**Exhibit 2.1**

 

 

 

**AGREEMENT AND PLAN OFMERGER**

 

**BY AND AMONG**

 

**VALUECLICK, INC.,**

 

**EBI ACQUISITIONCORP.,**

 

**E-BABYLON, INC.,**

 

**and**

 

**MICHAEL ZAYA**

 

 

**Dated as of June 10,2005**

 

 

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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             |                                                       | Articles of Incorporation; Bylaws; Officers  and Directors                      | 3        |
| 1.6             |                                                       | Merger Consideration; Effect on Capital  Stock                                  | 3        |
| 1.7             |                                                       | Dissenting Shares                                                               | 4        |
| 1.8             |                                                       | Establishment of Escrow; Interest and Dividends                                 | 4        |
| 1.9             |                                                       | Surrender of Certificates; Payment of  Merger Consideration                     | 5        |
| 1.10            |                                                       | No Further Ownership Rights in Company  Common Stock                            | 5        |
| 1.11            |                                                       | Lost, Stolen or Destroyed Certificates                                          | 6        |
| 1.12            |                                                       | Necessary Actions; Further Action                                               | 6        |
| 1.13            |                                                       | Required Deductions and Withholding;  Payment of Taxes                          | 6        |
| 1.14            |                                                       | Accounting and Tax Treatment                                                    | 6        |
|            |                                                       |                                                                            |     |
| ARTICLE II | REPRESENTATIONS AND WARRANTIES OF COMPANY  AND STOCKHOLDER | 6                                                                               |
| 2.1             |                                                       | Organization and Qualification;  Subsidiaries, Interests and Joint Ventures     | 7        |
| 2.2             |                                                       | Company Capital Structure                                                       | 7        |
| 2.3             |                                                       | Subsidiaries                                                                    | 9        |
| 2.4             |                                                       | Authority                                                                       | 9        |
| 2.5             |                                                       | Company Financial Statements; Net Assets  Calculations                          | 10       |
| 2.6             |                                                       | No Undisclosed Liabilities                                                      | 10       |
| 2.7             |                                                       | No Changes                                                                      | 11       |
| 2.8             |                                                       | Tax and Other Returns and Reports                                               | 13       |
| 2.9             |                                                       | Restrictions on Business Activities                                             | 15       |
| 2.10            |                                                       | Title to Properties; Absence of Liens and  Encumbrances; Condition of Equipment | 16       |
| 2.11            |                                                       | Intellectual Property                                                           | 17       |
| 2.12            |                                                       | Agreements, Contracts and Commitments                                           | 22       |
| 2.13            |                                                       | Interested Party Transactions                                                   | 24       |
| 2.14            |                                                       | Company Authorizations                                                          | 24       |
| 2.15            |                                                       | Litigation                                                                      | 25       |
| 2.16            |                                                       | Accounts Receivable                                                             | 25       |
| 2.17            |                                                       | Minute Books                                                                    | 25       |
| 2.18            |                                                       | Environmental Matters                                                           | 25       |
| 2.19            |                                                       | Brokers’ and Finders’ Fees; Third-Party  Expenses                     | 27       |
| 2.20            |                                                       | Employee Benefit Plans                                                          | 27       |
| 2.21            |                                                       | Compliance with Laws                                                            | 33       |
| 2.22            |                                                       | Warranties; Indemnities                                                         | 34       |

 

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| ** **       | ** **                                               | ** **                                                                               | **Page** |
|------------------|----------------------------------------------------------|------------------------------------------------------------------------------------------|----------|
|             |                                                     |                                                                                     |     |
| 2.23             |                                                     | Representations Complete                                                                 | 34       |
| 2.24             |                                                     | Insurance                                                                                | 34       |
| 2.25             |                                                     | Foreign Corrupt Practices Act                                                            | 35       |
| 2.26             |                                                     | Complete Copies of Materials                                                             | 35       |
| 2.27             |                                                     | Board and Stockholder Approval                                                           | 35       |
| 2.28             |                                                     | Customers and Suppliers                                                                  | 35       |
| 2.29             |                                                     | Export Control Laws                                                                      | 36       |
| 2.30             |                                                     | Banks and Brokerage Accounts                                                             | 36       |
| 2.31             |                                                     | Takeover Statutes                                                                        | 37       |
| 2.32             |                                                     | Intentionally Omitted                                                                    | 37       |
| 2.33             |                                                     | Intentionally Omitted                                                                    | 37       |
| 2.34             |                                                     | Intentionally Omitted                                                                    | 37       |
| 2.35             |                                                     | Spyware and Adware Activities                                                            | 37       |
| 2.36             |                                                     | Inventory                                                                                | 37       |
| 2.37             |                                                     | Property and Equipment                                                                   | 37       |
|             |                                                     |                                                                                     |     |
| ARTICLE III | REPRESENTATIONS AND WARRANTIES OF PARENT  AND MERGER SUB | 37                                                                                       |
| 3.1              |                                                     | Organization, Standing and Power                                                         | 37       |
| 3.2              |                                                     | Authority                                                                                | 37       |
| 3.3              |                                                     | No Conflicts                                                                             | 38       |
| 3.4              |                                                     | Investment Advisors                                                                      | 38       |
| 3.5              |                                                     | Availability of Funds                                                                    | 38       |
|             |                                                     |                                                                                     |     |
| ARTICLE IV  | CONDUCT PRIOR TO THE EFFECTIVE TIME                      | 39                                                                                       |
| 4.1              |                                                     | Conduct of Business of the Company                                                       | 39       |
| 4.2              |                                                     | Negative Covenants                                                                       | 39       |
| 4.3              |                                                     | No Solicitation                                                                          | 42       |
|             |                                                     |                                                                                     |     |
| ARTICLE V   | ADDITIONAL AGREEMENTS                                    | 43                                                                                       |
| 5.1              |                                                     | Access to Information; Cooperation                                                       | 43       |
| 5.2              |                                                     | Confidentiality                                                                          | 43       |
| 5.3              |                                                     | Public Disclosure                                                                        | 44       |
| 5.4              |                                                     | Consents                                                                                 | 44       |
| 5.5              |                                                     | Reasonable Efforts                                                                       | 44       |
| 5.6              |                                                     | Notification of Certain Matters                                                          | 45       |
| 5.7              |                                                     | Third-Party Expenses                                                                     | 46       |
| 5.8              |                                                     | Capital Contribution by Parent and  Repayment of all Outstanding Indebtedness by Company | 46       |
| 5.9              |                                                     | Tax Returns                                                                              | 46       |

 

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| ** **        | ** **                                          | ** **                                                     | **Page** |
|-------------------|-----------------------------------------------------|----------------------------------------------------------------|----------|
|              |                                                |                                                           |     |
| ARTICLE VI   | CONDITIONS TO THE MERGER                            | 46                                                             |
| 6.1               |                                                | Conditions to Obligations of Each Party to  Effect the Merger  | 46       |
| 6.2               |                                                | Additional Conditions to Obligation of the  Company            | 47       |
| 6.3               |                                                | Additional Conditions to Obligations of  Parent and Merger Sub | 48       |
|              |                                                |                                                           |     |
| ARTICLE VII  | SURVIVAL OF REPRESENTATIONS AND WARRANTIES;  ESCROW | 50                                                             |
| 7.1               |                                                | Survival of Representations and Warranties                     | 50       |
| 7.2               |                                                | Indemnity and Escrow Arrangements                              | 50       |
|              |                                                |                                                           |     |
| ARTICLE VIII | TERMINATION, EXPENSES, AMENDMENT AND WAIVER         | 57                                                             |
| 8.1               |                                                | Termination                                                    | 57       |
| 8.2               |                                                | Effect of Termination                                          | 58       |
| 8.3               |                                                | Fees and Expenses                                              | 58       |
| 8.4               |                                                | Amendment                                                      | 58       |
| 8.5               |                                                | Extension; Waiver                                              | 58       |
|              |                                                |                                                           |     |
| ARTICLE IX   | GENERAL PROVISIONS                                  | 59                                                             |
| 9.1               |                                                | Notices                                                        | 59       |
| 9.2               |                                                | Interpretation                                                 | 60       |
| 9.3               |                                                | Counterparts                                                   | 60       |
| 9.4               |                                                | Entire Agreement; Assignment                                   | 60       |
| 9.5               |                                                | Severability                                                   | 60       |
| 9.6               |                                                | Remedies; Exercise of Rights                                   | 61       |
| 9.7               |                                                | Governing Law                                                  | 61       |
| 9.8               |                                                | Jurisdiction and Venue; Attorney’s Fees                   | 61       |
| 9.9               |                                                | Specific Performance                                           | 61       |
| 9.10              |                                                | Rules of Construction                                     | 61       |
| 9.11              |                                                | Arbitration                                                    | 62       |

 

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**INDEX OF EXHIBITS**

 
| **Exhibit**           | ** ** | **Description**                                              |
|-----------------------|------------|--------------------------------------------------------------|
| Exhibit A        |       | Form of Non-Competition Agreement                       |
| Exhibit B        |       | Form of Written Consent                                 |
| Exhibit C–1 |       | Certificate of Merger                                        |
| Exhibit C–2 |       | Agreement of Merger                                          |
| Exhibit D        |       | Intentionally Omitted                                        |
| Exhibit E        |       | Form of Company Counsel Opinion                         |
| Exhibit F        |       | Guidelines for Net Assets Calculation                        |
| Exhibit G        |       | Outstanding Indebtedness to be Repaid by  Company at Closing |
| Exhibit H        |       | Assigned Assets                                              |
| Exhibit I        |       | 2005 Budget                                                  |
| Exhibit J        |       | Transition Services Agreement for Michael  Zaya              |
| Exhibit K        |       | Transition Services Agreement for Bill  Dunlap               |
| Exhibit L        |       | Form of Verapass Release                                |
| Exhibit M        |       | Escrow Agreement                                             |

 

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**INDEX OF SCHEDULES**

 
| **Section of  Company  Schedule** | ** ** | **Description**                                             |
|----------------------------------------|------------|-------------------------------------------------------------|
| 2.1                                    |       | Subsidiaries and Jurisdictions                              |
| 2.2(a)                                 |       | Company Capital Structure                                   |
| 2.2(f)                                 |       | Indebtedness                                                |
| 2.2(g)                                 |       | Employee Bonus Arrangements                                 |
| 2.4(d)                                 |       | Government Authorizations                                   |
| 2.5(x)                                 |       | Year-end Financials                                         |
| 2.5(y)                                 |       | Current Financials                                          |
| 2.5(z)                                 |       | Average Purchase Price Methodology                          |
| 2.6                                    |       | Undisclosed Liabilities                                     |
| 2.7(f)                                 |       | Securities Matters                                          |
| 2.7(h)                                 |       | Changes to Constitutive Documents                           |
| 2.7(i)                                 |       | Bonuses                                                     |
| 2.7(j)                                 |       | Terminated Employees                                        |
| 2.7(r)                                 |       | Agreement to Take Actions                                   |
| 2.8(b)(ii)                             |       | Tax Elections                                               |
| 2.9                                    |       | Restrictions on Business Activities                         |
| 2.10(a)                                |       | Real Property                                               |
| 2.10(c)                                |       | Equipment Condition                                         |
| 2.11(b)                                |       | Company Products                                            |
| 2.11(c)                                |       | Company Intellectual Property, Proceedings  and Actions     |
| 2.11(d)                                |       | Third-Party Intellectual Property Rights                    |
| 2.11(f)                                |       | Transfer Restrictions on Company  Intellectual Property     |
| 2.11(i)                                |       | Third-Party Rights to Company Intellectual  Property        |
| 2.11(l)                                |       | Owned or Licensed Improvements                              |
| 2.11(m)                                |       | Intellectual Property Claims                                |
| 2.11(o)                                |       | Intellectual Property Contracts, Licenses  and Agreements   |
| 2.11(r)                                |       | Third-Party Encroachments on Company  Intellectual Property |
| 2.11(s)                                |       | Protections for Intellectual Property                       |
| 2.11(u)                                |       | Intellectual Property Rights Contributors                   |
| 2.11(aa)                               |       | Licensed Software                                           |
| 2.12(a)                                |       | Material Contracts                                          |
| 2.12(a)(iii)                           |       | Incentive Arrangements                                      |
| 2.12(a)(x)                             |       | Agreements for Future Payments                              |
| 2.12(a)(xii)                           |       | Agreements of Indebtedness                                  |
| 2.12(b)                                |       | Requisite Consents                                          |
| 2.13(b)                                |       | Interested Party Transactions                               |
| 2.14                                   |       | Company Authorizations                                      |
| 2.15                                   |       | Litigation                                                  |
| 2.16                                   |       | Accounts Receivable                                         |
| 2.19                                   |       | Fees and Third-Party Expenses                               |

 

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| 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                            |
| 2.24        |   | Insurance                                       |
| 2.30        |   | Bank and Brokerage Accounts and Investments     |
| 2.35        |   | Spyware and Adware Activities                   |
| 2.36        |   | Inventory                                       |
| 2.37        |   | Property and Equipment                          |

 

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**AGREEMENT AND PLAN OFMERGER**

 

This AGREEMENT AND PLAN OF MERGER (the “**Agreement**”) is made and entered into as of June 10,2005 by and among ValueClick, Inc., a Delaware corporation (“**Parent**”), EBI Acquisition Corp., a Delawarecorporation and a wholly-owned subsidiary of Parent (“**Merger Sub**”), E-Babylon, Inc., aCalifornia corporation (the “**Company**”)and Michael Zaya (the “**Stockholder**”).

 

**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 stockholders 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 common stock,no par value per share, of the Company (the “**CommonStock**”), shall be converted into the right to receive an amount incash determined pursuant to Section 1.6(a) hereof, subject toadjustment pursuant to Section 1.6(e) hereof, and subject tothe provisions of Section 1.8 hereof pursuant to which a portion ofthe cash allocable to the holder of Common Stock pursuant to the Merger will bedeposited into the Escrow Fund (as defined in Section 1.8 hereof).

 

C.                                     The Company,Parent, Merger Sub, and the Stockholder desire to make certain representationsand warranties and other agreements in connection with the Merger.

 

D.                                    In recognition ofthe consideration receivable pursuant to the Agreement and other good andvaluable consideration, the Stockholder has agreed to enter into a non-competitionagreement with Parent substantially in the form of Exhibit Aattached hereto (the “**Non-CompetitionAgreement**”).

 

E.                                      As a conditionand an inducement to Parent to enter into this Agreement, the Stockholder hasexecuted and delivered the written consent in the form of Exhibit Battached hereto (the “**Written Consent**”),pursuant to which such Stockholder has consented to the adoption and approvalof the Merger and this Agreement.

 

NOW, THEREFORE, in consideration of theforegoing premises and the covenants, agreements, representations andwarranties set forth herein, and intending to be legally bound hereby, theparties to this Agreement hereby agree as follows:

 

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# **ARTICLE I**

# ** **

# **THEMERGER**

# ** **

1.1                                 The Merger.  At the Effective Time (as defined in Section 1.3)and upon the terms and subject to the conditions of this Agreement and theapplicable provisions of the Delaware General Corporation Law (the “**DGCL**”) and the California GeneralCorporation Law (the **“CGCL”**), (a) MergerSub shall be merged with and into the Company, (b) the separate corporateexistence of Merger Sub shall cease and (c) the Company shall continue asthe corporation surviving the Merger and as a wholly-owned subsidiary ofParent.  The Company as the corporationsurviving the Merger is sometimes referred to as the “**Surviving Corporation**.”

 

1.2                                 Closing.  Unless this Agreement is earlier terminatedpursuant to Section 8.1, the closing of the Merger (the “**Closing**”) will take place at the offices ofParent at 30699 Russell Ranch Rd., Suite 250, Westlake Village, California91361 as promptly as practicable following the satisfaction or valid waiver ofthe conditions set forth in Article VI, unless another place ortime is agreed in writing by Parent and the Company.  The date the Closing actually occurs isreferred to as the “**Closing Date**.”

 

1.3                                 Actions at theClosing.  At the Closing:  (a) Parent and Merger Sub shall deliverto 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 (i) filing the Certificateof Merger in the form of Exhibit C-1 attached hereto (the “**Certificate of Merger**”) with the Secretaryof State of the State of Delaware in accordance with the relevant provisions ofthe DGCL and (ii) by filing the Agreement of Merger in the form of Exhibit C-2attached hereto (the **“Agreement of Merger”**)with the Secretary of State of the State of California (the time of acceptanceof such Agreement of Merger by the Secretary of State of the State ofCalifornia being referred to herein as the “**EffectiveTime**”).

 

1.4                                 Effect of theMerger.  At the Effective Time, theeffect of the Merger shall be as provided in the applicable provisions of theCGCL and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto,at the Effective Time, all of the property, rights, privileges, powers andfranchises of the Company and Merger Sub shall vest in the SurvivingCorporation, and all debts, liabilities, obligations and duties of the Companyand Merger Sub shall become the debts, liabilities, obligations and duties ofthe Surviving Corporation.

 

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1.5                                 Articles ofIncorporation; Bylaws; Officers and Directors.  Unless otherwise determined by Parent priorto 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 A to the Certificate of Merger, and shallbe the Articles of Incorporation of the Surviving Corporation until thereafteramended in 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 theCertificate of Incorporation and Bylaws of the Surviving Corporation.

 

1.6                                 MergerConsideration; Effect on Capital Stock. The aggregate maximum consideration to be paid to the Stockholder byParent and Merger Sub for all the outstanding shares of Common Stock at theClosing shall be $9,949,903 in cash, subject to adjustment as provided in Section 1.6(e) below(such amount, as adjusted, the “**MergerConsideration**”), and subject to the deposit of a portion of theMerger Consideration into the Escrow Fund as provided in Section 1.8below.  On the terms and subject to theconditions set forth in this Agreement, at the Effective Time, by virtue of theMerger and without any action on the part of Parent, Merger Sub, the Company orthe Stockholder, the following shall occur:

 

(a)                                  CommonStock.  Each outstanding share ofCommon Stock automatically will be converted into the right to receive anamount in cash equal to (i) the aggregate amount of the MergerConsideration (subject to adjustment pursuant to Section 1.6(e) below)*divided by* (ii) the numberof shares of Common Stock outstanding immediately prior to the Effective Time.

 

(b)                                 IntentionallyOmitted.

 

(c)                                  Merger Sub Stock.  Each share of common stock of Merger Suboutstanding as of the Effective Time automatically shall be converted into onevalidly issued, fully paid and non-assessable share of common stock of theSurviving Corporation.  From and afterthe Effective Time, each stock certificate formerly representing shares ofcommon stock of Merger Sub shall be deemed to represent an equivalent number ofshares of common stock of the Surviving Corporation.

 

(d)                                 Adjustments forSubsequent Changes.  The amount ofcash payable with respect to the Common Stock pursuant to this Section 1.6shall be equitably and appropriately adjusted to reflect any stock split,reverse split, stock combination, stock dividend, reorganization,reclassification, recapitalization or other like change with respect to theCommon Stock which occurs after the date hereof and prior to the EffectiveTime.

 

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(e)                                  Adjustment toPurchase Price.  The amount of theMerger Consideration paid to the Stockholder shall be subject to downwardadjustment, on a dollar-for-dollar basis, to the extent that the amount of theCompany’s Net Assets (as defined below) is less than $3,375,000 as of theClosing Date.  For purposes of thisAgreement, “**Net Assets**” is defined as the excess of (A) the sumof the assets of the Company required to be reflected on a balance sheet of theCompany prepared as of the Closing Date in accordance with GAAP, net ofaccumulated depreciation and amortization (provided that the carrying value ofthe Company’s owned facility at 25 E. Easy St., Simi Valley, CA for purposes ofthe determination of Net Assets shall be $3,000,000 and Net Assets shallexclude the assets listed on Exhibit H to be assigned to theStockholder in partial settlement of certain amounts owing to the Stockholderby the Company immediately prior to the Closing (the “**AssignedAssets**”)), over (B) the sum of all (a) all accountspayable – trade, (b) accrued marketing and other expenses, (c) salestax payable, (d) federal payroll taxes payable, (e) state payrolltaxes payable, (f) federal income taxes payable, (g) state incometaxes payable, (h) allowance for sales returns, (i) accrual formanagement bonuses, (j) accrual for employee severance payments, and (k) thepromissory note payable to the Stockholder, in each case as such items would berequired to be reflected or reserved on a balance sheet of the Company preparedas of the Closing Date in conformity with GAAP. (A sample calculation of Net Assets of the Company as of June 9,2005 is attached to this Agreement as Exhibit F.)  To facilitate and expedite thecalculation of the Merger Consideration, the Company will, in accordance withthis Section 1.6(e) and in a manner consistent with the methodologypresented on Exhibit F, prepare and deliver on the Closing Date acalculation of the amount of Net Assets as of the Closing Date (the “**Closing Date Net Assets Calculation**”)certified by the Company’s Chief Executive Officer and Chief Financial Officeras true and correct in all material respects. To the extent that the amount of Net Assets as reflected in the ClosingDate Net Assets Calculation is less than $3,375,000, the Merger Considerationpayable to the Stockholder in the Merger shall be reduced on adollar-for-dollar basis.  To the extentthat the Closing Date Net Assets Calculation certified by the Company’s ChiefExecutive Officer and Chief Financial Officer is not true and correct in allrespects and the amount of the Company’s actual Net Assets (determined in themanner provided above) is less than the amount of Net Assets set forth in theClosing Date Net Assets Calculation, the Indemnified Parties shall, on adollar-for-dollar basis to the extent of such shortfall, have Claims forindemnification against the Stockholder pursuant to the terms of Article VII,including, but not limited to, Claims against the Escrow Amount.  Forthe avoidance of doubt, notwithstanding anything to the contrary containedelsewhere in this Agreement, the definition of Net Assets and the Closing DateNet Assets Calculation shall exclude the indebtedness of the Companyspecifically identified on Exhibit G to this Agreement (the “**Outstanding Indebtedness**”).

 

1.7                                 Dissenting Shares.  Intentionally Omitted.

 

1.8                                 Establishment ofEscrow; Interest and Dividends.

 

(a)                                  At the EffectiveTime, on behalf of the Stockholder, Parent shall deposit into a general escrowaccount established pursuant to Article VII below (the “**Escrow Fund**”) an amount equal to $2,695,119of the Merger Consideration (such amount, as from time to time in the EscrowFund, the “**Escrow Amount**”).  The Escrow Amount, and any interest earnedthereon shall be maintained in a separate account and disbursed as provided in Article VII.

 

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(b)                                 Any interest accruingon the Escrow Amount shall be held in the Escrow Fund and available to coverclaims for Losses until distributed upon termination of the Escrow Fund, as providedin Article VII.  Any suchinterest shall be distributed to Parent (to the extent earned or paid withrespect to cash in the Escrow Fund distributed to Parent to cover Lossespursuant to Article VII) or to the Stockholder on whose behalf cashwas deposited in the Escrow Fund (to the extent earned or paid with respect tocash ultimately distributed to such Stockholder upon termination of the EscrowFund), such that any interest earned on any cash in the Escrow Fund generallyfollows the ultimate recipient of the cash on which such interest was earned.

 

1.9                                 Surrender ofCertificates; Payment of Merger Consideration.

 

(a)                                  MergerConsideration.  On the Closing Date,Parent shall have available, in immediately available cash, the cashrepresenting the Merger Consideration (*less*theEscrow Amount) for payment to the Stockholder as provided below.  In addition, at the Effective Time, Parentshall separately deposit the Escrow Amount into the Escrow Fund on behalf ofthe Stockholder otherwise entitled thereto, as provided in Section 1.8of this Agreement.

 

(b)                                 Exchange Procedures.  Subject to Section 1.8, at theClosing, the Stockholder shall deliver to Parent the stock certificatesrepresenting all shares of Common Stock held by such Stockholder (the “**Certificates**”), duly endorsed inblank.  Upon surrender of theCertificates to Parent, the surrendering Stockholder shall be paid by Parentthe amount of Merger Consideration to which such Stockholder is entitled asdetermined pursuant to Section 1.6 (*less*amounts deposited in the Escrow Fund on behalf of suchStockholder pursuant to Section 1.8 and subject to Article VII).  From and after the Effective Time, untilproperly surrendered and cancelled, each outstanding Certificate will be deemedto evidence only the right to receive a pro rata portion of the MergerConsideration payable in respect of each such share pursuant to the Merger(subject to Section 1.8 and Article VII).

 

(c)                                  Transfers ofOwnership.  If any MergerConsideration is to be paid or allocated to a person other than the holder inwhose name the Certificate surrendered is registered, it will be a condition ofthe payment or allocation thereof that the Certificate so surrendered must beproperly endorsed and accompanied by all documents required to evidence andeffect such transfer and to evidence compliance with any applicable securitieslaws and that any applicable stock transfer taxes have been paid.

 

(d)                                 No Liability.  Notwithstanding anything to the contrary inthis Article I, none of Parent, Merger Sub or the SurvivingCorporation shall be liable to the Stockholder for any amount properly paid toa public official pursuant to any applicable abandoned property, escheat orsimilar law.

 

1.10                           No Further OwnershipRights in Company Common Stock.  The Merger Consideration issuedpursuant to the Merger or deposited into the Escrow Fund shall be deemed tohave been issued in full payment and satisfaction of all rights or obligationspertaining thereto.  There shall be nofurther registration of transfers on the records of the Surviving Corporationof any shares of Common Stock which were outstanding immediately prior to theEffective Time.  If Certificates arepresented to the Surviving Corporation for any reason after the Effective Time,

 

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suchCertificates immediately shall be canceled and exchanged as provided in this Article I(subject to Section 1.8 and Article VII).

 

1.11                           Lost, Stolen or DestroyedCertificates.  If any Certificateshave been lost, stolen or destroyed, Parent shall pay such amount (*less* any amounts deposited into the EscrowFund on behalf of the Stockholder) as otherwise would be required pursuant tothis Article I in exchange for such lost, stolen or destroyedCertificates promptly following receipt of an affidavit in a form satisfactoryto Parent of that fact; provided, however, that Parent may, inits discretion and as a condition precedent to such payment or issuance requirethe purported owner of any such lost, stolen or destroyed Certificates todeliver a bond (at such owner’s sole cost and expense) in such sum as Parentmay reasonably direct as indemnity against any claim that may be made againstParent or the Surviving Corporation with respect to the Certificates alleged tohave been lost, stolen or destroyed.

 

1.12                           Necessary Actions;Further Action.  If any furtheraction is necessary or desirable at any time after the Effective Time to carryout the purposes of this Agreement and to vest full right, title and possessionto all assets, property, rights, privileges, powers, and franchises of theCompany and Merger Sub in the Surviving Corporation or to vest Parent with a100% ownership interest in the Surviving Corporation, the officers anddirectors of the Surviving Corporation are fully authorized in the name of theCompany and the Surviving Corporation or otherwise to take, and the SurvivingCorporation shall cause such persons to take, all such lawful, necessary ordesirable action so long as such action is not inconsistent with thisAgreement.

 

1.13                           Required Deductions andWithholding; Payment of Taxes.  TheCompany, and, on its behalf, Parent, the Surviving Corporation and the EscrowAgent, shall be entitled to deduct and withhold from any considerationotherwise payable or deliverable to any Stockholder such amounts as may berequired to be deducted or withheld therefrom under the Internal Revenue Codeof 1986, as amended (the “**Code**”),under any provision of state, local or foreign tax law or pursuant to any otherapplicable legal requirement.  To theextent such amounts are so deducted or withheld and remitted, such amountsshall be treated for all purposes as having been paid to the person to whomsuch amounts would otherwise have been paid absent such deduction orwithholding.

 

1.14                           Accounting and TaxTreatment.  The Merger is intended toconstitute a purchase of the Company for purposes of GAAP, and as a taxablepurchase of the Company’s Common Stock for federal and applicable state incometax purposes.

 

# **ARTICLE II**

# ** **

# **REPRESENTATIONSAND WARRANTIES OF COMPANYAND STOCKHOLDER**

# ** **

The Company and the Stockholder herebyjointly and severally represent and warrant to Parent and Merger Sub as of thedate hereof and as of the Closing Date as follows, subject only to thoseexceptions in the disclosure letter dated the date hereof supplied by Companyto Parent relating to specific sections of the following representationsand warranties (the “**Company**

 

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**Schedule**”).  The Company and the Stockholder acknowledgeand agree that they are jointly and severally making the followingrepresentations and warranties with respect to the Company and itssubsidiaries, if any, unless the context clearly states otherwise.

 

2.1                                 Organization andQualification; Subsidiaries, Interests and Joint Ventures.  For purposes of this Article II,unless otherwise specified, all references to the Company in this Article IIalso include its direct and indirect subsidiaries.  The Company and each of its subsidiaries (asset forth in Section 2.1 of the Company Schedule) is a corporation dulyorganized, validly existing and in good standing under the laws of its state ofincorporation.  Each of the Company andits subsidiaries has the corporate power to own its properties and to carry onits business as now being conducted and as currently proposed to beconducted.  Each of the Company and itssubsidiaries is duly qualified to do business and is in good standing in eachjurisdiction in which it is required to be so qualified.  Section 2.1 of the Company Schedule setsforth each jurisdiction in which the Company or any subsidiary is qualified,registered, licensed or admitted to do business and separately lists each otherjurisdiction in which the Company or any subsidiary owns, uses, licenses orleases material assets or properties or physically conducts business, hasemployees or engages independent contractors. The Company has delivered to Parent true and correct copies of theArticles of Incorporation and Bylaws or other organizational and governingdocuments, as applicable, of the Company and each of its subsidiaries, each asamended to date and currently in effect. Neither the Company nor any of its subsidiaries is in violation of anyof the provisions of its Articles of Incorporation or Bylaws or equivalentorganizational and governing documents. The Company does not directly or indirectly own any equity or similarinterest and is not a participant in any corporation, partnership, joint ventureor other business association or entity, except as disclosed on Exhibit H.

 

2.2                                 Company CapitalStructure.

 

(a)                                  Authorized andOutstanding Capital Stock.  Theauthorized capital stock of the Company consists of 100,000 shares of CommonStock, of which 1490 shares are issued and outstanding as of the date hereof,all of which are owned by the Stockholder. Other than the 1490 shares of Common Stock as set forth above, theCompany has no other class or series of capital stock or other equity or votingsecurities (or rights to acquire the same) issued or outstanding or reservedfor issuance, and other than the Common Stock described above, the Company hasno other class or series of capital stock or other equity or voting securitiesauthorized.  The Stockholder owns alloutstanding shares of Common Stock free and clear of all Liens (as definedbelow), other than restrictions on transfer imposed by federal or statesecurities law, and none of such shares are subject to preemptive rights orrights of first refusal created by statute, the Articles of Incorporation orBylaws of the Company or any oral or written agreement to which the Stockholderis a party or by which the Stockholder or its assets or properties are or maybe bound.  Section 2.2(a) ofthe Company Schedule lists each holder of capital stock of any subsidiaryincluding 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 shalldeliver an updated copy of such list current as of the Closing Date.

 

(b)                                 Status ofOutstanding Capital Stock.  Alloutstanding shares of the capital stock of the Company and each of itssubsidiaries are duly authorized, validly issued, fully paid

 

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and non-assessable, were notissued in violation of any preemptive or similar rights, and were issued inaccordance 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 Company and its subsidiaries are not,and, to the Company’s knowledge after due inquiry, none of the Stockholders orsuch subsidiaries’ stockholders is, a party to any oral or written agreement,arrangement or other commitment that directly or indirectly grants or createsany right of negotiation, right of first refusal, right of first or last offeror similar arrangement in connection with the Merger or the other transactionscontemplated hereby.  Neither the Companynor any subsidiary is a party to any arrangement, agreement or instrumentpursuant to which the Company or such subsidiary may elect to satisfy itsobligations by issuing capital stock or other securities (or rights to acquirethe same).

 

(c)                                  Company Options.  There are no outstanding options to purchaseCommon Stock (“**Company Options**”).

 

(d)                                 Reserved Shares.  There are no shares of Company capital stockor voting securities of the Company or any subsidiary authorized or reservedfor issuance.

 

(e)                                  No OtherDerivative Securities or Rights. There are no oral or written options, warrants, puts, calls, preemptiverights, rights of first or last refusal, rights of negotiation, commitments,transactions, arrangements, understandings or agreements of any character towhich the Company or any subsidiary is a party or by which it is boundobligating the Company or any subsidiary to issue, deliver, sell, purchase,repurchase or redeem, or cause to be issued, delivered, sold, purchased,repurchased or redeemed, any shares of the Company’s or any subsidiary’scapital stock or other securities or obligating the Company to grant, extend,accelerate the vesting of, change the price of, or otherwise amend or enterinto any such option, warrant, put, call, right, commitment, transaction,arrangement, understandings or agreement.

 

(f)                                    No OutstandingIndebtedness.  The Company and itssubsidiaries have no authorized or issued debt securities or other instrumentsof indebtedness outstanding other than those instruments listed in Section 2.2(f) ofthe Company Schedules and Exhibit G of this Agreement, whichpursuant to Section 5.8 of this Agreement shall be paid in full bythe Company contemporaneously with the Closing.

 

(g)                                 Employee BonusArrangements.  Except as set forth inSection 2.2(g) of the Company Schedule, the Company and itssubsidiaries have no oral or written arrangements, agreements or understandingspursuant to which the Company or any successor thereto or acquiror thereof isor may become obligated to make any compensatory, bonus, severance or otherpayments to past or current employees, consultants, agents or representativesof the Company.

 

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2.3                                 Subsidiaries.  The Company has no subsidiaries.

 

2.4                                 Authority.

 

(a)                                  The Company and theStockholder have full corporate or other power and authority to execute anddeliver this Agreement and any other agreements or instruments contemplatedhereby to which the Company or such Stockholder is or will be a party (all suchagreements or instruments, collectively, the “**AncillaryAgreements**”), to observe and perform their respective obligationshereunder and thereunder and to consummate the transactions contemplated herebyand thereby, subject only to the requisite approval of the Merger and thisAgreement by the Stockholder pursuant to the Written Consent.  The execution and delivery of this Agreementand the Ancillary Agreements by the Company and the Stockholder, the observanceand performance of the Company’s and the Stockholder’s obligations hereunderand thereunder and the consummation of the transactions contemplated hereby andthereby have been duly and validly authorized by all necessary corporate orother action on the part of the Company and the Stockholder, and no further orother action of the Company or its Board of Directors or stockholders isrequired with respect to the foregoing. This Agreement has been (and each Ancillary Agreement upon the executionand delivery thereof will be) duly and validly executed and delivered by theCompany and the Stockholder party thereto (as applicable), and each constitutes(or will constitute upon execution and delivery) a legal, valid and bindingobligation of the Company and the Stockholder (as applicable), enforceableagainst the Company and the Stockholder in accordance with its respectiveterms, except as enforceability may be limited by principles of public policyand subject to the laws of general application relating to bankruptcy, insolvencyand the relief of debtors and rules of law governing specific performance,injunctive relief or other equitable remedies.

 

(b)                                 The only vote requiredfor the Company’s stockholders to duly approve the Merger and this Agreementunder the applicable provisions of the CGCL, the DGCL and the Company’sArticles of Incorporation and Bylaws is the affirmative vote of the holders ofmore than 50% of the outstanding shares of Common Stock.  The Company is not a party or subject to anyagreement, arrangement or understanding and, to the Company’s knowledge afterdue inquiry, there is no agreement, arrangement or understanding that restrictsor relates to voting (other than the Written Consent executed and delivered bythe Stockholder prior to the date hereof), giving of written consents, dividendrights or restrictions on transfer of any Company or subsidiary votingsecurities, including any voting trust or any valid and outstanding orirrevocable proxy agreement or arrangement. The Written Consent has been duly executed and delivered by theStockholder with respect to 100% of the outstanding shares of Common Stock.

 

(c)                                  Other than theCompany’s mortgage with Zions First National Bank which is listed on Exhibit Gto this Agreement (the “**Mortgage**”),the execution and delivery of this Agreement and the Ancillary Agreements bythe Company does not, and the consummation of the Merger and the othertransactions contemplated hereby and thereby will not, conflict with, or resultin any violation of, or default under (with or without notice or lapse of time,or both), or give rise to a right of termination, cancellation or accelerationof any obligation or loss of any benefit under:

 

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

 

(ii)                                  anymortgage (other than the Mortgage), indenture, lease, contract or otheragreement or instrument (in each case, subject to the Company obtainingall Requisite Consents (as defined in Section 2.12(b)) relating tosuch agreements and instruments), permit, concession, franchise, license,judgment, order, decree, statute, law, ordinance, rule or regulationapplicable to the Company or its properties or assets; or

 

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

 

(d)                                 Except as set forth inSection 2.4(d) of the Company Schedule, no consent, waiver, approval,order or authorization of, or registration, declaration or filing with, anycourt, administrative agency or commission or other federal, state, county,local or foreign governmental authority, instrumentality, agency or commission(“**Governmental Entity**”) or anythird-party is required by or with respect to the Company or the Stockholder inconnection with the execution and delivery of this Agreement or any AncillaryAgreement or the consummation of the transactions contemplated hereby orthereby, except for (A) the filing of the Certificate of Merger with theSecretary of State of the State of Delaware, (B) the filing of theAgreement of Merger with the Secretary of State of the State of California and (C) theRequisite Consents.

 

2.5                                 Company FinancialStatements; Net Assets Calculations. Section 2.5(x) of theCompany Schedule sets forth the unaudited balance sheet of the Company andits subsidiaries as of December 31, 2004 (the “**Year-end Balance Sheet**”) and the unaudited income statementsfor each of the years in the three-year period then ended for the Company andits subsidiaries (together with the Year-end Balance Sheet, the “**Year-end Financials**”).  Section 2.5(y) of the Company Schedule setsforth the unaudited balance sheet of the Company and its subsidiaries as of March 31,2005 (the “**Current Balance Sheet**”)and the unaudited income statement for the three-month period then ended forthe Company and its subsidiaries (together with the Current Balance Sheet, the “**Current Financials**”).  Section 2.5(z) of the Company Schedule setsforth the average purchase price methodology used for the calculation of thetotal value of items contained in the Products Table of the Company database(the “**Perpetual Inventory**”) in theCompany’s software related to the Company database (the **“Web Application”**)**.** The Year-end Financials and the CurrentFinancials are collectively referred to herein as the “**Company Financials**. “  The Company Financials (a) are inaccordance with the books and records of the person to which they relate and (b) arecomplete and correct in all material respects. The Company Financials present fairly the financial condition andoperating results of the Company as of the dates and during the periodsindicated therein.  The Current BalanceSheet discloses all of the Company’s and its subsidiaries’ debts, liabilitiesand obligations of any nature whatsoever, whether due or to become due, andwhether absolute, accrued, contingent or matured.  The Closing Date Net Assets Calculation willbe true, complete and correct and will accurately reflect the amount of NetAssets as of the Closing Date.

 

2.6                                 No UndisclosedLiabilities.  The Company and itssubsidiaries do not have any liability, indebtedness, obligation, expense,claim, deficiency, guaranty or endorsement of any

 

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type, inexcess of $5,000 individually or $50,000 in the aggregate, whether accrued,absolute, contingent, matured, unmatured or other (whether or not required tobe reflected in financial statements in accordance with GAAP) that are notclearly disclosed, in reasonable detail, on the face of the Company Financialsor the Closing Date Net Assets Calculation or otherwise clearly disclosed toParent in Section 2.6 of the Company Schedule.

 

2.7                                 No Changes.  Since April 30, 2005, the Company(including its subsidiaries) has conducted its business in the ordinary courseand consistent with past practices and there has 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 of theCompany;

 

(c)                                  any capitalexpenditure or commitment by the Company, in excess of $5,000 individually or$50,000 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)                                    Other than therepurchases of shares set forth in Section 2.7(f) of the CompanySchedule, any declaration, setting aside, or payment of a dividend or otherdistribution with respect to the securities of the Company, or any direct orindirect redemption, purchase or other acquisition by the Company of any of itscapital stock or other securities;

 

(g)                                 any termination of, orviolation 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)                                 Except as set forth inSection 2.7(h) of the Company Schedule, any amendment or change tothe Articles of Incorporation, Bylaws or other organizational or governingdocuments of the Company;

 

(i)                                     Other than the employeebonus payments and compensation increases set forth in Section 2.7(f) ofthe Company Schedule (the “**BonusPayments”**), any increase in or modification of the compensation orbenefits payable or to become payable by the Company to any of its respectivedirectors, employees, consultants or advisors, or any declaration, payment orcommitment or obligation to pay any bonus or other additional salary orcompensation (including equity) to any such person;

 

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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 employees who have beenterminated by the Company, and the general reason for termination, sinceinception);

 

(k)                                  any change in anelection or accounting method with respect to Taxes (as defined in Section 2.8below) or settlement or compromise of any material Tax liability, except thechange in assessed value of the real property upon change of control of theCompany;

 

(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 ordinary 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 release ofany material right or claim of or in favor of the Company, including any write-offor 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 2.15 of theCompany Schedule;

 

(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;

 

(q)                                 any entry into anagreement that grants exclusivity, noncompete or most favored-nation rights orwhich cannot be terminated without penalty on thirty days advance writtennotice; or

 

(r)                                    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(r) of the CompanySchedule.

 

For purposes of this Agreement,“**Company Material Adverse Effect**”means any event, change, effect, occurrence or state of facts that,individually or in the aggregate, has or could reasonably result in amaterially adverse effect on the business, assets, liabilities, capitalization,condition (financial or other), prospects or results of operations of theCompany.

 

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2.8                                 Tax and OtherReturns and Reports.

 

(a)                                  Definitions.  For purposes of this 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 aresult of transferee liability, of being a member of an affiliated,consolidated, combined or unitary group for any period, or otherwise throughoperation of law and (C) any liability for the payment of amountsdescribed in clauses (A) or (B) as a result of any taxsharing, tax indemnity or tax allocation agreement or any other express orimplied agreement to indemnify any other person; and

 

(ii)                                  “**Tax Return**” means any return, declaration,report, statement, information statement and other document filed or requiredto be filed with respect to Taxes, including any claims for refunds of Taxesand any amendments 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 Returnsfiled by the Company and its subsidiaries are true, correct and complete 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 foreignlaw).  To the extent the Company did notfile a Tax Return in any jurisdiction or for any specific period, the Companydid so because it had no liability for Taxes in that jurisdiction or for thattime period, as the case may be.  TheCompany and its subsidiaries have complied in all material respects with allApplicable Law pertaining to Taxes. Neither the Company nor any of its subsidiaries have engaged in, or is aparty to, any “reportable transaction” within the meaning of TreasuryRegulation Section 1.6011-4 that has not been reported in accordance withTreasury Regulation Section 1.6011-4.

 

(ii)                                  TheCompany and its subsidiaries timely paid all Taxes that have become due orpayable (whether or not shown on a Tax Return) and have adequately reserved inthe Closing Date Net Assets Calculation in accordance with GAAP for all Taxes(whether or not shown on any Tax Return) that have accrued but are not yet dueor payable as of the date thereof.  TheCompany and its subsidiaries have no present or contingent liability for Taxes,other than Taxes reflected on the Closing Date Net Assets Calculation.  The Company does not know of any basis forthe assertion by a taxing authority of a Tax deficiency against the Company orany subsidiary.  Section 2.8(b)(ii) ofthe Company Schedule sets forth all material elections made or deemed madewith respect to Taxes of the Company or any of its subsidiaries for all taxableperiods beginning on or after January 1, 1999.

 

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(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,examination, refund claim, litigation, proceeding, proposed adjustment ormatter in controversy with respect to any Taxes of or with respect to theCompany or any of its subsidiaries, and neither the Company nor any of itssubsidiaries has knowledge that any such action or proceeding is beingcontemplated.  There are no materialclaims for Taxes that have been asserted against the Company or any of itssubsidiaries since the inception of the Company and all other claims relatingto Taxes that have been asserted against the Company or any of its subsidiarieswith respect to any period commencing on or after January 1, 1999.  Neither the Company nor any of itssubsidiaries is a party to or bound by any closing or other agreement with anyGovernmental Entity 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) duringthe applicable period specified in Code Section 897(c)(1)(A)(ii).

 

(v)                                 TheCompany has not been a member of any affiliated group filing a consolidatedfederal income Tax Return or a member of a combined, consolidated or unitarygroup for state, local or foreign Tax purposes or has any liability for theTaxes of any other person under Treasury Regulation § 1.1502-6 (or anysimilar provision of state, local, or foreign law), as a transferee orsuccessor, 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 or other Governmental Entity has proposed any such adjustmentor a change in any accounting method used by the Company or any of itssubsidiaries.  The Company and itssubsidiaries use the accrual method of accounting for federal income taxpurposes.  Neither the Company nor any ofits subsidiaries has taken any action inconsistent with its practices in prioryears that would have the effect of deferring a liability for Taxes from aperiod prior to the Effective Time to a period following the Effective Time.

 

(vii)                           None ofthe assets of the Company or any of its subsidiaries of the Company (A) is“tax-exempt use property” within the meaning of Section 168(h) of theCode, (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 indirectlysecures any debt, the interest on which is tax exempt under Section 103(a) ofthe Code.

 

(viii)                        TheCompany is not engaged in business, nor has a permanent establishment(as defined in an applicable tax treaty between the United States and suchother jurisdiction) or is otherwise subject to Tax in a jurisdiction other thanthe United States.

 

(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 ofattorney or similar grant of authority is in place with respect to the Companyor any of its subsidiaries.

 

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(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 theEffective Time will be, a “small business corporation” described in Section 280G(b)(5)(A)(i) ofthe Code.

 

(xi)                                Neitherthe Company nor any of its subsidiaries has in effect an election under Section 341(f) ofthe Code.

 

(xii)                             Thereare no Liens for Taxes on any assets of the Company.

 

(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 or361 of the Code.

 

(xiv)                         None ofthe 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.

 

(xv)                            Neither the Company nor anysubsidiary is, has been, or has owned (whether directly or indirectly) aninterest in, a passive foreign investment company within the meaning of Section 1297of the Code.  No subsidiary that is not aUnited States person (A) has engaged (or been treated as engaged) in theconduct of a trade or business within the United States or (B) has had aninvestment in “United States property” within the meaning of Section 956(c) ofthe Code.  Neither the Company nor anysubsidiary is, or at any time has been, impacted by (1) the dualconsolidated loss provisions of the Section 1503(d) of the Code, (2) theoverall foreign loss provisions of Section 904(f) of the Code or (3) therecharacterization provisions of Section 952(c)(2) of the Code.

 

2.9                                 Restrictions onBusiness Activities.  Except as setforth in Section 2.9 of the Company Schedule, there is no agreement(non-compete or otherwise), commitment, judgment, injunction, order or decreeto which the Company is a party or otherwise binding upon the Company which hasor reasonably could be expected to have the effect of materially prohibiting orimpairing any lawful business practice or activities of the Company or anysubsidiary (or the Surviving Corporation or any such subsidiary after theMerger), any lease, licenses or acquisition of any assets or property (tangibleor intangible) by the Company or any subsidiary (or the Surviving Corporationor any such subsidiary after the Merger) or the conduct of the business asconducted and proposed to be conducted by the Company or any subsidiary (or theSurviving Corporation or any such subsidiary after the Merger).

 

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2.10                           Title to Properties;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, except as provided in Section 2.10(a) of the CompanySchedules.  Section 2.10(a) ofthe Company Schedule sets forth a list of all real property currently, or atany time in the past, leased by the Company, the name of the lessor, the dateof the lease and each amendment thereto and, with respect to any current lease,the aggregate annual rental and/or other fees payable under any such lease.  All such current real property leases are infull force and effect, are valid and effective in accordance with theirrespective terms, may be enforced by the Surviving Corporation as the lesseeafter the Merger and there are no existing defaults or events of default (or eventswhich with notice or lapse of time, or both, would constitute a default)thereunder.  No subsidiary has owned orleased any real property since inception, except as provided in Section 2.10(a) ofthe Company Schedule.

 

(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 owned properties and assets are freeand clear of any Liens, except as reflected in the Company Financials andexcept for 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.  Allsuch leased assets and properties are free and clear of any Liens which wouldinterfere with, restrict or prohibit the valid use of such leased assets orproperties by the Surviving Corporation after the Merger in accordance with theleases related thereto and for the purposes for which the Company initiallyleased, and currently uses and proposes to use, such leased assets andproperties.  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 any lessor’sguidelines, (iii) is in good operating condition, subject only to normalwear and tear for the age and usage of such respective Equipment except as setforth in Section 2.10(c) of the Company Schedule, and (iv) complieswith all Applicable Law (as defined in Section 2.21) relating tosuch Equipment and the use thereof by the Company (and the SurvivingCorporation after the Merger).  Nosubsidiary has owned or leased any Equipment since inception.

 

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2.11                           Intellectual Property.

 

(a)                                  Definitions.  For purposes of this Agreement, the followingterms have the following respective meanings:

 

(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 therefore,and all other rights corresponding thereto throughout the world (“**Copyrights**”); (D) all industrialdesigns and any registrations and applications therefor throughout the world; (E) allrights in World Wide Web addresses and domain names and applications andregistrations therefor; (F) all trade names, logos, symbols, registeredand common law trademarks and service marks, intent-to-use applications andother applications therefore, and all goodwill associated therewith throughoutthe world (“**Trademarks**”); (G) moralrights, publicity rights, mask works and any other proprietary, intellectual orindustrial proprietary rights of any kind or nature that do not compromise orare not protected by the Patents, Trade Secrets, Copyrights or Trademarks; and (H) anysimilar, corresponding or equivalent rights to any of the foregoing anywhere inthe world.

 

(ii)                                  “**Company Intellectual Property**” means anyand all Intellectual Property Rightsowned by the Company and its subsidiaries or which the Company or any suchsubsidiary has the right to use pursuant to written license, sublicense,agreement or permission, that are used by the Company or suchsubsidiaries or useful in, related to,or arise out of the operation or conduct of the business of the Companyand its subsidiaries as currentlyconducted and currently proposed to be operated or conducted (including by theSurviving Corporation after the Merger).

 

(b)                                 The Company does nothave any products, software, service offerings, technical data or technologydesigned, manufactured or sold by the Company and its subsidiaries that havebeen sold, distributed since incorporation or which the Company or itssubsidiaries intends to sell, license or distribute in the future, includingany products or service offerings under development (collectively, “**Company Products**”).  The Company’s in-house application, asdescribed on Section 2.11(b) of the Company Schedule, is not aproduct for sale, license or distribution.

 

(c)                                  Section 2.11(c) ofthe Company Schedule lists:  (i) allCompany Intellectual Property, identifying for each, if applicable, (A) theapplication or registration number, (B) the filing or registration date, (C) theowner of record and whether owned exclusively by the Company, and (D) thestatus of the application or registration; (ii) any prior or currentproceedings or actions before any court, tribunal (including the United StatesPatent and Trademark Office (the “**PTO**”)or equivalent authority anywhere in the world) related to any of the CompanyIntellectual Property; and (iii) any actions that must be taken by theCompany or

 

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any subsidiary in the next onehundred eighty (180) days or by the Surviving Corporation as the successor to(or assignee of) the Company within the one hundred eighty (180) days after theClosing Date, including the payment of any registration, maintenance or renewalfees or the filing of any responses to PTO office actions, documents,affidavits of use, incontestability filings, applications or certificates forthe purposes of obtaining, maintaining, perfecting, preserving or renewing anyCompany Intellectual Property.

 

(d)                                 Except as disclosed inSection 2.11(d) of the Company Schedule, the Company and eachsubsidiary has obtained from each third-party (other than employees) who, atthe request or the direction of the Company or any such subsidiary, developedor otherwise created any Intellectual Property Rights, a written assignment transferringto the Company all rights, title and interest in and to all such IntellectualProperty Rights.

 

(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)                                    Except as disclosedin Section 2.11(f) of the Company Schedule, all Company IntellectualProperty is fully transferable, assignable or licensable, as applicable,without condition or restriction and without payment of any kind to anythird-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 any subsidiary’s use of the CompanyIntellectual Property nor the production and sale of the Company Productsinfringes upon the intellectual property or other rights of others.

 

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

 

(i)                                     Except as setforth in Section 2.11(i) of the Company Schedule, 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)                                     Except as setforth in Section 2.11(s) of the Company Schedule, all IntellectualProperty Rights embodied in the Company Products were created solely by either:  (i) employees of the Company actingwithin the scope of their employment (all of whom have assigned all rights,title and interest in and to such Intellectual Property Rights to the Company);or (ii) by third-parties who have assigned, or agreed to assign, allright, title and interest in and to such Intellectual Property Rights to theCompany.

 

(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 thegenerality of the foregoing, the Company has the right to freely transfer orassign such Intellectual Property Rights to the Surviving Corporation, ifnecessary or desirable, the Company has the right to use (and the SurvivingCorporation will after the Merger have the right to use), pursuant to validlicenses, all software development tools, library functions, compilers and allother third-party software and other items that are used in the design,development, promotion, sale, license, manufacture, import, export, use ordistribution of the Company Products.

 

(l)                                     Section 2.11(l)of the Company Schedule contains a list of all improvements made by theCompany and any subsidiary with respect to any owned or licensed IntellectualProperty Rights.  No person who haslicensed any Intellectual Property Rights to the Company or any subsidiary hasownership, beneficial, license or other rights to improvements made by the Companywith respect to such Intellectual Property Rights.  The Company is entitled to freely use andexploit (and the Surviving Corporation will be entitled to freely use andexploit) any and all such improvements.

 

(m)                               Except as set forth in Section 2.11(m)of the Company Schedule, neither the Company nor any subsidiary has receivedany notice or claim, whether written or oral, from any third-party claimingthat the operation of the business of Company as currently conducted orproposed to be conducted (including by the Surviving Corporation after theMerger) or that any Company Product infringes, misappropriates, violates,dilutes or constitutes the unauthorized use of any valid or enforceable rightof any third-party, including any Intellectual Property Right of anythird-party, nor is there a reasonable basis for any such claim of infringementor any claim that the Company does notown any of such 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 or any corresponding foreign office or agency)or outstanding decree, order, judgment, settlement agreement or stipulationthat restricts in any manner the Company’s (or the Surviving Corporation’s)use, transfer or licensing thereof or that may affect the validity, use orenforceability thereof.  There is nodecree, order, judgment, agreement, stipulation, arbitral award or otherprovision which obligates the Company or any subsidiary (or will obligate theSurviving Corporation) to grant licenses or ownership interests in any futureIntellectual Property Right related to the operation or conduct of the businessof the Company (or the Surviving Corporation after the Merger) or the CompanyProducts.

 

(o)                                 Section 2.11(o)of the Company Schedule lists all contracts, licenses and agreements towhich the 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 specificallyindicates which contracts, licenses or agreements represent or include outboundlicenses of Company Products in source code format.  The Company and its subsidiaries are not inmaterial 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)                                    Except as set forthin Section 2.11(r) of the Company Schedule, no third-party is infringing, misappropriating, diluting orviolating any Company Intellectual Property and no such claims have beenthreatened, asserted or brought against any third-party by the Company or anysubsidiary.

 

(s)                                  Except as set forthin Section 2.11(s) of the Company Schedule, the Company has taken allsteps that are reasonably required to protect: (i) the Company’s and its subsidiaries’ rights in all CompanyIntellectual Property; and (ii) all Intellectual Property Rights of othersas to which the Company or its subsidiaries has an express or impliedobligation or duty to protect the same. Without limiting the generality of the foregoing, the Company and eachsubsidiary has, and enforces, a policy requiring each employee, consultant andindependent contractor to execute written proprietary information,confidentiality and assignment of invention and copyright agreements, that:  (A) assign to the Company all right,title and interest in and to any Intellectual Property Rights relating to theCompany’s business that are developed by the employee, consultant orcontractor, as applicable, in the course of his, her or its activities for theCompany or are developed during working hours or using the resources of theCompany; (B) contain provisions designed to prevent unauthorizeddisclosure of the Company’s confidential information; and (C) otherwiseappropriately protect the Intellectual Property Rights of the Company.  All current and former employees, consultantsand independent contractors have executed and delivered such agreements to theCompany and copies of all such agreements have been provided to Parent, and noparty thereto 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 hasbeen no disclosure by the Company of any Trade Secrets or confidentialinformation of the Company without: (x) designating such information asconfidential; and (y) taking whatever steps are required to ensure thatsuch Trade Secrets or confidential information are subject to theconfidentiality undertakings set forth in the applicable 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 or otherwise,will result in:  (i) the SurvivingCorporation’s granting (or becoming obligated to license, transfer or

 

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grant) to any third-party anyIntellectual Property Rights; (ii) the Surviving Corporation’s being boundby, or subject to, any non-compete, non-solicitation or other restriction onthe operation or scope of its business; (iii) the loss or impairment of,or give rise to any right of any third-party to terminate or alter, any of theCompany’s (or the Surviving Corporation’s post-Merger) rights or interest inany Intellectual Property Rights; or (iv) the Surviving Corporation’sbeing obligated to pay any penalties whatsoever or to pay any royalties,license fees or similar amounts to any third-party in excess of those currentlypaid by the Company in the ordinary course of its business.

 

(u)                                 Section 2.11(u)of the Company Schedule sets forth a complete and accurate list of allthird-parties that have contributed to any Intellectual Property Rights embodiedin the 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 eachsubsidiary,

 

and, in each case, a generaldescription of all services 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 government funding,facilities of any university, college, other educational institution orresearch center or funding from third-parties was used in the development ofany Company Intellectual Property.  Nocurrent or former employee, consultant or independent contractor of the Companywho was involved in, or who contributed to, the creation or development of anyCompany Intellectual Property, performed services for the government or anyuniversity, college, other educational institution or research center orthird-party during a period of time during which such employee, consultant orindependent contractor also was performing services for the Company.

 

(x)                                   The Company Productsdo not contain any viruses, Trojan horses, worms or other software routines orhardware components designed to permit unauthorized access, to disable, eraseor 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 Company Productconforms in all material respects to the specifications, documentation, pressreleases or other information provided to customers or potential customers ofthe Company on which such customers or potential customers relied or

 

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would reasonably be expected torely upon when licensing or otherwise acquiring such Company Products.  The Company Products are in compliance withall Applicable Laws.  To the extent thatCompany Products (including new versions or releases thereof) have not beenlaunched commercially, the Company has fully disclosed to Parent all technicalproblems or concerns associated with such Company Products known to orsuspected by the Company that affect or may be expected to affect theperformance of such Company Products. The Company has taken all actions necessary to document all CompanyProducts and their operation such that the materials comprising the CompanyProducts, including any source code and documentation, have been written in aclear manner in accordance with industry standards so that they may be understood,modified and maintained in an efficient manner by reasonably competentprogrammers.

 

(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; and (ii) a list of all “freeware”and “shareware” incorporated into any Company Product now or heretofore shippedby the Company.  The Company has allrights necessary to use such software, “freeware” and “shareware.”

 

(bb)                          Neitherthe Company nor any subsidiary has violated, is in violation of, nor will thisAgreement, any Ancillary Agreement, the observance and performance of the termshereof or thereof or the consummation of the transactions contemplated herebyor thereby cause any violation of, any terms or provisions of any agreementunder which the Company or any subsidiary has or had an obligation to develop,supply or distribute software to or for any third-party, excluding end-userlicenses for object code executed in the ordinary course of business, nor is orwould the Company or any subsidiary under any circumstances, be under anyobligation to deliver source code or any confidential or proprietaryinformation to any third-party.

 

2.12                           Agreements, Contracts andCommitments.

 

(a)                                  Section 2.12(a) ofthe Company Schedule sets forth all contracts that are material to thebusiness or operations of the Company (including its subsidiaries) or which bytheir terms seek to limit or define those activities in which the Company andits 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 setforth in Section 2.12(a) of the Company Schedule, the Company doesnot have, is not a party to nor is it bound by:

 

(i)                                     anycollective bargaining agreements;

 

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

 

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(iii)                               Exceptas set forth in Section 2.12(a)(iii) of the Company Schedule, 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 of which will be calculated on the basis ofany 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$10,000, other than as set forth in Section 2.10(a) of the CompanySchedule;

 

(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;

 

(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, except as set forth in Section 2.12(a)(x) of the CompanySchedule;

 

(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 the Company’sbusiness;

 

(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 creditdescribed in Section 2.30 of the Company Schedule and as set forth inSection 2.12(a)(xii) of the Company Schedule, all of which will be paid infull and terminated as of the Effective Time, unless Parent requests otherwisereasonably prior to the Effective 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;

 

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(xiv)                         anyconstruction contracts;

 

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

 

(xvi)                         anyinsurance policies, other than as described in Section 2.24 of the CompanySchedule;

 

(xvii)                      any otheragreement, contract or commitment that involves or could result in aggregatepayments to or by the Company of $10,000 or more or which is not cancelable bythe Company without penalty within thirty (30) days.

 

(b)                                 Noneof the Company or any of its subsidiaries has breached, violated or defaultedunder, or received notice that it has breached, violated or defaulted under,any of the terms or conditions of any agreement, contract or commitment towhich it is a party or by which it or its assets or properties are or may bebound (any such agreement, contract or commitment, a “**Contract**”). Each Contract is in full force and effect and is not subject to anybreach, default or violation thereunder of which the Company has knowledge byany party obligated to the Company pursuant thereto.  The Company has obtained, or will obtainprior to the Effective Time, all necessary consents, waivers and approvals ofparties to any Contract (including the Material Contracts) as are required orprudent to obtain in connection with the Merger and the other transactionscontemplated hereby and by the Ancillary Agreements in order to avoid anyconflict with, any violation of, or default under (with or without notice orlapse of time, or both), or to avoid giving rise to any right of termination,cancellation or acceleration of any obligation or loss of any benefit under,any Contract (the “**Requisite Consents**”)and such Requisite Consents are listed in Section 2.12(b) of theCompany Schedule.

 

2.13                           Interested PartyTransactions.  No officer, director,employee or, to the knowledge of the Company’s management, stockholder of theCompany or any subsidiary (nor any ancestor, sibling, descendant or spouse ofany of such persons, or any trust, partnership or corporation in which any ofsuch persons has a direct or indirect interest) has any direct or indirectinterest in: (a) any entity which furnished or sold, or furnishes or sells,services or products that the Company furnishes or sells, or proposes tofurnish or sell, (b) any entity that purchases from or sells or furnishesany goods or services to the Company or (c) any Material Contract; provided,however, that ownership of no more than one percent (1%) of theoutstanding voting stock of a publicly traded corporation shall not be deemedan “interest in any entity” for purposes of this Section 2.13.  Except as provided in Section 2.13(b) ofthe Company Schedule, the Company is not indebted to any officer, director,employee, consultant or stockholder of the Company (except for amounts duepursuant to written employment agreements and reimbursement of immaterialbusiness expenses), and no such person is indebted to the Company.

 

2.14                           Company Authorizations.  Section 2.14 of the Company Schedule listseach consent, license, permit, approval, grant or other authorization issued tothe Company or any subsidiary by a Governmental Entity (a) pursuant towhich the Company or any subsidiary currently operates or holds any interest inany of its assets or properties or (b) which is required or convenient forthe operation of its business (including the design, development, manufacture,

 

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sale,promotion, export, import, distribution or provision of the Company Products)or the holding of any such interest (collectively, “**Company Authorizations**”). All Company Authorizations are in full force and effect and constituteall Company Authorizations required to permit the Company (or the SurvivingCorporation after the Merger) to operate or conduct the Company’s businesssubstantially as currently conducted and proposed to be conducted after theMerger or to hold any interest in the Company’s or any subsidiary’s assets orproperties.  The Company and eachsubsidiary has complied with all terms and conditions of the CompanyAuthorizations, and the same will not be subject to suspension, modification,revocation or non-renewal as a result of this Agreement, any AncillaryAgreement or the transactions contemplated hereby or thereby.  The Company and each subsidiary has takenadequate and sufficient measures to ensure that its employees, consultants,agents and representatives have complied with the requirements of all CompanyAuthorizations and the Company is not aware of any past or current violation ofany Company Authorization.

 

2.15                           Litigation.  Except as described in Section 2.15 ofthe Company Schedule, (i) there is no action, suit, claim, proceeding,arbitration or investigation of any nature pending or, to the Company’sknowledge, threatened by, against or involving the Company, its assets orproperties or any of its officers, directors, employees or agents in theircapacity as such, nor, to the knowledge of the Company and the Stockholder, isthere any basis therefor and (ii) no Governmental Entity or third-partyhas at any time challenged or questioned the legal right of the Company todesign, develop, promote, sell, license, manufacture, import, export, use,distribute or provide any Company Products, nor, to the knowledge of theCompany or the Stockholder, is there any basis therefor.

 

2.16                           Accounts Receivable.  The parties hereto agree that the accountsreceivable of the Company (the “**AccountsReceivable**”) on purchase orders sold on account by the Company shallbe deemed to be $206,905 as shown in the Closing Date Net AssetsCalculation.  Detailed balancessupporting the calculation of the Accounts Receivable are provided in Section 2.16of the Company Schedule.  The partieshereto agree that the Accounts Receivable shall be the total amount deemed tobe collectible by ValueClick regardless of whether the actual amount collectedis higher or lower.

 

2.17                           Minute Books.  The minute books of the Company and itssubsidiaries made available to Parent are the only minute books of suchentities and contain a reasonably accurate summary of all meetings of directors(or committees thereof) and stockholders of such entities and include copies ofall board and stockholder actions by written consent since inception to thedate 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 stockholders of the Company and anysubsidiaries thereof, which transpire or are executed after the date hereof andprior to the Effective Time.

 

2.18                           Environmental Matters.

 

(a)                                  HazardousMaterial.  No underground storagetanks and no amount of Hazardous Materials are present, either as a result ofthe Company’s or any subsidiary’s use or

 

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occupation ofany real property or, to the Company’s knowledge, as a result of any actions ofany third-party or otherwise, in each case in, on or under any property,including the land and the improvements, ground water and surface waterthereof, that the Company or any subsidiary has at any time owned, operated,occupied or leased.  For purposes of thisAgreement, “**Hazardous Material**”means any substance that has been designated by any Governmental Entity or byapplicable federal, state or local law to be a pollutant or contaminant orinfectious or radioactive, toxic, hazardous or otherwise a danger to health orthe environment, including, PCBs, asbestos, 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, except Hazardous Materials to the extentthey are a component of the Company’s product inventories and normal quantitiesof office supplies and cleaning products.

 

(b)                                 Hazardous MaterialsActivities.  The Company and itssubsidiaries have not transported, stored, used, manufactured, disposed of,released or exposed its employees or others to Hazardous Materials in violationof any law in effect on or before the Closing Date, nor has the Companydisposed of, transported, sold or manufactured any product containing aHazardous Material (collectively, “**HazardousMaterials Activities**”) in violation of any rule, regulation, treatyor statute promulgated by any Governmental Entity in effect prior to or as ofthe date hereof to prohibit, regulate or control Hazardous Materials or anyHazardous Material Activity.

 

(c)                                  Permits.  The Company currently holds all environmentalapprovals, permits, licenses, clearances and consents (“**Environmental Permits**”) necessary for theconduct of the Company’s and its subsidiaries’ Hazardous Material Activitiesand other businesses as such activities and businesses are currently beingconducted and are proposed to be conducted (including by the SurvivingCorporation 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 to the Company’s knowledge, threatenedconcerning any Environmental Permit, Hazardous Material or any HazardousMaterials Activity of or relating to the Company or any subsidiary.  The Company is not aware of any fact orcircumstance which could involve the Company or any subsidiary in any materialenvironmental litigation or investigation or impose upon the Company, anysubsidiary or the Surviving Corporation as the successor to the Company anymaterial environmental liability, whether for its actual activities, as apotentially responsible party or otherwise.

 

(e)                                  CapitalExpenditures.  The Company is notaware of any capital expenditures that are required or recommended for it andits subsidiaries to comply with any applicable Environmental Laws.

 

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2.19                           Brokers’ and Finders’Fees; Third-Party Expenses.  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 charges in connection with this Agreement, anyAncillary Agreement or any transaction contemplated hereby or thereby.  Section 2.19 of the Company Schedule setsforth a reasonable estimate 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 beincluded as liabilities of the Company in calculating the Net Assets as of theClosing Date, to the extent they remain unpaid as of the Effective Time.

 

2.20                           Employee Benefit Plans.

 

(a)                                  Definitions.  For purposes of this Agreement, the followingterms have the respective meanings set forth below:

 

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

 

(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, contributedto or required to be contributed to, by the Company or any ERISA Affiliate forthe benefit of any Employee (as defined below), or with respect to which theCompany or any ERISA Affiliate has or may have any liability obligation,including all International 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;

 

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(vii)                           “**FMLA**” means the Family Medical Leave Act of 1993, as amended;

 

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

 

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

 

(x)                                   “**Multiemployer Plan**” means any “Pension Plan”(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 of Section 3(2) ofERISA.

 

(b)                                 Employee Plans andEmployee Agreements.

 

(i)                                     Section 2.20(b)(i) ofthe Company Schedule contains an accurate and complete list of eachCompany Employee Plan and each Employee Agreement.  Neither the Company nor any ERISA Affiliatehas any plan or commitment, whether legally binding or not, to establish anynew Company Employee Plan or Employee Agreement, to modify any Company EmployeePlan or Employee Agreement (except to the extent required by law or to conformany such Company Employee Plan or Employee Agreement to the requirements of anyApplicable Law, in each case as previously disclosed to Parent in writing, oras required by this Agreement), or to adopt or enter into any Company EmployeePlan or Employee Agreement.  Allemployees of the Company are employed at will.

 

(ii)                                  Section 2.20(b)(ii) ofthe Company Schedule sets forth, individually and by category, the name ofeach officer, employee and consultant, together with such person’s position orfunction, annual base salary or wage and any incentive, severance or bonusarrangements with respect to such person. Entering into this Agreement and the Ancillary Agreements and completingthe transactions contemplated hereby and thereby will not result in any paymentor increased payment becoming due from the Company to any current or formerofficer, director or employee of, or consultant to, the Company, and, to theknowledge of the Company, no employee or consultant of the Company has made anythreat, or otherwise revealed an intent, to terminate such employee’s orconsultant’s relationship with the Company for any reason, including because ofthe consummation of the transactions contemplated by this Agreement or theAncillary Agreements.  The Company is nota party to any agreement for the provision of labor from any outsideagency.  Since the Company’s date ofincorporation, there have been no claims by employees of such outside agencies,if any, with regard to employees assigned to work for the Company, and noclaims by any governmental agency with regard 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 other 

 

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discrimination or common lawclaims, including claims of wrongful termination, by any employees of theCompany or by any of the employees performing work for the Company but providedby an outside employment agency, and there are no facts or circumstances knownto the Company that could reasonably be expected to give rise to such complaintor claim.  The Company (A) has atall times complied with all Applicable Law related to employment, (B) hasnot received any notice of any claim that it has not complied in any materialrespect with any Applicable Law relating to employment, including anyprovisions thereof relating to wages, hours, collective bargaining, the paymentof Social Security and similar taxes, equal employment opportunity, employmentdiscrimination, the Worker Adjustment and Retraining Notification Act (the “**WARN Act**”) and employee safety, and (C) hasnot received any notice of any claim that it is liable for any arrearages ofwages or any taxes or penalties for failure to comply with any of theforegoing.

 

(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.  The Company has provided to Parent correctand complete copies of the following items, all of which are listed in Section 2.20(c) ofthe 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

 

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case, relating to anyamendments, terminations, establishments, increases or decreases in benefits,acceleration of payments or vesting schedules or other events which wouldresult in any material liability to the Company or the Surviving Corporation;

 

(viii)                        allcorrespondence to or from any Governmental Entity relating to any Company EmployeePlan;

 

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

 

(x)                                   thethree (3) most recent plan years discrimination tests, if any, for eachCompany Employee Plan; and

 

(xi)                                allregistration statements, annual reports (Form 11-K and all attachmentsthereto) and prospectuses, if any, prepared in connection with each CompanyEmployee Plan.

 

(d)                                 Employee PlanCompliance.

 

(i)                                     TheCompany and its ERISA Affiliates (A) have performed in all material respectsall obligations required to be performed by them under each Company EmployeePlan, (B) are not in default or violation of any Company Employee Plan and(C) have no knowledge of any default or violation by any other party toany 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) ofthe Code and each trust intended to qualify under Section 501(a) ofthe Code (A) has either applied for, prior to the expiration of therequisite period under applicable Treasury Regulations or IRS pronouncements,or obtained a favorable determination, notification, advisory and/or opinionletter, as applicable, as to its qualified status from the IRS or still has aremaining period of time under applicable Treasury Regulations or IRSpronouncements in which to apply for such letter and to make any amendmentsnecessary to obtain a favorable determination and (B) incorporates or hasbeen amended to incorporate all provisions required to comply with the TaxReform Act of 1986 and subsequent legislation.

 

(iv)                              Foreach Company Employee Plan that is intended to be qualified under Section 401(a) ofthe Code, there has been no event, condition or circumstance that has adverselyaffected, 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 under Section 408of ERISA, has occurred with respect to any Company Employee Plan.

 

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(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).

 

(viii)                        There areno audits, inquiries or proceedings pending or, to the knowledge of the Companyor 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.

 

(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 Companynor any ERISA Affiliate has ever maintained, 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 “fundedwelfare plan” within the meaning of Section 419 of the Code.

 

No Company Employee Planprovides health benefits that are not fully insured through an insurancecontract.

 

(f)                                    No Post-EmploymentObligations.  No Company EmployeePlan provides, or reflects or represents any liability to provide, lifeinsurance, medical or other employee benefits to any Employee upon his or herretirement or termination of employment for any reason, except as may berequired by COBRA or other applicable statute, and neither the Company nor anyERISA Affiliate has represented, promised or contracted (whether orally or inwriting) to any Employee (either individually or to Employees as a group) orany other person that such Employee(s) or other person would be provided lifeinsurance, medical or other employee welfare benefits upon retirement ortermination of employment, except to the extent required by statute.

 

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(g)                                 Health CareCompliance.  Neither the Company norany ERISA Affiliate has violated any of the health care continuationrequirements of COBRA, the requirements of FMLA, the requirements of the HealthInsurance Portability and Accountability Act of 1996, the requirements of theWomen’s Health and Cancer Rights Act of 1998, the requirements of the Newborns’and Mothers’ Health Protection Act of 1996 or any amendment to each such act,or any similar provisions of state law applicable to its Employees.

 

(h)                                 Past Acquisitions.  Other than the employment contracts withformer Verapass Group employees Adam Rioux, Craig Roah and Mark Roah (the “**Verapass Contracts**”), neither the Companynor any ERISA Affiliate is currently obligated to provide an Employee with anycompensation or benefits pursuant to an agreement (*e.g.*, an acquisition agreement) with a former employerof 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,forgiveness of indebtedness, vesting, distribution, increase in benefits,obligation to fund benefits or other change in benefits with respect to anyEmployee, other than as described in Section 2.20(i)(i) of theCompany Schedule.

 

(ii)                                  No payment or benefitwhich will or may be made by the Surviving Corporation, the Company, its ERISAAffiliates or Parent or any of its respective affiliates with respect to anyEmployee will be characterized as a “parachute payment,” within the meaning of Section 280G(b)(2) ofthe Code.

 

(iii)                               With respect to anyinsurance policy which provides, or has provided, funding for benefits under anyCompany Employee Plan, (A) there is and will be no liability of theSurviving Corporation, the Company, Parent or any of their respectivesubsidiaries in the nature of a retroactive or retrospective rate adjustment,loss sharing arrangement or actual or contingent liability as of or immediatelyafter the Closing Date, nor would there be any such liability if such insurancepolicy were 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 incompliance in all material respects with all Applicable Law respectingemployment, employment practices, terms and conditions of employment and wagesand hours, in each case, with respect to its Employees and independentcontractors; (ii) has withheld and reported all amounts required by law orby agreement to be withheld and reported from the wages, salaries and otherpayments to Employees; (iii) is not liable for any arrears of wages or anyTaxes or any penalty for failure to comply with any of the foregoing; and (iv) isnot liable for any payment to any trust or other fund

 

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or to any governmental oradministrative authority with respect to unemployment compensation benefits,social security or other benefits for Employees (other than routine payments tobe made in the ordinary course of business and consistent with pastpractice).  There are no pending,threatened or reasonably anticipated claims or actions against the Companyunder any worker’s compensation policy or short-term or long-term disabilitypolicy.  Neither the Company nor anyERISA Affiliate has direct or indirect liability with respect to anymisclassification of any person as an independent contractor rather than as anemployee, or with respect to any employee leased from another employer.

 

(k)                                  Labor.  No work stoppage or labor strike againstthe Company or an ERISA Affiliate is pending, threatened or reasonablyanticipated.  The Company is not involvedin or, to the knowledge of the Company, threatened with, any labor dispute, grievanceor litigation relating to labor, safety or discrimination matters involving anyEmployee, including charges of unfair labor practices or discriminationcomplaints, which, if adversely determined, would, individually or in theaggregate, result in material liability to Company.  Neither the Company nor any of itssubsidiaries has engaged in any unfair labor practices within the meaning ofthe National Labor Relations Act.  TheCompany is not currently, nor has it been in the past, a party to, or bound by,any collective bargaining agreement or union contract with respect to itsEmployees and no collective bargaining agreement or union contract is beingnegotiated by the Company.  Neither theCompany nor any of its subsidiaries has incurred any material liability ormaterial obligation under the WARN Act or any similar state or local law thatremains unsatisfied.

 

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

 

(n)                                 Section 409A.  Neither the Company nor any of itssubsidiaries is a party to or is otherwise bound by any contract, plan orarrangement that could subject such entity or any other person to Section 409Aof the Code.

 

2.21                           Compliance with Laws.  The Company and each subsidiary hasmaterially complied with, is not in material violation of, and has not receivedany notices of violation with respect to, any applicable federal, state orlocal statute, law, ordinance, rule or regulation, domestic or foreign (“**Applicable Law**”).  In particular, the Company and eachsubsidiary is in compliance with all Applicable Laws with respect to thedesign, development, promotion, sale, license, manufacture, import, export,use, distribution or provision of the Company Products.  Except as disclosed in Section 2.15 ofthe Company Schedule, the Company has not received any communication during thepast three years from any Governmental Entity or other person that alleges thatit is not or was not in compliance with any Applicable Law, nor is the Companyor the Stockholder aware of any reasonable basis for such claim.  The Company has taken adequate and sufficientmeasures to ensure that its subsidiaries and agents have complied with allApplicable Laws with respect to the design, development, promotion, sale,license, manufacture, import, export, use, distribution or provision of theCompany Products, and the Company and the Stockholder are not aware of any violationsince inception by any of its current or former agents of such Applicable Laws.

 

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2.22                           Warranties; Indemnities.  There are no material warranty or indemnityclaims pending or threatened against the Company or any subsidiary.  Section 2.22 of the Company Schedule setsforth:

 

(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 Stockholder, 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.

 

True andcorrect copies of all forms of Warranty Obligations have been delivered toParent prior to the execution of this Agreement.  There have not been any material deviationsfrom the Warranty Obligations, and salespersons, employees and agents of theCompany and its subsidiaries are not authorized to undertake obligations to anycustomer or other person in excess of or materially different from suchWarranty Obligations.  The CompanyFinancials reflect adequate and appropriate reserves for all WarrantyObligations.  All products manufactured,designed, licensed, leased, rented or sold by the Company and its subsidiariesare and were free from material defects in construction and design and satisfyin all material respects the written requirements therefor set forth in any andall contracts, agreements, purchase orders, Warranty Obligations or otherspecifications or agreements related thereto.

 

2.23                           Representations Complete.  The Company and its representatives havedisclosed to Parent all facts (after reasonable investigation and inquiry)material to the Company and its subsidiaries or to the Company’s business, andthere are no facts or circumstances that have not been disclosed to Parentwhich could reasonably be expected to result in any Company Material AdverseEffect.  None of the representations orwarranties made to Parent by the Company or the Stockholder (taken togetherwith the Company Schedule), none of the statements of, by or regarding theCompany made in any schedule, certificate or other document furnished by theCompany to Parent in connection with this Agreement or any Ancillary Agreement,contains or will contain any untrue statement of a material fact, or omit tostate any material fact necessary in order to make the statements containedherein or therein (to the extent such statements are of, by or regarding theCompany) not misleading.

 

2.24                           Insurance.  All insurance policies of the Company and itssubsidiaries are listed on Section 2.24 of the Company Schedule.  There is no material claim pending under anysuch policies as to which coverage has been questioned, denied or disputed bythe underwriters of or obligors on such policies.  All premiums due and payable under all suchpolicies have been timely paid and the Company and its subsidiaries areotherwise in compliance with the terms of such policies.  The Company and the Stockholder have noknowledge of any threatened termination of, or material premium increase withrespect to, any of such policies, or that any

 

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underwriter orcarrier would not renew each such policy on substantially comparable terms ascurrently in effect.

 

2.25                           Foreign Corrupt PracticesAct.  Neither the Company, nor to theknowledge of the Company, any subsidiary, agent, employee or other personassociated with or acting on behalf of the Company has, directly or indirectly,used any corporate funds for unlawful contributions, gifts, entertainment orother unlawful expenses relating to political activity, made any unlawfulpayment to foreign or domestic government officials or employees or to foreignor domestic political parties or campaigns from corporate funds, violated anyprovision of the Foreign Corrupt Practices Act of 1977, as amended, or made anybribe, rebate, payoff, influence payment, kickback or other similar unlawfulpayment.

 

2.26                           Complete Copies ofMaterials.  The Company has used itsgood faith best efforts to, and to its best knowledge has, delivered or madeavailable true and complete copies of each document that has been requested byParent or its counsel in connection with Parent’s legal, accounting andbusiness review of the Company.

 

2.27                           Board and StockholderApproval.  As provided by the CGCL,the DGCL and the Company’s Articles of Incorporation and Bylaws, the Board ofDirectors of the Company (a) has unanimously approved this Agreement, theAncillary Agreements and the transactions contemplated hereby and thereby and (b) hasunanimously determined that this Agreement, the Ancillary Agreements and thetransactions contemplated hereby and thereby (including the Merger) are fair toand in the best interests of the Stockholder. As provided by the CGCL, the DGCL and the Company Certificate ofIncorporation and Bylaws, the Stockholder holding 100% of the outstandingshares of Common Stock has approved this Agreement, the Ancillary Agreementsand the transactions contemplated hereby and thereby (including the Merger)pursuant to the Written Consent executed and delivered to the Company on orprior to the date hereof (a true and correct copy of which has been provided toParent).  The Stockholder has notwithdrawn or revoked any such Written Consent nor, to the Company’s bestknowledge after due inquiry, has such Stockholder expressed an intent or desireto attempt to do so.  No other approvalof the stockholders of the Company or any other person is necessary to approvethis Agreement, the Ancillary Agreements and the transactions contemplatedhereby and thereby (including the Merger).

 

2.28                           Customers and Suppliers.  No customer individually accounts for morethan 1%, and no group or combination of customers which collectively accountedfor more than 1%, of the Company’s consolidated gross revenues during the 12-monthperiod preceding the date hereof, and no supplier of the Company, has canceledor otherwise terminated, or made any threat to the Company to cancel orotherwise terminate, its relationship with the Company, or has decreasedmaterially its services or supplies to the Company, in the case of any suchsupplier, or its usage of the services or products of the Company, in the caseof any such customer and, to the best knowledge of the Company, no suchsupplier or customer intends to cancel or otherwise terminate its relationshipwith the Company or to decrease materially its services or supplies to theCompany or its usage of the services or products of the Company, as the casemay be.  The Company has not breached anyagreement with, or engaged in any fraudulent conduct with respect to, anycustomer or supplier of the Company.

 

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2.29                           Export Control Laws.  The Company and each subsidiary has conductedits export transactions at all times in strict compliance with applicableprovisions of all export control laws and regulations, including, but notlimited to, the Export Administration Act and implementing ExportAdministration Regulations.  Withoutlimiting the foregoing, the Company and the Stockholders represent and warrantthat:

 

(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 Stockholder’s knowledge, threatened claims againstthe Company or any subsidiary with respect to such export licenses or otherapprovals;

 

(d)                                 to the Company’s andthe Stockholder’s 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 obtained expeditiouslywithout material cost.

 

2.30                           Banks and BrokerageAccounts.  Section 2.30 of theCompany 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.

 

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2.31                           Takeover Statutes.  No “fair price,” “moratorium,” “control shareacquisition” or other or similar antitakeover statutes or regulations enactedor promulgated under federal, state or foreign law is applicable with respectto the Company in connection with the Merger or any other transactioncontemplated by this Agreement or the Ancillary Agreements.

 

2.32                           Intentionally Omitted.

 

2.33                           Intentionally Omitted.

 

2.34                           Intentionally Omitted.

 

2.35                           Spyware and AdwareActivities.  The Company does notengage in any activities related to spyware or adware except as set forth in Section 2.35of the Company Schedule.

 

2.36                           Inventory.  The parties hereto agree that the saleable inventoryof the Company shall be deemed to be $1,296,982 as shown on the Closing DateNet Assets Calculation.  Section 2.36of the Company Schedule sets forth a true, complete and correct list ofthe Company’s saleable inventory as agreed by the parties based on an inventoryconducted and/or observed by Parent prior to execution of this Agreement, andaccurately reflects the agreed amount of the Company’s saleable inventory as ofthe date hereof.

 

2.37                           Property and Equipment.  The parties hereto agree that the propertyand equipment of the Company shall be deemed to be $312,167 as shown on theClosing Date Net Assets Calculation.  Section 2.37of the Company Schedule sets forth a true, complete and correct list ofthe Company’s property and equipment as agreed by the parties based on aninventory conducted and/or observed by Parent prior to execution of thisAgreement, and accurately reflects the agreed amount of the Company’s propertyand equipment as of the date hereof.

 

# **ARTICLE III**

# ** **

# **REPRESENTATIONSAND WARRANTIES OF PARENTAND MERGER SUB**

# ** **

Parent and Merger Sub represent and warrantto the Company as follows:

 

3.1                                 Organization,Standing and Power.  Each of Parentand Merger Sub is a corporation duly organized, validly existing and in goodstanding under the laws of the State of Delaware.  Each of Parent and Merger Sub has thecorporate 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.  Parent and Merger Sub have all requisitecorporate power and authority to enter into this Agreement and any AncillaryAgreements to which Parent and Merger

 

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Sub areparties, to perform their respective obligations hereunder and thereunder andto consummate the transactions contemplated 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 the Ancillary Agreementshave been duly executed and delivered by Parent and Merger Sub, as applicable,and constitute the valid and binding obligations of Parent and Merger Sub, asapplicable, enforceable against such respective parties in accordance withtheir terms, except as such enforceability may be limited by principles ofpublic policy and subject to the laws of general application relating tobankruptcy, 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 andMerger Sub of this Agreement and the Ancillary Agreements to which Parent andMerger Sub are parties do not, and the observance and performance by suchparties of their respective obligations under this Agreement and the AncillaryAgreements to which they are a party and the consummation of the transactionscontemplated hereby and thereby do not and will not:

 

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

 

(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,Merger Sub 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 theCertificate of Merger with the Secretary of State of the State of Delaware andthe Agreement of Merger with the Secretary of State of the State of California.

 

(d)                                 violateany Applicable Law to which Parent or any of its property is subject.  Parent is not required by Applicable Law togive any notice to, make any filing with, or obtain any authorization, consentor approval of any Governmental Entity or other person in order for Parent toconsummate the transactions contemplated by this Agreement, other than any suchfiling, authorization, consent or approval that is contemplated by terms ofthis Agreement.

 

3.4                                 Investment Advisors.  No broker, investment banker, financial advisoror other person is entitled to any broker’s, finder’s, financial advisor’s orsimilar fee or commission in connection with this Agreement or any AncillaryAgreement or the consummation of the transactions contemplated hereby orthereby based on arrangements made by or on behalf of Parent or Merger Sub.

 

3.5                                 Availability ofFunds.  Parent has available, or willhave available at the time payment is required, sufficient funds in immediatelyavailable cash to pay the Merger

 

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Considerationpayable to the Stockholder pursuant to the Merger and to fund the Escrow Fundas provided in Section 1.8 hereof.

 

# **ARTICLE IV**

# ** **

# **CONDUCTPRIOR TO THE EFFECTIVE TIME**

# ** **

4.1                                 Conduct of Businessof the Company.  During the periodfrom the date of this Agreement and continuing until the earlier of thetermination of this Agreement pursuant to Section 8.1 and theEffective Time, the Company agrees:

 

(a)                                  tocarry on its business in the usual, regular and ordinary course in substantiallythe same manner as heretofore conducted and, in any event, consistent in allrespects with the Company’s 2005 Budget previously provided to the Parent inthe form of Exhibit I;

 

(b)                                 totimely pay its debts and Taxes and to timely file all tax returns (**“Tax Returns”**) when due;

 

(c)                                  topay or perform all other obligations when due; and

 

(d)                                 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 andothers having business dealings with it;

 

all with thegoal of preserving unimpaired the Company’s goodwill and ongoing businessesthrough the Effective Time.  The Companyshall promptly notify Parent of any event or occurrence or emergency not in theordinary course of business of the Company, and any material event involvingthe Company.

 

4.2                                 Negative Covenants.  During the period from the date hereof andcontinuing until the earlier of the termination of this Agreement pursuant to Section 8.1and the Effective Time, the Company, its subsidiaries and the Stockholder 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 orencumber the Company Intellectual Property in any manner (other thanpursuant to end-user licenses in the ordinary course of business or pursuant toinstruments of assignment to Merger Sub effective as of the Effective Time) or assert or threaten to assert any rightswith respect to the Company Intellectual Property against any third-party;

 

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(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, or violatethe terms of, any of the agreements set forth or described in the CompanySchedule;

 

(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;

 

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

 

(h)                                 issue or authorize theissuance of any other securities in respect of, in lieu of or in substitutionfor, 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 (including options, warrants or otherrights exercisable therefor);

 

(j)                                     (x) issue,deliver or sell or authorize or propose the issuance, delivery or sale of or(y) purchase or propose the purchase of, any shares of its capital stockor securities convertible into, or subscriptions, rights, warrants or optionsto acquire, or other agreements or commitments of any character obligating itto sell or issue any such shares or other convertible securities;

 

(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 agreeto acquire 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;

 

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

 

(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 any indebtednessfor borrowed money or guarantee or agree to act as a surety for anyindebtedness;

 

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(p)                                 sell or issue any debtsecurities of the Company or guarantee or agree to act as a surety for any debtsecurities 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 for the Veripass Releases;

 

(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 any CompanyEmployee Plan or enter into any employment or consulting contract, pay or agreeto pay any special bonus or special remuneration to any director, officer oremployee or consultant, or increase the salaries or wage rates, or fringebenefits (including rights to severance or indemnification of its directors,officers, employees or consultants or the modification of any existingcompensation or equity arrangements with such individuals or the change ofvesting terms of any Company Options) of any such persons;

 

(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;

 

(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 ofbusiness;

 

(w)                               except for the repaymentof the Outstanding Indebtedness listed on Exhibit G to thisAgreement, pay, discharge or satisfy any claim, liability or obligation(whether absolute, accrued, asserted or unasserted, contingent or otherwise) inan amount in excess of $10,000 (in any one case) or $50,000 (in the aggregate),other than the payment, discharge or satisfaction in the ordinary course ofbusiness of liabilities reflected or reserved against in the Closing Date NetAssets Calculation;

 

(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,settle any claim or assessment in respect of Taxes, or consent to any extensionor waiver 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

 

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performing or cause the Companynot to perform its covenants or obligations hereunder or under any AncillaryAgreement.

 

4.3                                 No Solicitation.  Until the earlier of the termination of thisAgreement pursuant to Section 8.1 and the Effective Time, theCompany and the Stockholder will not, nor will the Company or the Stockholderpermit any of the Company’s officers, directors, agents, representatives oraffiliates (any of the foregoing, a “**CompanyRepresentative**”) to, directly or indirectly, take any of the followingactions with any party other than Parent and 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.

 

The taking ofany action described in clauses (a) through (d) aboveby the Company, the Stockholder or any Company Representative shall be deemed amaterial breach by the Company of this Agreement, regardless of the party whoactually takes such action.  The Companyand the Stockholder shall immediately cease and cause to be terminated any suchcontacts, negotiations or activities with third-parties relating to any suchtransaction or proposed transaction.  Inaddition to the foregoing, if the Company or the Stockholder receives any offeror proposal relating to any such transaction or proposed transaction at anytime prior to the earlier of the Effective Time or the termination of thisAgreement, the Company or the Stockholder 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.

 

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# **ARTICLE V**

# ** **

# **ADDITIONALAGREEMENTS**

# ** **

5.1                                 Access toInformation; Cooperation.

 

(a)                                  GeneralAccess; 3-05 Audit.  The Companyshall cooperate with and afford Parent and its accountants, counsel and otherrepresentatives reasonable access during normal business hours during theperiod prior to the Effective Time to (a) all of the Company’s properties,books, contracts, commitments and records and (b) all other informationconcerning the business, properties and personnel of Company as Parentreasonably may request in conducting its business, accounting and legal reviewand 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 or knowledge obtained in anyinvestigation pursuant to this Section 5.1 or otherwise shallaffect or be deemed to modify any representation or warranty contained hereinor in any Ancillary Agreement or the conditions to the obligations of theparties to consummate the Merger and the other transactions contemplated herebyand thereby.  In addition, the Companyshall, and agrees to cause its appropriate officers and other personnel to,execute and deliver such documents and instruments as may be requested byParent or required by third-party accountants and auditors in connection withthe matters contemplated by this subparagraph (a), including anywork 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.  The Parent agrees that it shall bear all ofthe fees, costs and expenses incurred in connection with any 3-05 Audit.

 

(b)                                 InformationTechnology Access; Waiver.  Tofacilitate prompt integration of the Company’s information technology (“**IT**”) inventory (e.g., voice and datanetwork services and software and hardware, licenses, financial/accountingsoftware, IT budgets, etc.) with Parent’s IT following the Closing, the Companywill provide Parent and its agents, employees and representatives reasonableaccess, at any time during normal business hours from the date hereof throughthe Effective Time, to the Company’s IT inventory and the Company’s personnelresponsible for such IT inventory. Notwithstanding anything to the contrary contained elsewhere in thisAgreement, the Company hereby waives any Claim it may have against Parentrelated to the IT access provided for in this Section 5.1(b) inthe event that this Agreement is terminated pursuant to the provisions of Section 8.1of the Agreement.

 

5.2                                 Confidentiality.  Each of the parties hereto hereby agrees tokeep confidential all information or knowledge obtained in any investigation oractivities pursuant to Section 5.1, or pursuant to or in connectionwith the negotiation and execution of this Agreement, the Ancillary Agreementsor the effectuation of the transactions contemplated hereby or thereby (“**Confidential Information**”); provided,however, that the foregoing obligation shall not apply to information orknowledge which (a) a party can demonstrate was already lawfully in itspossession prior to the disclosure thereof by the other party, (b) isgenerally known to the public

 

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and did notbecome so known through any violation of law by the party with the informationor knowledge, (c) became known to the public through no fault of suchparty, (d) is later lawfully acquired by such party from other sources, (e) isrequired to be disclosed pursuant to Section 5.6 or by order ofcourt or government agency with subpoena powers (provided, that such partyshall first give the other party prior notice of such order and a reasonableopportunity to object to such compelled disclosure or take other availableaction 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.

 

5.3                                 Public Disclosure.  Unless otherwise required by law, nodisclosure (whether or not in response to an inquiry) of the subject matter ofthis Agreement shall be made by the Company or any of its directors, officers,stockholders, employees, agents, consultants, advisors or other representativeswithout the prior written consent of Parent. The parties acknowledge and agree that it is their mutual intent toissue a joint press release announcing the transaction and to that end will ingood faith agree to mutually acceptable text for such press release.  Thereafter, to the extent that Parent issuesa press release with respect to the execution of this Agreement or thetransactions contemplated hereby, Parent shall provide the Company a reasonableopportunity to review such release in advance, but the Company shall have noapproval rights with respect to the scope or substance of such subsequent releasesto the extent the matters included are factually accurate and do not discloseany Confidential Information regarding the Company.

 

5.4                                 Consents.  The Company shall obtain all requisiteconsents, waivers and approvals under any of the Material Contracts as may berequired in connection with the Merger or any other transaction contemplatedhereby or by the Ancillary Agreements and, to the extent necessary, inconnection with any necessary assignments of any Material Contracts to theSurviving Corporation (including any insurance policies), in each case so as topreserve all rights of, and benefits to, the Company thereunder at all timesprior to the Merger and to ensure that after the Merger the SurvivingCorporation at all times retains all rights and benefits previously availableto the Company prior to the Effective Time.

 

5.5                                 Reasonable Efforts.  Subject to the terms and conditions providedin this Agreement and any other standards applicable to specific obligations oractions contemplated hereby, each of the parties hereto shall use itsreasonable best efforts to take promptly, or cause to be taken, all actions,and to do promptly, or cause to be done, all things necessary, proper oradvisable under Applicable Law to consummate the transactions contemplatedhereby, to obtain all necessary waivers, consents and approvals, to effect allnecessary registrations and filings and to remove any injunctions or otherlegal or other impediments or delays, in order to consummate the transactionscontemplated by this Agreement or the Ancillary Agreements and secure to theparties hereto the benefits contemplated hereby and thereby; provided, however,that Parent shall not be required to agree to any divestiture by Parent, theCompany or any of Parent’s subsidiaries or affiliates of shares of capitalstock or any business, assets or property, or the imposition of any limitationon the ability of any such persons to conduct their respective businesses or toown or exercise 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 giveprompt notice to Parent of the occurrence or non-occurrence of any event, theoccurrence or non-occurrence of which is reasonably likely to cause anyrepresentation or warranty of the Company or the Stockholder contained in thisAgreement to be untrue or inaccurate at or prior to the Effective Time or anyfailure of the Company or the Stockholder to comply with or satisfy anycovenant, condition or agreement to be complied with or satisfied by theCompany or the Stockholder hereunder. Parent shall give prompt notice to the Company of the occurrence or non-occurrenceof any event, the occurrence or non-occurrence of which is reasonably likely tocause any representation or warranty of Parent contained in this Agreement tobe untrue or inaccurate at or prior to the Effective Time or any failure of theParent to comply with or satisfy any covenant, condition or agreement to becomplied with or satisfied by it hereunder. Notwithstanding the foregoing, the delivery of any notice pursuant tothis Section 5.6 shall not act as a waiver of or limit or otherwiseaffect any remedies available to the party receiving such notice by virtue ofthe events or circumstances referenced in such notice.

 

(b)                                 IntellectualProperty Notices; IP Assignments. The Company shall give Parent prompt notice if any person shall have (i) commenced,or shall have notified the Company that it intends to commence, an action orproceeding or (ii) provided the Company with notice, in either case whichallege(s) that any of the Company Intellectual Property currently embodied, orproposed to be embodied, in the Company Products or utilized inCompany-designed or modified development tools (including standard cells) ordesign environments infringes or otherwise violates the intellectual propertyrights of such person, is available for licensing from a potential licensor providingthe notice or otherwise alleges that the Company does not otherwise own or havethe right to use and exploit such Company Intellectual Property (the foregoing,an “**Infringement Claim**”).  The Company shall cooperate with Parent inmaking arrangements, prior to the Closing Date, satisfactory to Parent in itssole and reasonable discretion to effect any necessary or appropriateassignments (as determined by Parent) to the Surviving Corporation of allCompany Intellectual Property or other intellectual property rights owned orlicensed by the Company or created by the Company’s founders, employees,consultants and independent contractors, including any Company IntellectualProperty or other intellectual property rights created by the Company’sfounders prior to the Company’s incorporation, and to obtain the cooperation ofsuch persons to complete all Company Intellectual Property in the name of theSurviving Corporation at the Company’s or 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 will notify Parent of all actions which mustbe taken within the 180 days following the Closing Date and which are necessaryto maintain, perfect, preserve or renew any Company Intellectual Property (andapplications or registrations with respect to the same), including the paymentof any registration, maintenance, renewal fees, annuity fees and taxes or thefiling of any documents, applications or certificates related thereto.

 

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5.7                                 Third-PartyExpenses.  The Company shall cause allThird-Party Expenses (as defined in Section 8.3) to be invoiced onor prior to the Closing Date and either paid or discharged in full prior to theEffective Time or included as liabilities of the Company in the Closing DateNet Assets Calculation.  Parent shallhave the right to approve all Third-Party Expenses to be incurred by theCompany between the date hereof through the Effective Time, including necessaryfees and expenses of legal counsel, auditors and tax advisors, which approvalswill not be unreasonably withheld or delayed; provided, however,that the Company shall not be required to obtain approval for up to $75,000 inThird-Party Expenses incurred by the Company in the aggregate in connectionwith negotiating, documenting, executing and effectuating the terms andconditions of this Agreement, the Ancillary Agreements and the transactionscontemplated hereby and thereby; provided, further,**that, regardless of whether the Companyproperly seeks and obtains the approval of Parent with respect to any specificThird-Party Expenses, the actual amounts of all such Third-Party Expensesincurred by the Company and not paid or discharged in full prior to theEffective Time shall be included in the liabilities of the Company reflected inthe Closing Date Net Assets Calculation.

 

5.8                                 CapitalContribution by Parent and Repayment of all Outstanding Indebtedness by Company.  Contemporaneously with the Closing of theMerger, Parent shall make a capital contribution of $4,725,693 to theCompany.  Contemporaneously with thiscapital contribution, the Company shall cause all of the OutstandingIndebtedness listed on Exhibit G to this Agreement to be repaid infull.  Contemporaneously with theClosing, the Company shall procure executed payoff letters, acceptable in formand substance to the Parent, from all holders of the Outstanding Indebtednessindicating that all amounts payable under the Outstanding Indebtedness havebeen paid in full at Closing, and that all remaining rights of such holdersunder the instruments evidencing the Outstanding Indebtedness are therebyreleased upon the Closing.

 

5.9                                 Tax Returns.  The Stockholder will cause the timely filingof the Company’s federal and state income tax returns for the fiscal year endedDecember 31, 2004 and for the period from January 1, 2005 through theClosing Date (the **“Pre-Close Period TaxReturns”**).  Any penalties,fines or interest charges which result from the Pre-Close Period Tax Returnsnot being filed on a timely basis will be borne by the Stockholder (to the extentin excess of the accrued income taxes payable as set forth on the Closing DateNet Assets Calculation.  Parent will makeall reasonable efforts to allow timely access by the Stockholder and his taxadvisor(s) to the financial and other relevant records of the Company for theperiods covered by the Pre-Close Period Tax Returns.

 

# **ARTICLE VI**

# ** **

# **CONDITIONSTO THE MERGER**

# ** **

6.1                                 Conditions toObligations of Each Party to Effect the Merger.  The respective obligations of each party tothis Agreement to effect the Merger and the other transactions

 

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contemplatedhereby and by the Ancillary Agreements shall be subject to the satisfaction ormutual waiver of the following conditions at or prior to the Effective Time:

 

(a)                                  No Restraints;Illegality.  No temporary restrainingorder, preliminary or permanent injunction or other order issued by anyGovernmental Entity or other legal restraint or prohibition preventing theconsummation of the Merger or any other transaction contemplated hereby or inthe Ancillary Agreements shall be in effect, nor shall there be any pendingproceeding brought by any Governmental Entity seeking any of the foregoing, norany action taken, or any statute, rule, regulation or order enacted, entered,enforced or deemed applicable to the Merger or any other transactioncontemplated hereby or in the Ancillary Agreements, which makes theconsummation of the Merger or any such transaction illegal.

 

(b)                                 No Order.  No Governmental Entity shall have enacted,issued, promulgated, enforced or entered any statute, rule, regulation,executive order, decree, injunction or other order (whether temporary,preliminary or permanent) which is in effect and which has the effect of makingthe Merger or any other transaction contemplated hereby or in the AncillaryAgreements illegal or otherwise taken any action to prohibit consummation ofthe Merger or any such transaction.

 

6.2                                 AdditionalConditions to Obligation of the Company. The obligation of the Company to consummate the Merger and the othertransactions contemplated hereby and by the Ancillary Agreements shall besubject to the satisfaction or waiver of each of the following conditions at orprior to the Effective Time (all of which are for the benefit of the Companyand may only be waived by the Company in writing if not satisfied):

 

(a)                                  Representations,Warranties and Covenants.  Therepresentations and warranties of Parent and Merger Sub in this Agreement shallbe true and correct in accordance with their terms as of the Effective Time,except for changes contemplated by this Agreement and except for thoserepresentations and warranties which address matters only as of a particulardate or time (which shall remain true and correct as of such particular date ortime), and each of Parent and Merger Sub shall have observed, performed andcomplied with, in all material respects, all covenants, obligations andconditions of this Agreement required to be observed, performed and compliedwith by Parent and Merger Sub at or prior to the Effective Time.

 

(b)                                 Certificate ofParent.  The Company shall have beenprovided with a certificate executed on behalf of Parent by an ExecutiveOfficer of Parent to the effect that, as of the Effective Time:

 

(i)                                     allrepresentations and warranties made by Parent in this Agreement are true andcorrect as referenced above; and

 

(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.

 

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6.3                                 AdditionalConditions to Obligations of Parent and Merger Sub.  The obligations of Parent and Merger Sub 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 Parent and Merger Sub and may only be waived by Parent inwriting if not satisfied):

 

(a)                                  Representations,Warranties and Covenants.  Therepresentations and warranties of the Company and the Stockholder in thisAgreement shall be true and correct in accordance with their terms as of theEffective Time, except for changes contemplated by this Agreement and exceptfor those representations and warranties which address matters only as of aparticular date (which shall remain true and correct as of such particulardate), and the Company and the Stockholder shall have observed, performed andcomplied with, in all material respects, all covenants, obligations andconditions in this Agreement required to be observed, performed and compliedwith by the Company and the Stockholder at or prior to the Effective Time.

 

(b)                                 Claims.  There shall not have occurred any claims orevents giving rise to any causes of action (whether asserted or unasserted inlitigation and including any claims or causes of action by or available toholders of Company capital stock), which (i) may materially and adverselyaffect the consummation of the Merger or the other transactions contemplatedhereby or by the Ancillary Agreements or (ii) could reasonably beanticipated to result in a material loss to the Company or the SurvivingCorporation.

 

(c)                                  No CompanyMaterial Adverse Effect.  There shallnot have occurred any Company Material Adverse Effect since the date ofexecution of this Agreement.

 

(d)                                 Employment Matters.  Adam Rioux (the “**Key Employee**”) is employed by the Company and shall haveentered into an employment agreement, in form and substance satisfactory toParent, providing for his continued employment by Parent or the Company afterthe Merger.  Adam Rioux shall not haveindicated verbally or in writing to the Company or Parent that he is unwilling tocontinue as an employee of the Company from and after the date hereof until theEffective Time and continuing as an employee of Parent or the SurvivingCorporation after the Effective Time in accordance with the terms andconditions of their written employment agreement.  The Stockholder and William Dunlap shall haveentered into Transition Services Agreements substantially in the forms ofExhibits J and K, respectively.

 

(e)                                  Written Consent.  The Stockholder holding 100% of theoutstanding shares of Common Stock shall have delivered a properly completedand executed Written Consent with respect to such shares approving thisAgreement and any Ancillary Agreements or transactions contemplated hereby orthereby requiring approval by the stockholders of the Company.  This Stockholder shall have cooperated ingood faith to effectuate the Closing and shall not have sought to revoke orwithdraw any consent to or approval of the Merger.

 

(f)                                    Assignment ofIntellectual Property Rights.  All IPAssignments and related actions requested by Parent shall have been validly andproperly completed as

 

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contemplated by Section 5.6(b) andthe Company shall have provided Parent copies of all documents and instrumentsaccomplishing or evidencing the same.

 

(g)                                 IntellectualProperty Proceedings.  The Companyshall not have received notice of any pending or threatened claim or allegationof infringement with respect to any Company Intellectual Property or CompanyProducts.  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 and exploitany Company Intellectual Property or to sell or provide the Company Productsshall be in effect, nor shall there 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.  IntentionallyOmitted.

 

(i)                                     Governmentaland Third-Party Consents.  Any andall consents, waivers, and approvals required to be obtained by the Companyfrom any Governmental Entities or other persons prior to or as a result of theMerger or the consummation of the transactions contemplated hereby or by theAncillary Agreements shall have been obtained (including those required underany Material Contracts as specified in Section 5.4 and the RequisiteConsents).

 

(j)                                     Company Options.  There shall be no Company Options outstandingimmediately prior to the Effective Time.

 

(k)                                  Non-CompetitionAgreement.  The Company shall havedelivered to Parent an executed Non-Competition Agreement, in the form attachedas Exhibit A, from the Stockholder.

 

(l)                                     Third-PartyExpenses.  Three days prior to thescheduled Closing Date, the Company shall provide Parent a statement settingforth in reasonable detail a full and complete summary of all Third-PartyExpenses incurred by the Company certified as to its accuracy and completenessby the Company’s Chief Financial Officer and Chief Executive Officer, in theevent there are any such Third-Party Expenses.

 

(m)                               InformationStatements and Form W-9.  TheStockholder and the Company shall have completed and delivered informationstatements, Forms W-9 and all other documents requested by the Escrow Agent inestablishing the Escrow Account.

 

(n)                                 Closing Date NetAssets Calculation.  The Companyshall have provided Parent a draft of the Closing Date Net Assets Calculationat least 1 business day prior to the Closing Date and shall provide Parent theactual Closing Date Net Assets Calculation on the Closing Date (which shall notshow discrepancies of more than 3% as compared to the draft Closing Date NetAssets Calculation), in each case certified by the Chief Financial Officer andChief Executive Officer of the Company as being true, complete and correct inall material respects.

 

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(o)                                 StockholderDeliveries.  The Stockholder shallhave delivered Certificates representing all of the outstanding shares ofCommon Stock of the Company, duly endorsed in blank and properly completed andsuch other documents and instruments as may be reasonably requested by Parent.

 

(p)                                 Certificate of theCompany.  The Company shall haveprovided Parent with a certificate executed on behalf of the Company by theCompany’s Chief Executive Officer and Chief Financial Officer to the effectthat, as of the Effective Time, all conditions set forth in Sections 6.3(a) through(s) have been satisfied.

 

(q)                                 No Injunctions orRestraints on Conduct of Business by Parent.  No temporary restraining order, preliminaryor permanent injunction or other order issued by any Governmental Entity orother legal or regulatory restraint or provision challenging Parent’s proposedacquisition of Company, or limiting or restricting Parent’s conduct or theoperation of the business of Company (or Parent’s or the Surviving Corporation’sbusiness following the Merger) shall be in effect, nor shall there be anypending or threatened proceeding brought by any person or any GovernmentalEntity seeking any of the foregoing.

 

(r)                                    Opinion ofCompany Counsel.  Parent shall havereceived the opinion of the Company’s legal counsel in the form of Exhibit Eattached hereto.

 

(s)                                  Waiver and Releaseof Rights Under the Verapass Contracts. The Company shall have procured executed Verapass Releases from AdamRioux, Craig Roah and Marh Roah substantially in the form of Exhibit L.

 

# **ARTICLE VII**

# ** **

# **SURVIVALOF REPRESENTATIONS AND WARRANTIES; ESCROW**

# ** **

7.1                                 Survival ofRepresentations and Warranties.  Allrepresentations and warranties in this Agreement or in any instrument deliveredpursuant to this Agreement shall survive the Merger and continue until thesecond anniversary of the Effective Time; provided, however, thatthe representations and warranties contained in Sections 2.2,2.8,2.10 and 2.11 shall survive until 90 days after the expiration ofany applicable statute of limitations period.

 

7.2                                 Indemnity andEscrow Arrangements.

 

(a)                                  Indemnification.  The Stockholder hereby agrees to jointly andseverally indemnify and hold harmless Parent and its affiliates (collectively,the “**Indemnified Parties**”) fromand against any and all claims, losses, costs, expenses, liabilities,judgments, expenses, fines, awards, penalties, sanctions or other damages,including lost profits, losses attributable to any diminution in the value ofthe Company’s business and any settlement costs, reasonable attorneys’ fees andcosts of investigation and preparation, and interest on any cash disbursementsmade by Parent or its affiliates in connection with any of the foregoing at themaximum legal rate for judgments in the State of Delaware (any and all suchamounts, collectively, “**Losses**”)which

 

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any Indemnified Party suffersor incurs or reasonably anticipates suffering or incurring by reason, directlyor indirectly, of:

 

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

 

(ii)                                  anymisrepresentation by the Company or the Stockholder made in or pursuant to thisAgreement;

 

(iii)                               anyinaccuracy in the calculation, or the actual amount, of the Net Assets as ofthe Closing Date;

 

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

 

(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 the Written Consent from theStockholder;

 

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

 

(vii)                           anyPre-Closing Taxes in excess of the amount included in the Closing Date NetAssets Calculation; and

 

(viii)                        anyportion of the Web Loyalty cash, the balance of which is $300,000 as shown inClosing Date Net Assets Calculation, which must be refunded by the Company toWeb Loyalty as a result of any action on the part of Web Loyalty to cancel itscontract with the Company.

 

For purposes of this Article VII“**Losses**” also shall include areasonable amount of legal fees and costs to be advanced to Parent inconnection with demonstrating, collecting or defending against actions orclaims based on any of the items specified in clauses (i) through (viii) above.  Such legal costs and expenses are expresslyauthorized to be advanced to Parent reasonably in advance of Parent actuallyincurring such Losses (subject to the provisions of the Escrow Agreement); provided,however, that Parent shall promptly refund to the Stockholder anyamounts so advanced and not subsequently applied for such purposes.  For purposes of indemnification obligationshereunder and the calculation of Losses pursuant to Article VII,Losses shall not be offset by any related insurance proceeds received by anyIndemnified Party.

 

(b)                                 Escrow Fund.  At the Effective Time, without any act of theStockholder, Parent will deposit the Escrow Amount into an escrow account withWells Fargo Bank (the “**Escrow Agent**”),such deposit to establish and constitute the Escrow Fund.  The Escrow Fund shall be governed by theterms set forth in this Section 7.2 and the terms of the EscrowAgreement attached as Exhibit M hereto (the **“Escrow Agreement”**) and shall be maintainedat

 

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the cost and expense of theStockholder.  The Escrow Amount shall bedeposited into an interest-bearing account and any interest earned thereonshall be added to the Escrow Fund and available to cover Losses of Parent andits 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 incometax purposes, any interest or other income earned on the Escrow Fund shall betreated as income of the Stockholder on whose behalf the assets giving rise tosuch interest or other income are being held.

 

(c)                                  Recourse to theEscrow Fund; Limitation on Indemnity Claims.

 

(i)                                     Parent, on behalfof itself and its affiliates, shall be entitled to withdraw cash from theEscrow Amount (and any interest thereon) to compensate Parent and itsaffiliates for any Losses which Parent or any of its affiliates suffers orincurs or reasonably anticipates suffering or incurring, as provided above (inaccordance with the terms of the Escrow Agreement).  The decision to withdraw cash from the EscrowFund is at Parent’s discretion, and Parent may determine to seek recovery forany Losses, in whole or in part, at any time. 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 Fundprovided herein shall not in any way limit or act as a waiver of any other rightsor remedies available to Parent and its affiliates hereunder or at law or inequity, all of which are cumulative and not exclusive.  Parent may not receive any amounts from theEscrow Fund unless and until Parent delivers an Officer’s Certificate (as definedin subparagraph (e) below) to the Escrow Agent and Stockholderidentifying the nature and amount of Losses being asserted, as described insubparagraph (e) below.

 

(ii)                                  Except in the case of(A) indemnification under Sections 7.2(a)(iii) or (vii),(B) Losses arising out of or in connection with a breach of therepresentations in Sections 2.1, 2.2, 2.4, 2.8, 2.10,2.11 and 2.19 and (C) fraud, intentional misrepresentationor actual concealment, the Stockholder shall not have any obligation toindemnify Parent under Section 7.2(a)  unless and until theaggregate of all Losses suffered by Parent and its affiliates hereunder exceeds$100,000, whereupon the Stockholder shall be liable to indemnify Parent and itsaffiliates for the full amount of all Losses incurred by Parent and itsaffiliates (from the first dollar of such Losses).

 

(iii)                               In the event that Parentor its affiliates incur Losses recoverable pursuant to this Article VIIin excess of the Escrow Amount (and any interest thereon), the Stockholdershall directly indemnify and hold harmless Parent and its affiliates from andagainst all such Losses.

 

(d)                                 Termination andDistribution of Escrow Fund.  TheEscrow Fund shall terminate on the second anniversary of the Effective Time; provided,however, that such portion of the Escrow Fund, which in the reasonablejudgment of Parent is necessary to cover any unsatisfied or disputed Lossesspecified in any Officer’s Certificate delivered to the Escrow Agent at orprior to termination of the Escrow Fund, shall remain in the Escrow Fund (andthe Escrow Fund shall remain in existence) until all such claims have beensatisfied 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 any remaining portion of the EscrowFund (net of amounts payable to Parent) to the Stockholder.

 

(e)                                  Claims.  In order to make a claim for Losses pursuantto this Article VII, Parent shall deliver to the Escrow Agent (forso long as the Escrow Fund exists) and the Stockholder a certificate signed byany authorized officer of Parent (an “**Officer’sCertificate**”):  (i) statingthat Parent or its affiliates has paid, suffered or properly accrued orreasonably anticipates that it will pay, suffer or accrue Losses; (ii) specifyingin reasonable detail the individual items of Losses included in the amount sostated, the date each such item was paid, suffered or accrued, or the basis forsuch anticipated Losses; (iii) the nature of the Losses to which such itemis related; and (iv) the amount of Losses Parent seeks from the EscrowFund or otherwise; provided, however, that the sources ofrecovery specified by Parent as provided in clause (iv) shall notbe irrevocable, and Parent may seek recovery from different sources ordifferent amounts by a written supplemental notice to the Escrow Agent, asapplicable, and the Stockholder.  Parentshall not be estopped by any estimate it may make of the amount of anyanticipated or actual Losses claimed in any Officer’s Certificate, or the basestherefor, and Parent may submit amendments to any Officer’s Certificate, oradditional Officer’s Certificates, in the event that actual or anticipatedLosses, or the bases therefor, subsequently change or are determined to bedifferent than represented in an Officer’s Certificate previouslydelivered.  With respect to Losses up tothe Escrow Amount (and any interest thereon), immediately upon receipt of suchOfficer’s Certificate, the Escrow Agent shall set aside an amount in the EscrowFund equal to the aggregate amount of Losses claimed from the Escrow Fund inthe Officer’s Certificate.  The EscrowAgent shall not distribute any amounts to Parent (other than amounts advancedto Parent for legal costs and expenses pursuant to subparagraph (a) above)out of the Escrow Fund for twenty business days after the date of the Officer’sCertificate, unless the Stockholder authorizes the Escrow Agent to make suchdistribution prior to such date.  To theextent any amounts are advanced to Parent for legal costs and expenses inpursuing a Claim, and upon arbitration of the related Claim the Stockholder isfound to be not responsible for such Claim, Parent shall promptly refund suchamounts to the Escrow Fund (if such Escrow Fund still exists) or to theStockholder.

 

(f)                                    Objections toClaims.  The Escrow Agent shalldistribute to Parent from the Escrow Fund, or, once the Escrow Fund has beenexhausted, the Stockholder shall pay, the full amount of actual Losses claimedin the Officer’s Certificate immediately after the twenty business day waitingperiod specified in subparagraph (e) expires (or at such earlierdate as the Stockholder may authorize), unless prior to such time the Stockholderdelivers a written objection to the claim made in the Officer’s Certificate (a “**Notice of Dispute**”) to the Escrow Agent, ifthe Escrow Fund still exists, with a copy to Parent and its counsel.  The Notice of Dispute must include areasonably detailed description of the basis of the objection, as well as theamount of Losses, if any, which the Stockholder is not disputing.  Any undisputed Losses immediately shall bepaid to Parent by the Escrow Agent or the Stockholder, as applicable.  If the Stockholder does not timely deliver aNotice of Dispute (or such Notice of Dispute does not reasonably describe thebasis of the objection), the Stockholder shall be deemed to have irrevocablyapproved and consented to the payment of all Losses specified in the Officer’sCertificate (including any anticipated Losses, which will be deemed irrevocablyapproved by

 

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Stockholder and shall be paidto Parent by the Escrow Agent or the Stockholder, as applicable, promptly upontheir actual incurrence).  The EscrowAgent and Parent shall be entitled to rely on and act in accordance with anywritten or deemed approval and consent of the Stockholder in immediatelydistributing the amount of any actual Losses claimed in a specific Officer’sCertificate (and in subsequently distributing cash to cover any anticipatedLosses upon occurrence or incurrence), even if the Stockholder subsequentlyobjects to or disputes the nature or amount of Losses.  At such time as the cash in the Escrow Fundis depleted to cover Losses, the Stockholder automatically shall cease to haveany claim on any portion of the Escrow Fund.

 

(g)                                 Resolution ofConflicts.

 

(i)                                     If the Stockholdertimely and properly delivers a Notice of Dispute, the Stockholder and Parentshall attempt in good faith to agree upon the rights and responsibilities ofthe respective parties with respect to such Losses, unless the amount of suchLosses relates to third-party claims that are the subject of an ongoingproceeding before a court, arbitrator or Governmental Entity and remain to bedefinitively determined (in which case, Parent shall be entitled toperiodically make a claim for any Losses associated with such proceeding(including an advance of legal fees and settlement costs), in addition toseeking recovery for the aggregate amount of actual Losses once determined, *less* any amounts previously paid duringthe pendency of the proceeding).  If theStockholder and Parent should agree as a result of their good faith efforts asto the appropriate amount and treatment of such Losses, a memorandum settingforth such agreement shall be prepared and signed by both parties and shall befurnished to the Escrow Agent (to the extent the Escrow Fund still exists). TheEscrow Agent shall be entitled to rely on and act in accordance with any suchmemorandum and promptly shall distribute to Parent the specified amounts fromthe Escrow Fund.

 

(ii)                                  If no agreement canbe reached after good faith negotiation, either Parent or the Stockholder mayinitiate an arbitration proceeding under the terms of Section 9.11to seek enforcement of its rights or resolution of the dispute under this Section 7.2.  The Escrow Agent and Parent shall be entitledto act in accordance with any resulting arbitration decision and make paymentsout of the Escrow Fund in accordance with any final judgment of a properlyassigned arbitrator pursuant to the terms of Section 9.11**.**

 

(h)                                 Third-Party Claims.  If Parent becomes aware of any third-partyclaim which Parent believes may result in a claim for Losses, against theEscrow Fund or otherwise, Parent shall promptly notify the Stockholder of suchclaim, and the Stockholder shall be entitled, at his sole cost and expensewithout reimbursement from the Escrow Fund, to participate in any defense ofsuch claim; provided, however, that failure to give such noticeshall not relieve the Stockholder of its obligations hereunder, except to theextent it shall have been materially prejudiced by such failure.  Parent shall reasonably consult with theStockholder prior to the settlement of any such claim and discuss with theStockholder in good faith any input regarding the claim and potentialsettlement the Stockholder may have prior to any settlement (in each case, tothe extent the terms thereof are not subject to a confidentiality agreementwith the claimant).  After suchconsultation (or in the event that Parent is prohibited from consulting or theStockholder elects not to consult with Parent), Parent shall have the right tosettle any such claim, even if the terms thereof are inconsistent with thoseproposed or advocated by the Stockholder.

 

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For the avoidance of doubt, theStockholder shall have the right to submit disputes with the Parent regardingthe amount or terms of settlements with regard to third-party claims toarbitration in accordance with Section 9.11 of this Agreement.  The settlement of any such third-party claimshall be determinative of the amount of any claim for Losses.  If the Stockholder consents to the generaleconomic terms of such settlement (such consent not to be unreasonably delayed,conditioned or withheld) or elects not to consult with Parent with respect toany such settlement, the Stockholder shall not have any power or authority toobject under any provision of this Article VII to the settlement orthe amount of any claim for Losses by Parent against the Escrow Fund orotherwise with respect to such settlement to the extent the amount of Lossesclaimed are consistent with the terms of such settlement.

 

(i)                                     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 and the Escrow Agreement. The Escrow Agent shall be obligated only for the performance of suchduties as are specifically set forth herein and in the Escrow Agreement, and asset forth in any additional written escrow instructions which the Escrow Agentmay receive after the date of this Agreement which are signed by an officer ofParent and the Stockholder, and may rely and shall be protected in relying orrefraining from acting on any instrument reasonably believed by the EscrowAgent to be genuine and to have been signed or presented by the proper party orparties.

 

(ii)                                  The Escrow Agenthereby is expressly authorized to disregard any and all warnings given by anyof the parties hereto or by any other person, accepting only joint orders byParent and the Stockholder 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 or complies in good faith with any suchorder, judgment or decree of any arbitrator properly assigned pursuant to Section 9.11or any Governmental Entity, the Escrow Agent shall not be liable to any of theparties hereto or to any other person by reason of such good faith compliance,notwithstanding any such order, judgment or decree being subsequently reversed,modified, annulled, set aside, vacated or found to have been entered withoutjurisdiction or proper authority.

 

(iii)                               The Escrow Agent shallnot be liable in any respect on account of the identity, authority or rights ofthe parties executing or delivering or purporting to execute or deliver thisAgreement or any documents or papers deposited or called for hereunder.

 

(iv)                              The Escrow Agent shallnot be liable for the expiration of any rights under any statute of limitationswith respect to this Agreement or any documents deposited with the EscrowAgent.

 

(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 notbe

 

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required to determine or decidethe dispute or controversy or to take any action 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.  The Escrow Agent is authorized to depositwith the clerk or other authorized agent of the arbitrator or court alldocuments and cash amounts involved in the dispute or controversy atissue.  Upon making such deposit with thearbitrator or court, the Escrow Agent shall be fully released and discharged ofand from any obligations with respect to the documents, cash or other mattersdeposited which are subject or relate to the dispute or controversy.

 

(vi)                              The Escrow Agent mayresign at any time upon at least thirty (30) days written notice to Parent andthe Stockholder; provided, however, that no such resignationshall become effective until a successor escrow agent has been appointed asfollows:  Parent and the Stockholdershall use their respective good faith best efforts to mutually agree upon asuccessor escrow agent within thirty (30) days after receiving suchnotice.  If the parties fail to agreeupon a successor escrow agent within such time, Parent shall have the exclusiveright to appoint a successor escrow agent authorized to do business inCalifornia.  The successor escrow agentselected in the preceding manner shall execute and deliver an instrumentaccepting such appointment and shall thereupon be deemed the Escrow Agent forall purposes hereunder and without further acts shall be vested with all theestates, properties, rights, powers, and duties of the predecessor Escrow Agentas if originally named as Escrow Agent. Thereafter (and upon the delivery to the successor escrow agent of allcash remaining in the Escrow Fund then held by the Escrow Agent), thepredecessor Escrow Agent shall be discharged from any further duties andliabilities under this Agreement.

 

(j)                                     Pre-ClosingTaxes.  For purposes of thisAgreement, “**Pre-Closing Taxes**” andLosses relating or with respect thereto shall mean (A) all Taxes for whichthe Company could be held liable that are due with respect to periods ending onor prior to the Closing Date, (B) all Taxes of the Company that are duewith respect to periods (“**Straddle Periods**”)that include but do not end on the Closing Date to the extent attributable tothe portion of the Straddle Period ending at the close of business on theClosing Date, (C) all transfer, documentary, sales, use, stamp,registration, and other such Taxes and fees (including any penalties andinterest) incurred in connection with the transactions contemplated by thisAgreement, (D) all fees, costs and other expenses incurred in preparingand filing all Tax Returns with respect to any taxable period beginning priorto the Closing Date and (E) other Losses incurred with respect to amountsdescribed in clauses (A) through (D) of thissentence.  Taxes attributable to theportion of the Straddle Period ending at the close of business on the ClosingDate shall be determined by assuming that the Straddle Period consisted of twotaxable years or periods, one which ended at the close of business on theClosing Date and the other which began at the beginning of the day followingthe Closing Date, and items of income, gain, deduction, loss or credit andstate and local apportionment factors of the Company for the Straddle Periodshall be allocated to the period ending on the close of business on the ClosingDate on a “closing of the books basis” by assuming that the books of theCompany were closed at the close of business on the Closing Date.  However, (1) exemptions, allowances ordeductions that are calculated on an annual basis, such as the deduction fordepreciation and (2) periodic taxes such real and personal property taxesshall be apportioned ratably between such periods on a daily basis.

 

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# **ARTICLE VIII**

# ** **

# **TERMINATION,EXPENSES, AMENDMENT AND WAIVER**

# ** **

8.1                                 Termination.  Except as provided in Section 8.2below, this Agreement may be terminated and the Merger abandoned at any timeprior to the Effective Time, whether or not the Merger has been approved by theCompany’s stockholder:

 

(a)                                  by mutual consent ofthe Company and Parent.

 

(b)                                 by Parent:

 

(i)                                     ifthe Stockholder shall seek to withdraw his Written Consent or any otherapproval of this Agreement or any Ancillary Agreement or any transactioncontemplated hereby or thereby requiring stockholder approval;

 

(ii)                                  ifthe Company’s Board of Directors shall at any time seek to withdraw itsapproval of this Agreement, the Ancillary Agreements and the transactionscontemplated hereby;

 

(iii)                               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;

 

(iv)                              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) prohibitParent or the Surviving Corporation’s ownership or operation of all or anyportion of the business, assets or properties of the Company or (B) compelParent or the Surviving Corporation to dispose of or hold separate all or anyportion of the business, assets or properties of Parent or the Company as aresult of or after the Merger; or

 

(v)                                 ifat any time the Stockholder shall have indicated an intent to exercise, haveexercised, or shall have any continued rights to exercise, appraisal,dissenters’ or similar rights under Applicable Law by virtue of the Merger.

 

(c)                                  by Parent or theCompany if:

 

(i)                                     theClosing has not occurred by June 14, 2005;

 

(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

 

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(d)                                 by the Company if theCompany 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 the Parent or MergerSub.

 

Where action is taken to terminate thisAgreement pursuant to this Section 8.1, it shall be sufficient forsuch action to be authorized by the Board of Directors (as applicable) of theparty taking such action (or, with respect to Parent or Merger Sub, the ChiefExecutive Officer of Parent). Notwithstanding anything in this Section 8.1 to thecontrary, neither Parent nor the Company may terminate this Agreement if suchparty is in material breach of its obligations hereunder and the Closing doesnot occur as a direct or indirect result of such material breach.

 

8.2                                 Effect ofTermination.  If this Agreement isterminated pursuant to Section 8.1, this Agreement shall forthwithbecome void and there shall be no liability or obligation on the part ofParent, Merger Sub or Company, or their respective officers, directors orstockholders; provided, however, that each party shall remainliable for any breaches of this Agreement prior to its termination; provided,further, that the provisions of Sections 5.2, 5.3, 8.2,8.3 and Article IX of this Agreement and the definitions ofany defined terms used in such provisions shall remain in full force and effectand survive any termination of this Agreement. Notwithstanding the foregoing, in the event the termination is caused bya breach of the Agreement by the Company, its entering into negotiations with athird- party regarding the sale of shares of its capital stock and/orsubstantially all of its assets, or its failure to exercise reasonablediligence or to act in good faith to satisfy the conditions of Article VIof the Agreement, as determined by Parent in its reasonable discretion andnoticed to the Company in writing by Parent, the Company shall pay to Parent afee of $1,500,000 in cash within ten (10) business days of the delivery ofsuch written notice by Parent to the Company, and Parent shall accept suchpayment from the Company as its sole remedy hereunder.  The parties hereto agree that if thisAgreement is terminated for one of the reasons specified in the immediatelypreceding sentence, the determination of damages would be difficult, if notimpossible to achieve with certainty and precision.  In the event of such a termination, the$1,500,000 amount referenced above shall serve as liquidated damages for thebenefit of Parent.

 

8.3                                 Fees and Expenses.  Except as expressly provided otherwiseherein, whether or not the Merger is consummated, all fees and expensesincurred in connection with the Merger including all legal, accounting,financial advisory, consulting and all other fees and expenses of third-parties(“**Third-Party Expenses**”) incurredby a party in connection with the negotiation and effectuation of the terms andconditions of this Agreement and the transactions contemplated hereby, shall bethe obligation of the respective party incurring such fees and expenses.

 

8.4                                 Amendment.  Except as otherwise required by ApplicableLaw, this Agreement may be amended by the parties hereto at any time after theStockholder approves this Agreement pursuant to a written instrument executedby the Parent, the Stockholder and Merger Sub.

 

8.5                                 Extension; Waiver.  At any time prior to the Effective Time,Parent and Merger Sub, on the one hand, and the Company, on the other, may, tothe extent legally allowed, (a) extend the time for the performance of anyof the obligations of the other party hereto,

 

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(b) waiveany inaccuracies in the representations and warranties made to such partycontained herein or in any document delivered pursuant hereto and (c) waivecompliance with any of the covenants, agreements or conditions for the benefit ofsuch 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**

# ** **

# **GENERALPROVISIONS**

# ** **

9.1                                 Notices.  All notices and other communicationshereunder shall be in writing and deemed given if delivered personally or bycommercial delivery service, or mailed by registered or certified mail (returnreceipt requested) or sent via facsimile (with acknowledgment of complete transmission)to the parties at the following addresses (or at such other address as a partyfrom time to time may specify by like notice):

 

(a)                                  if to Parent orMerger Sub, to:

 

ValueClick, Inc.

30699 Russell Ranch Rd., Suite 250

Westlake Village, CA 91361

Attention: Samuel J. Paisley

Facsimile No.:  (818) 575-4508

 

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

 

Gibson Dunn & Crutcher LLP

333 South Grand Avenue

Los Angeles, California 90071-3197

Attention: Bradford P. Weirick, Esq.

Facsimile No.:  (213) 229-6765

 

(b)                                 if to the Stockholder,to:

 

Michael Zaya

1969 Darrah Avenue

Simi Valley, CA 93063

Facsimile No.: None

 

with a copy to the Stockholder’s Counsel:

 

Rodi, Pollock, Pettker, Galbraith &Cahill, A Law Corporation

444 South Flower Street, Suite 1700

Los Angeles, CA 90071

Attention: Elizabeth B. Blakely, Esq.

Facsimile No: (213) 895-4921

 

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(c)                                  ifto the Escrow Agent, to:

 

the address specified in writing by theEscrow Agent upon appointment and provided to the parties hereto.

 

with a copies to the Company’s Counsel andParent’s Counsel at the addresses above.

 

9.2                                 Interpretation.  Unless the context clearly indicatesotherwise (a) words of any gender include each other gender, (b) wordsusing the singular number include the plural, and vice versa, (c) theterms “hereof,” “herein,” “hereby,” and derivative or similar words refer tothis Agreement as a whole and not to any particular Article, Section orsubsection, (d) the words “include,” “includes” and “including” when usedherein shall be deemed in each case to be followed by the words “withoutlimitation” and (e) references to “person” include any individual,corporation, limited or general partnership, association, proprietorship, limitedliability company, joint venture, trust, other business organization orGovernmental Entity.  The table ofcontents and headings contained in this Agreement are for reference purposesonly and shall not affect in any way the meaning or interpretation of thisAgreement.

 

9.3                                 Counterparts.  This Agreement may be executed by facsimilesignature and in two or more counterparts, each of which shall constitute anoriginal, but all of which, when taken together, shall constitute but oneinstrument.  This Agreement shall becomeeffective when one or more counterparts have been signed by each party heretoand delivered to the other parties.

 

9.4                                 Entire Agreement;Assignment.  This Agreement, theschedules and exhibits hereto, and the documents and instruments and otheragreements among the parties hereto referenced herein:  (a) constitute the entire agreementamong the parties with respect to the respective subject matters hereof andthereof and supersede in their entirety any prior or contemporaneous oral orwritten discussions, negotiations, agreements or understandings between oramong the parties with respect to such subject matter (other than the Letter ofIntent dated May 13, 2005 executed by the Company and Parent which shallcontinue in accordance with the terms thereof); (b) are not intended toand shall not confer upon any other person (including those persons listed onany exhibits or schedules attached hereto or any stockholders of the Company)any rights or remedies hereunder; and (c) may not be assigned by operationof law or otherwise without the prior written consent of each other partyhereto, and any purported assignment in violation of this requirement shall benull and void abinitio. Subject to the preceding sentence, this Agreement shall be binding onand inure to the benefit of, and is enforceable by, the respective partieshereto and their respective successors, permitted assigns, heirs, executors andadministrators.

 

9.5                                 Severability.  If any provision of this Agreement or theapplication thereof becomes or is declared by a court of competent jurisdictionto be illegal, void or unenforceable, the remainder of this Agreement willcontinue in full force and effect and the application of such provision toother persons or circumstances will be interpreted so as reasonably to effectthe express intent of the parties hereto. The parties further agree that any such void or unenforceable provisionof this Agreement shall be deemed replaced with a valid and enforceableprovision that

 

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will achieve,to the extent possible, the economic, business and other purposes of such voidor unenforceable provision.

 

9.6                                 Remedies; Exerciseof Rights.  Except as otherwiseprovided herein, any and all remedies herein expressly conferred upon a partywill be deemed cumulative with and not exclusive of any other remedy availableto such party hereunder or at law or in equity, and the exercise by any partyof any one remedy at any time will not preclude the exercise of any otherremedy at the same time, at another time, 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 andconstrued in accordance with the laws of the State of California, withoutgiving effect to its conflicts or choice of law principles; *provided, however,*that the Merger and theeffects thereof under the respective laws of the State of California and theState of Delaware shall be governed by the applicable provisions of the CGCLand the DGCL, respectively.

 

9.8                                 Jurisdiction andVenue; Attorney’s Fees.  Any action,suit or proceeding seeking to enforce any provision of, or based on any matterarising out of or in connection with, this Agreement or the transactions contemplatedhereby shall be brought exclusively in the federal or state courts located inthe State of California sitting in Los Angeles County and each party heretohereby unconditionally and irrevocably submits and consents to the exclusivejurisdiction of such courts (and of the appropriate appellate courts therefrom)in any such suit, action or proceeding and hereby unconditionally andirrevocably waives, to the fullest extent permitted by law, any objection whichsuch party may now or hereafter have to the laying of venue in any such courtor that any such suit, action or proceeding which is brought in any such courthas been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on anyparty anywhere in the world, whether within or without the jurisdiction of anysuch court.  Without limiting thegenerality of the foregoing, each party hereto agrees that service of processon such party as provided in Section 9.1 shall be deemed effectiveservice of process on such party.  Inaddition to any damages or other recovery to which a party may be entitledhereunder or at law or in equity (including any right to recoup Losses from theEscrow Fund), the prevailing party in any action to enforce this Agreement orto seek any right or remedy available hereunder or at law or in equity shall beentitled to reasonable attorney’s fees and costs incurred in connection withsuch action and any related appeals therefrom.

 

9.9                                 SpecificPerformance.  The parties acknowledgeand agree that any failure of any party to perform its agreements andobligations hereunder or contemplated hereby will cause irreparable injury tothe other parties, for which damages, even if available, will not provide anadequate remedy.  Accordingly, each partyhereby consents to the issuance of injunctive relief by any court of competentjurisdiction to compel performance of such party’s obligations and to thegranting by any court of the remedy of specific performance of its obligationshereunder.

 

9.10                           Rules ofConstruction.  The parties haveparticipated jointly in the negotiation and drafting of this Agreement and eachAncillary Agreement.  In the event anambiguity or question

 

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of intent orinterpretation arises, this Agreement and the applicable Ancillary Agreementsshall be construed as if drafted jointly by the parties and no presumption orburden of proof shall arise favoring or disfavoring any party by virtue of theauthorship of any provisions hereof or thereof. Accordingly, each party understands and agrees that the common lawprinciples of construing ambiguities against the drafter shall have noapplication to this Agreement or any Ancillary Agreement.  Each party hereto acknowledges and agreesthat such party has had a full and complete opportunity to review thisAgreement and each Ancillary Agreement, to make suggestions or changes to theirterms and to seek independent legal and other advice in connection herewith andtherewith.

 

9.11                           Arbitration. (a)                                 Ifthe Closing occurs, from and after the Closing any dispute or differencebetween or among the parties to this Agreement (such parties being referred toindividually as a**“Disputing Party**,**”** and, together, as the **“Disputing Parties”**) arising out of thisAgreement, including without limitation any dispute under Article VII,which the parties are unable to resolve themselves shall be submitted to andresolved by arbitration as herein provided. Any Disputing Party may request the American Arbitration Association(the **“AAA”**) to designate onearbitrator, who shall be qualified as an arbitrator under the standards of theAAA, who shall be a retired or former judge of any appellate or trial court ofthe State of California, any United States appellate court or the United StatesDistrict Court for any California District, who is, in any such case, notaffiliated with any party in interest to such arbitration, and who hassubstantial professional experience with regard to commercial legal matters.

 

(b)                                 The arbitrator shallconsider the dispute at issue in Los Angeles, California, at a mutually agreedupon time within sixty (60) days (or such longer period as may be acceptable tothe Disputing Parties or as directed by the arbitrator) of the designation ofthe arbitrator.  The arbitrationproceeding shall be held in accordance with the rules for commercialarbitration of the AAA in effect on the date of the initial request by theDisputing Party, that gave rise to the dispute to be arbitrated (as such rules aremodified by the terms of this Agreement or may be further modified by mutualagreement of the Disputing Parties) and shall include an opportunity for theparties to conduct discovery in advance of the proceeding.  Notwithstanding the foregoing, the DisputingParties shall agree that they will attempt, and they intend that they and thearbitrator should use its best efforts in that attempt, to conclude thearbitration proceeding and have a final decision from the arbitrator within onehundred twenty (120) days from the date of selection of the arbitrator; *provided, however,* that the arbitratorshall be entitled to extend such one hundred twenty (120) day period for atotal of two one hundred twenty (120) day periods.  The arbitrator shall deliver a written awardwith respect to the dispute to each of the parties, who shall promptly act inaccordance therewith.  Each DisputingParty to such arbitration agrees that, subject to California Code of CivilProcedure Sections 1284, 1286.2 and 1286.8, any award of the arbitrator shallbe final, conclusive and binding and that they will not contest any action byany other party thereto in accordance with an award of the arbitrator.  It is specifically understood and agreed thatany party may enforce any award rendered pursuant to the arbitration provisionsof this Section 9.11 by bringing suit in any court of competentjurisdiction.

 

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(c)                                  All costs andexpenses attributable to the arbitrator shall be allocated among the parties tothe arbitration in such manner as the arbitrator shall determine to beappropriate under the circumstances.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the undersigned haveexecuted this Agreement as of the date first written above.

 
| **E-BABYLON, INC.** | ** ** | **VALUECLICK, INC.** |
|---------------------|------------|----------------------|
| ** **          | ** ** | ** **           |
| ** **          | ** ** | ** **           |
| By:                 | ** ** | ** **           | By: | ** ** | ** ** |
| Name:               | ** ** | ** **           | Name: | ** ** | ** ** |
| Title:              | ** ** | ** **           | Title: | ** ** | ** ** |
|                     |            |                      |  |  |  |  |  |  |  |

 
| **ESCROW AGENT**            | ** ** | **EBI ACQUISITION  CORP.** |
|-----------------------------|------------|----------------------------|
| As to Article VII only | ** ** | ** **                 |
| ** **                  | ** ** | ** **                 |
| By:                         | ** ** | ** **                 | By: | ** ** | ** ** |
| Name:                       | ** ** | ** **                 | Name: | ** ** | ** ** |
| Title:                      | ** ** | ** **                 | Title: | ** ** | ** ** |
|                             |            |                            |  |  |  |  |  |  |  |

 

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**SIGNING STOCKHOLDER:**

 

**By executing thisAgreement in the respective spaces provided below, the undersigned Stockholderagrees to and consents to the matters contained in this Agreement.**

 
| MICHAEL ZAYA |
|--------------|
|         |
|         |   |
| Michael Zaya |
|         |
|         |
| Address:     |   |   |
|         |   |
|         |   |
|              |  |  |  |

 

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