                    |
| Exhibit D-2  – Key Stockholder Certificate                       |                                                                    |
| Exhibit E –  Form of Option Amendment and Consent           |                                                                    |
| Exhibit F –  Form of Note and Warrant Amendment and Consent |                                                                    |
| Exhibit G –  Acknowledgment and Consent of B3 Consulting         |                                                                    |
| Exhibit H –  Shareholders Granting Attorney-in-Fact              |                                                                    |

 

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**AGREEMENT AND PLANOF MERGER**

 

This Agreement and Plan of Merger (together with allSchedules and Exhibits hereto, this “**Agreement**”) ismade and entered into as of August 8, 2005 by and among (i) OverlandStorage, Inc., a California corporation (together with its successor andpermitted assigns, “**Parent**”), (ii) ZeppoleAcquisition Corp., a Washington corporation and a wholly-owned subsidiary ofParent (“**Merger Sub**”), (iii) Zetta Systems, Inc.,a Washington corporation (together with its successors, the “**Company**”), (iv) each of the stockholders of theCompany, including the Key Stockholder (each a “**Stockholder**”,and collectively, the “**Stockholders**”),(v) each of the holders of Company Options and Company Warrants that haselected to receive cash at Closing in exchange for the surrender of theirCompany Options and Company Warrants (the “**Cashed Out Option Holders**”),(vi) the holders of the Company’s convertible promissory notes (the “**Note Holders**”), (vii) Ganapathy Krishnan, individually(the “**Key Stockholder**”) and as agent andattorney-in-fact for the Stockholders, the Cashed Out Option Holders, the NoteHolders and B3 Consulting (together with its successors in such capacity, the “**Stockholder Agent**”) and (viii) each of GanapathyKrishnan, John Guthrie and B3 Consulting (the “**SpecialPayees**,” and, together with the Company, Parent, Merger Sub, theStockholders, the Cashed Out Option Holders, the Note Holders and theStockholder Agent, the “**Parties**”).  The Stockholders, the Cashed Out OptionHolders and the Note Holders are collectively referred to herein as the “**Equity Holders**”. Capitalized terms used but not defined herein shall have the respectivemeanings ascribed thereto in Section 11.16 or elsewhere in this Agreement.

 

**RECITALS**

 

A.                                   This Agreement and the merger of MergerSub with and into the Company (the “**Merger**”) havebeen approved by (i) the respective boards of directors of Parent, Merger Suband the Company, (ii) all Stockholders, and (iii) Parent, as the solestockholder of Merger Sub.

 

B.                                     Subject to the terms and conditionshereof, in exchange for all outstanding shares of capital stock of the Company,Parent will pay an aggregate of $9,000,000 (the “**PurchasePrice**”) to the Equity Holders and Special Payees in two parts asfollows: $7,550,000 will be distributed to the Equity Holders and SpecialPayees at the Closing, and $1,350,000 will be deposited in escrow as the EscrowFund and $100,000 will be deposited into escrow as the Expense Fund pursuant tothe terms of this Agreement and the Escrow Agreement, the release of which tothe Equity Holders and B3 Consulting will be contingent upon the occurrence ofcertain events and the satisfaction of certain conditions as set forth in ARTICLE VII.

 

C.                                     The Parties desire to make certainrepresentations and warranties and other agreements in connection with theMerger as set forth in this Agreement.

 

D.                                    Concurrently with the execution anddelivery of this Agreement, as material inducements of Parent and Merger Sub toenter into this Agreement: (i) the Key Stockholder and EVault, Inc.are each entering into a Voting Agreement, in the form attached hereto as Exhibit A(a “**Voting Agreement**”); and (ii) Parent,the Stockholder Agent and the Escrow Agent are entering into an EscrowAgreement, in the form attached hereto as Exhibit B (the “**Escrow Agreement**”).

 

1

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**AGREEMENT**

 

NOW, THEREFORE, in consideration of the foregoingpremises and the mutual promises herein made, and in consideration of therepresentations, warranties, and covenants contained herein, Parent, MergerSub, the Company, the Equity Holders, the Special Payees, the StockholderAgent, as attorney-in-fact for the Equity Holders and B3 Consulting herebyagree as follows:

 

**ARTICLE ITHE MERGER**

 

Section 1.1.The Merger.  At the Effective Time(as defined below), subject to and upon the terms and conditions of thisAgreement and in accordance with the applicable provisions of the WashingtonBusiness Corporation Act (the “**WBCA**”), MergerSub shall be merged with and into the Company, Merger Sub’s separate corporateexistence shall cease, and the Company shall continue as the survivingcorporation and as a wholly-owned Subsidiary of Parent (the “**Surviving Corporation**”).

 

Section 1.2.Effective Time.  Subject to theprovisions of this Agreement, the Company, Parent and Merger Sub shall causethe Merger to be consummated by filing a certificate of merger in substantiallythe form attached hereto as Exhibit C (the “**MergerCertificate**”) and other appropriate documents with the Secretary ofState of the State of Washington in such form as is required by, and executedin accordance with, the relevant provisions of the WBCA, as soon as practicableafter the Closing Date.  The Merger shallbecome effective upon the filing of the Merger Certificate with the Secretaryof State of the State of Washington (the “**Effective Time**”).

 

Section 1.3.Closing.  The closing of theMerger (the “**Closing**”) shall take place at theoffices of Sheppard, Mullin, Richter & Hampton LLP, 12544 High BluffDrive, Suite 300, San Diego, California, 92130-3051, commencing at 9:00 a.m.local time on August 8, 2005 or such other later date to be designated byParent which shall not be more than five (5) business days after the dateon which the last of the conditions in ARTICLE VI has been satisfied orwaived or at such other time, date and place as Parent and Company may mutuallydetermine, and in no event later than the date specified in Section 10.1(d) (the“**Closing Date**”).

 

Section 1.4.Effects of the Merger.  The Mergershall have the effects set forth in this Agreement, the Merger Certificate andthe applicable provisions of the WBCA. Without limiting the generality of the foregoing, and subject thereto,at the Effective Time, all of the properties, rights, privileges and powers ofMerger Sub and the Company shall vest in the Surviving Corporation, and alldebts, liabilities and duties of Merger Sub and the Company shall become thedebts, liabilities and duties of the Surviving Corporation.

 

Section 1.5.Articles of Incorporation and Bylaws. At the Effective Time, the Articles of Incorporation of the SurvivingCorporation shall be amended and restated at and as of the Effective Time toread as did the Articles of Incorporation of Merger Sub immediately prior tothe Effective Time (except that the name of the Surviving Corporation shall beZetta Systems, Inc.”) until thereafter amended.  The Bylaws of the Merger Sub immediatelyprior to the

 

2

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Effective Time shall be theBylaws of the Surviving Corporation after the Effective Time until thereafteramended.

 

Section 1.6.Directors and Officers.  MergerSub’s directors and officers immediately prior to the Effective Time shall bethe Surviving Corporation’s initial directors and officers and shall holdoffice in accordance with the Articles of Incorporation and Bylaws of theSurviving Corporation until their successors are duly elected or appointed andqualified or until their earlier death, resignation or removal.

 

**ARTICLE IICONSIDERATION; CANCELLATION OF COMPANY STOCK**

 

Section 2.1.Effect on Capital Stock.  At theEffective Time, because of the Merger and without any further action on thepart of Parent, Merger Sub, or the Company:

 

(a)                                  Common Stock of Merger Sub. Each share of the common stock of Merger Sub issued and outstandingimmediately prior to the Effective Time shall be converted into and exchangedfor one validly issued, fully paid, and non-assessable share of the commonstock of the Surviving Corporation.

 

(b)                                 [RESERVED.]

 

(c)                                  Common Stock of the Company.  Schedule 2.1(c) shallinclude a complete list of all holders of Company Stock and Cashed Out OptionHolders, which shall be updated by the Company, in consultation with Parent,and delivered to Parent at Closing (the “**Capitalization and PaymentTable**”).  At the EffectiveTime and subject to Section 2.6, each share of the common stock, par value$0.001 per share (“**Company Common Stock**”or “**Common Stock**”) issued and outstandingimmediately prior to the Effective Time shall be cancelled and automaticallyconverted into the right to receive, upon the surrender of the certificate(s)representing such stock and upon the terms and subject to the conditions setforth in this ARTICLE II and elsewhere in this Agreement (including butnot limited to the deposit of a portion of the cash payable pursuant to this Section 2.1(c) intothe Escrow Fund and the Expense Fund), an amount of cash as set forth on theCapitalization and Payment Table (the “**Stock Consideration**”).

 

(d)                                 Company Stock Certificates. At the Effective Time, each Company Share shall no longer be outstandingand shall automatically be canceled and retired and shall cease to exist, andthe holder of a certificate (a “**Company Stock Certificate**”)that, immediately prior to the Effective Time, represented outstanding sharesof Company Stock (the “**Company Shares**”)shall cease to have any rights with respect thereto, except the right toreceive the Stock Consideration.

 

(e)                                  Stock Transfer Books. After the Effective Time, the Company’s stock transfer books shall beclosed and there shall be no further transfers of Company Shares.  If, at or after the Effective Time, CompanyStock Certificates are presented to the Surviving Corporation, they shall becanceled and exchanged in accordance with this Agreement.

 

3

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Section 2.2.Surrender of Certificates; Lost, Stolen or Destroyed Certificates.

 

(a)                                  On or prior to the Closing Date, theCompany and all Stockholders shall have delivered to Parent Company StockCertificates representing all shares of the Company Shares, including sharesissued upon the exercise of any Company Options.

 

(b)                                 Notwithstanding the foregoing, if anyCompany Stock Certificates shall have been lost, stolen, or destroyed, Parentshall issue the applicable portion of the Stock Consideration deliverable inrespect thereof only upon (i) the making of an affidavit of that fact bythe Stockholder claiming such Company Stock Certificate to be lost, stolen, ordestroyed and (ii) if Parent reasonably requires, the posting by suchPerson of a bond in such reasonable amount as Parent may direct as indemnityagainst any claim that may be made against it with respect to such CompanyStock Certificates.

 

Section 2.3.Stock Options and Warrants.  Atthe Effective Time, each Company Option and Company Warrant held by Cashed OutOption Holders (collectively, “**Cashed Out Options**”)shall be cancelled and automatically converted into the right to receive, uponthe surrender of such Cashed Out Option and the execution and delivery of (x)the Amendment to Stock Option Agreements and Consent to Appointment in the formattached hereto as Exhibit E (the “**OptionAmendment and Consent**”) by each Cashed Out Option Holder that holdsCompany Options, and (y) the Amendment to Convertible Promissory Notes andStock Purchase Warrants and Consent to Appointment in the form attached heretoas Exhibit F (the “Note **and Warrant Amendment andConsent**”) upon the terms and subject to the conditions set forth inthis ARTICLE II and elsewhere in this Agreement (including but not limitedto the deposit of a portion of the cash payable pursuant to this Section 2.3into the Escrow Fund and the Expense Fund), an amount of cash as set forth onthe Capitalization and Payment Table (the “**Option Consideration**,”and together with the “**Stock Consideration**,”the “**Equity Consideration**”). The OptionConsideration payable to each Cashed Out Option Holder shall be calculated(subject to the deductions and adjustments described herein) by taking (i) theaggregate amount that such holder would have received under Section 2.1(c) ifthe holder had exercised such Cashed Out Options prior to the Effective Timeand the shares issued upon such exercise were included in the number ofoutstanding Company Shares, minus (ii) the aggregate exercise prices undersuch Cashed Out Options.  Prior to theClosing, the Company shall obtain the written consent of each Cashed Out OptionHolder to receive such cash payment in lieu of exercise and to the effect thatsuch Cashed Out Options shall terminate automatically as of the Effective Time.  Each Company Option other than those held byCashed Out Option Holders outstanding immediately prior to the Effective Timeshall be terminated and shall expire as of the Effective Time.  Neither Parent nor the Surviving Corporationshall assume the Company Options or substitute similar options of Parent forCompany Options.  Prior to the EffectiveTime, the Company shall take all actions necessary to effectuate suchtermination at the Effective Time.

 

Section 2.4.Convertible Promissory Notes. Immediately prior to the Effective Time, each of the Company’sConvertible Notes shall be converted into shares of Company Common Stockpursuant to the Note and Warrant Amendment and Consent.   All rights to acquire shares of Common Stockpursuant to the Convertible Notes will terminate and expire as of the EffectiveTime.  Prior to the Effective Time, theCompany shall take all actions necessary to effectuate such termination at theEffective Time.

 

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Section 2.5.Treasury Stock.  All shares of capitalstock of the Company held on the treasury of the Company immediately prior tothe Effective Time shall be cancelled, retired and extinguished without anyconversion thereof, and no consideration shall be delivered or deliverable inexchange therefor.

 

Section 2.6.Shares of Dissenting Stockholders. Notwithstanding anything in this Agreement to the contrary, as and ifapplicable, Company Shares that are issued and outstanding immediately prior tothe Effective Time and which are held by Stockholders who did not vote orprovide a written consent in favor of the Merger (the “**DissentingShares**”), which Stockholders comply with all of the relevantprovisions of the applicable Law (the “**Dissenting Stockholders**”),shall not be converted into or be exchangeable for the right to receive aportion of the Stock Consideration, unless and until such holders shall havefailed to perfect or shall have effectively withdrawn or lost their rights toappraisal under applicable Law.  TheCompany shall give Parent (a) prompt notice of any demands for appraisalof any Company Shares or attempted withdrawals of such demands and any otherinstruments served pursuant to applicable Law and received by the Companyrelating to the Dissenting Stockholders’ rights of appraisal, and (b) theopportunity to direct, in its reasonable business judgment, all negotiationsand proceedings with respect to demands for appraisal under applicableLaw.  Neither the Company nor theSurviving Corporation shall, except with the prior written consent of Parent,voluntarily make any payment with respect to, or settle or offer to settle, anysuch demand for payment.  If anyDissenting Stockholders shall have failed to perfect or shall have effectivelywithdrawn or lost such right, such holder’s Company Shares shall thereupon beconverted into and become exchangeable for the right to receive, as of theEffective Time, their pro rata portion of the Stock Consideration pursuant tothis Agreement.

 

Section 2.7.Taking of Necessary Action; Further Action.  If, at any time after the Effective Time, anysuch further action is necessary or desirable to carry out the purposes of thisAgreement and to vest the Surviving Corporation with full right, title, andpossession to all assets, contracts, property, rights, privileges and powers ofthe Company and Merger Sub, the officers and directors of the Company, Parent,and Merger Sub are fully authorized in the name of their respectivecorporations or otherwise to take, and the Company and Parent shall cause themto take, all such lawful and necessary action.

 

Section 2.8.Withholding Rights.  Each of theSurviving Corporation, Parent and the Exchange Agent shall be entitled todeduct and withhold from the Equity Consideration otherwise payable pursuant tothis Agreement to an Equity Holder or Special Payee such amounts as it isrequired to deduct and withhold with respect to the making of such paymentunder the Code and the rules and regulations promulgated thereunder, orany provision of a Tax Law.  To theextent that amounts are withheld from the Equity Consideration as provided inthis Section 2.8, such withheld amounts shall be treated for all purposesof this Agreement as having been paid to the Equity Holder or Special Payee inrespect to which such deduction and withholding was made.

 

Section 2.9.Escrow Fund and Expense Fund.  

 

(a)                                  Escrow Fund. Upon the Closing, on behalf of the Equity Holders and B3 Consulting,Parent shall deliver $1,350,000 of the Equity Consideration (representingfifteen

 

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percent (15%) of theaggregate Purchase Price) (the “**Escrow Cash**”)  to the Escrow Agent.  The Escrow Agent shall deposit the EscrowCash in the Escrow Fund for the purposes of securing the indemnificationobligations set forth in ARTICLE VII. The Escrow Fund shall be held by the Escrow Agent for a period ofeighteen (18) months from the Closing Date (the “**EscrowPeriod**”); provided, however, that in the event any Indemnified Partyhas made a claim under ARTICLE VII prior to the end of the Escrow Period,then the Escrow Period shall continue until such claim is fully and finallyresolved.  Distributions of any EscrowCash from the Escrow Fund shall be governed by the terms of the Escrow Agreement.  In the event that this Agreement is adoptedby the Equity Holders and B3 Consulting, then all Equity Holders and B3Consulting shall, without further act of any Equity Holder or B3 Consulting, bedeemed to have consented to and approved (i) the use of the Escrow Fund ascollateral to secure the rights of the Indemnified Parties under ARTICLE VIIin the manner set forth herein and in the Escrow Agreement, and (ii) theappointment of the Stockholder Agent as the representative under the EscrowAgreement of the Equity Holders and B3 Consulting and as the attorney-in-factand agent for and on behalf of each such Person (other than holders ofDissenting Shares).

 

(b)                                 Expense Fund. Upon the Closing, on behalf of the Equity Holders and B3 Consulting,Parent shall deliver an additional $100,000 of the Purchase Price (the “**Expense Cash**”) to the Escrow Agent.  The Escrow Agent shall deposit the EscrowCash into a fund (the “**Expense Fund**”)separate and apart from the Escrow Fund, and shall hold such amount in trustpursuant to the Escrow Agreement, free of any lien or other claim of anycreditor of any of the parties to this Agreement.  The Expense Fund shall be held by the EscrowAgent for the duration of the Escrow Period; provided, however, that theStockholder Agent shall be entitled to withdraw amounts from the Expense Fundto pay all out of pocket expenses reasonably incurred by the Stockholder Agentin performing his duties under this Agreement. Distributions of any Expense Cash from the Expense Fund shall begoverned by the terms of the Escrow Agreement. In the event that this Agreement is adopted by the Equity Holders and B3Consulting, then all Equity Holders and B3 Consulting shall, without furtheract of any Equity Holder or B3 Consulting, be deemed to have consented to andapproved the use of the Expense Fund by the Stockholder Agent to pay all out ofpocket expenses reasonably incurred by the Stockholder Agent in performing hisduties under this Agreement in the manner set in the Escrow Agreement.  The Expense Fund shall be deemed to have beenwithheld from each Equity Holder and B3 Consulting in proportion to amountsallocable to them as set forth on the Capitalization and Payment Table.

 

Section 2.10.Other Payments.  At the EffectiveTime, Parent will pay or cause Company to pay certain amounts to the SpecialPayees, all as set forth in the Capitalization and Payment Table.

 

**ARTICLE IIIREPRESENTATIONS AND WARRANTIESCONCERNING THE COMPANY**

 

The Company and the Key Stockholder each jointly andseverally represents and warrants, and each Equity Holder with respect to Section 3.34only severally represents and

 

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warrants, to Parent andMerger Sub that the statements contained in this ARTICLE III are true,correct and complete as of the date of this Agreement and as of the ClosingDate, except as set forth on the schedules the Company has delivered to Parenton the date hereof (the “**Disclosure Schedules**”).  The Disclosure Schedules are arranged inparagraphs corresponding to the numbered and lettered paragraphs contained inthis ARTICLE III, and the disclosure in any such numbered and lettered section ofthe Disclosure Schedules shall qualify only the corresponding section inthis ARTICLE III (except to the extent disclosure in any numbered andlettered section of the Disclosure Schedules is specificallycross-referenced in another numbered and lettered section of theDisclosure Schedules).  Notwithstandingthe foregoing, nothing in the Disclosure Schedules shall be deemed adequate todisclose an exception to a representation or warranty made herein unless theDisclosure Schedules clearly identify the exception with particularity.

 

Section 3.1.Organization and Qualification. The Company is a corporation duly organized, validly existing and in goodstanding under the laws of the State of Washington.  The Company has the full corporate power andauthority to own or use its properties and assets, to carry on its business ascurrently conducted and as currently contemplated to be conducted, and to performall of its obligations under this Agreement and the Related Agreements.  The Company is not required to be qualifiedor licensed to do business as a foreign corporation in any jurisdiction outsideof the State of Washington.  The Companyhas delivered to Parent and its legal counsel a true and correct copy of itsArticles of Incorporation, bylaws and each other Organizational Document of theCompany as currently in effect, including all corrections, amendments and othermodifications thereto, each of which is in full force and effect.  Section 3.1 of the Disclosure Scheduleslists by name and title the directors and officers of the Company.

 

Section 3.2.Subsidiaries.  The Companypresently does not have any Subsidiaries or own or control, directly orindirectly, any Equity Interest in any other Entity.

 

Section 3.3. Capital Structure.

 

(a)                                  Theauthorized capital stock of the Company consists of thirty five million(35,000,000) shares of Company Common Stock, of which 19,603,234 shares havebeen issued and are outstanding as of the date of this Agreement.  All of the outstanding Company Shares havebeen duly authorized and validly issued, and are fully paid and non assessable.

 

(b)                                 The Company has reserved 5,000,000 sharesof Company Common Stock for issuance under the Company’s 2002 Stock IncentivePlan (the “**Company Option Plan**”), of whichoptions to purchase 2,212,561 shares of Company Common Stock have been granted asof the date of this Agreement and options to purchase 1,661,000 shares ofCompany Common Stock are outstanding. All options to purchase capital stock of the Company that have beengranted under the Company Option Plan or otherwise since the Company’sinception (collectively, the “**Company Options**”)are set forth in Section 3.3(b) of the Disclosure Schedules,including (i) the name of the Person granted such Company Option, (ii) thetotal number and class of shares of stock that are or were subject to suchCompany Option, (iii) the vesting schedule of such Company Option,and (iv) the date on which such Company Option was granted and the term ofsuch Company Option.  The Company hasalso issued warrants to purchase 8,214,281 shares of Company Common Stock (the “**Company Warrants**”) and convertible notes in the aggregate principal amount of $1,725,000(the “**Convertible Notes**”).

 

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Allof the Convertible Notes shall have been converted into 8,373,234 shares ofCompany Common Stock prior to the Effective Time, representing all principal,interest and any other amounts owing to the holders of such Convertible Notes with respect to such ConvertibleNotes as of the date of conversion.

 

(c)                                  All outstanding Company Shares and alloutstanding Company Options, Company Warrants and Convertible Notes have beenissued and granted in compliance with (i) all applicable securities Lawsand other applicable Laws, and (ii) all requirements set forth inapplicable Contracts and Commitments.  Section 3.3(c) ofthe Disclosure Schedules provides an accurate and complete description of theterms of each repurchase option which is held by the Company and to which anyshares of capital stock of the Company is subject.

 

(d)                                 The Company has not issued any EquityInterests or other Securities other than the Company Shares, the CompanyOptions, the Company Warrants and the Convertible Notes.  Except as set forth in Section 3.3(d) ofthe Disclosure Schedules, there is no (i) outstanding Commitment (whetheror not currently exercisable) to acquire any Equity Interests or other Securitiesof the Company, (ii) outstanding Security, financial asset, instrument orobligation that is or may become convertible into or exchangeable for anyEquity Interests or other Securities of the Company, (iii) Contract underwhich the Company is or may become obligated to sell or otherwise issue anyEquity Interests or any other Securities of the Company, or (iv) conditionor circumstance that may give rise to or provide a basis for the assertion of aclaim, whether contingent or vested and whether or not subject to conditions,by any Person to the effect that such Person is entitled to acquire or receiveany Equity Interests or other Securities of the Company.

 

Section 3.4. Approval of Merger.

 

(a)                                  The only Consents required to approve theMerger under applicable Law, the Company’s Organizational Documents and anyContract by which the Company or any Equity Holder is bound are (i) approvalby at least three of the Company’s four directors and (ii) approval by theholders of a majority of the outstanding Company Common Stock.

 

(b)                                 The board of directors of the Company, byresolutions duly adopted by unanimous vote of those voting at a meeting dulycalled and held (the “**Company Board Resolutions**”),has duly (i) determined that this Agreement and the Merger are advisableand are fair to and in the best interests of the Company and all Stockholders, (ii) approvedthis Agreement, the Related Agreements that the Company is a party to and theTransactions, (iii) recommended that all of the Stockholders of theCompany adopt this Agreement and approve the Merger and the other Transactions,and (iv) directed that this Agreement, the Merger and the otherTransactions be submitted for consideration by the Company’s Stockholders at ameeting or by written consent of all of the Stockholders of the Company.  The minutes of such meeting have been filedwith the minutes of the proceedings of the board of directors of theCompany.   The Company Board Resolutionsare (i) the only resolutions of the board of directors of the Company, orany committee thereof, relating to this Agreement, the Related Agreements orthe Transactions, and (ii) in full force and effect.  No action has been taken or is pending forthe purpose of revoking, rescinding, annulling, repealing, correcting,changing, amending or otherwise modifying the Company Board Resolutions or anyof them.

 

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(c)                                  Each Stockholder voted in favor of theMerger by written consent in accordance with applicable Law and the OrganizationalDocuments of the Company, and written consents have been filed with the minutesof the proceedings of the stockholders of the Company.  Such minutes are the only minutes of suchstockholders, or any committee thereof, relating to the Merger.  The resolutions adopted by written consentare in full force and effect, and no action has been taken or is pending forthe purpose of revoking, rescinding, annulling, repealing, correcting,changing, amending or otherwise modifying any of such resolutions.

 

Section 3.5.Authority.  Each of the Company,the Stockholder Agent, the Equity Holders and the Special Payees has allrequisite right, power and authority, or all necessary legal capacity, as thecase may be, to execute, deliver, enter into and perform its obligations underthis Agreement and any Related Agreement to which it is a party or signatoryand to consummate the Transactions.  Theexecution and delivery of this Agreement, any Related Agreement to which theCompany, the Stockholder Agent, any Equity Holder or Special Payee which is anEntity is a party or signatory and the consummation of the Transactions havebeen duly authorized by all necessary Entity action on the part of the Company,the Stockholder Agent, such Equity Holder or Special Payee.  No further action is required on the part ofthe Company, the Stockholder Agent, any Equity Holder or any Special Payee toauthorize this Agreement, any Related Agreement to which it is a party orsignatory or the Transactions, subject only to the approval of this Agreementand the Merger by the Stockholders. This Agreement and any Related Agreement towhich the Company, the Stockholder Agent, any Equity Holder or any SpecialPayee is a party or signatory has been duly executed and delivered by it, and assumingthe due authorization, execution and delivery by the other parties hereto andthereto, constitute its valid and binding obligations, enforceable against itaccording to their respective terms.

 

Section 3.6.No Conflict.  The execution anddelivery by the Company, the Stockholder Agent, the Equity Holders and theSpecial Payees of this Agreement and any Related Agreement to which theCompany, the Stockholder Agent, any Equity Holder or any Special Payee is aparty or signatory, and the consummation of the Transactions, will not directlyor indirectly:

 

(a)                                  conflict with or result in any Breach ofor default under (with or without the giving of notice or the lapse of time, orboth) or give rise to a right of termination, cancellation, modification or accelerationof any obligation or loss of any benefit under (any such event, a “**Conflict**”) (i) any provision of the Articles ofIncorporation, bylaws or other Organizational Documents of the Company, or anyresolutions of the board of directors or stockholders, or any committee of theboard of directors or stockholders, of the Company, each as in effect andAmended to date, or the Organizational Documents (if any) of the StockholderAgent, any Equity Holders or any Special Payees, or any resolutions of the boardof directors or stockholders, or any committee of the board of directors orstockholders, of the Stockholder Agent, any Equity Holders or any SpecialPayees, as in effect and Amended to date, (ii) any Contract to which theCompany, the Stockholder Agent, any Equity Holder or any Special Payee is aparty, or to which it is subject or by which it is bound, or any license underwhich any of them is a licensee, or (iii) any Law or Order applicable tothe Company, the Stockholder Agent, any Equity Holders or any Special Payees,or any of their respective material Property;

 

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(b)                                 give any Person the power, right orauthority to challenge any of the Transactions or to exercise any remedy orobtain any relief under any Law or Order to which the Company, the StockholderAgent, any Equity Holder or any Special Payee may be subject;

 

(c)                                  contravene, conflict with or result in aviolation or Breach of any of the terms or requirements of, or give anyGovernmental Body the right to revoke, withdraw, suspend, cancel, terminate ormodify, any Governmental Permit held by the Company or that otherwise relatesto the Properties or to the businesses of the Company;

 

(d)                                 cause Parent or the Surviving Corporationto become subject to, or to become liable for the payment of, any Taxes owed byor on behalf of the Company or any properties, assets, Stockholder, officer oremployee of the Company;

 

(e)                                  result in the imposition or creation ofany Encumbrance upon or with respect to any Property of the Company; or

 

(f)                                    result in any Stockholder of the Companyhaving the right to exercise dissenters’, appraisal or other similar rights(whether arising under a Contract or by Law).

 

Section 3.7.Consents.  No Order or Consent of,or registration, declaration or filing with, any Governmental Body or any thirdparty, including any party to any Contract with, or licensor of, the Company(so as not to trigger any Conflict), is required by or with respect to theCompany, the Stockholder Agent, any Equity Holders or any Special Payees inconnection with the execution, delivery or performance of this Agreement, anyof the Related Agreements to which the Company, the Stockholder Agent, anyEquity Holders or any Special Payees is a party, or the consummation of theTransactions, except for (i) such Orders and Consents as may be requiredunder applicable securities Laws, (ii) the filing of the MergerCertificate with the Secretary of State of the State of Washington, (iii) theapproval of this Agreement and the Merger by the Stockholders, and (iv) suchOrders and Consents as are specified with reasonable particularity in Section 3.7of the Disclosure Schedules.

 

Section 3.8.Books and Records.

 

(a)                                  The books of account and other financialrecords, all of which have been made available to Parent and Merger Sub, (i) areaccurate, complete and correct in all material respects, (ii) have beenmaintained in accordance with sound business practices, (iii) fairly andaccurately reflect the income, expenses, assets and liabilities of the Company,and (iv) represent actual, bona fide transactions.

 

(b)                                 The minute books of the Company, all ofwhich have been made available to Parent and Merger Sub, contain accurate,complete and correct records of all meetings held of, and corporate actiontaken by, the stockholders and board of directors, and all committees of thestockholders and board of directors, of the Company, and no meeting of any suchstockholders, board of directors or committee has been held, and no corporateaction of such stockholders, board of directors or committee has been taken,for which minutes have not been prepared and provided to Parent and Merger Sub,or which are not contained in such minute books.

 

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(c)                                  The stock record books, records andledgers of the Company, all of which have been made available to Parent andMerger Sub, contain accurate, complete and correct records of all issuances andtransfers of Equity Interests in the Company and Commitments therefor, and nocapital stock or other Equity Interests of the Company has been issued ortransferred, and no Commitment for the issuance of capital or other EquityInterests of the Company has been made, which is not reflected in such books, recordsand ledgers.

 

Section 3.9.Company Financial Statements.  Section 3.9of the Disclosure Schedules sets forth (i) the Company’s unaudited balancesheet as of December 31, 2004, 2003 and 2002, and the related unauditedstatements of income and cash flows for the Company’s fiscal years ended December 31,2004, 2003 and 2002, and (ii) the Company’s unaudited balance sheet as of June 30,2005 (the “**Current Balance Sheet**”), and therelated unaudited statement of income for the six-month period ended June 30,2005, including in each case the notes thereto (collectively, the “**Financials**”).  TheFinancials are correct in all material respects and have been prepared inaccordance with GAAP, consistently applied throughout the periods indicated andwith each other, except as disclosed in the notes to the Financials, subject inthe case of interim statements to normal year-end adjustments.  The Financials fairly and accurately presentthe financial condition, operating results, changes in stockholders’ equity andcash flows of the Company as of the respective dates and during the respectiveperiods indicated therein. The Company maintains and will continue, prior tothe Effective Time, to maintain a standard system of accounting established andadministered in accordance with GAAP.

 

Section 3.10.No Undisclosed Liabilities.

 

(a)                                  The Company has no Liabilities, Debt,Capital Lease Obligation, Guarantees, obligations, expenses, claims,deficiencies, or endorsements of any type, whether or not known, accrued,absolute, contingent, matured, secured, conditional, liquidated, vested, due orrequired to be reflected in financial statements in accordance with GAAP, whichindividually or in the aggregate (i) has not been adequately reservedagainst or otherwise reflected in the Current Balance Sheet, (ii) has notarisen in the Ordinary Course of Business consistent with past practices since December 31,2004, and which are not, individually or in the aggregate, Material, or (iii) isnot an Expense under Section 11.10 which will be paid at or prior toClosing.

 

(b)                                 Section 3.10 of the DisclosureSchedules contains a complete and accurate list of all trade accounts payableand the aging therefor (other than a trade account payable to any Stockholderor any Related Person of the Company or any Stockholder for or with respect tothe Expenses of the Company or the Stockholder Agent) that remains unpaid as ofthe Closing Date.

 

Section 3.11.No Off-Balance Sheet Arrangements. The Company is not a party to, or has any commitment to become a partyto, any joint venture, off-balance sheet partnership or any similar Contract(including any Contract relating to any transaction or relationship between oramong the Company, on the one hand, and any unconsolidated affiliate, includingany structured finance, special purpose or limited purpose Entity, on the otherhand, or any “off-balance sheet arrangements” (as defined in Item 303(a) ofRegulation S-K of the SEC)), where the result, purpose or effect of suchContract is to avoid disclosure of any material transaction involving, ormaterial liabilities of, the Company in the Company’s financial statements.

 

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Section 3.12.Disclosure Controls.The Company has designed disclosure controls andprocedures to ensure that material information relating to the Company is madeknown to the chief executive officer and the chief financial officer of theCompany by other Representatives of the Company.

 

Section 3.13.No Changes.  Except as set forthon Section 3.13 of the Disclosure Schedules, since (A) December 31,2004 (with respect to subsections (a) through (x) below) and (B) June 30,2005 (with respect to subsections (y) and (z) below), there has not been,occurred or arisen any of the following with respect to the Company:

 

(a)                                  any transaction not in the OrdinaryCourse of Business;

 

(b)                                 any Amendment to any OrganizationalDocument of the Company or to the rights, powers, privileges, designations orpreferences of any Company Stock;

 

(c)                                  any capital expenditure or capitalexpenditure commitment exceeding $5,000 individually or $10,000 in theaggregate;

 

(d)                                 payment, discharge or satisfaction of anyclaim or Liability, other than payment, discharge or satisfaction in theOrdinary Course of Business of claims or Liabilities reflected or adequatelyreserved against in the Current Balance Sheet;

 

(e)                                  destruction of, damage to or loss of anyProperty or business;

 

(f)                                    loss of, or notice or other indication ofan intention to discontinue or change the terms of its relationship with theCompany by, any customer, supplier, manufacturer or Representative, in eachcase whether or not covered by insurance;

 

(g)                                 labor trouble or claim of wrongfuldischarge or other unlawful labor practice or action;

 

(h)                                 change in accounting methods or practices(including any change in depreciation or amortization policies or rates) otherthan as required by GAAP;

 

(i)                                     change in any election in respect ofTaxes, adoption or change in any accounting method in respect of Taxes,agreement or settlement of any claim or assessment in respect of Taxes, orextension or waiver of the limitation period applicable to any claim orassessment in respect of Taxes;

 

(j)                                     revaluation by the Company of any of itsProperties or assets;

 

(k)                                  declaration, setting aside or payment ofa dividend or other distribution (whether in cash, stock or property) inrespect of any outstanding share of capital stock or other Equity Interests ofthe Company, or any split, combination or reclassification in respect of any shareof capital stock of the Company, or any issuance or authorization of anyissuance of any other Securities of the Company in respect of, in lieu of or insubstitution for any share of capital stock or other Equity Interests of theCompany, or any direct or indirect repurchase or 

 

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redemption of any EquityInterests or other Securities of the Company (or Commitments therefor);

 

(l)                                     payment (other than in the OrdinaryCourse of Business) of, or increase in, the salary, bonuses, fringe benefits orother compensation (cash, equity or otherwise) payable or to become payable toany Representatives (other than payments to outside counsel in connection withthis Agreement and the Transactions), Equity Holders, Special Payees or RelatedPersons of the Company, or the declaration, payment or commitment or obligationof any kind for the payment of a severance payment, termination payment, bonus,fringe benefit or other additional or supplemental salary, bonus, fringebenefit or other compensation (cash, equity or otherwise) to any such Person;

 

(m)                               adoption, establishment or Amendment ofany Company Employee Plan, except as necessary to comply with applicable Law;

 

(n)                                 entry into any Contract to which theCompany is a party or signatory or by or to which it or any of its Propertiesis bound or subject, or any termination, Amendment or receipt of notice oftermination or non-renewal in respect of, any such Contract;

 

(o)                                 Transfer, Lease or Encumbrance of any ofits material assets or other Properties, other than sales of Inventories in theOrdinary Course of Business;

 

(p)                                 a loan or advance to any Person, theincurrence, issuance or sale of any Debt of the Company or the making of anyGuarantee in respect of any other Person, except for advances to employees fortravel and business expenses in the Ordinary Course of Business consistent withpast practices;

 

(q)                                 waiver or release of any right or claim,including any write-off or other compromise of any Account Receivable in anyamount;

 

(r)                                    the commencement, settlement, notice orthreat of any Action against the Company or its business, Properties oraffairs, or any reasonable basis for any of the foregoing;

 

(s)                                  notice to the Company, or any of itsRepresentatives, of any claim or potential claim of ownership by any Person ofany Company Intellectual Property or of any interference with,misappropriation, violation or infringement by the Company of any other Person’sIntellectual Property;

 

(t)                                    issuance, grant or sale, or make or enterinto a Contract to issue, grant or sell, of any Equity Interests or otherSecurities of the Company, or any Commitments to purchase or acquire any of theforegoing;

 

(u)                                 any (i) Transfer or Encumbrance, orlicense other than in the Ordinary Course of Business of, any CompanyIntellectual Property, or other than in the Ordinary Course of Business, makingor entering into any Contract or license regarding the Company IntellectualProperty, (ii) purchase or license any Intellectual Property, or make orenter into any Contract with respect to the Intellectual Property, owned orcontrolled by any other Person, (iii) make or enter into a Contract withrespect to the development of any Intellectual Property, or (iv) change

 

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the pricing, fees,royalties or other compensation set or charged by the Company to its customersor licensees or in the pricing, fees, royalties or other compensation set orcharged by Persons who have licensed or granted rights to the Company to useIntellectual Property;

 

(v)                                 enter into a Contract, or Amend anyContract, pursuant to which any other party was granted marketing,distribution, development or similar rights of any type or scope with respectto any Technology or any Company Products (including proposed Company Productsand Company Products under development);

 

(w)                               hiring or terminating any officer ordirector of the Company;

 

(x)                                   agreement or other Contract by theCompany or any officer, director, manager or employee thereof on behalf of theCompany to do any of the things described in Section 3.13(a) through(w) (other than negotiations with Parent and its Representatives regarding theTransactions);

 

(y)                                 any Events having a Material AdverseEffect; or

 

(z)                                   agreement or other Contract by theCompany or any officer, director, manager or employee thereof on behalf of theCompany that would reasonably be likely to result in a Material Adverse Effect.

 

Section 3.14.Tax Matters.

 

(a)                                  Tax Returns and Audits.

 

(i)                                     The Company has prepared and timely filedall required federal, state, local and foreign Tax Returns and Tax estimatesconcerning or attributable to itself or its operations and such Tax Returns andestimates are true and correct and have been completed in accordance withapplicable Law.

 

(ii)                                  The Company (A) has timely paid allTaxes it is required to pay and withheld and properly remitted with respect toits employees (and timely paid over to the appropriate Taxing authority) allfederal and state income taxes, Federal Insurance Contribution Act, FederalUnemployment Tax Act and other Taxes of any kind or nature required to bewithheld, and (B) has accrued on the Current Balance Sheet all Taxesattributable to the periods preceding the Current Balance Sheet and will nothave incurred any liability for Taxes for the period commencing after the dateof the Current Balance Sheet and ending immediately prior to the EffectiveTime, other than in the Ordinary Course of Business.

 

(iii)                               The Company has not been delinquent inthe payment of any Tax, nor is there any Tax deficiency or adjustmentoutstanding, assessed or proposed against the Company, and the Company has notexecuted any waiver of any statute of limitations on or extending the periodfor the assessment or collection of any Tax.

 

(iv)                              No audit or other examination of any TaxReturn of the Company is presently in progress, nor has the Company beennotified of any request for such an audit or other examination.

 

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(v)                                 The Company has made available to Parent,its legal counsel and its accountants, copies of all Tax Returns filed by theCompany for all periods since its inception.

 

(vi)                              There are (and immediately following theEffective Time there will be) no Encumbrances on the assets of the Companyrelating or attributable to Taxes other than Encumbrances for Taxes not yet dueand payable.

 

(vii)                           The Company has no Knowledge of any basisfor the assertion of any claim for Taxes, which, if adversely determined, wouldresult in any Encumbrance on the assets of the Company.

 

(viii)                        The Company has (a) never been amember of an affiliated group (within the meaning of Code Section 1504(a))filing a consolidated federal income tax return (other than a group the commonParent of which was Company), (b) never been a party to any Tax sharing,indemnification or allocation Contract, or owe any amount under any suchContract, (c) no liability for the Taxes of any Person under Treas. Reg. Section 1.1502-6(or any similar provision of state, local or foreign law), as a transferee orsuccessor, by Contract, or otherwise, and (d) never been a party to anyjoint venture, partnership or other agreement that could be treated as apartnership for Tax purposes.

 

(ix)                                The Company has not constituted either a “distributingcorporation” or a “controlled corporation” in a distribution of stock intendedto qualify for tax-free treatment under Section 355 of the Code.

 

(x)                                   The Company has not engaged in atransaction that is the same or substantially similar to one of the types oftransactions that the Internal Revenue Service has determined to be a taxavoidance transaction and identified by notice, regulation, or other form ofpublished guidance as a listed transaction, as set forth in Treas. Reg. Section 1.6011-4(b)(2).

 

(xi)                                The Company has not disposed of anyproperty in a transaction being accounted for under the installment methodpursuant to Section 453 of the Code.

 

(xii)                             The Company (i) has not agreed noris required to make any adjustment pursuant to Section 481 of the Code byreason of a change in accounting methods or otherwise, (ii) has noKnowledge that any taxing authority has proposed any such adjustment or change,which proposal is currently pending, and (iii) does not have an applicationpending with any taxing authority requesting permission for any change inaccounting methods that relate to its business and operations.

 

(xiii)                          No power of attorney has been granted bythe Company with respect to any matter relating to Taxes, which power ofattorney is currently in force.

 

(xiv)                         The Company has no direct or indirectbeneficial ownership interest in (i) a “passive foreign investmentcompany,” (ii) a “foreign personal holding company,” (iii) a “foreignsales corporation,” (iv) a “foreign investment company,” or (v) aperson other than a United States person, each within the meaning of the Code.

 

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(xv)                            The Company does not own “corporateacquisition indebtedness” within the meaning of Section 279 of the Code.

 

(xvi)                         No property of the Company is “tax-exemptuse property” within the meaning of Section 168 of the Code.

 

(b)                                 Executive Compensation Tax. The Company is not a party to any Contract, including the provisions ofthis Agreement, covering any employee or former employee of the Company, which,individually or collectively, could give rise to the payment of any amount thatwould not be deductible pursuant to Sections 280G or 404 of the Code.

 

Section 3.15.Restrictions on Business Activities. Except as is described in Section 3.15 of the Disclosure Schedules,there is no Contract (non-compete agreement or otherwise) or Order to which theCompany is a party or by which it is bound, which has or may reasonably beexpected to have the effect of prohibiting or impairing any business practice,any acquisition of Property, the conduct of business or otherwise limiting thefreedom of the Company to engage in any line of business or to compete with anyPerson. Without limiting the generality of the foregoing, the Company has notentered into any Contract under which it is restricted from selling, licensingor otherwise distributing any of its Intellectual Property, technology orproducts to, or providing services to, customers or potential customers or anyclass of customers, in any geographic area, during any period of time or in anysegment of the market, except as is described in Section 3.15 of theDisclosure Schedules.

 

Section 3.16.Title of Properties; Absence of Liens and Encumbrances; Condition ofEquipment.

 

(a)                                  The Company does not own any realproperty, and has never owned any real property.  Section 3.16(a) of the DisclosureSchedules sets forth a list of all real property currently leased by theCompany, the name of the lessor, the correct street address, the date and termof the lease, the aggregate annual rental payable under such lease and adescription of any other material terms of the lease and each Amendmentthereto.  All such current leases are infull force and effect, are valid and effective in accordance with theirrespective terms, and there is no, under any of such leases, existing defaultor event of default (or event which with notice or lapse of time, or both,would constitute a default) by the Company, or to the Knowledge of the Company,by any other party.

 

(b)                                 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 orheld for use in its business, free and clear of any Encumbrances, except (i) asreflected in the Current Balance Sheet, (ii) Encumbrances for Taxes notyet due and payable, (iii) 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, and (iv) Encumbrancesdisclosed with reasonable particularity in Section 3.16(b) of theDisclosure Schedules.

 

(c)                                  Section 3.16(c) of theDisclosure Schedules lists all material items of Tangible Personal Property(the “**Equipment**”) owned or Leased by theCompany.  Such

 

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Equipment is (i) adequatefor the conduct of the business of the Company as currently conducted and ascurrently contemplated to be conducted, (ii) in good operating condition,regularly and properly maintained, subject to normal wear and tear, (iii) suitablefor immediate use in the Ordinary Course of Business, and (iv) in thepossession of the Company.  No item ofEquipment is in need of repair or replacement other than as part of routinemaintenance in the Ordinary Course of Business.

 

(d)                                 The Company owns free and clear of anyEncumbrances, all customer lists, customer contact information, customer correspondenceand customer licensing and purchasing histories relating to their respectivecurrent and former customers (the “**Customer Information**”).  No Person other than the Company possessesany claims or rights with respect to use of the Customer Information.

 

Section 3.17. Intellectual Property.

 

(a)                                  Section 3.17(a) of theDisclosure Schedules contains an accurate and complete list of all ScheduledIntellectual Property (other than trade secrets, know-how and goodwillattendant to Intellectual Property and other intellectual property rights notreducible to scheduled form), and any licenses and Contracts relating to suchScheduled Intellectual Property.  TheCompany owns or, to the extent required in connection with the way in which theCompany has conducted or presently conducts its business and operations(including the manufacture, marketing and distribution of the Company Productsand proposed Company Products, including Company Products under development),has the right to make, have made, use, sell, exploit, import and export,distribute, publicly perform, publicly display, perform, distribute, apply,reproduce, modify, prepare derivative works of, all Scheduled IntellectualProperty.  The Company has in its possessionor control (A) correct and complete, fully-executed copies of all of thelicenses and Contracts (as Amended to date) that are identified in Section 3.17(a) ofthe Disclosure Schedules, and (B) correct and complete copies of alldocuments (including patents, registration certificates, renewal certificates,applications, prosecution histories, and all documents submitted to or receivedfrom the relevant patent, copyright, trademark, domain name or otherauthorities in the United States and foreign jurisdictions, as the case may be)relating to each item of the Scheduled Intellectual Property identified in Section 3.17(a) ofthe Disclosure Schedules.  The Companyhas delivered to Parent correct and complete, fully-executed copies of all ofthe documents described in this Section 3.17(a).

 

(b)                                 Section 3.17(b) of theDisclosure Schedules contains (i) an accurate and complete list of allRegistered Intellectual Property that is owned, controlled or exclusivelylicensed to the Company, specifying as to each the nature of such right, anyjurisdiction that has issued a registration with respect thereto or in which anapplication for such a registration is pending, and any applicable registrationor application number, and (ii) an accurate and complete list of alloutside counsel (including patent and trademark agents), and contactinformation therefor, who are responsible for the prosecution or registrationof Registered Intellectual Property scheduled in Section 3.17(b),specifying the particular Registered Intellectual Property for which each suchoutside counsel is so responsible. To the Actual Knowledge of the Company, eachitem of Registered Intellectual Property that is owned, controlled orexclusively licensed to the Company is valid and subsisting.  All registrations with and applications toGovernmental Bodies in respect of Registered Intellectual Property are validand in full force and

 

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effect.  All necessary registration, maintenance andrenewal fees in connection with the Registered Intellectual Property have beenpaid, and all other action required to be taken to maintain the validity andeffectiveness of the Registered Intellectual Property, including filing allnecessary documents and certificates in connection therewith with the relevantGovernmental Bodies in the United States or foreign jurisdictions, has beentaken. All Patents, Marks, Mask Works and Copyrights listed in the Section 3.17(b) ofthe Disclosure Schedules were prosecuted (or registered, as applicable) in goodfaith, and all prosecutions for any Registered Intellectual Property areproceeding in the ordinary course and no party responsible for any suchprosecution will cease or delay such prosecution upon Closing and, to theActual Knowledge of the Company, are valid, enforceable and in full force.

 

(c)                                  Section 3.17(c) of theDisclosure Schedules contains an accurate and complete list of all licenses,sublicenses and other Contracts, including source code escrow agreements,pursuant to which any Person other than the Company is authorized to use anyCompany Intellectual Property or authorized to obtain any Company IntellectualProperty under any circumstances. The Company has not Transferred ownership of,or granted any exclusive license of or exclusive right to use, or authorizedthe retention of any exclusive rights to use or joint ownership of, anyIntellectual Property that is or was Company Intellectual Property, to anyother Person. All Company Intellectual Property is free and clear of anyEncumbrances, other than non-exclusive licenses granted in the Ordinary Courseof Business, and all Scheduled Intellectual Property is free and clear of allLiens.

 

(d)                                 Section 3.17(d) of theDisclosure Schedules contains an accurate and complete list of all licenses,sublicenses and other Contracts, including source code escrow agreements, as towhich the Company is a party and pursuant to which the Company is authorized touse any Scheduled Intellectual Property owned or otherwise controlled by anythird party.  The Company has not grantedany exclusive license in or to any such Scheduled Intellectual Property, oragreed to license or sublicense any Scheduled Intellectual Property, except asdescribed in Section 3.17(d) of the Disclosure Schedules.

 

(e)                                  **[Intentionally Omitted]**

 

(f)                                    To the extent that any ScheduledIntellectual Property has been developed or created independently or jointly byany Person other than the Company for which the Company has, directly orindirectly, paid or otherwise sought to obtain rights thereon, the Company hasobtained a written, valid and enforceable assignment sufficient to irrevocablytransfer all rights in such Intellectual Property to the Company and, to themaximum extent provided for by, and in accordance with, applicable Law, theCompany is the sole and exclusive owner of all such Intellectual Property andthe Company has recorded each such assignment with the relevant GovernmentalBody, including the U.S. Patent & Trademark Office, the U.S. CopyrightOffice or their respective equivalents in any relevant foreign jurisdiction, asthe case may be.  No Person who haslicensed Intellectual Property to, or provided Technology to, the Company hasownership rights or license rights to improvements or enhancements made by theCompany to such Intellectual Property or Technology.

 

(g)                                 The Company has taken reasonable stepssufficient to secure and protect for its benefit all applicable CompanyIntellectual Property, including steps and protection

 

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procedures reasonablybelieved by the Company to be sufficient and adequate to safeguard and maintainthe secrecy, confidentiality and value of all trade secrets or confidential orproprietary information and, without limiting the foregoing, any CompanyIntellectual Property not otherwise protected by Mark, Patent, Mask Work, orCopyright for which confidentiality is appropriate.  Without limiting the generality of theforegoing and except as set forth in Section 3.17(g) of theDisclosure Schedules, (A) the Company (i) has obtainedconfidentiality and inventions assignment agreements, in sufficient form thathave protections and conditions substantially similar in effect to those formspreviously provided to Parent by Company, from all of the past and presentmanagers, employees, agents, independent contractors and consultants of theCompany who were involved in or contributed to the conception, creation ordevelopment of Company Intellectual Property, and (ii) the Company ownsall right, title and interest in, or has a valid and binding license to use,all Scheduled Intellectual Property, (B) no such former or currentmanager, employee, agent, independent contractor or consultant has (or uponClosing, will have) (i) any right, title, or interest in any ScheduledIntellectual Property, (ii) filed, asserted in writing or, to theKnowledge of the Company, threatened in writing to file or assert, any claimagainst the Company in connection with such Person’s involvement in theconception, creation or development of any Company Intellectual Property, and (C) tothe Knowledge of the Company, no such current manager, employee, agent,independent contractor or consultant has any Patents for any device, process,design or invention of any kind now used or needed by the Company in itsoperations or the furtherance of its businesses, which Patents have not beenassigned to the Company.

 

(h)                                 No Related Party of the Company will haveany rights to future royalty payments or license fees from the Company derivingfrom licenses, technology agreements or other Contracts between any such Personand the Company.

 

(i)                                     The Scheduled Intellectual Property(other than Company Patents), constitutes all the Intellectual Property (otherthan Patents) used in or necessary to conduct the business of the Company as itcurrently is conducted, including the design, development, manufacture, use,import and sale of Company Products and Technology (including Company Productsand Technology currently under development such as “high availability” products),except for such Company Intellectual Property that is not material, orreasonably expected to be material, to the business or operations of theCompany as presently conducted or presently proposed to be conducted.

 

(j)                                     There is no Contract or license betweenthe Company and any other Person with respect to Scheduled IntellectualProperty under which there is any dispute regarding the scope of such Contractor license, or performance or default under such Contract, including withrespect to any payments to be made or received by the Company thereunder.  There are no actions that must be taken bythe Company within sixty (60) calendar days of the Closing, including thepayment of any registration, maintenance or renewal fees or the filing of anydocuments, applications or certificates or the sending of any renewal, changeof control or other notices for the purposes of maintaining, perfecting orpreserving or renewing any such Scheduled Intellectual Property or any Contractor license applicable thereto.  Exceptfor the amount set forth in Section 3.17(j) of the Disclosure Schedules,no licensing fees, royalties or other payments are due or payable, or as aconsequence of the consummation of the Transactions

 

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will (whether or not atthe election of another Person) be due or payable, by the Company in connectionwith the Scheduled Intellectual Property.

 

(k)                                  Neither this Agreement nor theTransactions, including the consummation of the Merger and the assignment tothe Surviving Corporation by operation of law or otherwise (to the extent thatsuch Transactions are deemed to effect such assignment) of any Contracts orlicenses to which the Company is a party or licensee, will result in Parent,Merger Sub or the Company (i) granting to any third party any right to anyIntellectual Property or Technology owned by, controlled by, or licensed to,any of them; (ii) being bound by, or subject to, any non-compete or othermaterial restriction on the operation or scope of its businesses; or (iii) beingobligated to pay any fees, royalties, damages or other material amounts to anythird party in excess of those payable by them, respectively, in the absence ofthis Agreement or the Transactions.  Theexecution, delivery, and performance of this Agreement and the RelatedAgreements, including the consummation of the Transactions, will not (1) requirethe Consent of any Person so that the rights and interests of the Company inthe Scheduled Intellectual Property shall continue to be in full force andeffect, (2) Breach or otherwise adversely affect any Contract governing orlicense licensing any Scheduled Intellectual Property (including any licensesto use the Scheduled Intellectual Property), (3) affect any rights orobligations with respect to the Scheduled Intellectual Property, including thescope of any licenses thereof or the terms and conditions, including theconsideration paid or received by the Company, under which any such ScheduledIntellectual Property may be used, (4) cause the forfeiture ortermination, or give rise to a right of forfeiture or termination, of anyScheduled Intellectual Property, (5) in any way impair the right orability of Parent or the Surviving Corporation to use any ScheduledIntellectual Property as currently used or anticipated to be used, (6) inany way impair the right of Parent to bring any Action for the unauthorized useor disclosure, infringement or misappropriation of any Company IntellectualProperty, or (7) in any way require or trigger the release from escrow ordelivery to any third party, or grant any third party the right to receive orhave released, any Company Source Code or other source code related to anyCompany Products or constituting any Scheduled Intellectual Property.

 

(l)                                     To the Actual Knowledge of the Company,no Person is infringing any Company Patents. No Person is interfering with, violating, infringing, ormisappropriating any other Company Intellectual Property.  The operation of the business of the Companyas it has been conducted or currently is conducted, including the design,development, use, import, manufacture and sale of the Company Products andTechnology (including products, technology or services currently underdevelopment) has not and does not (i) to the Actual Knowledge of theCompany, infringe upon any Patent of any Person; (ii) infringe upon ormisappropriate the Intellectual Property (other than Patents) of any Person, (iii) violatethe Intellectual Property (other than Patents) or other rights of any Person(including rights to privacy or publicity), (iv) Breach any Contract orlicense granting the Company the right or license to any Intellectual Property,or (v) constitute unfair competition or unfair trade practices under theLaws of any jurisdiction. Except as described in Section 3.17(l) of theDisclosure Schedules, neither the Company nor any of its Representatives has (1) receivedany oral, written, or other charge, complaint, claim, demand, notice orcommunication alleging that the Company, or any of its Representatives,contractors or manufacturers, is or may be infringing, misappropriating,violating or otherwise using, distributing, copying, modifying, disclosing orotherwise exploiting in an unauthorized manner any Intellectual Property, rightor claimed right of any Person

 

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(including any claim thatthe Company must license, or refrain from using, any Intellectual Property ofany Person), nor does the Company have any Knowledge of any basis for any ofthe foregoing, (2) not received patent demand letters, invitations tolicense or other correspondence proposing negotiations or consideration of anylicense for patents, (3) no Knowledge that any of the Company IntellectualProperty (other than Company Patents) is being used or disclosed in anunauthorized manner, infringed or misappropriated by any Person, (4) noActual Knowledge that any of the Company Patents are or have been infringedupon by any Person or (5) not received any opinion of counsel that anythird party patent applies to any Company Product.  Notwithstanding any other provision of thisAgreement, with respect to the matters set forth in the first sentence of this Section 3.17(l)and subpart (i) of this Section 3.17(l), the Company shall not bedeemed to have Actual Knowledge of any infringement of any Patent identified byParent to the Company after July 1, 2005, unless the Company has receiveda notice of infringement and Parent has not been informed in writing of same.

 

(m)                               No Company Intellectual Property, CompanyProduct or Technology of the Company is subject to any Action or outstandingOrder, or any restriction that has not been waived, that restricts in anymanner the use, transfer or licensing thereof by the Company or may affect thevalidity, use or enforceability of such Company Intellectual Property orTechnology.

 

(n)                                 Other than “shrink-wrap” and similarwidely available binary code and commercial end-user licenses, Section 3.17(n)of the Disclosure Schedules lists all Contracts and licenses between theCompany and any other Person wherein or whereby the Company has agreed to, orassumed, by operation of law or otherwise, any obligation or duty to warrant,indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur anyobligation or liability or provide a right of rescission with respect to theinfringement or misappropriation by the Company or other party of third partyIntellectual Property.

 

(o)                                 No Company Product, or conduct orstatement of the Company, constitutes obscene material, a defamatory statementor false advertising, or to the Knowledge of the Company, otherwise violatesany Law or rights of any other Person, or proposes any health hazard or dangerto any Person.

 

(p)                                 Section 3.17(p) of the DisclosureSchedules lists all Software or other documentation or material that ismaterial to the operations of the Company and is distributed as “free software”,“free documentation”, “Open Source software”, or under a similar or “copyleft”or “viral” licensing or distribution model (including the GNU General PublicLicense (GPL), GNU Library General Public License, GNU Lesser General PublicLicense (LGPL), GNU Free Documentation License (FDL), Mozilla Public License(MPL), BSD licenses, the MIT License, the X-11 License, the Artistic License,the Netscape Public License, the Sun Community Source License (SCSL), the SunIndustry Standards License (SISL), the Apache License, Creative CommonsLicenses, the Open Gaming License, and the Open Publication License) (“**Open Source Materials**”) used by the Company in any way, anddescribes the manner in which such Open Source Materials are, were or arecontemplated to be used (such description shall include whether (and, if so,how) the Open Source Materials were modified or distributed by Company). TheCompany has not (a) incorporated Open Source Materials into, or combinedOpen Source Materials with, the Company Intellectual Property; (b) distributedOpen Source Materials in conjunction with any Company Intellectual Property; or(c) used Open Source Materials that

 

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create, or purport tocreate, obligations for the Company with respect to Company IntellectualProperty or grant, or purport to grant, to any third party, any rights orimmunities under Company Intellectual Property (including using any Open SourceMaterials that require, as a condition of use, modification or distribution ofsuch Open Source Materials that other software incorporated into, derived fromor distributed with such Open Source Materials be (i) disclosed ordistributed in source code form, (ii) be licensed for the purpose ofmaking derivative works, or (iii) be redistributable at no charge).

 

(q)                                 All Company Products subject to ongoingcovenants and indemnities conform in all material respects to applicableContract commitments, express and implied warranties, as applicable, productspecifications and product documentation and to any representations provided tocustomers.  The Company has no Liability(and, to the Knowledge of Company, there is no legitimate basis for any presentor future Action against the Company giving rise to any Liability relating tothe foregoing Contracts) for replacement or repair thereof or other damages inconnection therewith in excess of any reserves therefor reflected on theCurrent Balance Sheet.

 

(r)                                    No (i) government funding, (ii) facilitiesof a university, college, other educational institution or research center, or (iii) fundingfrom any Person was used in the development of the Company IntellectualProperty.  No current or former officer,employee, consultant or independent contractor of the Company, who was involvedin, or who contributed to, the creation or development of any CompanyIntellectual Property, has performed services for any government, university,college or other educational institution or research center during a period oftime during which such officer, employee, consultant or independent contractorwas also performing services for the Company.

 

(s)                                  Neither the Company nor any other Personacting on its or their behalf has disclosed, delivered or licensed to anyPerson, agreed to disclose, deliver or license to any Person, or permitted thedisclosure or delivery to any escrow agent or other Person of, any CompanySource Code.  Except as disclosed in Section 3.17(s)of the Disclosure Schedules, no Event has occurred or exists that (with orwithout notice or lapse of time, or both) will, or would reasonably be expectedto, result in the disclosure or delivery by the Company or any Person acting onits behalf or any escrow agent to any Person of any Company Source Code.  Section 3.17(s) of the DisclosureSchedules identifies each Contract pursuant to which the Company has deposited,or is or may be required to deposit, with an escrow holder, escrow agent or anyother Person any Company Source Code, and describes whether the execution ofthis Agreement or the consummation of the Transactions, in and of itself, wouldreasonably be expected to result in the release from escrow of any CompanySource Code.  As used in this Section 3.17(s),“**Company Source Code**” means thesource code to, or constituting, Company Software, and in each case anysignificant portion or aspect thereof.

 

(t)                                    None of the Company Software (i) containsany bug, defect or error (including any bug, defect or error relating to orresulting from the display, manipulation, processing, storage, transmission oruse of date data) that materially and adversely affects the use, functionalityor performance of such Company Software or any product or system containing orused in conjunction with such Company Software, or (ii) fails to complywith any applicable warranty or other contractual commitment relating to theuse, functionality or

 

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performance of suchCompany Software or any product or system containing or used in conjunctionwith such Company Software.  The Companyhas provided in Section 3.17(t) of the Disclosure Schedules a complete andaccurate list of all known bugs, defects and errors in each version andcomponent of the Company Software.

 

(u)                                 Except as disclosed in Section 3.17(u)of the Disclosure Schedules, none of the Company Software contains, or willinstall or enable or permit any unauthorized Person to install, any “virus”, “lockup”,“time bomb”, “drop dead”, “Trojan horse”, “backdoor program”, “worm”, “key lock”,“adware”, “spyware” or “malware”, which cannot, based on commerciallyreasonable efforts, be fixed within thirty (30) days (as such terms arecommonly understood in the software industry), or any other malicious,unauthorized or monitoring Software, or any other Software designed or intendedto have, or capable of or potentially performing, directly or indirectly,through any device, method or means, including by the installation,interpretation or execution of any other Software or data, whether with orwithout the participation of an unauthorized Person, any of the followingfunctions or results:

 

(i)                                     disrupting, disabling, restricting,harming or otherwise impeding in any manner the operation or accessibility of,or providing unauthorized access to, (i) a computer system, network orother device on which such Company Software is stored, installed, interpretedor executed, including to the Company Software itself or any relateddocumentation or data, or any portion thereof, or (ii) a computer system,network or other device connected to another computer system, network or otherdevice on which such Company Software is stored, installed, interpreted orexecuted;

 

(ii)                                  altering, modifying, damaging, ordestroying any data or file, including any Software, on any computer system,without the user’s consent; or

 

(iii)                               distribute, upload, transmit, copy,reveal, broadcast or serve to any other computer system or device over anynetwork or other communication channel or device any file or personal orpersonally-identifying data or information, in each case without the user’sconsent.

 

Section 3.18. Agreements, Contracts and Commitments.

 

(a)                                  Except as set forth in Section 3.18(a) ofthe Disclosure Schedules, the Company is not party to or bound by:

 

(i)                                     any employment, sales or consultingagreement or other Contract with an employee, individual consultant orsalesperson, or any Contract regarding sales or marketing with any Entity;

 

(ii)                                  any agreement or plan, including anyoption plan, incentive plan or purchase plan with respect to Equity Interestsof the Company, any of the benefits of which will be increased, or the vestingof benefits of which will be accelerated, by the occurrence of any of theTransactions or the value of any of the benefits of which will be calculated onthe basis of any of the Transactions;

 

(iii)                               any fidelity or surety bond or completionbond;

 

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(iv)                              any Lease of personal property having anannual rental rate in excess of $5,000 individually or $10,000 in theaggregate;

 

(v)                                 any Contract relating to capitalexpenditures and involving future payments in excess of $5,000 individually or$10,000 in the aggregate;

 

(vi)                              any Contract relating to the dispositionor acquisition of assets or any interest in any Entity outside the OrdinaryCourse of Business;

 

(vii)                           any mortgages, indentures, guarantees,loans or credit agreements, security agreements or other Contracts relating tothe borrowing of money or extension of credit;

 

(viii)                        any purchase order or contract for thepurchase of materials exceeding $5,000 individually or $10,000 in theaggregate;

 

(ix)                                any construction contracts;

 

(x)                                   any dealer, distribution, sales, jointmarketing or development agreement;

 

(xi)                                any sales representative, originalequipment manufacturer, value added, remarketer, reseller or independentsoftware vendor or other Contract for use or distribution of any CompanyProduct, any Scheduled Intellectual Property or any services provided by theCompany; or

 

(xii)                             any other Contract not otherwise setforth in Section 3.18(a) of the Disclosure Schedules that is notcancelable without penalty within thirty (30) calendar days.

 

(b)                                 The Company is in compliance with and hasnot Breached or defaulted under, or received notice that it has Breached ordefaulted under, any of the terms or conditions of any Contract or license towhich it is party or by which it is bound or under which it is a licensee, nordoes the Company have Knowledge of any Event that would constitute such aBreach or default with the lapse of time, giving of notice or both.  Each such Contract and license is in fullforce and effect and is not subject to any default thereunder.

 

(c)                                  The Company has obtained, or will obtainprior to the Effective Time, all necessary Consents of parties to any Contractas are required thereunder in connection with the Merger or for such Contractsto remain in full force and effect without modification, limitation oralteration after the Effective Time. Following the Effective Time, the Company will be permitted to exerciseall of its rights under the Contracts without the payment of any additionalamounts or consideration other than amounts or consideration which the Companywould otherwise be required to pay had the Transactions not occurred.

 

Section 3.19.Related Party Transactions.  NoRelated Party of the Company has, directly or indirectly, (i) any interestin any Entity (A) which furnished or sold, or furnishes or sells,services, products or Technology that the Company furnishes or sells, orproposes to furnish or sell, or which otherwise competes with the Company withrespect to such services, products or Technology, or (B) that purchasesfrom, or sells or furnishes to, the Company any

 

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services, products orTechnology, (ii) an interest in any Property or Equipment used in orpertaining to any Company Products or the business of the Company, or (iii) abeneficial interest in any Contract to which the Company is a party or by whichit is bound or any license granted to or by the Company; provided, however,that ownership of no more than 1% of the outstanding voting stock of a publiclytraded corporation with a market capitalization in excess of $100 million shallnot be deemed to be an “interest in any entity” for purposes of this Section 3.19.  No Related Party of the Company is a party toany Contract with the Company.  TheCompany has not extended or maintained credit, renewed an extension of credit,or forgiven or waived, in whole or in part, any extended credit, in the form ofa personal loan to or for any director or officer of the Company, during thetwo years immediately preceding the Closing Date.

 

Section 3.20.Governmental Authorization.  EachConsent and Governmental Permit (i) pursuant to which the Companycurrently operates or holds any interest in any of its Properties, or (ii) whichis necessary or desirable for the operation of its business as currentlyconducted or currently contemplated to be conducted or the holding of any suchinterest (collectively, “**Company Authorizations**”)has been issued or granted.  Section 3.20of the Disclosure Schedules lists all Company Authorizations.  Each Company Authorization is in full forceand effect, and shall remain in full force and effect without modificationafter the Closing, and constitute all Company Authorizations required to permitthe Company to operate or conduct its business or hold any interest in itsProperties.  Without limiting theforegoing, the Merger will not adversely impact any existing Contract with anyGovernmental Body, and to the Knowledge of the Company, will not result in anymaterial decrease in orders of Company Products or Technology from, or sales,licensing or other distributions of Company Products or Technology to, anyGovernmental Body.

 

Section 3.21.Litigation.  Except as set forthon Section 3.21 of the Disclosure Schedules, there is no Action of anynature (other than Actions involving Patents) pending or, to the Knowledge ofthe Company, threatened against the Company, its Properties or any of itsofficers, managers or directors.  NoGovernmental Body has at any time challenged or questioned the legal right ofthe Company to conduct its business and operations as presently or previouslyconducted.

 

Section 3.22.Accounts Receivable, Customers and Inventory.  

 

(a)                                  Section 3.22(a) of theDisclosure Schedules sets forth a list of all Accounts Receivable of theCompany as of the date of the Current Balance Sheet, together with a range ofdays elapsed since invoice.  All of suchAccounts Receivable represent valid obligations arising from sales actuallymade or services actually performed by the Company in the Ordinary Course ofBusiness, are carried at values determined in accordance with GAAP consistentlyapplied, and are current and collectible (and within 180 days of the ClosingDate will be collected in full without any setoff) except to the extent ofreserves therefor set forth in the Current Balance Sheet or, for receivablesarising subsequent to the date of the Current Balance Sheet, as reflected onthe books and records of the Company (which are prepared in accordance withGAAP), as applicable.  No Person has anyEncumbrance on any Accounts Receivable of the Company and no request oragreement for deduction or discount has been made with respect to any of suchAccounts Receivable.

 

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(b)                                 All raw materials, components and otherparts, work-in-process, finished goods and all other inventory whether on hand,on order or in transit (collectively, the “**Inventories**”)reflected on the Current Balance Sheet or on the accounting records of theCompany as of the Closing Date, or thereafter acquired by the Company (and notsubsequently disposed of in the Ordinary Course of Business), are sufficientfor the requirements of the business of the Company in the ordinary course andconsist of items of a quality and quantity which are merchantable and fullyusable in the normal course of such business. The values at which such Inventories are carried on the Current BalanceSheet or on the accounting records of the Company as of the Closing Datereflect the normal inventory valuation policy of the Company (including thewriting down of or reserving against the value of slow-moving or obsoleteinventory) and state Inventory at the lower of cost or market (on a first-in,first-out method) in accordance with GAAP, consistently applied.  All the Inventory is located at Woodinville,Washington.

 

(c)                                  Section 3.22(c) of theDisclosure Schedules sets forth the customers of the Company, as well as theaggregate dollar amount of business between each customer and the Company, fromDecember 31, 2002 to June 30, 2005. The Company has not received any customer complaint that the Company hasnot been able to address to the satisfaction of the complainant, and nopurchaser or recipient of any Company Product has rejected or returned suchCompany Product.

 

Section 3.23.Minute Books.  The minutes of theCompany, made available to counsel for Parent, are the only minutes of theCompany and contain accurate and complete summaries of all meetings of, and corporateaction taken by, the board of directors (or committees thereof) and thestockholders (or committees thereof) of the Company, including each action bywritten consent, since the inception of the Company.  No significant action has been taken by theCompany which is not reflected in such minutes. All such minutes shall be available at the Company’s primary businessfacility on the Closing Date or at such other location as Parent shall request.

 

Section 3.24.Environmental Matters.

 

(a)                                  The Company now is, and at all times hasbeen, in compliance with, and has not been and is not in violation of or liableunder, any Environmental Law.  TheCompany has no basis to expect, nor has the Company or any other Person forwhose conduct the Company is or may be held to be responsible received, anyactual or threatened order, notice or other communication from (i) anyGovernmental Body or private citizen acting or purporting to act in the publicinterest, or (ii) the current or prior owner or operator of any Facilities,in each case of any actual or potential violation or failure to comply with anyEnvironmental Law, or of any actual or threatened obligation to undertake orbear the cost of any Environmental, Health and Safety Liabilities with respectto any Environmental Property, or with respect to any such EnvironmentalProperty at or to which Hazardous Materials were generated, manufactured,refined, transferred, imported, used or processed by the Company or any otherPerson for whose conduct the Company is or may be held responsible, or fromwhich Hazardous Materials have been transported, treated, stored, handled,transferred, disposed, recycled or received.

 

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(b)                                 There are no pending or, to the Knowledgeof the Company, threatened claims, Encumbrances, or other restrictions of anynature resulting from any Environmental, Health and Safety Liabilities orarising under or pursuant to any Environmental Law with respect to or affectingany Environmental Property.

 

(c)                                  The Company has no Knowledge of or anybasis to expect, nor has it or any other Person for whose conduct it is or maybe held responsible, received, any citation, directive, inquiry, notice, Order,summons, warning or other communication that relates to Hazardous Activity,Hazardous Materials, or any alleged, actual, or potential violation or failureto comply with any Environmental Law, or of any alleged, actual, or potentialobligation to undertake or bear the cost of any Environmental, Health and SafetyLiabilities with respect to any Environmental Property, or with respect to anyproperty or facility to which Hazardous Materials generated, manufactured,refined, transferred, imported, used or processed by the Company or any otherPerson for whose conduct it is or may be held responsible, have beentransported, treated, stored, handled, transferred, disposed, recycled orreceived.

 

(d)                                 Neither the Company nor any other Personfor whose conduct the Company is or may be held responsible has any Environmental,Health and Safety Liabilities with respect to any Environmental Property.

 

(e)                                  There are no Hazardous Materials presenton or in the Environment at any Facility, including any Hazardous Materialscontained in barrels, aboveground or underground storage tanks, landfills, landdeposits, dumps, equipment (whether movable or fixed) or other containers,either temporary or permanent, and deposited or located in land, water, sumps,or any other part of the Facility or such adjoining property, or incorporatedinto any structure therein or thereon. Neither the Company nor any other Person for whose conduct the Companyis or may be held responsible, nor to the Knowledge of the Company any otherPerson, has permitted or conducted, or is aware of, any Hazardous Activityconducted with respect to Environmental Property, except in full compliancewith all applicable Environmental Laws.

 

(f)                                    There has been no Environmental Releaseor, to the Knowledge of the Company, threat of Environmental Release, of anyHazardous Materials at or from any Facility or at any other location where anyHazardous Materials were generated, manufactured, refined, transferred,produced, imported, used, or processed from or by any Facility, or from anyother Environmental Property, or to the Knowledge of the Company anygeologically or hydrologically adjoining property, whether by the Company orany other Person.

 

(g)                                 The Company has delivered to Parent trueand complete copies and results of any reports, studies, analyses, tests, ormonitoring possessed or initiated by the Company pertaining to HazardousMaterials or Hazardous Activities in, on, or under the Facilities or any otherEnvironmental Property, or concerning compliance, by the Company or any otherPerson for whose conduct the Company is or may be held responsible, withEnvironmental Laws.

 

Section 3.25.Brokers’ and Finders’ Fees. Except as disclosed on Section 3.25 of the Disclosure Schedules,the Company has not incurred, nor will it incur, directly or indirectly,

 

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any liability for brokerage orfinders’ fees or agents’ commissions or any similar charges in connection withthis Agreement or any Transaction.

 

Section 3.26.Employee Benefit Plans and Compensation. 

 

(a)                                  Definitions. For all purposes of this Section 3.26 only, the following termsshall have the following respective meanings:

 

(i)                                     “**Affiliate**”means any other Entity under common control with the Company within the meaningof Section 414(b), (c), (m) or (o) of the Code, and the regulations issuedthereunder.

 

(ii)                                  “**COBRA**” meansthe Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

 

(iii)                               “**DOL**”  means the United States Department of Labor.

 

(iv)                              “**Employee**” meansany current or former employee, consultant or director of the Company or anyAffiliate.

 

(v)                                 “**Employment Agreement**”means each management, employment, severance, consulting, relocation,repatriation, expatriation, visas, work permit or other agreement, or contractbetween the Company or any Affiliate and any Employee.

 

(vi)                              “**FMLA**” means theFamily Medical Leave Act of 1993, as amended.

 

(vii)                           “**Pension Plan**”means each Company Employee Plan which is an “employee pension benefit plan”(within the meaning of Section 3(2) of ERISA).

 

(b)                                 Schedule.  Section 3.26(b) ofthe Disclosure Schedules contains an accurate and complete list of each CompanyEmployee Plan and each Employment Agreement. The Company has no plan or commitment to establish any new CompanyEmployee Plan or Employment Agreement, to modify any Company Employee Plan orEmployment Agreement, or to enter into any Company Employee Plan or EmployeeAgreement.  Section 3.26(b) ofthe Disclosure Schedules also sets forth a table setting forth the name, annualsalary and, if applicable, bonus, of each director, officer and employee of theCompany, and the name of each consultant of the Company.

 

(c)                                  Documents.  The Companyhas provided to Parent correct and complete copies of (i) all documentsembodying each Company Employee Plan and each Employment Agreement (includingall Amendments thereto) and all related trust documents, administrative serviceagreements, group annuity contracts, group insurance contracts, and policiespertaining to fiduciary liability insurance covering the fiduciaries for eachPlan, (ii) the most recent annual actuarial valuations, if any, preparedfor each Company Employee Plan, (iii) the three (3) most recentannual reports (Form Series 5500 and all schedules and financialstatements attached thereto), if any, required under ERISA or the Code inconnection with each Company Employee Plan. (iv) if the Company EmployeePlan is funded, the most recent annual and periodic

 

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accounting of CompanyEmployee 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 Company Employee Plan, (vi) allIRS determination, opinion, notification and advisory letters, and allapplications and correspondence to or from the IRS or the DOL with respect toany such application or letter, (vii) all communications material to anyEmployee or Employees relating to any Company Employee Plan and any proposedCompany Employee Plans, in each case, relating to any Amendments, terminations,establishments, increases or decreases in benefits, acceleration of payments orvesting schedules or other Events which would result in any material liabilityto the Company, (viii) all correspondence to or from any Governmental Bodyrelating to any Company Employee Plan, (ix) all COBRA forms and relatednotices (or such forms and notices as required under comparable Law), (x) thethree (3) most recent plan years discrimination tests for each Company EmployeePlan, and (xi) all registration statements, annual reports (Form 11-K andall attachments thereto) and prospectuses prepared in connection with eachCompany Employee Plan.

 

(d)                                 Employee Plan Compliance. Except as set forth in Section 3.26(d) of the DisclosureSchedules, (i) the Company has performed in all material respects allobligations required to be performed by it under, is not in default or Breachof, and has no Knowledge of any default or Breach by any other party to eachCompany Employee Plan, and each Company Employee Plan has been established andmaintained in all material respects in accordance with its terms and incompliance with all applicable Laws, including ERISA and the Code, (ii) eachCompany Employee Plan intended to qualify under Section 401(a) of theCode and each trust intended to qualify under Section 501(a) of theCode has either received a favorable determination, opinion, notification oradvisory letter from the IRS with respect to each such Company Employee Plan asto its qualified status under the Code, including all amendments to the Codeeffected by the Tax Reform Act of 1986 and subsequent legislation, or hasremaining a period of time under applicable Treasury regulations or IRSpronouncements in which to apply for such a letter and make any amendmentsnecessary to obtain a favorable determination as to the qualified status ofeach such Company Employee Plan, (iii) no “prohibited transaction” (withinthe meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA)and not otherwise exempt under Section 4975 of the Code or Section 408of ERISA (or any administrative class exemption issued thereunder) has occurredwith respect to any Company Employee Plan, (iv) there are no Actionspending, or, to the Knowledge of the Company, threatened or reasonablyanticipated (other than routine claims for benefits), against any CompanyEmployee Plan or against the assets of any Company Employee Plan, (v) eachCompany Employee Plan (other than any stock option plan) can be amended,terminated or otherwise discontinued after the Effective Time, without materialliability to Parent, the Surviving Corporation, the Company or any of itsAffiliates (other than ordinary administration expenses), (vi) there areno Actions pending or, to the Knowledge of the Company or any Affiliates,threatened by the IRS or DOL with respect to any Company Employee Plan, and (vii) neitherthe Company nor any Affiliate is subject to any penalty or tax with respect toany Company Employee Plan under Section 502(i) of ERISA or Sections4975 through 4980 of the Code.

 

(e)                                  No Pension Plans. Neither the Company nor any Affiliate has ever maintained, established,sponsored, participated in, or contributed to, any (i) Pension Planssubject to Title IV of ERISA or Section 412 of the Code; (ii) “multiemployerplan” within the

 

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meaning of Section (3)(37)of ERISA; or (iii) multiemployer plan, or to any plan described in Section 413of the Code.

 

(f)                                    No Post-Employment Obligations. No Company Employee Plan provides, or reflects or represents anyliability to provide, retiree life insurance, retiree health or other retireeemployee welfare benefits to any person for any reason, except as may berequired by COBRA or other applicable statute, and the Company has neverrepresented, promised or contracted (whether in oral or written form) to anyEmployee (either individually or to Employees as a group) or any other personthat such Employee(s) or other person would be provided with retiree lifeinsurance, retiree health or other retiree employee welfare benefit, except tothe extent required by statute and described in Section 3.26(f) ofthe Disclosure Schedules.

 

(g)                                 Health Care Compliance. Neither the Company nor any Affiliate has, prior to the Effective Timeand in any respect, violated any of the health care continuation requirementsof COBRA, the requirements of FMLA, the requirements of the Health InsurancePortability and Accountability Act of 1996, the requirements of the Women’sHealth and Cancer Rights Act of 1998, the requirements of the Newborns’ andMothers’ Health Protection Act of 1996, or any amendment to each such act, orany similar provisions of state law applicable to its Employees.

 

(h)                                 Effect of Transaction.

 

(i)                                     Except as set forth on Section 3.26(h) ofthe Disclosure Schedules, the execution of this Agreement and the consummationof the transactions contemplated hereby will not (either alone or upon theoccurrence of any additional or subsequent events) constitute an event underany Company Employee Plan, Employment Agreement, trust or loan that will or mayresult in any payment (whether of severance pay or otherwise), acceleration,forgiveness of Debt, vesting, distribution, increase in benefits or obligationto fund benefits with respect to any Employee.

 

(ii)                                  Except as set forth on Section 3.26(h) ofthe Disclosure Schedules, no payment or benefit which will or may be made bythe Company or its Affiliates with respect to any Employee or any other “disqualifiedindividual” (as defined in Code Section 280G and the regulationsthereunder) will be characterized as a “parachute payment,” within the meaningof Section 280G(b)(2) of the Code.

 

(i)                                     Employment Matters. The Company (i) is in compliance with all applicable foreign,federal, state and local Laws respecting employment, employment practices,terms and conditions of employment and wages and hours, in each case, withrespect to Employees, (ii) has withheld and reported all amounts requiredby law or by agreement to be withheld and reported with respect to wages,salaries and other payments to Employees, (iii) is not liable for anyarrears of wages or any Taxes or any penalty for failure to comply with any ofthe foregoing, (iv) is not liable for any payment to any trust or otherfund governed by or maintained by or on behalf of any Governmental Body, withrespect to unemployment compensation benefits, social security or otherbenefits or obligations for Employees (other than routine payments to be madein the Ordinary Course of Business), and (v) has taken all actions

 

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necessary to comply withany applicable Law in connection with the Company’s employment of its employeesand any terminations of employment contemplated by this Agreement or theMerger, including the WARN Act, and has paid, or adequately reserved against inthe Current Balance Sheet, all amounts required to be paid under any applicableLaw, including the WARN Act and any similar state laws, as a result of thetermination or layoff of any employee of the Company who is not a TransferredEmployee in connection with the Merger. There are no pending or, to the Knowledge of the Company threatened orreasonably anticipated, Actions against the Company under any worker’scompensation policy or long-term disability policy.

 

(j)                                     Labor.  No work stoppage orlabor strike against the Company or, to the Company’s Knowledge, its materialsuppliers, manufacturers and other contractors is pending, threatened orreasonably anticipated.  There areneither any activities nor proceedings of any labor union to organize anyEmployees, nor have there ever been. There are no Actions, labor disputes or grievances pending, threatenedor reasonably anticipated relating to any labor, safety or discriminationmatters involving any Employee, including charges of unfair labor practices ordiscrimination complaints.  Neither theCompany nor any of its Affiliates has engaged in any unfair labor practiceswithin the meaning of the National Labor Relations Act.  The Company is not presently, nor has been inthe past, a party to, or bound by, any collective bargaining agreement or unioncontract with respect to Employees, and no collective bargaining agreement isbeing negotiated by the Company.

 

(k)                                  No Interference or Conflict. To the Knowledge of the Company, no Equity Holder, officer, director,employee or consultant of the Company is obligated under any Contract subjectto any Order of any court or administrative agency that would interfere withsuch Person’s efforts to promote the interests of the Company or that wouldinterfere with the Company’s business. Neither the execution nor delivery of this Agreement or any RelatedAgreement, nor the carrying on of the Company’s business and operations aspresently conducted or proposed to be conducted, nor any activity of suchofficers, directors, employees or consultants in connection with the carryingon of the Company’s business as presently conducted or currently proposed to beconducted, will conflict with or result in a Breach of the terms, conditions orprovisions of, or constitute a default under, any Contract under which any ofsuch officers, directors, employees or consultants is now bound.

 

(l)                                     Company Option Plan Adoption. The stockholders of the Company approved the establishment of theCompany Option Plan, and each material amendment (within the meaning of Rule 4350of the Marketplace Rules of The NASDAQ Stock Market, Inc., and IM-4350-5thereunder) thereto, at a meeting duly noticed and duly held, and the minutesof such meeting have been filed with the minutes of the proceedings of thestockholders of the Company.  Suchminutes are the only minutes of such stockholders, or any committee thereof,relating to the Company Option Plan.  Theresolutions adopted at such meeting are in full force and effect, and no actionhas been taken or is pending for the purpose of revoking, rescinding,annulling, repealing, correcting, changing, amending or otherwise modifying anyof such resolutions.

 

Section 3.27.Insurance.  Section 3.27 ofthe Disclosure Schedules lists all insurance policies and fidelity bondscovering the assets, business, equipment, properties, operations, employees,officers and directors of the Company. There is no claim by the Company pending under any of such policies orbonds as to which coverage has been

 

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questioned, denied or disputedby the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have beenpaid, and the Company and its affiliates are otherwise in material compliancewith the terms of such policies and bonds (or other policies and bondsproviding substantially similar insurance coverage). The Company has noKnowledge of any threatened termination of, or premium increase with respectto, any of such policies.

 

Section 3.28.Compliance With Laws; Relations With Governmental Entities.  The Company has complied with, is not inviolation of, and has not received any notices of violation with respect to,any Law.  Neither the Company, nor theKey Stockholder, nor to the Knowledge of the Company, any Representative of theCompany (or Representatives or other Persons acting on the express, implied orapparent authority of the Company), has paid, given or received, or offered orpromised to pay, give or receive, any bribe or other unlawful payment of moneyor other thing of value, any unlawful discount, or any other unlawfulinducement, to or from any Person or Governmental Body anywhere worldwide inconnection with or in furtherance of the business of the Company (including anyoffer, payment or promise to pay money or other thing of value (a) to anyforeign official, political party (or official thereof) or candidate forpolitical office for the purposes of influencing any act, decision or omissionin order to assist the Company in obtaining business or orders for or with, ordirecting business to, any Person, or (b) to any Person while knowing thatall or a portion of such money or other thing of value will be offered, givenor promised to any such official or party for such purposes).  The business of the Company is not in anymanner dependent upon the making or receipt of such payments, discounts or otherinducements.  Neither the Company nor theKey Stockholder has otherwise taken any action that would cause the Company tobe in violation of the Foreign Corrupt Practices Act of 1977, as amended, orany applicable Laws of similar effect.

 

Section 3.29.Warranties.  All Company Productsand services provided by the Company are sold, licensed or otherwise providedpursuant to terms that include (a) a disclaimer of all warranties, expressor implied, including those of merchantability, fitness for a particularpurpose and non-infringement, (b) a disclaimer of all consequentialdamages arising from the use or possession of the product or use or provisionof the services, regardless of whether such liability is based on tort,contract or otherwise, and (c) language stating that if the foregoingdisclaimers are held to be unenforceable, the Company’s maximum liability shallnot exceed the amount of money(ies) paid for such product(s).

 

Section 3.30.Complete Copies of Materials.  TheCompany has delivered true and complete copies of each document (or summariesof same) that has been requested by Parent or its counsel.

 

Section 3.31.Customer Relations.  Set forth in Section 3.31of the Disclosure Schedules is a list of customers of the Company whichaccounted for 10% or more of the net revenue of the Company, taken as a whole,for the fiscal year ended December 31, 2004 and the six month periodending June 30, 2005.  None of theclients listed in Section 3.31 of the Disclosure Schedules has registeredany material complaint regarding the services rendered by the Company,indicated any desire or intention to reduce the level of services under anyContract with the Company, or stated verbally or in writing any intention toterminate any Contract with the Company.

 

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Section 3.32.Parent Stock Ownership.  Neitherthe Company nor the Key Stockholder owns any shares of Parent Common Stock orother securities convertible into Parent Common Stock.

 

Section 3.33.Representations Complete.  None ofthe representations or warranties made by the Company, the Key Stockholder, anyother Equity Holder nor any financial statement, other written financialinformation or statements made in any Exhibit, Schedule or certificatefurnished by the Company, the Key Stockholder pursuant to this Agreement or anyRelated Agreement, or furnished in or in connection with documents mailed ordelivered to the Stockholders for use in soliciting their consent to thisAgreement and the Merger, contains or will contain at the Effective Time anyuntrue statement of a material fact or omits or will omit at the Effective Timeto state any material fact necessary in order to make the statements containedherein or therein, in light of the circumstances under which they were made,not misleading.  The Company hasconducted a comprehensive investigation to ensure the accuracy of the precedingsentence.  The financial projections relatingto the Company that were delivered to Parent prior to the date of this Agreement(“**Financial Projections**”) constitute areasonable estimate of the information purported to be shown therein.  The Company prepared such projections in goodfaith based upon reasonable assumptions, and believes that there is areasonable basis for such projections. The Company has no Knowledge of any fact or information that would leadit to believe that the Financial Projections are misleading in any respect.

 

Section 3.34.Equity Ownership.  Each EquityHolder hereby severally represents and warrants to Parent and Merger Sub thatit is the sole record and beneficial owner of the Securities of the Company inthe amount set forth next to its name in the Capitalization and Payment Table,and such Securities are to be sold pursuant to this Agreement.  Such Securities are not subject to anyEncumbrance of any kind or nature.  Thereare no Commitments or Contracts of any character, written or oral, to which anyEquity Holder is a party or by which it or any of its Properties is boundobligating such Equity Holder to issue, Transfer, repurchase or redeem, orcause to be issued, Transferred, sold, repurchased or redeemed, any Securitiesor obligating such Equity Holder to grant or enter into any such Commitment orContract.  Each Equity Holder has goodand valid title to, and has the sole right to Transfer or Encumber (ifapplicable), any Securities of the Company. Such interests constitute all Securities of the Company owned,beneficially or of record, by each such Equity Holder.  The Company will receive good title to suchSecurities, subject to no Encumbrance (other than federal and state securitieslaws) retained, granted or permitted by any Equity Holder.

 

**ARTICLE IVPARENT AND MERGER SUBREPRESENTATIONS AND WARRANTIES**

 

Parent and Merger Sub, jointly and severally,represent and warrant to the Company that the statements contained in this ARTICLE IVare true, correct and complete as of the date of this Agreement and as of theClosing Date.

 

Section 4.1.Entity Status.  Parent and MergerSub are each an entity duly incorporated, validly existing, and in goodstanding under the Laws of the jurisdiction of its

 

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incorporation and there is nopending or, to Parent’s and Merger Sub’s Knowledge, threatened, Action fortheir dissolution, liquidation, or insolvency.

 

Section 4.2.Power and Authority; Enforceability. Parent and Merger Sub each have the relevant corporate power andauthority to execute and deliver each Transaction Document to which it isparty, and to perform and consummate the Transactions.  Parent and Merger Sub each have taken allaction necessary to authorize the execution and delivery of each TransactionDocument to which it is party, the performance of its obligations thereunder,and the consummation of the Transactions. Each Transaction Document to which Parent and Merger Sub are a party hasbeen duly authorized, executed, and delivered by, and is Enforceable against,Parent and Merger Sub.

 

Section 4.3.No Violation.  The execution anddelivery of the Transaction Documents and the performance and consummation ofthe Transactions by Parent and Merger Sub will not: (i) Breach any Law orOrder to which Parent or Merger Sub is subject or any provision of itsOrganizational Documents; (ii) Breach any Contract, Order, or GovernmentalPermit to which Parent or Merger Sub is a party or by which it is bound or towhich any of its assets is subject (or result in the imposition of anyEncumbrance upon any of its assets); or (iii) require any Consent from athird party, other than Consents which have been obtained.

 

Section 4.4.Brokers’ Fees.  Neither Parent norMerger Sub has Liability to pay any compensation to any broker, finder, oragent with respect to the Transactions for which any Equity Holder could becomeLiable.

 

Section 4.5.Merger Sub.  Merger Sub has beenformed for the sole purpose of effecting the Merger and, except as contemplatedby this Agreement, Merger Sub has not conducted any business activities.  Parent directly owns all of the issued andoutstanding shares of capital stock of Merger Sub.

 

**ARTICLE VCOVENANTS RELATED TO CONDUCT OF BUSINESS**

 

Section 5.1.Conduct of Business of the Company Until Closing.  The Company hereby covenants and agrees that,from the date of this Agreement until the Closing or the earlier termination ofthis Agreement, unless otherwise expressly contemplated by this Agreement orconsented to in advance and in writing by Parent, the Company shall carry onits businesses only in the Ordinary Course of Business, use its best efforts topreserve intact its business organization and assets, maintain its rights andfranchises, retain the services of its officers and employees and maintain itsrelationships with customers, suppliers, licensors, licensees and others havingbusiness dealings with it, and use its best efforts to keep in full force andeffect liability insurance and bonds comparable in amount and scope of coverageto that currently maintained. Without limiting the generality of the foregoing,subject to applicable Laws, without the prior written consent of Parent, theCompany shall not:

 

(a)                                  (i) increase in any manner thecompensation or fringe benefits of, or pay any bonus to, any director, officeror employee; (ii) grant any severance or termination pay to, or enter intoany severance agreement with, any director, officer or employee, or enter intoany

 

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employment agreement withany director, officer or employee; (iii) establish, adopt, enter into oramend any Employee Benefit Plan or other arrangement, except as may be requiredto comply with applicable Law; (iv) pay any benefit not provided for underany Employee Benefit Plan or other arrangement; (v) grant any awards underany bonus, incentive, performance or other compensation plan or arrangement orEmployee Benefit Plan or other arrangement (including the grant of stockoptions, stock appreciation rights, stock based or stock related awards,performance units or restricted stock, or the removal of existing restrictionsin any Employee Benefit Plan or other arrangement or agreement or awards madethereunder); (vi) take any action to fund or in any other way secure thepayment of compensation or benefits under any Employee Agreement; (vii) promoteor fire any director, officer or managerial employee; or (viii) change,alter or enter into any employment agreement or consulting agreement;

 

(b)                                 declare, set aside or pay any dividendon, or make any other distribution in respect of, outstanding shares of capitalstock;

 

(c)                                  (i) redeem, purchase or otherwiseacquire any Company Shares or any Commitments of the Company; (ii) effectany reorganization, recapitalization, merger or share exchange; or (iii) split,combine or reclassify any of its capital stock or issue or authorize or proposethe issuance of any other securities in respect of, in lieu of or insubstitution for, shares of its capital stock;

 

(d)                                 issue, deliver, award, grant or sell, orauthorize (by Contract or otherwise) the issuance, delivery, award, grant orsale (including the grant of any limitations in voting rights or otherEncumbrances) of, any Company Shares (including shares held in treasury) orother Equity Interests in or Securities of the Company, or Commitments forCompany Shares or other Equity Interests in or Securities of the Company(except for the issuance or sale of Company Shares pursuant to outstandingCommitments disclosed in the Disclosure Schedules), or Amend the terms of anysuch Commitments the effect of which shall be to make such terms more favorableto the holders thereof or less favorable to the Company;

 

(e)                                  acquire or agree to acquire, by mergingor consolidating with, by purchasing an Equity Interest in or a portion of theassets of, or by any other manner, any business or any Entity or divisionthereof, or otherwise acquire or agree to acquire any assets of any otherPerson (other than the purchase of assets from suppliers or vendors in theOrdinary Course of Business);

 

(f)                                    enter into any new real property,personal property or building Lease or Amend any existing Lease or Contractinvolving personal property that has the effect of increasing the Company’sLiabilities or diminishing its rights, powers or privileges thereunder;

 

(g)                                 Amend, or propose or take any action toAmend, any of its Organizational Documents;

 

(h)                                 make or rescind any express or deemedelection relating to Taxes, settle or compromise any Action or controversyrelating to Taxes, or change any of its methods of reporting income ordeductions for federal income Tax purposes from those employed in thepreparation of the federal income Tax Returns;

 

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(i)                                     make or agree to make any new capitalexpenditures which exceed, individually or in the aggregate, $10,000;

 

(j)                                     Transfer, Encumber or license, or agreeto Transfer, Encumber or license, any of its Property, except for Transfers,Encumbrances and licenses made in the Company’s Ordinary Course of Business;

 

(k)                                  (i) incur any Debt or Capital LeaseObligation, or Guarantee any Debt or Capital Lease Obligation of anotherPerson, except for borrowings incurred in the Ordinary Course of Businesspursuant to Contracts set forth on the Disclosure Schedules, or (ii) makeany loans, advances or capital contributions to, or investments in, or purchaseany Securities of, any other Person, except travel, expense and payrolladvances made to employees in the Ordinary Course of Business;

 

(l)                                     pay, discharge, settle or satisfy anyLiabilities, other than (i) payments, discharges or satisfactions ofobligations in the Ordinary Course of Business which are materially inaccordance with their terms or liabilities reflected or reserved against in theFinancials or (ii) payments on the Company’s Debt after providing noticeto Parent, or waive any material benefits of, or Amend or agree to Amend in anymaterial respect, any confidentiality, standstill or similar agreements towhich the Company is a party, or (iii) Expenses pursuant to Section 11.10;

 

(m)                               waive, release or assign any rights orclaims, or Amend or terminate any Contract, to which the Company is a party orof which the Company is a beneficiary;

 

(n)                                 make any change in any method ofaccounting or accounting practice or policy other than those required by GAAPor a Governmental Body;

 

(o)                                 take any action or fail to take anyaction that could reasonably be expected to have an adverse effect on theCompany prior to the Merger or an adverse effect on the Surviving Corporationor Parent after the Merger, or that would adversely affect the ability of theCompany prior to the Merger, or Parent or the Surviving Corporation after theMerger, to obtain Consents of third parties or Governmental Permits;

 

(p)                                 collect Accounts Receivable or payaccounts payable other than consistent with past practice and in the OrdinaryCourse of Business;

 

(q)                                 enter into or make any Contract orCommitment with, or Amend any existing Contract or Commitment with, any RelatedParty; or

 

(r)                                    take, propose to take, or commit or agreein writing or otherwise to take, any of the actions described in Section 5.1(a) through(q), or any actions which would, individually or taken together, make any ofthe representations or warranties made in Section 3.1 through Section 3.33,or otherwise made by the Company in this Agreement or any Related Agreement,untrue, misleading, incomplete or incorrect.

 

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Section 5.2.Reasonable Efforts and Further Assurances.

 

(a)           Subject to the terms and conditionsof this Agreement, each of Parent and the Company shall (i) obtain (andcooperate with the other Party to obtain) any Consent or Governmental Permitof, or any exemption by, any Governmental Body and any other third party whichis required to be obtained by the Company or Parent or any of their respectiveSubsidiaries (if any) in connection with the Transactions, and to comply withthe terms and conditions of any such Consent or Governmental Permit, (ii) obtainfrom any Governmental Bodies any material licenses or novation agreements, ifany, required to be obtained or made by Parent, Merger Sub, or the Company, inconnection with the authorization, execution and delivery of this Agreement andthe consummation of the Transactions and (iii) make all necessary filings,and thereafter making any other required submissions, with respect to thisAgreement and the consummation of the Transactions required under any otherapplicable Law; provided that Parent and the Company shall cooperate with eachother in connection with the making of all such filings and submissions,including providing copies of all such documents to the non filing party andits advisors prior to filing and discussing all reasonable additions, deletionsor changes suggested in connection therewith. The Company, Parent and Merger Sub shall furnish to each other allinformation, including regarding itself and its Affiliates and Representatives,required for any application or other filing to be made pursuant to applicableLaw in connection with the transactions contemplated by this Agreement.

 

(b)           In the event that the Company andParent fail to obtain any Governmental Permit, the Company shall take any suchactions reasonably requested by Parent to minimize any adverse effect upon theCompany and Parent and their respective Subsidiaries and their respectivebusinesses and operations, which could reasonably be expected to result afterthe Closing from the failure to obtain such Governmental Permit.

 

(c)           Subject to the terms and conditionsof this Agreement, each of Parent and the Company shall use commerciallyreasonable efforts to take, or cause to be taken, all actions, and to do, orcause to be done, all things necessary, proper or advisable to consummate andmake effective, as soon as practicable after the date of this Agreement, theTransactions, including using commercially reasonable efforts to lift orrescind any injunction or restraining order or other Order adversely affectingthe ability of such Party to consummate the Transactions, and use commerciallyreasonable efforts to defend any Action seeking to enjoin, prevent or delay theconsummation of the Transactions or seeking material damages.

 

Section 5.3.Certain Tax Matters.  From thedate hereof until the Closing, the Company (a) will prepare and timelyfile with the relevant Governmental Bodies all Tax Returns required to be filedby the Company during such period (“Post Signing Returns”), which Post SigningReturns shall be complete and accurate in all material respects, (b) willtimely pay all Taxes due and payable with respect to such Post Signing Returns,(c) will pay or otherwise make adequate provision for all Taxes payable bythe Company for which no Post Signing Return is due prior to the Closing, and (d) willpromptly notify Parent of any Action pending against or with respect to theCompany in respect of any Taxes.  TheCompany shall submit each Tax Return described in clause (a) of thepreceding sentence to Parent at least fifteen business days prior to the dateon which such Tax Return is to be filed, and the Company shall not file suchTax Return without Parent’s prior approval. Each such Tax Return shall be prepared and filed in

 

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a manner consistent with pastpractice and, on such Tax Return, no position shall be taken, election made ormethod adopted that is inconsistent with positions taken, elections made ormethods used in preparing and filing similar Tax Returns in prior periods.Without limiting the generality of the foregoing, the Company shall not, in anysuch Tax Return, adopt a new position, election or method that would have theeffect of (i) deferring income from periods or portions of periods endingon or before the Closing Date to periods or portions of periods commencingafter the Closing Date or (ii) accelerating deductions from periods orportions of periods commencing after the Closing Date to periods or portions orperiods ending on or before the Closing Date.

 

Section 5.4. Access to Information.

 

(a)           Between the date hereof and theEffective Time, the Company shall give to Parent and Merger Sub and theirauthorized Representatives reasonable access to all employees, consultants,contractors, offices, warehouses, properties and other facilities and to allbooks and records of such Company and will permit Parent and Merger Sub to makesuch reasonable inspections and reasonable investigations as Parent and Merger Submay from time to time in their sole discretion require.  The Company shall cause its Representativesto furnish to Parent and Merger Sub such financial, accounting, tax, businessand operating data and other information with respect to the business, operations,prospects, properties, and Representatives of such Company as Parent or MergerSub may from time to time reasonably request. Without limiting the generality of the foregoing, between the datehereof and the Closing Date, the Company shall permit Parent’s senior officersto meet with the chief financial officer, treasurer, controller and otherofficers of the Company responsible for the Financials, the internal controlsof the Company and the disclosure controls and procedures of the Company to discusssuch matters as Parent may deem reasonably necessary or appropriate for Parentto satisfy its obligations under Sections 302, 404 and 906 the Sarbanes-OxleyAct and any rules and regulations relating thereto

 

(b)           Each of Parent and Merger Sub will holdand will cause its authorized representatives to hold in confidence alldocuments and information concerning the Company furnished to Parent or MergerSub in connection with the Transactions pursuant to the terms of that certainNon-Disclosure Agreement entered into between the Company and Parent dated asof May 4, 2005.

 

Section 5.5.No Solicitation.  Until theearlier of: (a) the Closing Date; and (b) the termination of thisAgreement pursuant to its terms, the Company and the Key Stockholder shall not,and the Company and the Key Stockholder shall cause their respectiveRepresentatives not to, directly or indirectly: (i) initiate, solicit orencourage (including by way of furnishing information regarding the Company)any inquiries, or make any statements to third parties which may reasonably beexpected to lead to any proposal concerning the sale of the Company, itsbusinesses or its Property (whether by way of merger, purchase of capitalshares, purchase of assets or otherwise) (each, a “**CompetingTransaction**”); or (ii) hold any discussions or enter into anyagreements with, or provide any information or respond to, any third partyconcerning a proposed Competing Transaction or cooperate in any way with, agreeto, assist or participate in, solicit, consider, entertain, facilitate orencourage any effort or attempt by any third party to do or seek any of theforegoing.  If at any time prior to theearlier of (x) the Closing Date and (y) the

 

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termination of this Agreementpursuant to its terms, the Company or its Representatives are approached in anymanner by a third party concerning a Competing Transaction (a “**Competing Party**”), the Company promptly shall inform Parentregarding such contact and furnish Parent with a copy of any inquiry orproposal, or, if not in writing, a description thereof, including the name ofsuch Competing Party, and the Company shall keep Parent informed of the statusand details of any future notices, requests, correspondence or communicationsrelated thereto.

 

Section 5.6.Public Announcements; Employee Announcements.

 

(a)           Each of Parent, Merger Sub and theCompany will consult with one another before issuing any press release orotherwise making any public statements in respect of the Transactions and shallnot issue any such press release or make any such public statement prior tosuch consultation, except as may be required by applicable Law or byobligations pursuant to any listing agreement with the NASDAQ National Market,as determined by Parent.

 

(b)           Prior to the Effective Time, each ofParent, Merger Sub and the Company will consult with one another regarding anywritten and spoken statements to be made to the Company’s employees,consultants or independent contractors in respect of the Transactions, employeebenefits, employee compensation and other transition and integrationmatters.  All written communications andformal oral presentations shall be mutually agreed upon by Parent and theCompany prior to any such communication or presentation, and the Company shallnot make any written or oral statements to employees, consultants orindependent contractors inconsistent with the guidelines provided inconjunction with such consultation.

 

Section 5.7. Notification of Certain Matters.

 

(a)           The Company shall give prompt noticeto Parent and Merger Sub, and Parent and Merger Sub shall give prompt notice tothe Company, of (i) the occurrence or nonoccurrence of any fact or Eventthe occurrence or nonoccurrence of which would be likely to cause anyrepresentation or warranty contained in this Agreement to be untrue orinaccurate at or prior to the Effective Time, (ii) the discovery orreceipt of information or knowledge concerning any fact or circumstance whichwould be likely to cause any representation or warranty contained in thisAgreement to be untrue or inaccurate at or prior to the Effective Time, (iii) anyfailure of the Company, Parent or Merger Sub, as the case may be, to complywith or satisfy any covenant, condition or agreement to be complied with orsatisfied by it hereunder, (iv) any notice or other communication from anythird party alleging that the Consent of such third party is or may be requiredin connection with the Transactions, or (v) any facts or circumstancesthat could reasonably be expected to, individually or in the aggregate, resultin a Material Adverse Effect; provided that with respect to any Event,information, knowledge, failure, notice or communication referred to in clauses(i) through (iv) next above, a Party shall not be required to providenotice pursuant to this Section 5.7 unless such Event, information,knowledge, failure, notice or communication, taken together with all otherEvents, information, knowledge, failures, notices or communications describedbut not previously notified pursuant to this Section 5.7, shall bematerial to Parent, Merger Sub, or the Company. The delivery of any notice pursuant to this Section 5.7 shall notcure such Breach or non compliance or limit or otherwise affect the rights,obligations or remedies available hereunder to the Party receiving such notice.

 

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(b)           From the date of this Agreement untilthe earlier of the Closing or the termination of the Agreement, the Company andParent shall promptly notify each other in writing of any pending or, to theKnowledge of the Company or Parent, threatened action, proceeding orinvestigation by any Governmental Body or any other Person (A) challengingor seeking damages in connection with the Transactions, or (B) seeking torestrain or prohibit the consummation of the Transactions or otherwise limitthe right of Parent or its Subsidiaries to own or operate all or any portion ofthe business or assets of the Company.

 

Section 5.8.Return of Company Property. Unless otherwise mutually agreed by the Parties, prior to the ClosingDate the Company shall cause its directors, officers, employees, independentcontractors and consultants to return all property, equipment and assets of theCompany in their possession or made available to them by the Company, includingall leased property (collectively, the “**Company Property**”).The Company shall cause all Company Property to be onsite at the Company’sprimary business facility on the Closing Date or at such other location asParent shall request.

 

**ARTICLE VICONDITIONS TO CLOSING**

 

Section 6.1.Conditions to Obligations of Each Party Under This Agreement.  The respective obligations of each Party toeffect the Closing and the Transactions shall be subject to the condition thatno Governmental Body shall have enacted, issued, promulgated, enforced orentered any Law or Order (in each case, whether temporary, preliminary orpermanent), which is in effect and which prevents or prohibits consummation ofthe Transactions.

 

Section 6.2.Additional Conditions to the Obligations of Parent and Merger Sub.  The respective obligations of Parent andMerger Sub to consummate the Transactions are subject to the fulfillment at orprior to the Closing of each of the following additional conditions, any or allof which may be waived in writing in whole or part by Parent, to the extentpermitted by applicable Law:

 

(a)           Each of the representations andwarranties of or in respect of the Company and the Key Stockholder contained inthis Agreement shall be true and correct as of the date of this Agreement andshall be true and correct (except that where any statement in a representationor warranty expressly includes a “Material Adverse Effect” qualification or othermateriality and Knowledge qualifications, such statement shall be true andcorrect in all respects giving effect to such standards) as of the Closing Dateas though made as of the Closing Date, except for representations andwarranties which address matters only as of a particular date, whichrepresentations and warranties shall be true and correct as of such date.

 

(b)           The Company shall have performed orcomplied in all material respects with all agreements and conditions containedherein required to be performed or complied with by them prior to or on theClosing Date.

 

(c)           (i) The Company shall havedelivered to Parent a certificate, in substantially the form attached hereto asExhibit D-1, dated as of the Closing Date, signed by the ChiefExecutive Officer, the President and the Director of Finance of the Company,certifying

 

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the fulfillment of theconditions specified in Section 6.2(a) and (b); and (ii) the KeyStockholder shall have delivered to Parent a certificate, in substantially theform attached hereto as Exhibit D-2, dated as of the Closing Date,signed by the Key Stockholder.

 

(d)           There shall not have occurred aMaterial Adverse Effect on the Company.

 

(e)           There shall be no pending or threatenedAction (i) challenging or seeking to restrain or prohibit the consummationof the Transactions; (ii) relating to the Transactions and seeking toobtain from Parent, Merger Sub or the Company any damages that may be materialto Parent, Merger Sub or the Company; (iii) seeking to prohibit or limitin any respect Parent’s ability to vote, receive dividends with respect to orotherwise exercise ownership rights with respect to the stock of the Company orthe Surviving Corporation; (iv) which would have a Material Adverse Effecton the Company or a material adverse effect on Parent’s ability to operate theSurviving Corporation’s business, or to own, use and enjoy the Property of theSurviving Corporation, after the Merger; or (v) which, if adverselydetermined, could have a Material Adverse Effect on the Company or, after theMerger, Parent or the Surviving Corporation.

 

(f)            The Company, the Escrow Agent andthe Stockholder Agent shall have entered into the Escrow Agreement, which shallbe in full force and effect as of the Closing Date.

 

(g)           The Key Stockholder and EVault, Inc.shall have entered into the Voting Agreement, which shall be in full force andeffect as of the Closing Date.

 

(h)           Stockholders holding 100% of thecapital stock of the Company shall have approved this Agreement and the Mergerand the transactions contemplated thereby. No holder of capital stock of the Company shall have exercised or givennotice of its intent to exercise appraisal rights or dissenter rights inaccordance with applicable Law.

 

(i)            The Company and all Stockholdersshall have delivered to Parent certificates representing all shares of theCompany Stock, including shares issued upon the exercise of any Company Optionson or prior to the Closing Date.

 

(j)            At the Closing, the Company shallhave delivered or caused to be delivered to Parent all of the agreements,instruments and documents required to be delivered to Parent pursuant to theforegoing provisions of this Section 6.2, together with:

 

(i)            each Consent listed (or required tobe listed) on Section 3.7 of the Disclosure Schedules;

 

(ii)           an affidavit described in Code Section 1445(b)(3);

 

(iii)          the written and, other than withreference to the consummation of the Merger, unconditional resignations of allof the current members of the board of directors and of the current officers ofthe Company, effective as of the Effective Time;

 

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(iv)          the Capitalization and Payment Table,updated as of the Closing Date to the reasonable satisfaction of Parent;

 

(v)           a legal opinion of Davis WrightTremaine LLP, counsel to the Company, in form and substance reasonablysatisfactory to Parent and its legal counsel;

 

(vi)          certificates dated as of a date withina reasonable period of time prior to the Closing Date as to the good standingof the Company, executed by the appropriate officials of the State ofWashington and each other jurisdiction in which the Company is licensed orqualified to do business as a foreign corporation, as specified in Section 3.1of the Disclosure Schedules;

 

(vii)         agreements appointing the StockholderAgent as agent and attorney-in-fact, executed each Equity Holder and B3Consulting, in form and substance reasonably satisfactory to Parent and itslegal counsel;

 

(viii)        a certificate signed by the secretary ofthe Company certifying, as complete and accurate as of the Closing Date, (i) thecomplete Organizational Documents of the Company, (ii) the resolutions oractions of each of the stockholders and the boards of directors of the Companyapproving the execution, delivery and performance of this Agreement and theRelated Agreements and the consummation of the Transactions, (iii) theincumbency and signatures of the officers of the Company executing thisAgreement and the Related Agreements, as applicable, and (iv) such othermatters as Parent may reasonably request;

 

(ix)           the Option Amendment and Consentbetween the Company and each Cashed Out Option Holder that holds CompanyOptions in substantially the form attached hereto as Exhibit E;

 

(x)            the Note and Warrant Amendment andConsent between the Company and each Note Holder in substantially the formattached hereto as Exhibit F;

 

(xi)           an Acknowledgment and Consent of B3Consulting in substantially the form attached hereto as Exhibit G;

 

(xii)          an acknowledgment of receipt ofpayment from Ganapathy Krishnan with respect to the amount due to him in hiscapacity as a Special Payee, in form and substance reasonably acceptable toParent;

 

(xiii)         a counterpart signature page tothis Agreement, duly executed by any holder of a Company Option other thanCashed Out Option Holder who exercises a Company Option between the date hereofand the Effective Time, pursuant to which such holder will become a party tothis Agreement as an Equity Holder; and

 

(xiv)        such other documents and instruments asParent may reasonably request, each in form and substance satisfactory toParent and its legal counsel and executed by the Company, the StockholderAgent, the Equity Holders or the Special Payees.

 

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Section 6.3.Additional Conditions to the Obligations of the Company.  The obligations of the Company to consummatethe Transactions are subject to the fulfillment at or prior to the Closing of eachof the following conditions, any or all of which may be waived in writing inwhole or in part by the Company to the extent permitted by applicable Law:

 

(a)           All of the representations andwarranties of Parent and Merger Sub in this Agreement shall have been true andcorrect in all Material respects (considered individually and collectively) asof the date of this Agreement and shall be true and correct in all Materialrespects as of the Closing Date.

 

(b)           Parent and Merger Sub shall haveperformed, in all Material respects (considered collectively and individually),all covenants and obligations in this Agreement required to be performed byParent or Merger Sub as of the Closing Date.

 

(c)           Parent shall have delivered theEscrow Cash and the Expense Cash to the Escrow Agent pursuant to ARTICLE VIIof this Agreement.

 

(d)           Parent, Merger Sub and the EscrowAgent shall have entered into the Escrow Agreement.

 

**ARTICLE VIISURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION**

 

Section 7.1.Survival of Representations, Warranties and Covenants.

 

(a)           The representations and warranties ofthe Company and the Equity Holders, as the case may be, contained in thisAgreement, or in any certificate or other instrument delivered pursuant to thisAgreement, shall remain in effect until, and will expire on the date which isthe date eighteen (18) months following the Closing Date (the “**Termination Date**”), except that the representationscontained in Section 3.2 (Subsidiaries), Section 3.3 (CapitalStructure), Section 3.5 (Authority), Section 3.14 (Tax Matters), Section 3.16(Title of Properties, Absence of Liens and Encumbrances; Condition ofEquipment), Section 3.17 (Intellectual Property), Section 3.24(Environmental Matters) and Section 3.34 (Equity Ownership) shall surviveuntil the termination of the statute of limitations applicable to the subjectmatter of such representations. Notwithstanding the foregoing:

 

(i)            the Termination Date shall not applyto claims based upon fraud or willful misrepresentation; and

 

(ii)           the representation, warranty,covenant or obligation that is the subject matter of a Claim Notice (as definedin Section 7.1(c)) shall not so expire with respect to such Claim Noticeor any subsequent Claim Notice that is reasonably related to the subject matterof such Claim Notice, but rather shall remain in full force and effect untilsuch time as each and every claim that is based upon, or that reasonablyrelates to, any breach or alleged breach of such representation, warranty,covenant or obligation and that is reasonably related to the subject matter ofsuch Claim Notice or any such subsequent Claim Notice has been fully andfinally resolved, either by means of a written settlement agreement executed onbehalf of the

 

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Stockholder Agent and theIndemnified Party or by the dispute resolution procedure set forth in Section 7.6.

 

(b)           The representations, warranties,covenants and obligations of the Company, the Key Stockholder and the otherEquity Holders, as the case may be, and the rights and remedies that may beexercised by the Indemnified Parties, shall not be limited or otherwiseaffected by or as a result of any information furnished to, or anyinvestigation made by or any knowledge of, any of the Indemnified Parties orany of their Representatives.

 

(c)           For purposes of this Agreement, a “**Claim Notice**” relating to a particular representation,warranty, covenant or obligation shall be deemed to have been given if anyIndemnified Party, acting in good faith, delivers to the Stockholder Agent and,if a claim is to be made against the Escrow Fund, to the Escrow Agent a writtennotice stating that such Indemnified Party believes that there is or has been apossible breach of such representation, warranty, covenant or obligation andcontaining (i) a brief description of the circumstances supporting suchIndemnified Party’s belief that there is or has been such a possible breach;and (ii) a non-binding, preliminary estimate of the aggregate dollaramount of the actual and potential Losses that have arisen and may arise as adirect or indirect result of such possible breach.

 

(d)           It is the intent of the Parties thatall indemnification obligations under this ARTICLE VII shall apply withoutregard to whether or not (x) the indemnifying party was negligent or otherwiseat fault in any respect with regard to the existence or occurrence of any ofthe matters covered by any such indemnification obligation or (y) theindemnifying party otherwise caused or created, or is claimed to have caused orcreated, the existence or occurrence of any of the matters covered by any suchindemnification obligation, whether through its own acts or omissions orotherwise.  Notwithstanding theforegoing, the indemnification obligation of the indemnifying party shall bereduced to the extent that Parent or Merger Sub receives insurance proceeds orother payment from a third party that specifically covers the Damages for whichthe indemnifying party otherwise would be required to indemnify Parent andMerger Sub pursuant to this ARTICLE VII. If Parent or Merger Sub receives insurance proceeds or other paymentfrom a third party that specifically covers Losses for which one or more of theindemnifying parties previously paid Parent or Merger Sub pursuant to this ARTICLE VII,then Parent or Merger Sub shall refund to such indemnifying party an amountequal to the lesser of (i) the amount that such indemnifying partypreviously paid to Parent or Merger Sub relating to such Losses, or (ii) theamount of such insurance proceeds or other payment.

 

Section 7.2. Indemnification; Escrow Fund; Expense Fund.

 

(a)           The Equity Holders, the StockholderAgent and B3 Consulting agree that from and after the Closing Date, the EquityHolders and B3 Consulting (together, the “**Indemnifying Parties**”)shall, subject to Section 7.3, indemnify and hold Parent and its officers,directors, Representatives and affiliates harmless against all Losses incurredby Parent, its Representatives or affiliates (including the SurvivingCorporation) (collectively, the “**Indemnified Parties**”)directly or indirectly as a result of:

 

(i)            any inaccuracy or breach of arepresentation or warranty of the Company, the Key Stockholder or the otherEquity Holders, as the case may be, contained in:

 

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(A) this Agreement(without giving effect to any update of the Disclosure Schedules) both as ofthe date of this Agreement and as of the Closing Date as if made on and as ofthe Closing Date; (B) any of the Transaction Documents; or (C) or inany certificate, instrument or other document delivered by the Company, the KeyStockholder or the other Equity Holders, as the case may be, pursuant to theterms of this Agreement (without giving effect to any update of the DisclosureSchedules); or

 

(ii)           any failure by the Company, the KeyStockholder, the other Equity Holders or B3 Consulting to perform or complywith any covenant contained in the Transaction Documents.

 

(b)           As security for the indemnity providedto the Indemnified Parties in this Article VII and by virtue of thisAgreement and the Certificate of Merger, Parent will deposit the Escrow Cashinto the Escrow Fund.  The Escrow Fundshall be in existence immediately following the Closing Date and shallterminate, subject to the terms and conditions of Section 7.1(a), at 5:00 p.m.,Pacific Time on the Termination Date.

 

(c)           As security for all out of pocketexpenses reasonably incurred by the Stockholder Agent in the performance of itsduties pursuant to this Agreement and the Escrow Agreement, Parent will depositthe Expense Cash into the Expense Fund. The Expense Fund shall be in existence immediately following the ClosingDate and shall terminate, subject to the terms and conditions of Section 7.1(a),at 5:00 p.m., Pacific Time, on the Termination Date.  The Expense Fund may be released, in whole orin part, solely upon written authority of the Stockholder Agent.

 

Section 7.3. Limitation on Indemnification.  

 

(a)           Notwithstanding any provision of thisAgreement to the contrary, after the Closing Date, the Indemnifying Partiesshall have no obligation to indemnify any Indemnified Party until the aggregateof all Losses suffered by the Indemnified Parties exceeds $50,000 (the “BasketAmount”), in which case an Indemnified Parties shall be entitled to recover allLosses including the Basket Amount; provided, however, any amounts required tobe paid resulting from any failure by the Company or the Key Stockholder toperform or comply with any covenant contained in the Transaction Documentsshall not be subject to such Basket Amount; and provided further, however, thatany Losses incurred by any Indemnified Party as a result of (i) any breachor inaccuracy of the representations contained in Section 3.25, or (ii) anyfraudulent or willful breach by the Company or any Equity Holder of anyrepresentation or warranty contained in (A) this Agreement (without givingeffect to any update of the Disclosure Schedules), (B) any of theTransaction Documents, or (C) in any certificate, instrument or otherdocument delivered by the Company, the Key Stockholder, the other EquityHolders or the Special Payees pursuant to the terms of this Agreement (withoutgiving effect to any update of the Disclosure Schedules), shall not be subjectto such Basket Amount.

 

(b)           In the event any Indemnified Party shallsuffer any Losses for which such Indemnified Party is entitled toindemnification under this ARTICLE VII, such Indemnified Party shall beentitled to recover such Losses by obtaining that amount of Escrow Cashequivalent in value (as determined in accordance with the terms and conditionsof the Escrow

 

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Agreement) to theaggregate amount of such Losses pursuant to the terms of the Escrow Agreement,and such recovery shall be made from the Escrow Fund.  As set forth in the Escrow Agreement andsubject to Section 7.10, the Indemnifying Parties (other than the KeyStockholder) shall have no liability for Losses in excess of the Escrow Fundheld under the Escrow Agreement; provided, however, that each Equity Holdershall be liable for Losses up to the total value of the Equity Considerationreceived by such Equity Holder for any breach by such EquityHolder of the representations set forth in Section 3.34 of thisAgreement.  The Key Stockholder shall beliable for Losses but only up to the total value of the Stock Considerationreceived by the Key Stockholder, determined as of the Closing Date.  Any and all Losses incurred by an IndemnifiedParty shall first be recovered from the Escrow Fund to the extent Escrow Cashremains available.  Notwithstanding anyother provision set forth herein, in the event of a breach of Section 3.34of this Agreement by an Equity Holder, the Indemnified Party shall be entitledto recover the full amount of such Losses from the portion of the Escrow Cashthat may be distributable on the Termination Date to the breaching EquityHolder, and if such amount is insufficient to cover all of such Losses: (i) fromthe remainder of the Escrow Cash that may be distributable on the TerminationDate to all other Indemnifying Parties if the breaching Equity Holder has notsigned this Agreement (either personally or through Ganapathy Krishnan as itsattorney in fact), and (ii) only from the breaching Equity Holder up tothe total value of such Equity Holder’s Equity Consideration if it has signedthis Agreement (either personally or through Ganapathy Krishnan as its attorneyin fact).

 

(c)           Subject to Section 7.8 and anyclaim based on the enumerated representations set forth in Section 7.1(a),no claim for indemnification hereunder or otherwise with respect to a breach ofthis Agreement may be made by any Indemnified Party after the Termination Date.

 

Section 7.4.Indemnification Procedures.  Allclaims for indemnification under this ARTICLE VII shall be asserted andresolved as follows:

 

(a)           Third-Party Claims.  In the event any Indemnified Party becomesaware of a third-party claim that Parent believes may result in a demandagainst the Escrow Fund or otherwise, Parent shall notify the Stockholder Agentof such claim, and the Stockholder Agent, as representative for theIndemnifying Parties, shall be entitled, at its expense, to participate in, butnot to determine or conduct, the defense of such claim.  The Indemnified Parties shall have the rightin their sole discretion to conduct the defense of and settle any such claim;provided, however, that except with the written consent of the StockholderAgent, no settlement of any such claim with third-party claimants shall alonebe determinative of the amount of Losses relating to such matter (and anydispute related thereto shall be resolved pursuant to the dispute resolutionprocedures described in Section 7.4(b) and Section 7.6).  In the event that the Stockholder Agent hasconsented to any such settlement, neither the Stockholder Agent nor any of theIndemnifying Parties, shall have the power or authority to object to the amountof any claim by any Indemnified Party against the Escrow Fund or otherwise withrespect to such settlement.

 

(b)           Non-Third Party Claims.  In the event an Indemnified Party has a claimhereunder that does not involve a claim being asserted against or sought to becollected by a third party, the Indemnified Party shall with reasonablepromptness send a Claim Notice with respect

 

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to such claim to theStockholder Agent and, if the Indemnified Party intends to make a claim againstthe Escrow Fund, to the Escrow Agent.  Ifthe Stockholder Agent does not notify the Indemnified Party within thirty (30)calendar days from the date of receipt of such Claim Notice that indemnifyingparty disputes such claim, the amount of such claim shall be conclusively deemeda liability of the indemnifying party hereunder.  In case the Stockholder Agent shall object inwriting to any claim made in accordance with this Section 7.4(b), theIndemnified Party shall have fifteen (15) calendar days to respond in a writtenstatement to the objection of the Stockholder Agent.  If after such fifteen (15) calendar dayperiod there remains a dispute as to any claim, the parties shall attempt ingood faith for sixty (60) calendar days to agree upon the rights of therespective parties with respect to each of such claims.  If the parties should so agree, a memorandumsetting forth such agreement shall be prepared and signed by both parties.  If the parties do not so agree, the partiesshall resolve such dispute pursuant to Section 7.6.  If the Indemnified Party is making a claimagainst the Escrow Fund, the Escrow Agent shall refrain from disbursing anyportion of the Escrow Fund until resolution of such dispute pursuant to Section 7.6.

 

(c)           An Indemnified Party’s failure togive reasonably prompt notice to the indemnifying party of any actual,threatened or possible claim or demand which may give rise to a right ofindemnification hereunder shall not relieve the indemnifying party of anyliability which the indemnifying party may have to the Indemnified Party unlessthe failure to give such notice materially and adversely prejudiced theindemnifying party.

 

Section 7.5. Stockholder Agent.

 

(a)           Each of the Indemnifying Parties hasirrevocably appointed and constituted the Stockholder Agent as their agent andattorney-in-fact to do the following: (i) with respect to all IndemnifyingParties (including the Key Stockholder), to give and receive notices andcommunications, to agree to, negotiate, enter into settlements and compromisesof, and demand arbitration and comply with orders of courts and awards ofarbitrators with respect to claims made under this ARTICLE VII, and totake all actions necessary or appropriate in the judgment of the StockholderAgent for the accomplishment of the foregoing, and (ii) with respect toIndemnifying Parties other than the Key Stockholder, to sign this Agreement andto agree to the transactions contemplated thereby, including, withoutlimitation, the deposit of the Escrow Cash into the Escrow Fund, the use of theEscrow Cash as collateral to secure the rights of the Indemnified Parties underthis ARTICLE VII in the manner set forth herein and in the EscrowAgreement, the deposit of the Expense Cash into the Expense Fund and the use ofthe Expense Cash to pay all out of pocket expenses reasonably incurred by theStockholder Agent in the performance of its duties hereunder.  Such agency may be changed (whether pursuantto vacancy, removal or resignation) by the vote of a majority of theIndemnifying Parties from time to time upon not less than thirty (30) calendardays prior written notice to Parent, except for the agency described in clause (ii) inthe preceding sentence, which may not be changed after the Closing Date.  No bond shall be required of the StockholderAgent, and the Stockholder Agent shall receive no compensation for itsservices, except for (x) payment by the Indemnifying Parties of expenses,including fees of counsel, reasonably incurred by the Stockholder Agent inconnection with the performance of its duties hereunder and (y) payment of anyinterest that accrues on the Escrow Cash and the Expense Cash during the EscrowPeriod and that is available for distribution to the Stockholder Agent at theend of the Escrow Period, pursuant to the terms

 

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of the EscrowAgreement.  Such expenses may be paid bythe Indemnifying Parties out of (i) the Expense Fund at any time, solelyat the discretion of the Stockholder Agent or (ii) the Escrow Fund, infull or in part, only after the Termination Date and only if Escrow Cash notsubject to any Claim Notice exists in the Escrow Fund at that time to coversuch payment.

 

(b)           The Stockholder Agent shall not beliable for any act done or omitted hereunder as Stockholder Agent while actingin good faith, and any act done or omitted pursuant to the advice of counselshall be conclusive evidence of such good faith.  The Indemnifying Parties shall severallyindemnify the Stockholder Agent and hold such agent harmless against any loss,liability or expense incurred without bad faith on the part of the StockholderAgent and arising out of or in connection with the acceptance or administrationof the Stockholder Agent’s duties hereunder. The Stockholder Agent may recover from the Expense Fund, all reasonablecosts and expenses incurred by the Stockholder Agent in connection with theperformance of his duties set forth in this Agreement.  If the Stockholder Agent incurs fees andexpenses in excess of the Expense Fund, the Indemnifying Parties agree to payall amounts requested by the Stockholder Agent within five (5) days of anysuch request.  Any such additionalamounts in excess of the Expense Fund must be approved by the IndemnifyingParties representing a majority in interest of the Escrow Fund and shall beallocable among (and shall be paid by) the Indemnifying Parties based on theirrespective pro rata portions of the Expense Fund.  Subject to the prior right of the Parent tomake claims for damages (including the limitations set forth in Section 7.5(a) above),the Stockholder Agent, with the consent of the Indemnifying Parties entitled toa majority in interest in the Escrow Fund, may recover from the Escrow Fundprior to any payment to the Indemnifying Parties, reasonable costs and expensesincurred by the Stockholder Agent in excess of the Expense Fund and inconnection with the performance of his duties set forth in this Agreement.

 

(c)           A decision, act, consent orinstruction of the Stockholder Agent shall constitute a decision of allIndemnifying Parties, and shall be final, binding and conclusive upon eachEquity Holder, and Parent may rely upon any decision, act, consent orinstruction of the Stockholder Agent taken in such manner as being thedecision, act, consent or instruction of each and every Equity Holder.  Parent is hereby relieved from any liabilityto any person for any acts done by them in accordance with such decision, act,consent or instruction of the Stockholder Agent.

 

Section 7.6. Resolution of Conflicts.

 

(a)           Arbitration.  If no agreement can be reached after goodfaith negotiation between the parties pursuant to Section 7.4(b), eitherthe Indemnified Party or the Stockholder Agent may, by written notice to theother, demand arbitration of the matter, which arbitration shall be conductedby a single arbitrator.  The IndemnifiedParty and the Stockholder Agent shall agree on the arbitrator, provided that ifthe Indemnified Party and the Stockholder Agent cannot agree on sucharbitrator, either the Indemnified Party or the Stockholder Agent can requestthat Judicial Arbitration and Mediation Services (“**JAMS**”)select the arbitrator.  The arbitratorshall set a limited time period and establish procedures designed to reduce thecost and time for discovery while allowing the parties an opportunity, adequatein the sole judgment of the arbitrator, to discover relevant information fromthe opposing parties about the subject matter of the dispute.  The arbitrator shall rule upon motionsto compel or limit discovery and shall have

 

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the authority to imposesanctions, including attorneys’ fees and costs, to the same extent as a courtof competent law or equity, should the arbitrator determine that discovery wassought without substantial justification or that discovery was refused orobjected to without substantial justification. The decision of the arbitrator shall be written, shall be in accordancewith applicable Law and with this Agreement, and shall be supported by writtenfindings of fact and conclusion of law, which shall set forth the basis for thedecision of the arbitrator.  The decisionof the arbitrator as to the validity and amount of any claim in a Claim Noticeshall be binding and conclusive upon the parties, and notwithstanding any otherprovision of this ARTICLE VII, the Escrow Agent, if applicable, and theparties shall be entitled to act in accordance with such decision and theEscrow Agent, if applicable, shall be entitled to make or withhold payments outof the Escrow Fund in accordance therewith.

 

(b)           Judgment; ArbitrationExpenses.  Judgment upon any award rendered by thearbitrator may be entered in any court having jurisdiction.  Any such arbitration shall be held in SanDiego, California under the commercial rules then in effect for JAMS.  The non-prevailing party to an arbitrationshall pay its own expenses, the fees of the arbitrator, any administrative feeof JAMS, and the expenses, including attorneys’ fees and costs, reasonablyincurred by the other Parties to the arbitration.

 

Section 7.7.No Contribution.  The StockholderAgent waives, and acknowledges and agrees that it shall not, on behalf of theIndemnifying Parties, or otherwise, have and shall not exercise or assert (orattempt to exercise or assert), any right of contribution, right of indemnityor other right or remedy against the Surviving Corporation in connection withany indemnification or other rights any Indemnified Party may have under or inconnection with this Agreement.

 

Section 7.8.Fraud; Willful Misrepresentation. Notwithstanding any provision in this Agreement to the contrary, theliability of any Equity Holder (other than the Key Stockholder) for fraud orwillful misrepresentation on the part of such Equity Holder shall not belimited as set forth above, and any claim with respect to such liability neednot be presented within the time limits set forth in Section 7.1(a) andshall be subject only to applicable statutes of limitation.  Notwithstanding any provision in this Agreementto the contrary, the liability of the Key Stockholder for fraud or willfulmisrepresentation on the part of the Key Stockholder shall not be limited asset forth above, and any claim with respect to such liability need not bepresented within the time limits set forth in Section 7.1(a) andshall be subject only to applicable statutes of limitation.  For purposes of this Agreement, any breach ofthe representations set forth in Section 3.17(l) of this Agreement thatare qualified by “Actual Knowledge” shall be deemed a willfulmisrepresentation.

 

Section 7.9.Remedies Cumulative.  Subject tothe limitations and qualifications set forth in this ARTICLE VII, theremedies provided herein shall be cumulative and shall not preclude theassertion by the parties hereto of any other rights or the seeking of any otherremedies under applicable law (including rescission in the event of fraud)against the other parties, or their respective successors or assigns.

 

Section 7.10.Purchase Price Adjustment.  Anypayments made pursuant to this ARTICLE VII shall be treated for taxpurposes as an adjustment to the Purchase Price.

 

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**ARTICLE VIIIPOST-CLOSING COVENANTS**

 

Section 8.1.Company Intellectual Property. Each of the Equity Holders and Special Payees agrees that, from andafter the Closing Date, it shall not, and it shall cause its Representativesnot to, use any of the Intellectual Property of the Company (other thanpursuant to a written agreement with the Company).

 

Section 8.2.Cooperation.  After the ClosingDate, upon the request of Parent, the Company and the Key Stockholder shall: (i) executeand deliver any and all further materials, documents and instruments ofconveyance, transfer or assignment as may reasonably be requested by theCompany or Merger Sub to effect, record or verify the transfer to and vestingin Parent, Merger Sub and the Surviving Corporation of the Company’s right,title and interest in and to any Property of the Company, free and clear of allEncumbrances, in accordance with the terms of this Agreement; and (ii) cooperatewith Parent and Merger Sub to enforce the terms of any Contracts, includingterms relating to confidentiality and Intellectual Property, and to contest ordefend against any Action relating to the Transactions or to the operation ofthe Company’s business before the Closing Date. After the Closing Date, the Key Stockholder shall: (a) cooperatewith the Company and Parent in their efforts to continue and maintain after theEffective Time for the benefit of Parent those business relationships of theCompany existing prior to the Closing Date; (b) refer to Parent allinquiries relating to the Company; and (c) promptly deliver to the Company(i) any mail, packages and other communications addressed to the Companyand (ii) any cash or other property that Key Stockholder receives and thatproperly belongs to Parent or Merger Sub, including any insurance proceeds,payments with respect to receivables, and interest payable thereon.  The Key Stockholder shall not, and shall causehis Representatives (if applicable) not to, take any action that would tend tointerfere with the business of Parent, the Company or Merger Sub after theClosing Date, including disparaging the name or business of Parent, the Companyor Merger Sub.

 

Section 8.3.Non-Disclosure and Non-Compete.

 

(a)           Definitions.  For all purposes of this Section 8.3only, the following terms shall have the following respective meanings:

 

(i)            “**NoncompetitionPeriod**” means the period commencing with the Closing Date and endingon the second anniversary of the Closing Date.

 

(ii)           “**Competitive Activity**”means directly or indirectly (or having any interest in, or performing anyservices for, any Person directly or indirectly): (i) engaging in anyactivity that is the same as, similar to, or competitive with the business ofthe Company or Surviving Corporation; (ii) engaging in the development ordistribution of any product that is the same as, similar to, or competitivewith any Company Products or other products being developed, distributed, sold,licensed, leased or delivered by the Company or Parent or its Subsidiaries,including the Surviving Corporation, during the Noncompetition Period; (iii) solicitingfor employment or recommending for employment any Person then employed by orconsulting for Parent or any Affiliate of Parent during such Person’semployment with or consultancy for Parent or any Affiliate of Parent or for two(2) years thereafter; or (iv) diverting

 

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or attempting to divertfrom Parent or any Affiliate of Parent any business of any kind in which theyare engaged or are proposed to be engaged, including the solicitation of orinterference with any suppliers, contractors, or customers.  The term “Competitive Activity” shall notinclude the ownership of up to one percent (1%), on a fully-diluted basis, ofthe total shares of all classes of stock outstanding of any Entity havingsecurities listed on a national securities exchange registered under Section 6of the Exchange Act, or traded on the NASDAQ Stock Market National MarketSystem.  The term “Competitive Activity”shall not include any activities conducted on behalf of Parent or the SurvivingCorporation by the Key Stockholder in connection with his employment by Parentor the Surviving Corporation.

 

(iii)          “**Confidential Information**”means all Trade Secrets and other confidential or proprietary information ofthe Company, including information derived from reports, investigations,research, work in progress, codes, marketing and sales programs, financialprojections, cost summaries, pricing formula, contract analyses, financialinformation, projections, confidential filings with any Governmental Body, andall other confidential concepts, methods of doing business, ideas, materials orinformation prepared or performed for, by or on behalf of such Person by itsemployees, officers, directors, agents, representatives, or consultants;provided that information shall not be deemed Confidential Information if: (i) suchinformation becomes available to or known by the public generally through nofault of the Company or an Equity Holder; or (ii) disclosure is requiredby law or the Order of any Governmental Body under color of law, provided,however, that prior to disclosing any information pursuant to this clause (ii),the Company or the applicable Equity Holder shall, if possible, give priorwritten notice thereof to Parent and, at Parent’s election, either provideParent with the opportunity to contest such disclosure or seek to obtain aprotective order narrowing the scope of such disclosure or use of theConfidential Information.

 

(iv)          “**Restricted Territory**”means every state, territory, country or jurisdiction in which the Company hascarried on business prior to the Closing Date.

 

(b)           The Key Stockholder agrees that, forand in consideration of the Merger, during the Noncompetition Period, he shallnot engage in any Competitive Activity in the Restricted Territory.

 

(c)           It is the understanding of theParties that the scope of the covenants contained in this Section 8.3,both as to time and area covered, are necessary to protect the rights of Parentand the goodwill that is a part of the Company to be acquired by Parent and MergerSub.  It is the Parties’ intention thatthese covenants be enforced to the greatest extent (but to no greater extent)in time, area, and degree of participation as is permitted by the law of thatjurisdiction whose law is found to be applicable to any acts in breach of thesecovenants.  It being the purpose of thisAgreement to govern competition by the Key Stockholder in the RestrictedTerritory, these covenants shall be governed by and construed according to thatlaw (from among those jurisdictions arguably applicable to this Agreement andthose in which a breach of this Agreement is alleged to have occurred or to bethreatened) that best gives them effect. The prohibitions in Section 8.3(b) shall be deemed, and shallbe construed as, separate and independent agreements between Parent and MergerSub on the one hand, and the Key Stockholder, on the other.  If any such agreement or any part of suchagreement is held invalid, void or unenforceable by any court of competentjurisdiction, such invalidity, voidness, or

 

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unenforceability shall inno way render invalid, void, or unenforceable any other part thereof or anyseparate agreement not declared invalid, void or unenforceable; and thisAgreement shall in such case be construed as if the invalid, void, orunenforceable provisions were omitted.

 

(d)           The Parties agree that the covenantsof the Key Stockholder not to compete contained in this Section 8.3 may beassigned by Parent or Merger Sub to any Person to whom may be transferred thebusiness of the Surviving Corporation or any portion thereof after theEffective Time.  It is the Parties’intention that these covenants of the Key Stockholder shall inure to thebenefit of any Person that may succeed to the Company or its business or anyportion thereof with the same force and effect as if these covenants were madedirectly with such successor.

 

(e)           After the Closing Date, except as maybe required for tax purposes or other regulatory purposes, neither the EquityHolders, the Special Payees nor any of their respective successors, heirs,assigns or Representatives, as applicable, shall: (a) retain any document,databases or other media embodying any Confidential Information of the Companyor reproduce, use, publish or disclose to any third person any ConfidentialInformation; or (b) reproduce, use, publish or disclose any ConfidentialInformation concerning Parent or its Affiliates.  In the event of any termination of thisAgreement: (i) each Equity Holder and Special Payee shall treat asconfidential and proprietary and shall not disclose or use, directly orindirectly, in any manner whatsoever, or permit others under its control todisclose or to use, any information concerning Parent or any Affiliate of Parentor their respective businesses or products obtained pursuant to or inconnection with this Agreement or the Merger or which are the subject matter ofthis Agreement, unless such information is or becomes a matter of publicknowledge through no fault of such Equity Holder or Special Payee or can beshown to have been in the possession of such Equity Holder or Special Payeeprior to disclosure by Parent or an Affiliate of Parent; and (ii) eachEquity Holder and Special Payee shall promptly return to Parent upon writtenrequest all written information and documents received from Parent or anyAffiliate of Parent or any of their respective Representatives, in connectionwith the Merger, including all copies thereof and excerpts therefrom, (iii) Parentshall treat as confidential and proprietary and shall not disclose or use,directly or indirectly, in any manner whatsoever, or permit others under itscontrol to disclose or to use, any information concerning Company or itsbusinesses or products obtained pursuant to or in connection with thisAgreement or the Merger or which are the subject matter of this Agreement,unless such information is or becomes a matter of public knowledge through nofault of Parent or can be shown to have been in the possession of Parent priorto disclosure by Company; and (iv) Parent shall promptly return to Companyupon written request all written information and documents received fromCompany or any of its Representatives, in connection with the Merger, includingall copies thereof and excerpts therefrom.

 

(f)            The Parties agree that, in the eventof breach or threatened breach of the covenants in this Section 8.3, thedamage or imminent damage to the value and the goodwill of the non-breachingparty will be irreparable and extremely difficult to estimate, making anyremedy at law or in damages inadequate. Accordingly, the Parties agree that the non-breaching party shall beentitled to injunctive relief against the breaching party, in the event of anybreach or threatened breach of any of such covenants by such breaching party,in addition to any other

 

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relief (includingdamages) available to the non-breaching party under this Agreement or underapplicable law.

 

Section 8.4. Employees; Employee Benefits.

 

(a)           Subject to applicable law, on andafter the Closing, to the extent practicable, Parent shall provide eachTransferred Employee credit with respect to each employee benefit plan ofParent in which such Transferred Employee participates, for service prior tothe Closing Date with the Company, for purposes of determining eligibility andvesting and for any other purpose for which such service is currentlyrecognized under a comparable Company employee benefit plan for such purpose; provided,however, such service need not be credited to the extent it would result in aduplication of benefits, including benefit accrual under defined benefit plansor determination of level of benefits. Such service also shall apply, to the extent practicable, for purposesof satisfying any waiting periods, evidence of insurability requirements, orthe application of any preexisting condition limitations applicable under anyemployee benefit plans of Parent in which such Transferred Employee participates.

 

(b)           If any Transferred Employee isdischarged by Parent after (but not prior to) the Closing, then Parent shall beresponsible for any and all severance costs for such Transferred Employee, tothe extent such payments are owing under those agreements, plans orarrangements listed in the Disclosure Schedules, all liability for all noticesor payments due to any Transferred Employee after the Closing pursuant to anyagreements, the WARN Act or Applicable Law, and under any arrangements providedby Parent to such Transferred Employee. The Company shall be responsible and assumes all liabilities for any andall severance costs, notices and payments including, but not limited to wages,vacation pay and reimbursement earned through the Closing Date due to any employeesof the Company terminated, or given notice of termination, prior to theClosing, pursuant to any agreements, plans or arrangements, the WARN Act orother Applicable Law.  All payments andobligations of the Company due and owing prior to the Closing Date shall bepaid or fulfilled by the Company prior to the Closing Date.

 

(c)           Company shall provide to Parent suchinformation necessary or appropriate for Parent to provide benefits toTransferred Employees pursuant to this Section 8.4, including, but notlimited to, confirmation of a Transferred Employee’s termination of employmentfrom Company.

 

(d)           The Company will pay, prior to theClosing Date, all applicable premiums for all compensation and employeebenefits due before the Closing Date.

 

Section 8.5.Indemnification of Directors and Officers.  Parent will, and will cause the SurvivingCorporation to ensure that the Articles of Incorporation and Bylaws of theSurviving Corporation contain provisions with respect to indemnification ofdirectors and officers whereby directors and officers will be indemnified bythe Surviving Corporation to the fullest extent permissible by applicablelaw.  Such provisions shall not beamended, repealed or otherwise modified in any manner that would adverselyaffect the rights thereunder of individuals who, immediately prior to theEffective Time, were directors and officers of the Company, unless suchmodification is required by law.  Parentwill cause the Surviving

 

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Corporation to honor andfulfill the obligations of the Company pursuant to any indemnificationagreements, as currently in effect, between the Company and its officers anddirectors.

 

Section 8.6.Attorney-Client Privilege and Legal Files. Parent and Merger Subacknowledge and agree that, effective upon the Effective Time, (i) theattorney-client privilege regarding this Agreement and all transactionscontemplated hereby shall not continue as the privilege of the SurvivingCorporation but instead shall be the sole privilege of the Equity Holdersacting through the Stockholder Agent; and (b) all files of counsel to theCompany regarding the transactions contemplated by this Agreement (includingpreparations in contemplation of such transactions) shall become the propertyof the Equity Holders acting through the Stockholder Agent.

 

**ARTICLE IXEMPLOYEES**

 

Section 9.1.Transferred Employees.  Parent orMerger Sub may, but shall have no obligation to, offer employment, to beeffective as of the Closing Date and contingent upon the closing of the Merger,on terms to be determined by Parent, to those employees of the Company who arelisted on Schedule 9.1 (collectively, the “**TransferredEmployees**”).  The Companyshall terminate the employment, to be effective as of the Closing Date, of anyemployees of the Company who are not Transferred Employees.  The Parties acknowledge and agree that it isnot the intention of the Parties that any contracts of employment of anyemployees of the Company shall be assumed by Parent or Merger Sub, or bebinding upon the Surviving Corporation, as a result of the Merger.  The Company shall use its best efforts to (i) encouragethe Transferred Employees to continue their employment with the Company untilthe Closing Date and thereupon to accept employment with Parent or Merger Sub,and (ii) assist Parent or Merger Sub in employing Transferred Employees.

 

Section 9.2.Employee Benefit Arrangements.  Inorder to secure an orderly and effective transition of the employee benefitarrangements for Transferred Employees and their respective beneficiaries anddependents, the Company and the Key Stockholder shall cooperate, both beforeand after the Closing Date, with Parent to (i) provide to Parentinformation related to the Transferred Employees, including employment records,benefits information, and financial statements, and (ii) take any otheractions requested by Parent or the Surviving Corporation with respect to theTransferred Employees and their respective beneficiaries and dependents.

 

Section 9.3.Compliance with Applicable Law and Other Obligations.  Prior to the Closing Date, at its sole costand expense, the Company shall take all actions necessary to comply with anyapplicable Law in connection with the Company’s employment of its employees,including the Worker Adjustment and Retraining Notification Act of 1988, asamended (the “**WARN Act**”).  The Company shall be solely responsible,before and after the Closing Date, for the payment of any amounts required tobe paid under any applicable Law, including the WARN Act and any similar statelaws, as a result of the termination or layoff prior to the Effective Time ofany employee of the Company who is not a Transferred Employee in connectionwith the Merger, and the Indemnifying Parties shall indemnify Parent and Merger

 

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Sub for the payment of any suchamounts pursuant to ARTICLE VII. Prior to the Closing Date, the Company shall perform all of itscontractual and other obligations in connection with the employment of itsemployees.

 

Section 9.4.No Benefit to the Company Employees Intended.  This ARTICLE IX is not intended to, anddoes not, create any rights or obligations to or for the benefit of any Personother than Parent and Merger Sub.

 

**ARTICLE XTERMINATION**

 

Section 10.1.Circumstances for Termination.  Atany time prior to the Effective Time, this Agreement may be terminated bywritten notice explaining the reason for such termination (without prejudice toother remedies which may be available to the Parties under this Agreement, atlaw or in equity):

 

(a)           by the mutual written consent ofParent and the Company;

 

(b)           by Parent if: (i) the Company orany of the Key Stockholder is in material breach of any material provision ofthis Agreement; and (ii) Parent and Merger Sub are not, on the date oftermination, in material breach of any material provision of this Agreement;

 

(c)           by the Company if: (i) Parent orMerger Sub is in material breach of any material provision of this Agreement;and (ii) the Company and the Key Stockholder are not, on the date oftermination, in material breach of any material provision of this Agreement;

 

(d)           by either Parent or the Company if: (i) theclosing of the Merger has not occurred on or prior to August 31, 2005 forany reason; and (ii) the terminating Party is not, on the date oftermination, in material breach of any material provision of this Agreement;and

 

(e)           by either Parent or the Company if: (i) satisfactionof a closing condition of the terminating Party in Article 11 isimpossible; and (ii) the terminating Party is not, on the date oftermination, in material breach of any material provision of this Agreement.

 

Section 10.2.Effect of Termination.  If thisAgreement is terminated in accordance with Section 10.1, all obligationsof the Parties hereunder shall terminate, except for the obligations set forthin Article XI and Section 8.3(e), as well as the obligations in Section 5.4(b) relatingto the Non-Disclosure Agreement dated May 4, 2005 between Parent and theCompany; provided, however, that nothing herein shall relieve any Party fromliability for the breach of any of its representations, warranties, covenantsor agreements set forth in this Agreement.

 

**ARTICLE XIMISCELLANEOUS**

 

Section 11.1.Entire Agreement.  This Agreement,together with the Voting Agreements, the Escrow Agreement, other Exhibits, theDisclosure Schedules and the Non-Disclosure Agreement between the Company andParent dated May 4, 2005, and the certificates,

 

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documents, instruments, andwritings that are delivered pursuant to any of them, together constitute theentire agreement and understanding of the Parties in respect of its and theirsubject matter and supersedes all prior understandings, agreements, orrepresentations by or among the Parties, written or oral, to the extent theyrelate in any way to the subject matter hereof or the transactions contemplatedby this agreement.

 

Section 11.2.Parties In Interest.  This Agreementshall be binding upon and inure solely to the benefit of each Party and itssuccessors and permitted assigns and nothing in this Agreement, express orimplied, is intended to or shall confer upon any other Person (other thanParent Indemnified Persons) any rights, benefits or remedies of any naturewhatsoever under or by reason of this Agreement.

 

Section 11.3.Assignment; Amendment.

 

(a)           Assignment.  Without prejudice to Section 8.3(d),neither this Agreement nor any of the rights, interests or obligationshereunder shall be assigned by operation of Law (including, by merger orconsolidation) or otherwise; provided, however, that prior to the Closing,Merger Sub, and following the Effective Time, the Surviving Corporation, mayassign, in its sole discretion, any or all of its rights, interests andobligations under this Agreement to any direct wholly owned Subsidiary ofParent, but no such assignment shall relieve Parent or Merger Sub of itsobligations hereunder if such assignee does not perform such obligations.  Any assignment in violation of the precedingsentence shall be null and void and of no force or effect.  Subject to the preceding sentence, thisAgreement will be binding upon, inure to the benefit of, and be enforceable by,the Parties and their respective successors and permitted assigns.

 

(b)           Amendment.  Following the Effective Time, the Parties mayamend this Agreement by a written amendment signed by Parent, the SurvivingCorporation and the Stockholder Agent.

 

Section 11.4.Notices.  All notices, requests,instructions or other documents to be given under this Agreement shall be inwriting and shall be deemed given, (i) five business days followingsending by registered or certified mail, postage prepaid, (ii) when sentif sent by facsimile; provided, however, that the facsimile is promptlyconfirmed by telephone confirmation thereof, (iii) when delivered, ifdelivered personally to the intended recipient, and (iv) one business dayfollowing sending by overnight delivery via a national courier service, and ineach case, addressed to a party at the following address for such Party:

 

If to Parent or Merger Sub (or, after consummation ofthe Merger, to the Surviving Corporation):

 

OVERLAND STORAGE,INC.

Attn: President

4820 OverlandDrive

San Diego, CA92123

Tel:  858-571-5555

Fax:  858-627-3866

 

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with copies (which will notconstitute notice) to:

 

OVERLAND STORAGE,INC.

Attn: ChiefFinancial Officer

4820 OverlandDrive

San Diego, CA92123

Tel:  858-571-5555

Fax:  858-627-3866

 

and

 

Sheppard, Mullin,Richter & Hampton LLP

Attn:  John J. Hentrich, Esq.

12544 High BluffDrive, Suite 300

San Diego, CA 92130-3051

Tel:   (858) 720-8942

Fax:   (858) 509-3691

 

If to the Company (prior toconsummation of the Merger) or any Equity Holder:

 

ZETTA SYSTEMS,INC.

Attn:  Ganapathy Krishnan

16928Woodinville-Redmond Road, Suite B210

Woodinville, WA98072

Tel:  425-485-4458

Fax:  425-952-9323

 

with a copy (which will notconstitute notice) to:

 

Davis Wright TremaineLLP

Attn:  Joseph P. Whitford

2600 CenturySquare

1501 FourthAvenue

Seattle, WA98101-1688

Tel:   (206) 628-7794

Fax:  (206) 903-3894

 

If to the Stockholder Agent:

 

Mr. GanapathyKrishnan

c/o Zetta Systems, Inc.

16928Woodinville-Redmond Road, Suite B210

Woodinville, WA98072

Tel:  425-485-4458

Fax:  425-952-9323

 

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with a copy (which will notconstitute notice) to:

 

Davis WrightTremaine LLP

Attn:  Joseph P. Whitford

2600 CenturySquare

1501 FourthAvenue

Seattle, WA98101-1688

Tel:   (206) 628-7794

Fax:  (206) 903-3894

 

Or to such other address or faxnumber as the Person to whom the notice is given may have previously furnishedto the other Parties in writing in the manner set forth above.

 

Section 11.5.Specific Performance.  The Partiesagree that irreparable damage would occur in the event that any of theprovisions of this Agreement were not performed in accordance with theirspecific terms or were otherwise Breached. It is accordingly agreed that the Parties shall be entitled to aninjunction or injunctions to prevent Breaches of this Agreement and to enforcespecifically the terms and provisions of this Agreement, this being in additionto any other remedy to which they are entitled at Law or in equity.

 

Section 11.6.Submission to Jurisdiction; No Jury Trial.

 

(a)           Submission to Jurisdiction.  Except as set forth in Section 7.6, eachParty submits to the exclusive jurisdiction of the federal courts located inSan Diego, California, in any Action arising out of or relating to thisAgreement or the Merger and agrees that all claims in respect of the Actionshall be heard and determined in any such court.  Each Party agrees that a final judgment inany Action so brought shall be conclusive and may be enforced by Action on thejudgment or in any other manner provided at law or in equity.  Each Party waives any defense of inconvenientforum to the maintenance of any Action so brought and waives any bond, surety,or other security that might be required of any other party with respectthereto.

 

(b)           Waiver of Jury Trial.  THE PARTIES EACH HEREBY AGREE TO WAIVE THEIRRESPECTIVE RIGHTS TO JURY TRIAL OF ANY DISPUTE BASED UPON OR ARISING OUT OFTHIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING HERETO OR ANY DEALINGS AMONGTHEM RELATING TO THE TRANSACTIONS.  Thescope of this waiver is intended to be all encompassing of any and all Actionsthat may be filed in any court and that relate to the subject matter of theTransactions, including, Contract claims, tort claims, breach of duty claims,and all other common law and statutory claims. The Parties each acknowledge that this waiver is a material inducementto enter into a business relationship and that they will continue to rely onthe waiver in their related future dealings. Each Party further represents and warrants that it has reviewed thiswaiver with its legal counsel, and that each knowingly and voluntarily waivesits jury trial rights following consultation with legal counsel.  NOTWITHSTANDING ANYTHING TO THE CONTRARYHEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIEDORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY AMENDMENTS,

 

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RENEWALS, SUPPLEMENTS, ORMODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTSRELATING HERETO.  In the event of anAction, this Agreement may be filed as a written consent to trial by a court.

 

(c)           Service of Process.  Any Party may make service on any other Partyby sending or delivering a copy of the process to the Party to be served at theaddress and in the manner provided for the giving of notices in Section 10.4.  Nothing in this Section 10.6(c) shallaffect any Party’s right to bring any Action arising out of or relating to thisAgreement in any other court or to serve legal process in any other mannerpermitted at Law or in equity.

 

Section 11.7.Time.  Time is of the essence inthe performance of this Agreement.

 

Section 11.8.Counterparts.  This Agreement maybe executed in two or more original or facsimile counterparts, each of whichshall be deemed an original but all of which together shall constitute one andthe same instrument.

 

Section 11.9.Governing Law.  This Agreement andthe performance of the Transactions and obligations of the Parties hereundershall be governed by and construed in accordance with the laws of the State ofCalifornia, without giving effect to any choice of law principles.

 

Section 11.10.Expenses.  The Company and theStockholder Agent shall be solely responsible for the legal, accounting andother fees and expenses incurred by the Company in connection with thepreparation, execution and delivery of this Agreement and the consummation ofthe Transaction contemplated hereby (“**Expenses**”).  Parent and Merger Sub shall be solelyresponsible for their respective Expenses.

 

Section 11.11.Certain Taxes.  All transfer,documentary, sales, use, stamp, registration and other such Taxes and fees(including any penalties and interest) incurred in connection with thisAgreement, if any, shall be paid by the Equity Holders and Special Payees whendue.

 

Section 11.12.Extensions; Waiver.

 

(a)           Extension.  At any time following the Effective Time,Parent and the Surviving Corporation, on the one hand, and the StockholderAgent, on the other, to the extent legally allowed, may (i) extend thetime for the performance of any of the obligations of the other of them, (ii) waiveany inaccuracies in the representations and warranties contained herein or inany certificate, instrument or other document delivered pursuant hereto, or (iii) waivecompliance with any of the agreements contained herein.  Any agreement to any such extension or waivershall be valid only if set forth in an instrument in writing signed on behalfof the Person against which enforcement of such extension or waiver is sought.

 

(b)           Waiver.  No waiver by any Party of any default,misrepresentation, or Breach hereunder, whether intentional or not, may bedeemed to extend to any prior or subsequent default, misrepresentation, orBreach hereunder or affect in any way any rights arising because of any prioror subsequent such occurrence.

 

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Section 11.13.Severability.  The provisions ofthis Agreement shall be deemed severable and the invalidity or unenforceabilityof any provision shall not affect the validity or enforceability of the otherprovisions hereof; provided that if any provision of this Agreement, as appliedto any Party or to any circumstance, is adjudged by a Governmental Body,arbitrator, or mediator not to be enforceable in accordance with its terms, theParties agree that the Governmental Body, arbitrator, or mediator making suchdetermination shall have the power to modify the provision in a mannerconsistent with its objectives such that it is enforceable, and to deletespecific words or phrases, and in its reduced form, such provision shall thenbe enforceable and shall be enforced.

 

Section 11.14.Incorporation of Exhibits and Disclosure Schedules.  The Exhibits and the Disclosure Schedules areincorporated herein by reference and made a part hereof.

 

Section 11.15.Construction.  The Parties haveparticipated jointly in the negotiation and drafting of this Agreement with theassistance of legal counsel, and any rule of construction orinterpretation otherwise requiring this Agreement to be construed orinterpreted against any party shall not apply to any construction orinterpretation hereof.  If an ambiguityor question of intent or interpretation arises, this Agreement shall beconstrued as if drafted jointly by the Parties and no presumption or burden ofproof shall arise favoring or disfavoring any Party because of the authorshipof any provision of this Agreement.  Anyreference to any federal, state, local, or foreign Law shall be deemed also torefer to Law as Amended and all rules and regulations promulgatedthereunder, unless the context requires otherwise.    The Parties intend that eachrepresentation, warranty, and covenant contained herein shall have independentsignificance.  If any Party has Breachedany representation, warranty, or covenant contained herein in any respect, thefact that there exists another representation, warranty, or covenant relatingto a similar subject matter (regardless of the relative levels of specificity)which the Party has not breached shall not detract from or mitigate the factthat the Party is in Breach of the first representation, warranty, orcovenant.  For all purposes of thisAgreement, except as otherwise expressly provided or unless the contextotherwise requires:

 

(a)           all references in this Agreement todesignated “Articles,” “Sections” and other subdivisions, or to designated “Exhibits”,“Schedules” or “Appendices”, are to the designated Articles, Sections and othersubdivisions of, or the designated Exhibits, Schedules or Appendices to, thisAgreement;

 

(b)           references to any Person includessuch Person’s successors and assigns but, if applicable, only if suchsuccessors and assigns are not prohibited by this Agreement, and reference to aPerson in a particular capacity excludes such Person in any other capacity orindividually;

 

(c)           references to any agreement, documentor instrument means such agreement, document or instrument as Amended and in effectfrom time to time in accordance with the terms thereof, and shall be deemed torefer as well to all addenda, annexes, appendices, exhibits, schedules andother attachments thereto;

 

(d)           reference to any Law means such Lawas Amended, codified, replaced or reenacted, in whole or in part, and in effectfrom time to time, including rules and regulations

 

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promulgated thereunder,and reference to any section or other provision of any Law means thatprovision of such Law from time to time in effect and constituting thesubstantive Amendment, codification, replacement or reenactment of such section orother provision;

 

(e)           with respect to the determination ofany period of time, “from” means “from and including” and “to” means “to butexcluding”;

 

(f)            the words “include,” “includes,” and“including” shall be deemed to be followed by “without limitation”;

 

(g)           the term “or” shall not be exclusive;

 

(h)           pronouns in masculine, feminine, andneuter genders shall be construed to include any other gender;

 

(i)            words in the singular form shall beconstrued to include the plural and vice versa, unless the context otherwiserequires;

 

(j)            whenever the singular number isused, if required by the context, the same shall include the plural, and viceversa;

 

(k)           the words “this Agreement,” “herein,”“hereof,” “hereby,” “hereunder,” and words of similar import refer to thisAgreement as a whole and not to any particular Article, Section or othersubdivision; and

 

(l)            all accounting terms shall beinterpreted, and all accounting determinations hereunder shall be made, inaccordance with GAAP.

 

Section 11.16.Definitions.  Unless otherwiseexpressly provided herein, the following terms, whenever used in thisAgreement, shall have the meanings ascribed to them below or in the referencedSections of this Agreement:

 

“**Accounts Receivable**”means (i) all trade accounts receivable and other rights to payment fromcustomers of the Company and the full benefit of all security for such accountsor rights to payment, including all trade accounts receivable representingamounts receivable in respect of goods shipped or products sold or servicesrendered to customers of the Company, (ii) all other accounts or notesreceivable of the Company and the full benefit of all security for suchaccounts or notes, and (iii) any claim, remedy or other right related toany of the foregoing.

 

“**Action**” meansany action, appeal, petition, plea, charge, complaint, claim, suit (whethercivil, criminal, administrative, judicial or investigative, whether formal orinformal, whether public, private or otherwise, whether at law or in equity),demand, litigation, arbitration, mediation, hearing, inquiry, investigation,audit or similar event, occurrence, or proceeding, in each case commenced,brought, conducted or heard by or before, or otherwise involving, anyGovernmental Body, arbitrator or mediator.

 

“**Actual Knowledge**”means, with respect to the Company as to any particular fact or other matter,if Ganapathy Krishnan is actually aware of such fact or other matter.

 

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“**Affiliate**” or “**Affiliated**” with respect to any specified Person, means aPerson that, directly or indirectly, through one or more intermediaries, controlsor is controlled by, or is under common control with, such specifiedPerson.  For this definition, “control”(and its derivatives) means the possession, directly or indirectly, or astrustee or executor, of the power to direct or cause the direction of themanagement and policies of a Person, whether through ownership of voting EquityInterests, as trustee or executor, by contract or credit arrangements orotherwise.

 

“**Amend**” means,with respect to any Contract or Organizational Document, to amend, supplement,extend, waive a provision of or otherwise modify such Contract orOrganizational Document.  The term “Amendment”shall have the correlative meaning.

 

“**Best Efforts**”means the efforts that a prudent Person desirous of achieving a result would usein similar circumstances to achieve that result as expeditiously andeffectively as possible.

 

“**Breach**” means (a) anybreach of, or inaccuracy in, any representation or warranty, (b) anybreach or violation of, default under, failure to perform, failure to complywith or failure to notify, or noncompliance with, any covenant, agreement orobligation, or (c) any one or more other Events the existence of which,individually or together, whether unconditionally or with the passing of timeor the giving of notice, or both, would (i) constitute a breach,violation, default, failure or noncompliance referred to in clauses (a) and(b) next above, (ii) permit any Person to accelerate any monetaryobligation, (iii) permit any Person to abridge, delay, condition, terminate,revoke, rescind or cancel any right, license, liability, debt, power,authority, privilege or obligation, or (iv) require, or permit any Personto require, the payment of a monetary penalty or liquidated damages.

 

“**Capital Lease Obligations**”means a payment obligation under a Lease of Property, real or personal,classified as a capital lease pursuant to FASB Statement of FinancialAccounting Standards No. 13, Accounting for Leases (Nov. 1976).

 

“**Cash and Cash Equivalents**”means all cash, checks, money orders, and short term highly liquid investmentshaving an original maturity of three months or less.

 

“**Cashed Out Option Holders**”shall have the meaning set forth in the Recitals.

 

“**CERCLA**” meansthe Comprehensive Environmental Response, Compensation, and Liability Act of1980, as amended.

 

“**Code**” means theInternal Revenue Code of 1986, as amended.

 

“**Commitment**”means (a) options, warrants, convertible securities, exchangeablesecurities, subscription rights, purchase or acquisition rights, conversionrights, exchange rights, or other Contracts that require an Entity to issue anyof its Equity Interests, (b) any other securities convertible into,exchangeable or exercisable for, or representing the right to subscribe for, ineach case with or without consideration, any Equity Interest of an Entity, (c) statutorypre-emptive rights or pre-emptive rights granted under an Entity’sOrganizational Documents, (d) rights of first refusal, tag-along rights,co-sale rights, drag-along rights, piggyback rights, buy-sell

 

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arrangements, or votingagreements, or (e) stock appreciation rights, phantom stock, profitparticipation, or other similar rights with respect to an Entity.

 

“**Company Employee Plan**”means any plan, program, policy, practice, contract, agreement or othermaterial 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, whetherwritten, unwritten or otherwise, funded or unfunded, including each “employeebenefit plan” (within the meaning of Section 3(3) of ERISA) which isor has been maintained, contributed to, or required to be contributed to, bythe Company or any Affiliate thereof for the benefit of any Employee, or withrespect to which the Company or any Affiliate thereof has or may have anyliability or obligation.

 

“**Company IntellectualProperty**” means any Intellectual Property that is owned by,controlled by or exclusively licensed to the Company.

 

“**Company Options**”means all options to purchase shares of Company Common Stock under the Company’s2002 Stock Incentive Plan******outstandingimmediately prior to the Effective Time.

 

“**Company Products**”means all products designed, manufactured, shipped, sold, marketed,distributed, licensed, Leased, delivered or introduced into the stream ofcommerce by or on behalf of the Company, including any such products sold inthe United States by the Company as the distributor or agent, or pursuant toany other contractual relationship with an offshore manufacturer, and includingall Company Software and all services provided by or through the Company on orprior to the Closing Date.

 

“**Company Software**”means any Software owned, developed (or currently being developed) for internalor commercial use, used, marketed, distributed, licensed or sold by the Companyat any time (other than non-customized third-party software licensed to theCompany for internal use on a non-exclusive basis).

 

“**Company Warrants**”means all warrants to purchase shares of Company Common Stock outstandingimmediately prior to the Effective Time.

 

“**Consent**” meansany consent, approval, ratification, favorable vote, authorization, waiver, orother similar action.

 

“**Contract**” meansany contract, agreement, instrument, commitment, covenant, lease, promise,undertaking or other agreed or consensual obligation, whether written or oraland whether express or implied.

 

“**Copyrights**”means all copyrights in both published and unpublished works, and all works ofauthorship, whether copyrightable or not and including website content anddesigns, and all registrations, applications and renewals in connectiontherewith, worldwide.

 

“**Debt**” means,with respect to any Person, without duplication, (i) all obligations ofsuch Person for borrowed money, including bank loans, mortgages, notes payableand earnouts payable, and all obligations of such Person evidenced by bonds,debentures, notes or other

 

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similar instruments orSecurities, in each case together with any interest, fees, prepayment penaltiesor other amounts due in respect thereof, (ii) all obligations of suchPerson to pay the deferred purchase price of property or services, includingLease obligations, except trade accounts payable arising in the Ordinary Courseof Business, and (iii) all obligations of such Person to purchaseSecurities which arise out of or in connection with the sale of the same orsubstantially similar Securities.

 

“**Employee Agreement**”means each management, employment, severance, consulting, or similar Contractbetween the Company and any employee, consultant, independent contractor, orother individuals providing services thereto pursuant to which the Company hasor may have any Liability.

 

“**Employee Benefit Plan**”means each plan, program, policy, payroll practice, contract, agreement(including Employee Agreements), or other arrangement providing forcompensation, severance, termination pay, performance awards, stock or stockrelated awards, fringe benefits, or other employee benefits of any kind,whether formal or informal, funded or unfunded, written or oral and whether ornot legally binding, including each “employee benefit plan,” within the meaningof Section 3(3) of ERISA and each “Multiemployer Plan” within themeaning of Sections 3(37) or 4001(a)(3) of ERISA.

 

“**Employee Pension Plan**”means any Employee Benefit Plan that is an “employee pension benefit plan,” asthat term is defined in Section 3(2) of ERISA.

 

“**Encumbrance**”means, with respect to any Property, any Order, Lien, easement, right of way,encroachment, servitude, right of first option, right of first refusal orsimilar restriction, community or other marital property interest, condition,equitable interest, license, encumbrance or other binding restriction of anykind (including restrictions on use, Transfer, receipt of income or exercise ofany other attribute or indicia of ownership) on such Property or any interesttherein or right thereto, whether directly or indirectly (through one or moreintermediary Persons or otherwise), whether voluntarily, involuntarily or byoperation of law, and, where applicable, any restriction on voting thereof orreceipt of income thereon and any Commitments in respect thereof; provided thatTransfer restrictions under federal and state securities laws and regulationsshall be deemed not to be an Encumbrance. The term “Encumber” has the correlative meaning.

 

“**Enforceable**”means, with respect to any Contract and any Person, that such Contract is thelegal, valid, and binding obligation of such Person enforceable against suchPerson in accordance with its terms, except as such enforceability may besubject to the effects of bankruptcy, insolvency, reorganization, moratorium,or other Laws relating to or affecting the rights of creditors, and generalprinciples of equity.

 

“**Entity**” meansany corporation (including any non profit corporation), general partnership,limited partnership, limited liability partnership, joint venture, estate,trust, company (including any limited liability company or joint stockcompany), firm, labor organization, unincorporated organization, or otherenterprise, association, organization or business entity.

 

“**Environment**”means soil, land surface or subsurface strata, surface waters (includingnavigable waters and ocean waters), groundwaters, drinking water supply, streamsediments,

 

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ambient air (including indoorair), plant and animal life and any other environmental medium or naturalresource.

 

“**Environmental, Health andSafety Liabilities**” means any costs, damages, expenses, Liabilities,or other responsibility arising from or under any Environmental Law orOccupational Safety and Health Law, including those consisting of or relatingto (i) any environmental, health or safety matter or condition (includingon-site or off-site contamination, occupational safety and health andregulation of any chemical substance or product), (ii) any Orders orLosses arising under any Environmental Law or Occupational Safety and HealthLaw, (iii) financial responsibility under any Environmental Law orOccupational Safety and Health Law for cleanup costs or corrective action, includingany cleanup, removal, containment or other remediation or response actions (“Cleanup”)required by any Environmental Law or Occupational Safety and Health Law(whether or not such Cleanup has been required or requested by any GovernmentalBody or any other Person) and for any natural resource damages, or (iv) anyother compliance, corrective or remedial measure required under anyEnvironmental Law or Occupational Safety and Health Law.  For purposes of this Agreement, the terms “removal,”“remedial” and “response action” include the types of activities covered byCERCLA.

 

“**Environmental Law**”means any Law that requires or relates to (i) advising appropriateauthorities, employees or the public of intended, threatened or actualEnvironmental Releases of Materials of Environmental Concern, violations ofdischarge limits or other prohibitions and the commencement of activities, suchas resource extraction or construction, that could have significant impact onthe Environment, (ii) preventing or reducing to acceptable levels theEnvironmental Release of Materials of Environmental Concern into theEnvironment, (iii) reducing the quantities, preventing the EnvironmentalRelease or minimizing the hazardous characteristics of wastes that aregenerated, (iv) assuring that products are designed, formulated, packagedand used so that they do not present unreasonable risks to human health or theEnvironment when used or disposed of, (v) protecting the Environment,resources, species or ecological amenities, (vi) reducing to acceptablelevels the risks inherent in the transportation of Materials of EnvironmentalConcern, (vii) cleaning up Materials of Environmental Concern that havebeen Environmental Released, preventing the Threat of Release or paying thecosts of such clean up or prevention, (viii) making responsible partiespay private parties, or groups of them, for damages done to their health or theEnvironment or permitting self-appointed representatives of the public interestto recover for injuries done to public assets, or (ix) the manufacture,processing, distribution, use, treatment, storage, disposal, transport orhandling of Materials of Environmental Concern or the protection of humanhealth or the Environment.

 

“**Environmental Property**”means any Facility or other property or asset (whether real, personal or mixed)in which the Company has or had an interest.

 

“**Environmental Release”**means any release, spill, emission, leaking, pumping, pouring, dumping,emptying, injection, deposit, disposal, discharge, dispersal, leaching ormigration on or into the Environment or into or out of any property.

 

“**Equity Holders**”shall have the meaning set forth in the Recitals.

 

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“**Equity Interest**”means (a) with respect to a corporation, any and all shares of capitalstock and any Commitments with respect thereto, (b) with respect to apartnership, limited liability company, trust, or similar Person, any and allunits, interests, or other partnership/limited liability company interests, andany Commitments with respect thereto, and (c) any other direct or indirectequity ownership, participation or interest in a Person.

 

“**ERISA**” meansthe Employee Retirement Income Security Act of 1974, as amended.

 

“**Escrow Agent**”means Wells Fargo Bank, N.A.

 

“**Escrow Fund**”means the fund referenced in Section 2.9 of the Agreement.

 

“**Event**” meansany act, omission, occurrence, circumstance, condition or other event.

 

“**Exchange Act**”means the Securities Exchange Act of 1934, as amended.

 

“**Facilities**”means any real property, leasehold or other interest in real property currentlyowned, operated, occupied or Leased by the Company, including the TangiblePersonal Property used, operated or Leased by the Company at the respectivelocations of the leased real property specified in Section 3.16(a) ofthe Disclosure Schedules. Notwithstanding the foregoing, for purposes of thedefinitions of “Hazardous Activity” and “Remedial Action” and Section 3.24,“Facilities” means any real property, leasehold or other interest in realproperty currently or formerly owned, operated, occupied or Leased by theCompany, including the Tangible Personal Property used, operated or Leased bythe Company at the respective locations of such real property.

 

“**Fiduciary**” means“fiduciary”, as defined in ERISA Section 3(21).

 

“**Foreign Export and ImportLaws**” means the laws and regulations of a foreign governmentregulating the provision of services to parties not of the foreign country orthe export and import of articles and information from and to the foreigncountry and to parties not of the foreign country.

 

“**GAAP**” meansUnited States generally accepted accounting principles for financial reporting,as in effect from time to time.

 

“**Governmental Body**”and “Government Bodies” means any (i) nation, state, county, city, town,borough, village, district or other jurisdiction, (ii) federal, state,local, municipal, foreign or other government, (iii) governmental orquasi-governmental authority of any nature (including any legislature, agency,board, bureau, branch, department, division, commission, court, tribunal,magistrate, justice or other entity exercising governmental orquasi-governmental powers), (iv) multi national organization or body, (v) bodyexercising, or entitled to exercise, any administrative, executive, judicial,legislative, police, military, regulatory or taxing authority or power, or (v) officialof any of the foregoing.

 

“**Governmental Permit**”means any permit, license, certificate, Consent, clearance, accreditation, orother similar authorization required by any Law or Governmental Body.

 

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“**Guarantee**”means, with respect to any Person, any obligation, contingent or otherwise, ofsuch Person directly or indirectly guaranteeing or insuring any Debt or CapitalLease Obligation of any other Person or having the economic effect of any ofthe foregoing and, without limiting the generality of the foregoing, includes (A) anyobligation, direct or indirect, contingent or otherwise, of such Person (i) topurchase or pay (or advance or supply funds for the purchase or payment of)such Debt or Capital Lease Obligation (whether arising by virtue of partnershiparrangements, by agreement to keep-well, to purchase assets, goods, securitiesor services, to take-or-pay, or to maintain financial statement conditions orotherwise), or (ii) entered into for the purpose of assuring in any othermanner the obligee of such Debt or Capital Lease Obligation of the paymentthereof or to protect such obligee against loss in respect thereof (in whole orin part), (B) all contingent obligations of such Person in respect ofamounts which have been drawn on account of such other Person under a letter ofcredit or similar instrument, (C) all Debt or Capital Lease Obligations ofsuch other Person secured by a Lien on any Property of such Person, whether ornot such Debt or Capital Lease Obligation is assumed by such Person (such Debtor Capital Lease Obligation to have a principal amount, for purposes ofdeterminations under this Agreement, not exceeding the net unencumberedcarrying value of such Property under GAAP), and (D) surety or fidelitybonds ensuring the payment by or performance of such other Person; providedthat the term Guarantee shall not include endorsements for collection ordeposit in the ordinary course of business. The term “Guarantee” used as a verb shall have a correlative meaning.

 

“**Hazardous Activity**”means the distribution, generation, handling, importing, exporting, management,manufacturing, processing, production, refinement, Environmental Release, sale,storage, transfer, transportation, treatment or use (including any withdrawalor other use of groundwater) of Hazardous Material in, on, under, about or fromany of the Facilities or any part thereof into the Environment and any otheract, business, operation or thing that increases the danger, or risk of danger,or poses an unreasonable risk of harm, to Persons or property.

 

“**Hazardous Materials**”means any material, substance or waste which is defined as a “hazardous waste,”“hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restrictedhazardous waste,” “contaminant,” “toxic waste” or “toxic substance” under anyprovision of Environmental Law, and including radioactive materials, petroleum,petroleum products, asbestos, presumed asbestos-containing material orasbestos-containing material, urea formaldehyde and polychlorinated biphenyls.

 

“**Indebtedness**”means all Debt or Capital Lease Obligation of the Company as of the Closing,including any prepayment or similar fees or charges related to the retirementor termination of bank Debt of the Company which will be discharged orsatisfied at or in connection with the consummation of the Transactions.

 

“**Intellectual Property**”means any rights (including rights of priority and protection of interests in),licenses and other claims that any Person may have (i) to claim or assertownership, authorship (including works for hire), or invention of, (ii) touse, license or sub-license, exclusively or non-exclusively, (iii) toobject to, prevent (including by an Action to prevent past, present or futureinfringements), exclude others from, or control the use, exploitation,reproduction, import, export, public display, public performance, publication,distribution,

 

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application,modification, preparation of derivative works, appropriation, misappropriation,infringement or violation of, or (iv) to withdraw from circulation; anyMarks, Patents, Copyrights, Mask Works, Trade Secrets or Other IP.

 

“**IRS**” means theUnited States Internal Revenue Service and, to the extent relevant, the UnitedStates Department of the Treasury.

 

“**Key Stockholder**”means Ganapathy Krishnan.

 

“**Knowledge**”means, with respect to any particular fact or other matter and any Person, (i) ifsuch Person is an individual, (A) such individual is actually aware ofsuch fact or other matter, or (B) a prudent individual could be expectedto discover or otherwise become aware of such fact or other matter in thecourse of conducting a comprehensive investigation regarding the accuracy ofeach of the representations and warranties contained in this Agreement, and (ii) otherwise,if any individual who is serving, or who has at any time served, as a director,officer, management-level employee, partner, executor or trustee of such Person(or, in all cases above, in any similar or equivalent capacity), or anyemployee of such Person charged with responsibility for a particular functionalor regional area of such Person’s business or operations,  has, or at any time had, Knowledge of suchfact or other matter (as set forth in clause (i) next above), and any suchindividual (and any individual who is a party to this Agreement) will be deemedto have conducted a comprehensive investigation regarding the accuracy of eachof the representations and warranties made herein by that Person or individual.

 

“**Law**” means anyfederal, state, local, domestic, foreign, international or multi national law(statutory, common, or otherwise), constitution, treaty, order, writ,injunction, decree, award, stipulation, ordinance or administrative doctrine,ordinance, equitable principle, code, rule, regulation, executive order,request, or other similar authority enacted, adopted, promulgated, or appliedby any Governmental Body, each as amended.

 

“**Lease**” meansany lease of real or personal property or any lease or rental agreement,license, right to use or installment and conditional sale agreement to whichthe Company is a party or subject, and any other Contract of the Companypertaining to the leasing or use of any Tangible Personal Property.  The terms “Lease” and “Leased” used as a verbshall have the correlative meanings.

 

“**Liability**” or “**Liable**” means any liability or obligation of any kind,character or description, whether known or unknown, absolute or contingent,matured or unmatured, disputed or undisputed, secured or unsecured, conditionalor unconditional, accrued or unaccrued, liquidated or unliquidated, vested orunvested, joint or several, due or to become due, executory, determined,determinable or otherwise, and whether or not the same is required to beaccrued on financial statements.

 

“**Liens**” means,in respect of any Property, any security interest, deed of trust, mortgage,pledge, lien, statutory liens of any kind or nature, hypothecation, charge,claim, lease or other similar interest or right in respect of such Property.

 

“**Losses**” meansall damages, losses (including indirect losses, lost profits, loss of economicadvantages, loss due to business interruption or operation shutdowns, increasedcosts

 

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of operation, diminutionin value and the loss of any available tax deduction, and including indirect,special, punitive, consequential or incidental loss or damage), deficiencies,costs of mitigation or avoidance, Liabilities, expenses of whatever nature,costs (including increased costs of business or operations), obligations,fines, interest, penalties, and payments, whether incurred by or issued againsta Person, including (i) with respect to environmental liabilities andlosses, clean-up, remedial correction and responsive action, and (ii) withrespect to any Action or threatened Action, amounts paid in defense, settlementand discovery, costs associated with obtaining injunctive relief,administrative costs and expenses, reasonable fees and expenses of attorneys,expert witnesses, accountants and other professional advisors (includingin-house personnel), and other out-of-pocket costs of investigation,preparation, and litigation in connection therewith.  In computing the amount of Losses, no offsetshall be taken into account for tax savings, insurance benefits (except as setforth in Section 7.1(d)) or similar reductions for Losses.

 

“**Marks**” meansall fictitious business names, corporate names, trade names, registered andunregistered trademarks and service marks, logos, product names and slogans,Internet domain names, and trade dress rights, worldwide, including any and allcommon law rights, registrations and applications (including intent to useapplications) for registration of any of the foregoing, and the goodwillassociated with all of the foregoing.

 

“**Mask Works**” meansmask work and similar rights, worldwide, including rights created underSections 901-914 of Title 17 of the United States Code, including allregistrations and applications to register any of the foregoing, and any otherrights protecting integrated circuit or chip topographies or designs.

 

“**Material**” or “**Materially**” means, with respect to any Event, effect,violation or Breach, any of the foregoing which, alone or in combination withany other Events, effects, violations or Breaches, is reasonably likely toresult in or have a Material Adverse Effect, taken as a whole, on the Company.

 

“**Material Adverse Effect**”means, with respect to any Event, effect, violation or Breach and any Party,that the effect thereof, alone or in combination with any other Events,effects, violations or Breaches, is or is reasonably likely to be Materiallyadverse to the business, prospects, operations, condition (financial orotherwise), assets, Properties or Liabilities of such Party; provided that,without limiting the generality of, or implying a measure for, any of theforegoing, losses to the Company in excess of $50,000 shall be deemed to beMaterially adverse to its financial condition.

 

“**Materials of EnvironmentalConcern**” means chemicals, pollutants, pollution, contaminants,wastes, Hazardous Materials and any other substance that is now or hereafterregulated by any applicable Environmental Law or that is otherwise a danger tohealth, reproduction or the Environment.

 

“**Multiemployer Plan**”is defined in ERISA Section 3(37).

 

“**Note Holders**”shall mean the meaning set forth in the Recitals.

 

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“**Occupational Safety andHealth Law**” means any Law designed to provide safe and healthfulworking conditions and to reduce occupational safety and health hazards,including the Occupational Safety and Health Act of 1970, as amended.

 

“**Order**” meansany order, ruling, decision, verdict, decree, writ, subpoena, award, judgment,injunction, assessment, or other similar determination or finding by, before,or under the supervision of any Governmental Body, arbitrator or mediator.

 

“**Ordinary Course ofBusiness**” means, with respect to any action by any Person, that suchaction (i) is consistent in nature, scope, quality, frequency and magnitudewith the past customs and practices of such Person, to the extent practicableif such Person has a rapidly growing business, and is taken in the ordinarycourse of the normal, day-to-day operations of such Person, and (ii) doesnot require authorization by the board of directors or shareholders of suchPerson (or by any Person or group of Persons exercising similar authority) anddoes not require any other separate or special authorization of any nature.

 

“**Organizational Documents**”means, with respect to any Entity, (i) if a corporation, the articles orcertificate of incorporation and the bylaws, (ii) if a generalpartnership, the partnership agreement and any statement of partnership, (iii) ifa limited partnership, the limited partnership agreement and the certificate oflimited partnership, (iv) if a limited liability company, the articles orcertificate of organization or formation and operating or limited liabilitycompany agreement, (v) if another type of Entity, any other charter,regulations or similar document adopted or filed in connection with thecreation, formation or organization of such Entity, (vi) all other similardocuments, instruments or certificates, as applicable, executed, adopted, orfiled in connection with the creation, formation, or organization of suchEntity, (vii) all equity holders’ agreements, voting agreements, votingtrust agreements, joint venture agreements, registration rights agreements orother Contracts relating to the organization, management or operation of suchEntity or relating to the rights, duties and obligations of the equity holdersof such Entity, and (viii) any Amendment to any of the foregoing.

 

“**Other IP**” meansmoral rights, publicity rights and any other proprietary, intellectual orindustrial property or similar intangible rights of any kind or nature,worldwide, that do not comprise or are not protected by Marks, Patents,Copyrights, Trade Secrets or Mask Works, including, to the extent not socovered, software and websites (including all related computer code andcontent).

 

“**Patents**” means (i) allpatents and patent applications, worldwide, including any and all continuation,divisional, provisional, continuation-in-part, reexamination and reissue patentapplications, and any applications or patents claiming the benefit or thefiling date of any such patent or patent application, and all foreigncounterparts thereof, and (ii) invention disclosures and other rights ofinvention, worldwide.

 

“**Person**” meansany individual, Governmental Body or Entity.

 

“**Prohibited Transactions**”is defined in ERISA Section 406 and Code Section 4975.

 

“**Property**” meansany present or future, legal or equitable, vested or contingent right to orinterest in any fixture, real property, personal property or any other propertyor asset,

 

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including goods, leases,securities (whether or not certificated), commercial paper, financial assets,commodities, accounts, equipment, chattel paper, derivatives, instruments,money, claims, licenses, Contracts, Intellectual Property, royalties andgeneral intangibles, and any proceeds of any of the foregoing.

 

“**Registered IntellectualProperty**” means Intellectual Property that has been issuedregistered, filed, certified or otherwise perfected by recordation or currentlypending with any Governmental Body anywhere in the world.

 

“**Related Agreements**”means the Escrow Agreement, the Voting Agreement, the Option Amendment andConsent, the Note and Warrant Amendment and Consent, the Acknowledgment and Consentof B3 Consulting, the Merger Certificate, and any other Contract or certificateto be executed or delivered by the Company, the Stockholder Agent, any EquityHolders or any Special Payees at the Closing, or otherwise in connection withthis Agreement, any of the foregoing agreements or the consummation of theTransactions.

 

“**Related Party**”means, (A) with respect to any individual, (i) each other member ofsuch individual’s Family, (ii) any Entity that is directly or indirectlycontrolled by any one or more members of such individual’s Family, (iii) anyEntity in which members of such individual’s Family hold (individually or inthe aggregate) a Material Interest, and (iv) any Entity with respect towhich one or more members of such individual’s Family serves as a director,officer, member, partner, executor or trustee (or in a similar capacity), and (B) withrespect to any Entity, (i) any Affiliate of specified Entity, (ii) anyPerson that holds a Material Interest in such specified Entity, (iii) eachPerson that serves as a director, officer, employee, partner, manager, member,executor or trustee (or in a similar capacity) of such specified Entity, (iv) anyother Entity in which such specified Entity holds a Material Interest, (v) anyPerson with respect to which such specified Person serves as a general partner,manager or trustee (or in a similar capacity), and (vi) any Related Partyof any individual who is a Related Party pursuant to clauses (i)-(v) nextabove.   For purposes of this definitionof “Related Party”, (a) “Family” means, with respect to an individual, (i) suchindividual, (ii) such individual’s spouse, (iii) any other naturalperson who is related to such individual or such individual’s spouse within thesecond degree, and (iv) any other individual who resides with suchindividual and any immediate family member of such other individual, and (b) “MaterialInterest” means direct or indirect beneficial ownership (as defined in Rule 13d-3under the Exchange Act) of voting securities or other voting interestsrepresenting at least ten percent (10%) of the outstanding voting power of anEntity or Equity Interests representing at least ten percent (10%) of theoutstanding Equity Interests in an Entity.

 

“**Remedial Action**”means all actions, including any capital expenditures, required (i) toclean up, remove, treat or in any other way address any Materials ofEnvironmental Concern or other substance, (ii) to prevent theEnvironmental Release or Threat of Release or to minimize the further EnvironmentalRelease of any Materials of Environmental Concern or other substance so it doesnot migrate or endanger or threaten to endanger public health or welfare or theEnvironment, (iii) to perform pre-remedial studies and investigations orpost-remedial monitoring and care, or (iv) to bring all Facilities and theoperations conducted thereon into compliance with Environmental Laws andenvironmental Governmental Permits.

 

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“**Representatives**”means, with respect to any Person, such Person’s officers, directors,employees, managers, consultants, contractors, agents, financial, banking andlegal advisors or other representatives.

 

“**Scheduled IntellectualProperty**” means (A) any Company Intellectual Property, and (B) anyother Intellectual Property that is used or contemplated to be used inconnection with the business or operations of the Company, or that is licensedto the Company (other than non-customized third-party software licensed to theCompany for internal use on a non-exclusive basis), the use or ownership ofwhich is material, or reasonably expected to be material, to the business oroperations of the Company as presently conducted or presently proposed to beconducted.

 

“**SEC**” means theUnited States Securities and Exchange Commission.

 

“**Securities Act**”means the Securities Act of 1933, as amended.

 

“**Securities**”means any stock, capital stock or similar security, shares, partnership(general or limited) interests, membership or limited liability company interestsor units, interests in a joint venture, voting trust certificates, certificatesof interest or participation in any profit sharing agreement or arrangement orbusiness trust, voting trust certificate, investment contract, bonds,debentures, notes, or other evidences of indebtedness, secured or unsecured,convertible, subordinated or otherwise, or in general any instruments commonlyknown as “securities”, or any certificates of interest or participations in,temporary or interim certificates for, receipt for, guarantees of, warrants orrights to subscribe to, purchase or otherwise acquire, or any otherCommitments, puts or other options, futures, or certificate of deposit for, anyof the foregoing.

 

“**Security Interest**”means any Lien, except for (i) liens for taxes, assessments, governmentalcharges, or claims that are being contested in good faith by appropriateActions promptly instituted and diligently conducted and only to the extentthat a reserve or other appropriate provision, if any, has been made on theface of the Company Financial Statements in an amount equal to the Liabilityfor which the lien is asserted, (ii) statutory liens of landlords andwarehousemen’s, carriers’, mechanics’, suppliers’, materialmen’s, repairmen’s,or other like liens (including Contractual landlords’ liens) arising in theOrdinary Course of Business and with respect to amounts not yet delinquent, orwith respect to amounts being contested in good faith by appropriateproceedings, and (iii) liens incurred or deposits made in the OrdinaryCourse of Business in connection with workers’ compensation, unemploymentinsurance and other similar types of social security.

 

“**Software**” meansany software or computer program, including firmware and other softwareembedded in hardware devices, whether in the form of source code, assemblycode, script, interpreted language, instruction sets or binary or object code(including compiled and executable programs), including any library, componentor module of any of the foregoing, together with (i) any related defaultconfiguration files, (ii) runtime data, files and objects, such as icons,buttons, configuration files and the like, needed for the proper operation ofthe Software, (iii) screens, user interfaces, report formats, templatesand menus, and (iv) user documentation and help files, including withregard to any command-line options and switches.  With respect to source code, “Software” alsoincludes (i) all code written in any programming

 

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language or scriptinglanguage, (ii) developer comments, (iii) associated header orinterface definition files, (iv) IDE configuration or project files andthe like, (v) compilation or build files, scripts or tools, includingmakefiles, (vi) API and class documentation, Gantt charts and otherdiagrams, materials or other documentation explaining the structure, flowcontrols, class hierarchy, algorithms, data structures, API or composition ofsuch source code, (vii) compilation or build instructions (whether meantfor use by developers or compilation or build programs, scripts or tools), (viii) interpreteddata, icons, buttons and other images, files, materials and data used in thegeneration of the executable or needed for the proper execution or use of theSoftware, and (ix) any design notes and material proprietary informationor algorithms contained in or relating to such source code.

 

“**Special Payees**”shall have the meaning set forth in the Recitals.

 

“**Subsidiary**”means, with respect to any Person: (a) any corporation in which acontrolling interest in the total voting power of all classes of the EquityInterests entitled (without regard to the occurrence of any contingency) tovote in the election of directors is owned by such Person directly or throughone or more other Subsidiaries of such Person and (b) any Person otherthan a corporation of which at least a controlling interest of the EquityInterests (however designated) entitled (without regard to the occurrence ofany contingency) to vote in the election of the governing body, partners,managers, or others that will control the management of such entity is owned bysuch Person directly or through one or more other Subsidiaries of such Person.

 

“**Tangible Personal Property**”means all machinery, equipment, tools, furniture, office equipment, computerhardware, supplies, materials, vehicles and other items of tangible personalproperty (other than inventories) of every kind owned or leased by the Company,wherever located and whether or not carried on the Company’s books, togetherwith any express or implied warranty by the manufacturers, sellers or lessorsof any item or component part thereof and all maintenance records and otherdocuments relating thereto.

 

“**Tax**” or,collectively, “Taxes,” means (i) any and all taxes, including federal,foreign, territorial, provincial, regional, state, city, municipal, county,possession and local taxes, assessments and other governmental charges, levies,fees, duties, impositions and liabilities, including taxes based upon ormeasured by gross receipts, income, profits, sales, use, capital, occupationand volume, quantity or weight of hazardous wastes generated or disposed of,and value added, ad valorem, transfer, registration, stamp, estimated,franchise, inventory, withholding, payroll, recapture, employment, windfallprofits, property, GST, capital, severance, premium, customs, duties and excisetaxes, retail sales, goods and services, commodity, harmonized, health,education, social service, estate, succession, death, interest equalization,severance, license, payroll, business, branch, premium, environmental,disability, employee’s income withholding, worker’s compensation, employmentinsurance, unemployment insurance, social insurance, health insurance andsocial security taxes together with all interest, penalties and additionsimposed with respect to such amounts by any taxing authority (domestic orforeign) and any obligations under any Contracts with any other Person withrespect to such amounts and including any liability for taxes of a predecessorentity, including transferee liability, (ii) any liability for the paymentof any amounts of the type described in clause (i) next above as a resultof being a member of an affiliated, consolidated, combined or unitary group for

 

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any period; and (iii) anyliability for the payment of any amounts of the type described in clauses (i) or(ii) next above as a result of any express or implied obligation to indemnifyany other Person or as a result of any obligations under any Contract with anyother Person with respect to such amounts.

 

“**Tax Return**”means any return, declaration, report, claim for refund, or information returnor statement relating to Taxes required to be filed with any Governmental Body,including any schedule or attachment thereto, and including any amendmentthereof.

 

“**Technology**”means (A) the Company Products provided or proposed to be provided(including those under development) by the Company in connection with itsbusiness, and (B) the technology, tools, materials, products and servicesused or proposed to be used in the operation of the business of the Company.

 

“**Threat of Release**”means a reasonable likelihood of an Environmental Release that may requireaction in order to prevent or mitigate damage to the public health or welfareor the Environment that may result from such Environmental Release.

 

“**Trade Secrets**”means all inventions and discoveries (whether or not patentable or whether ornot reduced to practice), improvements thereto, trade secrets, know-how,concepts, ideas, devices, methods, processes, designs, plans, schematics,drawings, blue prints, source code, interpreted instruction sets, formulae,formulas, patterns, compilations, databases, technical data, data,specifications, research and development information, data bases and otherproprietary or confidential information, whether business, technical orotherwise, including emails and other electronic communications, such asinstant messenger logs and website submissions, customer complaints andfeedback, customer and supplier lists and related information, pricing and costinformation, advertising statistics, website user information, technology,product roadmaps, and financial, sales, business and marketing plans, data,specifications, technical data, schematics, know-how and information

 

“**Transfer**”means, with respect to any Property, to sell, deed, dividend, distribute(including upon liquidation or distribution), exchange, convey, consign,negotiate, gift, devise, bequeath, pass by intestate succession, assign, issue,or otherwise alienate, transfer or dispose of such Property or any interesttherein or right thereto, whether directly or indirectly (through another Personor otherwise), whether voluntarily, involuntarily or by operation of law, andwhether with or without consideration. The terms “Transferred” and “Transferring” shall have the correlativemeanings

 

“**Transaction Documents**”means this Agreement, the Voting Agreements and the Escrow Agreement.

 

“**Transactions**”means all of the transactions contemplated by this Agreement, including: (a) theMerger, the filing of the Merger Certificate, and Parent’s delivery of thePurchase Price hereunder; (b) the execution, delivery, and performance ofall of the documents, instruments, and agreements to be executed, delivered,and performed in connection herewith, including the Transaction Documents; and (c) theperformance by Parent and the Merger Sub, the Company,

 

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the Equity Holders andthe Special Payees of their respective covenants and obligations under thisAgreement.

 

“**Treas. Reg.**” or“**Treasury Regulations**” means thetemporary and final regulations promulgated under the Code.

 

“**U.S. Export and ImportLaws**” means the Arms Export Control Act (22 U.S.C. 2778), theInternational Traffic in Arms Regulations (ITAR)(22 C.F.R. 120-130), the ExportAdministration Act of 1979, as amended (50 U.S.C. 2401-2420), the ExportAdministration Regulations (EAR)(15 C.F.R. 730-774), and all other laws andregulations of the United States Government regulating the provision ofservices to non-U.S. parties or the export and import of articles orinformation from and to the United States of America and non-U.S. parties.

 

[ THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLYLEFT BLANK ]

 

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IN WITNESS WHEREOF, the parties have duly executedthis Agreement as of the date first above written.

 
|   | OVERLAND  STORAGE, INC.   |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | By:                       | /s/ Vernon A.  LoForti |
|   |                      | Name: Vernon A.  LoForti |
|   |                      | Title:Vice  President and CFO |
|   |                      |
|   |                      |
|   | ZEPPOLE ACQUISITION CORP. |
|   |                      |
|   |                      |
|   | By:                       | /s/ Vernon A.  LoForti |
|   |                      | Name: Vernon A.  LoForti |
|   |                      | Title:Vice  President and CFO |
|   |                      |   |
|   |                      |   |
|   | ZETTA SYSTEMS,  INC.      |
|   |                      |
|   |                      |
|   | By:                       | /s/ Ganapathy  Krishnan |
|   |                      | Name: Ganapathy  Krishnan |
|   |                      | Title: President |
|   |                      |   |
|   |                      |   |
|   | KEY STOCKHOLDER:          |
|   |                      |
|   | /s/ Ganapathy Krishnan    |
|   | Ganapathy Krishnan        |

* *

* *

*[Signaturescontinue on the following page]*

 

 

[SIGNATUREPAGE TO AGREEMENT AND PLAN OF MERGER]

 

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|   | EQUITY HOLDERS  (other than Key  Stockholder) listed on Exhibit H hereto: |
|--------|--------------------------------------------------------------------------------|
|   |                                                                           |   |
|   | By:                                                                            | /s/ Ganapathy  Krishnan |
|   |                                                                           | Ganapathy  Krishnan, Attorney-in-Fact |
|   |                                                                           |   |
|   |                                                                           |   |
|   | SPECIAL PAYEES:                                                                |
|   |                                                                           |   |
|   | /s/ Ganapathy  Krishnan                                                        |
|   | Ganapathy  Krishnan                                                            |
|   |                                                                           |   |
|   | /s/ John Guthrie                                                               |
|   | John Guthrie                                                                   |
|   |                                                                           |   |
|   |                                                                           |   |
|   | B3 CONSULTING                                                                  |
|   |                                                                           |   |
|   | By:                                                                            | /s/ Ronald L.  Brown |
|   |                                                                           | Ronald L. Brown,  President |

 

 

Stockholder Agent hereby countersigns this Agreement for the purpose ofaffirming and acknowledging its duties, obligations, powers, rights and responsibilitiesunder this Agreement.

 
|   | STOCKHOLDER  AGENT |
|--------|--------------------|

 

 
|   | By:    | /s/ Ganapathy  Krishnan |
|--------|--------|-------------------------|
|   |   | Ganapathy  Krishnan     |

 

 

[SIGNATUREPAGE TO AGREEMENT AND PLAN OF MERGER]

 

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