Document:

Exhibit
10.32

 

Agreement to Protect
Corporate Property

 

In consideration of my employment with The J. Jill Group, Inc. (“J.
Jill”), I agree to the following:

 

1.               Confidential Information. While employed by
J. Jill and /or one or more of its
subsidiaries (J. Jill and such subsidiaries referred to collectively as the “Company”)
and thereafter, I will not, directly or indirectly, use any Confidential
Information other than pursuant to my employment by and for the benefit of the
Company, or disclose any Confidential Information (i) to anyone outside of the
Company other than to the Company’s professional advisors on a need to know
basis, (ii) to employees of the Company other than on a need to know basis, or
(iii) as required by law or court order. For purposes of this Agreement “Confidential
Information” includes but is not limited to all information that relates to the
Company’s past, present and future businesses, products, technologies,
customers, vendors, distribution methods, databases, computer systems, employees
(including information about salaries, benefits and other information personal
to employees), hiring and training practices, operations and marketing
strategies and all trade secrets, proprietary information, know-how, data,
designs, patterns, specifications, processes, financial or business records,
business or financial plans, personnel records, marketing materials, customer
lists or other customer or prospective customer information and other technical
or business information (and any tangible evidence, record or representation
thereof), whether conceived, developed or otherwise made by me or any employee
of the Company or received by the Company from an outside source, which is in
the possession of the Company, which in any way relates to the past, present or
future business of the Company, which is maintained in confidence by the
Company, or which might be of use to competitors or harmful to the Company or
its customers, if disclosed. “Confidential Information” does not include
information that the Company has voluntarily disclosed to the public without
restriction, which has otherwise lawfully entered the public domain without my
participation or fault, or which is otherwise generally known by persons of
comparable experience in the women’s retail apparel industry.

 

2.               Ownership of Corporate Property. All
equipment, documents, information and other property that I receive or develop
in the course of my employment by the Company, and all Confidential Information
(as defined in Section 1) and Intellectual Property (as defined in Section 3),
will be and remain the sole property of the Company. The products of all of my
efforts in the course of my employment belong exclusively to the Company and I
will not retain any rights in any such work product. I agree to return all
property and information immediately and without keeping any copies when my
employment terminates for any reason. This section does not restrict my use of
the general knowledge that I acquire through the course of my employment by the
Company so long as such knowledge does not constitute Confidential Information
or Intellectual Property.

 

3.               Assignment of Intellectual Property. I
assign, and agree to assign, to the Company all my right, title and interest
throughout the world in and to all Intellectual Property and to anything
tangible that evidences, incorporates, constitutes, represents or records any
Intellectual Property. I agree that all Intellectual Property will constitute
works made for hire under copyright laws of the United States. I assign, and
agree to assign, to the Company all copyrights, patents and other proprietary
rights I may have in any Intellectual Property, together with the right to file
for and/or own wholly without restriction United States and foreign patents,
trademarks, and copyrights. I waive, and agree to waive, all moral rights or
proprietary rights in or to any Intellectual Property and, to the extent that
such rights may not be waived, agree not to assert such rights against the
Company or its licensees, successors or assigns. For purposes of this Agreement
“Intellectual Property” includes but is not limited to: (i) all Confidential
Information and (ii) all other business ideas and methods, store concepts,
inventions, innovations, developments, graphic designs (including, for example,
catalog designs, in-store signage and posters), web site designs, patterns,
specifications, procedures or processes, market research, databases, works of
authorship, products, and other works of creative authorship, or parts thereof
conceived, developed or otherwise made by me, alone or jointly with others and
in any way relating to the Company’s past, present or proposed products,
programs or services or to tasks assigned to me during the course of my
employment, whether or not patentable or subject to copyright protection and
whether or not reduced to tangible form or reduced to practice during the
period of my employment with the Company, whether or not made during my regular
working hours, whether or not made on the Company’s premises, and whether or
not disclosed by me to the Company.

 

4.               Certification of Information and Property. I
hereby certify Exhibit A sets forth any and all confidential information
and intellectual property that I claim as my own or otherwise intend to exclude
from this Agreement because it was developed by me prior to the date of this
Agreement. I understand that after execution of this Agreement I will have no
right to exclude confidential information or intellectual property from this
Agreement.

 

5.               Non-Competition. During my employment with
the Company and (A) for a period of one year after termination of my employment
with the Company if my employment is terminated by me for any reason or by the
Company for

 

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Cause (as defined below), or (B) for the Severance Pay
Period (as defined below), if any, if my employment is terminated by the
Company for any reason other than for Cause, I will not, on my own behalf, or
as owner, manager, stockholder (except as a holder of not more than five
percent of the stock of a publicly held company), consultant, independent
contractor, director, officer, or employee of any specialty retailer or
specialty catalog company (regardless of its form of organization and including
a division of an organization if the division is operating a specialty retail
or catalog business) participate, directly or indirectly, in any capacity, in
any business activity that targets the same or similar customer demographics as
and is in competition with the Company. (For example, the restrictions set
forth in the previous sentence would restrict you from working for (i) a
specialty retailer or specialty catalog company that targets the same or
similar customer demographics as and is in competition with the Company, (ii) a
division of a specialty retailer or specialty catalog company if that division
targets the same or similar customer demographics as and is in competition with
the Company, even though other divisions of the specialty retailer or specialty
catalog company do not target the same or similar customer demographics as and
are not in competition with the Company, or (iii) a division of a general
retailer, such as a department store, if the division is engaged in a specialty
retail or specialty catalog business that targets the same or similar customer
demographics as and is in competition with the Company. They would not restrict
you from working for (i) a specialty retailer or specialty catalog company that
does not target the same or similar customer demographics as and is not in
competition with the Company, (ii) a division of a specialty retailer or
specialty catalog company if that division does not target the same or similar
customer demographics as and is not in competition with the Company, even
though other divisions of the specialty retailer or specialty catalog company
do target the same or similar customer demographics as and are in competition
with the Company, or (iii) a general retailer, such as a department store, as
long as you are not working for a division of that general retailer that is
engaged in a specialty retail or specialty catalog business that targets the
same or similar customer demographics as and is in competition with the
Company.) The restrictions in this Section 5 extend to all geographic areas in
which the Company conducts business. The restriction set forth in subsection
(A) of this Section 5 will not apply to any termination of my employment with
the Company that occurs following the second anniversary of my employment start
date. For purposes of this Agreement, “Cause” means (i) any act or omission to
act by me which has a material and adverse effect on the Company’s business or
on my ability to perform services for the Company, or (ii) any material misconduct
or material neglect of my duties in connection with the business or affairs of
the Company; and the “Severance Pay Period” means any period during or with
respect to which I am receiving severance payments from the Company at a rate
per month at least equal to my base salary rate per month immediately prior to
my termination. If I receive a lump sum severance payment or severance payments
that are not specifically tied to my base salary, the Severance Pay Period will
be a number of months calculated by dividing the aggregate severance payments
to be made to me by my monthly base salary immediately before the termination
of my employment, rounded up or down to the nearest whole number. The Company’s
rights under this Section 5 may not be assigned by the Company without my
consent, except to any direct or indirect subsidiary of any entity affiliated
with J. Jill.

 

6.               Non-Solicitation. During my employment with
the Company and for a period of one year after the termination of my employment
with the Company for any reason, I will not directly or indirectly (i) solicit,
attempt to hire, or hire any present or future employee of the Company (or any
person who may have been employed by the Company during the last year of the
term of my employment with the Company), or assist in such hiring by any other
person or business entity or encourage, induce or attempt to induce any such
employee to terminate his or her employment with the Company or (ii) affect to
the Company’s detriment any relationship of the Company with any customer,
supplier or employee of the Company, or cause any customer or supplier to
refrain from entrusting additional business to the Company or any affiliate. For
example, with respect to (i) above, I will not inform any such employee of a
job opportunity with me or any other company, or suggest that any person or
entity contact any such employee to discuss or mention such a job opportunity.

 

7.               Miscellaneous.

 

•                  This
Agreement contains the entire and only agreement between the Company and me
with respect to its subject matter, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
concerning such subject matter. The foregoing notwithstanding, this Agreement
will neither supersede, nor affect any of my obligations under, the Agreements
(if any) listed on Exhibit B. Nothing in this Agreement in any way
affects my obligations under The J. Jill Group, Inc. Code of Business Conduct
and Ethics. This Agreement may not be amended, in whole or in part, except by
an instrument in writing signed by the Company and me.

 

•                  My
obligations under this Agreement will survive the termination of my employment
with the Company regardless of the manner of or reasons for such termination,
and regardless of whether such termination constitutes a breach of any other
agreement I may have with the Company.

 

•                  If
any provision of this Agreement will be determined to be unenforceable by any
court of competent jurisdiction by reason of its extending for too great a period
of time or over too large a geographic area or over too great a range of

 

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activities, it will be
interpreted to extend only over the maximum period of time, geographic area or
range of activities as to which it may be enforceable. Any invalid, illegal or
unenforceable provision of this Agreement will be severable, and after any such
severance, all other provisions hereof will remain in full force and effect.

 

•                  In
the event the Company has reason to believe this Agreement has or may be
breached, I acknowledge and consent that this Agreement may be disclosed to my
then current or prospective employer without risk or liability to the Company. I
acknowledge and agree that violation of this Agreement by me would cause
irreparable harm to the Company not adequately compensable by money damages
alone, and I therefore agree that, in addition to all other remedies available
to the Company at law, in equity or otherwise, the Company will be entitled to
injunctive relief to prevent an actual or threatened violation of this
Agreement and to enforce the provisions hereof, without showing or proving any
actual damage to the Company or posting any bond in connection therewith.

 

•                  Except
with respect to Section 5 above, this Agreement may be assigned by the Company
without my consent.

 

•                  This
Agreement becomes effective as of the first date of my employment with the
Company.

 

•                  This
Agreement will be governed by, and construed and enforced in accordance with,
the laws of The Commonwealth of Massachusetts, without regard to its principles
of conflict of laws. I consent to the personal jurisdiction and venue of
Massachusetts state and federal courts.

 

I have carefully read
this Agreement, I understand it and I agree to all of its terms. I acknowledge
that I have been given a copy of this Agreement.

 

	
  Signature:

  	
  /s/
  John Fiske

  	
   

  
	
   

  
	
  Name:  John Fiske

  
	
   

  
	
  Date:

  	
  2/8/05

  	
   

  
					

 

3

 

EXHIBIT
A

 

Excluded Confidential Information and Intellectual
Property

 

4

 

EXHIBIT
B

 

Excluded
Agreements

 

5Exhibit 10.1

 

AGREEMENT AND PLAN OF
MERGER

 

BY AND AMONG

 

SERVICES ACQUISITION
CORP. INTERNATIONAL,

 

JJC ACQUISITION COMPANY,

 

AND

 

JAMBA JUICE COMPANY

 

 

DATED AS OF MARCH 10,
2006

 

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”)
is made and entered into as of March 10, 2006, by and among Services
Acquisition Corp. International, a Delaware corporation (“Parent”),
JJC Acquisition Company, a California corporation and a wholly-owned subsidiary
of Parent (“Merger Sub”) and Jamba Juice
Company, a California corporation (the “Company”).

 

RECITALS

 

A.            Parent, Merger Sub
and the Company intend to enter into a business combination transaction by
means of a merger (the “Merger”) of
Merger Sub with and into the Company in accordance with this Agreement and the
California General Corporation Law (the “CGCL”), with
the Company to be the surviving corporation of the Merger, through an exchange
of all the issued and outstanding shares of capital stock of the Company for
cash.

 

B.            Pursuant to the
Merger, each outstanding share of Company common stock (“Company
Common Stock”) and company preferred stock (“Company
Preferred Stock”) shall be converted into the right to receive the
Per Share Merger Consideration (as determined by and defined in Section
1.5(a)), upon the terms and subject to the conditions set forth herein.

 

C.            The Board of
Directors of the Company has unanimously (i) determined that the Merger is fair
to, and in the best interests of, the Company and its stockholders, (ii) approved
this Agreement, the Merger, and the other transactions contemplated by this
Agreement and (iii) determined to recommend that the stockholders of the
Company adopt and approve this Agreement, and the other transactions
contemplated by this Agreement, and approve the Merger.

 

D.            The respective
Boards of Directors of Parent and Merger Sub have approved this Agreement, the
Merger and the other transactions contemplated by this Agreement.

 

NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows
(defined terms used in this Agreement are listed alphabetically in Article IX,
together with the Section and, if applicable, paragraph number in which the
definition of each such term is located):

 

ARTICLE I

 

THE MERGER

 

1.1           The Merger.  At the Effective Time (as defined in Section
1.2) and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the CGCL, Merger Sub shall be merged with and into
Company, the separate corporate existence of Merger Sub shall cease and Company
shall continue as the surviving corporation. 
The Company as the surviving corporation after the Merger is hereinafter
sometimes referred to as the “Surviving  Corporation.”

 

 

1.2           Effective Time; Closing.  Subject to the conditions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing with the
Secretary of State of the State of California, a properly executed agreement of
merger (the “Merger Agreement”) and a properly
executed Certificate of Merger (the “Certificate of Merger”)
in such form as may be agreed by the parties hereto and as required by the
relevant provisions of the CGCL (the time of such filing with the Secretary of
State of the State of California, or such later time as may be agreed in
writing by Company and Parent and specified in the Certificate of Merger, being
the “Effective Time”) as soon as practicable
on or after the Closing Date (as herein defined).  The term “Agreement”
as used herein refers to this Agreement and Plan of Merger, as the same may be
amended from time to time, and all schedules hereto (including the Company
Schedule and the Parent Schedule, as defined in the preambles to Articles II
and III hereof, respectively).  Unless
this Agreement shall have been terminated pursuant to Section 8.1, the closing
of the Merger (the “Closing”) shall
take place at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (“Mintz  Levin”),
counsel to Parent, at 666 Third Avenue, New York, New York 10017, at a time and
date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto
agree in writing (the “Closing Date”).  Closing signatures may be transmitted by
facsimile.

 

1.3           Effect of the Merger.  At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
the CGCL, as applicable.  Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the property, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.

 

1.4           Certificate of Incorporation;
Bylaws.  (a)  At the Effective Time, the certificate of
incorporation of the Merger Sub shall be the certificate of incorporation of
the Surviving Corporation.

 

(b)           Also at the Effective Time, the
bylaws of the Merger Sub shall be the bylaws of the Surviving Corporation.

 

1.5           Effect on Capital Stock.  Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and this Agreement
and without any action on the part of Merger Sub, the Company or the holders of
any of the following securities, the following shall occur:

 

(a)           Conversion of Company Capital
Stock.  Each share of Company Common
Stock, each share of Company Preferred Stock (collectively, the “Company Capital Stock”) and each vested Company Option
(subject to the provisions of Section 5.18) issued and outstanding immediately
prior to the Effective Time (excluding shares to be canceled pursuant to
Section 1.5(b) and Dissenting Shares pursuant to Section 1.13) will as of the
Closing Date be automatically converted into the right to receive that amount
of cash determined by multiplying the applicable Per Share Merger Consideration
by the number of shares of Company Capital Stock held by each Company
stockholder and holder of vested Company Options (subject to the

 

2

 

provisions of Section 5.18), determined on an
as-converted and as-exercised basis, provided, that, in
all circumstances, the following provisions shall apply:

 

(A)           “Per Share Merger
Consideration” means an amount, expressed in dollars and cents,
equal to the Total Merger Consideration, divided by the sum of (i) the total
number of shares of Company Capital Stock and shares underlying vested Company
Options ((subject to the provisions of Section 5.18), determined on an
as-converted and as-exercised basis, issued and outstanding immediately prior
to the Effective Time (excluding shares to be canceled pursuant to Section
1.5(b)), plus (ii) the number of shares of Company Capital Stock issuable upon
exercise of all unvested Company Options and unexercised Company Warrants
outstanding immediately prior to the Effective Time, determined using the
Treasury Method, which, as of the date hereof, is estimated to be Six Dollars
($6.00).  If the Per Share Merger
Consideration determined as provided above plus any pro-rata amounts
deducted for application to the Escrow Cash or the Representative Account, is
less than Six Dollars ($6.00), then the aggregate Per Share Merger
Consideration payable to the holders of the Company’s Capital Stock (other than
holders of the Company’s Series E Preferred Stock) and holders of vested
Company Options (subject to the provisions of Section 5.18) shall be reduced by
the minimum amount necessary and allocated to the Per Share Merger
Consideration payable to holders of the Company’s Series E Preferred Stock so
that the Per Share Merger Consideration plus any pro-rata amounts
deducted for application to the Escrow Cash or the Representative Account,
payable to the holders of the Company’s Series E Preferred Stock equals Six
Dollars ($6.00), and the Per Share Merger Consideration payable to holders of
the Company’s Capital Stock (other than holders of the Company’s Series E
Preferred Stock) and holders of vested Company Options (subject to the
provisions of Section 5.18) shall be reduced accordingly.

 

(B)           “Treasury Method”
shall mean the treasury stock method which assumes that all outstanding “in the
money” Company Options and unexercised Company Warrants to be assumed by Parent
are exercised, with the proceeds from such exercises being used to purchase as
many shares of Company Capital Stock as possible, at the estimated Per Share
Merger Consideration (including, for this purpose, the allocable share of cash
deposited as part of the Escrow Cash and in the Representative Account) of Six
Dollars ($6.00).

 

(C)           “Statement of Expenses”
shall have the meaning ascribed to such term in Section 5.22.

 

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(D)          “Total Indebtedness”
shall mean $16,000,000.

 

(E)           “Total Merger Consideration”
shall mean $265,000,000 less Total Indebtedness and the amount of the
Company Third Party Expenses as reflected on the Statement of Expenses.

 

(b)           Cancellation of Treasury and
Parent-Owned Stock.  Each share of
Company Capital Stock held by the Company or owned by Merger Sub, Parent or any
direct or indirect wholly-owned subsidiary of the Company or of Parent
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion or payment in respect thereof.

 

(c)           Stock Options.

 

(i)            Each vested Company Stock Option
then outstanding under the Company’s 1994 Stock Incentive Plan and 2001 Equity
Incentive Plan (the “Company Stock Option
Plans”) shall be converted into the right to receive, with respect
to each share of Company Capital Stock issuable pursuant to such Company Stock
Option, the applicable Per Share Merger Consideration payable to holders of
Common Stock, less any amounts that would have been payable by the holder of
such Company Stock Option to the Company, or required to be withheld by the
Company, upon the exercise of such Company Stock Option with respect to such
share of Company Capital Stock.

 

(ii)           All unvested options to purchase
Company Common Stock outstanding at the Effective Time under the Company’s
Stock Option Plans shall be exchanged for options to purchase Parent Common
Stock in accordance with Section 5.18.

 

(d)           Warrants.  All unexercised Company Warrants outstanding
at the Effective Time, provided they have been amended in a manner reasonably
acceptable to Parent, shall be assumed by Parent in accordance with Section
5.18, and all holders of Company Warrants shall thereafter have the right to
purchase shares of Parent Common Stock.

 

(e)            Capital Stock of Merger Sub.  Each share of common stock, no par value, of
Merger Sub (the “Merger Sub Common Stock”) issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of common stock, no par
value per share, of the Surviving Corporation. 
Each certificate evidencing ownership of shares of Merger Sub Common
Stock shall evidence ownership of such shares of common stock of the Surviving
Corporation.

 

1.6           Surrender of Certificates.  (a)  Exchange
Agent.  Prior to the Effective Time,
Parent shall designate a United States bank or trust company reasonably
acceptable to the Company to act as exchange agent (the “Exchange
Agent”) in the Merger.

 

(b)           Exchange Procedures.  At the later of (i) the Effective Time and
(ii) three (3) Business Days following the Closing, Parent shall cause to be
mailed to each holder of record of a certificate or certificates (the “Certificates”) which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock, (A) a letter of
transmittal (the “Letter of Transmittal”)
which shall specify that delivery of Certificates shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange

 

4

 

Agent and shall be in such form and have such other
provisions as Parent may specify and (B) instructions for use in effecting the
surrender of the Certificates in exchange for the applicable Per Share Merger
Consideration.  Upon delivery of a Letter
of Transmittal to the Exchange Agent or to such other agent or agents as may be
appointed by Parent duly completed and validly executed in accordance with the
instructions thereto, together with surrender of a Certificate (or
Certificates) for cancellation, the holder of Company Common Stock shall be
entitled to receive in exchange cash constituting the Per Share Merger
Consideration to which such holder is entitled pursuant to Section 1.5 (less
the cash to be deposited with the Escrow Agent on such holder’s behalf) and the
Certificate(s) so surrendered shall forthwith be canceled.  Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, to evidence only the right to receive the applicable Per
Share Merger Consideration provided for in this Article I.

 

(c)           Parent to Provide Parent Cash.  On the Closing Date, Parent shall deposit
with the Exchange Agent for exchange in accordance with this Section 1.6 the
Total Merger Consideration payable pursuant to Section 1.5 in exchange for all
outstanding shares of Company Capital Stock, all shares underlying vested
Company Options (subject to the provisions of Section 5.18)  and shares issued pursuant to exercised
Company Warrants pursuant to Section 6.3(g); provided, however, that, on behalf
of the Company’s stockholders, Parent shall deposit a portion of the Total
Merger Consideration otherwise payable to each stockholder to (i) the Escrow
Agent pursuant to Section 1.10 and Article VII in an amount equal to
$19,875,000 and (ii) to the Representative Account pursuant to Section
1.11(b)(ii) in the amount of $2,000,000.

 

(d)           No Liability.  Notwithstanding anything to the contrary in
this Section 1.6, none of the Exchange Agent, Parent, the Surviving Corporation
or any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Capital Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.

 

(e)           Required Withholding.  Each of Parent and the Surviving Corporation
shall be entitled to deduct and withhold from any consideration payable or
otherwise deliverable pursuant to this Agreement to any holder or former holder
of Company Capital Stock such amounts as are required to be deducted or
withheld therefrom under the Internal Revenue Code of 1986, as amended (the “Code”),or under any provision of state, local or foreign tax
law or under any other applicable legal requirement.  To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement
as having been paid to the person to whom such amounts would otherwise have
been paid.

 

1.7           No Further Ownership Rights in
Company Stock.  All cash issued in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock that were outstanding
immediately prior to the Effective Time. 
If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.

 

5

 

1.8           Lost, Stolen or Destroyed
Certificates.  In the event that any
Certificates shall have been lost, stolen or destroyed, Parent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, that the shares of Company
Capital Stock formerly represented by such Certificates were converted into the
right to receive applicable Per Share Merger Consideration; provided, however,
that, as a condition precedent to the issuance of such cash, the owner of such
lost, stolen or destroyed Certificates shall indemnify Parent against any claim
that may be made against Parent or the Surviving Corporation with respect to
the Certificates alleged to have been lost, stolen or destroyed.

 

1.9           Taking of Necessary Action;
Further Action.  If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action.

 

1.10         Escrow.  As the sole remedy for the indemnity
obligations set forth in Article VII, at the Closing the parties shall deposit
$19,875,000 in cash (such cash, together with all earnings thereon is referred
to as the “Escrow Cash”) of the Total Merger
Consideration, deducted from the Total Merger Consideration otherwise payable
to each of the Company’s stockholders on a pro-rata basis, to be held during
the period ending one year from the Effective Date (“Escrow
Period”), all in accordance with the terms and conditions of the
Escrow Agreement in the form annexed hereto as Exhibit A (the “Escrow Agreement”), to be entered into at the Closing
between Parent, the Representative (as defined in Section 1.11(b)) (who shall
be designated by the Company in writing prior to the Effective Date, until a
successor is appointed pursuant to Section 1.11(b)) and Continental Stock Transfer
and Trust Company (“Continental”),
as Escrow Agent.  Subject to Article VII,
on the first business day following the conclusion of the Escrow Period, the
Escrow Agent shall deliver the Escrow Cash, less any such amounts applied in
satisfaction of a claim for indemnification and any amounts reserved against
pending claims related to the indemnification obligations set forth in Article
VII, to each of the Company’s former stockholders, after giving effect to the
Merger (“Former Stockholders”) in the same proportions
as initially deposited in escrow.  The
remaining Escrow Cash, to the extent not applied in satisfaction of a claim for
indemnification, or so reserved, will be distributed to such Persons promptly
upon resolution of the dispute or claim. 

 

1.11         Committee and Representative for
Purposes of Escrow Agreement.  (a)  Parent Committee.  Prior to the Closing, the Board of Directors
of Parent shall appoint a committee consisting of one of its then members to
act on behalf of Parent to take all necessary actions and make all decisions
pursuant to the Escrow Agreement regarding Parent’s right to indemnification
pursuant to Article VII hereof.  In the
event of a vacancy in such committee, the Board of Directors of Parent shall
appoint as a successor a Person who was a director of Parent prior to the
Closing Date or some other Person who would qualify as an “independent”
director of Parent and who has not had any relationship with the Company prior
to the Closing.  Such committee is
intended to be the “Committee” referred to in Article VII hereof and the Escrow
Agreement.

 

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(b)           Stockholders’ Representative.

 

(i)            In order to administer efficiently
(i) the implementation of the Agreement on behalf of the Former Stockholders
and (ii) the settlement of any dispute with respect to the Agreement, the
Company shall, prior to the Effective Time, designate one to three Persons to
act as a representative on behalf of the Former Stockholders (collectively, the
“Representative”).  By approving this Agreement, the Company’s
stockholders authorize and empower the Company to make such designation,
approve and ratify all of the rights, powers and authorities provided to the
Representative under the terms of this Agreement, and agree to be bound by all
decisions and other actions taken by the Representative

 

(ii)            
In order to reimburse the Representative for its fees and costs, and to
fund any costs of defense of any claims by the Parent Indemnitees under Article
VII at the Closing the
Parent, at the direction of the Company, shall deposit $2,000,000 in cash of the Total Merger Consideration
otherwise payable to each of the Company’s stockholders on a pro-rata basis
with a financial institution identified by the Company to Parent in writing
prior to the Closing (the “Representative Account”),
to be held until the Escrow
Period has terminated and no further claims remain outstanding under
Article VII or the Escrow Agreement.  The funds in the Representative
Account shall bear interest, and such funds together with any interest thereon, less the fees and costs of the
Representative, and any fees or costs incurred to fund costs of defense for any
claims by the Parent Indemnitees under Article VII, shall, following Closing, be returned to each of the Former
Stockholders in the same proportions as initially deposited in the
Representative Account.  The Representative is hereby granted the
authority to seek reimbursement from the Representative Account for its
fees and costs, and to fund any costs of defense of any claims by the Parent
Indemnitees under Article VII.  In no
event shall Parent or any Parent Indemnitees have any rights or recourse to the
Representative Account, either for claims under Article VII or otherwise.  In no event shall the Parent or Parent
Indemnitees have any responsibility or obligation with respect to the
Representative Account other than to deposit the $2,000,000 referred to above
therein.

 

(iii)          From and after the Effective Time, the
Former Stockholders hereby authorize the Representative (i) to take all action
necessary in connection with the implementation of the Agreement on behalf of
the Former Stockholders or the settlement of any dispute, including, without
limitation, with regard to matters pertaining to the indemnification provisions
of this Agreement and the Escrow Agreement, (ii) to give and receive all
notices required to be given under the Agreement and the Escrow Agreement, and
(iii) to take any and all additional action as is contemplated to be taken by
or on behalf of the Former Stockholders by the terms of this Agreement and the
Escrow Agreement.

 

(iv)          If no Representative is ever appointed
or if any Representative dies, becomes legally incapacitated or resigns from
such position, another Person designated by the remaining Representatives, or
if none remain, by the Former Stockholders holding the right to receive more
than 50% in interest of the Escrow Cash (the “Requisite
Former Stockholders”), who shall be identified to Parent as soon as
practicable, shall fill such vacancy and shall be deemed to be the
Representative for all purposes of this Agreement; provided, however, that no
change in the Representative shall be effective until Parent is given written
notice of such change.  If no
Representative is then currently serving, the Representative shall be deemed to
be the Requisite Former Stockholders.

 

7

 

(v)           All decisions and actions by the
Representative as provided in this Section 1.11 or under the Escrow Agreement
shall be binding upon all of the Former Stockholders, and no Former Stockholder
shall have the right to object, dissent, protest or otherwise contest the same.

 

(vi)          By their execution and/or approval of
this Agreement and the Merger, the Company and its stockholders agree that:

 

(A)          Parent shall be able to rely
conclusively on the instructions and decisions of the Representative as to any
actions required or permitted to be taken by the Representative hereunder and
under the Escrow Agreement, and no party hereunder shall have any cause of
action against Parent for any action taken by Parent in reliance upon the
instructions or decisions of the Representative;

 

(B)           all actions, decisions and
instructions of the Representative shall be conclusive and binding upon all of
the Former Stockholders and no Former Stockholder shall have any cause of
action against the Representative for any action taken, decision made or
instruction given by the Representative under this Agreement, the Escrow
Agreement, except for fraud or willful breach of this Agreement by the
Representative; and

 

(C)           the provisions of this Section 1.11
are independent and severable, shall constitute an irrevocable power of
attorney, coupled with an interest and surviving death, granted by the Former
Stockholders to the Representative and shall be binding upon the executors,
heirs, legal representatives and successors of each Former Stockholder.

 

(D)          All fees and expenses, including,
without limitation, all attorney’s fees and expenses incurred in connection
with defending or settling any claim by Parent under this Agreement, and any
amounts under subsection (E) below, incurred by the Representative shall be
paid by the Former Stockholders out of the Representative Account.

 

(E)           In taking any action hereunder and
under the Escrow Agreement, the Representative shall be protected in relying
upon any notice, paper or other document reasonably believed by it to be
genuine, or upon any evidence reasonably deemed by it, in its good faith judgment,
to be sufficient; provided, however, that the Representative shall not waive
any rights with respect to any individual Former Stockholder(s)’ interest(s) if
such waiver would have the effect of disproportionately and adversely affecting
such individual Former Stockholders(s) as compared to the interests of the
other Former Stockholders, without the prior consent of the

 

8

 

affected Former
Stockholder(s).  The Representative shall
not be liable to Parent or the Former Stockholders for any act performed or
omitted to be performed by it in the good faith exercise of its duties and
shall be liable only in the case of fraud or willful breach of this Agreement
by the Representative.  The
Representative may consult with counsel in connection with its duties hereunder
and shall be fully protected in any act taken, suffered or permitted by it in
good faith in accordance with the advice of counsel.  The Representative shall not be responsible
for determining or verifying the authority of any person acting or purporting
to act on behalf of any party to this Agreement.  If the Representative requires liability
errors and omissions insurance as a condition to accepting the role of Representative,
the premium cost shall be reimbursed from the Representative Account.  If the funds in the Representative Account
have been exhausted, Representative may resign without liability to the Former
Stockholders.

 

1.12         Notice to Holders of Derivative
Securities.  As promptly as practicable
after the execution of this Agreement, the Company, after consultation with
Parent, shall give the holders of Company Options and Company Warrants any
required notices pursuant to the terms thereof.

 

1.13         Shares Subject to Appraisal Rights.  (a) 
Notwithstanding any provisions of this Agreement to the contrary,
Dissenting Shares (as hereinafter defined) shall not be entitled to receive
their Per Share Merger Consideration and the holders thereof shall be entitled
only to such rights as are granted by the CGCL. Each holder of Dissenting
Shares who becomes entitled to payment for such shares pursuant to the CGCL
shall receive payment therefor from the Surviving Corporation in accordance
with the CGCL, provided, however, that (i) if any stockholder of the Company
who asserts appraisal rights in connection with the Merger (a “Dissenter”) shall have failed to establish his entitlement
to such rights as provided in the CGCL, or (ii) if any such Dissenter shall
have effectively withdrawn his demand for payment for such shares or waived or
lost his right to payment for his shares under the appraisal rights process
under the CGCL, the shares of Company Common Stock held by such Dissenter shall
be treated as if they had been converted, as of the Effective Time, into a
right to receive the Per Share Merger Consideration (net of the pro rata
amounts deposited in the Escrow Account and the Representative Account) as
provided in Section 1.5, and the right to participate pro rata in distributions
of any remaining amounts of Escrow Cash and amounts in the Representative
Account.  The Company shall give Parent
prompt notice of any demands for payment received by the Company from a person
asserting appraisal rights, and Parent shall have the right to participate in
all negotiations and proceedings with respect to such demands. The Company
shall not, except with the prior written consent of Parent, make any payment
with respect to, or settle or offer to settle, any such demands.

 

(b)           As used herein, “Dissenting
Shares” means any shares of Company Common Stock held by
stockholders of the Company who are entitled to appraisal rights under the
CGCL, and who have properly exercised, perfected and not subsequently withdrawn
or lost or waived their rights to demand payment with respect to their shares
in accordance with the CGCL.

 

9

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF
THE COMPANY

 

Subject to the exceptions and other disclosures set forth in a
disclosure schedule of the Company to be delivered by the Company on or
following execution of this Agreement pursuant to Section 5.23 (the “Company Schedule”), the Company hereby represents and
warrants to Parent and Merger Sub, as follows:

 

2.1           Organization and Qualification.  (a) 
The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.  The Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders (“Approvals”)
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except
where the failure to have such Approvals would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.  Complete and correct copies of
the articles of incorporation and by-laws (collectively referred to herein as “Charter Documents”) of the Company, as amended and currently
in effect, have been heretofore delivered to Parent or Parent’s counsel.  The Company is not in violation of any of the
provisions of the Company’s Charter Documents.

 

(b)           The Company is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company.  Each jurisdiction in which the Company is so
qualified or licensed is listed in Section 2.1 of the Company Schedule.

 

(c)           The minute books of the Company
contain true, complete and accurate records of all meetings and consents in
lieu of meetings of its Board of Directors (and any committees thereof),
similar governing bodies and stockholders (“Corporate
Records”) since January 1, 2000. 
Copies of such Corporate Records of the Company have been heretofore made
available to Parent or Parent’s counsel.

 

(d)           The stock transfer, warrant and
option transfer and ownership records of the Company contain true, complete and
accurate records of the securities record ownership as of the date of such
records and the transfers involving the capital stock and other securities of
the Company since January 1, 2000. 
Copies of such records of the Company have been heretofore made
available to Parent or Parent’s counsel.

 

2.2           Subsidiaries.  (a) 
The Company has no subsidiaries. 
Except as set forth in Section 2.2(a) of the Company Schedule, the
Company does not own, directly or indirectly, any ownership, equity, profits or
voting interest in any Person or have any agreement or commitment

 

10

 

to purchase any such interest, and has not agreed and
is not obligated to make nor is bound by any written, oral or other agreement,
contract, subcontract, lease, binding understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan,
commitment or undertaking of any nature, as of the date hereof or as may
hereafter be in effect under which it may become obligated to make, any future
investment in or capital contribution to any other entity.

 

2.3           Capitalization.  (a) 
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, no par value per share, of which there were 10,639,004
shares issued and outstanding as of March 8, 2006 and 30,000,000 shares of Preferred
Stock, no par value per share.  Of the
authorized Preferred Stock: 3,150,000 shares have been designated Series A
Preferred Stock, 3,000,000 of which shares are issued and outstanding;
2,625,993 shares have been designated Series B Preferred Stock, 2,250,053 of
which shares are issued and outstanding; 7,552,524 shares have been designated
Series C Preferred Stock, 7,415,206 of which shares are issued and outstanding;
11,671,483 shares have been designated Series D Preferred Stock, 9,998,905 of
which shares are issued and outstanding; and 4,000,000 shares have been
designated Series E Preferred Stock, 2,482,726 of which shares are issued and
outstanding.  No other shares of
Preferred Stock are issued or outstanding. 
No shares of capital stock are held in the Company’s treasury.  All outstanding shares of Company Common
Stock and Company Preferred Stock are duly authorized, validly issued, fully
paid and non-assessable and are not subject to preemptive rights created by
statute, the Charter Documents of Company or any agreement or document to which
the Company is a party or by which it is bound, and were issued in compliance
with all applicable federal and state securities laws. As of March 8, 2006, the
Company had reserved an aggregate of 7,029,941 shares of Common Stock (net of
exercises) for issuance to employees, consultants and non-employee directors
pursuant to the Company Stock Option Plans, under which options were
outstanding for an aggregate of 5,998,839 shares.  All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and non-assessable. 
Section 2.3(a) of the Company Schedule lists each holder of Company
Common Stock and Company Preferred Stock, each outstanding option (the “Company Options”) and each outstanding warrant (“Company Warrants”) to acquire shares of Company Common Stock
or Company Preferred Stock, as applicable, the name of the holder of such
option or warrant, the number of shares subject to such option or warrant, the
exercise price of such option or warrant, the number of shares as to which such
option or warrant will have vested at such date, the vesting schedule and
termination date of such option or warrant and whether the exercisability of
such option or warrant will be accelerated in any way by the transactions
contemplated by this Agreement or for any other reason, indicating the extent
of acceleration, if any.  The Company has
no obligation (contingent or otherwise) to pay any dividend with respect to any
shares of Company Capital Stock or to make any other distribution in respect
thereof.  The Company has delivered to
Parent or Parent’s Counsel true and accurate copies of the forms of documents
used for the issuance of Company Stock Options and Company Warrants.

 

(b)           Except as contemplated by this
Agreement and except as set forth in Section 2.3(a) hereof, there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which the Company is a party or
by which it is bound

 

11

 

obligating the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of the
Company or obligating the Company to grant, extend, accelerate the vesting of
or enter into any such subscription, option, warrant, equity security, call,
right, commitment or agreement.

 

(c)           Except as contemplated by this
Agreement and except as set forth on Section 2.3(c) of the Company Schedule,
there are no registration rights, and there is no voting trust, proxy, rights
plan, anti-takeover plan or other agreement or understanding to which the
Company is a party or by which the Company is bound with respect to any equity
security of any class of the Company.

 

2.4           Authority Relative to this
Agreement.  The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby (including the Merger). 
The execution and delivery of this Agreement and the consummation by the
Company of the transactions contemplated hereby (including the Merger), will
upon approval by the Company’s stockholders, be duly and validly authorized by
all necessary corporate action on the part of the Company (including the
approval by its Board of Directors), subject in all cases to the satisfaction
of the terms and conditions of this Agreement, including the conditions set
forth in Article VI), and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby pursuant to the CGCL and the terms and
conditions of this Agreement.  This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery thereof by the other
parties hereto, constitutes the legal and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity.

 

2.5           No Conflict; Required Filings and
Consents.  (a)  The execution and delivery of this Agreement
by the Company do not, and the performance of this Agreement by the Company
shall not, (i) conflict with or violate the Company’s Charter Documents, (ii)
subject to obtaining the approval of this Agreement and the Merger by the
stockholders of the Company, conflict with or violate any Legal Requirements
(as defined in Section 10.2(b)), (iii) except as set forth in Section 2.5 of
the Company Schedule, result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or materially impair the Company’s rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company pursuant to, any
Material Company Contracts or (iv) except as set forth in Section 2.5 of the
Company Schedule, result in the triggering, acceleration or increase of any
payment to any Person pursuant to any Material Company Contract, including any “change
in control” or similar provision of any Material Company Contract.

 

(b)           The execution and delivery of this
Agreement by the Company does not, and the performance of its obligations
hereunder will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Entity, except (i)

 

12

 

(ii)for the filing of any notifications required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and the expiration of the required waiting period
thereunder, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company, or prevent consummation of the Merger or
otherwise prevent the Company from performing its obligations under this
Agreement.

 

2.6           Compliance.  The Company has complied with, and is not in
violation of, any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business.  Except as set forth in Section 2.6 of the
Company Schedule, no written notice of non-compliance with any Legal
Requirements has been received by the Company (and the Company has no knowledge
of any such notice delivered to any other Person).  The Company is not in violation of any term
of any Material Company Contract.

 

2.7           Financial Statements.  (a) 
The Company has provided to Parent a correct and complete copy of the
audited consolidated financial statements (including any related notes thereto)
of the Company for the fiscal years ended June 28, 2005, June 29, 2004 and June
24, 2003 (the “Audited Financial Statements”).  The Audited Financial Statements were
prepared in accordance with generally accepted accounting principles of the
United States (“U.S. 
GAAP”) applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto), and each fairly
presents in all material respects the financial position of the Company at the
respective dates thereof and the results of its operations and cash flows for
the periods indicated in accordance with U.S. GAAP.

 

(b)           Company has provided to Parent a
correct and complete copy of the unaudited consolidated financial statements
(including, in each case, any related notes thereto) of the Company through
January 10, 2006  (the “Unaudited Financial Statements”).  The Unaudited Financial Statements comply as
to form in all material respects, and were prepared in accordance with, U.S.
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto), and fairly present in all material
respects the financial position of the Company at the date thereof and the
results of its operations and cash flows for the period indicated in accordance
with U.S. GAAP, except that such statements do not contain notes and are
subject to normal adjustments that are not expected to have a Material Adverse
Effect on the Company.

 

(c)           Since January 1, 2000, the books of
account, minute books, stock certificate books and stock transfer ledgers and
other similar books and records of the Company have been maintained in
accordance with good business practice, are complete and correct in all
material respects and there have been no material transactions that are
required to be set forth therein and which are not so set forth.

 

(d)           Except as otherwise noted in the
Audited Financial Statements or the Unaudited Financial Statements, or as set
forth in Section 2.7(d) of the Company Schedule, the accounts and notes
receivable of the Company reflected on the balance sheets included in the
Audited Financial Statements and the Unaudited Financial Statements (i) arose
from bona fide transactions in the ordinary course of business and are payable
on ordinary trade terms, (ii) are

 

13

 

legal, valid and binding obligations of the respective
debtors enforceable in accordance with their terms, except as such may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting creditors’ rights generally, and by general equitable principles,
(iii) are not subject to any valid set-off or counterclaim except to the extent
set forth in such balance sheet contained therein, and (iv) except as set forth
in Section 2.7(d) of the Company Schedule, are not the subject of any actions
or proceedings brought by or on behalf of the Company.

 

(e)           To the knowledge of the Company, the
Company has established adequate internal controls for a privately held company
for purposes of preparing the Company’s periodic financial statements.

 

2.8           No Undisclosed Liabilities.  Except as set forth in Section 2.8 of the
Company Schedule, to the knowledge of the Company, the Company has no
liabilities (absolute, accrued, contingent or otherwise) of a nature required
to be disclosed on a balance sheet which are, individually or in the aggregate,
material to the business, results of operations or financial condition of the
Company, except:  liabilities provided
for in or otherwise disclosed in the balance sheet included in the Unaudited
Financial Statements, and (ii) such liabilities arising in the ordinary course
of the Company’s business since January 10, 2006, none of which would have a
Material Adverse Effect on the Company.

 

2.9           Absence of Certain Changes or
Events.  Except as set forth in
Section 2.9 of the Company Schedule or in the Unaudited Financial Statements,
or as otherwise provided in this Agreement, since January 10, 2006, there has
not been: (i) any Material Adverse Effect on the Company, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of the Company’s stock, or any
purchase, redemption or other acquisition by the Company of any of the Company’s
capital stock or any other securities of the Company or any options, warrants,
calls or rights to acquire any such shares or other securities, (iii) any
split, combination or reclassification of any of the Company’s capital stock,
(iv) any granting by the Company of any increase in compensation or fringe
benefits, except for normal increases of cash compensation in the ordinary
course of business consistent with past practice, or any payment by the Company
of any bonus, except for bonuses made in the ordinary course of business
consistent with past practice, or any granting by the Company of any increase
in severance or termination pay or any entry by Company into any currently
effective employment, severance, termination or indemnification agreement or
any agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving the Company
of the nature contemplated hereby, (v) entry by the Company into any licensing
or other agreement with regard to the acquisition or disposition of any
Intellectual Property (as defined in Section 2.18 hereof) other than licenses
in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by the Company with respect to any Governmental Entity, (vi) any
material change by the Company in its accounting methods, principles or
practices, (vii) any change in the auditors of the Company, (viii) any issuance
of capital stock of the Company, other than pursuant to the Company’s Stock
Option Plans in the ordinary course, (ix) any revaluation by the Company of any
of its assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable or any sale
of assets of the Company other than in the ordinary course of business, or (x)
any agreement, whether written or oral, to do any of the foregoing.

 

14

 

2.10         Litigation.  Except as disclosed in Section 2.10 of the
Company Schedule, there are no claims, suits, actions or proceedings pending
which have been served on the Company, or, to the knowledge of the Company,
otherwise pending or threatened against the Company before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seeks to restrain or enjoin the consummation of the
transactions contemplated by this Agreement.

 

2.11         Employee Benefit Plans and
Compensation.  (a)  Definitions.  With the exception of the definition of “Affiliate”
set forth in Section 2.11(a) below (which definition shall apply only to this
Section 2.11(a)), for purposes of this Agreement, the following terms shall
have the following respective meanings:

 

“Affiliate” shall mean any other person
or entity under common control with the Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations issued thereunder.

 

“Company Employee Plan” shall mean any
plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, deferred compensation,
performance awards, stock or stock-related awards, fringe benefits or other
employee benefits or remuneration of any kind, whether written, unwritten or
otherwise, funded or unfunded, including without limitation, each “employee
benefit plan,” within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by the Company or
any Affiliate for the benefit of any Employee, or with respect to which the
Company or any Affiliate has or may have any liability or obligation and any
International Employee Plan.

 

“COBRA” shall mean the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended.

 

“DOL” shall mean the United States
Department of Labor.

 

“Employee” shall mean any current,
former or rehired employee, consultant, officer or director of the Company or any
Affiliate.

 

“Employee Agreement” shall mean each
employment, consulting or similar agreement not terminable at will by the
Company, each agreement providing for severance,  relocation, repatriation, expatriation or
similar agreement (including, without limitation, any offer letter or any
agreement providing for acceleration of Company Stock Options) between the
Company or any Affiliate and any Employee.

 

“ERISA” shall mean the Employee
Retirement Income Security Act of 1974, as amended.

 

“FMLA” shall mean the Family Medical
Leave Act of 1993, as amended.

 

“HIPAA” shall mean the Health Insurance
Portability and Accountability Act of 1996, as amended.

 

15

 

“International Employee Plan” shall mean
each Company Employee Plan or Employee Agreement that has been adopted or
maintained by the Company or any Affiliate, whether formally or informally or
with respect to which the Company or any Affiliate will or may have any
liability with respect to Employees who perform services outside the United
States.

 

“IRS” shall mean the United States
Internal Revenue Service.

 

“PBGC” shall mean the United States
Pension Benefit Guaranty Corporation.

 

“Pension Plan” shall mean each Company
Employee Plan that is an “employee pension benefit plan,” within the meaning of
Section 3(2) of ERISA.

 

(b)           Section 2.11(b) of the Company
Schedule sets forth a complete and accurate list of each Company Employee Plan
and Employee Agreement.  The Company has
not made any plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.  The Company has
previously made available to Parent a true and complete table setting forth the
name, position and salary of each employee of the Company.

 

(c)           Documents.  The Company has provided to Parent: (i)
correct and complete copies of all documents embodying each Company Employee
Plan and each Employee Agreement including, without limitation, all amendments
thereto and written interpretations thereof and all related trust documents;
(ii) the five (5) most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, filed under ERISA
or the Code in connection with each Company Employee Plan; (iii) if the Company
Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets; (iv) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Company Employee Plan; (v) all
material written agreements and contracts relating to each Company Employee
Plan, including, without limitation, administrative service agreements and
group insurance contracts; (vi) all communications from the Company within the
prior three (3) years material to any Employee or Employees relating to any
Company Employee Plan and any proposed Company Employee Plan, in each case,
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any liability to the Company; (vii) all
correspondence to or from any governmental agency relating to any Company
Employee Plan received by the Company within the prior three (3) years; (viii)
all COBRA forms and related notices; (ix) all policies pertaining to fiduciary
liability insurance covering the fiduciaries for each Company Employee Plan;
(x) all discrimination tests for each Company Employee Plan for the three (3)
most recent plan years; (xi) the most recent registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection
with each Company Employee Plan; and (xii)

 

16

 

the most recent IRS determination or opinion letter
issued with respect to each Company Employee Plan.

 

(d)           Employee Plan Compliance.  The Company has performed all obligations
required to be performed by it under, is not in default or violation of, and
has no knowledge of any default or violation by any other party to, any Company
Employee Plan, and each Company Employee Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA or
the Code.  Any Company Employee Plan
intended to be qualified under Section 401(a) of the Code and any trust
intended to qualify under Section 501(a) of the Code has obtained a favorable
determination letter (or opinion letter, if applicable) as to its qualified
status under the Code.  No “prohibited
transaction,” within the meaning of Section 4975 of the Code or Sections 406
and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any Company Employee Plan.  There are no actions, suits or claims pending
which have been served on the Company or, to the knowledge of the Company,
otherwise pending or threatened or reasonably anticipated (other than routine
claims for benefits) against any Company Employee Plan or against the assets of
any Company Employee Plan.  Each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent, the
Company or any Affiliate (other than accrued benefits and ordinary
administration expenses).  There are no
audits, inquiries or proceedings pending or, to the knowledge of the Company or
any Affiliates, threatened by the IRS, DOL, or any other Governmental Entity
with respect to any Company Employee Plan. 
Neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 402(i) of ERISA or
Sections 4975 through 4980 of the Code. 
The Company has made all contributions and other payments required by
and due under the terms of each Company Employee Plan.

 

(e)           No Pension Plan.  Neither the Company nor any Affiliate has
ever maintained, established, sponsored, participated in, or contributed to,
any Pension Plan that is subject to Title IV of ERISA or Section 412 of the
Code.

 

(f)            No Self-Insured Plan.  Neither the Company nor any Affiliate has
ever maintained, established sponsored, participated in or contributed to any
self-insured plan that provides healthcare, life, disability or other welfare
benefits to employees (including, without limitation, any such plan pursuant to
which a stop-loss policy or contract applies).

 

(g)           Collectively Bargained,
Multiemployer and Multiple-Employer Plan. 
At no time has the Company or any Affiliate contributed to or been
obligated to contribute to any Multiemployer Plan.  Neither the Company nor any Affiliate has at
any time ever maintained, established, sponsored, participated in or
contributed to any multiple employer plan or to any plan described in Section
413 of the Code.

 

(h)           No Post-Employment Obligations.  No Company Employee Plan or Employment
Arrangement provides, or reflects or represents any liability to provide,
retiree life insurance, retiree health or other retiree employee welfare
benefits to any person for any reason, except as may be required by COBRA or
other applicable statute, and the Company has not represented, promised or
contracted (whether in oral or written form) to any Employee (either

 

17

 

individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree
life insurance, retiree health or other retiree employee welfare benefits,
except to the extent required by statute.

 

(i)            COBRA; FMLA; HIPAA.  The Company and each Affiliate has, prior to
the Effective Time, complied with COBRA, FMLA, HIPAA, the Women’s Health and
Cancer Rights Act of 1998, the Newborns’ and Mothers’ Health Protection Act of
1996, and any similar provisions of state law applicable to its Employees in
all material respects.  The Company does
not have unsatisfied obligations to any Employees or qualified beneficiaries
pursuant to COBRA, HIPAA or any state law governing health care coverage or
extension.

 

(j)            Effect of Transaction.  The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits or be deemed a “parachute payment”
under Section 280G of the Code with respect to any Employee, .

 

(k)           Employment Matters.  The Company: (i) is in compliance with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of
employment, termination of employment, employee safety and wages and hours, and
in each case, with respect to Employees; (ii) has withheld and reported all
amounts required by law or by agreement to be withheld and reported with
respect to wages, salaries and other payments to Employees; (iii) is not liable
for any arrears of wages, severance pay or any taxes or any penalty for failure
to comply with any of the foregoing; and (iv) is not liable for any payment to
any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent
with past practice).  There are no
action, suits, claims or administrative matters pending which have been served
on the Company, or to the Company’s knowledge, otherwise pending or threatened
or reasonably anticipated against the Company or any of its Employees relating
to any Employee, Employee Agreement or Company Employee Plan.  There are no pending, which have been served
on the Company, or to the Company’s knowledge, otherwise pending or threatened
or reasonably anticipated claims or actions against Company, any Company
trustee under any worker’s compensation policy.  To the Company’s knowledge, no employee of the
Company has violated any employment contract, nondisclosure agreement,
non-competition or non-solicitation agreement by which such employee is bound
due to such employee being employed by the Company and disclosing to the
Company or using trade secrets or proprietary information of any other person
or entity.  The services provided by each
of the Company’s and its Affiliate’s Employees is terminable at the will of the
Company and its Affiliates and any such termination would result in no
liability to the Company or any Affiliate.

 

(l)            No Interference or Conflict.  To the knowledge of the Company, no officer,
Employee or consultant of the Company is obligated under any contract or
agreement, subject to any judgment, decree, or order of any court or
administrative agency that would

 

18

 

interfere with such person’s efforts to promote the
interests of the Company or that would interfere with the Company’s
business.  Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company’s business as
presently conducted or proposed to be conducted nor any activity of such
officers, Employees or consultants in connection with the carrying on of the
Company’s business as presently conducted or currently proposed to be conducted
will, to the knowledge of the Company, conflict with or result in a breach of
the terms, conditions, or provisions of, or constitute a default under, any
contract or agreement under which any of such officers, Employees, or
consultants is now bound.

 

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

 

2.12         Labor Matters.  The Company is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company nor does the Company know of any activities or proceedings
of any labor union to organize any such employees.

 

2.13         Restrictions on Business Activities.  Except as disclosed in Section 2.13 of the
Company Schedule, to the Company’s knowledge, there is no agreement,
commitment, judgment, injunction, order or decree binding upon the Company or
its assets or to which the Company is a party which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of the Company, any acquisition of property by the Company or the
conduct of business by Company as currently conducted.

 

2.14         Title to Properties; Absence of
Liens and Encumbrances.

 

(a)           Real Property Owned or Leased by
the Company.

 

(i)            Franchised Property. Section
2.14(a)(i) of the Company Schedule lists each parcel of real property currently
owned, leased, subleased or licensed by the Company and leased or subleased, as
the case may be, to a franchisee, in each case, with the store ID and address
(the “Franchised  Property”).

 

(ii)           Company-Operated Stores.
Section 2.14(a)(ii) of the Company Schedule lists each company-operated store,
together, in each case, with the store ID, address and designation as owned or
leased (the “Company-Operated Stores”).

 

(iii)            Other Real Property. Section
2.14(a)(iii) of the Company Schedule lists each surplus or vacant parcel of
real property currently owned, leased, subleased or licensed by the Company,
which, together with that certain lease agreement with respect to the property
located at 1700 17th Street, San Francisco, California (the “Headquarters Lease”), constitutes all real property owned,
leased, subleased or licensed by the Company and not listed in Sections
2.14(a)(i) or 2.14(a)(ii) of the Company Schedule (the “Other Real
Property”).

 

(b)           Owned Real Property. Set forth
in Section 2.14(b) of the Company Schedule hereto is a complete list of all
real property and interests in real property owned in fee

 

19

 

simple by the Company (the “Owned Real
Property”). The Company has good, valid and marketable fee simple
title to the Owned Real Property.

 

(c)             Real Property. For purposes
of this Agreement, “Real Property”
shall mean the Franchised Property, the Company-Operated Stores and the Other
Real Property. All of the land, buildings, structures and other improvements
used by the Company in the conduct of its business are included in the Real
Property.

 

(d)           Leases. True, correct and
complete copies of all leases, subleases or licenses for each parcel of real
property currently leased, subleased or licensed by the Company (the “Leased Real Property”), together with any assignments,
guaranties or amendments thereto (collectively, the “Lease
Documents”) have been delivered or made available to Parent. All
such current leases, subleases and licenses are in full force and effect, are
valid and effective in accordance with their respective terms, and there is
not, under any of such leases, to the knowledge of the Company, any existing
default or event of default (or event which, with notice or lapse of time, or
both, would constitute a default) by the Company or by the other party to such
lease, sublease or license.

 

(e)           Liens.   Except as disclosed in Sections 2.14(a)(i),
2.14(a)(ii), 2.14(a)(iii) or 2.14(b) of the Company Schedule, the Company owns
or has valid leasehold fee interests in its properties and assets (other than
assets disposed of in the ordinary course of business since January 10, 2006,
free and clear of all encumbrances created by the Company.  Except as set forth on Section 2.14(a)(iii)
of the Company Schedule, the Company is not a party to or obligated under any
option, right of first refusal or other contractual right to sell, dispose of
or lease any of the Real Property or any portion thereof or interest therein to
any Person (other than pursuant to this Agreement).  The Company is not a party to any agreement
or option to purchase any real property or interest therein other than options
for renewal of Leased Real Property for the benefit of the Company.

 

(f)            Entire Interest. Except as
set forth in Section 2.14(f)(i) of the Company Schedule, the Company has not
leased or otherwise granted to any Person (other than pursuant to this
Agreement) any right to occupy or possess or otherwise encumber any portion of
the Real Property other than in the ordinary course of business.  Except as set forth in Section 2.14(f)(ii) of
the Company Schedule, the Company has not vacated or abandoned any portion of
the Real Property or given notice to any third party of their intent to do the
same.

 

(g)           Condemnation. Except as set
forth in Section 2.14(g) of the Company Schedule, the Company has not received
written notice of an expropriation or condemnation proceeding pending,
threatened or proposed against the Real Property.

 

2.15         Taxes.  (a)  Definition
of Taxes.  For the purposes of this
Agreement, “Tax” or “Taxes”
refers to any and all federal, state, local and foreign taxes, including,
without limitation, gross receipts, income, profits, sales, use, occupation,
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, assessments, governmental charges and
duties together with all interest, penalties and additions imposed with respect
to any such amounts and any obligations under any agreements or arrangements
with any

 

20

 

other person with respect to any such amounts and
including any liability of a predecessor entity for any such amounts.

 

(b)           Tax Returns and Audits.  Except as set forth in Section 2.15 of the
Company Schedule:

 

(i)            The Company has timely filed all
federal, state, local and foreign returns, estimates, information statements
and reports relating to Taxes (“Returns”)
required to be filed by the Company with any Tax authority prior to the date
hereof, except such Returns which are not material to Company.  To the Company’s knowledge, all such Returns
are true, correct and complete in all material respects.  The Company has paid all Taxes shown to be
due on such Returns.  The Company is not
a “United States real property holding corporation,” as defined in section 897
of the Internal Revenue Code of 1986, as amended, and Section 1.897-2(b) of the
regulations promulgated thereunder.

 

(ii)           All Taxes that the Company is
required by law to withhold or collect have been duly withheld or collected,
and have been timely paid over to the proper governmental authorities to the
extent due and payable.

 

(iii)          The Company is not delinquent in the
payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against the Company, nor has the Company
executed any unexpired waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.

 

(iv)          To the Company’s knowledge, no audit
or other examination of any Return of the Company by any Tax authority is
presently in progress.  The Company has
not been notified of any request for such an audit or other examination.

 

(v)           No adjustment relating to any Returns
filed by the Company has been proposed in writing, formally or informally, by
any Tax authority to the Company or any representative thereof.

 

(vi)          The Company has no liability for any
material unpaid Taxes which have not been accrued for or reserved on the
Company’s balance sheets included in the Audited Financial Statements or the
Unaudited Financial Statements, whether asserted or unasserted, contingent or
otherwise, which is material to the Company, other than any liability for
unpaid Taxes that may have accrued since the end of the most recent fiscal year
in connection with the operation of the business of the Company in the ordinary
course of business.

 

(vii)         The Company has not taken any action
and does not know of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.

 

2.16         Environmental Matters.  (a)  
Except as disclosed in Section 2.16 of the Company Schedule: (i) the Company
has complied with all applicable Environmental Laws; (ii) the properties
currently operated by the Company (including soils, groundwater, surface water,
buildings or other structures) have not been contaminated with any Hazardous
Substances by any action of the Company; (iii) the properties formerly owned by
the Company were not

 

21

 

contaminated with Hazardous Substances during the
period of ownership or operation by the Company or, to the Company’s knowledge,
during any prior period; (iv) the Company is not subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
the Company has not been associated with any release of any Hazardous
Substance; (vi) the Company has not received any notice, demand, letter, claim
or request for information alleging that the Company may be in violation of or
liable under any Environmental Law; and (vii) the Company is not subject to any
orders, decrees, injunctions or other arrangements with any Governmental Entity
or subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.

 

(b)           As used in this Agreement, the term “Environmental Law” means any federal, state, local or
foreign law, regulation, order, decree, permit, authorization, opinion, common
law or agency requirement relating to: (A) the protection, investigation or
restoration of the environment, health and safety, or natural resources; (B)
the handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to persons or property.

 

(c)           As used in this Agreement, the term “Hazardous Substance” means any substance that is: (i)
listed, classified or regulated pursuant to any Environmental Law; (ii) any
petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, radioactive materials or radon;
or (iii) any other substance which is the subject of regulatory action by any
Governmental Entity pursuant to any Environmental Law.  The Company, and, to the knowledge of the Company,
each other Person that operates the Properties and the Leased Real Property,
has obtained all permits, licenses, franchises, authorities, consents and
approvals, and has made all material filings and maintained all material data,
documentation and records necessary for owning and operating the Properties and
the Leased Real Property under any applicable Environmental Law, and all such
permits, licenses, franchises, authorities, consents, approvals and filings
remain in full force and effect.

 

(d)           There are no pending which have been
served on the Company or, to the knowledge of the Company, otherwise pending or
threatened claims, demands, actions, administrative proceedings, lawsuits or
inquiries relating to (i) the Properties and the Leased Real Property under
Environmental Law, or (ii) the restoration, remediation or reclamation of any
Properties or Leased Real Property, except as set forth on Section 2.16 of the
Company Schedule.

 

(e)           Except as set forth on Section 2.16
of the Company Schedule, there are no environmental investigations, studies or
audits with respect to any of the Properties or Leased Real Property owned or
commissioned by, or in the possession of, the Company.

 

2.17         Brokers; Third Party Expenses.  Except as set forth in Section 2.17 of the
Company Schedule, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage, finders’ fees, agent’s commissions or
any similar charges in connection with this Agreement or any transactions
contemplated hereby.  No shares of common
stock, options, warrants or other securities of the Company are payable to any
third party by Company as a result of the Merger.

 

22

 

2.18         Intellectual Property.  For the purposes of this Agreement, the
following terms have the following definitions:

 

“Intellectual Property”
shall mean any or all of the following and all worldwide common law and
statutory rights in, arising out of, or associated therewith:  (i) patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof (“Patents”); (ii)
inventions (whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, technology, technical data
and customer lists, and all documentation relating to any of the foregoing;
(iii) copyrights, copyrights registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (iv) software and
software programs; (v) domain names, uniform resource locators and other names
and locators associated with the Internet; (vi) industrial designs and any
registrations and applications therefor; (vii) trade names, logos, common law
trademarks and service marks, trademark and service mark registrations and
applications therefor (collectively, “Trademarks”);
(viii) all databases and data collections and all rights therein; (ix) all
moral and economic rights of authors and inventors, however denominated, and
(x) any similar or equivalent rights to any of the foregoing (as applicable).

 

“Company Intellectual Property” shall
mean any Intellectual Property that is owned by, or exclusively licensed to,
Company, including software and software programs developed by or exclusively
licensed to the Company (specifically excluding any off the shelf or
shrink-wrap software).

 

“Registered Intellectual Property” means
all Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with, or recorded by any
private, state, government or other legal authority.

 

“Company Registered Intellectual Property”
means all of the Registered Intellectual Property owned by, or filed in the
name of, Company.

 

“Company Products” means all current versions
of products of the Company.

 

(a)           Except as disclosed on Section 2.18
of the Company Schedule, no Company Intellectual Property or Company Product is
subject to any material proceeding or outstanding decree, order, judgment,
contract, license, agreement or stipulation which has been served on the
Company, or to the Company’s knowledge, otherwise pending, restricting in any
manner the use, transfer or licensing thereof by the Company, or which may
affect the validity, use or enforceability of such Company Intellectual
Property or Company Product.

 

(b)           Except as disclosed on Section 2.18
of the Company Schedule, the Company owns and has good and marketable title to
each material item of Company Intellectual Property owned by it free and clear
of any liens and encumbrances (excluding non-exclusive licenses and related
restrictions granted by it in the ordinary course of business); and the Company
is the exclusive owner of all material registered Trademarks used in connection
with the operation or conduct of the business of the Company as now conducted,
including the sale of any products or the provision of any services by the
Company.

 

23

 

(c)           To the Company’s knowledge, the
operation of the business of the Company as such business currently is
conducted, including (i) the design, development, manufacture, distribution,
reproduction, marketing or sale of the Company Products and (ii) the Company’s
use of any product, device or process has not and does not infringe or
misappropriate the Intellectual Property of any third party or constitute
unfair competition or trade practices under the laws of any jurisdiction.

 

2.19         Agreements, Contracts and
Commitments.  (a)  Section 2.19 of the Company Schedule sets
forth a complete and accurate list of all Material Company Contracts (as
hereinafter defined), specifying the parties thereto.  For purposes of this Agreement, (i) the term “Company Contracts” shall mean all contracts, agreements,
leases, mortgages, indentures, notes, bonds, franchises, purchase orders, sales
orders, and other understandings, commitments and obligations of any kind,
whether written or oral, to which the Company is a party or by or to which any
of the properties or assets of Company may be bound, subject or affected
(including without limitation notes or other instruments payable to the
Company), (ii) the term “Routine Operating
Contracts” shall mean retail store leases, operating agreements,
distribution agreements and other similar agreements routinely used in the day
to day operations of the Company, and (iii) the term “Material
Company Contracts” shall mean (x) each Company Contract that is not
a Routine Operating Contract and (I) which provides for payments (present or
future) to the Company in excess of $175,000 in the aggregate or (II) under
which or in respect of which the Company presently has any liability or
obligation of any nature whatsoever (absolute, contingent or otherwise) in
excess of $175,000, and (y) without limitation of subclause (x), each of the
following Company Contracts (but excluding in every case Routine Operating
Contracts), the relevant terms of which remain executory:

 

(i)            any mortgage, indenture, note,
installment obligation or other instrument, agreement or arrangement for or
relating to any borrowing of money by the Company in excess of $100,000;

 

(ii)           any mortgage, indenture, note,
installment obligation or other instrument, agreement or arrangement for or
relating to any borrowing of money from the Company by any officer, director or
stockholder (“Insider”) of the Company;

 

(iii)          any guaranty, direct or indirect, by
the Company or any Insider of the Company of any obligation for borrowings, or
otherwise, excluding endorsements made for collection in the ordinary course of
business;

 

(iv)          any Company Contract of employment
other than for at-will employment;

 

(v)           any Company Contract made other than
in the ordinary course of business or (x) providing for the grant of any
preferential rights to purchase or lease any asset of the Company or (y)
providing for any right (exclusive or non-exclusive) to sell or distribute, or
otherwise relating to the sale or distribution of, any product or service of
the Company;

 

(vi)          any obligation to register any shares
of the capital stock or other securities of the Company with any Governmental
Entity;

 

24

 

(vii)         any obligation to make payments,
contingent or otherwise, arising out of the prior acquisition of the business,
assets or stock of other Persons;

 

(viii)        any collective bargaining agreement with
any labor union;

 

(ix)           any lease or similar arrangement for
the use by the Company of personal property (other than leases of vehicles,
office equipment or operating equipment where the annual lease payments are
less than $100,000 in the aggregate); and

 

(x)            any Company Contract to which any
Insider of the Company is a party.

 

(b)           Each Company Contract was entered
into at arms’ length and in the ordinary course, is in full force and effect
and is valid and binding upon and enforceable against each of the parties
thereto.  True, correct and complete
copies of all Material Company Contracts (or written summaries in the case of
oral Material Company Contracts) have been heretofore made available to Parent
or Parent’s counsel.

 

(c)           Except as set forth in Section 2.19
of the Company Schedule, neither the Company nor, to the Company’s knowledge,
any other party thereto is in breach of or in default under, and no event has
occurred which with notice or lapse of time or both would become a breach of or
default under, any Material Company Contract. 
No party to any Company Contract has given any written notice of any
claim of any breach, default or event, which, with notice or lapse of time or
both would become a breach of or default under, any Material Company
Contract.  Each Material Company Contract
to which the Company is a party or by which it is bound that has not expired by
its terms is in full force and effect.

 

2.20         Insurance.  (a) 
Section 2.20(a) of the Company Schedule sets forth each insurance policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability and automobile
insurance policies and bond and surety arrangements) to which the Company is a
party (the “Insurance  Policies”).  The Insurance Policies are in full force and
effect, maintained with reputable companies against loss relating to the
business, operations and properties and such other risks as reasonably determined
by the Company’s Board of Directors.  All
premiums due and payable under the Insurance Policies have been paid on a
timely basis and the Company is in compliance in all material respects with all
other terms thereof.  True, complete and
correct copies of the Insurance Policies have been made available to Parent.

 

(b)           There are no claims pending as to
which coverage has been questioned, denied or disputed.  All claims thereunder have been filed in a
due and timely fashion and the Company has not been refused insurance for which
it has applied or had any policy of insurance terminated (other than at its
request), nor has the Company received notice from any insurance carrier
that:  (i) such insurance will be
canceled or that coverage thereunder will be reduced or eliminated; or (ii)
premium costs with respect to such insurance will be increased, other than
premium increases in the ordinary course of business applicable on their terms
to all holders of similar policies.

 

25

 

2.21         Governmental Actions/Filings.  Except as set forth in Section 2.21 of the
Company Schedule, to the Company’s knowledge, the Company has been granted and
holds, and has made, all Governmental Actions/Filings (including, without
limitation, the Governmental Actions/Filings required for the manufacture and
sale of all products manufactured and sold by it) necessary to the conduct by
the Company of its business (as presently conducted and as presently proposed
to be conducted by it) or used or held for use by the Company.  Each such Governmental Action/Filing is in
full force and effect, and the Company is in substantial compliance with all of
its obligations with respect thereto.  To
the Company’s knowledge, no event has occurred and is continuing which requires
or permits, or after notice or lapse of time or both would require or permit,
and consummation of the transactions contemplated by this Agreement or any
ancillary documents will not require or permit (with or without notice or lapse
of time, or both), any modification or termination of any such Governmental
Actions/Filings.  No Governmental
Action/Filing is necessary to be obtained, secured or made by the Company to
enable it to continue to conduct its businesses and operations and use its
properties after the Closing in a manner which is consistent with current
practice.  For purposes of this
Agreement, the term “Governmental Action/Filing”
shall mean any franchise, license, certificate of compliance, authorization,
consent, order, permit, approval, consent or other action of, or any filing,
registration or qualification with, any federal, state, municipal, foreign or
other governmental, administrative or judicial body, agency or authority.

 

2.22         Interested Party Transactions.  Except as set forth in the Section 2.22 of
the Company Schedule or in the Audited Financial Statements or the Unaudited
Financial Statements, no employee, officer, director or stockholder of the
Company or a member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them, other than (i) for payment of salary for services
rendered, (ii) reimbursement for reasonable expenses incurred on behalf of the
Company, and (iii) for other employee benefits made generally available to all
employees.  Except as set forth in
Section 2.22 of the Company Schedule, to the Company’s knowledge, none of the
Company’s officers or employees has any direct or indirect ownership interest in
any Person with whom the Company is affiliated or with whom the Company has a
contractual relationship, or in any Person that competes with the Company,
except that each officer or employee of Company and members of their respective
immediate families may own less than 1% of the outstanding stock in publicly
traded companies that may compete with Company. 
Except as set forth in Section 2.22 of the Company Schedule, to the
knowledge of the Company, no officer or director or any member of their
immediate families is, directly or indirectly, interested in any Material
Company Contract with the Company (other than such contracts as relate to any
such Person’s ownership of capital stock or other securities of the Company or
such Person’s employment with the Company).

 

2.23         Corporate Approvals.  The Board of Directors of the Company has, as
of the date of this Agreement, determined (i) that the Merger is fair to, and
in the best interests of the Company and its stockholders, and (ii) to
recommend that the stockholders of the Company approve this Agreement.

 

2.24         Proxy Statement.  The information to be supplied by the Company
for inclusion in Parent’s proxy statement (such proxy statement as amended or
supplemented is referred to herein as the “Proxy Statement”)
shall not at the time the Proxy Statement is filed with the SEC and at

 

26

 

the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The information to be supplied by the
Company for inclusion in the proxy statement to be sent in connection with the
meeting of Parent’s stockholders to consider the approval of this Agreement
(the “Parent Stockholders’ Meeting”) shall
not, on the date the Proxy Statement is first mailed to Parent’s stockholders,
and at the time of the Parent Stockholders’ Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not false or misleading; or
omit to state any material fact necessary to correct any statement provided by
the Company in any earlier communication with respect to the solicitation of
proxies for the Parent Stockholders’ Meeting which has become false or
misleading.  If at any time prior to the
Effective Time, any event relating to the Company or any of its affiliates,
officers or directors should be discovered by the Company which should be set
forth in a supplement to the Proxy Statement, the Company shall promptly inform
Parent. Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to any information supplied by Parent or any Person other
than the Company which is contained in any of the foregoing documents.

 

2.25         Franchise Matters.  (a) 
Except as set forth in Section 2.25(a) of the Company Schedule, there
are no Persons authorized or privileged to use the Intellectual Property Rights
under any contract.  Section 2.25(a)(i)
of the Company Schedule sets forth the name and address of each franchisee that
is operating a store using the Intellectual Property Rights and each developer
who is authorized to open and operate a store using the Intellectual Property
Rights. Except as set forth in Section 2.25(a)(ii) of the Company Schedule, the
royalty fee percentage specified in each extant franchise agreement remains in
effect, is being paid when due and has not been reduced, modified, waived or
otherwise affected by any franchise agreement “side letter,” modification,
amendment, waiver or suspension, in whole or in part, and, to Company’s knowledge,
there are no franchisees who are in material default of their franchise
agreements. Except as set forth in Section 2.25(a)(iii) of the Company
Schedule, there are no area developers who are in material default with their
development obligations under their area development agreements.

 

(b)           Section 2.25(b) of the Company
Schedule lists each state or other jurisdiction in which the Company is
currently registered, or with which the Company filed an application for
registration or an exemption from registration, to sell franchises, and the
effective date of each such registration. Except as set forth in Section
2.25(b) of the Company Schedule, all franchise registrations remain in full
force and effect and are not the subject of any existing or threatened government
or other action intended, in whole or in part, to result in the termination,
revocation, modification, suspension, conditioning or dissolution of any such
franchise registration and/or any other circumstance which would reasonably be
expected to materially impair the Company’s ability routinely to renew or amend
any such franchise registration and/or enter into franchise agreements in any
jurisdiction. To the knowledge of the Company, the Company is currently in
compliance with all laws relating to the offer and sale of franchises in all
states and countries where the Company is conducting franchise activities and
has, without limitation, prepared all disclosure documents and secured all
registrations to effectuate such franchise activities.

 

27

 

(c)           The Company’s current Uniform
Franchise Offering Circulars (“UFOCs”) do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  Except as set forth in
Section 2.25(c) of the Company Schedule and to the extent required by law, each
current franchisee has been given a UFOC Item 23 “receipt” at least 10 Business
Days prior to executing his/her/its franchise agreement or area development
agreement with the Company.

 

(d)           Except as set forth in the UFOCs or
in Section 2.25(d) of the Company Schedule, (i) there is no pending franchise
or franchise-related Action which has been served or, to the Company’s
knowledge, is otherwise pending or threatened, (ii) to Company’s knowledge,
there are no pending franchisee complaints, threats to initiate an Action,
threats to file complaints with any Governmental Authority and/or threats to
otherwise complain of the Company in any material respect, (iii) there exists
no written or, to Company’s knowledge, other complaint, inquiry, investigation,
or judicial or administrative action or proceeding, communicated or commenced
(as the case may be) by any Governmental Authority to or against the Company
regarding its offer and sale of franchises, the administration of its franchise
network, advancing or referring to any complaint received from any franchisee,
inquiring of or contesting any element of the Company’s franchise program or
franchise relationships, and/or otherwise related to the Company’s compliance
with any franchise Law, and (iv) to Company’s knowledge, there exists no
material Action or other claims asserted by any third party against any of the
Company’s franchisees in which the Company is or may become a party thereto,
including under a negligence or “vicarious liability” theory.

 

(e)           Except as set forth in Section
2.25(e) of the Company Schedule, to Company’s knowledge, none of the Company’s
franchisees or area developers are currently involved in a workout or other
financial restructuring or any insolvency, bankruptcy or similar proceeding; or
contemplating or scheduled to undertake a workout or other financial
restructuring or any insolvency, bankruptcy or similar proceeding.

 

2.26         Representations and Warranties
Complete.  The representations and
warranties of the Company included in this Agreement, as modified by the
Company Schedule, are true and complete in all material respects and do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
contained therein not misleading, under the circumstance under which they were
made.

 

2.27         Survival of Representations and
Warranties.  The representations and
warranties of the Company set forth in this Agreement shall survive the Closing
until one year after the Closing Date.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF
PARENT

 

Except as set forth in Schedule 3 attached hereto (the “Parent Schedule”), Parent represents and warrants to the
Company, as follows:

 

28

 

3.1           Organization and Qualification.  (a)  Parent is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to own, lease and operate
its assets and properties and to carry on its business as it is now being or
currently planned by Parent to be conducted. 
Parent is in possession of all Approvals necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being or currently planned by Parent to be conducted,
except where the failure to have such Approvals could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.  Complete and correct copies of
the Charter Documents of Parent, as amended and currently in effect, have been
heretofore delivered to the Company. 
Parent is not in violation of any of the provisions of Parent’s Charter
Documents.

 

(b)           Parent is duly qualified or licensed
to do business as a foreign corporation and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Parent.

 

(c)           Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being or currently planned by Parent to be conducted.  Complete and correct copies of the Charter
Documents of Merger Sub, as amended and currently in effect, are attached
hereto as Exhibit B.  Merger Sub
is not in violation of any of the provisions of the Merger Sub’s Charter
Documents.

 

3.2           Authority Relative to this
Agreement.  Each of Parent and Merger
Sub has full corporate power and authority to: 
(i) execute, deliver and perform this Agreement, and each ancillary
document which Parent or Merger Sub has executed or delivered or is to execute
or deliver pursuant to this Agreement, and (ii) carry out Parent’s and Merger
Sub’s obligations hereunder and thereunder and, to consummate the transactions
contemplated hereby (including the Merger). 
The execution and delivery of this Agreement and the consummation by
Parent and Merger Sub of the transactions contemplated hereby (including the
Merger) have been duly and validly authorized by all necessary corporate action
on the part of Parent and Merger Sub (including the approval by its Board of
Directors), and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, other than the Parent Stockholder Approval (as defined in
Section 5.1(a)).  This Agreement has been
duly and validly executed and delivered by Parent and Merger Sub and, assuming
the due authorization, execution and delivery thereof by the other parties
hereto, constitutes the legal and binding obligation of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors’ rights generally and by general
principles of equity.

 

3.3           No Conflict; Required Filings and
Consents.  (a)  The execution and delivery of this Agreement
by Parent and Merger Sub do not, and the performance of this Agreement by

 

29

 

Parent and Merger Sub shall not:  (i) conflict with or violate Parent’s or
Merger Sub’s Charter Documents, (ii) conflict with or violate any Legal
Requirements, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or materially impair Parent’s rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Parent pursuant to, any
Parent Contracts, except, with respect to clauses (ii) or (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that would not,
individually and in the aggregate, have a Material Adverse Effect on Parent.

 

(b)           The execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance of their
respective obligations hereunder will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity, except (i) for the filing of any notifications required under the HSR
Act and the expiration of the required waiting period thereunder, (ii) the
qualification of Parent as a foreign corporation in those jurisdictions in
which the business of the Company makes such qualification necessary, and (iii)
where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Parent, or prevent consummation of the Merger or otherwise prevent the parties
hereto from performing their obligations under this Agreement.

 

3.4           Compliance.  Parent has complied with, is not in violation
of, any Legal Requirements with respect to the conduct of its business, or the
ownership or operation of its business, except for failures to comply or
violations which, individually or in the aggregate, have not had and are not
reasonably likely to have a Material Adverse Effect on Parent.  The business and activities of Parent have
not been and are not being conducted in violation of any Legal
Requirements.  Parent is not in default
or violation of any term, condition or provision of its Charter Documents.  No written notice of non-compliance with any
Legal Requirements has been received by Parent.

 

3.5           SEC Filings; Financial Statements.  (a) 
Parent has made available to the Company a correct and complete copy of
each report, registration statement and definitive proxy statement filed by Parent
with the SEC (the “Parent SEC Reports”),
which are all the forms, reports and documents required to be filed by Parent
with the SEC prior to the date of this Agreement.  As of their respective dates, the Parent SEC
Reports:  (i) were prepared in accordance
and complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Parent SEC Reports, and (ii) did not at
the time they were filed (and if amended or superseded by a filing prior to the
date of this Agreement then on the date of such filing and as so amended or
superseded) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  Except to the extent set
forth in the preceding sentence, Parent makes no representation or warranty
whatsoever concerning the Parent SEC Reports as of any time other than the time
they were filed.

 

30

 

(b)  Each set of
financial statements (including, in each case, any related notes thereto)
contained in Parent SEC Reports, including each Parent SEC Report filed after
the date hereof until the Closing, complied or will comply as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, was or will be prepared in accordance with U.S. GAAP applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited statements, do not
contain footnotes as permitted by Form 10-Q of the Exchange Act) and each
fairly presents or will fairly present in all material respects the financial
position of Parent at the respective dates thereof and the results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were, are or will be subject to normal adjustments
which were not or are not expected to have a Material Adverse Effect on Parent
taken as a whole.

 

3.6           No Undisclosed Liabilities.  Parent has no liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance
sheet or in the related notes to the financial statements included in Parent
SEC Reports which are, individually or in the aggregate, material to the
business, results of operations or financial condition of Parent, except (i)
liabilities provided for in or otherwise disclosed in Parent SEC Reports filed
prior to the date hereof, and (ii) liabilities incurred since January 10, 2006
in the ordinary course of business, none of which would have a Material Adverse
Effect on Parent.  Merger Sub has no
assets or properties of any kind, does not now conduct and has never conducted
any business, and has and will have at the Closing no obligations or
liabilities of any nature whatsoever except such obligations and liabilities as
are imposed under this Agreement.

 

3.7           Absence of Certain Changes or
Events.  Except as set forth in
Parent SEC Reports filed prior to the date of this Agreement, and except as
contemplated by this Agreement, since January 10, 2006, there has not
been:  (i) any Material Adverse Effect on
Parent, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any of
Parent’s capital stock, or any purchase, redemption or other acquisition by
Parent of any of Parent’s capital stock or any other securities of Parent or
any options, warrants, calls or rights to acquire any such shares or other
securities, (iii) any split, combination or reclassification of any of Parent’s
capital stock, (iv) any granting by Parent of any increase in compensation or
fringe benefits, except for normal increases of cash compensation in the
ordinary course of business consistent with past practice, or any payment by
Parent of any bonus, except for bonuses made in the ordinary course of business
consistent with past practice, or any granting by Parent of any increase in
severance or termination pay or any entry by Parent into any currently
effective employment, severance, termination or indemnification agreement or
any agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving Parent of the
nature contemplated hereby, (v) entry by Parent into any licensing or other
agreement with regard to the acquisition or disposition of any Intellectual
Property other than licenses in the ordinary course of business consistent with
past practice or any amendment or consent with respect to any licensing
agreement filed or required to be filed by Parent with respect to any
Governmental Entity, (vi) any material change by Parent in its accounting
methods, principles or practices, except as required by concurrent changes in
U.S. GAAP, (vii) any change in the auditors of Parent, (vii) any issuance of
capital stock of Parent, or (viii) any revaluation by Parent of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or

 

31

 

writing off notes or accounts receivable or any sale
of assets of Parent other than in the ordinary course of business.

 

3.8           Litigation.  There are no claims, suits, actions or
proceedings pending or to Parent’s knowledge, threatened against Parent, before
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seeks to restrain or enjoin the consummation
of the transactions contemplated by this Agreement or which could reasonably be
expected, either singularly or in the aggregate with all such claims, actions
or proceedings, to have a Material Adverse Effect on Parent or have a Material
Adverse Effect on the ability of the parties hereto to consummate the Merger.

 

3.9           Interested Party Transactions.  Except as set forth in the Parent SEC Reports
filed prior to the date of this Agreement, no employee, officer, director or
stockholder of Parent or a member of his or her immediate family is indebted to
Parent nor is Parent indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than reimbursement for reasonable
expenses incurred on behalf of Parent.  To
Parent’s knowledge, none of its officers or employees has any direct or
indirect ownership interest in any Person with whom Parent is affiliated or
with whom Parent has a material contractual relationship, or any Person that
competes with Parent, except that each employee or officer of Parent and
members of their respective immediate families may own less than 5% of the
outstanding stock in publicly traded companies that may compete with
Parent.  To Parent’s knowledge, no
officer or director or any member of their immediate families is, directly or
indirectly, interested in any material contract with Parent (other than such
contracts as relate to any such individual ownership of capital stock or other
securities of Parent).

 

3.10         Board Approval.  The Board of Directors of Parent (including
any required committee or subgroup of the Board of Directors of Parent) has, as
of the date of this Agreement, unanimously (i) declared the advisability of the
Merger and approved this Agreement and the transactions contemplated hereby,
(ii) determined that the Merger is in the best interests of the stockholders of
Parent, and (iii) determined that the fair market value of the Company is equal
to at least 80% of Parent’s net assets.

 

3.11         Trust Fund.  As of the date hereof and at the Closing
Date, Parent has and will have no less than $126,720,000 invested in United
States Government securities or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940
in a trust account administered by Continental (the “Trust Fund”),
less such amounts, if any, as Parent is required to pay to stockholders who
elect to have their shares converted to cash in accordance with the provisions
of Parent’s Charter Documents.

 

3.12         Representations and Warranties
Complete.  The representations and
warranties of Parent included in this Agreement, as modified by the Parent
Schedule, are true and complete in all material respects and do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading, under the circumstance under which they were made.

 

3.13         Survival of Representations and
Warranties.  The representations and
warranties of Parent set forth in this Agreement shall not survive the Closing.

 

32

 

ARTICLE IV

 

CONDUCT PRIOR TO THE EFFECTIVE
TIME

 

4.1           Conduct of Business by Company and
Parent.  During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Closing, each of the Company,
Parent and Merger Sub shall, except to the extent that the other party shall
otherwise consent in writing, carry on its business in the usual, regular and
ordinary course consistent with past practices, in substantially the same
manner as heretofore conducted and in compliance with all applicable laws and
regulations (except where noncompliance would not have a Material Adverse
Effect), pay its debts and taxes when due subject to good faith disputes over
such debts or taxes, pay or perform other material obligations when due, and
use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve substantially intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings.  In addition, except
as required or permitted by the terms of this Agreement, without the prior
written consent of the other party, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Closing, each of the Company, Parent and Merger
Sub shall not do any of the following:

 

(a)           Waive any stock repurchase rights,
accelerate (except as disclosed in the Company Schedule), amend or (except as
specifically provided for herein) change the period of exercisability of
options or restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in
exchange for any options granted under any of such plans;

 

(b)           Grant any severance or termination
pay to any officer or employee except pursuant to applicable law, written
agreements outstanding, or policies existing on the date hereof and as
previously or concurrently disclosed in writing or made available to the other
party, or adopt any new severance plan, or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date
hereof;

 

(c)           Transfer or license to any person or
otherwise extend, amend or modify any material rights to any Intellectual
Property of the Company or Parent, as applicable, or enter into grants to
transfer or license to any person future patent rights, other than in the
ordinary course of business consistent with past practices, provided that in no
event shall the Company or Parent license on an exclusive basis or sell any
Intellectual Property of the Company, or Parent as applicable;

 

(d)           Declare, set aside or pay any
dividends on or make any other distributions (whether in cash, stock, equity securities
or property) in respect of any capital stock or split, combine or reclassify
any capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for any capital stock;

 

(e)           Purchase, redeem or otherwise
acquire, directly or indirectly, any shares of capital stock of the Company and
Parent, as applicable, including repurchases of unvested shares

 

33

 

at cost in connection with the termination of the
relationship with any employee or consultant pursuant to stock option or
purchase agreements in effect on the date hereof;

 

(f)            Issue, deliver, sell, authorize,
pledge or otherwise encumber, or agree to any of the foregoing with respect to,
any shares of capital stock or any securities convertible into or exchangeable
for shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into or
exchangeable for shares of capital stock, or enter into other agreements or
commitments of any character obligating it to issue any such shares or
convertible or exchangeable securities, except for (i) the issuance of Company
common stock upon the exercise of outstanding Company Stock Options or
warrants, or issuance of common stock upon the conversion of any Company
Preferred Stock;

 

(g)           Amend its Charter Documents unless
required to do so hereunder;

 

(h)           Acquire or agree to acquire by
merging or consolidating with, or by purchasing any equity interest in or a
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the business of Parent or the
Company as applicable, or enter into any joint ventures, strategic partnerships
or alliances or other arrangements that provide for exclusivity of territory or
otherwise restrict such party’s ability to compete or to offer or sell any
products or services, other than franchise and area development agreements
entered into in the ordinary course of business upon prior notice to Parent;

 

(i)            Sell, lease, license, encumber or
otherwise dispose of any properties or assets, except (A) sales of inventory in
the ordinary course of business consistent with past practice and (B) and the
sale, lease or disposition (other than through licensing) of property or assets
that are not material, individually or in the aggregate, to the business of
such party;

 

(j)            Incur Indebtedness, except for up to
$22,000,000 of Indebtedness (including Total Indebtedness) incurred in the
ordinary course of business to carry out the business plan. For purposes of the
foregoing, “Indebtedness” shall mean (a) all
obligations of the Company for borrowed money or with respect to deposits or
advances of any kind (other than deposits or advances in respect of deferred
revenue), (b) all obligations of the Company evidenced by bonds, debentures,
notes or similar instruments, (c) all obligations of the Company upon which
interest is customarily paid, (d) all obligations of the Company for purchase
money financing, including obligations under conditional sale or other title
retention agreements or issued or assumed in respect of deferred purchase
price, relating to assets purchased by the Company, (e) all guarantees by the
Company of any obligation of the type described in the clauses hereof of any
other person, (f) all capital lease obligations of the Company, (g) all
interest rate protection, foreign currency exchange or other interest or
exchange rate hedging agreements and (h) all obligations of the Company as an
account party in respect of bankers’ acceptances, in the case of each clause
above, as of such date;

 

(k)           Adopt or amend any employee benefit
plan, policy or arrangement, any employee stock purchase or employee stock
option plan, or enter into any employment contract or collective bargaining
agreement (other than offer letters and letter agreements entered into in

 

34

 

the ordinary course of business consistent with past
practice with employees who are terminable “at will”), pay any special bonus or
special remuneration to any director or employee, or increase the salaries or
wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants, except
in the ordinary course of business consistent with past practices;

 

(l)            Pay, discharge, settle or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), or litigation (whether or not commenced
prior to the date of this Agreement) other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with past
practices or in accordance with their terms, or liabilities recognized or
disclosed in the Unaudited Financial Statements or in the most recent financial
statements included in the Parent SEC Reports filed prior to the date of this
Agreement, as applicable, or incurred since the date of such financial
statements, or waive the benefits of, agree to modify in any manner, terminate,
release any person from or knowingly fail to enforce any confidentiality or
similar agreement to which the Company is a party or of which the Company is a
beneficiary or to which Parent is a party or of which Parent is a beneficiary,
as applicable;

 

(m)          Except in the ordinary course of
business consistent with past practices, modify, amend or terminate any
Material Company Contract or Parent Contract, as applicable, or waive, delay
the exercise of, release or assign any material rights or claims thereunder;

 

(n)           Except as required by U.S. GAAP,
revalue any of its assets or make any change in accounting methods, principles
or practices;

 

(o)           Except in the ordinary course of
business consistent with past practices, incur or enter into any agreement,
contract or commitment requiring such party to pay in excess of $250,000 in any
12 month period, other than the Company under a Routine Operating Contract;

 

(p)           Make or rescind any Tax elections
that, individually or in the aggregate, could be reasonably likely to adversely
affect in any material respect the Tax liability or Tax attributes of such
party, settle or compromise any material income tax liability or, except as
required by applicable law, materially change any method of accounting for Tax
purposes or prepare or file any Return in a manner inconsistent with past
practice;

 

(q)           Form, establish or acquire any
subsidiary except as contemplated by this Agreement;

 

(r)            Except as set forth in the Company
Schedule, permit any Person to exercise any of its discretionary rights under
any Plan to provide for the automatic acceleration of any outstanding options,
the termination of any outstanding repurchase rights or the termination of any
cancellation rights issued pursuant to such plans;

 

(s)           Make capital expenditures except in
accordance with prudent business and operational practices consistent with
prior practice;

 

35

 

(t)            Take or omit to take any action, the
taking or omission of which would be reasonably anticipated to have a Material
Adverse Effect;

 

(u)           Enter into any transaction with or
distribute or advance any assets or property to any of its officers, directors,
partners, stockholders or other affiliates (other than payment of salary and
benefits in the ordinary course of business consistent with past practice);

 

(v)           enter into any material area
development agreement or enter into any franchise agreement or area development
agreement without first amending the Company’s effective UFOCs to include such
information regarding the transactions contemplated by this Agreement as
required by applicable Law; or

 

(w)          Agree in writing or otherwise agree,
commit or resolve to take any of the actions described in Section 4.1 (a)
through (v) above.

 

ARTICLE V

 

ADDITIONAL AGREEMENTS

 

5.1           Proxy Statement; Parent
Stockholders’ Meeting.  (a)  As promptly as practicable after the
execution of this Agreement, Parent will prepare and file the Proxy Statement
with the SEC.  Parent will respond to any
comments of the SEC and Parent will use its commercially reasonable efforts to
mail the Proxy Statement to its stockholders at the earliest practicable time.
As promptly as practicable after the execution of this Agreement, the Company
and Parent will prepare and file any other filings required under the
Securities Exchange Act of 1934 (the “Exchange Act”),
the Securities Act of 1933 (the “Securities Act”)
or any other Federal, foreign or Blue Sky laws relating to the Merger and the
transactions contemplated by this Agreement, (collectively, the “Other Filings”).  Each
party will notify the other party promptly upon the receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff or any
other governmental officials for amendments or supplements to the Proxy
Statement or any Other Filing or for additional information and will supply the
other party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or other government
officials, on the other hand, with respect to the Proxy Statement, the Merger
or any Other Filing. The Proxy Statement and the Other Filings will comply in
all material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement or any
Other Filing, the Company or Parent, as the case may be, will promptly inform
the other party of such occurrence and cooperate in filing with the SEC or its
staff or any other government officials, and/or mailing to stockholders of the
Company and Parent, such amendment or supplement. The proxy materials will be
sent to the stockholders of Parent for the purpose of soliciting proxies from
holders of Parent Common Stock to vote in favor of  (i) the adoption of this Agreement and the
approval of the Merger (“Parent Stockholder
Approval”); (ii) the issuance and sale of shares of Common Stock to
the extent that such issuance requires shareholder approval under the rules of
the American Stock Exchange, and (iii) the adoption of an Equity Incentive Plan
(the “Parent Plan”) at the Parent
Stockholders’ Meeting.  Such proxy
materials shall be in the form of a proxy statement to be used for the purpose
of soliciting such proxies from holders of Parent Common Stock.  Parent

 

36

 

covenants to, within a reasonable time following the
Closing, amend the Certificate of Incorporation of Parent to change Parent’s
name to “Jamba, Inc.” or such similar available name as recommended by
management of Parent following the Closing.

 

(b)           As soon as practicable following its
approval by the SEC, Parent shall distribute the Proxy Statement to the holders
of Parent Common Stock and, pursuant thereto, shall call the Parent Stockholders’
Meeting in accordance with the Delaware General Corporation Law (the “DGCL”) and, subject to the other provisions of this
Agreement, solicit proxies from such holders to vote in favor of the adoption
of this Agreement and the approval of the Merger and the other matters
presented to the stockholders of Parent for approval or adoption at the Parent
Stockholders’ Meeting, including, without limitation, the matters described
Section 5.1(a).

 

(c)           Parent shall comply with all
applicable provisions of and rules under the Exchange Act and all applicable
provisions of the DGCL in the preparation, filing and distribution of the Proxy
Statement, the solicitation of proxies thereunder, and the calling and holding
of the Parent Stockholders’ Meeting. 
Without limiting the foregoing, Parent shall ensure that the Proxy
Statement does not, as of the date on which it is distributed to the holders of
Parent Common Stock, and as of the date of the Parent Stockholders’ Meeting,
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that Parent
shall not be responsible for the accuracy or completeness of any information
relating to the Company or any other information furnished by the Company for
inclusion in the Proxy Statement).  The
Company represents and warrants that the information relating to the Company
supplied by the Company for inclusion in the Proxy Statement will not as of
date of its distribution to the holders of Parent Common Stock (or any
amendment or supplement thereto) or at the time of the Parent Stockholders’
Meeting contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to
any material fact, or omits to state any material fact required to be stated
therein or necessary in order to make the statement therein not false or
misleading.

 

(d)           Parent, acting through its board of
directors, shall include in the Proxy Statement the recommendation of its board
of directors that the holders of Parent Common Stock vote in favor of the
adoption of this Agreement and the approval of the Merger, and shall otherwise
use reasonable best efforts to obtain the Parent Stockholder Approval

 

5.2           Company Stockholder Approval.  (a)  As
promptly as practicable after the execution of this Agreement, the Company will
prepare and file any filings required under the CGCL, the Securities Act or any
Other Filings relating to the Merger and the transactions contemplated by this
Agreement required by law to be filed by the Company.  The Other Filings will comply in all material
respects with all applicable requirements of law and the rules and regulations
promulgated thereunder.  Applicable proxy
materials or other materials will be sent to the stockholders of Company for
the purpose of soliciting proxies to vote in favor of the adoption of this
Agreement and the approval of the Merger, or other approval from the
stockholders of Company (the “Company Stockholder
Approval”).

 

37

 

(b)           The Company will use its reasonable
best efforts to obtain the approval of its stockholders within two weeks of the
date of this Agreement, but in any event as soon as practicable following the
date of this Agreement and in no event shall such meeting be held later than
April 30, 2006.  The Company shall seek
to obtain such approval by calling a meeting of the Company’s stockholders’ or
otherwise obtain approval of the stockholders for the purpose of the adoption
of this Agreement and the approval of the Merger and the other matters
presented to the stockholders of Company for approval or adoption.

 

(c)            Parent represents and warrants that
the information relating to Parent supplied by Parent for inclusion in Company
proxy or other materials provided to the Company’s stockholders will not as of
date of its distribution to the holders of Company stockholders (or any
amendment or supplement thereto) or at the time of the Company Stockholder
Approval contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to
any material fact, or omits to state any material fact required to be stated
therein or necessary in order to make the statement therein not false or
misleading.

 

5.3           Directors and Officers of Parent
and the Surviving Corporation After Merger. 
Parent and the Company shall take all necessary action so that the
persons listed on Schedule 5.3 are appointed or elected, as applicable, to the
positions of officers and directors of Parent and the Surviving Corporation, as
set forth therein, to serve in such positions effective immediately after the
Closing.

 

5.4           Voting Agreements.  Certain stockholders of the Company mutually
agreed between the Company and Parent shall enter into a Voting Agreement in
the form of Exhibit C hereto (the “Voting Agreement”)
concurrently with the execution of this Agreement.

 

5.5           HSR Act.  If required pursuant to the HSR Act, as
promptly as practicable after the date of this Agreement, Parent and the
Company shall each prepare and file the notification required of it thereunder
in connection with the transactions contemplated by this Agreement and shall
promptly and in good faith respond to all information requested of it by the
Federal Trade Commission and Department of Justice in connection with such
notification and otherwise cooperate in good faith with each other and such
Governmental Entities. Parent and the Company shall (a) promptly inform the
other of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Entity regarding the
transactions contemplated by this Agreement, (b) give the other prompt notice
of the commencement of any action, suit, litigation, arbitration, proceeding or
investigation by or before any Governmental Entity with respect to such
transactions and (c) keep the other reasonably informed as to the status of any
such action, suit, litigation, arbitration, proceeding or investigation. Filing
fees with respect to the notifications required under the HSR Act shall be
shared equally by Parent and the Company.

 

5.6           Other Actions.  (a)  At
least five (5) days prior to Closing, Parent shall prepare a draft Form 8-K
announcing the Closing, together with, or incorporating by reference, the
financial statements prepared by the Company and its accountant, and such other
information that may be required to be disclosed with respect to the Merger in
any report or form to be filed with the SEC (“Merger Form
8-K”), which shall be in a form reasonably acceptable to the Company
and in a format acceptable for EDGAR filing. 
Prior to Closing, Parent and the

 

38

 

Company shall prepare the press release announcing the
consummation of the Merger hereunder (“Press Release”).  Simultaneously with the Closing, Parent shall
file the Merger Form 8-K with the SEC and distribute the Press Release.

 

(b)           The Company and Parent shall further
cooperate with each other and use their respective reasonable best efforts to
take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
laws to consummate the Merger and the other transactions contemplated hereby as
soon as practicable, including preparing and filing as soon as practicable all
documentation to effect all necessary notices, reports and other filings and to
obtain as soon as practicable all consents, registrations, approvals, permits
and authorizations necessary or advisable to be obtained from any third party
(including the respective independent accountants of the Company and Parent)
and/or any Governmental Entity in order to consummate the Merger or any of the
other transactions contemplated hereby. 
This obligation shall include, on the part of Parent, sending a
termination letter to Continental in substantially the form of Exhibit A
attached to the Investment Management Trust Agreement by and between Parent and
Continental dated as of June 29, 2005. 
Subject to applicable laws relating to the exchange of information and
the preservation of any applicable attorney-client privilege, work-product
doctrine, self-audit privilege or other similar privilege, each of the Company
and Parent shall have the right to review and comment on in advance, and to the
extent practicable each will consult the other on, all the information relating
to such party that appears in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection with
the Merger and the other transactions contemplated hereby.  In exercising the foregoing right, each of
the Company and Parent shall act reasonably and as promptly as practicable.

 

5.7           Required Information.  In connection with the preparation of the
Merger Form 8-K and Press Release, and for such other reasonable purposes, the
Company and Parent each shall, upon request by the other, furnish the other
with all information concerning themselves, their respective directors,
officers and stockholders (including the directors of Parent and the Company to
be elected effective as of the Closing pursuant to Section 5.3 hereof) and such
other matters as may be reasonably necessary or advisable in connection with
the Merger, or any other statement, filing, notice or application made by or on
behalf of the Company and Parent to any third party and/or any Governmental
Entity in connection with the Merger and the other transactions contemplated
hereby.  Each party warrants and
represents to the other party that all such information shall be true and
correct in all material respects and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

 

5.8           Confidentiality; Access to
Information.  (a)  Confidentiality.  Any confidentiality agreement previously
executed by the parties shall be superseded in its entirety by the provisions
of this Agreement.  Each party agrees to
maintain in confidence any non-public information received from the other
party, and to use such non-public information only for purposes of consummating
the transactions contemplated by this Agreement.  Such confidentiality obligations will not
apply to (i) information which was known to the one party or their respective
agents prior to receipt from the other party; (ii) information which is or
becomes generally known; (iii) information acquired by a party or their
respective agents from a third party who

 

39

 

was not bound to an obligation of confidentiality; and
(iv) disclosure required by law.  In the
event this Agreement is terminated as provided in Article VIII hereof, each
party (i) will return or cause to be returned to the other all documents and other
material obtained from the other in connection with the Merger contemplated
hereby, and (ii) will use its reasonable best efforts to delete from its
computer systems all documents and other material obtained from the other in
connection with the Merger contemplated hereby.

 

(b)           Access to Information.  (i) 
Company will afford Parent and its financial advisors, accountants,
counsel and other representatives reasonable access during normal business
hours, upon reasonable notice, to the properties, books, records and personnel
of the Company during the period prior to the Closing to obtain all information
concerning the business, including the status of product development efforts,
properties, results of operations and personnel of the Company, as Parent may
reasonably request.  No information or
knowledge obtained by Parent in any investigation pursuant to this Section 5.8
will affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Merger.

 

(ii)           Parent will afford the Company and
its financial advisors, underwriters, accountants, counsel and other
representatives reasonable access during normal business hours, upon reasonable
notice, to the properties, books, records and personnel of Parent during the period
prior to the Closing to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of Parent, as the Company may reasonably request.  No information or knowledge obtained by the
Company in any investigation pursuant to this Section 5.8 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.

 

(iii)          Notwithstanding anything to the
contrary contained herein, each party (“Subject Party”)
hereby agrees that by proceeding with the Closing, it shall be conclusively
deemed to have waived for all purposes hereunder any inaccuracy of
representation or breach of warranty by another party which is actually known
by the Subject Party prior to the Closing.

 

5.9           Charter Protections; Directors’
and Officers’ Liability Insurance.  (a)  All rights to indemnification for acts or
omissions occurring through the Closing Date now existing in favor of the
current directors and officers of Parent as provided in the Charter Documents
of Parent or in any indemnification agreements shall survive the Merger and
shall continue in full force and effect in accordance with their terms.

 

(b)           For a period of six (6) years after
the Closing Date, Parent shall cause to be maintained in effect the current
policies of directors’ and officers’ liability insurance maintained by Parent
(or policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts and events that occurred prior to the Closing Date.

 

(c)           If Parent or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not be
the continuing or surviving entity of such consolidation or

 

40

 

merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any Person, then, in each
such case, to the extent necessary, proper provision shall be made so that the
successors and assigns of Parent assume the obligations set forth in this
Section 5.9.

 

(d)           The provisions of this Section 5.9
are intended to be for the benefit of, and shall be enforceable by, each Person
who will have been a director or officer of Parent for all periods ending on or
before the Closing Date and may not be changed without the consent of Committee
referred to in Section 1.11(a).

 

5.10         Public Disclosure.  From the date of this Agreement until Closing
or termination, the parties shall cooperate in good faith to jointly prepare
all press releases and public announcements pertaining to this Agreement and
the transactions governed by it, and no party shall issue or otherwise make any
public announcement or communication pertaining to this Agreement or the
transaction without the prior consent of Parent (in the case of the Company) or
the Company (in the case of Parent), except as required by any legal
requirement or by the rules and regulations of, or pursuant to any agreement of
a stock exchange or trading system.  Each
party will not unreasonably withhold approval from the others with respect to
any press release or public announcement. 
If any party determines with the advice of counsel that it is required
to make this Agreement and the terms of the transaction public or otherwise
issue a press release or make public disclosure with respect thereto, it shall,
at a reasonable time before making any public disclosure, consult with the other
party regarding such disclosure, seek such confidential treatment for such
terms or portions of this Agreement or the transaction as may be reasonably
requested by the other party and disclose only such information as is legally
compelled to be disclosed.  This
provision will not apply to communications by any party to its counsel,
accountants and other professional advisors. 
Notwithstanding the foregoing, the parties hereto agree that promptly as
practicable after the execution of this Agreement, Parent will file with the
SEC a Current Report on Form 8-K pursuant to the Exchange Act to report the
execution of this Agreement, with respect to which Parent shall consult with
the Company. Parent shall provide to Company for review and comment a draft of the
Current Report on Form 8-K prior to filing with the SEC; provided that unless
objected to by the Company by written notice given to Parent within two (2)
days after delivery to the Company specifying the language to which reasonable
objection is taken, any language included in such Current Report shall be
deemed to have been approved by the Company and may be filed with SEC and used
in other filings made by Parent with the SEC.

 

5.11         Reasonable Efforts.  Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use its commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using commercially reasonable efforts
to accomplish the following:  (i) the
taking of all reasonable acts necessary to cause the conditions precedent set
forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings
with Governmental Entities, if any) and the taking of all reasonable steps as
may be necessary to avoid any suit, claim, action, investigation or proceeding
by any Governmental Entity, (iii) the

 

41

 

obtaining of all consents, approvals or waivers from
third parties required as a result of the transactions contemplated in this
Agreement, including without limitation the consents referred to in the Company
Schedule, (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution or delivery of
any additional instruments reasonably necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.  In connection with and without limiting the
foregoing, Parent and its board of directors and the Company and its board of
directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use its commercially reasonable
efforts to enable the Merger and the other transactions contemplated by this
Agreement to be consummated as promptly as practicable on the terms
contemplated by this Agreement. 
Notwithstanding anything herein to the contrary, nothing in this
Agreement shall be deemed to require Parent or the Company to agree to any
divestiture by itself or any of its affiliates of shares of capital stock or of
any business, assets or property, or the imposition of any material limitation
on the ability of any of them to conduct their business or to own or exercise
control of such assets, properties and stock.

 

5.12         Certain Claims.  As additional consideration for the issuance
of the Per Share Merger Consideration pursuant to this Agreement, each of the
Company stockholders hereby releases and forever discharges, effective as of
the Closing Date, the Company and its directors, officers, employees and
agents, from any and all rights, claims, demands, judgments, obligations,
liabilities and damages, whether accrued or unaccrued, asserted or unasserted,
and whether known or unknown arising out of or resulting from such stockholder’s
(i) status as a holder of an equity interest in the Company; and (ii)
employment, service, consulting or other similar agreement entered into with
the Company prior to Closing, to the extent that the bases for claims under any
such agreement that survives the Closing arise prior to the Closing, provided,
however, the foregoing shall not release any obligations of Parent set forth in
this Agreement or the Escrow Agreement.

 

5.13         No Securities Transactions.  Neither the Company nor any of its
affiliates, directly or indirectly, shall engage in any transactions involving
the securities of Parent prior to the time of the making of a public
announcement of the transactions contemplated by this Agreement.  The Company shall use its best efforts to
require each of its officers, directors, employees, agents, representatives and
stockholders to comply with the foregoing requirement.

 

5.14         [Reserved]

 

5.15         No Claim Against Trust Fund; Sole
Remedy For Termination of Agreement. 
The Company acknowledges that, if the transactions contemplated by this
Agreement are not consummated by Parent by December 29, 2006 (subject to a
six-month extension in certain circumstances), Parent will be obligated to
return to its stockholders the amounts being held in the Trust Fund.  Accordingly, the sole remedy for any claim by
the Company against Parent or the Merger Sub, or Parent or Merger Sub against
the Company, for any monetary claims or otherwise, for any reason whatsoever,
including but not limited to a breach of this Agreement by

 

42

 

any party or any negotiations, agreements or
understandings in connection herewith (other than as a result of the Merger,
pursuant to which the Company and its stockholders will have the right to
recover the Total Merger Consideration from monies in the Trust Fund, from the
Escrow Cash or otherwise) shall be as set forth in Section 8.2.

 

5.16         Disclosure of Certain Matters.  Each of Parent and the Company will provide
the other with prompt written notice of any event, development or condition
that (a) would cause any of such party’s representations and warranties to
become untrue or misleading or which may affect its ability to consummate the
transactions contemplated by this Agreement, (b) had it existed or been known
on the date hereof would have been required to be disclosed under this
Agreement, (c) gives such party any reason to believe that any of the
conditions set forth in Article VI will not be satisfied, (d) is of a nature that
is or may be materially adverse to the operations, prospects or condition
(financial or otherwise) of Parent or the Company, or (e) would require any
amendment or supplement to the Proxy Statement. 
The parties shall have the right and obligation to supplement or amend
the Company Schedule and Parent Schedule (the “Disclosure
Schedules”) being delivered pursuant to this Agreement with respect
to any matter arising or discovered after delivery thereof which, if existing
or known at the date of this Agreement, would have been required to be set
forth or described in the Disclosure Schedules. 
The obligations of the parties to amend or supplement the Disclosure
Schedules being delivered herewith shall terminate on the Closing Date.  Notwithstanding any such amendment or
supplementation, for purposes of Sections 2.2(a) and 2.3(a), and 3.1(c), the
representations and warranties of the parties shall be made with reference to
the Disclosure Schedules as they exist at the time of delivery of the
Disclosure Schedules in accordance with Section 5.23, subject to such
anticipated changes as are set forth in Schedule 4.1 or otherwise expressly
contemplated by this Agreement or which are set forth in the Disclosure
Schedules as they exist on the date of delivery thereof in accordance with
Section 5.23.

 

5.17         No Solicitation.  (a) 
The Company will not, and will cause its affiliates, employees, agents
and representatives not to, directly or indirectly, solicit or enter into
discussions or transactions with, or encourage, or provide any information to,
any corporation, partnership or other entity or group (other than Parent and
its designees) concerning any merger, sale of ownership interests and/or assets
of the Company, recapitalization or similar transaction (an “Acquisition Proposal”), provided that this Section 5.17
shall not prohibit (i) negotiations with, and the provision of information to,
any other person in connection with a superior Acquisition Proposal by such
other person or (ii) recommending any superior Acquisition Proposal with such
other person to the shareholders of the Company (which shall not constitute a
breach of this Agreement), if the Board of Directors of the Company determines
in good faith after consultation with counsel that failure to take such actions
could reasonably be expected to be inconsistent with their fiduciary
obligations under applicable law.

 

(b)           Parent will not, and will cause its
employees, agents and representatives not to, directly or indirectly, solicit
or enter into discussions or transactions with, or encourage, or provide any
information to, any corporation, partnership or other entity or group (other
than the Company and its designees) concerning any merger, purchase of
ownership interests and/or assets, recapitalization or similar transaction.

 

43

 

(c)           The Company shall promptly advise
Parent of the nature of any written offer, proposal or indication of interest
that is submitted to the Company and the identity of the Person making such
written offer, proposal or indication of interest.

 

5.18         Stock Options and Warrants.  (a)  At
the Effective Time, the Company’s obligations with respect to each outstanding
unvested Company Option (and unexercised vested option, subject to the provisions
of this Section 5.18) and unexercised Company Warrant (if amended in a manner
reasonably acceptable to Parent) will be assumed by Parent, and Parent shall
thereafter be obligated to issue Parent Common Stock upon exercise thereof.  Each Company Warrant shall be exercisable on
the terms, and into the number of shares of the Parent Common Stock, as set
forth in the Company Warrant as so amended. 
Each Company Option so assumed by Parent under this Agreement shall be
subject to the same terms and conditions set forth in Company’s Stock Option
Plans as in effect immediately prior to the Effective Time, and (i) such
Company Option will be exercisable for that number of shares of Parent Common
Stock equal to the product of the number of Shares of Company Common Stock that
were purchasable under such Company Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounded down to the nearest whole number
of shares of Parent Common Stock, and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Option will be equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, and rounding the
resulting exercise price up to the nearest whole cent.  Following the Effective Time, Parent will
send to each holder of an assumed Company Option a written notice setting forth
(i) the number of shares of Parent Common Stock that are subject to such
assumed Company Option, and (ii) the exercise price per share of Parent Common
Stock issuable upon exercise of such assumed Company Option.  In addition, if Parent has not filed a
registration statement on Form S-8 registering the exercise of any Company
Options assumed by Parent pursuant to this Section 5.18 prior to Closing,
Parent shall file such registration statement with the SEC on the 90th
day following the Closing (to the extent the exercise of such options is
eligible to be registered using a Form S-8 registration statement).  The “Exchange Ratio”  shall be determined such that (a) the
aggregate intrinsic value of the new Parent Options is not greater than the
aggregate intrinsic value of the Company Options immediately prior to the
assumption and (b) the ratio of the exercise price per option to market value
per share is unchanged.  The parties
agree that Parent will permit holders of vested Company Options to elect, on an
individual basis, to either exercise such Company Options and participate in
the Merger or have those Company Options assumed, on the same basis as the
unvested Company Options, by the Parent, unless there are, in the sole judgment and discretion of Parent,
significant tax, accounting or securities laws issues (including any
requirement of registering on a Form other than S-8) with treating vested
options identically to unvested options. 
The parties will make such determination on or before April 30, 2006.

 

(b)           Parent will reserve sufficient shares
of Parent Common Stock for issuance under this Section 5.18.

 

5.19         Benefit Arrangements.  Parent agrees that all employees of the
Company who continue employment with Parent or any subsidiary of Parent after
the Effective Time (“Continuing Employees”)
shall be eligible to continue to participate in the Company’s health,

 

44

 

vacation, welfare and retirement benefit plans;
provided, however, that (i) nothing in this Section 5.19 or elsewhere in this
Agreement shall limit the right of Parent to amend or terminate any such
benefit plan or arrangement at any time, and (ii) if Parent terminates any such
plan, then (upon expiration of any appropriate transition period), the
Continuing Employees shall be eligible to participate in Parent’s benefit plans
and vacation policies, in each case to the same extent as employees of Parent
in similar positions and at compensation grade levels.  Continuing Employees shall receive credit for
service time as an employee of the Company for purposes of eligibility to
participate, vesting, and eligibility to receive benefits under any such Parent
benefit plan and for purposes of vacation accrual for service accrued or deemed
accrued prior to the Effective Time. 
Additionally, any life, health and disability benefits available to
Continuing Employees and their eligible dependents under Parent’s benefit plans
shall not be subject to any insurability requirement or pre-existing condition
exclusion that would not apply to the corresponding benefit provided under a
plan maintained by the Company immediately prior to the Effective Time.  Parent shall further provide each Continuing
Employee with credit for any co-payments and deductibles paid prior to the
Effective Time for the plan year in which the Effective Time occurs in
satisfying any applicable deductibles or out-of-pocket requirements under
corresponding Parent benefit plans. Nothing in this Section 5.19 or elsewhere
in this Agreement,  shall be construed to
create a right in any employee to continuing employment.

 

5.20         Company Actions.  The Company shall use its best efforts to
take such actions as are necessary to fulfill its obligations under this
Agreement and to enable Parent and Merger Sub to fulfill its obligations hereunder.

 

5.21         Financing.             The
Company agrees to provide, and will cause its directors, officers and employees
to provide, all cooperation reasonably necessary in connection with the
arrangement of financing to be consummated contemporaneously with or at or
after the expiration of the Effective Time in respect of the transactions
contemplated by this Agreement, including participation in meetings, due
diligence sessions, road shows, the preparation of offering memoranda, private
placement memoranda, prospectuses and similar documents, the execution and
delivery of any commitment letters, placement agreements, pledge and security
documents, other definitive financing documents, or other requested
certificates or documents, audited and unaudited financial statements, comfort
letters of accountants and legal opinions as may be reasonably requested by
Parent or Merger Sub and taking such other actions as are reasonably required
to be taken by the Company in connection with any financing, providing that
such cooperation shall not interfere unreasonably with the business or
operations of the Company and the Company shall not be required to incur
material incremental out-of-pocket costs in respect of such cooperation unless
Parent shall have undertaken to reimburse the Company all such reasonable and
documented out-of-pocket costs.

 

5.22         Fees and Expenses.  Whether or not the Merger is consummated, all
fees and expenses incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby (“Third Party Expenses”),
shall be the obligation of the respective party incurring such fees and
expenses. The Company shall provide Parent with a statement of estimated Third
Party Expenses incurred by the Company (“Company Third Party
Expenses”) at least five (5) business days prior to the

 

45

 

Closing Date in form reasonably satisfactory to Parent
(the “Statement of Expenses”).  Any Company Third Party Expense in excess of
the Company Third Party Expenses reflected on the Statement of Expenses used to
reduce the Total Merger Consideration (“Excess Third Party
Expenses”), shall be subject to the indemnification provisions of
Article VII and shall not be subject to the Basket.  Third Party Expenses shall not be incurred by
the Company after the Closing Date without the express prior written consent of
Parent

 

5.23         Company Schedule.  The Company shall deliver to Parent the
Company Schedule on or before the expiration of five (5) business days
following the date of this Agreement, which Company Schedule shall be
satisfactory to Parent in its reasonable discretion

 

5.24         Company Warrants.  Promptly following the date hereof, the
Parent and the Company shall meet and confer for the purpose of determining the
terms and conditions of the form of amendment to the Company Warrants that will
be reasonably acceptable to the Parent, and the Company will use its reasonable
best efforts on or before April 30, 2006 to obtain the requisite approval of
holders of the Company Warrants for approval of amendment or their election to
exercise the Company Warrants effective on or before the Closing

 

ARTICLE VI

 

CONDITIONS TO THE TRANSACTION

 

6.1           Conditions to Obligations of Each
Party to Effect the Merger.  The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:

 

(a)           HSR Act; No Order.  All specified waiting periods under the HSR
Act shall have expired and 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 making the Merger
illegal or otherwise prohibiting consummation of the Merger, substantially on
the terms contemplated by this Agreement.

 

(b)           Stockholder Approval.  The Parent Stockholder Approval shall have
been duly approved and adopted by the stockholders of Parent by the requisite
vote under the laws of the State of Delaware and the Parent Charter Documents
and an executed copy of an amendment to Parent’s Certificate of Incorporation
shall have been filed with the Secretary of State of the State of Delaware to
be effective as of the Closing.  This
Agreement shall have been duly approved and adopted by the stockholders of the
Company by the requisite vote under the laws of the State of California and the
Company Charter Documents.

 

(c)           Parent Common Stock.  Holders of twenty percent (20%) or more of
the shares of Parent Common Stock issued in Parent’s initial public offering of
securities and outstanding immediately before the Closing shall not have
exercised their rights to convert their shares into a pro rata share of the
Trust Fund in accordance with Parent’s Charter Documents

 

(d)           Escrow Agreement.  Parent, the Company, the Escrow Agent and the
Representative shall have executed and delivered the Escrow Agreement.

 

46

 

6.2           Additional Conditions to
Obligations of Company.  The
obligations of the Company to consummate and effect the Merger shall be subject
to the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:

 

(a)           Representations and Warranties.  Each representation and warranty of Parent
contained in this Agreement that is qualified as to materiality shall have been
true and correct (i) as of the date of this Agreement and (ii) subject to the
provisions of the last sentence of Section 5.16, on and as of the Closing Date
with the same force and effect as if made on the Closing Date.  Each representation and warranty of Parent
contained in this Agreement that is not qualified as to materiality shall have
been true and correct (i) in all material respects as of the date of this
Agreement and (ii) subject to the provisions of the last sentence of Section
5.16, in all material respects on and as of the Closing Date with the same
force and effect as if made on the Closing Date.  The Company shall have received a certificate
with respect to the foregoing signed on behalf of Parent by an authorized
officer of Parent (“Parent Closing Certificate”).

 

(b)           Agreements and Covenants.  Parent shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date, except to the extent that any failure to perform or comply (other than a
willful failure to perform or comply or failure to perform or comply with an
agreement or covenant reasonably within the control of Parent) does not, or
will not, constitute a Material Adverse Effect with respect to Parent, and the
Parent Closing Certificate shall include a provision to such effect.

 

(c)           No Litigation.  No order shall have been entered to (i)
prevent consummation of any of the transactions contemplated by this Agreement,
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation.

 

(d)           Consents.  Parent shall have obtained all consents,
waivers and approvals required to be obtained by Parent in connection with the
consummation of the transactions contemplated hereby, other than consents,
waivers and approvals the absence of which, either alone or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on Parent
and the Parent Closing Certificate shall include a provision to such effect.

 

(e)           Material Adverse Effect.  No Material Adverse Effect with respect to
Parent shall have occurred since the date of this Agreement.

 

(f)            Other Deliveries.  At or prior to Closing, Parent shall have
delivered to the Company (i) copies of resolutions and actions taken by Parent’s
board of directors and stockholders in connection with the approval of this
Agreement and the transactions contemplated hereunder, and (ii) such other
documents or certificates as shall reasonably be required by the Company and
its counsel in order to consummate the transactions contemplated hereunder.

 

(g)           Opinion of Counsel.  The Company shall have received from Mintz
Levin, counsel to Parent, an opinion of counsel in substantially the form
annexed hereto as Exhibit D.

 

47

 

(h)           Trust Fund.  Parent shall have made appropriate
arrangements with Continental to have the Trust Fund disbursed to Parent
immediately upon the Closing.

 

(i)            Parent Financing.  Parent shall have entered into agreements
sufficient, together with the cash in the Trust Fund, to pay the Total Merger
Consideration.

 

(j)            Stock Quotation or Listing.  The Parent Common Stock at the Closing will
be listed for trading on the AMEX or quoted for trading on NASDAQ, if the
application for such listing is approved, and there will be no action or
proceeding pending or threatened against Parent to prohibit or terminate the
listing of Parent Common Stock on the AMEX.

 

6.3           Additional Conditions to the
Obligations of Parent.  The
obligations of Parent to consummate and effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:

 

(a)           Representations and Warranties.  Each representation and warranty of the
Company contained in this Agreement that is qualified as to materiality shall
have been true and correct (i) as of the date of this Agreement and (ii)
subject to the provisions of the last sentence of Section 5.16, on and as of
the Closing Date with the same force and effect as if made on the Closing
Date.  Each representation and warranty
of the Company contained in this Agreement that is not qualified as to
materiality shall have been true and correct (i) in all material respects as of
the date of this Agreement and (ii) subject to the provisions of the last
sentence of Section 5.16, in all material respects on and as of the Closing
Date with the same force and effect as if made on the Closing Date.  Parent shall have received a certificate with
respect to the foregoing signed on behalf of the Company by an authorized
officer of Company (“Company Closing
Certificate”).

 

(b)           Agreements and Covenants.  The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date except to the extent that any failure to perform or comply (other than a
willful failure to perform or comply or failure to perform or comply with an
agreement or covenant reasonably within the control of Company) does not, or
will not, constitute a Material Adverse Effect on the Company, and the Company
Closing Certificate shall include a provision to such effect.

 

(c)           No Litigation.  No action, suit or proceeding shall be
pending or threatened before any Governmental Entity which is reasonably likely
to (i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation or (iii) affect materially and adversely
the right of Parent to own, operate or control any of the assets and operations
of the Surviving Corporation following the Merger and no order, judgment,
decree, stipulation or injunction to any such effect shall be in effect.

 

(d)           Appraisal Rights.  Holders of no more than five percent (5%) of
the shares of any class of securities of the Company outstanding immediately
before the Effective Time shall have taken action to exercise their appraisal
rights pursuant to Section 1301 of the CGCL.

 

48

 

(e)           Consents.  The Company shall have obtained all consents,
waivers, permits and approvals required to be obtained by the Company in connection
with the consummation of the transactions contemplated hereby, other than
consents, waivers and approvals the absence of which, either alone or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect
on the Company and the Company Closing Certificate shall include a provision to
such effect.

 

(f)            Material Adverse Effect.  No Material Adverse Effect with respect to
the Company shall have occurred since the date of this Agreement.

 

(g)           Opinion of Counsel.  Parent shall have received from Manatt,
Phelps & Phillips, LLP, counsel to the Company, an opinion of counsel
substantially in the form annexed hereto as Exhibit E.

 

(h)           Comfort Letters.  Parent shall have received “comfort” letters
in the customary form from Deloitte Touche, dated the date of distribution of
the Proxy Statement and the Closing Date (or such other date or dates
reasonably acceptable to Parent) with respect to certain financial statements
and other financial information included in the Proxy Statement.

 

(i)            Voting Agreements. Parent and
certain of the Company’s stockholders mutually identified by Parent and the
Company shall have entered into the Voting Agreements in the form of Exhibit
C, which shall be in full force and effect.

 

(j)            Other Deliveries.  At or prior to Closing, the Company shall
have delivered to Parent: (i) copies of resolutions and actions taken by the
Company’s board of directors and stockholders in connection with the approval
of this Agreement and the transactions contemplated hereunder, and (ii) such
other documents and certificates as shall reasonably be required by Parent and
its counsel in order to consummate the transactions contemplated hereunder.

 

(k)           Resignations. The parties
shall have agreed to the persons to be listed on Schedules 6.2(k) and 6.3(k)
hereto and such persons shall have resigned from their positions and offices.

 

(l)            Company Third Party Expenses.  The Company shall have delivered to Parent
the Statement of Expenses certified by the Chief Executive Officer of the Company
setting forth the Company Third Party Expenses.

 

(m)          Stockholder List.  The Company shall have delivered to Parent,
as of the Closing Date, a true and complete list of all holders of Company
Capital Stock and all holders of Company Stock Options, Company Warrants and
any other rights to purchase Company Capital Stock as of the Closing Date
including the number of shares held at the Closing Date by each such holder and
the address of each such holder certified by the Secretary of the Company.

 

(n)           Company Schedule.  The Company shall have delivered the Company
Schedule, or portions thereof not delivered upon execution of this Agreement,
which shall be satisfactory to Parent in its reasonable discretion.

 

49

 

(o)           Employment Agreements.  Employment Agreements between the Company and
or Parent and current management of the Company as mutually agreed between the
Company and Parent, in form reasonably satisfactory to the parties, shall have
been executed and delivered.

 

(p)           Representative.  The Company shall have identified a
Representative and caused the Representative to become a party to this
Agreement and the Escrow Agreement.

 

(q)           Warrants.  On or before April 30, 2006, all Company
Warrants shall have either been (i) amended in a manner reasonably acceptable
to Parent or (ii) exercised (subject to the occurrence of the Closing).

 

ARTICLE VII

 

INDEMNIFICATION

 

7.1           Indemnification.  (a) 
Subject to the terms and conditions of this Article VII (including,
without limitation, the limitations set forth in Section 7.4), Parent and the
Surviving Corporation and their respective representatives, successors and
permitted assigns (the “Parent Indemnitees”)
shall have the right to recover from the Escrow Agent out of the Escrow Cash,
any and all Losses asserted against, resulting to, imposed upon, or incurred by
any Parent Indemnitee by reason of, arising out of or resulting from:

 

(i)            the inaccuracy or breach of any
representation or warranty of Company contained in Article II of this
Agreement, or any certificate delivered by the Company to Parent pursuant to
this Agreement in connection with the Closing;

 

(ii)           the non-fulfillment or breach of any
covenant or agreement of the Company contained in this Agreement; and

 

(iii)          any claim made by a Dissenter for an appraisal of the value of
such Dissenting Shares pursuant to, and in accordance with, the provisions of
the CGCL; provided, however, that in no event shall Parent be entitled to
recover Losses for Dissenter claims from more than five percent (5%) of the
shares of any class of securities of the Company outstanding immediately prior
to the Effective Time.

 

(b)           As used in this Article VII, the term
“Losses” shall include all losses,
liabilities, damages, judgments, awards, orders, penalties, settlements, costs
and expenses (including, without limitation, interest, penalties, court costs
and reasonable legal fees and expenses) including those arising from any
demands, claims, suits, actions, costs of investigation, notices of violation
or noncompliance, causes of action, proceedings and assessments whether or not
made by third parties or whether or not ultimately determined to be valid.  Solely for the purpose of determining the
amount of any Losses (and not for determining any breach) for which any party
may be entitled to indemnification pursuant to Article VII, any representation
or warranty contained in this Agreement that is qualified by a term or terms
such as “material,” “materially,” or “Material Adverse Effect” shall be deemed
made or given without such qualification and without giving effect to such
words.  Losses shall not be reduced by
any

 

50

 

Tax benefits recognized by Parent as a result of the
Losses nor by any insurance purchased by Parent to indemnify it for breaches of
representations and warranties under this Agreement.

 

7.2           Indemnification of Third Party
Claims.  The indemnification
obligations and liabilities under this Article VII with respect to actions, proceedings,
lawsuits, investigations, demands or other claims brought against Parent by a
Person other than the Company (a “Third Party Claim”)
shall be subject to the following terms and conditions:

 

(a)           Notice of Claim.  Parent, acting through the Committee, will
give the Representative prompt written notice after receiving written notice of
any Third Party Claim or discovering the liability, obligation or facts giving
rise to such Third Party Claim (a “Notice of Claim”)
which Notice of Third Party Claim shall set forth (i) a brief description of
the nature of the Third Party Claim, (ii) the total amount of the actual
out-of-pocket Loss or the anticipated potential Loss (including any costs or
expenses which have been or may be reasonably incurred in connection
therewith), and (iii) whether such Loss may be covered (in whole or in part)
under any insurance and the estimated amount of such Loss which may be covered
under such insurance, and the Representative shall be entitled to participate
in the defense of Third Party Claim at its expense.

 

(b)           Defense.  The Representative shall have the right, at
its option (subject to the limitations set forth in subsection 7.2(c) below) at
its own expense, by written notice to Parent, to assume the entire control of,
subject to the right of Parent to participate (at its expense and with counsel
of its choice) in, the defense, compromise or settlement of the Third Party
Claim as to which such Notice of Claim has been given, and shall be entitled to
appoint a recognized and reputable counsel reasonably acceptable to Parent to
be the lead counsel in connection with such defense.  If the Representative elects to assume the
defense of a Third Party Claim:

 

(i)            the Representative shall diligently
and in good faith defend such Third Party Claim and shall keep Parent
reasonably informed of the status of such defense; provided, however, that in
the case of any settlement providing for remedies other than monetary damages
for which indemnification is provided, Parent shall have the right to approve
the settlement, which approval will not be unreasonably withheld; and

 

(ii)           Parent shall cooperate fully in all
respects with the Representative in any such defense, compromise or settlement
thereof, including, without limitation, the selection of counsel, and Parent
shall make available to the Representative all pertinent information and
documents under its control.

 

(c)           Limitations of Right to Assume
Defense.  The Representative shall
not be entitled to assume control of such defense if (i) the Third Party Claim
relates to or arises in connection with any criminal proceeding, action,
indictment, allegation or investigation; (ii) the Third Party Claim seeks an
injunction or equitable relief against Parent; or (iii) there is a reasonable
probability that a Third Party Claim may materially and adversely affect Parent
other than as a result of money damages or other money payments.

 

51

 

(d)           Other Limitations.  Failure to give prompt Notice of Claim or to
provide copies of relevant available documents or to furnish relevant available
data shall not affect the Representative’s duty or obligations under this
Article VII, except to the extent (and only to the extent that) such failure
shall have adversely affected the ability of the Representative to defend
against or reduce any liability or caused or increased such liability or
otherwise caused the damages claimed by Parent to be greater than such damages
would have been had Parent given the Representative prompt notice
hereunder.  So long as the Representative
is defending any such action actively and in good faith, Parent shall not
settle such action.  Parent shall make
available to the Representative all relevant records and other relevant
materials required by them and in the possession or under the control of
Parent, for the use of the Representative and its representatives in defending
any such action, and shall in other respects give reasonable cooperation in
such defense.

 

(e)           Failure to Defend.  If the Representative, promptly after
receiving a Notice of Claim, fails to defend such Third Party Claim actively
and in good faith, Parent will (upon further written notice) have the right to
undertake the defense, compromise or settlement of such Third Party Claim as it
may determine in its reasonable discretion, provided that the Representative
shall have the right to approve any settlement, which approval will not be
unreasonably withheld or delayed.

 

(f)            Parent’s Rights.  Anything in this Section 7.2 to the contrary
notwithstanding, the Representative shall not, without the written consent of
Parent, settle or compromise any action or consent to the entry of any judgment
which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to Parent of a full and unconditional release from
all liability and obligation in respect of such action without any payment by
Parent.

 

(g)           Representative Consent.  Unless the Representative has consented to a
settlement of a Third Party Claim, the amount of the settlement shall not be a
binding determination of the amount of the Loss and such amount shall be
determined in accordance with the provisions of the Escrow Agreement, if
applicable.

 

7.3           Insurance Effect.  To the extent that any Losses that are
subject to indemnification pursuant to this Article VII are covered by
insurance other than any insurance purchased by Parent to indemnify it for
breaches of representations and warranties under this Agreement, Parent shall
use commercially reasonable efforts to obtain the maximum recovery under such
insurance; provided that Parent shall nevertheless be entitled to bring a claim
for indemnification under this Article VII in respect of such Losses and the
time limitations set forth in Section 7.4 hereof for bringing a claim of
indemnification under this Agreement shall be tolled during the pendency of
such insurance claim.  The existence of a
claim by Parent for monies from an insurer or against a third party in respect
of any Loss shall not, however, delay any payment pursuant to the
indemnification provisions contained herein and otherwise determined to be due
and owing.  If Parent has received the
payment required by this Agreement from the Representative in respect of any
Loss and later receives proceeds from insurance or other amounts in respect of
such Loss, then it shall hold such proceeds or other amounts in trust for the
benefit of the Former Stockholders and shall pay to the Representative, as
promptly as practicable after receipt, a sum equal to the amount of such
proceeds or other amount received,

 

52

 

up to the aggregate amount of any payments received
from the Escrow Account, if applicable, pursuant to this Agreement in respect
of such Loss.  Notwithstanding any other
provisions of this Agreement, it is the intention of the parties that no
insurer or any other third party shall be (i) entitled to a benefit it would
not be entitled to receive in the absence of the foregoing indemnification
provisions, or (ii) relieved of the responsibility to pay any claims for which
it is obligated.

 

7.4           Limitations on Indemnification.  (a)  Survival:
Time Limitation. The representations, warranties, covenants and agreements
in this Agreement or in any writing delivered by the Company to Parent in
connection with this Agreement (including the certificate required to be delivered
by the Company pursuant to Section 6.3(a)) shall survive the Closing until one
year after the Closing Date  (the “Survival Period”). 
The indemnification and other obligations under this Article VII shall
survive for the Survival Period and shall terminate with the expiration of such
Survival Period, except that:  (i) any
claims for breach of representation or warranty made by a party hereunder by
filing a demand for arbitration under Section 10.12 shall be preserved until
final resolution thereof despite the subsequent expiration of the Survival
Period and (ii) any claims set forth in a Notice of Claim sent prior to the
expiration of such Survival Period shall survive until final resolution
thereof.  No claim for indemnification
under this Article VII shall be first asserted after the end of the applicable
Survival Period.

 

(b)           Basket.  No amount shall be payable under Article VII
unless and until the aggregate amount of all indemnifiable Losses otherwise
payable exceeds $2,000,000 in the aggregate (the “Basket”),
in which event the amount payable shall be for all such Losses (including all
Losses included within the Basket). 
Notwithstanding anything contained herein to the contrary, the Basket
will not be applicable to (i) claims related to Excess Third Party Expenses or
(ii) claims arising from fraud, willful misrepresentation or willful
misconduct.  Only Losses in excess of
$25,000, individually or in the aggregate incurred as part of a series of
related Losses (the “Materiality Threshold”)
shall be included in determining whether the Basket has been satisfied.   Losses below the Materiality Threshold shall
in no event give rise to any indemnity rights in favor of Parent, even if the
Basket is otherwise satisfied.

 

(c)           Aggregate Amount Limitation.  The aggregate liability for Losses pursuant
to Section 7.1 shall not in any event exceed the Escrow Cash (the “Liability Cap”) and Parent shall have no claim against any
of the Company stockholders other than for sole recourse to the Escrow Cash
(including any earnings thereon); provided that such limitations shall not
apply (i) in the case of claims arising from fraud, willful misrepresentation
or willful misconduct, or (ii) to any Excess Third Party Expenses; provided
further that in no event shall any such claim against any Former Stockholder
exceed the aggregate Per Share Merger Consideration received by such Former
Stockholder.

 

7.5           Exclusive Remedy.  Parent hereby acknowledges and agrees that,
from and after the Closing, its sole and exclusive remedy with respect to any
and all claims, whether direct, third party or otherwise, for money damages
arising out of or relating to this Agreement shall be pursuant and subject to
the requirements of the indemnification provisions set forth in this Article VII.

 

53

 

7.6           Damages; Adjustment to Merger
Consideration.  Amounts paid for
indemnification under Article VII shall reduce the Total Merger Consideration
received by the Company’s stockholders.

 

7.7           Representative Capacities;
Application of Escrow Cash.

 

(a)           The parties acknowledge that the
Representative’s obligations under this Article VII are solely as a
representative of the Former Stockholders in the manner set forth in the Escrow
Agreement with respect to the obligations to indemnify Parent under this
Article VII and that the Representative shall have no personal responsibility
for any expenses incurred by the Representative in such capacity and that all
payments to Parent as a result of such indemnification obligations shall be
made solely from, and to the extent of, the Escrow Cash.  The parties further acknowledge that all
actions to be taken by Parent pursuant to this Article VII shall be taken on
its behalf by the Committee in accordance with the provisions of the Escrow
Agreement.  The Escrow Agent, pursuant to
the Escrow Agreement after the Closing, may apply all or a portion of the
Escrow Cash to satisfy any claim for indemnification pursuant to this Article VII.  The Escrow Agent will hold the remaining
portion of the Escrow Cash until final resolution of all claims for
indemnification or disputes relating thereto.

 

(b)           Escrow Agent shall release the Escrow
Cash, or the remaining balance in the manner set forth in the Escrow Agreement,
to the Former Stockholders on a pro-rata basis, subject to any amounts reserved
(in the manner provided for in the following sentence) to address unresolved
claims for indemnification submitted prior to the expiration of the Survival
Period. To the extent that claims for indemnification submitted prior to the
expiration of the Survival Period remain unresolved as of such date, the Escrow
Agent shall reserve and not pay to the Former Stockholders an amount intended
to satisfy such claims when finally resolved, which amount shall be determined
in the following manner: (i) to the extent that the amount of the claim is
included in the notice provided pursuant to 7.1 or 7.2, as the case may be,
such amount plus an amount reasonably estimated by the Parent Indemnitees to provide
reimbursement for costs and expenses incurred in resolving such claim shall be
reserved until the final resolution and payment of such claim, and (ii) to the
extent that the amount of the claim remains unknown, an amount reasonably
estimated by the Parent Indemnitees as providing adequate recourse for
satisfaction of the final amount of the claim, plus an amount reasonably
estimated by the Parent Indemnitees to provide reimbursement for costs and
expenses incurred in resolving such claim shall be reserved until the final
resolution and satisfaction of such claim. As outstanding claims are resolved,
reserves in excess of the amounts withheld with respect to all claims remaining
unresolved shall be released to the Former Stockholders as provided for in this
Section 7.7(b).

 

ARTICLE VIII

 

TERMINATION

 

8.1           Termination.  This Agreement may be terminated at any time
prior to the Closing:

 

(a)           by mutual written agreement of Parent
and the Company at any time;

 

54

 

(b)           by either Parent or the Company if
the Proxy Statement shall not have been filed with the Securities and Exchange
Commission on or before June 30, 2006;

 

(c)           by either Parent or the Company if a
Governmental Entity shall have issued an order, decree or ruling or taken any
other action, in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, which order, decree, ruling or
other action is final and nonappealable;

 

(d)           by the Company, upon a material
breach of any representation, warranty, covenant or agreement on the part of
Parent set forth in this Agreement, or if any representation or warranty of
Parent shall have become untrue, in either case such that the conditions set
forth in Article VI would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue, provided,
that if such breach by Parent is curable by Parent prior to the Closing Date,
then the Company may not terminate this Agreement under this Section 8.1(d) for
thirty (30) days after delivery of written notice from the Company to Parent of
such breach, provided Parent continues to exercise commercially reasonable
efforts to cure such breach (it being understood that the Company may not
terminate this Agreement pursuant to this Section 8.1(d) if it shall have
materially breached this Agreement or if such breach by Parent is cured during
such thirty (30) day period);

 

(e)           by the Company, if the Company’s
stockholders decline to approve the transactions contemplated by this
Agreement, by giving Parent seven days prior written notice thereof;

 

(f)            by Parent, upon a material breach of
any representation, warranty, covenant or agreement on the part of the Company
set forth in this Agreement, or if any representation or warranty of the
Company shall have become untrue, in either case such that the conditions set
forth in Article VI would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue, provided,
that if such breach is curable by the Company prior to the Closing Date, then
Parent may not terminate this Agreement under this Section 8.1(f) for thirty
(30) days after delivery of written notice from Parent to the Company of such
breach, provided the Company continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Parent may not terminate
this Agreement pursuant to this Section 8.1(f) if it shall have materially
breached this Agreement or if such breach by the Company is cured during such
thirty (30) day period);

 

(g)           by either Parent or the Company, if,
at the Parent Stockholders’ Meeting , including any adjournments thereof), this
Agreement and the transactions contemplated thereby shall fail to be approved
and adopted by the affirmative vote of the holders of Parent Common Stock
required under Parent’s certificate of incorporation, or the holders of 20% or
more of the number of shares of Parent Common Stock issued in Parent’s initial
public offering and outstanding as of the date of the record date of the Parent
Stockholders’ Meeting exercise their rights to convert the shares of Parent
Common Stock held by them into cash in accordance with Parent’s certificate of
incorporation; or

 

(h)           by either Parent or the Company if
the Closing Date shall not have occurred by August 15, 2006.

 

55

 

8.2           Notice of Termination; Limited
Remedy.  Any termination of this
Agreement under Section 8.1 above will be effective immediately upon (or, if
the termination is pursuant to Section 8.1(d) or Section 8.1(e) and the proviso
therein is applicable, thirty (30) days after) the delivery of written notice
of the terminating party to the other parties hereto.  In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement shall be of no further
force or effect and the Merger shall be abandoned, except for and subject to
the following:  (i) Sections 5.8, 5.16,
8.2, 8.3, 8.4 and Article X (General Provisions) shall survive the termination
of this Agreement.  The sole remedy of
any party hereto for breach of this Agreement occurring prior to Closing by any
other party hereto shall be limited to termination of this Agreement, and no
party shall have any claim against the other for damages or equitable relief
for breach of this Agreement occurring prior to the Closing; provided, however,
that Parent shall retain the right to the Termination Fee on the terms and
conditions set forth in Section 8.4. 
Notwithstanding the foregoing, the parties may sue for specific
performance.

 

8.3           Fees and Expenses.  Whether or not the Merger is consummated, all
fees and expenses incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby shall be the obligation of the respective
party incurring such fees and expenses

 

8.4           Termination Fee.  If (i) the Company terminates this Agreement
under Section 8.1(e), (ii) the Parent terminates this Agreement under Section
8.1(f) or (iii) the Company fails to obtain approval of its stockholders for
the adoption of this Agreement by April 30, 2006 and, within six months after
the date of such termination or failure, the Company either enters into a
definitive agreement to consummate, or consummates any of the following
transactions (whether in a single transaction or series of transactions) (i) a
sale by the Company of all substantially all of its assets or (ii) a sale of
stock, merger, reorganization or other transaction that results in transfer of
ownership of more than fifty percent of the capital stock of the Company
outstanding on the date of termination of this Agreement, then the Company
shall promptly pay to the Parent a fee in the amount of $10,000,000 (the “Termination Fee”). 
The parties acknowledge and agree that the agreements set forth in this
Section 8.4 are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, the Company and Parent would not
have entered into this Agreement.

 

ARTICLE IX

 

DEFINED TERMS

 

Terms defined in this Agreement are organized alphabetically as
follows, together with the Section and, where applicable, paragraph, number in
which definition of each such term is located:

 

“Acquisition Proposal”   Section
5.18

 

“affiliate”   Section 10.2(f)

 

56

 

“Affiliate”  Section 2.11

 

“Agreement”   Heading; Section
1.2

 

 “Approvals”   Section 2.1(a)

 

“Audited Financial Statements”  
Section 2.7(a)

 

“Basket”  Section 7.4(b)

 

“CGCL”   Recital A

 

“COBRA”   Section 2.11

 

“Certificate of Incorporation” Section 1.4(a)

 

“Certificate of Merger”   Section
1.2

 

“Certificates”   Section 1.6(b)

 

“Charter Documents”   Section
2.1(a)

 

“Closing”   Section 1.2

 

“Closing Date”   Section 1.2

 

“Code”   Section 1.6(e)

 

“Company”   Heading

 

“Company Capital Stock”   Section
1.5(a)

 

“Company Closing Certificate”  
Section 6.3(a)

 

“Company Common Stock”   Recital
B

 

“Company Contracts”   Section
2.19(a)

 

“Company Employee Plan”   Section
2.11

 

“Company Intellectual Property”   Section 2.18

 

“Company-Operated Stores”  
Section 2.14(a)(ii)

 

“Company Option”   Section 2.3(a)

 

“Company Preferred Stock”  
Recital B

 

“Company Products”   Section 2.18

 

57

 

“Company Registered Intellectual Property”   Section 2.18

 

“Company Schedule”   Article II,
Preamble

 

“Company Stock Option Plans”  
Section 1.5(c)

 

“Company Stockholder Approval”  
Section 5.2(a)

 

“Company Third Party Expenses”  
Section 5.22

 

“Company Warrants”   Section
2.3(a).

 

“Continuing Employees”  Section
5.19

 

“Continental”   Section 1.10

 

“Corporate Records”   Section
2.1(c)

 

 “DOL”   Section 2.11

 

“DGCL”   Section 5.1(b)

 

“Disclosure Schedules”   Section
5.16

 

“Dissenter”   Section 1.13(a)

 

“Dissenting Shares”   Section
1.13 (b)

 

“Effective Time”   Section 1.2

 

“Environmental Law”   Section
2.16(b)

 

“Employee”   Section 2.11

 

“Employee Agreement”   Section
2.11

 

“ERISA”   Section 2.11

 

“Escrow Agreement”   Section 1.10

 

“Escrow Cash”   Section 1.10

 

“Escrow Period”   Section 1.10

 

“Excess Third Party Expenses”  
Section 5.22

 

“Exchange Act”   Section 5.1

 

“Exchange Agent”   Section 1.6

 

58

 

“Exchange Ratio”  Section 5.18

 

“Former Stockholders”   Section
1.10

 

“FMLA”   Section 2.11

 

“Franchised Property”   Section
2.14(a)(i)

 

“Governmental Action/Filing”  
Section 2.21

 

“HIPPA”   Section 2.11

 

“HSR Act”   Section 2.5(b)

 

“Hazardous Substance”   Section
2.16(c)

 

“Headquarters Lease”   Section
2.14(a)(iii)

 

“IRS”   Section 2.11

 

“Insider”   Section 2.19(a)(ii)

 

“Insurance Policies”   Section
2.20(a)

 

“Intellectual Property”   Section
2.18

 

“International Employee Plan”  
Section 2.11

 

“knowledge”   Section 10.2(d)

 

“Lease Documents”  Section
2.14(d)

 

“Leased Real Property”   Section
2.14(d)

 

“Legal Requirements”   Section
10.2(b)

 

“Letter of Transmittal”   Section
1.6(b)

 

“Liability Cap”   Section 7.4(c)

 

“Lien”   Section 10.2(e)

 

“Losses”   Section 7.1(b)

 

“Material Adverse Effect”  
Section 10.2(a)

 

“Material Company Contracts”  
Section 2.19(a)

 

“Materiality Threshold”   Section
7.4(b)

 

59

 

“Merger”   Recital A

 

“Merger Agreement”   Section 1.2

 

“Merger Form 8-K”   Section
5.6(a)

 

“Merger Sub”   Heading

 

“Merger Sub Common Stock”  
Section 1.5(e)

 

“Mintz Levin”   Section 1.2

 

“Notice of Claim”   Section
7.2(a)

 

“Other Filings”   Section 5.1

 

“Other Real Property”   Section
2.14(a)(iii)

 

“Owned Real Property”   Section
2.14(b)

 

“PBGC”   Section 2.11

 

“Parent”   Heading

 

“Parent Closing Certificate”  
Section 6.2(a)

 

“Parent Indemnitees”   Section
7.1

 

“Parent Plan”   Section 5.1(a)

 

“Parent Schedule”   Article III,
Preamble

 

“Parent SEC Reports”   Section
3.5

 

“Parent Stockholders’ Meeting”  
Section 2.24

 

“Parent Stockholder Approval”  
Section 5.1(a)

 

“Patents”   Section 2.18

 

“Pension Plan”   Section 2.11

 

“Per Share Merger Consideration”  
Section 1.5(a)(A)

 

“Person”   Section 10.2(c)

 

“Press Release”   Section 5.6(a)

 

“Proxy Statement”   Section 2.24

 

60

 

“Real Property”   Section 2.14(c)

 

“Registered Intellectual Property”  
Section 2.18

 

“Representative”   Section
1.11(b)(i)

 

“Representative Account”  
Section 1.11(b)(ii)

 

“Requisite Former Stockholders” 
Section 1.11(b)(iv)

 

“Returns”   Section 2.15(b)(i)

 

“Routine Operating Contracts”  
Section 2.19(a)

 

“Securities Act”   Section 5.1

 

“Statement of Expenses”   Section
5.22

 

“Subject Party”   Section
5.8(b)(iii)

 

“Survival Period”   Section
7.4(a)

 

“Surviving Corporation”   Section
1.1

 

“Tax/Taxes”   Section 2.15(a)

 

“Termination Fee”   Section 8.4

 

“Third Party Expenses”   Section
5.22

 

“Third Party Claim”   Section 7.2

 

“Trademarks”   Section 2.18

 

“Treasury Method”  Section
1(a)(B)

 

“Total Indebtedness”   Section
1.5(a)(C)

 

“Total Merger Consideration”  
Section 1.5(a)(D)

 

“Trust Fund”   Section 3.11

 

“UFOCs”   Section 2.25(c)

 

“U.S.  GAAP”   Section 2.7(a)

 

“Unaudited Financial Statements”  
Section 2.7(b)

 

“Voting Agreement”   Section 5.4

 

61

 

ARTICLE X

 

GENERAL PROVISIONS

 

10.1         Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by commercial delivery service, or sent via telecopy (receipt confirmed) to
the parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):

 

	
  if to Parent, to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Services Acquisition Corp. International

  
	
   

  	
   

  	
  401 East Olas Boulevard, Suite 1140

  
	
   

  	
   

  	
  Fort Lauderdale, Florida 33301

  
	
   

  	
   

  	
  Attention:

  
	
   

  	
   

  	
  Telephone:

  
	
   

  	
   

  	
  Facsimile:

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Kenneth R. Koch, Esq.

  
	
   

  	
   

  	
  Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.

  
	
   

  	
   

  	
  666 Third Avenue

  
	
   

  	
   

  	
  New York, New York 10017

  
	
   

  	
   

  	
  Telephone:  212-935-3000

  
	
   

  	
   

  	
  Facsimile:  212-983-3115

  
	
   

  	
   

  	
   

  
	
  if to the Company to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Jamba Juice Company.

  
	
   

  	
   

  	
  1700 17th Street

  
	
   

  	
   

  	
  San Francisco, California 94103

  
	
   

  	
   

  	
  Attention: Michael Fox, Esq.

  
	
   

  	
   

  	
  Telephone:  (415)
  865-1253

  
	
   

  	
   

  	
  Facsimile:  (415)
  865-1294

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Manatt, Phelps & Phillips, LLP

  
	
   

  	
   

  	
  11355 W. Olympic Boulevard

  
	
   

  	
   

  	
  Los Angeles, California, 90064

  
	
   

  	
   

  	
  Attention:  Richard J. Maire,
  Jr., Esq.

  
	
   

  	
   

  	
  Telephone:  (310) 312-4168

  
	
   

  	
   

  	
  Facsimile: (310) 312-4224

  

 

10.2         Interpretation.  When a reference is made in this Agreement to
an Exhibit or Schedule, such reference shall be to an Exhibit or Schedule to
this Agreement unless otherwise indicated. 
When a reference is made in this Agreement to Sections or subsections,
such

 

62

 

reference shall be to a Section or subsection of this
Agreement.  Unless otherwise indicated
the words “include,” “includes” and “including” when used herein shall be
deemed in each case to be followed by the words “without limitation.” The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.  When reference is made herein
to “the business of” an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity.  Reference to the subsidiaries of an entity
shall be deemed to include all direct and indirect subsidiaries of such entity.  For purposes of this Agreement:

 

(a)           the term “Material
Adverse Effect” when used in connection with an entity means any
change, event, violation, inaccuracy, circumstance or effect, individually or
when aggregated with other changes, events, violations, inaccuracies,
circumstances or effects, that is materially adverse to the business, assets
(including intangible assets), revenues, financial condition or results of
operations of such entity, it being understood that none of the following alone
or in combination shall be deemed, in and of itself, to constitute a Material
Adverse Effect:  (i) changes in general
national or regional economic conditions, or (ii) any SEC rulemaking requiring
enhanced disclosure of reverse merger transactions with a public shell.

 

(b)           the term “Legal
Requirements” means any federal, state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Entity;

 

(c)           the term “Person”
shall mean any individual, corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization,
entity or Governmental Entity;

 

(d)           the term “knowledge”
(including any derivation thereof such as “known” or “knowing”) shall mean the actual knowledge of Paul Clayton,
Donald Breen, Michael Andrews, Michael Fox, Beth Lombard, Russ Testa, Anne
Kimball, Lucretia Cotton and Karen Kelly.

 

(e)           the term “Lien”
means any mortgage, pledge, security interest, encumbrance, lien, restriction
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any affiliate of the seller, or any agreement to
give any security interest);

 

(f)            the term “affiliate”
means, as applied to any Person, any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with,
such Person.  For purposes of this
definition, “control” (including with correlative meanings, the terms “controlling,”
“controlled by” and “under common control with”), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise; and

 

63

 

(g)           all monetary amounts set forth herein
are referenced in United States dollars, unless otherwise noted.

 

10.3         Counterparts; Facsimile Signatures.  This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. 
Delivery by facsimile to counsel for the other party of a counterpart
executed by a party shall be deemed to meet the requirements of the previous
sentence.

 

10.4         Entire Agreement; Third Party
Beneficiaries.  This Agreement and
the documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Schedules hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
and (b) are not intended to confer upon any other person any rights or remedies
hereunder (except as specifically provided in this Agreement).

 

10.5         Severability.  In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto.  The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.

 

10.6         Other Remedies; Specific Performance.  Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy. 
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties
shall be entitled to seek an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.

 

10.7         Governing Law.  This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware regardless of the
law that might otherwise govern under applicable principles of conflicts of law
thereof.

 

10.8         Rules of Construction.  The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.

 

64

 

10.9         Assignment.  No party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other parties. 
Subject to the first sentence of this Section 10.9, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

 

10.10       Amendment.  This Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties.

 

10.11       Extension; Waiver.  At any time prior to the Closing, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein.  Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.  Delay in exercising any right
under this Agreement shall not constitute a waiver of such right.

 

10.12       Dispute Resolution.

 

(a)           In the event of a dispute hereunder
or relating to the transactions contemplated hereby, including under or with
respect to any of the agreements to be executed and delivered pursuant hereto,
arbitration will be the sole and exclusive method of resolving the dispute,
except that a party may seek a preliminary injunction, temporary restraining
order, or other preliminary judicial relief if, in its judgment, the action is
necessary to avoid irreparable damage or harm.

 

(b)           The arbitrator will consist of any
person who is mutually acceptable to the parties to the dispute.  However, if the parties are unable to agree
on a single arbitrator, an arbitration panel of three arbitrators will be
selected as provided below.  Each party
(Parent and Merger Sub, on the one hand, and Company and the Former
Stockholders through the Representative, on the other hand), shall select one
arbitrator, within 10 days from the date one party advises the other party that
it cannot agree on a single arbitrator, and the third arbitrator shall be
selected by the two chosen by the parties within 10 days of such two
arbitrators being chosen.  Every
arbitrator must be independent (not a party to this Agreement or a lawyer or
relative to a party to this Agreement or an agent, officer, director, employee,
shareholder or affiliate of a party to or a relative of any of those persons)
without any economic or financial interest of any kind in the outcome of the
arbitration.  Each arbitrator’s conduct
will be governed by the rules of the American Arbitration Association.  The arbitration will be conducted in
Wilmington, Delaware, in accordance with the rules of the American Arbitration
Association and the discovery rules of the Delaware Rules of Civil Procedure.
The arbitrator or arbitration panel will use reasonable best efforts to cause
the arbitration to be concluded as soon as practicable.  The arbitrators shall not be empowered to
award punitive damages.  The arbitrator’s
or arbitrators’ fees shall be shared equally by the parties unless the
arbitrator or arbitration panel shall determine that the nonprevailing party in
such arbitration shall pay the entire or a disproportionate amount of such
fees.

 

65

 

(c)           The arbitrator or a majority of the
arbitration panel shall render its decision in writing within thirty (30) days
after the conclusion of the hearing.  The
decision of the arbitrator arbitration panel will be final, binding and
conclusive as to all the parties and the decision of the arbitrator or
arbitration panel will not be subject to appeal, review or re-examination,
except for willful misconduct by an arbitrator that prejudices the rights of
any party to the arbitration.  Any party
may enforce the arbitration award in any state or federal court located in the
State of Delaware.

 

(d)           The prevailing party in any dispute
shall be entitled to recover from the other party all of its costs and expenses
incurred in connection with the enforcement of its rights hereunder or
thereunder, including reasonable attorneys’ and paralegals’ fees and costs
incurred before and at arbitration, at any other proceeding, at all tribunal
levels and whether or not suit or any other proceeding is brought.

 

(e)           In the case of any dispute involving
the holders of Company Capital Stock and/or holders of any Company Stock
Options after the Closing Date, the Representative shall have all absolute and
sole authority acting in its sole and absolute discretion and judgment to act
on behalf of and bind all of the stockholders and/or holders of any Company
Stock Options, on all matters directly or indirectly related to or arising
under this Agreement and the Escrow Agreement or any other agreement or matter
related thereto. By execution of this Agreement, the Representative agrees to
be bound by and comply with all of the terms of this Agreement and the Escrow
Agreement as if a signatory thereto.

 

[THE REMAINDER OF
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]

 

66

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.

 

	
   

  	
  SERVICES
  ACQUISITION CORP.

  INTERNATIONAL

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven
  Berrard

  
	
   

  	
   

  	
  Title: Chairman

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JJC ACQUISITION
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas E.
  Aucamp

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JAMBA JUICE
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul Clayton

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Fox

  
	
   

  	
   

  	
  Title: Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Representative

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  

 

 

INDEX OF EXHIBITS AND SCHEDULES

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  Form of Escrow Agreement

  
	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
   

  	
  Merger Sub Charter Documents

  
	
   

  	
   

  	
   

  
	
  EXHIBIT C

  	
   

  	
  Form of Voting Agreement

  
	
   

  	
   

  	
   

  
	
  EXHIBIT D

  	
   

  	
  Form of Mintz Levin Legal Opinion

  
	
   

  	
   

  	
   

  
	
  EXHIBIT E

  	
   

  	
  Form of Manatt Phelps Legal Opinion

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 2

  	
   

  	
  Company Schedule

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 3

  	
   

  	
  Parent Schedule

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 5.3

  	
  Officers and Directors

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 6.2(k)    Company
  Resignations

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 6.3(k)    Company
  Resignations

  

 

 

SCHEDULE 2

 

COMPANY SCHEDULE

 

 

SCHEDULE 3

 

PARENT SCHEDULE

 

2

 

SCHEDULE 5.3

 

DIRECTORS AND OFFICERS OF PARENT AND THE COMPANY

 

From and after the Closing, the following persons will be the Directors
and Officers of Parent and the Company:

 

1.  PARENT

 

Directors

 

Steve Berrard, Tom Byrne, Paul Clayton and such other existing Company
Board members and new outside directors as the parties may agree.

 

Officers

 

Chief Executive Officer and President – Paul Clayton

 

Chief Financial Officer – Donald Breen

 

1.  COMPANY

 

Directors

 

Steve Berrard, Tom Byrne, Paul Clayton and such other existing Company
Board members and new outside directors as the parties may agree.

 

Officers

 

Chief Executive Officer and President – Paul Clayton

 

Chief Financial Officer – Donald Breen

 

3

 

SCHEDULE 6.2(h)

 

PARENT RESIGNATIONS

 

4

 

SCHEDULE 6.3(k)

 

COMPANY RESIGNATIONS

 

5

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