**Exhibit2.6**

 

 

 

**AGREEMENT AND PLAN OF MERGER**

 

**BY AND AMONG**

 

**VALUECLICK, INC.,**

 

**HS ACQUISITION CORP.,**

 

**HI-SPEED MEDIA, INC.,**

 

**THESHAREHOLDERS OF HI-SPEED MEDIA, INC. SIGNATORY HERETO**

 

**AND**

 

**FARSHADFARDAD**

**(asShareholder Agent)**

 

 

**Dated as of December 10, 2003**

 

 

 

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**TABLE OF CONTENTS**

 
|                                                                           | **Page**                                                                        |
|--------------------------------------------------------------------------------|---------------------------------------------------------------------------------|
|                                                                           |                                                                            |
| ARTICLE I THE MERGER                                                           | 2                                                                               |
| 1.1                                                                            | The Merger                                                                      | 2 |
| 1.2                                                                            | Closing                                                                         | 2 |
| 1.3                                                                            | Actions at the Closing                                                          | 2 |
| 1.4                                                                            | Effect of the Merger                                                            | 2 |
| 1.5                                                                            | Certificate of Incorporation; Bylaws; Officers and Directors                    | 3 |
| 1.6                                                                            | Merger Consideration; Effect on Capital Stock                                   | 3 |
| 1.7                                                                            | Dissenting Shares                                                               | 5 |
| 1.8                                                                            | Establishment of Escrow; Interest and Dividends                                 | 6 |
| 1.9                                                                            | Earnout Payments                                                                | 6 |
| 1.10                                                                           | Surrender of Certificates; Payment of Merger Consideration                      | 10 |
| 1.11                                                                           | No Further Ownership Rights in Company Capital Stock                            | 11 |
| 1.12                                                                           | Lost, Stolen or Destroyed Certificates                                          | 11 |
| 1.13                                                                           | Necessary Actions; Further Action                                               | 11 |
| 1.14                                                                           | Required Deductions and Withholding; Payment of Taxes                           | 11 |
|                                                                           |                                                                            |   |
| ARTICLE II REPRESENTATIONS AND WARRANTIES  OF COMPANY AND COMPANY SHAREHOLDERS | 12                                                                              |
|                                                                           |                                                                            |
| 2.1                                                                            | Organization and Qualification;  Subsidiaries, Interests and Joint Ventures     | 12 |
| 2.2                                                                            | Company Capital Structure                                                       | 13 |
| 2.3                                                                            | Subsidiaries                                                                    | 15 |
| 2.4                                                                            | Authority                                                                       | 16 |
| 2.5                                                                            | Company Financial Statements; Working  Capital Deficit Calculations             | 17 |
| 2.6                                                                            | No Undisclosed Liabilities                                                      | 17 |
| 2.7                                                                            | No Changes                                                                      | 18 |
| 2.8                                                                            | Tax and Other Returns and Reports                                               | 20 |
| 2.9                                                                            | Restrictions on Business Activities                                             | 23 |
| 2.10                                                                           | Title to Properties; Absence of Liens and  Encumbrances; Condition of Equipment | 23 |
| 2.11                                                                           | Intellectual Property                                                           | 24 |
| 2.12                                                                           | Agreements, Contracts and Commitments                                           | 29 |
| 2.13                                                                           | Interested Party Transactions                                                   | 31 |
| 2.14                                                                           | Company Authorizations                                                          | 31 |
| 2.15                                                                           | Litigation                                                                      | 32 |
| 2.16                                                                           | Accounts Receivable                                                             | 32 |
| 2.17                                                                           | Minute Books                                                                    | 32 |
| 2.18                                                                           | Environmental Matters                                                           | 32 |
| 2.19                                                                           | Brokers’ and Finders’ Fees; Third Party  Expenses                     | 33 |
| 2.20                                                                           | Employee Benefit Plans                                                          | 34 |
| 2.21                                                                           | Compliance with Laws                                                            | 40 |

 

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|                                                                 | **Page**                                                           |
|----------------------------------------------------------------------|--------------------------------------------------------------------|
|                                                                 |                                                               |
| 2.22                                                                 | Warranties; Indemnities                                            | 40 |
| 2.23                                                                 | Software Development Agreements                                    | 41 |
| 2.24                                                                 | Representations Complete                                           | 41 |
| 2.25                                                                 | Insurance                                                          | 41 |
| 2.26                                                                 | Foreign Corrupt Practices Act                                      | 42 |
| 2.27                                                                 | Complete Copies of Materials                                       | 42 |
| 2.28                                                                 | Board and Shareholder Approval                                     | 42 |
| 2.29                                                                 | Customers and Suppliers                                            | 42 |
| 2.30                                                                 | Export Control Laws                                                | 43 |
| 2.31                                                                 | Banks and Brokerage Accounts                                       | 43 |
| 2.32                                                                 | Takeover Statutes                                                  | 43 |
| 2.33                                                                 | Accuracy of Information                                            | 43 |
| 2.34                                                                 | New Shareholder Matters                                            | 44 |
|                                                                 |                                                               |   |
| ARTICLE III REPRESENTATIONS AND WARRANTIES  OF PARENT AND MERGER SUB | 44                                                                 |
|                                                                 |                                                               |
| 3.1                                                                  | Organization, Standing and Power                                   | 44 |
| 3.2                                                                  | Authority                                                          | 44 |
| 3.3                                                                  | No Conflicts                                                       | 45 |
| 3.4                                                                  | Investment Advisors                                                | 45 |
| 3.5                                                                  | SEC Reports                                                        | 45 |
| 3.6                                                                  | Availability of Funds                                              | 46 |
|                                                                 |                                                               |   |
| ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE  TIME                      | 46                                                                 |
| 4.1                                                                  | Conduct of Business of the Company                                 | 46 |
| 4.2                                                                  | Negative Covenants                                                 | 46 |
| 4.3                                                                  | No Solicitation                                                    | 49 |
|                                                                 |                                                               |   |
| ARTICLE V ADDITIONAL AGREEMENTS                                      | 50                                                                 |
| 5.1                                                                  | Access to Information; Cooperation                                 | 50 |
| 5.2                                                                  | Confidentiality                                                    | 51 |
| 5.3                                                                  | Public Disclosure                                                  | 51 |
| 5.4                                                                  | Consents                                                           | 52 |
| 5.5                                                                  | Reasonable Efforts                                                 | 52 |
| 5.6                                                                  | Notification of Certain Matters                                    | 53 |
| 5.7                                                                  | Third Party Expenses                                               | 54 |
| 5.8                                                                  | Acquisition of AdPro and Rx Today                                  | 54 |
|                                                                 |                                                               |   |
| ARTICLE VI CONDITIONS TO THE MERGER                                  | 55                                                                 |
| 6.1                                                                  | Conditions to Obligations of Each Party to  Effect the Merger      | 55 |
| 6.2                                                                  | Additional Conditions to Obligations of the  Company               | 55 |
| 6.3                                                                  | Additional Conditions to the Obligations of  Parent and Merger Sub | 56 |

 

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|                                                            | **Page**                                     |
|-----------------------------------------------------------------|----------------------------------------------|
|                                                            |                                         |
| ARTICLE VII SURVIVAL OF REPRESENTATIONS AND  WARRANTIES; ESCROW | 59                                           |
| 7.1                                                             | Survival of Representations and Warranties   | 59 |
| 7.2                                                             | Indemnity and Escrow Arrangements            | 59 |
|                                                            |                                         |   |
| ARTICLE VIII TERMINATION, EXPENSES,  AMENDMENT AND WAIVER       | 67                                           |
| 8.1                                                             | Termination                                  | 67 |
| 8.2                                                             | Effect of Termination                        | 68 |
| 8.3                                                             | Fees and Expenses                            | 69 |
| 8.4                                                             | Amendment                                    | 69 |
| 8.5                                                             | Extension; Waiver                            | 69 |
|                                                            |                                         |   |
| ARTICLE IX GENERAL PROVISIONS                                   | 69                                           |
| 9.1                                                             | Notices                                      | 69 |
| 9.2                                                             | Interpretation                               | 70 |
| 9.3                                                             | Counterparts                                 | 70 |
| 9.4                                                             | Entire Agreement; Assignment                 | 71 |
| 9.5                                                             | Severability                                 | 71 |
| 9.6                                                             | Remedies; Exercise of Rights                 | 71 |
| 9.7                                                             | Governing Law                                | 71 |
| 9.8                                                             | Jurisdiction and Venue; Attorney’s Fees | 71 |
| 9.9                                                             | Specific Performance                         | 72 |
| 9.10                                                            | Rules of Construction                        | 72 |

 

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** **

**INDEX OF EXHIBITS**

 
| **Exhibit**    | ** ** | **Description**                   |
|----------------|------------|-----------------------------------|
| Exhibit A      |       | Agreement of Merger               |
| Exhibit B |       | Form of Non-Competition Agreement |
| Exhibit C |       | Form of Written Consent           |
| Exhibit D |       | Form of Letter of Transmittal     |
| Exhibit E      |       | Form of Acquisition Agreement     |
| Exhibit F      |       | Form of Parent Counsel Opinion    |
| Exhibit G      |       | Form of Company Counsel Opinion   |
| Exhibit H      |       | United States Senate Bill 877     |

 

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** **

**INDEX OF SCHEDULES**

 
| **Section  of   Company   Schedule** | ** ** | **Description**                                        |
|--------------------------------------|------------|--------------------------------------------------------|
|                                 |       |                                                   |
| 2.1                                  |       | Subsidiaries and Jurisdictions                         |
| 2.2(a)                               |       | Company Capital Stock                                  |
| 2.2(c)                               |       | Company Options                                        |
| 2.2(h)                               |       | Employee Bonus Arrangements                            |
| 2.5                                  |       | Company Financials                                     |
| 2.6                                  |       | Undisclosed Liabilities                                |
| 2.7(f)                               |       | Dividends or Distributions                             |
| 2.7(j)                               |       | Terminated Employees                                   |
| 2.7(q)                               |       | Agreement to Take Actions                              |
| 2.8(b)(ii)                           |       | Tax Elections                                          |
| 2.8(b)(iii)                          |       | Claims for Taxes                                       |
| 2.8(b)(viii)                         |       | Non-U.S. Taxes                                         |
| 2.8(b)(xv)                           |       | Tax Elections                                          |
| 2.10(a)                              |       | Real Property                                          |
| 2.11(b)                              |       | Company Products                                       |
| 2.11(c)                              |       | Company Intellectual Property, Proceedings and Actions |
| 2.11(l)                              |       | Owned or Licensed Improvements                         |
| 2.11(o)                              |       | Intellectual Property Licenses                         |
| 2.11(m)                              |       | Third Party Claims                                     |
| 2.11(r)                              |       | Third Party Infringement                               |
| 2.11(u)                              |       | Intellectual Property Rights Contributors              |
| 2.11(aa)                             |       | Licensed Software                                      |
| 2.12(a)                              |       | Material Contracts                                     |
| 2.12(a)(viii)                        |       | Third Party Obligations                                |
| 2.14                                 |       | Company Authorizations                                 |
| 2.15                                 |       | Litigation                                             |
| 2.16(a)                              |       | Accounts Receivable                                    |
| 2.19                                 |       | Fees and Third Party Expenses                          |
| 2.20(b)(i)                           |       | Company Employee Plans and Employee Agreements         |
| 2.20(b)(ii)                          |       | Employee Information                                   |
| 2.20(c)                              |       | Employee Plan Documents                                |
| 2.20(i)(i)                           |       | Change in Benefits                                     |
| 2.22                                 |       | Warranty Obligations                                   |
| 2.25                                 |       | Insurance                                              |
| 2.29                                 |       | Customers and Suppliers                                |
| 2.31                                 |       | Bank Accounts and Investments                          |

 

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**AGREEMENT AND PLAN OF MERGER**

 

This AGREEMENT AND PLAN OF MERGER (the “**Agreement**”) is made and entered into as of December 10, 2003by and among ValueClick, Inc., a Delaware corporation (“**Parent**”), HS Acquisition Corp., aCalifornia corporation and a wholly-owned subsidiary of Parent (“**Merger Sub**”), Hi-Speed Media, Inc., aCalifornia corporation (the “**Company**”),the shareholders of the Company signatory hereto (the “**Shareholders**”) and Farshad Fardad, in hiscapacity as Shareholder Agent (as defined in Section 7.2(h)).

 

**RECITALS**

 

A.            The Boards ofDirectors of each of the Company, Parentand Merger Sub believe it is advisable and in the best interests of eachcompany and their respective shareholders that Parent acquire the Company through the statutory merger of MergerSub with and into the Company (the “**Merger**”)and, in furtherance thereof, have approved the Merger, this Agreement and thetransactions contemplated hereby.

 

B.            Pursuant to theMerger, among other things, each issued and outstanding share of Company commonstock, no par value per share (the “**CompanyCommon Stock**”), shall be converted into the right to receive anamount in cash determined pursuant to Section 1.6, subject toadjustment pursuant to Section 1.6(e) hereof and subject to(i) the provisions of Section 1.8 hereof pursuant to which aportion of the cash allocable to the holders of Company Common Stock pursuantto the Merger will be deposited into the Escrow Fund (as defined in Section 1.8of this Agreement) and (ii) the provisions of Section 1.9 and ArticleVII hereof pursuant to which the Shareholders may hereafter be entitled toreceive additional Earnout Consideration (as defined in Section 1.9) andsuch Earnout Consideration may be offset against Losses of Parent and itsaffiliates, as defined and described in Article VII hereof.

 

C.            Pursuant to theMerger, all outstanding options to purchase Company Common Stock (“**Company Options**”) shall be assumed byParent and shall become exercisable for shares of Common Stock of Parent, parvalue $0.001 per share (the “**Parent CommonStock**”), from and after the Effective Time, as provided in Section1.6(b) below.

 

D.            The Company, Parent,Merger Sub and the Shareholders desire to make certain representations andwarranties and other agreements in connection with the Merger.

 

E.             In recognition ofthe consideration receivable pursuant to the Agreement and in connection withthe purchase of all their respective shares of Company Common Stock inconnection with the Merger, certain employee Shareholders have agreed to enterinto a non-competition agreement with Parent substantially in the form of ExhibitB attached hereto (the “**Non-CompetitionAgreement**”).

 

F.             As a condition andan inducement to Parent to enter into this Agreement, each of the Shareholdershas executed and delivered, and each party who hereafter becomes a Companyshareholder will execute and deliver, written consents in the form of Exhibit Cattached hereto

 

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(each, a “**WrittenConsent**”), pursuant to which each such shareholder has consented orwill consent to the adoption and approval of the Merger and this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing premises and thecovenants, agreements, representations and warranties set forth herein, andintending to be legally bound hereby, the parties to this Agreement herebyagree as follows:

 

# **ARTICLE I**

# ** **

# **THE MERGER**

# ** **

1.1           The Merger. Atthe Effective Time (as defined in Section 1.3) and upon the termsand subject to the conditions of this Agreement and the applicable provisionsof the California General Corporation Law (the “**CGCL**”), (a) Merger Sub shall be merged with and into theCompany, (b) the separate corporate existence of Merger Sub shall cease,and (c) the Company shall continue as the corporation surviving the Mergerand as a wholly-owned subsidiary of Parent. The Company as the corporation survivingthe Merger is sometimes referred to as the “**SurvivingCorporation**.”

 

1.2           Closing. Unlessthis Agreement is earlier terminated pursuant to Section 8.1, theclosing of the Merger (the “**Closing**”)will take place at the offices of Parent at 4353 Park Terrace Drive, WestlakeVillage, California 91361 as promptly as practicable following the satisfactionor valid waiver of the conditions set forth in Article VI, unlessanother place or time is agreed in writing by Parent and the Company. The datethe Closing actually occurs is referred to as the “**Closing Date**.”

 

1.3           Actions at theClosing. At the Closing: (a) Parent and Merger Sub shall deliver to the Company the various certificates,instruments and documents referenced in Section 6.2, (b) theCompany shall deliver to Parent and Merger Sub the various certificates,instruments and documents referenced in Section 6.3, and (c) theparties hereto shall consummate the Merger by filing the Agreement of Merger inthe form of Exhibit A attached hereto (the “**Agreement of Merger**”) with the Secretary of State of the Stateof California in accordance with the relevant provisions of the CGCL (the timeof acceptance of such Agreement of Merger by the Secretary of State of theState of California being referred to herein as the “**Effective Time**”).

 

1.4           Effect of theMerger. At the Effective Time, the effect of the Merger shall be asprovided in the applicable provisions of the CGCL. Without limiting thegenerality of the foregoing, and subject thereto, at the Effective Time, allthe property, rights, privileges, powers and franchises of the Company andMerger Sub shall vest in the Surviving Corporation, and all debts, liabilities,obligations and duties of the Company and Merger Sub shall become the debts,liabilities, obligations and duties of the Surviving Corporation.

 

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1.5           Articles ofIncorporation; Bylaws; Officers and Directors. Unless otherwise determinedby Parent prior to the Effective Time, at the Effective Time:

 

(a)           The Articles ofIncorporation of the Company shall, without further action, be amended andrestated as set forth in Exhibit I to the Agreement of Merger, and shall be theArticles of Incorporation of the Surviving Corporation until thereafter amendedin accordance with applicable law;

 

(b)           The Bylaws of theCompany shall, without further action, be amended and restated to read the sameas the Bylaws of Merger Sub in effect at the Effective Time, and shall be theBylaws of the Surviving Corporation until thereafter amended in accordance withapplicable law; and

 

(c)           The officers anddirectors of Merger Sub at the Effective Time shall become the officers anddirectors of the Surviving Corporation, to serve as such until the death,resignation, removal or replacement of such persons as provided by law and theArticles of Incorporation and Bylaws of the Surviving Corporation.

 

1.6           MergerConsideration; Effect on Capital Stock. The aggregate maximum considerationto be paid to the Company shareholders by Parent and Merger Sub for all theoutstanding Company Common Stock at the Closing shall be $9,500,899 in cash,subject to adjustment as provided in subparagraph (e) below (suchamount, as adjusted, the “**ClosingConsideration**”), and subject to the deposit of a portion of theClosing Consideration into the Escrow Fund as provided in Section 1.8.In addition, as part of the Merger, certain specified holders of shares ofCompany Common Stock outstanding at the Effective Time shall be entitled toreceive a portion of any “Earnout Consideration” paid after the Effective Time,as defined and provided in Section 1.9 below. On the terms and subjectto the conditions set forth in this Agreement, at the Effective Time, by virtueof the Merger and without any action on the part of Parent, Merger Sub, theCompany or the holder of any shares of Company Common Stock, the followingshall occur:

 

(a)           Company Common Stock. Eachoutstanding share of Company Common Stock automatically will be converted intothe right to receive an amount in cash equal to the aggregate amount of theClosing Consideration (subject to adjustment pursuant to subparagraph (e)below and subject to the escrow of a portion of the Merger Considerationpursuant to Section 1.8) *dividedby* the number of shares of Company Common Stock outstandingimmediately prior to the Effective Time. In addition, the Company shareholdersshall be entitled to receive the Earnout Consideration (as defined in Section1.9) as and to the extent provided in this Agreement.

 

(b)           Company Options.Each outstanding Company Option shall be deemed assumed by Parent, and from andafter the Effective Time, (i) each outstanding Company Option shallentitle the holder thereof to acquire the number of shares of Parent CommonStock (rounded down to the nearest whole number) determined by multiplying(A) the number of shares of Company Common Stock subject to such CompanyOption immediately prior to the Effective Time by (B) the Exchange Rate(as defined below) and (ii) the exercise price per share

 

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of Parent Common Stock subject to suchassumed Company Options at and after the Effective Time shall be an amount(rounded up to the nearest one-hundredth of a cent) equal to (A) theexercise price per share of Company Common Stock subject to the Company Optionprior to the Effective Time *divided by*(B) the Exchange Rate. Other than as provided above, each assumed CompanyOption shall be subject to the same vesting schedule and other terms andconditions as in effect immediately prior to the Effective Time. For purposeshereof, “**Exchange Rate**” means0.025029. Holders of Company Options assumed by Parent pursuant to this Section1.6(b) shall not be entitled to receive any portion of any EarnoutConsideration payable to the holders of Company Common Stock pursuant to Section 1.9upon the subsequent exercise of such assumed Company Options.

 

(c)           Merger Sub Stock.Each share of common stock of Merger Sub outstanding as of the Effective Timeautomatically shall be converted into one validly issued, fully paid andnon-assessable share of common stock of the Surviving Corporation. From andafter the Effective Time, each stock certificate formerly representing sharesof common stock of Merger Sub shall be deemed to represent an equivalent numberof shares of common stock of the Surviving Corporation.

 

(d)           Adjustments forSubsequent Changes. The amount of cash payable with respect to the CompanyCommon Stock pursuant to Sections 1.6 and 1.9 shall beequitably and appropriately adjusted to reflect any stock split, reverse split,stock combination, stock dividend, reorganization, reclassification,recapitalization or other like change with respect to the Company Common Stockwhich occurs after the date hereof and prior to the Effective Time.

 

(e)           Adjustment toPurchase Price. The amount of Closing Consideration paid to the Companyshareholders shall be subject to downward adjustment, on a dollar for dollarbasis, to the extent that there exists a Working Capital Deficit in excess of$450,000 as of the Closing Date. For purposes of this Agreement, “**Working Capital Deficit**” is defined as(i) the sum of (A) total liabilities (as defined under United Statesgenerally accepted accounting principles (“**GAAP**”))of the Company and its subsidiaries on a combined basis, (B) all fees,costs and expenses incurred by the Company, including legal fees, financialadvisor fees, employee bonuses, and severance benefits incurred in connectionwith the negotiation of this Agreement or resulting from the Merger,(C) any fees, charges, expenses, commissions or payments of the typedescribed in Section 2.19, (D) 50% of the anticipated costs of the3-05 Audit (as defined in Section 5.1(a)), (E) 100% of the fees, costsand expenses associated with preparing and filing any Tax Returns (as definedin Section 2.8) not timely filed prior to the Effective Time and payingany Pre-Closing Taxes (as defined in Section 7.2(l))(including, in eachcase, accountant’s and attorney’s fees and the amount of any required paymentsfor Pre-Closing Taxes, any penalties and any interest thereon) and(F) 100% of the fees, costs and expenses of the Company acquiring all ofthe outstanding capital stock of each of AdPro and Rx Today, as providedherein, to the extent such amounts are not paid in full prior to the EffectiveTime, less (ii) total current assets (as defined under GAAP) of theCompany and its subsidiaries on a combined basis. To facilitate and expeditethe calculation of any necessary adjustments to the Purchase Price, the Companyhas prepared and delivered on the date hereof a calculation of the amount ofWorking Capital Deficit as of the date hereof (the “**Preliminary Working Capital Calculation**”) certified by theCompany’s Chief Executive Officer as true and correct in all

 

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material respects, and immediately prior tothe Closing the Company shall provide a similarly certified update of suchcalculation as of the Closing Date (the “**ClosingDate Working Capital Calculation**”).

 

1.7           Dissenting Shares.

 

(a)           Notwithstanding anyprovision of this Agreement to the contrary, any shares of Company Common Stockheld by a holder who has properly exercised and perfected appraisal rights forsuch shares in accordance with the CGCL and who has not effectively withdrawnor lost such appraisal rights (“**DissentingShares**”), shall not be converted into or represent a right toreceive the Merger Consideration pursuant to Section 1.6, but theholder thereof shall only be entitled to such rights as are expressly specifiedin Chapter 13 of the CGCL. Nothing in this Section 1.7 shall be deemedto affect Parent’s right to terminate this Agreement pursuant to Section 8.1or to close the Merger and seek recovery of any Losses (as provided in **Article VII**) if any Company shareholder atany time retains or asserts appraisal rights or fails to deliver, orsubsequently withdraws or revokes, a New Shareholder Consent (as defined inSection 5.4) or Written Consent to the Merger.

 

(b)           Notwithstanding theprovisions of the preceding subparagraph (a), if any holder ofDissenting Shares shall effectively withdraw or lose such holder’s appraisalrights (by failing to properly perfect the same or otherwise), then, as of theoccurrence of such event, such holder’s shares of Company Common Stockautomatically shall be converted into and represent only the right to receiveonly its share of the Closing Consideration as provided in Section 1.6,in each case without interest thereon, upon surrender of the Certificatesrepresenting such shares.

 

(c)           The Company shallgive Parent and the Shareholder Agent (as defined in Section 7.2(h))(i) prompt notice of any written demand for appraisal received by theCompany pursuant to the applicable provisions of the CGCL and (ii) theopportunity to participate in all negotiations and proceedings with respect tosuch demands. The Company shall not, except with the prior written consent ofParent, voluntarily make any payment with respect to any such demands or offerto settle or settle any such demands. To the extent that Parent or the Companymakes any payment in respect of any Dissenting Shares, Parent shall be entitledto recover from the Escrow Fund (as defined below) pursuant to the claim forLosses provisions of Article VII hereof the aggregate amounts by whichany such Dissenting Shares payments exceed the aggregate Merger Considerationand any Earnout Consideration that otherwise would have been payable in respectof such Dissenting Shares.

 

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1.8           Establishment ofEscrow; Interest and Dividends.

 

(a)           Atthe Effective Time, on behalf of the holders of the then outstanding CompanyCommon Stock, Parent shall deposit into a general escrow account establishedpursuant to Article VII below (the “**Escrow Fund**”) $1,800,000 of the Closing Consideration (suchamount, as from time to time in the Escrow Fund, the “**Escrow Amount**”). The Escrow Amount, and anyinterest earned thereon shall be maintained in a separate account and disbursedas provided in Article VII. The portion of the Escrow Amount depositedon behalf of each Company shareholder shall be in proportion to the percentageof the shares of Company Common Stock outstanding immediately prior to theEffective Time owned by each such respective Company shareholder (suchrespective amounts, the “**ProportionateInterests**”).

 

(b)           Anyinterest accruing on the Escrow Amount shall be held in the Escrow Fund andavailable to cover claims for Losses until distributed upon termination of theEscrow Fund, as provided in Article VII. Any such interest shall bedistributed to Parent (to the extent earned or paid with respect to cash in theEscrow Fund distributed to Parent to cover Losses pursuant to Article VII) orpro rata to the respective Company shareholders on whose behalf cash wasdeposited in the Escrow Fund (to the extent earned or paid with respect to cashultimately distributed to such respective shareholders upon termination of theEscrow Fund), such that any interest earned on any cash in the Escrow Fundgenerally follows the ultimate recipient of the cash on which such interest wasearned.

 

1.9           Earnout Payments.In addition to the portion of the Closing Consideration payable with respect tothe Company Common Stock, the Company shareholders are entitled to receiveadditional earnout payments if certain Milestones are achieved during specifiedEarnout Periods (each as defined below), as specified in this Section 1.9(such amount, subject to reduction and offset as provided in Article VII,the “**Earnout Consideration**”); provided,however, that any Earnout Consideration shall be subject to offsetagainst Losses of Parent and its affiliates as provided in Article VII. **As permitted by Section 1101 of the CGCL, each of theShareholders by executing this Agreement hereby (and each Person who hereafterbecomes a Company shareholder, by executing a New Shareholder Consent shall)unconditionally and irrevocably consents to the payment of any such EarnoutConsideration to some, but not all, of the holders of Company capital stock tothe extent so agreed among such Persons and the Shareholder Agent as providedin subparagraph (e) below.**Parent’s obligations to payany Earnout Consideration to Shareholder Agent for the benefit of any KeyEmployee (as defined in Section 6.3(d) is not contingent on thecontinued employment of any such Key Employee.

 

(a)           PerformanceMilestones. Subject to subparagraph (b) below, the EarnoutConsideration shall be payable only in the amounts specified in subparagraph(b) below and only to the extent that the Surviving Corporation achievesthe percentages specified in subparagraph (b) of the performancemilestones specified below during the applicable calendar quarter periodsspecified below (each such performance milestone, a “**Milestone**,” and each such period an “**Earnout Period**”), and only to the extentthat such Earnout Consideration is not applied to offset Losses of Parent orits Affiliates pursuant to Article VII. The Earnout Periods and theMilestones applicable to each Earnout Period are as follows:

 

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| **Earnout  Period**     | ** ** | **Total Revenue Milestones** | ** ** | **Operating Income Milestones** | ** ** |
|-------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Quarter Ending 3/31/04  |       | $                            | 2,300,000  |                            | $          | 1,201,060 |   |
|                    |       |                         |       |                            |       |
| Quarter Ending 6/30/04  |       | $                            | 2,500,000  |                            | $          | 1,401,060 |   |
|                    |       |                         |       |                            |       |
| Quarter Ending 9/30/04  |       | $                            | 2,600,000  |                            | $          | 1,501,060 |   |
|                    |       |                         |       |                            |       |
| Quarter Ending 12/31/04 |       | $                            | 2,800,000  |                            | $          | 1,701,060 |   |
|                    |       |                         |       |                            |       |
| Quarter Ending 3/31/05  |       | $                            | 2,800,000  |                            | $          | 1,600,000 |   |
|                    |       |                         |       |                            |       |
| Quarter Ending 6/30/05  |       | $                            | 3,000,000  |                            | $          | 1,700,000 |   |
|                    |       |                         |       |                            |       |
| Quarter Ending 9/30/05  |       | $                            | 3,200,000  |                            | $          | 1,800,000 |   |
|                    |       |                         |       |                            |       |
| Quarter Ending 12/31/05 |       | $                            | 3,500,000  |                            | $          | 1,990,000 |   |

 

For purposes hereof, “**Total Revenue**” for any Earnout Period meansnet revenue of the Surviving Corporation for such period calculated inaccordance with GAAP, and “**Operating Income**”for any Earnout Period means net income of the Surviving Corporation for suchperiod calculated in accordance with GAAP, minus interest income of theSurviving Corporation for such period and plus (to the extent deducted indetermining net income for any period) (i) interest expense,(ii) income taxes and (iii) any amortization expense related tointangible assets recorded as a result of the Merger, in each case, as incurredor accrued for such period. In determining Operating Income, the SurvivingCorporation will be treated as a separate business unit, and any charges orexpenses of Parent not related to, or reasonably necessary for, the operationof the Surviving Corporation will be excluded. Notwithstanding the foregoing,Total Revenue and Operating Income shall be calculated based only on theproceeds from those businesses and activities conducted by the SurvivingCorporation, exclusive of any revenues or operating income from businesses orassets of Parent or its subsidiaries or affiliates contributed to the SurvivingCorporation after the Effective Time, except if Parent or any of itssubsidiaries or divisions engages the Company (or the Surviving Corporationafter the Effective Time) to deliver e-mail campaigns, the Company (or theSurviving Corporation after the Effective Time) would receive a negotiatedamount not to exceed $0.50 CPM to fulfill such campaign.

 

(b)           PercentagePayments. The amount of Earnout Consideration payable with respect to anyof the Earnout Periods described above (before deducting any amounts to offsetLosses pursuant to Article VII) shall be based on the percentage ofthe Milestones specified above actually achieved by the Surviving Corporationduring the applicable Earnout Periods, as follows:

 

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| **% of Milestone Achieved** | ** ** | **Total Revenue Milestone -  Quarterly Payment** | ** ** | **Operating Income Milestone -  Quarterly Payment** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                 | ** ** | ** **                                                      | ** ** | ** **                                                         | ** ** |
| Less than 85%                              |       | None                                                            |       | None                                                               |       |
|                                       |       |                                                            |       |                                                               |       |
| 85% to less than 100%                      |       | $                                                               | 250,000    |                                                               | $          | 250,000 |   |
|                                       |       |                                                            |       |                                                               |       |
| 100% to less than 110%                     |       | $                                                               | 375,000    |                                                               | $          | 375,000 |   |
|                                       |       |                                                            |       |                                                               |       |
| 110 to less than 125%                      |       | $                                                               | 437,500    |                                                               | $          | 437,500 |   |
|                                       |       |                                                            |       |                                                               |       |
| 125% or Greater                            |       | $                                                               | 500,000    |                                                               | $          | 500,000 |   |

 

The amounts specified above are separate anddistinct payments based on the respective Total Revenue and Operating IncomeMilestones applicable to each Earnout Period, such that, for example, if theSurviving Corporation achieved 85% of the Total Revenue Milestone but only 83%of the Operating Income Milestone for a specific Earnout Period, a $250,000Earnout Payment would apply based on the Total Revenue results but no separatepayment would apply with respect to the Operating Income Milestone.

 

(c)           Calculationand Timing of Earnout Payments. Within 45 days after the end of eachrespective Earnout Period, Parent shall calculate at Parent’s expense anddeliver to the Shareholder Agent a report (the “**Earnout Report**”) which shall include (i) the unauditedincome statement of the Surviving Corporation for the Earnout Period justended, (ii) a calculation of the percentage of the respective Milestonesachieved for that Earnout Period and the amount of Earnout Payment, if any,resulting therefrom, (iii) the nature and amount of any Losses to beoffset from the Earnout Payment as provided in Article VII and(iv) a narrative description of any special adjustments or extraordinaryitems that affected the Earnout Payment calculation for that Earnout Period. TheEarnout Report shall be signed by an executive officer of Parent and shall notbe subject to revision or modification, except in the event that the SurvivingCorporation’s financial statements are restated in a manner that materiallyaffects the calculation of Total Revenue or Operating Income for a priorEarnout Period (i.e. would alter the amount of Earnout Consideration payable),or as provided immediately below.

 

(d)           Rightto Inspection. The Shareholder Agent shall be entitled to inspect the booksand records of the Surviving Corporation upon which the calculations reflectedin the Earnout Report were made (the books and records relating to and used incalculating the amounts reflected in the Earnout Report for any specificEarnout Period, the “**relevant books andrecords**”), by providing written notice to Parent of such requestwithin 10 days after the Earnout Report is delivered. If the Shareholder Agentdoes not deliver such a written request within such ten day period, thecalculations and facts set forth in the Earnout Notice shall be deemedirrevocably approved by the Shareholder Agent and shall be conclusive andbinding upon the Shareholder Agent and each Company shareholder entitled toshare in any Earnout Consideration. If the Shareholder Agent does deliver awritten inspection request within ten days after the Earnout Report isdelivered, the Company shall provide reasonable access to the

 

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relevant books and records during normalbusiness hours no later than ten days after the Shareholder Agent delivers thewritten inspection request. The Shareholder Agent shall have a period of tenbusiness days after the date access to the relevant books and records is givento review and analyze the same, and within two business days after the end ofsuch ten business day inspection period (unless the Shareholder Agent’s auditoror representative in good faith requires additional time to complete itsanalysis, in which case Parent shall provide no more than five business daysadditional time to complete the review and analysis) shall give Parent writtennotice describing in reasonable detail the nature and amount of any purporteddifferences between the amounts and facts reflected in the Earnout Report andthose determined in good faith through the Shareholder Agent’s review. If theShareholder Agent fails to give proper written notice to Parent of anypurported differences within the required period, the calculations and factsset forth in the Earnout Notice shall be deemed irrevocably and unconditionallyapproved by the Shareholder Agent and shall be conclusive and binding upon theShareholder Agent and each Company shareholder entitled to share in any EarnoutConsideration. If the Shareholder Agent does provide written notice ofpurported differences within the required period, the Shareholder Agent and an authorizedrepresentative of Parent shall promptly seek in good faith to resolve anypurported differences and agree to the appropriate amount of EarnoutConsideration payable to the applicable Company shareholders. If the partiesare unable to come to a good faith resolution within ten business days aftercommencing such good faith discussions, either Parent or the Shareholder Agentmay commence suit before a court of competent jurisdiction to resolve the issue.Parent shall be entitled to withhold any Earnout Consideration subject to theEarnout Report in dispute during the pendency of any dispute relating thereto. AnyEarnout Consideration payable with respect to any Earnout Period (and nototherwise offset against Losses of Parent and its affiliates pursuant to ArticleVII) shall be paid by Parent within ten business days after the earlier of(i) the date that the Shareholder Agent approves, or is deemed to approve,the Earnout Report applicable to such Earnout Period and (ii) the datethat any differences properly asserted by the Shareholder Agent are resolved(whether through good faith discussions, through a legal action not subject toappeal or other means mutually agreed by the parties).

 

(e)           Paymentof Earnout Consideration. Any Earnout Consideration not applied to offsetLosses pursuant to Article VII shall be paid by Parent directly to theShareholder Agent to hold in trust for the benefit of the Shareholders entitledthereto. **Each Shareholder by executing anddelivering this Agreement hereby irrevocably (i) acknowledges and agreesthat upon the payment of any Earnout Consideration to the Shareholder Agent forthe benefit of the Shareholders, neither Parent nor the Surviving Corporationnor any affiliate of either corporation shall have any further liability orobligation to any Shareholder with respect to such Earnout Consideration,(ii) agrees that the allocation and payment of the Earnout Considerationamong the Shareholders shall be determined entirely by the Shareholders and theShareholder Agent in their discretion (even if the result is that holders ofthe same class or series of capital stock are treated disparately) and(iii) agrees that in the event of any dispute as to the allocation orpayment of any Earnout Consideration paid to Shareholder Agent, suchShareholder shall look solely and exclusively to Shareholder Agent for recourseor resolution of any such dispute.**

 

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(f)            EarnoutRights Personal. The rights of each Company shareholder to receive anyEarnout Consideration are personal to such holder of Company Common Stockimmediately prior to the Merger and may not be sold, pledged, hypothecated orotherwise transferred (and no participation or other rights may be grantedtherein), other than by will or the laws of descent or distribution or with theconsent of Parent (not to be unreasonably withheld). Any attempted sale,pledge, hypothecation or other transfer (and any participation or grant ofrights) in violation of this provision shall be null and void abinitio.

 

1.10         Surrender ofCertificates; Payment of Merger Consideration.

 

(a)           ClosingConsideration. On the Closing Date, Parent shall have available inimmediately available cash the cash representing the Closing Consideration (lessthe Escrow Amount and less any amounts otherwise payable with respect toany Dissenting Shares) for payment to the respective Company shareholdersentitled thereto as provided below. In addition, at the Effective Time, Parentshall separately deposit the Escrow Amount into the Escrow Fund on behalf ofthe holders of Company capital stock otherwise entitled thereto, as provided inSection 1.8.

 

(b)           ExchangeProcedures. Subject to Section 1.8(a), at the Closing, eachholder of record of outstanding Company Common Stock (the instrumentsrepresenting the same, “**Certificates**”)shall deliver to Parent (A) a properly completed and validly executedletter of transmittal in the form attached hereto as Exhibit D and(B) the Certificates representing all shares of Company Common Stock heldby such shareholder, duly endorsed in blank. Upon surrender of a Certificate toParent or its designee specified in the letter of transmittal, together with aduly completed and validly executed letter of transmittal, the surrenderingholder shall be paid by Parent the amount of Closing Consideration to whichsuch shareholder is entitled as determined pursuant to Section 1.6(less amounts deposited in the Escrow Fund on behalf of such holderpursuant to Section 1.8 and subject to Article VII). Fromand after the Effective Time, until properly surrendered and cancelled, eachoutstanding Certificate will be deemed to evidence only the right to receive apro rata portion of the Closing Consideration and any Earnout Considerationpayable in respect of each such share pursuant to the Merger (subject to Section 1.8and Article VII). As provided in the letter of transmittal, byexecuting and delivering the same, each Company shareholder will(i) acknowledge and agree to perform the obligations attributed to theCompany shareholders hereunder (ii) acknowledge and agree to theindemnification and other obligations set forth in Article VII andParent’s and its affiliate’s right to recover any Losses out of the Escrow Fundor by way of offset against any Earnout Consideration, (iii) shall approveand confirm the appointment of the Shareholder Agent and (iv) shallconsent to the payment of the Earnout Consideration to Shareholder Agent forthe benefit of the Company shareholders and the subsequent allocation andpayment of such Earnout Consideration in the manner agreed by such parties(even if the result is that holders of the same class or series of capitalstock are treated disparately).

 

(c)           Transfers ofOwnership. If any Closing Consideration or Earnout Consideration is to bepaid or allocated to a person other than the holder in whose name theCertificate surrendered is registered, it will be a condition of the payment orallocation thereof that the Certificate so surrendered must be properly endorsedand accompanied by all documents

 

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required to evidence and effect such transferand to evidence compliance with any applicable securities laws and that anyapplicable stock transfer taxes have been paid.

 

(d)           No Liability.Notwithstanding anything to the contrary in this Article I, none ofParent, Merger Sub or the Surviving Corporation shall be liable to anyshareholder for any amount properly paid to a public official pursuant to anyapplicable abandoned property, escheat or similar law.

 

1.11         NoFurther OwnershipRights in Company Common Stock.The Closing Consideration issued pursuant to the Merger or depositedinto the Escrow Fund and any Earnout Consideration paid in accordance with theterms hereof shall be deemed to have been issued in full payment andsatisfaction of all rights or obligations pertaining thereto. There shall be nofurther registration of transfers on the records of the Surviving Corporationof any Company Common Stock, Company Options or Company Warrants (as defined inSection 2.2(d)), if any, which were outstanding immediately prior to theEffective Time. If Certificates are presented to the Surviving Corporation forany reason after the Effective Time, such Certificates immediately shall becanceled and exchanged as provided in this Article I (subject to Sections 1.8and Article VII).

 

1.12         Lost, Stolen orDestroyed Certificates. If any Certificates have been lost, stolen ordestroyed, Parent shall pay such amount (less any amounts deposited intothe Escrow Fund on behalf of the holder) as otherwise would be requiredpursuant to this Article I in exchange for such lost, stolen ordestroyed Certificates promptly following receipt of an affidavit in a formsatisfactory to Parent of that fact; provided, however, thatParent may, in its discretion and as a condition precedent to such payment orissuance require the purported owner of any such lost, stolen or destroyedCertificates to deliver a bond (at such owner’s sole cost and expense) in suchsum as Parent may reasonably direct as indemnity against any claim that may bemade against Parent or the Surviving Corporation with respect to theCertificates alleged to have been lost, stolen or destroyed.

 

1.13         Necessary Actions;Further Action. If any further action is necessary or desirable at any timeafter the Effective Time to carry out the purposes of this Agreement and tovest full right, title and possession to all assets, property, rights,privileges, powers and franchises of Company and Merger Sub in the SurvivingCorporation or to vest Parent with a 100% ownership interest in the SurvivingCorporation, the officers and directors of the Surviving Corporation are fullyauthorized in the name of the Company and the Surviving Corporation orotherwise to take, and the Surviving Corporation shall cause such persons totake, all such lawful, necessary or desirable action so long as such action isnot inconsistent with this Agreement.

 

1.14         RequiredDeductions and Withholding; Payment of Taxes. The Company, and on itsbehalf Parent and the Surviving Corporation and the Escrow Agent, shall beentitled to deduct and withhold from any consideration otherwise payable ordeliverable to any holder or former holder of Company capital stock such amountsas may be required to be deducted or withheld therefrom under the InternalRevenue Code of 1986, as amended (the “**Code**”),under any provision of state, local or foreign tax law or pursuant to any otherapplicable legal requirement. To the extent such amounts are so deducted orwithheld and remitted, such amounts shall be 

 

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treated for all purposes as having been paidto the person to whom such amounts would otherwise have been paid absent suchdeduction or withholding Each of the Shareholders agrees that he shall (andeach other Company shareholder by approving this Agreement acknowledges andagrees that such shareholder shall) be responsible for and shall timely pay hisown Taxes resulting from the transactions contemplated by this Agreement, andupon request from Parent shall furnish proof of payment of all such Taxes insuch form as requested by Parent.

 

# **ARTICLE II**

# ** **

# **REPRESENTATIONS AND WARRANTIES OFCOMPANY**

# **AND COMPANY SHAREHOLDERS**

# ** **

The Company and the Shareholders hereby jointly and severally representand warrant to Parent and Merger Sub as of the date hereof and as of theClosing Date as follows, subject only to those exceptions in the disclosureletter dated the date hereof supplied by Company to Parent relating tospecific sections of the following representations and warranties (the “**Company Schedule**”). The Company and theShareholders acknowledge and agree that they are jointly and severally makingthe following representations and warranties with respect to the Company, AdProSolutions, Inc., a California corporation (“**AdPro**”),Rx Today, Inc., a California corporation (“**RxToday**”), and all such corporations’ subsidiaries, if any, unless thecontext clearly states otherwise.

 

2.1           Organization andQualification; Subsidiaries, Interests and Joint Ventures. For purposes ofthis Article II, unless otherwise specified, all references to theCompany in this Article II also include its direct and indirectsubsidiaries and all references to subsidiaries of the Company shall be deemedto include AdPro and Rx Today, Inc., a California corporation, notwithstandingthat such entities are not at the date hereof technically subsidiaries of theCompany. The Company and each of its subsidiaries (as set forth in Section 2.1of the Company Schedule, and including AdPro and Rx Today) is a corporationduly organized, validly existing and in good standing under the laws of itsstate of incorporation. Each of the Company and its subsidiaries has thecorporate power to own its properties and to carry on its business as now beingconducted and as currently proposed to be conducted. Each of the Company andits subsidiaries is duly qualified to do business and is in good standing ineach jurisdiction in which it is required to be so qualified. Section 2.1 ofthe Company Schedule sets forth each jurisdiction in which the Company or anysubsidiary is qualified, registered, licensed or admitted to do business andseparately lists each other jurisdiction in which the Company or any subsidiaryowns, uses, licenses or leases material assets or properties or conductsbusiness, has employees or engages independent contractors. The Company hasdelivered to Parent true and correct copies of the Articles of Incorporationand Bylaws or other organizational and governing documents, as applicable, ofthe Company and each of its subsidiaries, each as amended to date and currentlyin effect. Neither the Company nor any of its subsidiaries is in violation ofany of the provisions of its Articles of Incorporation or Bylaws or equivalentorganizational and governing documents. The Company does not directly orindirectly own any equity or similar interest and is not a participant in, anycorporation, partnership, joint venture or other business association orentity.

 

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2.2           Company CapitalStructure.

 

(a)           Authorized andOutstanding Capital Stock. The authorized capital stock of the Companyconsists of (i) 50,000,000 shares of Company Common Stock, of which46,291,363  shares are issued andoutstanding as of the date hereof, and (ii) 10,000,000 shares of Companypreferred stock, no par value per share, of which no shares are issued andoutstanding or reserved for issuance as of the date hereof. Other than the46,291,363 shares of Company Common Stock as set forth above, and other thanthe shares of Company Common Stock reserved for issuance upon exercise ofoutstanding Company Options as described in Section 2.2(e) below,the Company has no other class or series of capital stock or other equity orvoting securities (or rights to acquire the same) issued or outstanding orreserved for issuance, and other than the Company Common Stock and preferredstock described, above, the Company has no other class or series of capitalstock or other equity or voting securities authorized. The authorized capitalstock of each of AdPro and Rx Today consists of 100 shares of common stock, ofwhich 7 shares of each company are issued and outstanding. Other than the 7shares of AdPro common stock and Rx Today common stock outstanding, neitherAdPro nor Rx Today has any other class or series of capital stock or otherequity or voting securities (or rights to acquire the same) issued oroutstanding or reserved for issuance, and neither company has any other classor series of capital stock or other equity or voting securities authorized. Section2.2(a)  of the Company Schedule lists each respective holder of CompanyCommon Stock and capital stock of any subsidiary (including AdPro and Rx Today)including the number of shares held by each such holder and the state orjurisdiction or residence of the holder as listed in the Company’s (or suchsubsidiary’s) records. The Company shall deliver an updated copy of such listat the Closing current as of the Closing Date.

 

(b)           Status ofOutstanding Capital Stock. All outstanding shares of the capital stock ofthe Company and each of its subsidiaries are duly authorized, validly issued,fully paid and non-assessable, were not issued in violation of any preemptiveor similar rights, and were issued in accordance with all applicable federal,state and foreign securities laws. All outstanding shares of the capital stockof the Company and each of its subsidiaries were issued, and currently are,free and clear of all liens, charges, claims, security interests or otherencumbrances of any sort (“**Liens**”),other than restrictions on transfer imposed by federal or state securities law,and none of such securities are subject to preemptive rights or rights of firstrefusal created by statute, the Articles of Incorporation or Bylaws of theCompany or any subsidiary or any agreement to which the Company or anysubsidiary is a party or by which the Company or any subsidiary or theirrespective assets or properties are or may be bound. The shares of capitalstock of AdPro and Rx Today which the Company will acquire prior to the ClosingDate will be owned as of the Effective Time by the Company, free and clear ofany and all Liens, and there shall be no other shares of capital stock or othersecurities of AdPro or Rx Today outstanding as of the Effective Time. TheCompany and its subsidiaries are not, and to the Company’s knowledge after dueinquiry none of the Company shareholders or such subsidiaries’ shareholders is,a party to any oral or written agreement, arrangement or other commitment thatdirectly or indirectly grants or creates any right of negotiation, right offirst refusal, right of first or last offer or similar arrangement inconnection with the Merger or the other transactions contemplated hereby. Neitherthe Company nor any subsidiary is a party to any arrangement, agreement orinstrument pursuant to which the Company or such subsidiary

 

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may elect to satisfy its obligations byissuing capital stock or other securities (or rights to acquire the same).

 

(c)           Company Options.Section 2.2(c) of the Company Schedule sets forth a list of all outstandingCompany Options, including the names and positions of the respective holdersthereof, the number and type of securities issuable upon exercise, the exerciseprice for such underlying securities, the plan or arrangement pursuant to whichthe Company Options were granted, whether such Company Options are incentivestock options within the meaning of Section 422 of the Code (“**ISOs**”) or options that are not ISOs, andthe vesting status of such Company Options (including the number of sharesvested and unvested to date and a description of all circumstances in which thevesting schedule can or will be accelerated). The Company shall deliver anupdated copy of such list at the Closing current as of the Closing Date. AllCompany Options have been issued to employees and consultants pursuant to theCompany’s 2001 Stock Incentive Plan (the “**CompanyPlan**”). The Company Plan is the only stock option, stock incentiveor similar plan of the Company since inception. No subsidiary of the Companyhas or at any time has had any stock option, stock incentive or similar plansince inception, and no subsidiary (including AdPro and Rx Today) has anyoptions, warrants or other rights to acquire securities outstanding. As of thedate hereof, the total number of shares of Company Common Stock authorized forissuance pursuant to Company Options granted pursuant to the Company Plan is3,500,000, of which Company Options to purchase 3,214,999 shares of CompanyCommon Stock currently are issued and outstanding. All Company Options issuedpursuant to the Company Plan (and all shares of Company Common Stock issuedupon exercise thereof) were issued in compliance with the terms andrequirements of the Company Plan and the requirements of applicable federal,state and foreign securities laws. There are no other outstanding CompanyOptions or oral or written agreements, arrangements or understandings to whichthe Company is a party requiring the Company to issue any Company Options orany securities or rights exercisable or exchangeable for, or convertible into,shares of Company capital stock or other voting securities. The terms of theCompany Plan permit the assumption by Parent of all outstanding Company Optionsas contemplated by this Agreement, without the consent or approval of suchholders of Company Options or otherwise, and such action will not result inliability of the Company or Surviving Corporation or any acceleration of theexercise schedule or vesting provisions, or otherwise result in any changes inor to the terms, of such Options or the agreements or arrangements relatedthereto, other than as described in Section 2.2(c) of the Company Schedule.The Company has provided Parent true and correct copies of the Company Plan andall agreements and arrangements related to or issued under the Company Plan, ineach case as amended to date and in effect. There are no currently pending orcontemplated amendments, modifications or supplemented to the Company Plan orany such agreements or arrangements. No subsidiary of the Company has anyoptions or similar rights to acquire capital stock or other securitiesauthorized, issued or outstanding, nor has any such subsidiary entered into anyagreement, arrangement or implemented any stock incentive, stock option orother plan or arrangement pursuant to which such subsidiary may or is obligatedto issue any such options or other securities. The Company shall provide anupdated Schedule 2.2(c) to Parent as of the Closing Date.

 

(d)           Company Warrants.There are no outstanding warrants or similar rights or securities exercisableto acquire Company capital stock or

 

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other securities or any capital stock orother securities of any subsidiary (collectively “**Company Warrants**”), nor is the Company or any subsidiary partyto any agreement, arrangement or understanding pursuant to which the Company orany such subsidiary is or may be obligated to issue the same.

 

(e)           Reserved Shares.The Company has reserved an aggregate of 3,500,000 shares of Company CommonStock for issuance upon exercise of Company Options granted under the CompanyPlan**,** of which 2,567,245  shares are subject to outstanding vestedCompany Options, 647,754 shares are subject to outstanding unvested CompanyOptions and 285,001 shares remain available for future grant. Except asset forth above, there are no other shares of Company capital stock or votingsecurities of the Company or any subsidiary authorized or reserved forissuance.

 

(f)            No OtherDerivative Securities or Rights. Except for the Company Options, there areno oral or written options, warrants, puts, calls, preemptive rights, rights offirst or last refusal, rights of negotiation, commitments, transactions,arrangements, understandings or agreements of any character to which theCompany or any subsidiary is a party or by which it is bound obligating theCompany or any subsidiary to issue, deliver, sell, purchase, repurchase orredeem, or cause to be issued, delivered, sold, purchased, repurchased orredeemed, any shares of the Company’s or any subsidiary’s capital stock orother securities or obligating the Company to grant, extend, accelerate thevesting of, change the price of, or otherwise amend or enter into any suchoption, warrant, put, call, right, commitment, transaction, arrangement,understandings or agreement.

 

(g)           No OutstandingDebt Securities. The Company and its subsidiaries have no authorized orissued debt securities or other instruments of indebtedness outstanding.

 

(h)           Employee BonusArrangements. Except as set forth in Section 2.2(h) of the CompanySchedule, the Company and its subsidiaries have no oral or writtenarrangements, agreements or understandings pursuant to which the Company or anysuccessor thereto or acquiror thereof is or may become obligated to make anycompensatory, bonus, severance or other payments to past or current employees,consultants, agents or representatives of the Company.

 

2.3           Subsidiaries.The Company is the owner of all outstanding shares of capital stock of each ofits subsidiaries (other than AdPro and Rx Today, the capital stock of which is100% owned by the Shareholders collectively on the date hereof and will beacquired by the Company prior to the Closing) and all such shares are, and asof the Effective Time will be, (a) duly authorized, validly issued, fully paid and nonassessable and(b) owned by the Company (or the Shareholders, as the case may be) freeand clear of all Liens or rights of others. There are no outstandingsubscriptions, options, warrants, puts, calls, rights, exchangeable orexercisable or convertible securities or other commitments, transactions,arrangements, understandings or agreements (other than this Agreement) of anycharacter relating to the issued or unissued capital stock or other securitiesof any such subsidiary, or otherwise obligating the Company or any suchsubsidiary to issue, transfer, sell, purchase, repurchase, redeem or otherwiseacquire any such securities.

 

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2.4           Authority.

 

(a)           The Company and eachShareholder has full corporate or other power and authority to execute anddeliver this Agreement, the Acquisition Agreements, and any other agreements orinstruments contemplated hereby to which the Company or such Shareholders areor will be a party (all such agreements or instruments, collectively, the “**Ancillary Agreements**”), to observe andperform their respective obligations hereunder and thereunder and to consummatethe transactions contemplated hereby and thereby, subject only to the requisiteapproval of the Merger and this Agreement by the Company’s shareholders. Theexecution and delivery of this Agreement and the Ancillary Agreements by theCompany and the Shareholders, the observance and performance of the Company’sand such Shareholders’ obligations hereunder and thereunder and the consummationof the transactions contemplated hereby and thereby have been duly and validlyauthorized by all necessary corporate or other action on the part of theCompany and such Shareholders, and no further or other action of the Company orits Board of Directors or shareholders is required with respect to theforegoing. This Agreement has been (and each Ancillary Agreement upon theexecution and delivery thereof will be) duly and validly executed and deliveredby the Company and each Shareholder party thereto, and each constitutes (orwill constitute upon execution and delivery) a legal, valid and bindingobligation of the Company and such Shareholders, enforceable against theCompany and the Shareholders in accordance with its respective terms, except asenforceability may be limited by principles of public policy and subject to thelaws of general application relating to bankruptcy, insolvency and the reliefof debtors and rules of law governing specific performance, injunctive reliefor other equitable remedies.

 

(b)           The only voterequired (the “**Required Vote**”) forthe Company’s shareholders to duly approve the Merger and this Agreement underthe applicable provisions of the CGCL and the Company Articles and Bylaws isthe affirmative vote of the holders of 100% of the outstanding shares ofCompany Common Stock. There is no vote of the Shareholders required for theconsummation of the transactions contemplated by the Acquisition Agreements. TheCompany is not a party or subject to any agreement, arrangement or understandingand, to the Company’s knowledge after due inquiry, there is no agreement,arrangement or understanding that restricts or relates to voting (other thanthe Written Consents executed and delivered by the shareholders of the Companyprior to the date hereof and any New Shareholder Consents or Written Consentswhich hereafter will be executed and delivered as required hereby), giving ofwritten consents, dividend rights or restrictions on transfer of any Company orsubsidiary voting securities, including any voting trust or any valid andoutstanding or irrevocable proxy agreement or arrangement. Written Consentshave been duly executed and delivered by the holders of 100% of the outstandingshares of Company Common Stock and will be executed and delivered (togetherwith any New Shareholder Consents) by any party who becomes a Companyshareholder after the date hereof but prior to the Effective Time.

 

(c)           The execution anddelivery of this Agreement and the Ancillary Agreements by the Company does not,and the consummation of the Merger and the other transactions contemplatedhereby and thereby will not, conflict with, or result in any violation of, ordefault under (with or without notice or lapse of time, or both), or give riseto a right of

 

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termination, cancellation or acceleration ofany obligation or loss of any benefit under (any such event or consequence, a “**Conflict**”):

 

(i)            anyprovision of the Articles of Incorporation, Bylaws or similar organizational orgoverning documents of the Company;

 

(ii)           anymortgage, indenture, lease, contract or other agreement or instrument (ineach case, subject to the Company obtaining all Requisite Consents (as definedin Section 2.12 below) relating to such agreements andinstruments), permit, concession, franchise, license, judgment, order, decree,statute, law, ordinance, rule or regulation applicable to the Company or itsproperties or assets; or

 

(iii)          anyagreement, understanding or obligation to which the Company or any Shareholderis a party or may be bound.

 

(d)           No consent, waiver,approval, order or authorization of, or registration, declaration or filingwith, any court, administrative agency or commission or other federal, state,county, local or foreign governmental authority, instrumentality, agency orcommission (“**Governmental Entity**”)or any third party is required by or with respect to the Company or anyShareholder in connection with the execution and delivery of this Agreement orany Ancillary Agreement or the consummation of the transactions contemplatedhereby or thereby, except for the filing of the Agreement of Merger with theSecretary of State of the State of California.

 

2.5           Company FinancialStatements; Working Capital Deficit Calculations. Section 2.5 of theCompany Schedule sets forth the respective unaudited balance sheets of theCompany, AdPro, Rx Today and InkBlvd (a division of the Company) as of October31, 2003 (the “**Current Balance Sheets**”)and the unaudited income statements for the ten-month period then ended foreach of the Company, InkBlvd, HotProductOutlet, AdPro and Rx Today (togetherwith the Current Balance Sheets, the “**CompanyFinancials**”). The Company Financials (i) are in accordance withthe books and records of the person to which they relate (ii) are completeand correct in all material respects and (c) have been prepared inaccordance with GAAP consistently applied for the periods presented, except asto the unaudited Company Financials, for the omission of notes thereto andnormal year-end audit adjustments, which will not be material individually orin the aggregate. The Company Financials present fairly the financial conditionand operating results of the Company as of the dates and during the periodsindicated therein, subject to normal year-end adjustments, which will not bematerial in amount or significance in the aggregate. The Current Balance Sheetsdisclose all of the Company’s, AdPro’s, Rx Today’s and InkBlvd’s debts,liabilities and obligations of any nature whatsoever, whether due or to becomedue, and whether absolute, accrued, contingent or matured. The PreliminaryWorking Capital Calculation is true, complete and correct and accuratelyreflects the amount of any Working Capital Deficit as of the date hereof. TheClosing Date Working Capital Calculation will be true, complete and correct andaccurately reflect the amount of any Working Capital Deficit as of the ClosingDate.

 

2.6           No UndisclosedLiabilities. The Company and its subsidiaries do not have any liability,indebtedness, obligation, expense, claim, deficiency, guaranty or endorsementof any

 

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type, in excess of $5,000 individually or$50,000 in the aggregate, whether accrued, absolute, contingent, matured,unmatured or other (whether or not required to be reflected in financialstatements in accordance with GAAP) that are not clearly disclosed, inreasonable detail, on the face of the Company Financials or otherwise clearlydisclosed to Parent in Section 2.6 of the Company Schedule.

 

2.7           No Changes. SinceAugust 31, 2003, the Company (including its subsidiaries) has conducted itsbusiness in the ordinary course and consistent with past practices and therehas not been, occurred or arisen:

 

(a)           any change, event orcondition (whether or not covered by insurance) that has resulted in, or couldreasonably be expected to result in, a Company Material Adverse Effect (asdefined below);

 

(b)           any acquisition,sale, lease, license or transfer of any material asset, property or right ofthe Company;

 

(c)           any capitalexpenditure or commitment by the Company, in excess of $10,000 individually or$100,000 in the aggregate;

 

(d)           any destruction of,damage to or loss of any material assets or properties (whether or not coveredby insurance) or business or customer of the Company;

 

(e)           any change in theCompany’s accounting methods or practices (including any change in depreciationor amortization policies or rates) or any restatement of financial statementsor revaluation by the Company of any of its assets, properties or rights;

 

(f)            any declaration,setting aside, or payment of a dividend or other distribution with respect tothe securities of the Company, or any direct or indirect redemption, purchaseor other acquisition by the Company of any of its capital stock or othersecurities, other than as described in Section 2.7(f) of the Company Schedule;

 

(g)           any termination of,or violation or default under, any material contract, agreement, arrangement orlicense to which the Company is a party or by which the Company or its assetsor properties are or may be bound;

 

(h)           any amendment orchange to the Articles of Incorporation, Bylaws or other organizational orgoverning documents of the Company;

 

(i)            any increase in ormodification of the compensation or benefits payable or to become payable bythe Company to any of its respective directors, employees, consultants oradvisors, or any declaration, payment or commitment or obligation to pay anybonus or other additional salary or compensation (including equity) to any suchperson, other than cash dividends to the Company shareholders which will notresult in a Working Capital Deficit in excess of $450,000 after taking intoaccount all assets and liabilities of the Company and its subsidiaries andaffiliates used in such calculation;

 

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(j)            any labor troubleor claim of wrongful discharge or other unlawful labor practice or action;Section 2.7(j) of the Company Schedule includes a list of all employeeswho have been terminated by the Company, and the general reason fortermination, since inception;

 

(k)           any change of anyTax (as defined in Section 2.8 below) election or settlement orcompromise of any material state, local or foreign Tax liability;

 

(l)            any loan by theCompany to any person or entity (other than the advancement or reimbursement ofbusiness expenses to employees in immaterial amounts in the normal course ofbusiness), or the incurrence by the Company of any indebtedness, the guaranteeby Company of any indebtedness, issuance or sale of any debt securities of theCompany or any agreement to guarantee or act as a surety with respect to anypayment obligations or debt securities of any other party;

 

(m)          any waiver or releaseof any material right or claim of or in favor of the Company, including anywrite-off or other compromise of any account receivable of, or debt owed to,the Company;

 

(n)           any commencement ornotice or, to the best knowledge of Company, any threat of the commencement ofany lawsuit or proceeding against or investigation of the Company or itsbusiness or affairs, other than as set forth in Section 2.14 of the CompanySchedule;

 

(o)           any notice of anyclaim of ownership by a third party of the Company Intellectual Property (asdefined in Section 2.11 below) or any allegations that the Companyis infringing or has infringed upon any third party’s Intellectual PropertyRights;

 

(p)           any issuance or saleby the Company of any shares of capital stock or any other securities (otherthan the issuance of Company Common Stock upon the exercise of Company Optionsand the stock dividend described in Section 2.7(f) of the Company Schedule); or

 

(q)           any negotiation oragreement by the Company to do any of the foregoing (other than negotiationswith Parent and its representatives regarding the transactions contemplated bythis Agreement), other than as described in Section 2.7(q) of the CompanySchedules.

 

For purposes of this Agreement, “**Company Material Adverse Effect**” means anyevent, change, effect, occurrence or state of facts that individually or in theaggregate has or could reasonably result in a materially adverse effect on thebusiness, assets, liabilities, capitalization, condition (financial or other),prospects or results of operations of the Company.

 

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2.8           Tax and OtherReturns and Reports.

 

(a)           Definitions. For purposes ofthis Agreement:

 

(i)            “**Tax**” (including “**Taxes**”) means (A) all federal, state, local, foreign andother net income, gross income, gross receipts, sales, use, *ad valorem*, transfer, franchise, profits,license, lease, service, service use, withholding, payroll, employment, excise,severance, stamp, occupation, premium, property, windfall profits, alternativeminimum, estimated, customs, duties or other taxes, fees, assessments orcharges of any kind whatsoever, together with any interest and any penalties,additions to tax or additional amounts with respect thereto, (B) anyliability for payment of amounts described in clause (A) whether as a result oftransferee liability, of being a member of an affiliated, consolidated,combined or unitary group for any period, or otherwise through operation oflaw, and (C) any liability for the payment of amounts described in clauses(A) or (B) as a result of any tax sharing, tax indemnity or taxallocation agreement or any other express or implied agreement to indemnify anyother person; and

 

(ii)           “**Tax Return**” means any return, declaration,report, statement, information statement and other document required to befiled with respect to Taxes, including any claims for refunds of Taxes and anyamendments or supplements of any of the foregoing.

 

(b)           (i)            TheCompany and its subsidiaries have timely filed all Tax Returns they arerequired to have filed. All Tax Returns filed by the Company and itssubsidiaries are true, correct and complete in all material respects and nosuch Tax Return contains, or was required to contain (in order to avoid apenalty, and determined without regard to the effect of post-filingdisclosure), a disclosure statement under Section 6662 of the Code (or anypredecessor provision or comparable provision of state, local or foreign law). Tothe extent the Company did not file a Tax Return in any jurisdiction or for anyspecific period, the Company did so because it had no liability for Taxes inthat jurisdiction or for that time period, as the case may be.

 

(ii)           TheCompany and its subsidiaries timely paid all Taxes that have become due or payable(whether or not shown on a Tax Return) and have adequately reserved in theCurrent Balance Sheets in accordance with GAAP for all Taxes (whether or notshown on any Tax Return) that have accrued but are not yet due or payable as ofthe date thereof. The Company and its subsidiaries have no present orcontingent liability for Taxes, other than Taxes reflected on the CurrentBalance Sheets or incurred in the ordinary course of business since the date ofthe Current Balance Sheets in amounts consistent with prior years adjusted toreflect changes in operating results of the Company and its subsidiaries. TheCompany does not know of any basis for the assertion by a taxing authority of aTax deficiency against the Company or any subsidiary. Section 2.8(b)(ii) of theCompany Schedule sets forth all material elections made or deemed made withrespect to Taxes of the Company or any of its subsidiaries for all taxableperiods beginning on or after January 1, 1999.

 

(iii)          Noclaim for assessment or collection of Taxes is presently being asserted againstthe Company or any of its subsidiaries, there is no presently pending audit,

 

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examination,refund claim, litigation, proceeding, proposed adjustment or matter in controversywith respect to any Taxes of or with respect to the Company or any of itssubsidiaries, and neither the Company nor any of its subsidiaries has knowledgethat any such action or proceeding is being contemplated. Section 2.8(b)(iii)of the Company Schedule sets forth all material claims for Taxes that have beenasserted against the Company or any of its subsidiaries since the inception ofthe Company and all other claims for Taxes that have been asserted against theCompany or any of its subsidiaries with respect to any period commencing on orafter January 1, 1999. Neither the Company nor any of its subsidiaries is aparty to or bound by any closing or other agreement with any GovernmentalEntity with respect to Taxes.

 

(iv)          Neitherthe Company nor any of its subsidiaries is or has been a United States realproperty holding corporation within the meaning of Code Section 897(c)(2)during the applicable period specified in Code Section 897(c)(1)(A)(ii).

 

(v)           Neitherthe Company nor any of its subsidiaries has been a member of any affiliatedgroup filing a consolidated federal income Tax Return or a member of acombined, consolidated or unitary group for state, local or foreign Taxpurposes (other than a group the common parent of which has at all times beenthe Company) or has any liability for the Taxes of any other person (other thanan entity that is a member of the consolidated group of corporations that hasat all times had the Company as its common parent) under Treas. Reg.§ 1.1502-6 (or any similar provision of state, local, or foreign law), asa transferee or successor, by contract, or otherwise.

 

(vi)          Neitherthe Company nor any of its subsidiaries has agreed to or is required to makeany adjustment pursuant to Section 481(a) of the Code by reason of achange in accounting method, and the Company has no knowledge that the InternalRevenue Service has proposed any such adjustment or a change in any accountingmethod used by the Company or any of its subsidiaries. The Company and itssubsidiaries use the accrual method of accounting for federal income taxpurposes. Neither the Company nor any of its subsidiaries has taken any actioninconsistent with its practices in prior years that would have the effect ofdeferring a liability for Taxes from a period prior to the Effective Time to aperiod following the Effective Time.

 

(vii)         Noneof the assets of the Company or any subsidiary of the Company (A) is “tax-exemptuse property” within the meaning of Section 168(h) of the Code,(B) is property which is required to be treated as being owned by anyother person pursuant to the so-called “safe harbor lease” provisions of formersection 168(f)(8) of the Code; or (C) directly or indirectly secures anydebt the interest on which is tax exempt under Section 103(a) of the Code.

 

(viii)        Section2.8(b)(viii) of the Company Schedule sets forth, with respect to the Companyand each of its subsidiaries, whether such entity is engaged in business, has apermanent establishment (as defined in an applicable tax treaty between theUnited States and such other jurisdiction) or is otherwise subject to Tax in ajurisdiction other than the United States, and identifies such jurisdictionwith respect to each such entity.

 

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(ix)           Neitherthe Company nor any subsidiary of the Company is subject to any waiver orextension of the statute of limitations applicable to the assessment orcollection of any Tax. No power of attorney or similar grant of authority is inplace with respect to the Company or any of its subsidiaries.

 

(x)            Neitherthe Company nor any of its subsidiaries is a party to any agreement, contract,arrangement or plan that has resulted or would result, separately or in theaggregate, in connection with this Agreement or any change of control of theCompany or any of its subsidiaries, in the payment of any “excess parachutepayments” within the meaning of Section 280G of the Code. The Company is,and immediately prior to the Effective Time will be, a “small business corporation”described in Section 280G(b)(5)(A)(i) of the Code.

 

(xi)           Neitherthe Company nor any of its subsidiaries has in effect an election under Section341(f) of the Code.

 

(xii)          Thereare no Tax Liens on any assets of the Company or any of its subsidiaries, otherthan Liens for Taxes not yet due and payable.

 

(xiii)         Neitherthe Company nor any of its subsidiaries has distributed stock of anotherperson, or has had its stock distributed by another person, in a transactionpurported or intended to be governed in whole or in part by Section 355 or 361of the Code.

 

(xiv)        EachCompany Stock Option identified as an ISO in Section 2.2(c) of theCompany Schedule or otherwise purporting to be an ISO has at all times sincethe issuance of such Company Stock Option qualified as an “incentive stockoption” as such term is defined in Section 422 of the Code, and immediatelyprior to the Effective Time will be held by a person whose exercise of suchCompany Stock Option would be governed by Section 421(a) of the Code(determined without regard to Section 422(a)(1) of the Code). All CompanyCommon Stock is either transferable or not subject to a substantial risk offorfeiture within the meaning of Section 83(a)(1) of the Code.

 

(xv)         Noneof the Company or any of its subsidiaries is a party to any joint venture,partnership or other arrangement or contract that could be treated as apartnership for federal income tax purposes. Section 2.8(b)(xv) of the CompanySchedule sets forth all elections pursuant to Treas. Reg. § 301.7701-3that have been made by business entities in which the Company or any subsidiaryowns an equity interest.

 

(xvi)        Neither the Companynor any subsidiary is, has been, or has owned (whether directly or indirectly)an interest in, a passive foreign investment company within the meaning ofSection 1297 of the Code. No subsidiary that is not a United States person(A) has engaged (or been treated as engaged) in the conduct of a trade orbusiness within the United States or (B) has had an investment in “UnitedStates property” within the meaning of Section 956(c) of the Code. Neither theCompany nor any subsidiary is, or at any time has been, impacted by(x) the dual consolidated loss provisions of the Section 1503(d) of theCode, (y) the overall foreign loss provisions of Section 904(f) of theCode or (z) the recharacterization provisions of Section 952(c)(2) of theCode.

 

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2.9           Restrictions onBusiness Activities. There is no agreement (non-compete or otherwise),commitment, judgment, injunction, order or decree to which the Company is aparty or otherwise binding upon the Company which has or reasonably could beexpected to have the effect of materially prohibiting or impairing any businesspractice or activities of the Company or any subsidiary (or the SurvivingCorporation or any such subsidiary after the Merger), any lease, licenses oracquisition of any assets or property (tangible or intangible) by the Companyor any subsidiary (or the Surviving Corporation or any such subsidiary afterthe Merger) or the conduct of the business as conducted and proposed to beconducted by the Company or any subsidiary (or the Surviving Corporation or anysuch subsidiary after the Merger).

 

2.10         Title toProperties; Absence of Liens and Encumbrances; Condition of Equipment.

 

(a)           The Company and itssubsidiaries own no real property, nor have they ever owned any real propertysince inception. Section 2.10(a) of the Company Schedule sets forth a listof all real property currently, or at any time in the past, leased by theCompany, the name of the lessor, the date of the lease and each amendmentthereto and, with respect to any current lease, the aggregate annual rentaland/or other fees payable under any such lease. All such current real propertyleases are in full force and effect, are valid and effective in accordance withtheir respective terms, may be enforced by the Surviving Corporation as thelessee after the Merger, and there are no existing defaults or events ofdefault (or events which with notice or lapse of time, or both, wouldconstitute a default) thereunder. No subsidiary has owned or leased any realproperty since inception.

 

(b)           The Company has goodand valid title to, or, in the case of leased properties and assets, validleasehold interests in, all of its tangible properties and assets, real,personal and mixed, used or held for use in its business. All such ownedproperties and assets are free and clear of any Liens, except as reflected inthe Company Financials and except for Liens for Taxes not yet due and payableand such imperfections of title and encumbrances, if any, which are notmaterial in character, amount or extent, and which do not materially detractfrom the value, or materially interfere with the present use, of the propertysubject thereto or affected thereby. All such leased assets and properties arefree and clear of any Liens which would interfere with, restrict or prohibitthe valid use of such leased assets or properties by the Surviving Corporationafter the Merger in accordance with the leases related thereto and for thepurposes for which the Company initially leased, and currently uses andproposes to use, such leased assets and properties. After the Closing Date, theSurviving Corporation will be entitled to the continued possession and use ofthe personal property leased by the Company, for the terms specified in suchleases and for the purposes consistent with the past practices of the Company.

 

(c)           All equipment (the “**Equipment**”) owned or leased by the Company,taken as a whole, (i) is adequate for the conduct of the business of theCompany as currently conducted and proposed to be conducted (including by theSurviving Corporation after the Merger), (ii) is regularly and properlymaintained in accordance with the manufacturer’s recommendations and anylessor’s guidelines, (iii) is in good operating condition, subject only tonormal wear and tear for the age and usage of such respective Equipment, and(iv) complies with all applicable laws 

 

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and regulations relating tosuch Equipment and the use thereof by the Company (and the SurvivingCorporation after the Merger). No subsidiary has owned or leased any Equipmentsince inception.

 

2.11         IntellectualProperty.

 

(a)           Definitions. Forpurposes of this Agreement, the following terms have the following respectivemeanings:

 

(i)            “**Intellectual Property Rights**” means any andall of the following and any and all rights in, arising out of, or associatedtherewith:  (A) all United Statesand foreign issued patents and utility models and applications therefor and allreissues, divisionals, re-examinations, renewals, extensions, provisionals, andcontinuations thereof, and all equivalent or similar rights anywhere in theworld in inventions and discoveries including invention disclosures (“**Patents**”); (B) all trade secrets andother rights in know-how and confidential or proprietary information (“**Trade Secrets**”); (C) all copyrights,published or unpublished, copyright registrations and applications therefor andall other rights corresponding thereto throughout the world (“**Copyrights**”); (D) all industrialdesigns and any registrations and applications therefor throughout the world;(E) all rights in World Wide Web addresses and domain names andapplications and registrations therefor; all trade names, logos, symbols,registered and common law trademarks and service marks, intent-to-useapplications, and other applications therefor and all goodwill associatedtherewith throughout the world (“**Trademarks**”);(F) moral rights, publicity rights, mask works and any other proprietary,intellectual or industrial proprietary rights of any kind or nature that do notcompromise or are not protected by the Patents, Trade Secrets, Copyrights orTrademarks; and (G) any similar, corresponding or equivalent rights to anyof the foregoing anywhere in the world.

 

(ii)           “**Company Intellectual Property**” means anyand all Intellectual Property Rights owned by the Company and itssubsidiaries or which the Company or any such subsidiary has the right to usepursuant to written license, sublicense, agreement or permission, that are usedby the Company or such subsidiaries or useful in, related to, or arise out of the operation orconduct of the business of the Company and its subsidiaries as currently conducted and currently proposedto be operated or conducted (including by the Surviving Corporation after theMerger).

 

(b)           Section 2.11(b)of the Company Schedule contains a complete and accurate list (by name andversion number) of all products, software, service offerings, technical data ortechnology designed, manufactured or sold by the Company and its subsidiariesthat have been sold, distributed since incorporation or which the Company orits subsidiaries intends to sell, license, or distribute in the future,including any products or service offerings under development (collectively, “**Company Products**”).

 

(c)           Section 2.11(c)of the Company Schedule lists: (i) all Company Intellectual Property, identifying for each, ifapplicable, (A) the application or registration number, (B) the filing orregistration date, (C) the owner of record and whether owned exclusively by theCompany, and (D) the status of the application or registration; (ii) anyprior or 

 

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current proceedings or actionsbefore any court, tribunal (including the United States Patent and TrademarkOffice (the “**PTO**”) or equivalentauthority anywhere in the world) related to any of the Company IntellectualProperty; and (iii) any actions that must be taken by the Company or anysubsidiary in the next ninety (90) days or by the Surviving Corporation as thesuccessor to (or assignee of) the Company within the ninety (90) days after theClosing Date, including the payment of any registration, maintenance or renewalfees or the filing of any responses to PTO office actions, documents, affidavitsof use, incontestability filings, applications or certificates for the purposesof obtaining, maintaining, perfecting, preserving or renewing any CompanyIntellectual Property.

 

(d)           The Company and eachsubsidiary has obtained from each third party who, at the request or thedirection of the Company or any such subsidiary, developed or otherwise createdany Intellectual Property Rights, a written assignment transferring to theCompany all rights, title and interest in and to all such Intellectual PropertyRights.

 

(e)           The Company has notknowingly misrepresented, or knowingly failed to disclose, any facts orcircumstances in any application for any Company Intellectual Property thatwould constitute fraud or a misrepresentation with respect to such applicationor that would otherwise affect the validity or enforceability of any CompanyIntellectual Property.

 

(f)            All CompanyIntellectual Property is fully transferable, assignable or licensable, asapplicable without condition or restriction and without payment of any kind toany third party.

 

(g)           Neither the Companynor any subsidiary has received any notice or claim, whether written or oral,challenging or questioning the ownership of any Company Intellectual Propertyor suggesting that any third party has any claim of legal or beneficialownership with respect thereto nor, to the best of Company’s knowledge, isthere a reasonable basis for any such claim. Neither the Company’s or anysubsidiary’s use of the Company Intellectual Property nor the production andsale of the Company Products infringes upon the intellectual property or otherrights of others.

 

(h)           All IntellectualProperty Rights owned by the Company and any subsidiary are owned free andclear of all Liens.

 

(i)            Neither the Companynor any subsidiary has pledged or granted any license or other right in or toany Company Intellectual Property to any third party.

 

(j)            All IntellectualProperty Rights embodied in the Company Products were created solely byeither:  (i) employees of theCompany acting within the scope of their employment (all of whom have assignedall rights, title and interest in and to such Intellectual Property Rights tothe Company); or (ii) by third parties who have assigned, or agreed toassign, all right, title and interest in and to such Intellectual PropertyRights to the Company.

 

(k)           The CompanyIntellectual Property constitutes all Intellectual Property Rights used in ornecessary in the operation or conduct of the Company’s and its subsidiaries’ 

 

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businesses as currentlyconducted and proposed to be conducted (including by the Surviving Corporationafter the Merger), including the design, development, promotion, sale, license,manufacture, import, export, use or distribution of any and all CompanyProducts. Without limiting the generality of the foregoing, the Company has theright to freely transfer or assign such Intellectual Property Rights to theSurviving Corporation, if necessary or desirable, the Company has the right touse (and the Surviving Corporation will after the Merger have the right touse), pursuant to valid licenses, all software development tools, libraryfunctions, compilers and all other third-party software and other items thatare used in the design, development, promotion, sale, license, manufacture,import, export, use or distribution of the Company Products.

 

(l)            Section 2.11(l) ofthe Company Schedule contains a list of all improvements made by the Companyand any subsidiary with respect to any owned or licensed Intellectual PropertyRights. No person who has licensed any Intellectual Property Rights to theCompany or any subsidiary has ownership, beneficial, license or other rights toimprovements made by the Company with respect to such Intellectual PropertyRights. The Company is entitled to freely use and exploit (and the SurvivingCorporation will be entitled to freely use and exploit) any and all suchimprovements.

 

(m)          Other than asdescribed in Section 2.11(m) of the Company Schedule, neither the Company norany subsidiary has received any notice or claim, whether written or oral, fromany third party claiming that the operation of the business of Company ascurrently conducted or proposed to be conducted (including by the SurvivingCorporation after the Merger) or that any Company Product infringes,misappropriates, violates, dilutes or constitutes the unauthorized use of anyvalid or enforceable right of any third party, including any IntellectualProperty Right of any third party, nor is there a reasonable basis for any suchclaim of infringement or any claim that the Company does not own any ofsuch Company Intellectual Property free and clear of all Liens.

 

(n)           No CompanyIntellectual Property or Company Product has been or is subject to any actualor threatened litigation, proceeding (including any proceeding in the PTO orany corresponding foreign office or agency) or outstanding decree,order, judgment, settlement agreement or stipulation that restricts in anymanner the Company’s (or the Surviving Corporation’s) use, transfer orlicensing thereof or that may affect the validity, use or enforceabilitythereof. There is no decree, order, judgment, agreement, stipulation, arbitralaward or other provision which obligates the Company or any subsidiary (or willobligate the Surviving Corporation) to grant licenses or ownership interest inany future Intellectual Property Right related to the operation or conduct ofthe business of the Company (or the Surviving Corporation after the Merger) orthe Company Products.

 

(o)           Section 2.11(o)of the Company Schedule lists all contracts, licenses and agreements to whichthe Company or any subsidiary is a party with respect to any IntellectualProperty Rights (including any Company Intellectual Property). Section 2.11(o)of the Company Schedule specifically indicates which contracts, licenses oragreements represent or include outbound licenses of Company Products in sourcecode format. The Company and its subsidiaries are not in material breach of,nor have they failed to perform under, any of the 

 

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foregoing contracts, licensesor agreements and, to the Company’s knowledge, no third party to any suchcontract, license or agreement is in breach thereof or has failed to performthereunder.

 

(p)           There are nocontracts, licenses or agreements between the Company or any subsidiary, on theone hand, and any third party, on the other hand, wherein or whereby theCompany or any subsidiary has assumed or agreed to assume any obligation orduty or to warrant, indemnify, reimburse, hold harmless, guaranty or otherwiseassume or incur any obligation or liability of such third party with respect toany Company Intellectual Property or other Intellectual Property Rights.

 

(q)           There is nooutstanding or threatened dispute or disagreement of which the Company is awarewith respect to any contract, license or agreement between the Company and anythird party related to the Company Intellectual Property.

 

(r)            The Company hasno knowledge or reasonable suspicion that any third party is infringing,misappropriating, diluting or violating any Company Intellectual Property andno such claims have been threatened, asserted or brought against any thirdparty by the Company or any subsidiary, other than as described in Section2.11(r) of the Company Schedule.

 

(s)           The Company hastaken all steps that are reasonably required to protect:  (i) the Company’s and its subsidiaries’rights in all Company Intellectual Property; and (ii) all IntellectualProperty Rights of others as to which the Company or its subsidiaries has anexpress or implied obligation or duty to protect the same. Without limiting thegenerality of the foregoing, the Company and each subsidiary has, and enforces,a policy requiring each employee, consultant and independent contractor toexecute written proprietary information, confidentiality and assignment ofinvention and copyright agreements, that: (A) assign to the Company all right, title and interest in and to any IntellectualProperty Rights relating to the Company’s business that are developed by theemployee, consultant or contractor, as applicable, in the course of his, her orits activities for the Company or are developed during working hours or usingthe resources of the Company; (B) contain provisions designed to preventunauthorized disclosure of the Company’s confidential information; and(C) otherwise appropriately protect the Intellectual Property Rights ofthe Company. All current and former employees, consultants and independentcontractors have executed and delivered such agreements to the Company andcopies of all such agreements have been provided to Parent, and no partythereto has breached or violated the terms thereof or has attempted orthreatened to challenge the enforceability, scope or applicability of any suchagreement to its signatories. There has been no disclosure by the Company ofany Trade Secrets or confidential information of the Company without: (x)designating such information as confidential; and (y) taking whateversteps are required to ensure that such Trade Secrets or confidentialinformation are subject to the confidentiality undertakings set forth in theapplicable non-disclosure agreement.

 

(t)            Neither theexecution or performance of this Agreement or the Ancillary Agreements, nor theassignment of this Agreement, or any other contracts or agreements to which theCompany is a party to the Surviving Corporation by operation of law orotherwise, will result in:  (i) theSurviving Corporation’s granting (or becoming obligated to license, transfer orgrant) to any third party any Intellectual Property Rights; (ii) theSurviving Corporation’s being 

 

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bound by, or subject to, anynon-compete, non-solicitation or other restriction on the operation or scope ofits business; (iii) the loss or impairment of, or give rise to any right of anythird party to terminate or alter, any of the Company’s (or the SurvivingCorporation’s post-Merger) rights or interest in any Intellectual PropertyRights; or (iv) the Surviving Corporation’s being obligated to pay anypenalties whatsoever or to pay any royalties, license fees or similar amountsto any third party in excess of those currently paid by the Company in theordinary course of its business.

 

(u)           Section 2.11(u)of the Company Schedule sets forth a complete and accurate list of all thirdparties that have contributed to any Intellectual Property Rights embodied inthe Company Products, including:

 

(i)            currentemployees of the Company and each subsidiary and their positions;

 

(ii)           formeremployees of the Company and each subsidiary and their positions; and

 

(iii)          currentand former consultants and independent contractors of the Company and each subsidiary,

 

and in each case a general description of allservices they provided to the Company.

 

(v)           The Company hasobtained all export licenses, permits or approvals necessary or appropriate forthe marketing, license and distribution of the Company Products outside theUnited States.

 

(w)          No governmentfunding, facilities of any university, college, other educational institutionor research center or funding from third parties was used in the development ofany Company Intellectual Property. No current or former employee, consultant orindependent contractor of the Company who was involved in, or who contributedto, the creation or development of any Company Intellectual Property, performedservices for the government or any university, college, other educationalinstitution or research center or third party during a period of time duringwhich such employee, consultant or independent contractor also was performingservices for the Company.

 

(x)            The CompanyProducts do not contain any viruses, Trojan horses, worms or other softwareroutines or hardware components designed to permit unauthorized access, todisable, erase or otherwise harm software, hardware or data.

 

(y)           None of the CompanyProducts is, in whole or in part, subject to the provision of any agreementobligating the Company or any subsidiary to make source code publicly availableto third parties.

 

(z)            Each CompanyProduct conforms in all material respects to the specifications, documentation,press releases or other information provided to customers or potentialcustomers of the Company on which such customers or potential customers reliedor would reasonably be expected to rely upon when licensing or otherwiseacquiring such Company 

 

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Products. To the Company’s bestknowledge, the Company Products are in compliance with all applicable laws. Tothe extent that Company Products (including new versions or releases thereof)have not been launched commercially, the Company has fully disclosed to Parentall technical problems or concerns associated with such Company Products knownto or suspected by the Company that do or may be expected to affect theperformance of such Company Products. The Company has taken all actionsnecessary to document all Company Products and their operation such that thematerials comprising the Company Products, including any source code anddocumentation, have been written in a clear manner in accordance with industrystandards so that they may be understood, modified and maintained in anefficient manner by reasonably competent programmers.

 

(aa)         Section 2.11(aa) ofthe Company Schedule sets forth a complete and accurate list of:  (i) all software which the Company haslicensed from any third party which is used by the Company in the CompanyProducts or otherwise in its business (other than commercially available“shrink wrap” software); and (ii) a list of all “freeware” and “shareware”incorporated into any Company Product now or heretofore shipped by the Company.The Company has all rights necessary to use such software, “freeware” and“shareware.”

 

2.12         Agreements,Contracts and Commitments.

 

(a)           Section2.12(a) of the Company Schedule sets forth all contracts that are material tothe business or operations of the Company (including its subsidiaries) or whichby their terms seek to limit or define those activities in which the Companyand its subsidiaries is (or the Surviving Corporation would be) permitted orrequired to engage or which require any consent, approval or waiver by theother parties thereto in connection with this Agreement, any AncillaryAgreement, or the consummation of the transactions contemplated hereby orthereby (collectively, the “**MaterialContracts**”). Except as set forth in Section 2.12(a) of theCompany Schedule, the Company does not have, is not a party to nor is it boundby:

 

(i)            anycollective bargaining agreements;

 

(ii)           anyagreements or arrangements that contain any severance pay or post-employmentliabilities or obligations;

 

(iii)          anybonus, deferred compensation, pension, profit sharing or retirement plans, orany other employee benefit plans or arrangements;

 

(iv)          anyemployment or consulting agreement, contract or commitment with an employee orindividual consultant or salesperson or consulting or sales agreement, contractor commitment with a firm or other organization;

 

(v)           anyagreement or plan (including, any stock option plan, stock appreciation rightsplan or stock purchase plan) any of the benefits of which will be increased, orthe vesting of benefits of which will be accelerated, by the occurrence of anyof the transactions contemplated by this Agreement or the Ancillary Agreementsor the value of any of the benefits 

 

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of which will be calculated onthe basis of any of the transactions contemplated hereby or thereby;

 

(vi)          anyfidelity or surety bond or completion bond;

 

(vii)         anylease of real or personal property involving future payments in excess of$25,000, other than as set forth in Section 2.10(a) of the Company Schedule;

 

(viii)        anyagreement of indemnification, warranty, guaranty or suretyship or otherwiseobligating the Company or any subsidiary to assume or incur any obligation orliability of a third party, except as described in Section 2.12(a)(vii) of theCompany Schedule;

 

(ix)           anyagreement, contract or commitment containing any covenant limiting the freedomof the Company to engage in any line of business or to compete with any person;

 

(x)            anyagreement, contract or commitment relating to capital expenditures or involvingfuture payments in excess of $10,000 in any single year or in any specificcircumstance;

 

(xi)           anyagreement, arrangement, right, contract or commitment relating to thedisposition or acquisition of assets, properties or any interest in anybusiness enterprise, in each case outside of the ordinary course of theCompany’s business;

 

(xii)          anymortgage, indenture, loan or credit agreement, security agreement or otheragreement or instrument relating to the borrowing of money or extension ofcredit, including guaranties or instruments of surety referred to insubparagraph (vi) above, other than the lines of credit described inSection 2.31 of the Company Schedule, all of which will be paid in full andterminated as of the Effective Time, unless Parent requests otherwisereasonably prior to such time;

 

(xiii)         anypurchase order or contract for the purchase of raw materials or the provisionof services involving $10,000 or more, other than purchases in the ordinarycourse of business;

 

(xiv)        anyconstruction contracts;

 

(xv)         anydistribution, joint marketing, licensing or development agreement;

 

(xvi)        anyinsurance policies, other than as described in Section 2.25 of the CompanySchedules;

 

(xvii)       anyother agreement, contract or commitment that involves or could result inaggregate payments to or by the Company of $25,000 or more or is not cancelableby the Company without penalty within thirty (30) days.

 

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(b)           TheCompany and its subsidiaries have not breached, violated or defaulted under, orreceived notice that it has breached, violated or defaulted under, any of theterms or conditions of any agreement, contract or commitment to which it is aparty or by which it or its assets or properties are or may be bound (any suchagreement, contract or commitment, a “**Contract**”).Each Contract is in full force and effect and is not subject to any breach,default or violation thereunder of which the Company has knowledge by any partyobligated to the Company pursuant thereto. The Company has obtained, or willobtain prior to the Effective Time, all necessary consents, waivers andapprovals of parties to any Contract (including the Material Contracts) as arerequired or prudent to obtain in connection with the Merger and the othertransactions contemplated hereby and by the Ancillary Agreements (the “**Requisite Consents**”).

 

2.13         Interested PartyTransactions. No officer, director, employee or, to the knowledge of theCompany’s management, shareholder of the Company or any subsidiary (nor anyancestor, sibling, descendant or spouse of any of such persons, or any trust,partnership or corporation in which any of such persons has a direct orindirect interest), has any direct or indirect interest in: (a) any entitywhich furnished or sold, or furnishes or sells, services or products that theCompany furnishes or sells, or proposes to furnish or sell, or (b)  anyentity that purchases from or sells or furnishes any goods or services to theCompany, or (c)  any Material Contract; provided, however,that ownership of no more than one percent (1%) of the outstanding voting stockof a publicly traded corporation shall not be deemed an “interest in anyentity” for purposes of this Section 2.13. The Company is notindebted to any officer, director, employee, consultant or shareholder of theCompany (except for amounts due pursuant to written employment agreements andreimbursement of immaterial business expenses), and no such person is indebtedto the Company.

 

2.14         CompanyAuthorizations. Section 2.14 of the Company Schedule lists eachconsent, license, permit, approval, grant or other authorization issued to theCompany or any subsidiary by a Governmental Entity (a) pursuant to whichthe Company or any subsidiary currently operates or holds any interest in anyof its assets or properties or (b) which is required or convenient for theoperation of its business (including the design, development, manufacture,sale, promotion, export, import, distribution or provision of the CompanyProducts) or the holding of any such interest (collectively, “**Company Authorizations**”). All CompanyAuthorizations are in full force and effect and constitute all CompanyAuthorizations required to permit the Company (or the Surviving Corporationafter the Merger) to operate or conduct the Company’s business substantially ascurrently conducted and proposed to be conducted after the Merger or to holdany interest in the Company’s or any subsidiary’s assets or properties. TheCompany and each subsidiary has complied with all terms and conditions of theCompany Authorizations, and the same will not be subject to suspension,modification, revocation or non-renewal as a result of this Agreement, anyAncillary Agreement, or the transactions contemplated hereby or thereby. TheCompany and each subsidiary has taken adequate and sufficient measures toensure that its employees, consultants, agents and representatives havecomplied with the requirements of all Company Authorizations and the Company isnot aware of any past or current violation of any Company Authorization.

 

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2.15         Litigation. Exceptas described in Section 2.15 of the Company Schedule, (i) there is noaction, suit, claim, proceeding, arbitration or investigation of any naturepending or to the Company’s knowledge threatened by, against or involving theCompany, its assets or properties or any of its officers, directors, employeesor agents in their capacity as such, nor, to the knowledge of the Company andthe Shareholders, is there any basis therefor and (ii) no GovernmentalEntity or third party has at any time challenged or questioned the legal rightof the Company to design, develop, promote, sale, license, manufacture, import,export, use, distribute or provide any Company Products, nor, to the knowledgeof the Company or any Shareholder, is there any basis therefor.

 

2.16         AccountsReceivable.

 

(a)           Section 2.16(a) ofthe Company Schedule sets forth a list of all accounts receivable of theCompany and its subsidiaries (“**AccountsReceivable**”), along with a range of days elapsed since invoice andthe Company’s reasonable assessment of the collectability of any delinquentAccounts Receivable.

 

(b)           All Accounts Receivableof Company arose in the ordinary course of business, are carried at valuesdetermined in accordance with GAAP consistently applied and are collectible intheir full amount in accordance with their payment terms. No person has giventhe Company notice of any disputes regarding, and no person has any Lien on,any of such Accounts Receivable and no request or agreement for materialdeduction or discount has been made with respect to any of such AccountsReceivable, nor in each case is there any reasonable basis therefor.

 

2.17         Minute Books. Theminute books of the Company and its subsidiaries made available to Parent arethe only minute books of such entities and contain a reasonably accuratesummary of all meetings of directors (or committees thereof) and shareholdersof such entities and include copies of all board and shareholder actions bywritten consent since inception to the date of delivery to Parent. The Companyshall promptly provide Parent copies of all minutes of any meetings, andactions by written consent, of the Board of Directors of the Company and anysubsidiaries thereof, and a written record of the proceedings of any meetingsor actions by written consent of the shareholders of the Company and anysubsidiaries thereof, which transpire or are executed after the date hereof andprior to the Effective Time.

 

2.18         EnvironmentalMatters.

 

(a)           HazardousMaterial. No underground storage tanks and no amount of Hazardous Materialsare present, either as a result of the Company’s or any subsidiary’s use oroccupation of any real property or, to the Company’s knowledge as a result ofany actions of any third party or otherwise, in each case in, on or under anyproperty, including the land and the improvements, ground water and surfacewater thereof, that the Company or any subsidiary has at any time owned,operated, occupied or leased. For purposes of this Agreement, “**Hazardous Material**” means any substancethat has been designated by any Governmental Entity or by applicable federal,state or local law to be a pollutant or contaminant or infectious orradioactive, toxic, hazardous or otherwise a danger to health or theenvironment, including, PCBs, asbestos, 

 

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petroleum, urea-formaldehyde,methylene chloride and all substances listed as hazardous substances pursuantto the Comprehensive Environmental Response, Compensation, and Liability Act of1980, as amended, or defined as a hazardous waste pursuant to the United StatesResource Conservation and Recovery Act of 1976, as amended, and the regulationspromulgated pursuant to said laws.

 

(b)           HazardousMaterials Activities. The Company and its subsidiaries have nottransported, stored, used, manufactured, disposed of, released or exposed itsemployees or others to Hazardous Materials in violation of any law in effect onor before the Closing Date, nor has the Company disposed of, transported, sold,or manufactured any product containing a Hazardous Material (collectively, “**Hazardous Materials Activities**”) inviolation of any rule, regulation, treaty or statute promulgated by anyGovernmental Entity in effect prior to or as of the date hereof to prohibit,regulate or control Hazardous Materials or any Hazardous Material Activity.

 

(c)           Permits. TheCompany currently holds all environmental approvals, permits, licenses,clearances and consents (“**EnvironmentalPermits**”) necessary for the conduct of the Company’s and itssubsidiaries’ Hazardous Material Activities and other businesses as suchactivities and businesses are currently being conducted and are proposed to beconducted (including by the Surviving Corporation after the Merger). All suchEnvironmental Permits are freely enforceable by or transferable and assignableto the Surviving Corporation, currently are in full force, and effect and theCompany has received no notice that it is in violation thereof (or that thereare any investigations or inquiries pending with respect thereto) or that anysuch Environmental Permits might be terminated or not renewed upon theirscheduled expiration.

 

(d)           EnvironmentalLiabilities. No material action, proceeding, revocation proceeding,amendment procedure, writ, injunction, investigation or claim is pending, or toCompany’s knowledge, threatened concerning any Environmental Permit, HazardousMaterial or any Hazardous Materials Activity of or relating to the Company orany subsidiary. The Company is not aware of any fact or circumstance whichcould involve the Company or any subsidiary in any material environmentallitigation or investigation or impose upon the Company, any subsidiary (or theSurviving Corporation as the successor to the Company) any materialenvironmental liability, whether for its actual activities, as a potentiallyresponsible party, or otherwise.

 

(e)           CapitalExpenditures. The Company is not aware of any capital expenditures that arerequired or recommended for it and its subsidiaries to comply with anyapplicable Environmental Laws.

 

2.19         Brokers’ andFinders’ Fees; Third Party Expenses. Except as set forth in Section 2.19 ofthe Company Schedule (which reflects amounts due Barley Mills Investments, Ltd.and Bennet G. Kelley at the Closing, all of which are expenses and liabilitiesof the Company that will be paid in full or discharged at or prior to theClosing, and to the extent not so paid or discharged, shall be included asliabilities of the Company in calculating the Working Capital Deficit), theCompany and its subsidiaries have not incurred, nor will they incur, directlyor indirectly, any liability for brokerage or finders’ fees or agents’commissions or any similar 

 

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charges in connection with thisAgreement, any Ancillary Agreement or any transaction contemplated hereby orthereby. Section 2.19 of the Company Schedule sets forth a reasonableestimate of all Third Party Expenses (as defined in Section 8.3)expected to be incurred by the Company and its subsidiaries collectively inconnection with negotiating and effectuating the terms and conditions of thisAgreement and the Ancillary Agreements and the consummation of the transactionscontemplated hereby and thereby, the actual amounts of which (regardless of theestimated amounts in Section 2.19 of the Company Schedule) shall be included asliabilities of the Company in calculating any Working Capital Deficit, to theextent they remain unpaid as of the Effective Time.

 

2.20         Employee BenefitPlans.

 

(a)           Definitions. Forpurposes of this Agreement, the following terms have the respective meanings setforth below:

 

(i)            “**COBRA**” means the Consolidated OmnibusBudget Reconciliation Act of 1985, as amended and codified inSection 4980B of the Code and Section 601 *et.**seq.* ofERISA;

 

(ii)           “**Company Employee Plan**” means any plan,program, policy, practice, contract, agreement or other arrangement providingfor compensation, severance, termination pay, deferred compensation,performance awards, stock or stock-related awards, fringe benefits or otheremployee benefits or remuneration of any kind, whether written or unwritten,funded or unfunded, including, each “employee benefit plan,” within the meaningof Section 3(3) of ERISA which is or has been maintained, contributed to,or required to be contributed to, by the Company or any ERISA Affiliate for thebenefit of any Employee (as defined below), or with respect to which Company orany ERISA Affiliate has or may have any liability obligation, including allInternational Employee Plans;

 

(iii)          “**Employee**” means any current, former, orretired employee, officer, consultant or director of the Company or any ERISAAffiliate;

 

(iv)          “**Employee Agreement**” means each management,employment, severance, consulting, relocation, repatriation, expatriation,visa, work permit or other agreement, contract or understanding between theCompany or any ERISA Affiliate and any Employee;

 

(v)           “**ERISA Affiliate**” means each subsidiary ofthe Company and any other person or entity under common control with theCompany or any of its subsidiaries within the meaning of Section 414(b),(c) or (m) of the Code and the regulations thereunder;

 

(vi)          “**ERISA**” means the Employee Retirement IncomeSecurity Act of 1974, as amended;

 

(vii)         “**FMLA**” means the Family Medical Leave Act of1993, as amended;

 

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(viii)        “**International Employee Plan**” means eachCompany Employee Plan that has been adopted or maintained by the Company or anyERISA Affiliate, whether informally or formally, or with respect to which theCompany or any ERISA Affiliate will or may have any liability**,** for the benefit of Employees who perform services outsidethe United States;

 

(ix)           “**IRS**” means the Internal Revenue Service;

 

(x)            “**Multiemployer Plan**” means any “PensionPlan” (as defined below) which is a “multiemployer plan,” as defined in Section 3(37)of ERISA; and

 

(xi)           “**Pension Plan**” means each Company EmployeePlan, which is an “employee pension benefit plan,” within the meaning ofSection 3(2) of ERISA.

 

(b)           Employee Plansand Employee Agreements.

 

(i)            Section 2.20(b)(i)of the Company Schedule contains an accurate and complete list of each CompanyEmployee Plan and each Employee Agreement. Neither the Company nor any ERISAAffiliate has any plan or commitment, whether legally binding or not, toestablish any new Company Employee Plan or Employee Agreement, to modify anyCompany Employee Plan or Employee Agreement (except to the extent required bylaw or to conform any such Company Employee Plan or Employee Agreement to therequirements of any applicable law, in each case as previously disclosed toParent in writing, or as required by this Agreement), or to adopt or enter intoany Company Employee Plan or Employee Agreement. Except for Bennet G. Kelley,all employees of the Company are employed at will.

 

(ii)           Section2.20(b)(ii) of the Company Schedule sets forth, individually and by category,the name of each officer, employee and consultant, together with such person’sposition or function, annual base salary or wage and any incentive, severanceor bonus arrangements with respect to such person. Entering into this Agreementand the Ancillary Agreements and completing the transactions contemplatedhereby and thereby will not result in any payment or increased payment becomingdue from the Company to any current or former officer, director, or employeeof, or consultant to, the Company, and to the knowledge of the Company noemployee or consultant of the Company has made any threat, or otherwiserevealed an intent, to terminate such employee’s or consultant’s relationshipwith the Company for any reason, including because of the consummation of thetransactions contemplated by this Agreement or the Ancillary Agreements. TheCompany is not a party to any agreement for the provision of labor from anyoutside agency. Since the Company’s date of incorporation, there have been noclaims by employees of such outside agencies, if any, with regard to employeesassigned to work for the Company, and no claims by any governmental agency withregard to such employees.

 

(iii)          Sincethe Company’s date of incorporation, there have been no federal or state claimsbased on sex, sexual or other harassment, age, disability, race or otherdiscrimination or common law claims, including claims of wrongful termination,by any employees of the Company or by any of the employees performing work forthe Company but provided by an outside employment agency, and there are nofacts or circumstances known to the 

 

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Company that could reasonablybe expected to give rise to such complaint or claim. The Company (A) hasat all times complied with all Applicable Law (as defined in Section 2.21)related to employment, (B) has not received any notice of any claim thatit has not complied in any material respect with any Applicable Law relating toemployment, including any provisions thereof relating to wages, hours,collective bargaining, the payment of Social Security and similar taxes, equalemployment opportunity, employment discrimination, the Worker Adjustment andRetraining Notification Act (the “**WARN Act**”),employee safety, and (C) has not received any notice of any claim that itis liable for any arrearages of wages or any taxes or penalties for failure tocomply with any of the foregoing.

 

(iv)          TheCompany has no written policies and/or employee handbooks or manuals exceptthose for which true and correct copies have been provided to Parent.

 

(c)           Documents. TheCompany has provided to Parent correct and complete copies of the followingitems, all of which are listed in Section 2.20(c) of the Company Schedule:

 

(i)            alldocuments embodying or relating to each Company Employee Plan and each EmployeeAgreement, including all amendments thereto and written interpretations thereofand all related trust documents, administrative service agreements, groupannuity contracts, group insurance contracts and policies pertaining tofiduciary liability insurance covering the fiduciaries for each CompanyEmployee Plan;

 

(ii)           themost recent annual actuarial valuations, if any, prepared for each CompanyEmployee Plan;

 

(iii)          thethree most recent annual reports (Form Series 5500 and all schedulesand financial statements attached thereto), if any, required under ERISA or theCode in connection with each Company Employee Plan or related trust;

 

(iv)          ifthe Company Employee Plan is funded, the most recent annual and periodicaccounting of Company Employee Plan assets;

 

(v)           themost recent summary plan description together with the summaries of materialmodifications thereto, if any, required under ERISA with respect to eachCompany Employee Plan;

 

(vi)          allIRS determination, opinion, notification and advisory letters and rulingsrelating to Company Employee Plans and copies of all applications andcorrespondence to or from the IRS or the Department of Labor (“**DOL**”) with respect to any Company EmployeePlan;

 

(vii)         allcommunications material to any Employee or Employees relating to any CompanyEmployee Plan and any proposed Company Employee Plans, in each case, relatingto any amendments, terminations, establishments, increases or decreases inbenefits, acceleration of payments or vesting schedules or other events whichwould result in any material liability to the Company or he SurvivingCorporation;

 

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(viii)        allcorrespondence to or from any Governmental Entity relating to any CompanyEmployee Plan;

 

(ix)           allCOBRA forms and related notices (or such forms and notices as required undercomparable law); and

 

(x)            thethree (3) most recent plan years discrimination tests, if any, for each CompanyEmployee Plan; and (xi) all registration statements, annual reports(Form 11-K and all attachments thereto) and prospectuses, if any, preparedin connection with each Company Employee Plan.

 

(d)           Employee PlanCompliance.

 

(i)            TheCompany and its ERISA Affiliates (A) have performed in all materialrespects all obligations required to be performed by them under each CompanyEmployee Plan, (B) are not in default or violation of any Company EmployeePlan, and (C) have no knowledge of any default or violation by any otherparty to any Company Employee Plan;

 

(ii)           EachCompany Employee Plan has been established and maintained in all materialrespects in accordance with its terms and in compliance with all ApplicableLaw, including ERISA and the Code;

 

(iii)          AnyCompany Employee Plan intended to be qualified under Section 401(a) of theCode and each trust intended to qualify under Section 501(a) of the Code(A) has either applied for, prior to the expiration of the requisiteperiod under applicable Treasury Regulations or IRS pronouncements, or obtaineda favorable determination, notification, advisory and/or opinion letter, asapplicable, as to its qualified status from the IRS or still has a remainingperiod of time under applicable Treasury Regulations or IRS pronouncements inwhich to apply for such letter and to make any amendments necessary to obtain afavorable determination, and (B) incorporates or has been amended toincorporate all provisions required to comply with the Tax Reform Act of 1986and subsequent legislation;

 

(iv)          Foreach Company Employee Plan that is intended to be qualified underSection 401(a) of the Code, there has been no event, condition orcircumstance that has adversely affected, or reasonably could adversely affect,such qualified status;

 

(v)           No“prohibited transaction,” within the meaning of Section 4975 of the Codeor Sections 406 and 407 of ERISA, and not otherwise exempt underSection 408 of ERISA, has occurred with respect to any Company EmployeePlan;

 

(vi)          Thereare no actions, suits or claims pending, or, to the knowledge of the Company,threatened or reasonably anticipated (other than routine claims for benefits)against any Company Employee Plan or against the assets of any Company EmployeePlan;

 

(vii)         EachCompany Employee Plan can be amended, terminated or otherwise discontinuedafter the Effective Time in accordance with its terms, without liability toParent, the Company or any ERISA Affiliate (other than ordinary administrationexpenses), 

 

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except that in certain eventsfollowing the Merger the vesting of assumed Company Options may accelerate asprovided in Section 11(b)(i) of the Company Plan;

 

(viii)        Thereare no audits, inquiries or proceedings pending or, to the knowledge of theCompany or any ERISA Affiliates, threatened by the IRS or DOL, or any otherGovernmental Entity with respect to any Company Employee Plan;

 

(ix)           Neitherthe Company nor any ERISA Affiliate is subject to any penalty or tax withrespect to any Company Employee Plan under Section 502(i) of ERISA orSections 4975 through 4980 of the Code; and

 

(x)            TheCompany and each ERISA Affiliate have timely made all contributions and otherpayments required by and due under the terms of each Company Employee Plan.

 

(e)           No Pension orWelfare Plans. Neither the Company nor any ERISA Affiliate has evermaintained, established, sponsored, participated in, or contributed to:

 

(i)            AnyPension Plan that is subject to Title IV of ERISA or Section 412 ofthe Code;

 

(ii)           AnyMultiemployer Plan;

 

(iii)          Any“multiple employer plan” as defined in ERISA or the Code; or

 

(iv)          Any“funded welfare plan” within the meaning of Section 419 of the Code.

 

No Company Employee Plan provides healthbenefits that are not fully insured through an insurance contract.

 

(f)            No Post-EmploymentObligations. No Company Employee Plan provides, or reflects or representsany liability to provide, life insurance, medical or other employee benefits toany Employee upon his or her retirement or termination of employment for anyreason, except as may be required by COBRA or other applicable statute, andneither the Company nor any ERISA Affiliate has represented, promised orcontracted (whether orally or in writing) to any Employee (either individuallyor to Employees as a group) or any other person that such Employee(s) or otherperson would be provided life insurance, medical or other employee welfarebenefits upon retirement or termination of employment, except to the extentrequired by statute.

 

(g)           Health CareCompliance. Neither the Company nor any ERISA Affiliate has violated any ofthe health care continuation requirements of COBRA, the requirements of FMLA,the requirements of the Health Insurance Portability and Accountability Act of1996, the requirements of the Women’s Health and Cancer Rights Act of 1998, therequirements of the Newborns’ and Mothers’ Health Protection Act of 1996, orany amendment to each such act, or any similar provisions of state lawapplicable to its Employees.

 

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(h)           Past Acquisitions.Neither the Company nor any ERISA Affiliate is currently obligated to providean Employee with any compensation or benefits pursuant to an agreement (*e.g.*, an acquisition agreement) witha former employer of such Employee.

 

(i)            Effect ofTransaction.

 

(i)            The execution ofthis Agreement and the Ancillary Agreements and the consummation of thetransactions contemplated hereby and thereby will not (either alone or upon theoccurrence of any additional or subsequent events) constitute an event underany Company Employee Plan, Employee Agreement, trust or loan that will or mayresult in any payment (whether of severance pay or otherwise), acceleration, forgivenessof indebtedness, vesting, distribution, increase in benefits, obligation tofund benefits or other change in benefits with respect to any Employee, otherthan as described in Section 2.20(i)(i) of the Company Schedule.

 

(ii)           No payment orbenefit which will or may be made by the Surviving Corporation, the Company,its ERISA Affiliates or Parent or any of its respective affiliates with respectto any Employee will be characterized as a “parachute payment,” within themeaning of Section 280G(b)(2) of the Code.

 

(iii)          With respect to anyinsurance policy which provides, or has provided, funding for benefits underany Company Employee Plan, (A) there is and will be no liability of theSurviving Corporation, the Company, Parent or any of their respective subsidiariesin the nature of a retroactive or retrospective rate adjustment, loss sharingarrangement, or actual or contingent liability as of or immediately after theClosing Date, nor would there be any such liability if such insurance policywere terminated as of the Closing Date, and (B) no insurance companyissuing any such policy is in receivership, conservatorship, bankruptcy,liquidation, or similar proceeding, and; to the knowledge of the Company, nosuch proceedings with respect to any insurer are imminent.

 

(j)            EmploymentMatters. The Company (i) is in compliance in all material respectswith all Applicable Law respecting employment, employment practices, terms andconditions of employment and wages and hours, in each case, with respect to itsEmployees and independent contractors; (ii) has withheld and reported allamounts required by law or by agreement to be withheld and reported from thewages, salaries and other payments to Employees; (iii) is not liable forany arrears of wages or any Taxes or any penalty for failure to comply with anyof the foregoing; and (iv) is not liable for any payment to any trust orother fund or to any governmental or administrative authority, with respect tounemployment compensation benefits, social security or other benefits forEmployees (other than routine payments to be made in the normal course ofbusiness and consistent with past practice). There are no pending, threatenedor reasonably anticipated claims or actions against the Company under anyworker’s compensation policy or long-term disability policy. Neither theCompany nor any ERISA Affiliate has direct or indirect liability with respectto any misclassification of any person as an independent contractor rather thanas an employee, or with respect to any employee leased from another employer.

 

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(k)           Labor. Nowork stoppage or labor strike against the Company or an ERISA Affiliate ispending, threatened or reasonably anticipated. The Company is not involved inor, to the knowledge of the Company, threatened with, any labor dispute,grievance, or litigation relating to labor, safety or discrimination mattersinvolving any Employee, including charges of unfair labor practices ordiscrimination complaints, which, if adversely determined, would, individuallyor in the aggregate, result in material liability to Company. Neither theCompany nor any of its subsidiaries has engaged in any unfair labor practiceswithin the meaning of the National Labor Relations Act. The Company is notcurrently, nor has it been in the past, a party to, or bound by, any collectivebargaining agreement or union contract with respect to its Employees and nocollective bargaining agreement or union contract is being negotiated by theCompany. Neither the Company nor any of its subsidiaries has incurred anymaterial liability or material obligation under the Warn Act or any similarstate or local law that remains unsatisfied.

 

(m)          InternationalEmployee Plan. Neither the Company nor any ERISA Affiliate currently has,nor has it ever had, the obligation to maintain, establish, sponsor,participate in, or contribute to any International Employee Plan.

 

2.21         Compliance withLaws. The Company and each subsidiary has materially complied with, is notin material violation of, and has not received any notices of violation withrespect to, any applicable federal, state or local statute, law, ordinance,rule or regulation, domestic or foreign (“**ApplicableLaw**”). In particular, the Company and each subsidiary is incompliance with all Applicable Laws with respect to the design, development,promotion, sale, license, manufacture, import, export, use, distribution orprovision of the Company Products. The Company has not received anycommunication during the past three years from any Governmental Entity or otherperson that alleges that it is or was not in compliance with any ApplicableLaw, nor is the Company or any Shareholder aware of any reasonable basis forsuch claim. The Company has taken adequate and sufficient measures to ensurethat its subsidiaries agents have complied with all Applicable Laws withrespect to the design, development, promotion, sale, license, manufacture,import, export, use, distribution or provision of the Company Products, and theCompany and the Shareholders are not aware of any violation since inception byany of its current or former agents of such Applicable Laws.

 

2.22         Warranties;Indemnities. There are no material warranty or indemnity claims pending orthreatened against the Company or any subsidiary. Section 2.22 of theCompany Schedule sets forth:

 

(a)           alist of all forms of written warranties, guarantees and written warrantypolicies of the Company and any subsidiary in respect of any of the CompanyProducts which are currently in effect (the “**WarrantyObligations**”), and the duration of each such Warranty Obligation;

 

(b)           eachof the Warranty Obligations which is subject to any dispute or, to theknowledge of the Company and the Shareholders, any threatened dispute; and

 

(c)           theexperience of the Company and its subsidiaries with respect to warranties,guarantees and warranty policies of or relating to the Company Products andservices.

 

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True and correct copies of all forms ofWarranty Obligations have been delivered to Parent prior to the execution ofthis Agreement. There have not been any material deviations from the WarrantyObligations, and salespersons, employees and agents of the Company and itssubsidiaries are not authorized to undertake obligations to any customer orother person in excess of or materially different from such WarrantyObligations. The Company Financials reflect adequate and appropriate reservesfor all Warranty Obligations. All products manufactured, designed, licensed,leased, rented or sold by the Company and its subsidiaries are and were freefrom material defects in construction and design and satisfy in all materialrespects the written requirements therefor set forth in any and all contracts,agreements, purchase orders, Warranty Obligations or other specifications oragreements related thereto.

 

2.23         SoftwareDevelopment Agreements. Neither the Company nor any subsidiary hasviolated, is in violation of, nor will this Agreement, any Ancillary Agreement,the observance and performance of the terms hereof or thereof or theconsummation of the transactions contemplated hereby or thereby cause anyviolation of, any terms or provisions of any agreement under which the Companyor any subsidiary has or had an obligation to develop, supply or distributesoftware to or for any third party, excluding end-user licenses for object codeexecuted in the ordinary course of business, nor is or would the Company or anysubsidiary under any circumstances,  be underany obligation to deliver source code or any confidential or proprietaryinformation to any third party.

 

2.24         RepresentationsComplete. None of the representations or warranties made by the Company orthe Shareholders (taken together with the Company Schedule), and none of thestatements of, by or regarding the Company made in any schedule or certificatefurnished by the Company pursuant to this Agreement or any Ancillary Agreement,and none of the documents prepared or reviewed by the Company to be furnishedas a part of or in connection with any documents mailed or delivered to theshareholders of the Company in connection with seeking Written Consents, NewShareholder Consents or other approvals of this Agreement, the Merger or theother transactions contemplated hereby or by the Ancillary Agreements, containsor will contain any untrue statement of a material fact, or omit to state anymaterial fact necessary in order to make the statements contained herein ortherein (to the extent such statements are of, by or regarding the Company) notmisleading.

 

2.25         Insurance. Allinsurance policies of the Company and its subsidiaries are listed on Section2.25 of the Company Schedule. There is no material claim pending under any suchpolicies as to which coverage has been questioned, denied or disputed by theunderwriters of or obligors on such policies. All premiums due and payableunder all such policies have been timely paid and the Company and itssubsidiaries are otherwise in compliance with the terms of such policies. TheCompany and the Shareholders have no knowledge of any threatened terminationof, or material premium increase with respect to, any of such policies, or thatany underwriter or carrier would not renew each such policy on substantiallycomparable terms as currently in effect.

 

2.26         Foreign CorruptPractices Act. Neither the Company, nor to the knowledge of the Company,any subsidiary, agent, employee or other person associated with or acting onbehalf of the Company has, directly or indirectly, used any corporate funds forunlawful contributions, 

 

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gifts, entertainment or otherunlawful expenses relating to political activity, made any unlawful payment toforeign or domestic government officials or employees or to foreign or domesticpolitical parties or campaigns from corporate funds, violated any provision ofthe Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,rebate, payoff, influence payment, kickback or other similar unlawful payment.

 

2.27         Complete Copies ofMaterials. The Company has used its good faith best efforts to, and to itsbest knowledge has, delivered or made available true and complete copies ofeach document that has been requested by Parent or its counsel in connectionwith Parent’s legal, accounting and business review of the Company.

 

2.28         Board andShareholder Approval. The Board of Directors of the Company (a) hasunanimously approved this Agreement, the Ancillary Agreements, and thetransactions contemplated hereby and thereby and (b) has unanimouslydetermined that this Agreement, the Ancillary Agreements and the transactioncontemplated hereby and thereby are fair to and in the best interests of theCompany shareholders. The Company shareholders holding 100% of the outstandingshares of Company Common Stock have approved this Agreement, the AncillaryAgreements and the transactions contemplated hereby and thereby (including theMerger) pursuant to Written Consents executed and delivered to the Company onor prior to the date hereof (true and correct copies of which have beenprovided to Parent). None of such Company shareholders has withdrawn or revokedany such Written consent nor to the Company’s best knowledge after due inquiryhas any such shareholder expressed an intent or desire to attempt to do so. Noother approval of the Company shareholders or any other person is necessary toapprove this Agreement, the Ancillary Agreements and the transactionscontemplated hereby and thereby.

 

2.29         Customers andSuppliers. Except as specified in Section 2.29 of the Company Schedule, nocustomer which individually accounted for more than 5%, and no group orcombination of customers which collectively accounted for more than 7%, of theCompany’s consolidated gross revenues during the 12-month period preceding thedate hereof, and no supplier of the Company has canceled or otherwiseterminated, or made any written threat to the Company to cancel or otherwiseterminate its relationship with the Company, or has decreased materially itsservices or supplies to the Company, in the case of any such supplier, or itsusage of the services or products of the Company, in the case of such customerand, to the best knowledge of the Company, no such supplier or customer intendsto cancel or otherwise terminate its relationship with the Company or todecrease materially its services or supplies to the Company or its usage of theservices or products of the Company, as the case may be. The Company has notbreached any agreement with, or engaged in any fraudulent conduct with respectto, any customer or supplier of the Company.

 

2.30         Export ControlLaws. The Company and each subsidiary has conducted its export transactionsat all times in strict compliance with applicable provisions of all exportcontrol laws and regulations, including but not limited to the ExportAdministration Act and implementing Export Administration Regulations. Withoutlimiting the foregoing, the Company and eh Shareholders represents and warrantsthat:

 

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(a)           the Company and eachsubsidiary has obtained all export licenses and other approvals required forits exports of products, software and technologies from the United States;

 

(b)           the Company and eachsubsidiary is in compliance with the terms of all applicable export licenses orother approvals;

 

(c)           There are no pendingor, to the Company’s or the Shareholders’ knowledge, threatened claims againstthe Company or any subsidiary with respect to such export licenses or otherapprovals;

 

(d)           To the Company’s andthe Shareholders’ knowledge, there are no actions, conditions or circumstancespertaining to the Company’s or any subsidiary’s export transactions that maygive rise to any future claims; and

 

(e)           No consents orapprovals for the transfer of export licenses to Parent or the SurvivingCorporation are required, or such consents and approvals can be obtainedexpeditiously without material cost.

 

2.31         Banks andBrokerage Accounts. Section 2.31 of the Company Schedule sets forth:

 

(a)           atrue and complete list of the names and locations of all banks, trustcompanies, securities brokers and other financial institutions at which theCompany has an account or safety deposit box or maintains a banking, custodial,trading or other similar relationship;

 

(b)           atrue and complete list and description of each such account, safety deposit boxand relationship, indicating in each case the account number, the names of therespective officers, employees, agents or other similar representatives of theCompany having signatory power with respect thereto and the current balances insuch accounts or safety deposit boxes; and

 

(c)           alist of each debenture, note, and other evidence of indebtedness, stock,security (including rights to purchase and derivative securities or rights),interests in joint ventures and general and limited partnerships, mortgageloans and other investment or portfolio assets owned of record or beneficiallyby the Company, the legal name of the record and beneficial owner thereof, thelocation of the certificates, if any, therefor, the maturity date, if any, andany stock or bond powers or other authority for transfer granted with respectthereto.

 

2.32         Takeover Statutes.No “fair price,” “moratorium,” “control share acquisition,” or other or similarantitakeover statutes or regulations enacted or promulgated under federal,state or foreign law is applicable with respect to the Company in connectionwith the Merger or any other transaction contemplated by this Agreement or theAncillary Agreements.

 

2.33         Accuracy ofInformation. In connection with soliciting and obtaining any NewShareholder Consents and the Written Consents of the holders of 100% of theCompany 

 

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Common Stock approving thisAgreement, the Ancillary Agreements and the transactions contemplated herebyand thereby (including the Merger), the Company advised such shareholders thatits Board of Directors (a) unanimously approved this Agreement, theAncillary Agreements, and the transaction contemplated hereby and thereby(including the Merger), (b) unanimously determined that this Agreement,the Ancillary Agreements and the transactions contemplated hereby and therebyare fair to and in the best interests of the Company shareholders, and(c)  unanimously recommend that the shareholders execute and deliver theWritten Consents (and New Shareholder Consents) approving all such matters. TheCompany provided to such shareholders all information and documents regardingsuch matters as are required by applicable law and as a reasonably prudentperson knowledgeable about the requirements of California law for the properapproval of a transaction such as the Merger would consider necessary orappropriate to be provided to the shareholders in soliciting their consents andapprovals. In addition, all holders of Company Common Stock were provided areasonable opportunity to request additional information and documents and toask questions and receive answers from appropriate representatives of theCompany with respect to the subject matter of New Shareholder Consents and theWritten Consents presented to the Company shareholders for execution. Nomaterials provided to the Company shareholders, and no information provided orconveyed to the Company shareholders, in connection with their consideration ofthe matters subject to the New Shareholder Consents or the Written Consentscontained any material misstatements or inaccuracies, nor omitted to containany information reasonably necessary to make the information provided orconveyed not misleading in the circumstances in which such information wasprovided or conveyed.

 

2.34         New ShareholderMatters. Each holder of Company Options who exercises such Company Optionsand becomes a holder of Company Common Stock will execute and deliver a NewShareholder Consent and a Written Consent approving this Agreement, theAncillary Agreements and the transactions contemplated hereby and thereby(including the Merger).

 

# **ARTICLE III**

 

# **REPRESENTATIONS AND WARRANTIES OFPARENTAND MERGER SUB**

# ** **

Parent and Merger Sub represent and warrant to the Company as follows:

 

3.1           Organization,Standing and Power. Parent is a corporation duly organized, validlyexisting and in good standing under the laws of the State of Delaware. MergerSub is a corporation duly organized, validly existing and in good standingunder the laws of the State of California. Each of Parent and Merger Sub hasthe corporate power to own its properties and to carry on its business as nowconducted and is duly qualified to do business and is in good standing in itsjurisdiction of incorporation and in each jurisdiction in which it is requiredto be so qualified.

 

3.2           Authority. Parentand Merger Sub have all requisite corporate power and authority to enter intothis Agreement and any Ancillary Agreements to which Parent and Merger Sub areparties, to perform their respective obligations hereunder and thereunder andto 

 

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consummate the transactionscontemplated hereby and thereby. The execution and delivery of this Agreementand the Ancillary Agreements and the consummation of the transactionscontemplated hereby and thereby have been duly authorized by all necessarycorporate action on the part of Parent and Merger Sub. This Agreement and eachAncillary Agreement have been duly executed and delivered by Parent and MergerSub, as applicable, and constitute the valid and binding obligations of Parentand Merger Sub, as applicable, enforceable against such respective parties inaccordance with their terms, except as such enforceability may be limited byprinciples of public policy and subject to the laws of general applicationrelating to bankruptcy, insolvency and the relief of debtors and rules of lawgoverning specific performance, injunctive relief or other equitable remedies.

 

3.3           No Conflicts.The execution and delivery by Parent and Merger Sub of this Agreement and theAncillary Agreements to which Parent and Merger Sub are parties do not, and theobservance and performance by such parties of their respective obligationsunder this Agreement and the Ancillary Agreements to which they are a party andthe consummation of the transactions contemplated hereby and thereby do not andwill not:

 

(a)           conflict with orresult in a violation or breach of any of the terms, conditions or provisionsof the Certificate of Incorporation or Bylaws of Parent or Merger Sub; or

 

(b)           conflict with orresult in a material violation or breach of, or constitute an event of defaultunder, any mortgage, indenture, lease, contract or other agreementor instrument, permit, concession, franchise, license, judgment, order,decree, statute, law, ordinance, rule or regulation applicable to Parent, MergerSub or their respective properties or assets; or

 

(c)           requireParent or Merger Sub to obtain any consent, approval or action of, or make anyfiling with or give any notice to any person, except for the filing of theAgreement of Merger with the Secretary of State of the State of California.

 

3.4           InvestmentAdvisors. No broker, investment banker, financial advisor or other personis entitled to any broker’s, finder’s, financial advisor’s or similar fee orcommission in connection with this Agreement or any Ancillary Agreement or theconsummation of the transactions contemplated hereby or thereby based onarrangements made by or on behalf of Parent or Merger Sub.

 

3.5           SEC Reports. Parenthas filed all forms, reports, schedules, statements and other documents (includingexhibits and other information required to be incorporated by referencetherein) that it is required to file with the Securities and ExchangeCommission (the “**SEC**”) through thedate hereof (collectively, the “**Parent SECReports**”). As of their respective filing dates, or, if amended, asof the date of the last such amendment, each Parent SEC Report, (a) complied inall material respects with the applicable requirements of the Securities Act of1933, as amended, the Securities Exchange Act of 1934, as amended, and therules and regulations promulgated thereunder applicable to such Parent SECReports and (b) did not contain any untrue statement of a material fact or omitto state a material fact required to be stated therein or 

 

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necessary to make thestatements made therein, in the light of the circumstances under which theywere made, not misleading.

 

3.6           Availability ofFunds. Parent has available, or will have available at the time payment isrequired, sufficient funds in immediately available cash to pay the ClosingConsideration payable to the Company shareholders pursuant to the Merger, tofund the Escrow Fund as provided in Section 1.8 hereof, and to payany Earnout Consideration payable pursuant to Section 1.9 hereof asand when such amounts may become due and payable.

 

# **ARTICLE IV**

# ** **

# **CONDUCT PRIOR TO THE EFFECTIVETIME**

# ** **

4.1           Conduct ofBusiness of the Company. During the period from the date of this Agreementand continuing until the earlier of the termination of this Agreement pursuantto Section 8.1 and the Effective Time, the Company agrees:

 

(a)           tocarry on its business in the usual, regular and ordinary course insubstantially the same manner as heretofore conducted and in any eventconsistent in all respects with the Company’s 2003 Budget dated October 31,2003 previously provided to and approved by Parent;

 

(b)           totimely pay its debts and Taxes and to timely file all Tax Returns when due,(c) to pay or perform all other obligations when due; and

 

(c)           touse all reasonable efforts consistent with past practice and policies topreserve intact the Company’s current business organizations, keep availablethe services of its current officers and key employees and preserve itsrelationships with customers, suppliers, distributors, licensors, licensees,and others having business dealings with it;

 

all with the goal of preserving unimpairedthe Company’s goodwill and ongoing businesses through the Effective Time. TheCompany shall promptly notify Parent of any event or occurrence or emergencynot in the ordinary course of business of the Company, and any material eventinvolving the Company.

 

4.2           NegativeCovenants. During the period from the date hereof and continuing until theearlier of the termination of this Agreement pursuant to Section 8.1 andthe Effective Time, the Company, its subsidiaries and the Shareholders shallnot, without the prior written consent of Parent or as expressly contemplatedby this Agreement:

 

(a)           Enter into anycommitment or transaction not in the ordinary course of business, or anycommitment or transaction of the type described in Section 2.7hereof;

 

(b)           Sell,transfer, license, abandon, let lapse, disclose, misuse, misappropriate,diminish, destroy or otherwise dispose of or encumber the Company IntellectualProperty in any manner (other than pursuant to end user licenses in theordinary course of business or pursuant to 

 

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instruments of assignment toMerger Sub effective as of the Effective Time) or assert or threaten to assertany rights with respect to the Company Intellectual Property against any thirdparty;

 

(c)           Enter into or amendany agreements pursuant to which any other party is granted marketing,distribution or similar rights of any type or scope with respect to any CompanyProducts;

 

(d)           Amend or otherwisemodify (or agree to do so), except in the ordinary course of business, orviolate the terms of, any of the agreements set forth or described in theCompany Schedule;

 

(e)           Commence or settleany litigation, action or claim, other than collection actions disclosed toParent prior to the commencement thereof;

 

(f)            Declare or pay anydividends on or make any other distributions (whether in cash, stock orproperty) in respect of any of its capital stock or other securities, otherthan dividends of cash to Company shareholders which will not result in aWorking Capital Deficit after taking into account all assets and liabilities ofthe Company used in such calculation;

 

(g)           Split, combine orreclassify any of its capital stock or other securities;

 

(h)           Issue or authorizethe issuance of any other securities in respect of, in lieu of or insubstitution for, shares of capital stock or other securities of the Company;

 

(i)            Purchase,repurchase, redeem or otherwise acquire, directly or indirectly, any shares ofits capital stock or other securities (or options, warrants or other rightsexercisable therefor);

 

(j)            Except for theissuance of shares of Company Common Stock upon exercise or conversion ofCompany Options and Company Warrants outstanding as of August 22, 2003,(i) issue, deliver or sell or authorize or propose the issuance, deliveryor sale of, or (ii) purchase or propose the purchase of, any shares of itscapital stock or securities convertible into, or subscriptions, rights,warrants or options to acquire, or other agreements or commitments of anycharacter obligating it to sell or issue any such shares or other convertiblesecurities;

 

(k)           Cause or permit anyamendments to the Articles of Incorporation or Bylaws or other organizationalor governing documents of the Company or any subsidiary;

 

(l)            Acquire or agree toacquire any business or any corporation, partnership, association or otherbusiness organization or division thereof by merging or consolidating with, orby purchasing a substantial portion of the assets of any such person, or by anyother manner, other than the acquisition of AdPro and Rx Today as requiredhereby;

 

(m)          Acquire or agree toacquire any assets other than in the ordinary course of the Company’s businessconsistent with past practice;

 

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(n)           Sell, lease, licenseor otherwise transfer or dispose of any of its owned or controlled propertiesor assets, or cause or permit the termination or lapse of any leases orlicenses with respect to any of its leased or licensed properties or assets;

 

(o)           Incur anyindebtedness for borrowed money or guarantee or agree to act as a surety forany indebtedness;

 

(p)           Sell or issue anydebt securities of the Company or guarantee or agree to act as a surety for anydebt securities of others;

 

(q)           Grant or amend anyexisting agreement to provide severance or termination pay, or provide suchpay, to any director or officer or to any other employee, consultant orcontractor, except payments made pursuant to standard written agreementsoutstanding on the date hereof and as disclosed in the Company Schedule;

 

(r)            Adopt any newseverance, termination, indemnification or other policies, agreements orarrangements, the benefits of which are contingent upon the occurrence of atransaction involving the Company, including the Merger;

 

(s)           Adopt or amend anyCompany Employee Plan or enter into any employment or consulting contract, payor agree to pay any special bonus or special remuneration to any director,officer or employee or consultant, or increase the salaries or wage rates, orfringe benefits (including rights to severance or indemnification of itsdirectors, officers, employees or consultants or the modification of anyexisting compensation or equity arrangements with such individuals or thechange of vesting terms of any Company Options) of any such persons, providedthat this prohibition shall not include the payment of any cash dividends ordistributions otherwise permitted pursuant to subparagraph (f) of this Section4.2;

 

(t)            Waive any stockpurchase rights;

 

(u)           Accelerate, amend orotherwise materially modify the terms of any outstanding Company Options orreprice or replace Company Options or authorize cash payments in exchange forany Company Options, except as required pursuant to the employment agreementdated as of May 28, 2003, by and between the Company and Bennet G. Kelley (the“**Kelley Agreement**”);

 

(v)           Revalue any Companyassets or properties, including writing down the value of inventory or writingoff notes or accounts receivable other than in the ordinary course of business;

 

(w)          Pay, discharge orsatisfy any claim, liability or obligation (whether absolute, accrued, assertedor unasserted, contingent or otherwise) in an amount in excess of $10,000 (inany one case) or $50,000 (in the aggregate), other than the payment, dischargeor satisfaction in the ordinary course of business of liabilities reflected orreserved against in the Company Financial Statements (or the notes thereto);

 

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(x)            Make or change anymaterial election in respect of Taxes, file an amended Tax Return or claim forrefund of Taxes, adopt or change any accounting method in respect of Taxes,enter into any agreement with respect to Taxes with any Governmental Entity, settleany claim or assessment in respect of Taxes, or consent to any extension orwaiver of the limitation period applicable to any claim or assessment inrespect of Taxes;

 

(y)           Enter into anystrategic alliance or joint marketing arrangement or agreement; or

 

(z)            Take, or agree totake, any of the actions described above, or any other action that could causea Company Material Adverse Effect or would prevent the Company from performingor cause the Company not to perform its covenants or obligations hereunder orunder any Ancillary Agreement.

 

4.3           No Solicitation.Until the earlier of the Effective Time and the date this Agreement isterminated pursuant to Section 8.1 hereof, the Company and theCompany shareholders will not, nor will the Company or any of the Companyshareholders permit any of the Company’s officers, directors, othershareholders, agents, representatives or affiliates (any of the foregoing, a “**Company Representative**”) to directly orindirectly, take any of the following actions with any party other than Parentand its designees:

 

(a)           Solicit,initiate, entertain, or encourage any proposals or offers from, or conductdiscussions with or engage in negotiations with, any person relating to anypossible acquisition of the Company or any of its subsidiaries (whether by wayof merger, purchase of assets or capital stock, or otherwise), any portion ofthe Company’s or its subsidiaries’ capital stock or assets or any equityinterest in the Company or any of its subsidiaries;

 

(b)           Provideinformation with respect to the Company or its business to any person otherthan Parent and its designees, or otherwise cooperate with, facilitate orencourage any effort or attempt by any such person with regard to any possibleacquisition of the Company or any of its subsidiaries (whether by way ofmerger, purchase of capital stock, purchase of assets or otherwise), anyportion of the Company’s or its subsidiaries’ capital stock or assets or anyequity interest in the Company or any of its subsidiaries;

 

(c)           Enterinto any agreement or understanding with any person other than Parent and itsdesignees, providing for the acquisition of the Company or any of itssubsidiaries (whether by way of merger, purchase of capital stock, purchase ofassets or otherwise), any portion of the Company’s or its subsidiaries’ capitalstock or assets or any equity interest in the Company or any of itssubsidiaries; or

 

(d)           Makeor authorize any statement, recommendation or solicitation in support of anypossible acquisition of the Company or any of its subsidiaries (whether by wayof merger, purchase of capital stock, purchase of assets or otherwise), anyportion of the Company’s or its subsidiaries’ capital stock or assets or anyequity interest in the Company or any of its subsidiaries by any person otherthan Parent and its designees.

 

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The taking of any action described in clauses (a)through (d) above by the Company, any Company shareholder or any CompanyRepresentative shall be deemed a material breach by the Company of thisAgreement, regardless of the party who actually takes such action. The Companyand the Company shareholders shall immediately cease and cause to be terminatedany such contacts, negotiations or activities with third parties relating toany such transaction or proposed transaction. In addition to the foregoing, ifthe Company or any of the Company shareholders receives any offer or proposalrelating to any such transaction or proposed transaction at any time prior tothe earlier of the Effective Time or the termination of this Agreement, theCompany and any such Company shareholder immediately shall notify Parentthereof, including information as to the identity of the offeror(s) making anysuch offer or proposal and the specific terms of such offer or proposal, as thecase may be, and such other information related thereto as Parent may request.

 

# **ARTICLE V**

# ** **

# **ADDITIONAL AGREEMENTS**

# ** **

5.1                           Accessto Information; Cooperation.

 

(a)           GeneralAccess; 3-05 Audit. The Company shall cooperate with and afford Parent andits accountants, counsel and other representatives, reasonable access duringnormal business hours during the period prior to the Effective Time to(a) all of the Company’s properties, books, contracts, commitments andrecords, and (b) all other information concerning the business, propertiesand personnel of Company as Parent reasonably may request in conducting itsbusiness, accounting and legal review and investigation of the Company. TheCompany agrees to provide to Parent and its accountants, counsel and otherrepresentatives copies of internal financial statements and any related workpapers and supporting documentation promptly upon request. No information orknowledge obtained in any investigation pursuant to this Section 5.1shall affect or be deemed to modify any representation or warranty containedherein or in any Ancillary Agreement or the conditions to the obligations ofthe parties to consummate the Merger and the other transactions contemplatedhereby and thereby. In addition, the Company shall, and agrees to cause itsappropriate officers and other personnel to, execute and deliver such documentsand instruments as may be requested by Parent or required by third partyaccountants and auditors in connection with the matters contemplated by this subparagraph (a),including any work papers, documents, books, record, certifications or reliancerepresentation letters requested by the accounting firm, auditors or otherpersons engaged to conduct an audit of the Company’s financial books andrecords (the “**3-05 Audit**”) inorder for Parent to properly make any required public filings with theSecurities and Exchange Commission relating to the Company or the Merger.Parent and the Company agree that each shall bear 50% of the fees, costs andexpenses incurred in connection with any 3-05 Audit (provided that the Companyshall be obligated to pay a maximum of $15,000 of such fees, costs andexpenses) and that the 50% (or $15,000, if applicable) to be borne by the Companyshall be included in the liabilities of the Company included in calculating theWorking Capital Deficit.

 

(b)           InformationTechnology Access. To facilitate prompt integration of the Company’sinformation technology (“**IT**”)inventory (e.g., voice and data network services and 

 

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software and hardware,licenses, financial/accounting software, IT budgets, etc.) with Parent’s ITfollowing the Closing, the Company will provide Parent and its agents, employeesand representatives reasonable access, at any time during normal business hoursfrom the date hereof through the Effective Time, to the Company’s IT inventoryand the Company’s personnel responsible for such IT inventory.

 

5.2           Confidentiality.Each of the parties hereto hereby agrees to keep all information or knowledgeobtained in any investigation or activities pursuant to Section 5.1,or pursuant to or in connection with the negotiation and execution of thisAgreement, the Ancillary Agreements or the effectuation of the transactionscontemplated hereby or thereby, confidential (“**Confidential Information**”); provided, however,that the foregoing obligation shall not apply to information or knowledge which(a) a party can demonstrate was already lawfully in its possession priorto the disclosure thereof by the other party, (b) is generally known tothe public and did not become so known through any violation of law by theparty with the information or knowledge, (c) became known to the public throughno fault of such party, (d) is later lawfully acquired by such party fromother sources, (e) is required to be disclosed pursuant to Section 5.6or by order of court or government agency with subpoena powers (provided, thatsuch party shall first give the other party prior notice of such order and areasonable opportunity to object to such compelled disclosure or take otheravailable action to protect the confidentiality of the otherwise ConfidentialInformation), or (f) is developed independently by either party withoutreference to, or specific knowledge of, the other parties’ ConfidentialInformation. Notwithstanding the foregoing or anything herein to the contrary,any party to this Agreement (and their employees, representatives or otheragents) may disclose to any and all persons, without limitation of any kind,the tax treatment and tax structure of the transactions contemplated by thisAgreement and all material of any kind (including opinions or other taxanalysis) that are provided to it relating to such tax treatment and taxstructure; provided, however, that this sentence shall not permitany disclosure that otherwise is prohibited by this Agreement or any otherconfidentiality agreement between or among the parties as of the date hereof ifsuch disclosure would result in a violation of federal or state securitieslaws; or to the extent not related to the tax aspects of the transactionscontemplated hereby. Moreover, nothing in this Agreement shall be construed tolimit in any way any party’s ability to consult any tax advisor regarding thetax treatment or tax structure of the transactions contemplated hereby.

 

5.3           Public Disclosure.Unless otherwise required by law, no disclosure (whether or not in response toan inquiry) of the subject matter of this Agreement shall be made by theCompany or any of its directors, officers, shareholders, employees, agents,consultants, advisors, or other representatives without the prior writtenconsent of Parent. The parties acknowledge and agree that it is their mutualintent to issue a joint press release announcing the transaction and to thatend will in good faith agree to mutually acceptable text for such pressrelease. Thereafter, to the extent that Parent issues a press release withrespect to the execution of this Agreement or the transactions contemplatedhereby, Parent shall provide the Company a reasonable opportunity to reviewsuch release in advance, but the Company shall have no approval rights withrespect to the scope or substance of such subsequent releases to the extent thematters included are factually accurate and do not disclose any ConfidentialInformation regarding the Company.

 

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5.4           Consents. TheCompany shall obtain all requisite consents, waivers and approvals under any ofthe Material Contracts as may be required in connection with the Merger or anyother transaction contemplated hereby or by the Ancillary Agreements and, tothe extent necessary, in connection with any necessary assignments of anyMaterial Contracts to the Surviving Corporation (including any insurancepolicies), in each case so as to preserve all rights of, and benefits to,(a) the Company thereunder at all times prior to the Merger and(b) to ensure that after the Merger the Surviving Corporation at all timesretains all rights and benefits previously available to the Company prior tothe Effective Time. In addition, to the extent that any holder of CompanyOptions exercises such options and thereby acquires Company Common Stock, theCompany shall obtain the written consent of each such shareholder (the “**New Shareholder Consents**”) to the paymentof the Earnout Consideration to Shareholder Agent for the benefit of theCompany shareholders and the subsequent allocation and payment of such EarnoutConsideration as agreed by such parties (even if the result is that holders ofthe same class or series of capital stock are treated disparately) by causingsuch new shareholders to execute and deliver duly and properly notarizedwritten consents to such payment in form an substance acceptable to Parentprior to the Effective Time.

 

5.5           ReasonableEfforts. Subject to the terms and conditions provided in this Agreement andany other standards applicable to specific obligations or actions contemplatedhereby, each of the parties hereto shall use its reasonable best efforts totake promptly, or cause to be taken, all actions, and to do promptly, or causeto be done, all things necessary, proper or advisable under Applicable Law toconsummate the transactions contemplated hereby, to obtain all necessarywaivers, consents and approvals, to effect all necessary registrations andfilings and to remove any injunctions or other legal or other impediments ordelays, in order to consummate the transactions contemplated by this Agreementor the Ancillary Agreements and secure to the parties hereto the benefitscontemplated hereby and thereby; provided, however, that Parentshall not be required to agree to any divestiture by Parent, the Company or anyof Parent’s subsidiaries or affiliates of shares of capital stock or anybusiness, assets or property, or the imposition of any limitation on theability of any such persons to conduct their respective businesses or to own orexercise control of such assets, properties and stock either prior to orfollowing the Merger.

 

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5.6           Notification ofCertain Matters.

 

(a)           GeneralNotices. The Company shall give prompt notice to Parent of the occurrenceor non-occurrence of any event, the occurrence or non-occurrence of which isreasonably likely to cause any representation or warranty of the Companycontained in this Agreement to be untrue or inaccurate at or prior to theEffective Time or any failure of the Company to comply with or satisfy anycovenant, condition or agreement to be complied with or satisfied by ithereunder. Parent shall give prompt notice to the Company of the occurrence ornon-occurrence of any event, the occurrence or non-occurrence of which is reasonablylikely to cause any representation or warranty of Parent contained in thisAgreement to be untrue or inaccurate at or prior to the Effective Time or anyfailure of the Parent to comply with or satisfy any covenant, condition oragreement to be complied with or satisfied by it hereunder. Notwithstanding theforegoing, the delivery of any notice pursuant to this Section 5.6shall not act as a waiver of or limit or otherwise affect any remediesavailable to the party receiving such notice by virtue of the events orcircumstances referenced in such notice.

 

(b)           IntellectualProperty Notices; IP Assignments. The Company shall give Parent promptnotice if any person shall have (i) commenced, or shall have notified theCompany that it intends to commence, an action or proceeding or (ii) providedthe Company with notice, in either case which allege(s) that any of the CompanyIntellectual Property currently embodied, or proposed to be embodied, in theCompany Products or utilized in Company-designed or modified development tools(including standard cells) or design environments infringes or otherwiseviolates the intellectual property rights of such person, is available forlicensing from a potential licensor providing the notice or otherwise allegesthat the Company does not otherwise own or have the right to use and exploitsuch Company Intellectual Property (the foregoing, an “**Infringement Claim**”). The Company shallcooperate with Parent in making arrangements, prior to the Closing Date,satisfactory to Parent in its sole and reasonable discretion to effect anynecessary or appropriate assignments (as determined by Parent) to the SurvivingCorporation of all Company Intellectual Property or other intellectual propertyrights owned or licensed by the Company or created by the Company’s founders,employees, consultants and independent contractors, including any CompanyIntellectual Property or other intellectual property rights created by theCompany’s founders prior to the Company’s incorporation and the New Platform,and to obtain the cooperation of such persons to complete all CompanyIntellectual Property in the name of the Surviving Corporation at the Company’sor the Surviving Corporation’s expense (each, an “**IP Assignment**”). The Company shall use its best efforts tomaintain, perfect, preserve or renew the Company Intellectual Property throughthe Effective Time, including the payment of any registration, maintenance,renewal fees, annuity fees and taxes or the filing of any documents,applications or certificates related thereto, and to promptly respond andprepare to respond to all requests, related to the Company IntellectualProperty, received from Governmental Entities. At the Closing, the Company willnotify Parent of all actions which must be taken within the 180 days followingthe Closing Date and which are necessary to maintain, perfect, preserve orrenew any Company Intellectual Property (and applications or registrations withrespect to the same), including the payment of any registration, maintenance, renewalfees, annuity fees and taxes or the filing of any documents, applications orcertificates related thereto.

 

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5.7           Third PartyExpenses. The Company shall cause all Third Party Expenses (as defined in Section 8.3)to be invoiced on or prior to the Closing Date and either paid or discharged infull prior to the Effective Time or included as liabilities of the Company inthe Closing Date Working Capital Calculation. Parent shall have the right toapprove all Third Party Expenses to be incurred by the Company between the datehereof through the Effective Time, including necessary fees and expenses oflegal counsel, auditors and tax advisors, which approvals will not beunreasonably withheld or delayed; provided, however, that theCompany shall not be required to obtain approval for up to $50,000 in ThirdParty Expenses incurred by the Company in the aggregate in connection withnegotiating, documenting, executing and effectuating the terms and conditions ofthis Agreement, the Ancillary Agreements and the transactions contemplatedhereby and thereby; provided, further,**that regardless of whether the Company properly seeks andobtains the approval of Parent with respect to any specific Third PartyExpenses, the actual amounts of all such Third Party Expenses incurred by theCompany and not paid or discharged in full prior to the Effective Time shall beincluded in the liabilities of the Company reflected in the Closing DateWorking Capital Calculation.

 

5.8           Acquisition ofAdPro and Rx Today. On or prior to the date hereof, (a) the Company,AdPro, Rx Today, and the respective shareholders of AdPro and Rx Today haveentered into agreements in the form attached as Exhibit E hereto,and shall execute and deliver such other documents and instruments as may benecessary which shall be in form and substance reasonably satisfactory toParent (all such documents and instruments, collectively, the “**Acquisition Agreements**”), providing for theacquisition of all outstanding capital stock of AdPro and Rx Today by theCompany, to be completed prior to the Effective Time and (b) therespective shareholders of the Company, AdPro and Rx Today (and theirrespective spouses) have, to the extent require by Applicable Law, executed anddelivered written consents and approvals adopting and approving suchAcquisition Agreements and any transactions contemplated thereby requiringshareholder approval. Parent has been provided true and correct copies of theexecuted Acquisition Agreements and any related written consents or approvals,all of which currently are in force and effect and enforceable against theparties thereto in accordance with their terms. From the date hereof throughthe Effective Time, neither the Company nor any other party to the AcquisitionAgreements shall agree to amend, modify, rescind or otherwise seek to change orterminate any Acquisition Agreement or to withdraw or revoke any writtenconsent or other approval to the transactions contemplated thereby without the priorwritten consent of Parent (which may be withheld in Parent’s sole and absolutediscretion). Each party to the Acquisition Agreements and each shareholder (andits respective spouse) who delivered a written consent and any other approvalsto the transactions contemplated thereby must (and to the extent any suchshareholder is a party hereto, hereby does) agree to observe and perform ingood faith all obligations of such party under the Acquisition Agreements andto act consistently with the approvals evidenced by the written consents, andto in good faith use all best efforts to expedite and effect the transactionscontemplated by the Acquisition Agreements, including executing and deliveringsuch documents and instruments and taking such further actions as may benecessary or desirable to effect or expedite the consummation of thetransactions contemplated by the Acquisition Agreements.

 

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# **ARTICLE VI**

# ** **

# **CONDITIONS TO THE MERGER**

# ** **

6.1           Conditions toObligations of Each Party to Effect the Merger. The respective obligationsof each party to this Agreement to effect the Merger and the other transactionscontemplated hereby and by the Ancillary Agreements shall be subject to thesatisfaction or mutual waiver of the following conditions at or prior to theEffective Time:

 

(a)           No Restraints;Illegality. No temporary restraining order, preliminary or permanentinjunction or other order issued by any Governmental Entity or other legalrestraint or prohibition preventing the consummation of the Merger or any othertransaction contemplated hereby or in the Ancillary Agreements shall be ineffect, nor shall there be any pending proceeding brought by any GovernmentalEntity seeking any of the foregoing; nor any action taken, or any statute,rule, regulation or order enacted, entered, enforced or deemed applicable tothe Merger or any other transaction contemplated hereby or in the AncillaryAgreements, which makes the consummation of the Merger or any such transactionillegal.

 

(b)           No Order. NoGovernmental Entity shall have enacted, issued, promulgated, enforced orentered any statute, rule, regulation, executive order, decree, injunction orother order (whether temporary, preliminary or permanent) which is in effectand which has the effect of making the Merger or any other transactioncontemplated hereby or in the Ancillary Agreements illegal or otherwise takenany action to prohibit consummation of the Merger or any such transaction.

 

6.2           AdditionalConditions to Obligations of the Company. The obligations of the Company toconsummate the Merger and the other transactions contemplated hereby and by theAncillary Agreements shall be subject to the satisfaction or waiver of each ofthe following conditions at or prior to the Effective Time (all of which arefor the benefit of the Company and may only be waived by the Company in writingif not satisfied):

 

(a)           Representations,Warranties and Covenants. The representations and warranties of Parent andMerger Sub in this Agreement shall be true and correct in accordance with theirterms as of the Effective Time, except for changes contemplated by thisAgreement and except for those representations and warranties which addressmatters only as of a particular date or time (which shall remain true andcorrect as of such particular date or time), and each of Parent and Merger Subshall have observed, performed and complied with all covenants, obligations andconditions of this Agreement required to be observed, performed and complied within all material respects by Parent and Merger Sub at or prior to the EffectiveTime.

 

(b)           Certificate ofParent. The Company shall have been provided with a certificate executed onbehalf of Parent by an Executive Officer of Parent to the effect that, as ofthe Effective Time:

 

(i)            all representationsand warranties made by Parent in this Agreement are true and correct asreferenced above; and

 

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(ii)           all covenants,obligations and conditions in this Agreement to be performed by Parent andMerger Sub at or before the Effective Time have been performed in all materialrespects.

 

(c)           Opinionof Parent Counsel. The Company and its shareholders shall have received theopinion of Parent’s legal counsel in the form of Exhibit F attachedhereto.

 

6.3           AdditionalConditions to the Obligations of Parent and Merger Sub. The obligations ofParent and Merger Sub to consummate the Merger and the other transactionscontemplated hereby and by the Ancillary Agreements shall be subject to thesatisfaction or waiver of each of the following conditions at or prior to theEffective Time (all of which are for the benefit of Parent and Merger Sub andmay only be waived by Parent in writing if not satisfied):

 

(a)           Representations,Warranties and Covenants. The representations and warranties of the Companyin this Agreement shall be true and correct in accordance with their terms asof the Effective Time, except for changes contemplated by this Agreement andexcept for those representations and warranties which address matters only asof a particular date (which shall remain true and correct as of such particulardate), and the Company shall have observed, performed and complied with in allmaterial respects all covenants, obligations and conditions in this Agreementrequired to be observed, performed and complied with by the Company at or priorto the Effective Time.

 

(b)           Claims. Thereshall not have occurred any claims or events giving rise to any causes ofaction (whether asserted or unasserted in litigation and including any claimsor causes of action by or available to holders of Company capital stock), which(i) may materially and adversely affect the consummation of the Merger orthe other transactions contemplated hereby or by the Ancillary Agreements or(ii) could reasonably be anticipated to result in a material loss to theCompany or the Surviving Corporation.

 

(c)           No CompanyMaterial Adverse Effect. There shall not have occurred any Company MaterialAdverse Effect since the date of execution of this Agreement.

 

(d)           EmploymentMatters. Farshad Fardad and three additional employees identified by Parent(the “**Key Employees**”) shall beemployed by the Company and shall have entered into employment agreements, inform and substance satisfactory to Parent, providing for their continuedemployment by Parent or the Company after the Merger. However, Parent’sobligation to pay any Earnout Consideration to any Key Employee shall not beimpacted by any change in the employment status of such Key Employee after theEffective Time. None of such parties shall have indicated verbally or inwriting to the Company or Parent that they are unwilling to continue asemployees of the Company from and after the date hereof until the EffectiveTime and continuing as employees of Parent or the Surviving Corporation afterthe Effective Time in accordance with the terms and conditions of their writtenemployment agreements.

 

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(e)           Written Consents.The holders of 100% of the outstanding Company Common Stock shall havedelivered properly completed and executed Written Consents (and New ShareholderConsents, if applicable) with respect to such shares voting to approve thisAgreement and any Ancillary Agreements or transactions contemplated hereby orthereby requiring Company shareholder approval. All such shareholders shallhave cooperated in good faith to effectuate the Closing and shall not havesought to revoke or withdraw any consent to or approval of the Merger and shallnot have retained or indicated any intent to assert appraisal rights as adissenting shareholder with respect to the Merger.

 

(f)            Assignment ofIntellectual Property Rights. All IP Assignments and related actionsrequested by Parent shall have been validly and properly completed ascontemplated by Section 5.6(b) and the Company shall have providedParent copies of all documents and instruments accomplishing or evidencing thesame.

 

(g)           IntellectualProperty Proceedings. The Company shall not have received notice of anypending or threatened claim or allegation of infringement with respect to anyCompany Intellectual Property or Company Products. No temporary restrainingorder, preliminary or permanent injunction or other order issued by any courtof competent jurisdiction or other legal or regulatory restraint or provisionchallenging the validity, enforceability or the Company’s rights to use andexploit any Company Intellectual Property or to sell or provide the CompanyProducts shall be in effect, nor shall be any pending or threatened proceedingbrought by any person or any administrative agency or commission or otherGovernmental Entity seeking any of the foregoing.

 

(h)           Dissenters andAppraisal Rights. None of the holders of the Company Common Stock shallhave asserted or sought to perfect dissenters’ rights or other similarappraisal rights with respect to the Merger, and all such shareholders shallhave, by virtue of delivering Written Consents to the Merger or otherwise,irrevocably waived any such rights with respect to the Merger.

 

(i)            Governmental andThird Party Consents. Any and all consents, waivers, and approvals requiredto be obtained by the Company from any Governmental Entities or other personsprior to or as a result of the Merger or the consummation of the transactionscontemplated hereby or by the Ancillary Agreements shall have been obtained(including those required under any Material Contracts as specified in Section5.4 and the Requisite Consents).

 

(j)            Warrants and Options.There shall be no Company Warrants outstanding as of the Effective Time and thePlan Administrator shall have approved and caused any amendments necessary toeffect, the assumption of all Company Options pursuant to the Merger ascontemplated hereby.

 

(k)           Non-CompetitionAgreement. The Company shall have delivered to Parent an executedNon-Competition Agreement in the form attached as Exhibit B, fromeach Key Employee who also is a Company shareholder.

 

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(l)            Third PartyExpenses. Three days prior to the scheduled Closing Date, the Company shallprovide Parent a statement setting forth in reasonable detail a full andcomplete summary of all Third Party Expenses incurred by the Company certifiedas to its accuracy and completeness by the Company’s Chief Financial Officerand Chief Executive Officer.

 

(m)          InformationStatements and Form W-9. All Company shareholders and the Company shallhave completed and delivered information statements, Form W-9s and all otherdocuments requested by the Escrow Agent in establishing the Escrow Account.

 

(n)           Closing DateWorking Capital Calculation. The Company shall have provided Parent a draftof the Closing Date Working Capital Calculation at least three business days priorto the Closing Date and shall provide Parent the actual Closing Date WorkingCapital Calculation on the Closing Date (which shall not show discrepancies ofmore than 1% as compared to the draft Closing Date Working CapitalCalculation), in each case certified by the Chief Financial Officer and ChiefExecutive Officer of the Company as being true, complete and correct in allmaterial respects.

 

(o)           Consummation ofAcquisition Agreement Transactions. AdPro and Rx Today shall have beenacquired by the Company pursuant to the Acquisition Agreements, and (i) noshareholder of AdPro or Rx Today shall have retained or asserted any rights toan appraisal as a dissenting shareholder in connection with any suchtransactions and (ii) no party shall have sought to restrain, enjoin,challenge or otherwise invalidate or rescind the transactions contemplated bythe Transaction Agreements, nor shall any party hereto or thereto know of anyreasonable basis for any such action.

 

(p)           New ShareholderConsents. The Company and the Shareholders shall have obtained the NewShareholder Consents from each holder of Company Common Stock who did notexecute this Agreement; provided, however, that the failure ofthe Company and the Shareholders to so obtain such consents shall, in additionto being a condition to Parent and Merger Sub’s obligations hereunder, bedeemed a material breach of this Agreement by the Company giving rise toParent’s right to terminate this Agreement and seek damages resulting from theCompany’s and the Shareholders’ failure to obtain the same (which shall bedeemed to include the fees, costs and expenses incurred in conducting Parent’sdue diligence investigation of the Company, AdPro and Rx Today and innegotiating, documenting and otherwise preparing for the transactionscontemplated hereby and by the Ancillary Agreements).

 

(q)           ShareholderDeliveries. The holders of 100% of the outstanding shares of Company CommonStock shall have delivered properly completed and validly executed letters oftransmittal, original Certificates representing all shares of Company CommonStock held by such shareholder, duly endorsed in blank, and such otherdocuments and instruments as may be required pursuant to the letter oftransmittal.

 

(r)            Termination ofBarley Mills Relationship. The Company shall have delivered written noticeto Barley Mills Investments, Ltd., terminating the engagement letter dated May31, 2002, and shall have received written confirmation from Barley Mills that,upon receipt of $900,000 in cash to be paid by the Company prior to theEffective Time, Barley Mills 

 

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shall have no further rightsunder such engagement letter (including for the payment of any fees or thereimbursement of any expenses by the Company), notwithstanding any term orprovision of the engagement letter.

 

(s)           Consent toVoluntary Assignment. The Company shall have obtained the consent ofDouglas, Emmett and Company to the “voluntary assignment” of the lease for thepremises at 15260 Ventura Boulevard, Suite 1750, as required by Article 11 ofthe lease agreement relating thereto, and the lessor thereunder shall haveconfirmed that the Merger and such “voluntary assignment” are acceptable tolessor and do not constitute a breach or violation of the lease agreement.

 

(t)            Certificate ofthe Company. The Company shall have provided Parent with a certificateexecuted on behalf of the Company by the Company’s Chief Executive Officer andChief Financial Officer to the effect that, as of the Effective Time, allconditions set forth in the preceding subparagraphs of this Section 6.3have been satisfied.

 

(u)           No Injunctions orRestraints on Conduct of Business by Parent. No temporary restrainingorder, preliminary or permanent injunction or other order issued by anyGovernmental Entity or other legal or regulatory restraint or provisionchallenging Parent’s proposed acquisition of Company, or limiting orrestricting Parent’s conduct or the operation of the business of Company (orParent’s or the Surviving Corporation’s business following the Merger) shall bein effect, nor shall there be any pending or threatened proceeding brought byany person or any Governmental Entity seeking any of the foregoing.

 

(v)           Opinion ofCompany Counsel. Parent shall have received the opinion of Company’s legalcounsel in the form of Exhibit G attached hereto.

 

(w)          LegislationAdopted. United States Senate Bill 877 in the form attached as Exhibit Hhereto shall have been enacted into law in such attached form (without any materialchanges) by the execution of the President of the United States.

 

# **ARTICLE VII**

# ** **

# **SURVIVAL OF REPRESENTATIONS ANDWARRANTIES; ESCROW**

# ** **

7.1           Survival ofRepresentations and Warranties. All representations and warranties in thisAgreement or in any instrument delivered pursuant to this Agreement shallsurvive the Merger and continue until the second anniversary of the EffectiveTime.

 

7.2           Indemnity andEscrow Arrangements.

 

(a)           Indemnification.Each Company shareholder on whose behalf monies are deposited in the EscrowFund or who at any time are entitled to receive Earnout Considerationhereunder, hereby agrees to jointly and severally indemnify and hold harmlessParent and its affiliates from and against any and all claims, losses, costs,expenses, liabilities, judgments, expenses, fines, awards, penalties, sanctionsor other damages, including lost profits and any settlement costs, reasonableattorneys’ fees and costs of investigation and preparation, and 

 

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interest on any cashdisbursements made by Parent or its affiliates in connection with any of theforegoing at the maximum legal rate for judgments in the State of California(any and all such amounts, collectively, “**Losses**”)which Parent or any of its affiliates suffers or incurs or reasonablyanticipates suffering or incurring by reason, directly or indirectly, of:

 

(i)            anyinaccuracy in or breach by the Company or any Company shareholder of anyrepresentation, warranty, covenant or agreement of the Company or any suchshareholder contained herein or in any Ancillary Agreement or in any documentor instrument delivered pursuant hereto or thereto;

 

(ii)           anymisrepresentation by the Company or any Company shareholder made in or pursuantto this Agreement;

 

(iii)          anyinaccuracy in the calculation, or the actual amount, of the Working CapitalDeficit;

 

(iv)          anyLosses arising out of any breach or alleged breach by any Company directors oftheir fiduciary duties to the Company or its shareholders;

 

(v)           anyLosses resulting from any material misstatement or omission of, by or relatingto the Company in any materials delivered by or with the knowledge of theCompany in connection with soliciting or obtaining any Written Consents fromthe Company shareholders;

 

(vi)          anycosts of enforcing this Agreement and any rights and remedies available toParent hereunder or at law or in equity;

 

(vii)         anyamounts per share required to be paid in satisfaction of appraisal rights tothe extent greater than the amounts to which any dissenting Companyshareholders would be entitled pursuant to the Merger (and including any Lossesassociated with any proceedings or settlement entered into to determine orsettle the amount payable to dissenting shareholders);

 

(viii)        anyPre-Closing Taxes (as defined in Section 7.2(l));

 

(ix)           anyLosses of Parent or the Surviving Corporation relating to any actions taken bythe Shareholder Agent hereunder or pursuant hereto; and

 

(x)            anydefect in, or failure to properly document or effect, the acquisition of theoutstanding capital stock of AdPro and Rx Today by the Company pursuant to theAcquisition Agreements, or any breach of any representation, warranty orcovenant of the shareholders of AdPro or RX Today made in the AcquisitionAgreements.

 

For purposes of this Article VII “**Losses**” also shall include a reasonableamount of legal fees and costs to be advanced to Parent in connection withdemonstrating, collecting or defending against actions or claims based on anyof the items specified in clauses (i) through (viii) above. Suchlegal costs and expenses are expressly authorized to be advanced to Parent (oroffset by Parent 

 

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against Earnout Consideration otherwisepayable) reasonably in advance of Parent actually incurring such Losses; provided,however, that Parent shall promptly refund to the Escrow Fund anyamounts so advanced and not subsequently applied for such purposes.

 

(b)           Escrow Fund.At the Effective Time, without any act of any shareholder, Parent will depositthe Escrow Amount into an escrow account with an institution (the “**Escrow Agent**”) selected by Parent andreasonably acceptable to the Company or Shareholder Agent (as defined below),such deposit to establish and constitute the Escrow Fund. The Escrow Fund shallbe governed by the terms set forth in this Section 7.2 and shall bemaintained at the Company shareholders’ joint and several cost and expense. TheEscrow Amount shall be deposited into an interest bearing account and anyinterest earned thereon interest shall be added to the Escrow Fund andavailable to cover Losses of Parent and its affiliates hereunder. Any suchinterest earned on the cash in the Escrow Fund shall be applied first to payany fees, costs and expenses of the Escrow Agent and maintaining and disbursingthe Escrow Fund.. For applicable income tax purposes, any interest or otherincome earned on the Escrow Fund shall be treated as income of the Shareholderon whose behalf the assets giving rise to such interest or other income arebeing held.

 

(c)           Recourse to theEscrow Fund and Right of Offset. Parent, on behalf of itself and itsaffiliates, shall be entitled to withdraw cash from the Escrow Amount (and anyinterest thereon) or to withhold and retain any Earnout Consideration otherwisepayable to or for the benefit of the Company shareholders, in each case tocompensate Parent and its affiliates for any Losses which Parent or any of itsaffiliates suffers or incurs or reasonably anticipates suffering or incurring,as provided above. The decision to withdraw cash from the Escrow Fund or tooffset monies from any Earnout Consideration otherwise payable is at Parent’sdiscretion, and Parent may determine to seek recovery for any Losses, in wholeor in part, from either available source at any time. Parent may withhold anyEarnout Consideration otherwise payable to the Company shareholders to theextent such Earnout Consideration is to be offset against Losses of Parent orits affiliates and so long as the claim for Losses is unsatisfied or indispute. Notwithstanding this Article VII or anything to the contraryherein, nothing in this Agreement shall limit or waive the liability of theCompany for any Losses or damages incurred or sustained by Parent if the Mergerdoes not close, and the establishment and availability of the Escrow Fund andthe right to offset Losses against any Earnout Consideration provided hereinshall not in any way limit or act as a waiver of any other rights or remediesavailable to Parent and its affiliates hereunder or at law or in equity, all ofwhich are cumulative and not exclusive. Parent may not receive any amounts fromthe Escrow Fund, or offset Losses against any Earnout Consideration otherwisepayable to the Company shareholders, unless and until Parent delivers anOfficer’s Certificate (as defined in subparagraph (e) below) to theEscrow Agent identifying the nature and amount of Losses being asserted, asdescribed in subparagraph (e) below.

 

(d)           Termination andDistribution of Escrow Fund. The Escrow Fund shall terminate on the secondanniversary of the Effective Time; provided, however, that suchportion of the Escrow Fund, which in the reasonable judgment of Parent isnecessary to cover any unsatisfied or disputed Losses specified in anyOfficer’s Certificate delivered to the Escrow Agent at or prior to terminationof the Escrow Fund shall remain in the Escrow Fund (and the Escrow Fund shallremain in existence) until all such claims have been satisfied or resolved. As 

 

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soon after the scheduledexpiration of the Escrow Fund as all claims for Losses have been satisfied orresolved, the Escrow Agent shall deliver the remaining portion of the EscrowFund to the Company shareholders on whose behalf such Escrow Funds weredeposited in accordance with their respective Proportionate Interests therein.

 

(e)           Claims UponEscrow Fund. In order to make a claim for Losses or offset Losses pursuantto this Article VII, Parent shall deliver to Escrow Agent andShareholder Agent a certificate signed by any authorized officer of Parent (an“**Officer’s Certificate**”):  (i) stating that Parent or itsaffiliates has paid, suffered or properly accrued or reasonably anticipatesthat it will pay, suffer or accrue Losses; (ii) specifying in reasonabledetail the individual items of Losses included in the amount so stated, thedate each such item was paid, suffered or accrued, or the basis for suchanticipated Losses; (iii) the nature of the Losses to which such item isrelated; and (iv) the amount of Losses Parent seeks from the Escrow Fundand the amount Parent intends to offset against any Earnout Considerationotherwise payable; provided, however, that the sources ofrecovery specified by Parent as provided in clause (iv) shall not beirrevocable, and Parent may seek recovery from different sources or differentamounts by a written supplemental notice to the Escrow Agent and ShareholderAgent. Parent shall not be estopped by any estimate it may make of the amountof any anticipated or actual Losses claimed in any Officer’s Certificate, orthe bases therefor, and Parent may submit amendments to any Officer’sCertificate, or additional Officer’s Certificates, in the event that actual oranticipated Losses, or the bases therefor, subsequently change or aredetermined to be different than represented in an Officer’s Certificatepreviously delivered. Immediately upon receipt of such Officer’s Certificate,the Escrow Agent shall set aside an amount in the Escrow Fund equal to theaggregate amount of Losses claimed from the Escrow Fund in the Officer’sCertificate. The Escrow Agent shall not distribute any amounts to Parent andParent shall not offset any Losses against any Earnout Consideration thenpayable (in each case, other than amounts advanced to Parent for legal costsand expenses pursuant to the last sentence of subparagraph (a) above)out of the Escrow Fund or out of such deposited Earnout Consideration for fivebusiness days after the date of the Officer’s Certificate, unless ShareholderAgent authorizes the Escrow Agent to make such distribution or Parent to makesuch offset prior to such date.

 

(f)            Objections toClaims. The Escrow Agent shall distribute to Parent from the Escrow Fund(and Parent shall be entitled to offset against the Earnout Consideration) thefull amount of actual Losses claimed in the Officer’s Certificate immediatelyafter the five business day waiting period specified in subparagraph (e)expires (or at such earlier date as the Shareholder Agent may authorize),unless prior to such time the Shareholder Agent delivers a written objection tothe claim made in the Officer’s Certificate (a “**Notice of Dispute**”) to the Escrow Agent with a copy to Parentand its counsel. The Notice of Dispute must include a reasonably detaileddescription of the basis of the objection, as well as the amount of Losses, ifany, which the Shareholder Agent is not disputing. Any undisputed Lossesimmediately shall be paid by the Escrow Agent or offset by Parent against theEarnout Consideration, as elected by Parent. If the Shareholder Agent does nottimely deliver a Notice of Dispute (or such notice of Dispute does notreasonably describe the basis of the objection), the Shareholder Agent shall bedeemed to have irrevocably approved and consented to the payment or offset ofall Losses specified in the Officer’s Certificate (including any anticipatedLosses, which will be deemed irrevocably approved by Shareholder Agent andshall be paid by the Escrow Agent or offset by 

 

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Parent promptly upon theiractual incurrence). The Escrow Agent and Parent shall be entitled to rely onand act in accordance with any written or deemed approval and consent of theShareholder Agent in immediately distributing or offsetting the amount of anyactual Losses claimed in a specific Officer’s Certificate (and in subsequentlydistributing cash or offsetting payments to cover any anticipated Losses uponoccurrence or incurrence), even if the Shareholder Agent subsequently objectsto or disputes the nature or amount of Losses. At such time as the cash in theEscrow Fund is depleted to cover Losses, all Company shareholders automaticallyshall cease to have any claim on any portion of the Escrow Fund and shall ceaseto have any rights to receive any further Closing Consideration under thisAgreement.

 

(g)           Resolution ofConflicts.

 

(i)            If the ShareholderAgent timely and properly delivers a Notice of Dispute, the Shareholder Agentand Parent shall attempt in good faith to agree upon the rights andresponsibilities of the respective parties with respect to such Losses, unlessthe amount of such Losses relates to third party claims that are the subject ofan ongoing proceeding before a court, arbitrator or Governmental Entity andremain to be definitively determined (in which case, Parent shall be entitledto periodically make a claim for any Losses associated with such proceeding(including an advance of legal fees and settlement costs), in addition to seekingrecovery for the aggregate amount of actual Losses once determined, lessany amounts previously paid during the pendency of the proceeding). If theShareholder Agent and Parent should agree as a result of their good faithefforts as to the appropriate amount and treatment of such Losses, a memorandumsetting forth such agreement shall be prepared and signed by both parties andshall be furnished to the Escrow Agent (to the extent the Losses are to be paidfrom the Escrow Fund) or shall be retained by Parent as evidence of ShareholderAgent’s irrevocable approval and consent (to the extent the Losses will beoffset against Earnout Consideration otherwise payable to or for the benefit ofthe Company shareholders). The Escrow Agent shall be entitled to rely on andact in accordance with any such memorandum and promptly shall distribute toParent the specified amounts from the Escrow Fund (to the extent paidtherefrom) and Parent shall be entitled to rely on and act in accordance withany such memorandum in offsetting the amount of agreed Losses against EarnoutConsideration (to the extent Losses will be offset) to the extent consistentwith the terms thereof.

 

(ii)           If no agreement canbe reached after good faith negotiation, either Parent or the Shareholder Agentmay initiate a proceeding in any court of competent jurisdiction to seekenforcement of its rights or resolution of the dispute under this Section7.2. The Escrow Agent and Parent shall be entitled to act in accordancewith any resulting court decision and make or withhold payments out of theEscrow Fund or offset Losses against Earnout Consideration otherwise payable,as applicable, in accordance with any final judgment of a court of competentjurisdiction.

 

(h)           Appointment ofShareholder Agent; Power of Attorney.

 

(i)            If the Merger isapproved, immediately upon the Effective Time and without further act of anyCompany shareholder, Farshad Fardad shall be appointed as the agent andattorney-in-fact (such person, and any successor or replacement thereof asprovided 

 

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below, the “**Shareholder Agent**”) for each Companyshareholder on whose behalf monies are deposited into the Escrow Fund or whohereafter may be entitled to receive Earnout Consideration. The ShareholderAgent shall be authorized, for and on behalf of all such Company shareholders,to give and receive notices and communications, to authorize the distributionto Parent of monies from the Escrow Fund or to authorize the offset of anyEarnout Consideration in satisfaction of claims for Losses by Parent, to objectto such distributions or offset, to accept payments of Earnout Consideration onbehalf of the shareholders entitled thereto and to allocate and distribute suchamounts among such shareholders, to agree to, negotiate, enter into settlementsand compromises of, and demand arbitration and comply with orders of courts andawards of arbitrators with respect to such claims, and to take all otheractions necessary or appropriate in the judgment of the Shareholder Agent toaccomplish the foregoing. Such agency may be changed by the holders of amajority of the Proportionate Interests from time to time upon not less thanthirty (30) days prior written notice to Parent certifying that the ShareholderAgent has been removed by the requisite vote or consent of such shareholders,specifying the percentage of all Proportionate Interests so voted or consentingand specifying the substitute Shareholder Agent appointed by such shareholders.No bond shall be required of the Shareholder Agent, and the Shareholder Agentshall not receive any compensation for his services. Notices or communicationsto or from the Shareholder Agent shall constitute notice to or from each of theCompany shareholders.

 

(ii)           The ShareholderAgent has a duty to act in good faith at all times. The shareholders on whosebehalf cash is deposited into the Escrow Fund, by executing and delivering theWritten Consents and letters of transmittal in connection with the Merger andapproving the appointment of the Shareholder Agent, agree to jointly andseverally indemnify the Shareholder Agent and hold the Shareholder Agentharmless against any Losses incurred by the Shareholder Agent (includingreasonable fees and expenses of any legal counsel retained by the ShareholderAgent) arising out of or in connection with the acceptance or administration ofthe Shareholder Agent’s duties hereunder, unless such Losses directly resultfrom the gross negligence, willful misconduct or bad faith of the ShareholderAgent. Subject and subordinate in every respect to the prior right of Parent tomake claims for Losses, Shareholder Agent shall have the right to recover fromthe Escrow Fund any fees, costs and expenses reasonably paid or incurred by theShareholder Agent in acting as the Shareholder Agent hereunder prior to anydistribution to the Holders; provided, however, that theShareholder Agent may not recover any such amounts until the second anniversaryof the Effective Time and only then to the extent that there are no claims forLosses asserted by Parent that remain unsatisfied or are pending resolution.

 

(i)            Actions of theShareholder Agent. Any decision, act, consent or instruction of theShareholder Agent shall constitute a decision of all Company shareholders onwhose behalf cash was deposited in the Escrow Fund and shall be final, bindingand conclusive upon each of such shareholders. The Escrow Agent and Parent mayrely upon any decision, act, consent or instruction of the Shareholder Agent asbeing the decision, act, consent or instruction of each and every such Companyshareholder. The Escrow Agent, the Company (and the Surviving Corporation afterthe Merger) and Parent hereby are relieved from any liability to any person forany acts done by them in accordance with such decision, act, consent orinstruction of the Shareholder Agent or for any actions taken by theShareholder Agent, including in connection 

 

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with the receipt, allocationand payment of any Earnout Consideration (even if the result is that holders ofthe same class or series of capital stock are treated disparately).

 

(j)            Third-PartyClaims. If Parent becomes aware of any third-party claim which Parentbelieves may result in a claim for Losses against the Escrow Fund or out of anyEarnout Consideration, Parent shall promptly notify the Shareholder Agent ofsuch claim, and the Shareholder Agent shall be entitled, at his sole cost andexpense without reimbursement from the Escrow Fund or any EarnoutConsideration, to participate in any defense of such claim. Parent shallreasonably consult with the Shareholder Agent prior to the settlement of anysuch claim and discuss with the Shareholder Agent in good faith any inputregarding the claim and potential settlement the Shareholder Agent may haveprior to any settlement (in each case, to the extent the terms thereof are notsubject to a confidentiality agreement with the claimant). After suchconsultation (or in the event that Parent is prohibited from consulting or theShareholder Agent elects not to consult with Parent), Parent shall have theright to settle any such claim, even if the terms thereof are inconsistent withthose proposed or advocated by the Shareholder Agent. The settlement of anysuch third party claim shall be determinative of the amount of any claim forLosses against the Escrow Fund or offset out of the Earnout Considerationotherwise payable to Company shareholders. If the Shareholder Agent consents tothe general economic terms of such settlement (such consent not to beunreasonably delayed, conditioned or withheld) or elected not to consult withParent with respect to any such settlement, no shareholder shall have any poweror authority to object under any provision of this Article VII tothe settlement or the amount of any claim for Losses by Parent against theEscrow Fund or out of the Earnout Consideration with respect to such settlementto the extent the amount of Losses claimed are consistent with the terms ofsuch settlement.

 

(k)           Escrow Agent’sDuties.

 

(i)            The Escrow Agentshall hold and safeguard the Escrow Fund during its existence, shall treat suchfund as a trust fund in accordance with the terms of this Agreement, and shallhold, make distributions from and dispose of the Escrow Fund only in accordancewith the terms hereof. The Escrow Agent shall be obligated only for theperformance of such duties as are specifically set forth herein, and as setforth in any additional written escrow instructions which the Escrow Agent mayreceive after the date of this Agreement which are signed by an officer ofParent and the Shareholder Agent, and may rely and shall be protected inrelying or refraining from acting on any instrument reasonably believed by theEscrow Agent to be genuine and to have been signed or presented by the properparty or parties.

 

(ii)           The Escrow Agenthereby is expressly authorized to disregard any and all warnings given by anyof the parties hereto or by any other person, excepting only joint orders byParent and Shareholder Agent and orders or process of courts of law orGovernmental Entities, and hereby is expressly authorized to comply with andobey orders, judgments or decrees of any Governmental Entities with respect tothe Escrow Fund or the Escrow Agent’s duties. In case the Escrow Agent obeys orcomplies in good faith with any such order, judgment or decree of anyGovernmental Entity, the Escrow Agent shall not be liable to any of the partieshereto or to any other person by reason of such good faith compliance,notwithstanding any such 

 

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order, judgment or decree beingsubsequently reversed, modified, annulled, set aside, vacated or found to havebeen entered without jurisdiction or proper authority.

 

(iii)          The Escrow Agentshall not be liable in any respect on account of the identity, authority orrights of the parties executing or delivering or purporting to execute ordeliver this Agreement or any documents or papers deposited or called forhereunder.

 

(iv)          The Escrow Agentshall not be liable for the expiration of any rights under any statute oflimitations with respect to this Agreement or any documents deposited with theEscrow Agent.

 

(v)           If any dispute orcontroversy arises between the parties to this Agreement with respect to thematters set forth in this Section 7.2 ̧ the Escrow Agent shall not berequired to determine or decide the dispute or controversy or to take anyaction regarding the same. The Escrow Agent may in such event hold alldocuments and cash in the Escrow Fund and may wait for the settlement of anysuch dispute or controversy through appropriate final legal proceedings. TheEscrow Agent is authorized to deposit with the clerk or other authorized agentof the court all documents and cash amounts involved in the dispute orcontroversy at issue. Upon making such deposit with the court, the Escrow Agentshall be fully released and discharged of and from any obligations with respectto the documents, cash or other matters deposited which are subject or relateto the dispute or controversy.

 

(vi)          The Escrow Agent mayresign at any time upon at least thirty (30) days written notice to Parent andthe Shareholder Agent; provided, however, that no suchresignation shall become effective until a successor escrow agent has beenappointed as follows:  Parent and theShareholder Agent shall use their respective good faith best efforts tomutually agree upon a successor escrow agent within thirty (30) days afterreceiving such notice. If the parties fail to agree upon a successor escrowagent within such time, Parent shall have the exclusive right to appoint asuccessor escrow agent authorized to do business in California. The successorescrow agent selected in the preceding manner shall execute and deliver aninstrument accepting such appointment and shall thereupon be deemed the EscrowAgent for all purposes hereunder and without further acts shall be vested withall the estates, properties, rights, powers, and duties of the predecessor EscrowAgent as if originally named as Escrow Agent. Thereafter (and upon the deliveryto the successor escrow agent of all cash remaining in the Escrow Fund and anyEarnout Consideration then held by the Escrow Agent), the predecessor EscrowAgent shall be discharged from any further duties and liabilities under thisAgreement.

 

(l)            Forpurposes of this Agreement, “**Pre-ClosingTaxes**” and Losses relating or with respect thereto shall mean (A)all Taxes for which the Company could be held liable that are due with respectto periods ending on or prior to the Closing Date, (B) all Taxes of the Companythat are due with respect to periods (“**StraddlePeriods**”) that include but do not end on the Closing Date to theextent attributable to the portion of the Straddle Period ending at the closeof business on the Closing Date, (C) all fees, costs, penalties, and otherexpenses incurred in preparing and filing all Tax Returns with respect to anytaxable period beginning prior to the Closing Date, and (D) other Losses incurredwith respect to amounts described in clauses (A) through (C) ofthis sentence. Taxes attributable to the portion of the Straddle Period endingat 

 

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the close of business on theClosing Date shall be determined by assuming that the Straddle Period consistedof two taxable years or periods, one which ended at the close of business onthe Closing Date and the other which began at the beginning of the dayfollowing the Closing Date, and items of income, gain, deduction, loss orcredit, and state and local apportionment factors of the Company for theStraddle Period shall be allocated to the period ending on the close ofbusiness on the Closing Date on a “closing of the books basis” by assuming thatthe books of the Company were closed at the close of business on the ClosingDate. However, (x) exemptions, allowances or deductions that arecalculated on an annual basis, such as the deduction for depreciation and(y) periodic taxes such real and personal property taxes shall beapportioned ratably between such periods on a daily basis.

 

# **ARTICLE VIII**

# ** **

# **TERMINATION, EXPENSES, AMENDMENTAND WAIVER**

# ** **

8.1           Termination.Except as provided in Section 8.2 below, this Agreement may beterminated and the Merger abandoned at any time prior to the Effective Time,whether or not the Merger has been approved by the Company shareholders:

 

(a)           by mutual consent ofthe Company and Parent.

 

(b)           by Parent:

 

(i)            ifthe Company shall fail to obtain Written Consents and New Shareholder Consents(if applicable) from the holders of 100% of the outstanding Company CommonStock approving this Agreement and any Ancillary Agreement or any transactioncontemplated hereby or thereby (including the Merger) requiring shareholderapproval or if any Company shareholder shall at any time retain the right toassert appraisal rights as a dissenting shareholder with respect to the Merger;

 

(ii)           ifany Company shareholder shall seek to withdraw any Written Consent or NewShareholder Consent or any other approval of this Agreement or any AncillaryAgreement or any transaction contemplated hereby or thereby requiringshareholder approval;

 

(iii)          ifthe Company’s Board of Directors shall at any time fail to unanimouslyrecommend to the Company’s shareholders approval of this Agreement, theAncillary Agreements and the transactions contemplated hereby and therebyrequiring shareholder approval;

 

(iv)          ifParent is not then in material breach of its obligations under this Agreementand there has been a material breach of any representation, warranty, covenantor agreement contained in this Agreement on the part of Company;

 

(v)           ifthere shall be any action taken, or any statute, rule, regulation or orderenacted, promulgated or issued or deemed applicable to the Merger by anyGovernmental Entity, which would: (A) prohibit Parent or the Surviving Corporation’s ownership oroperation of all or any portion of the business, assets or properties of theCompany or (B) compel Parent or 

 

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the Surviving Corporation todispose of or hold separate all or any portion of the business, assets orproperties of Parent or the Company as a result of or after the Merger;

 

(vi)          ifat any time holders of any outstanding shares of Company Common Stock shallhave indicated an intent to exercise, have exercised, or shall have anycontinued rights to exercise, appraisal, dissenters’ or similar rights underapplicable law by virtue of the Merger; or

 

(vii)         ifUnited States Senate Bill 877 in the form attached as Exhibit H heretois not executed by the President of the United States and thereby becomes laweffective no later than January 1, 2004 or if such bill in such form and withsuch effective date is not passed by both the United States Senate and theUnited States House of Representatives or, if so passed in such form and withsuch effective date, if vetoed by the President of the United States (whetheraffirmatively or as a function of a “pocket veto”) and such veto is notoverridden by the United States Congress.

 

(c)           by Parent or theCompany if:

 

(i)            theClosing has not occurred by January 31, 2004;

 

(ii)           thereshall be a final nonappealable order of a federal or state court in effectpreventing consummation of the Merger; or

 

(iii)          thereshall be any statute, rule, regulation or order enacted, promulgated or issuedor deemed applicable to the Merger by any Governmental Entity that wouldprohibit the Merger or make consummation of the Merger illegal; or

 

(d)           by the Company ifthe Company is not then in material breach of its obligations under thisAgreement and there has been a material breach of any representation, warranty,covenant or agreement contained in this Agreement on the part of the Parent orMerger Sub.

 

Where action is taken to terminate this Agreement pursuant to this Section 8.1,it shall be sufficient for such action to be authorized by the Board ofDirectors (as applicable) of the party taking such action. Notwithstandinganything in this Section 8.1 to the contrary, neither Parent northe Company may terminate this Agreement if such party is in material breach ofits obligations hereunder and the Closing does not occur as a direct orindirect result of such material breach.

 

8.2           Effect ofTermination. If this Agreement is terminated pursuant to this Section 8.1,this Agreement shall forthwith become void and there shall be no liability orobligation on the part of Parent, Merger Sub or Company, or their respectiveofficers, directors or shareholders; provided, however, that eachparty shall remain liable for any breaches of this Agreement prior to itstermination; provided, further, that the provisions of Sections 5.3,5.4, 8.2, 8.3 and Article IX of this Agreementand the definitions of any defined terms used in such provisions shall remainin full force and effect and survive any termination of this Agreement.

 

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8.3           Fees and Expenses.Except as expressly provided otherwise herein, whether or not the Merger isconsummated, all fees and expenses incurred in connection with the Mergerincluding all legal, accounting, financial advisory, consulting and all otherfees and expenses of third parties (“**ThirdParty Expenses**”) incurred by a party in connection with thenegotiation and effectuation of the terms and conditions of this Agreement andthe transactions contemplated hereby, shall be the obligation of the respectiveparty incurring such fees and expenses.

 

8.4           Amendment.Except as otherwise required by Applicable Law, this Agreement may be amendedby the parties hereto at any time after the shareholders of Company approvethis Agreement pursuant to a written instrument executed by the Company,Parent, Merger Sub and, as to matters expressly involving the Shareholder Agent,Shareholder Agent.

 

8.5           Extension; Waiver.At any time prior to the Effective Time, Parent and Merger Sub, on the onehand, and the Company, on the other, may, to the extent legally allowed,(a) extend the time for the performance of any of the obligations of theother party hereto, (b) waive any inaccuracies in the representations andwarranties made to such party contained herein or in any document deliveredpursuant hereto, and (c) waive compliance with any of the covenants,agreements or conditions for the benefit of such party contained herein. Anyagreement on the part of a party hereto to any such extension or waiver shallbe valid only if in writing and signed by an authorized agent of such party.

 

# **ARTICLE IX**

# ** **

# **GENERAL PROVISIONS**

# ** **

9.1           Notices. Allnotices and other communications hereunder shall be in writing and deemed givenif delivered personally or by commercial delivery service, or mailed byregistered or certified mail (return receipt requested) or sent via facsimile(with acknowledgment of complete transmission) to the parties at the followingaddresses (or at such other address as a party from time to time may specify bylike notice):

 

(a)           if to Parent orMerger Sub, to:

 

ValueClick, Inc.

4353 Park Terrace Drive

Westlake Village, CA 91361

Attention:  Samuel J. Paisley

Facsimile No.:  (818) 575-4508

 

with a copy (which shall not constitute notice) to Parent’s Counsel:

 

Gibson Dunn & Crutcher LLP333 South Grand AvenueLos Angeles, California 90071-3197Attention: Bradford P. Weirick, Esq.

Facsimile No.:  (213) 229-6765

 

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(b)           if to the Company,to:

 

Hi-Speed Media, Inc.

15260Ventura Blvd., Suite 1750

Sherman Oaks,California 91403

Attention:Farshad Fardad

FacsimileNo.:  (818) 990-5110

 

with a copy to the Company’s Counsel:

 

Bennet G. Kelley

Hi-Speed Media, Inc.

15260Ventura Blvd., Suite 1750

Sherman Oaks, California 91403

Facsimile No.:  (702) 924-8740

 

(c)                                  if to ShareholderAgent, to:

 

Farshad Fardad, Shareholder Agent

c/o Hi-Speed Media, Inc.

15260Ventura Blvd., Suite 1750

Sherman Oaks,California 91403

Facsimile No.:  (818) 990-5110

 

(d)           if to the EscrowAgent, to:

 

the address specified in writing by the Escrow Agent upon appointmentand provided to the parties hereto.

 

with copies to:

 

the Company’s Counsel and Parent’s Counsel at the addresses above.

 

9.2           Interpretation.Unless the context clearly indicates otherwise, (a) words of any genderinclude each other gender, (b) words using the singular number include theplural, and vice versa, (c) the terms “hereof,” “herein,” “hereby,” andderivate or similar words refer to this Agreement as a whole and not to anyparticular Article, Section or subsection, (d) the words “include,”“includes” and “including” when used herein shall be deemed in each case to befollowed by the words “without limitation,” and (e) references to “person”include any individual, corporation, limited or general partnership,association, proprietorship, limited liability company, joint venture, trust,other business organization or Governmental Entity. The table of contents andheadings contained in this Agreement are for reference purposes only and shallnot affect in any way the meaning or interpretation of this Agreement.

 

9.3           Counterparts.This Agreement may be executed by facsimile signature and in two or morecounterparts, each of which shall constitute an original, but all of which,when taken 

 

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together, shall constitute butone instrument. This Agreement shall become effective when one or morecounterparts have been signed by each party hereto and delivered to the otherparties.

 

9.4           Entire Agreement;Assignment. This Agreement, the schedules and exhibits hereto, and thedocuments and instruments and other agreements among the parties heretoreferenced herein:  (a) constitutethe entire agreement among the parties with respect to the respective subjectmatters hereof and thereof and supersede in their entirety any prior orcontemporaneous oral or written discussions, negotiations, agreements orunderstandings between or among the parties with respect to such subject matter(other than the Mutual Non-Disclosure Agreement dated October 2, 2002 executedby the Company and Parent which shall continue in accordance with the termsthereof); (b) are not intended to and shall not confer upon any otherperson (including, those persons listed on any exhibits or schedules attachedhereto or any shareholders of the Company) any rights or remedies hereunder;and (c) may not be assigned by operation of law or otherwise without the priorwritten consent of each other party hereto, and any purported assignment inviolation of this requirement shall be null and void abinitio.Subject to the preceding sentence, this Agreement shall be binding on and inureto the benefit of, and is enforceable by, the respective parties hereto andtheir respective successors, permitted assigns, heirs, executors andadministrators.

 

9.5           Severability.If any provision of this Agreement or the application thereof becomes or isdeclared by a court of competent jurisdiction to be illegal, void orunenforceable, the remainder of this Agreement will continue in full force andeffect and the application of such provision to other persons or circumstanceswill be interpreted so as reasonably to effect the express intent of theparties hereto. The parties further agree that any such void or unenforceableprovision of this Agreement shall be deemed replaced with a valid andenforceable provision that will achieve, to the extent possible, the economic,business and other purposes of such void or unenforceable provision.

 

9.6           Remedies;Exercise of Rights. Except as otherwise provided herein, any and allremedies herein expressly conferred upon a party will be deemed cumulative withand not exclusive of any other remedy available to such party hereunder or atlaw or in equity, and the exercise by any party of any one remedy at any timewill not preclude the exercise of any other remedy at the same time, at anothertime, or in different circumstances. No failure or delay by any party inexercising any right, power or privilege hereunder shall operate as a waiverthereof nor shall any single or partial exercise thereof (or failure toexercise) preclude any other, further or fuller exercise thereof or theexercise of any other right, power or privilege.

 

9.7           Governing Law.This Agreement shall be governed by and construed in accordance with the lawsof the State of California, without giving effect to its conflicts or choice oflaw principles.

 

9.8           Jurisdiction andVenue; Attorney’s Fees. Any action, suit or proceeding seeking to enforceany provision of, or based on any matter arising out of or in connection with,this Agreement or the transactions contemplated hereby shall be broughtexclusively in the federal or state courts located in the State of Californiasitting in Los Angeles County and each party hereto hereby unconditionally andirrevocably submits and consents to the exclusive jurisdiction of such 

 

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courts (and of the appropriateappellate courts therefrom) in any such suit, action or proceeding and herebyunconditionally and irrevocably waives, to the fullest extent permitted by law,any objection which such party may now or hereafter have to the laying of venuein any such court or that any such suit, action or proceeding which is broughtin any such court has been brought in an inconvenient forum. Process in anysuch suit, action or proceeding may be served on any party anywhere in theworld, whether within or without the jurisdiction of any such court. Withoutlimiting the generality of the foregoing, each party hereto agrees that serviceof process on such party as provided in Section 9.1 shall be deemedeffective service of process on such party. In addition to any damages or otherrecovery to which a party may be entitled hereunder or at law or in equity(including any right to recoup Losses from the Escrow Fund), the prevailingparty in any action to enforce this Agreement or to seek any right or remedyavailable hereunder or at law or in equity shall be entitled to reasonableattorney’s fees and costs incurred in connection with such action and anyrelated appeals therefrom.

 

9.9           **Specific Performance. The partiesacknowledge and agree that any failure of any party to perform its agreementsand obligations hereunder or contemplated hereby will cause irreparable injuryto the other parties, for which damages, even if available, will not provide anadequate remedy. Accordingly, each party hereby consents to the issuance ofinjunctive relief by any court of competent jurisdiction to compel performanceof such party’s obligations and to the granting by any court of the remedy ofspecific performance of its obligations hereunder.**

 

9.10         Rules ofConstruction. The parties have participated jointly in the negotiation anddrafting of this Agreement and each Ancillary Agreement. In the event anambiguity or question of intent or interpretation arises, this Agreement andthe applicable Ancillary Agreements shall be construed as if drafted jointly bythe parties and no presumption or burden of proof shall arise favoring ordisfavoring any party by virtue of the authorship of any provisions hereof orthereof. Accordingly, each party understands and agrees that the common lawprinciples of construing ambiguities against the drafter (or those contained inSection 1654 of the California Civil Code or the principles reflected therein)shall have no application to this Agreement or any Ancillary Agreement. Eachparty hereto acknowledges and agrees that such party has had a full andcomplete opportunity to review this Agreement and each Ancillary Agreement, tomake suggestions or changes to their terms and to seek independent legal and otheradvice in connection herewith and therewith.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as ofthe date first written above.

 
| **HI-SPEED MEDIA, INC. INC.** |       | **VALUECLICK, INC.**     |
|-------------------------------|------------|--------------------------|
| ** **                    | ** ** | ** **               |
| ** **                    | ** ** | ** **               |
| By:                           | ** ** | ** **               | By: | ** ** |
| Name:                         | ** ** | ** **               | Name: | ** ** |
| Title:                        | ** ** | ** **               | Title: | ** ** |
| ** **                    | ** ** | ** **               |
| ** **                    | ** ** | ** **               |
| **SHAREHOLDER AGENT**    |       | **HS ACQUISITION CORP.** |
| ** **                    |       | ** **               |
| ** **                    |       | ** **               |
| ** **                    | ** ** | By:                      | ** ** |
| Farshad Fardad                | ** ** | Name:                    | ** ** |
| ** **                    | ** ** | Title:                   | ** ** |
| ** **                    |       | ** **               |
|                          |       | ** **               |
| **ESCROW AGENT**         | ** ** | ** **               |
| As to Article VII only        | ** ** | ** **               |
| ** **                    | ** ** | ** **               |
| ** **                    | ** ** | ** **               |
| By:                           | ** ** | ** **               | ** ** | ** ** |
| Name:                         | ** ** | ** **               | ** ** | ** ** |
| Title:                        | ** ** | ** **               | ** ** | ** ** |
|                               |            |                          |  |  |  |  |  |  |

 

**SHAREHOLDERS:**

 

**By executing this Agreement in the respectivespaces provided below, the undersigned shareholders agree and consent to thematters contained in this Agreement, including unconditionally and irrevocablyconsenting to the payment of any Earnout Consideration which hereafter may bepaid to the Shareholder Agent for the benefit of the Company shareholders andthe subsequent allocation and payment of such Earnout Consideration as may beagreed by such parties (even if the result is that holders of the same class orseries of capital stock are treated disparately).**

 
| ** **           | ** ** | ** **         |
|----------------------|------------|--------------------|
| Name: Farshad Fardad | ** ** | Name: Frank Fardad |
| Address:             | ** ** | ** **         | Address: | ** ** |
| ** **           | ** ** | ** **         |
| ** **           | ** ** | ** **         |
|                      |            |                    |  |  |

 

----

 
| ** **               | ** ** | ** **                  |
|--------------------------|------------|-----------------------------|
| Name:  Patrick Finn | ** ** | Name:  Ara Issagholian |
| Address:                 | ** ** | ** **                  | Address: | ** ** |
| ** **               | ** ** | ** **                  |
| ** **               | ** ** | ** **                  |
|                          |            |                             |  |  |

 

 
| ** **                | ** ** | ** **                   |
|---------------------------|------------|------------------------------|
| Name:  Shahab Emrani | ** ** | Name:  Farid Tabibzadeh |
| Address:                  | ** ** | ** **                   | Address: | ** ** |
| ** **                | ** ** | ** **                   |
| ** **                | ** ** | ** **                   |
|                           |            |                              |  |  |

 

 
| ** **                   | ** ** | ** ** |
|------------------------------|------------|------------|
| Name:  Majid Tabibzadeh | ** ** | ** ** |
| Address:                     | ** ** | ** ** | ** ** | ** ** |
| ** **                   | ** ** | ** ** |
| ** **                   | ** ** | ** ** |
|                              |            |            |  |  |

 

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