MEMBERSHIP INTERESTS PURCHASE AGREEMENT BY AND AMONG NAYNA NETWORKS, INC. PRO SAT, LLC AND THE MEMBERS OF PRO SAT, LLC
BY
AND AMONG
▇▇▇▇▇
NETWORKS, INC.
PRO
SAT, LLC
AND
THE
MEMBERS OF PRO SAT, LLC
MEMBERSHIP
INTERESTS PUIRCHASE
AGREEMENT
This
Membership Interests Purchase Agreement is entered into as of January 31, 2007,
by and among ▇▇▇▇▇ Networks, Inc., a Nevada corporation (the “Buyer”),
PRO
SAT, LLC, a California limited liability company (the “Seller”)
and
the members of Seller listed on Schedule
A
attached
hereto and incorporated herein by reference (each a “Member”
and
collectively, the “Members”)
.
A. The
Members are the owners of all of the membership interests, and are the sole
members, of Seller.
B. The
Buyer
desires to purchase all outstanding membership interests in Seller (the
“Membership
Interests”)
from
the Members and the Members desire to sell all outstanding Membership Interests
in the Seller to the Buyer.
C. Buyer
and
Seller intend to raise six million dollars ($6,000,000.00) in the first quarter
of 2007 to be used to satisfy working capital requirements set forth in
Schedule
B
attached
hereto.
D. Capitalized
terms used in this Agreement shall have the meanings ascribed to them in Article
10.
E. In
consideration of the representations, warranties and covenants herein contained,
the Parties agree as follows.
1. THE
MEMBERSHIP INTERESTS PURCHASE
1.1 Purchase
of Membership Interests.
At the
Closing and subject to and upon the terms and conditions of this Agreement,
the
Members hereby agree to sell, transfer, convey, assign and deliver to Buyer,
and
Buyer hereby agrees to purchase, acquire and accept from the Members, all
outstanding Membership Interests in consideration for the payment to each of
the
Members of their pro rata portion of the Purchase Price. Buyer’s obligation
hereunder with regard to each Member is contingent and conditioned upon each
Member fulfilling its respective conditions and obligations
hereunder.
1.2 Purchase
Price.
The
Purchase Price to be paid by the Buyer for the Membership Interests shall be
the
number of shares of Common Stock to be issued in the manner set forth
below:
(a) At
the
Closing,
(i) 16,000,000
shares (the “Initial
Shares”)
on the
Closing Date shall be issued to the Members to be allocated pro rata based
on
their relative Membership Interests;
(ii) 2,000,000
shares (“Indemnification
Shares”)
shall
be issued in the names of Members and deposited into an escrow account as
security for the Members’ indemnification obligations (“Indemnification
Escrow”)
as
described below; and
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(iii) 2,000,000
shares (the “Employee
Option”)
as
options shall be issued as directed by Seller immediately following
Closing.
Any
Indemnification Shares not released to Buyer pursuant to Section 8 below shall
be released from the Indemnification Escrow account to the Members on the later
of (i) the date fifteen months following the Closing and (ii) the date on which
any indemnification claims pending on the date fifteen months following the
Closing have been resolved (in either case, the “Indemnification
Release Date”).
1.3 The
Closing.
(a) Unless
this Agreement is earlier terminated in accordance with Section 9.1, subject
to
the satisfaction or waiver of each of the conditions set forth in Article 6,
the
Closing shall take place at the offices of ▇▇▇▇▇▇▇▇▇ Law Group PLLC in Raleigh,
North Carolina commencing at 9:00 a.m. local time on the Closing Date, or
at such other place and time as shall be mutually agreed upon by the Buyer
and
the Seller. All transactions at the Closing shall be deemed to take place
simultaneously, and no transaction shall be deemed to have been completed and
no
documents or certificates shall be deemed to have been delivered until all
other
transactions are completed and all other documents and certificates are
delivered.
(b) At
the
Closing:
(i) each
Member shall execute and deliver such documents as are necessary to effect
a
transfer of his Membership Interests to the Buyer;
(ii) the
Buyer
shall issue to the Members the portion of the Purchase Price set forth in
Section 1.3(a)(i); and
the
Buyer
shall deposit the Indemnification Shares into the Indemnification Escrow.
1.4 Tax
Consequences.
Buyer
makes no representations or warranties to any Member regarding the Tax treatment
of the sale of the Membership Interests, or any of the Tax consequences to
any
Member of this Agreement, the sale of the Membership Interests or any of the
other transactions or agreements contemplated hereby. Each Member acknowledges
that it is relying solely on its own Tax advisors in connection with this
Agreement, the sale of the Membership Interests and the other transactions
and
agreements contemplated hereby.
1.5 Withholding
Rights.
Buyer
shall be entitled to deduct and withhold from the cash otherwise deliverable
under this Agreement, and from any other payments otherwise required pursuant
to
this Agreement, to any Member such amounts in cash or shares as Buyer is
required to deduct and withhold with respect to any such deliveries and payments
under the Code or any provision of state, local, provincial or foreign Tax
law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been delivered and paid
to
such holders in respect of which such deduction and withholding was
made.
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1.6 Taking
of Necessary Action; Further Action.
If, at
any time after the Closing, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest Buyer with full right,
title and possession to all assets, property, rights, privileges, powers and
franchises of Seller, the officers and directors of Buyer are fully authorized
to take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
2. REPRESENTATIONS
AND WARRANTIES OF THE SELLER
The
Seller represents and warrants to the Buyer that, except as set forth in the
Disclosure Schedule, the statements contained in this Article 2 are true
and correct as of the date of this Agreement, except to the extent such
representations and warranties are specifically made as of a particular date
(in
which case such representations and warranties will be true and correct as
of
such date). The Disclosure Schedule shall be arranged in sections and
subsections corresponding to the numbered and lettered sections and subsections
contained in this Article 2. The disclosures in any section or subsection of
the
Disclosure Schedule shall qualify only the corresponding section or subsection
in this Article 2.
2.1 Organization,
Qualification and Corporate Power.
The
Seller is a limited liability company duly organized, validly existing and
in
good standing under the laws of the state of California, and has all requisite
power and authority (corporate and other) to own its properties, to carry on
its
business as now being conducted, to execute and deliver this Agreement and
the
agreements contemplated herein, and to consummate the transactions contemplated
hereby. The Seller is duly qualified to conduct business and is in good standing
under the laws of each jurisdiction listed in Section 2.1 of the Disclosure
Schedule, which jurisdictions constitute the only jurisdictions in which the
nature of the Seller’s businesses or the ownership or leasing of its properties
requires such qualification, except for those jurisdictions in which the failure
to be so qualified or in good standing, individually or in the aggregate, has
not had and would not reasonably be expected to have a Seller Material Adverse
Effect. True, correct and complete copies of the Certificate of Formation and
Limited Liability Company Agreement of the Seller, each as amended to date,
have
been previously delivered to the Buyer, and no amendments have been made thereto
or have been authorized since the date thereof. The Seller is not in default
under or in violation of any provision of its Certificate of Formation or
Limited Liability Company Agreement.
2.2 Authorization
of Transaction.
The
Seller has all requisite power and authority to execute and deliver this
Agreement and the Ancillary Agreements and to perform its obligations hereunder
and thereunder. The execution and delivery by the Seller of this Agreement
and, subject
to the Requisite Member Approval, the performance by the Seller of this
Agreement and
the
Ancillary Agreements and the consummation by the Seller of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Seller. Without limiting the
generality of the foregoing, the managers of the Seller, at a meeting duly
called and held, by the unanimous vote of all managers determined that, in
their
opinion, the sale of assets contemplated by this Agreement is fair to and in
the
best interests of the Seller and its members, approved this Agreement in
accordance with the California Limited Liability Company Act, directed that
such
asset sale be submitted to the members of the Seller for their approval, and
resolved to recommend that the members of the
Seller vote in favor of the approval of such asset sale. This Agreement has
been
duly and validly executed and delivered by the Seller and constitutes, and
each
of the Ancillary Agreements, upon its execution and delivery by the Seller,
will
constitute, a valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms, except as such enforceability may
be
limited by bankruptcy, insolvency, reorganization, moratorium or
other
similar laws affecting or relating to creditors’ rights generally, and is
subject to general principles of equity.
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2.3 Noncontravention.
Except
as set forth in Section 2.3 of the Disclosure Schedule, neither the execution
and delivery by the Seller of this Agreement or the Ancillary Agreements, nor
the consummation by the Seller of the transactions contemplated hereby or
thereby, will (a) conflict with or violate any provision of the Certificate
of Formation or Limited Liability Company Agreement of the Seller or the
charter, by-laws or other organizational document of any Subsidiary,
(b) require on the part of the Seller or any Subsidiary any notice to or
filing with, or any permit, authorization, consent or approval of, any
Governmental Entity the failure of which to obtain would have a Seller Material
Adverse Effect, (c) conflict with, result in a breach of, constitute (with
or without due notice or lapse of time or both) a default under, result in
the
acceleration of obligations under, create in any party the right to terminate,
modify or cancel, or require any notice, consent or waiver under, any material
contract or instrument to which the Seller or any Subsidiary is a party or
by
which the Seller or any Subsidiary is bound or to which any of their respective
assets is subject, (d) result in the imposition of any Security Interest
upon any assets of the Seller
or
any Subsidiary or (e) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Seller, any Subsidiary or any of their
respective properties or assets.
2.4 Subsidiaries.
(a) Section 2.4
of the Disclosure Schedule sets forth: (i) the name of each Subsidiary;
(ii) the number and type of outstanding equity securities of each
Subsidiary and a list of the holders thereof; (iii) the jurisdiction of
organization of each Subsidiary; (iv) the names of the officers and
directors of each Subsidiary; and (v) the jurisdictions in which each Subsidiary
is qualified or holds licenses to do business as a foreign corporation or other
entity.
(b) Each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Each Subsidiary is duly qualified
to conduct business and is in good standing under the laws of each jurisdiction
in which the nature of its businesses or the ownership or leasing of its
properties requires such qualification. Each Subsidiary has all requisite power
and authority to carry on the businesses in which it is engaged and to own
and
use the properties owned and used by it. The Seller has delivered to the Buyer
complete and accurate copies of the charter, by-laws or other organizational
documents of each Subsidiary. No Subsidiary is in default under or in violation
of any provision of its charter, by-laws or other organizational documents.
All
of the issued and outstanding shares of capital stock of each Subsidiary are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. All shares of each Subsidiary that are held of record or
owned beneficially by either the Seller or any Subsidiary are held or owned
free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act of 1933, as amended (the “Securities
Act”)
and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding
or
authorized options, warrants, rights, agreements or commitments to which the
Seller or any Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any capital stock
of
any Subsidiary. There are no outstanding stock appreciation, phantom stock
or
similar rights with respect to any Subsidiary. There are no voting trusts,
proxies or other agreements or understandings with respect to the voting of
any
capital stock of any Subsidiary.
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(c) The
Seller does not control directly or indirectly or have any direct or indirect
equity participation or similar interest in any corporation, partnership,
limited liability company, joint venture or other business association or entity
which is not a Subsidiary.
2.5 Financial
Statements.
The
Seller has provided to the Buyer the Financial Statements. The Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, fairly present the consolidated
financial condition, results of operations and cash flows of the Seller and
the
Subsidiaries as of the respective dates thereof and for the periods referred
to
therein and are consistent with the books and records of the Seller and the
Subsidiaries; provided,
however,
that
the Financial Statements referred to in clause (b) of the definition of
such term are subject to normal recurring year-end adjustments (which will
not
be material) and do not include footnotes.
2.6 Absence
of Certain Changes.
Since
the Most Recent Balance Sheet Date, (a) there has occurred no event or
development which, individually or in the aggregate, has had, or
could
reasonably be expected to have in the future, a Seller Material Adverse Effect,
and (b) neither the Seller nor any Subsidiary has taken any of the actions
set forth in paragraphs (a) through (n) of Section 5.4.
2.7 Undisclosed
Liabilities.
None of
the Seller and its Subsidiaries has any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated and whether
due or to become due), except for (a) liabilities shown on the Most Recent
Balance Sheet and (b) liabilities which have arisen since the Most Recent
Balance Sheet Date in the Ordinary Course of Business and (c) contractual
and other liabilities incurred in the Ordinary Course of Business which are
not
required by GAAP to be reflected on a balance sheet.
2.8 Tax
Matters.
Except
as set forth in Section 2.8 of the Disclosure Schedule, each of the Seller
and
the Subsidiaries has filed on a timely basis all Tax Returns that it was
required to file, and all such Tax Returns were complete and accurate in all
material respects. Neither the Seller nor any Subsidiary is or has ever been
a
member of a group of corporations with which it has filed (or been required
to
file) consolidated, combined or unitary Tax Returns, other than a group of
which
only the Seller and the Subsidiaries are or were members. Except as set forth
in
Section 2.8 of the Disclosure Schedule, each of the Seller and the Subsidiaries
has paid on a timely basis all Taxes that were due and payable.
2.9 Ownership
and Condition of Assets.
(a) The
Seller is the true and lawful owner, and has good title to, all of the Acquired
Assets, free and clear of all Security Interests, except as set forth in Section
2.9(a)(i) of the Disclosure Schedule. Each Subsidiary is the true and lawful
owner, and has good title to, all assets purported to be owned by such
Subsidiary, free and clear of all Security Interests, except as set forth in
Section 2.9(a)(i) of the Disclosure Schedule. Upon execution and delivery by
the
Seller to the Buyer of the instruments of conveyance referred to in Section
1.5(b)(iii), the Buyer will become the true and lawful owner of, and will
receive good title to, the Acquired Assets, free and clear of all Security
Interests other than those set forth in Section 2.9(a)(ii) of the Disclosure
Schedule.
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(b) The
Acquired Assets (as defined in Section 5.3(h)) are sufficient for the conduct
of
the Seller’s businesses as presently conducted and constitute all assets used by
the Seller in such businesses. Each tangible Acquired Asset is free from
material defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear
and
tear) and is suitable for the purposes for which it presently is
used.
(c) Section
2.9(c) of the Disclosure Schedule lists individually (i) all Acquired
Assets which are fixed assets (within the meaning of GAAP) having a book value
greater than $5,000, indicating the cost, accumulated book depreciation (if
any)
and the net book value of each such fixed asset as of the Most Recent Balance
Sheet Date, and (ii) all other Acquired Assets of a tangible nature (other
than
inventories) whose book value exceeds $5,000.
(d) Each
item
of equipment, motor vehicle and other asset that is being transferred to the
Buyer as part of the Acquired Assets and that the Seller or a Subsidiary has
possession of pursuant to a lease agreement or other contractual arrangement
is
in such condition that, upon its return to its lessor or owner under the
applicable lease or contract, the obligations of the Seller or such Subsidiary
to such lessor or owner will have been discharged in full.
2.10 Owned
Real Property.
Neither
Seller nor any of its Subsidiaries has any Owned Real Property.
2.11 Real
Property Leases.
Section 2.11 of the Disclosure Schedule lists all Leases.
The
Seller has delivered to the Buyer complete and accurate copies of the Leases.
With respect to each Lease:
(a) such
Lease is valid;
(b) such
Lease is assignable by the Seller or a Subsidiary to the Buyer without the
consent or approval of any party (except as set forth in Section 2.3 of the
Disclosure Schedule) and such Lease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing
in
accordance with the terms thereof as in effect immediately prior to the
Closing;
(c) neither
the Seller nor any Subsidiary nor, to the knowledge of the Seller, any other
party, is in breach or violation of, or default under, any such Lease, and
no
event has occurred, is pending or, to the knowledge of the Seller, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by the Seller or any Subsidiary or, to
the
knowledge of the Seller, any other party under such Lease;
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(d) there
are
no disputes, oral agreements or forbearance programs in effect as to such
Lease;
(e) neither
the Seller nor any Subsidiary has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(f) to
the
knowledge of the Seller, all facilities leased or subleased thereunder are
supplied with utilities and other services adequate for the operation of said
facilities;
(g) the
Seller is not aware of any Security Interest, easement, covenant or other
restriction applicable to the real property subject to such lease which would
reasonably be expected to materially impair the current uses or the occupancy
by
the Seller or a Subsidiary of the property subject thereto; and
2.12 Intellectual
Property.
(a) Section
2.12(a) of the Disclosure Schedule lists (i) each patent, patent application,
copyright registration or application therefor, mask work registration or
application therefor, and trademark, service ▇▇▇▇ and domain name registration
or application therefor of the Seller or any Subsidiary and (ii) each Customer
Deliverable of the Seller or any Subsidiary.
(b) Each
of
the Seller and the Subsidiaries owns or has the right to use all Intellectual
Property necessary (i) to use, manufacture, have manufactured, market and
distribute the Customer Deliverables and (ii) to operate the Internal Systems.
Upon execution and delivery by the Seller to the Buyer of the instruments of
conveyance referred to in Section 1.5(b)(iii), each item of Seller
Intellectual Property will be owned or available for use by the Buyer or such
Subsidiary immediately following the Closing on substantially identical terms
and conditions as it was immediately prior to the Closing. The Seller or the
appropriate Subsidiary has taken all reasonable measures to protect the
proprietary nature of each item of Seller Intellectual Property, and to maintain
in confidence all trade secrets and confidential information, that it owns
or
uses. No other person or entity has any rights to any of the Seller Intellectual
Property owned by the Seller or the Subsidiaries (except pursuant to agreements
or licenses specified in Section 2.12(d) of the Disclosure Schedule), and,
to the knowledge of the Seller, no other person or entity is infringing,
violating or misappropriating any of the Seller Intellectual Property.
(c) None
of
the Customer Deliverables, or the marketing, distribution, provision or use
thereof, infringes or violates, or constitutes a misappropriation of, any
Intellectual Property rights of any person or entity. None of the Internal
Systems, or the use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
Section 2.12(c) of the Disclosure Schedule lists any complaint, claim or notice,
or written threat thereof, received by the Seller or any Subsidiary alleging
any
such infringement, violation or misappropriation; and the Seller has provided
to
the Buyer complete and accurate copies of all written documentation in the
possession of the Seller or any Subsidiary relating to any such complaint,
claim, notice or threat. The Seller has provided to the Buyer complete and
accurate copies of all written documentation in the Seller’s possession relating
to claims or disputes known to the Seller concerning any Seller Intellectual
Property.
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(d) Section 2.12(d)
of the Disclosure Schedule identifies each license or other agreement pursuant
to which the Seller or a Subsidiary has licensed, distributed or otherwise
granted any rights to any third party with respect to, any Seller Intellectual
Property. Except as described in Section 2.12(d) of the Disclosure Schedule,
neither the Seller nor any Subsidiary has agreed to indemnify any person or
entity against any infringement, violation or misappropriation of any
Intellectual Property rights with respect to any Customer
Deliverables.
(e) Section 2.12(e)
of the Disclosure Schedule identifies each item of Seller Intellectual Property
that is owned by a party other than the Seller or a Subsidiary, and the license
or agreement pursuant to which the Seller or a Subsidiary uses it (excluding
off-the-shelf software programs licensed by the Seller pursuant to “shrink wrap”
licenses).
(f) All
of
the copyrightable materials incorporated in or bundled with the Customer
Deliverables have been created by employees of the Seller or a Subsidiary within
the scope of their employment by the Seller or a Subsidiary or by independent
contractors of the Seller or a Subsidiary who have executed agreements expressly
assigning all right, title and interest in such copyrightable materials to
the
Seller or a Subsidiary. No portion of such copyrightable materials was jointly
developed with any third party.
(g) The
Customer Deliverables and the Internal Systems are free from significant defects
or programming errors and conform in all material respects to the written
documentation and specifications therefor.
2.13 Inventory.
All
inventory of the Seller and the Subsidiaries, whether or not reflected on the
Most Recent Balance Sheet, consists of a quality and quantity usable and
saleable in the Ordinary Course of Business, except for obsolete items and
items
of below-standard quality, all of which have been written-off or written-down
to
net realizable value on the Most Recent Balance Sheet. All inventories not
written-off have been priced at the lower of cost or net realizable value on
a
first-in, first-out basis. The quantities of each type of inventory, whether
raw
materials, work-in-process or finished goods, are not excessive in the present
circumstances of the Seller and the Subsidiaries.
2.14 Contracts.
(a) Section 2.14
of the Disclosure Schedule lists the following agreements (written or oral)
to
which the Seller or any Subsidiary is a party as of the date of this
Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties providing for lease payments in excess of $1,000 per
annum or having a remaining term longer than 12 months;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services (A) which calls for performance
over a period of more than one year, (B) which involves more than the sum of
$10,000, or (C) in which the Seller or any Subsidiary has granted manufacturing
rights, “most favored nation” pricing provisions or exclusive marketing or
distribution rights relating to any products or territory or has agreed to
purchase a minimum quantity of goods or services or has agreed to purchase
goods
or services exclusively from a certain party;
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(iii) any
agreement concerning the establishment or operation of a partnership, joint
venture or limited liability company;
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than $10,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any
agreement for the disposition of any significant portion of the assets or
business of the Seller or any Subsidiary (other than sales of products in the
Ordinary Course of Business) or any agreement for the acquisition of the assets
or business of any other entity (other than purchases of inventory or components
in the Ordinary Course of Business);
(vi) any
agreement concerning confidentiality or noncompetition;
(vii) any
employment or consulting agreement;
(viii) any
agreement involving any current or former officer, director or member of the
Seller or an Affiliate thereof;
(ix) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Seller Material Adverse Effect;
(x) any
agreement which contains any provisions requiring the Seller or any Subsidiary
to indemnify any other party (excluding indemnities contained in agreements
for
the purchase, sale or license of products entered into in the Ordinary Course
of
Business); and
(xi) any
other
agreement (or group of related agreements) either involving more than $10,000
or
not entered into in the Ordinary Course of Business.
(b) The
Seller has delivered to the Buyer a complete and accurate copy of each agreement
listed in Section 2.12 or Section 2.14 of the Disclosure Schedule, except
as otherwise indicated in such Section 2.14 of the Disclosure Schedule. With
respect to each agreement so listed: (i) the agreement is legal, valid,
binding and enforceable and in full force and effect; (ii) for those
agreements to which the Seller is a party, the agreement is assignable by the
Seller to the Buyer without the consent or approval of any party (except as
set
forth in Section 2.3 and 2.14 of the Disclosure Schedule) and will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing; and (iii) neither the Seller nor
any Subsidiary nor, to the knowledge of the Seller, any other party, is in
breach or violation of, or default under, any such agreement, and no event
has
occurred, is pending or, to the knowledge of the Seller, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute
a
breach or default by the Seller or any Subsidiary or, to the knowledge of the
Seller, any other party under such agreement.
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2.15 Accounts
Receivable.
All
accounts receivable of the Seller and the Subsidiaries reflected on the Most
Recent Balance Sheet (other than those paid since such date) are valid
receivables
and, to
the knowledge of Seller, are current and collectible, net of the applicable
reserve for bad debts on the Most Recent Balance Sheet. All accounts receivable
of the Seller and the Subsidiaries that have arisen since the Most Recent
Balance Sheet Date are valid receivables and, to the knowledge of Seller, are
collectible,
net of
a reserve for bad debts in an amount proportionate to the reserve shown on
the
Most Recent Balance Sheet.
Neither
the Seller nor any Subsidiary has received any written notice from an account
debtor stating that any account receivable in an amount in excess of $10,000
is
subject to any contest, claim or setoff by such account debtor.
2.16 Powers
of Attorney.
There
are no outstanding powers of attorney executed on behalf of the any
Subsidiary.
2.17 Insurance.
To
Seller’s knowledge, there is no material claim pending under any insurance
policy as to which coverage has been questioned, denied or disputed by the
underwriter of such policy. All premiums due and payable under all such policies
have been paid, neither the Seller nor any Subsidiary, to their knowledge, may
be liable for retroactive premiums or similar payments, and the Seller and
the
Subsidiaries are otherwise in compliance in all material respects with the
terms
of such policies.
2.18 Litigation.
Except
as set forth in Section 2.18 of the Disclosure Schedule, there is no Legal
Proceeding which is pending or has been threatened in writing against the Seller
or any Subsidiary which (a) seeks
either damages in excess of $10,000 or equitable relief or (b) in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
There
are no material judgments, orders or decrees outstanding against the Seller
or
any Subsidiary.
2.19 Warranties.
No
product or service manufactured, sold, leased, licensed or delivered by the
Seller or any Subsidiary is subject to any guaranty, warranty, right of
return, right
of
credit or other indemnity other than (i) the applicable standard terms and
conditions of sale or lease of the Seller or the appropriate Subsidiary, which
are set forth in Section 2.19 of the Disclosure Schedule, and (ii)
manufacturers’ warranties for which neither the Seller nor any Subsidiary
has any liability. Section 2.19 of the Disclosure Schedule sets forth the
aggregate expenses incurred by the Seller and the Subsidiaries in fulfilling
their obligations under their guaranty, warranty, right of return and indemnity
provisions during each of the fiscal years and the interim period covered by
the
Financial Statements; and the Seller does not know of any reason why such
expenses should significantly increase as a percentage of sales in the
future.
10
2.20 Employees.
(a) Section
2.20 of the Disclosure Schedule contains a list of all employees of the Seller
and each Subsidiary, along with the position and the annual rate of compensation
of each such person. The annual rate of compensation listed next to each
employee and consultant in Section 2.20 of the Disclosure Schedule has not
been
materially increased at any time within sixty (60) days prior to the date of
this Agreement. Each current or past employee of the Seller or any Subsidiary
has entered into a confidentiality/assignment of inventions agreement with
the
Seller or such Subsidiary, a copy or form of which has previously been delivered
to the Buyer. Section 2.20 of the Disclosure Schedule contains a list of all
employees of the Seller or any Subsidiary who are a party to a non-competition
agreement with the Seller or any Subsidiary; copies of such agreements have
previously been delivered to the Buyer. Each such agreement referenced in the
two preceding sentences to which the Seller is a party is assignable by the
Seller to the Buyer without the consent or approval of any party and will
continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof
as
in effect immediately prior to the Closing. Section 2.20 of the Disclosure
Schedule contains a list of all employees of the Seller or any Subsidiary who
are not citizens of the United States. To the knowledge of the Seller, no key
employee or group of employees has any plans to terminate employment with the
Seller or any Subsidiary (other than for the purpose of accepting employment
with the Buyer following the Closing) or not to accept employment with the
Buyer.
(b) Neither
the Seller nor any Subsidiary is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining disputes. The
Seller has no knowledge of any organizational effort made or threatened, either
currently or within the past two years, by or on behalf of any labor union
with
respect to employees of the Seller or any Subsidiary.
2.21 Employee
Benefits.
(a) Section
2.21(a) of the Disclosure Schedule contains a complete and accurate list of
all
Seller Plans. Complete and accurate copies of (i) all Seller Plans which
have been reduced to writing, (ii) written summaries of all unwritten
Seller Plans, (iii) all related trust agreements, insurance contracts and
summary plan descriptions, and (iv) annual reports filed on IRS Form 5500
and (for all funded plans) all plan financial statements for the last three
plan
years for each Seller Plan, have been delivered to the Buyer.
(b) Each
Seller Plan has been administered in all material respects in accordance with
its terms and the Seller and the Subsidiaries have in all material respects
met
their obligations with respect to each Seller Plan and have made all required
contributions thereto. The Seller and each Subsidiary and each Seller Plan
are
in compliance in all material respects with the currently applicable provisions
of ERISA and the Code and the regulations thereunder (including Section 4980B
of
the Code, Subtitle K, Chapter 100 of the Code and Sections 601 through 608
and
Section 701 et seq. of ERISA). All filings and reports as to each Seller Plan
required to have been submitted to the Internal Revenue Service or to the United
States Department of Labor have been duly submitted. No Seller Plan has assets
that include securities issued by the Seller or any ERISA
Affiliate.
11
(c) There
are
no Legal Proceedings (except claims for benefits payable in the normal operation
of the Seller Plans and proceedings with respect to qualified domestic relations
orders) against or involving any Seller Plan or asserting any rights or claims
to benefits under any Seller Plan that could give rise to any material
liability.
(d) Each
Seller Plan that is intended to be qualified under Section 401(a) of the Code
has received a determination letter from the Internal Revenue Service to the
effect that such Seller Plan is qualified and the plan and the trust related
thereto is exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been revoked
and
revocation has not been threatened, or such plan is a prototype plan that is
the
subject of an IRS opinion letter, and no act or omission has occurred, that
would reasonably be expected to adversely affect its qualification or materially
increase its cost. Each Seller Plan which is required to satisfy Section
401(k)(3) or Section 401(m)(2) of the Code has been tested for compliance with,
and satisfies the requirements of Section 401(k)(3) and Section 401(m)(2) of
the
Code for each of the three plan years ending prior to the Closing
Date.
(e) Neither
the Seller, any Subsidiary, nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(f) At
no
time has the Seller, any Subsidiary or any ERISA Affiliate been obligated to
contribute to any “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).
(g) There
are
no unfunded obligations under any Seller Plan providing benefits after
termination of employment to any employee of the Seller or any Subsidiary (or
to
any beneficiary of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code or other
applicable law and insurance conversion privileges under state law. The assets
of each Seller Plan which is funded are reported at their fair market value
on
the books and records of such Seller Plan.
(h) No
act or
omission has occurred and no condition exists with respect to any Seller Plan
that would subject the Seller or any Subsidiary to any material fine, penalty
or
tax imposed under ERISA or the Code.
(i) No
Seller
Plan is funded by, associated with or related to a “voluntary employee’s
beneficiary association” within the meaning of Section 501(c)(9) of the
Code.
(j) Each
Seller Plan may be amended or terminated unilaterally by the Seller at any
time
without liability or expense to the Seller or such Seller Plan as a result
thereof (other than for benefits accrued through the date of termination or
amendment and reasonable administrative expenses related thereto) and no Seller
Plan, plan documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Seller from amending or terminating any such Seller Plan.
12
(k) Section
2.21(k) of the Disclosure Schedule discloses each: (i) agreement with any
member, director, executive officer or other key employee of the Seller or
any
Subsidiary (A) the benefits of which are contingent, or the terms of which
are altered, upon the occurrence of a transaction involving the Seller or any
Subsidiary of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee
or (C) providing severance benefits or other benefits after the termination
of employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Seller or any Subsidiary that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of such
person’s “parachute payment” under Section 280G of the Code; and
(iii) agreement or plan binding the Seller or any Subsidiary, including any
stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan or Seller Plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the
basis of any of the transactions contemplated by this Agreement.
(l) Section
2.21(l) of the Disclosure Schedule sets forth the policy of the Seller and
any
Subsidiary with respect to accrued vacation, accrued sick time and earned time
off and the amount of such liabilities as of December 31, 2006.
2.22 Environmental
Matters.
(a) Each
of
the Seller and the Subsidiaries has complied with all applicable Environmental
Laws. There is no pending or, to the knowledge of the Seller, threatened civil
or criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving the Seller or any
Subsidiary.
(b) Neither
the Seller nor any Subsidiary has any liabilities or obligations arising from
the release of any Materials of Environmental Concern into the
environment.
(c) Neither
the Seller nor any Subsidiary is a party to or bound by any court order,
administrative order, consent order or other agreement with any Governmental
Entity entered into in connection with any legal obligation or liability arising
under any Environmental Law.
(d) Set
forth
in Section 2.22(d) of the Disclosure Schedule is a list of all documents
(whether in hard copy or electronic form) that contain any environmental
reports, investigations and audits relating to premises currently or previously
owned or operated by the Seller or a Subsidiary (whether conducted by or on
behalf of the Seller or a Subsidiary or a third party, and whether done at
the
initiative of the Seller or a Subsidiary or directed by a Governmental Entity
or
other third party) which were issued or conducted during the past five years
and
which the Seller has possession of or access to. A complete and accurate copy
of
each such document has been provided to the Buyer.
13
(e) The
Seller is not aware of any material environmental liability of any solid or
hazardous waste transporter or treatment, storage or disposal facility that
has
been used by the Seller or any Subsidiary.
2.23 Legal
Compliance.
Each of
the Seller and the Subsidiaries is currently conducting, and have at all times
since their inception conducted, their respective businesses in compliance
with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or applicable foreign government, or any Governmental Entity,
except for any noncompliance, violations or defaults
that, individually or in the aggregate, have not had and would not reasonably
be
expected to have a Seller Material Adverse Effect.
Neither
the Seller nor any Subsidiary has received any notice or communication from
any
Governmental Entity alleging noncompliance with any applicable law, rule or
regulation.
2.24 Customers
and Suppliers.
Section
2.24 of the Disclosure Schedule sets forth a list of (a) each customer that
accounted for more than 10% of the consolidated revenues of the Seller during
the last full fiscal year or the interim period through the Most Recent Balance
Sheet Date and the amount of revenues accounted for by such customer during
each
such period and (b) each supplier that is the sole supplier of any significant
product or service to the Seller or a Subsidiary. No such customer or supplier
has indicated within the past year that it will stop, or decrease the rate
of,
buying products or supplying products, as applicable, to the Seller or any
Subsidiary, in any such case as would reasonably be expected to have a Seller
Material Adverse Effect. No unfilled customer order or commitment obligating
the
Seller or any Subsidiary to process, manufacture or deliver products or perform
services will result in a material loss to the Seller or any Subsidiary upon
completion of performance. No purchase order or commitment of the Seller or
any
Subsidiary is in excess of normal requirements, nor are prices provided therein
in excess of current market prices for the products or services to be provided
thereunder, in any such case as would reasonably be expected to have a Seller
Material Adverse Effect.
2.25 Permits.
Section
2.25 of the Disclosure Schedule sets forth a list of all Permits issued to
or
held by the Seller or any Subsidiary. Such listed Permits are the only Permits
that are required for the Seller and the Subsidiaries to conduct their
respective businesses as presently conducted or as proposed to be conducted.
Each such Permit is in full force and effect; the Seller or the
applicable Subsidiary
is in compliance with the terms of each such Permit; and, to the knowledge
of
the Seller, no suspension or cancellation of such Permit is threatened and
there
is no basis for believing that such Permit will not be renewable upon
expiration. Each such Permit is assignable by
the
Seller to the Buyer without the consent or approval of any party and will
continue in full force and effect immediately following the
Closing.
2.26 Certain
Business Relationships With Affiliates.
Except
as disclosed on Section 2.26 of the Disclosure Schedule, no Affiliate of the
Seller or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Seller or any Subsidiary,
(b) has any claim or cause of action against the Seller or any Subsidiary,
or (c) owes any money to, or is owed any money by, the Seller or any
Subsidiary. Section 2.26 of the Disclosure Schedule describes any transactions
or relationships between
the Seller or a Subsidiary and any Affiliate thereof which occurred or have
existed since the beginning of the time period covered by the Financial
Statements.
14
2.27 Brokers’
Fees.
Neither
the Seller nor any Subsidiary has any liability or obligation to pay any fees
or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
2.28 Capitalization. As
of the
Closing, the Members collectively hold 100% of the outstanding ownership
interests in the Seller. All outstanding Membership Interests are duly
authorized, validly issued, fully paid and non-assessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof, and are not subject to preemptive rights or rights
of
first refusal created by statute, the Certificate of Formation or any agreement
to which Seller is a party or by which it is bound. There are no options,
warrants, calls, rights, commitments or agreements of any character to which
Seller is a party or by which it is bound, obligating Seller to issue, deliver,
sell, repurchase or redeem or cause to be issued, delivered, sold, repurchased
or redeemed, any Membership Interest. There are no contracts, commitments or
agreements relating to voting, purchase or sale of Membership Interests
(a) between or among Seller and any of its members; and (b) to the
Sellers’ knowledge, between or among any of the members of Seller. All
outstanding Membership Interests and rights to acquire Membership Interests
were
issued in compliance with all applicable federal and state securities
laws..
2.29 Disclosure.
No
representation or warranty by the Seller contained in this Agreement, and no
statement contained in the Disclosure Schedule or any other document,
certificate or other instrument delivered or to be delivered by or on behalf
of
the Seller pursuant to this Agreement, contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in
order to make the statements herein or therein not misleading.
3. REPRESENTATIONS
AND WARRANTIES OF THE MEMBERS
The
Members, jointly and severally, represent and warrant to Buyer that the
statements contained in this Article 3 are true and correct as of the date
of this Agreement.
3.1 Authority.
Each of
the Members has legal capacity and all requisite power and authority to execute
and deliver this Agreement and to perform the transactions contemplated hereby.
This Agreement has been, or will be, duly executed and delivered by the Members
and constitutes, or will constitute when executed and delivered, a valid and
binding obligation of the Members, enforceable against the Members in accordance
with its terms.
3.2 Seller
Membership Interests.
Each of
the Members is the sole beneficial and record owner of the Membership Interests
in the percentages set forth for each such Member on Schedule
A
free and
clear of all liens, encumbrances, claims, security interests, mortgages,
restrictions or pledges of any nature, and each Member can transfer to Buyer
valid and marketable title to such Seller Membership Interests.
15
3.3 Securities
Matters.
Each of
the Members seeks to acquire the shares of Buyer Common Shares to be issued
to
them for their own account and beneficial interest for investment purpose only,
and not with the view to the resale, assignment, transfer or distribution
thereof, except in accordance with applicable federal and state securities
laws.
Each of the Members acknowledges and agrees that, as the owner of the shares
of
Buyer Common Shares, they must bear the economic risks of investment in Buyer
for an indefinite period of time, as the securities have not been registered
under the Securities Act, or the securities laws of any state, and therefore
cannot be sold unless registered thereunder or unless, in the opinion of counsel
satisfactory to Buyer, an exemption from such registration is available. Each
of
the Members acknowledges and agrees that the shares of Buyer Common Shares
issued to them will be subject to certain restrictions on transfer and that
the
certificates evidencing such shares will bear legends referring to such
restrictions. Each of the Members is a sophisticated and knowledgeable investor
and has such knowledge and experience in financial and business matters that
they are capable of evaluating the merits and risks of an investment in the
Buyer and are able to bear the economic risks for such investment. Each of
the
Members acknowledges that they have had adequate opportunity to ask for and
receive any information from Buyer and its officers that the Members believe
to
be material or relevant to their investment hereunder and have conducted such
due diligence as they deem necessary.
4. REPRESENTATIONS
AND WARRANTIES OF THE BUYER
The
Buyer
represents and warrants to the Seller that the statements contained in this
Article 4 are true and correct as
of the
date of this Agreement.
4.1 Organization,
Standing and Power.
Buyer
is a corporation duly organized, validly existing and in good standing under
the
laws of the state of Nevada. Buyer has the corporate power to own its properties
and to carry on its business as now being conducted and as proposed to be
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing could
reasonably be expected to have a Buyer Material Adverse Effect. Buyer has
delivered a true and correct copy of the Certificate of Incorporation and Bylaws
or other charter documents, as applicable, of Buyer, as amended to date, to
Seller. Buyer is not in violation of any of the provisions of its Certificate
of
Incorporation or Bylaws.
4.2 Authority.
Buyer
has all requisite corporate power and authority to enter into this Agreement
and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been, or will have been by the Closing, duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed
and
delivered by Buyer and constitutes the valid and binding obligations of Buyer
enforceable against Buyer in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to creditors’ rights generally, and subject to general
principles of equity. The execution and delivery of this Agreement do not,
and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice
or
lapse of time, or both), or give rise to a right of termination, cancellation
or
acceleration of any material obligation or loss of a material benefit under
(a) any provision of the Certificate of Incorporation or Bylaws of Buyer or
any of its Subsidiaries; or (b) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Buyer or any of its Subsidiaries or their properties or assets
No
consent, approval, order or authorization of or registration, declaration or
filing with any Governmental Entity is required by or with respect to Buyer
or
any of its Subsidiaries in connection with the execution and delivery of this
Agreement by Buyer or the consummation by Buyer of the transactions contemplated
hereby, except for (a) filings required under Regulation D of the
Securities Act following the Closing Date; (b) the filing of a
Form 8-K with the Securities and Exchange Commission (“SEC”)
and
National Association of Securities Dealers (“NASD”)
within
15 days after the Closing Date; (c) such filings as may be required
under applicable state securities laws and the securities laws of any foreign
country; and (d) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, could not reasonably be
expected to have a Buyer Material Adverse Effect and could not prevent,
materially alter or delay any of the transactions contemplated by this
Agreement.
16
4.3 Capital
Structure.
The
authorized capital stock of Buyer consists of 1,000,000,000 shares of common
stock, $0.0001 par value, of which there were issued and outstanding as of
the
close of business on the date hereof, 47,829,463 shares of Common Stock. There
are no other outstanding shares of capital stock or voting securities of Buyer
other than shares of Common Stock issued after that same date upon the exercise
of options issued under the ▇▇▇▇▇ Networks, Inc. 2000 Stock Plan and 2006
Executive Stock Plan (the “Buyer
Option Plan”).
All
outstanding shares of Buyer have been duly authorized, validly issued, fully
paid and are nonassessable. As of the close of business on that same date,
Buyer
has reserved (a) 10,967,480 shares of Common Stock for issuance to employees,
directors and independent contractors pursuant to the Buyer Option Plan, of
which 9,135,799 shares are subject to outstanding, unexercised options and
542,563 shares have been exercised and are outstanding and 1,831,681 are
available for grants; (b) 12,715,565 shares of Common Stock for issuance
pursuant to outstanding warrants (the “Buyer
Warrants”);
(c)
up to
127,853,234
shares issuable to Abundance Networks, LLC, as of January 22, 2007, in
connection with the purchase of assets from Abundance Networks, LLC; and (d)
218,181,818 shares of Common Stock for issuance pursuant to outstanding
Convertible Notes (the “Buyer
Notes”).
The
Buyer is obligated to issue additional Buyer Notes and Buyer Warrants, which
will be convertible into and exercisable for shares of Buyer Common Stock in
connection with the financing it closed on November 17, 2005 (the “Financing”).
Other
than this Agreement, the Buyer Option Plan, the Buyer Warrants and Buyer Notes
and shares of Buyer Common Stock to be issued to brokers in connection with
the
Financing and the transactions contemplated by this Agreement, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which Buyer is a party or by which either of them is bound
obligating Buyer to issue, deliver, sell, repurchase or redeem, or cause to
be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Buyer or obligating Buyer to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement.
4.4 Issuance
of Shares.
The
issuance and delivery of the Common Stock in accordance with this Agreement
shall be, at or prior to the Closing Date, duly authorized by all necessary
corporate action on the part of Buyer, and, when issued on the Closing Date
as
contemplated hereby, such shares of Common Stock will be duly and validly
issued, fully paid and nonassessable. Such Common Stock, when so issued and
delivered in accordance with the provisions of this Agreement, shall be free
and
clear of all liens and encumbrances and adverse claims, other than restrictions
on transfer created by applicable securities laws and will not have been issued
in violation of their respective properties or any preemptive rights or rights
of first refusal or similar rights.
17
4.5 Litigation.
There
is no private or governmental action, suit, proceeding, claim, arbitration
or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the knowledge of Buyer threatened against Buyer or any of its properties
or any of its officers or directors (in their capacities as such) that,
individually or in the aggregate, could reasonably be expected to have a Buyer
Material Adverse Effect. There is no judgment, decree or order against Buyer
or
any of its Subsidiaries or, to the knowledge of Buyer, or any of its directors
or officers (in their capacities as such) that could prevent, enjoin or
materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Buyer Material Adverse
Effect.
4.6 Representations
Complete.
None of
the representations or warranties made by Buyer herein or in any Schedule
hereto, including the Buyer Disclosure Schedule, or certificate furnished by
Buyer pursuant to this Agreement, or the SEC Documents, or any written statement
furnished to Seller pursuant hereto or in connection with the transactions
contemplated hereby, when all such documents are read together in their
entirety, contains or will contain on the Closing Date any untrue statement
of a
material fact or omits or will omit on the Closing Date to state any material
fact necessary in order to make the statements contained herein or therein,
in
the light of the circumstances under which made, not misleading.
4.7 SEC
Documents; Financial Statements.
Buyer
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934 (the “Exchange
Act”)
(all
of the foregoing filed prior to the date hereof (including all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein) being hereinafter referred to as the
“SEC
Documents”).
Except as set forth on Schedule 3.8, each of the SEC Documents was filed with
the SEC within the timeframes prescribed by the SEC for the filing of such
SEC
Documents such that each filing was timely filed with the SEC. As of their
respective dates, the SEC Documents complied in all material respects with
the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted 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. As of their
respective dates, the consolidated financial statements of Buyer and its
Subsidiaries included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. None of Buyer or any of its
Subsidiaries, or any of their respective officers, directors or affiliates
(as
defined below) or, to Buyer’s knowledge, any shareholder of Buyer has made any
other filing with the SEC, issued any press release or made any other public
statement or communication on behalf of Buyer or any of its Subsidiaries or
otherwise relating to Buyer or any of its Subsidiaries that contains any untrue
statement of a material fact or omits any statement of material fact necessary
in order to make the statements therein, in the light of the circumstances
under
which they are or were made, not misleading or has provided any other
information to Seller that contains any untrue statement of a material fact
or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are or were made,
not misleading. None of Buyer, any of its Subsidiaries and any of their
respective officers, directors, employees or agents has provided Seller with
any
material, nonpublic information. Buyer is not required to file and will not
be
required to file any agreement, note, lease, mortgage, deed or other instrument
entered into prior to the date hereof and to which Buyer or any Subsidiary
is a
party or by which Buyer or any Subsidiary is bound that has not been previously
filed as an exhibit (including by way of incorporation by reference) to its
reports filed or made with the SEC under the Exchange Act. The auditing firm,
which has expressed its opinion with respect to the consolidated financial
statements included in Buyer’s annual report on Form 10-KSB for the last
completed fiscal year (the “Audit
Opinion”),
is
independent of Buyer pursuant to the standards set forth in Rule 2-01 of
Regulation S-X promulgated by the SEC, and such firm was otherwise qualified
to
render the Audit Opinion under applicable law and the rules and regulation
of
the SEC. There is no transaction, arrangement or other relationship between
Buyer and an unconsolidated or other off-balance-sheet entity that is required
to be disclosed by Buyer in its reports pursuant to the Exchange Act that has
not been so disclosed in the SEC Documents.
18
4.8 Absence
of Certain Changes.
Since
the filing of Buyer’s most recent Quarterly Report on Form 10-Q, and other than
as disclosed in the SEC Documents, (a) there has occurred no event or
development which, individually or in the aggregate, has had, or could
reasonably be expected to have in the future, a Buyer Material Adverse Effect
and (b) Buyer has conducted its business in the ordinary course consistent
with
past practices.
4.9 Brokers’
Fees.
Buyer
has no liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement.
5. PRE-CLOSING
COVENANTS
5.1 Closing
Efforts.
Each of
the Parties shall use its Reasonable Best Efforts to take all actions and to
do
all things necessary, proper or advisable to consummate the transactions
contemplated by this Agreement, including using its Reasonable Best Efforts
to
ensure that (i) its representations and warranties remain true and correct
in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Party to
consummate the transactions contemplated by this Agreement are
satisfied.
5.2 Governmental
and Third-Party Notices and Consents.
(a) Each
Party shall use its Reasonable Best Efforts to obtain, at its expense, all
waivers, permits, consents, approvals or other authorizations from Governmental
Entities, and to effect all registrations, filings and notices with or to
Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise
comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, each of the Parties shall promptly
file any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division
of
the United States Department of Justice under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, shall
use its Reasonable Best Efforts to obtain an early termination of the applicable
waiting period, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable; provided, however,
that notwithstanding anything to the contrary in this Agreement, the Buyer
shall
not be obligated (A) to respond to formal requests for additional
information or documentary material pursuant to 16 C.F.R. 803.20 under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act except to the extent it elects to do so in its sole
discretion or (B) to sell or dispose of or hold separately (through a trust
or otherwise) any assets or businesses of the Buyer or its
Affiliates.
19
(b) The
Seller shall use its Reasonable Best Efforts to obtain, at its expense, all
such
waivers, consents or approvals from third parties, and to give all such notices
to third parties, as are required to be listed in the Disclosure
Schedule.
(c) If
(i) any of the Assigned Contracts or other assets or rights constituting
Acquired Assets may not be assigned and transferred by the Seller to the Buyer
(as a result of either the provisions thereof or applicable law) without the
consent or approval of a third party, (ii) the Seller, after using its
Reasonable Best Efforts, is unable to obtain such consent or approval prior
to
the Closing and (iii) the Closing occurs nevertheless, then (A) such
Assigned Contracts and/or other assets or rights shall not be assigned and
transferred by the Seller to the Buyer at the Closing and the Buyer shall not
assume the Seller’s liabilities or obligations with respect thereto at the
Closing, (B) the Seller shall continue to use its Reasonable Best Efforts to
obtain the necessary consent or approval as soon as practicable after the
Closing, and (C) upon the obtaining of such consent or approval, the Buyer
and
the Seller shall execute such further instruments of conveyance (in
substantially the form executed at the Closing) as may be necessary to assign
and transfer such Assigned Contracts and/or other assets or rights (and the
associated liabilities and obligations of the Seller) to the Buyer.
5.3 Member
Approval.
(a) The
Members shall use their Reasonable Best Efforts to obtain, as promptly as
practicable, the Requisite Member Approval.
5.4 Operation
of Business.
Except
as contemplated by this Agreement, during the period from the date of this
Agreement to the Closing, the Seller shall (and shall cause
each Subsidiary to) conduct its operations in the Ordinary Course of Business
and in compliance
with all applicable laws and regulations and, to the extent consistent
therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it. Without limiting
the generality of the foregoing,
prior to the Closing, the Seller shall not (and shall cause each Subsidiary
not
to), without the written consent of the Buyer which consent shall not be
unreasonably withheld:
20
(a) issue
or
sell any stock or other securities of the Company or any Subsidiary or any
options, warrants or other rights to acquire any such stock or other securities
(except pursuant to the conversion or exercise of options, warrants or other
convertible securities outstanding on the date hereof);
(b) declare,
set aside or pay any dividend or other distribution (whether in cash, stock
or
property or any combination thereof) in respect of its capital
stock;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to,
or
investments in, any other person or entity;
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement of the type described in Section 2.21(k) or
(except for normal increases in the Ordinary Course of Business for employees
who are not Affiliates) increase in any manner the compensation or fringe
benefits of, or materially modify the employment terms of, its directors,
officers or employees, generally or individually, or pay any bonus or other
benefit to its directors, officers or employees (except for existing payment
obligations listed in Section 2.21 of the Disclosure Schedule) or hire any
new officers or (except in the Ordinary Course of Business) any new
employees;
(e) acquire,
sell, lease, license or dispose of any assets or property (including any shares
or other equity interests in or securities of any Subsidiary or any corporation,
partnership, association or other business organization or division thereof),
other than purchases and sales of assets in the Ordinary Course of
Business;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its
certificate of formation, operating agreement or other organizational documents
in a manner that could have an adverse effect on the transactions contemplated
by this Agreement;
(i) change
its accounting methods, principles or practices, except insofar as may be
required by a generally applicable change in GAAP, or make any new elections,
or
changes to any current elections, with respect to Taxes that affect the
Seller;
(j) enter
into, amend, terminate, take or omit to take any action that would constitute
a
violation of or default under, or waive any rights under, any contract or
agreement of a nature required to be listed in Section 2.11, Section 2.12 or
Section 2.14 of the Disclosure Schedule;
21
(k) make
or
commit to make any capital expenditure in excess of $10,000 per item or $50,000
in the aggregate;
(l) institute
or settle any Legal Proceeding;
(m) take
any
action or fail to take any action permitted by this Agreement with the knowledge
that such action or failure to take action would result in (i) any of the
representations and warranties of the Seller set forth in this Agreement
becoming untrue or (ii) any of the conditions to the Closing set forth in
Article 6 not being satisfied; or
(n) agree
in
writing or otherwise to take any of the foregoing actions.
5.5 Access
to Information.
(a) The
Seller shall (and shall cause each Subsidiary to) permit representatives of
the
Buyer to have full access (at all reasonable times, and in a manner so as not
to
interfere with the normal business operations of the Seller and the
Subsidiaries) to all premises, properties, financial, tax and accounting records
(including the work papers of the Seller's independent accountants), contracts,
other records and documents, and personnel, of or pertaining to the Seller
and
each Subsidiary for the purpose of performing such inspections and tests as
the
Buyer deems necessary or appropriate.
(b) Within
15
days after the end of each month ending prior to the Closing, beginning with
December 2006, the Seller shall furnish to the Buyer an unaudited income
statement for such month and a balance sheet as of the end of such month,
prepared on a basis consistent with the Financial Statements. Such financial
statements shall present fairly the financial condition and results of
operations of the Seller and the Subsidiaries on a consolidated basis as of
the
dates thereof and for the periods covered thereby, and shall be consistent
with
the books and records of the Seller and the Subsidiaries.
(c)
The
Buyer (i) shall treat and hold as confidential any Confidential
Information, (ii) shall not use any of the Confidential Information except
in connection with this Agreement, and (iii) if this Agreement is
terminated for any reason whatsoever, shall return to the Seller all tangible
embodiments (and all copies) thereof which are in its possession.
5.6 Notice
of Breaches.
(a) From
the
date of this Agreement until the Closing, the Seller shall promptly deliver
to
the Buyer supplemental information concerning events or circumstances occurring
subsequent to the date hereof which would render any representation, warranty
or
statement in this Agreement or the Disclosure Schedule inaccurate or incomplete
in any material respect at any time after the date of this Agreement until
the
Closing. No such supplemental information shall be deemed to avoid or cure
any
misrepresentation or breach of warranty or constitute an amendment of any
representation, warranty or statement in this Agreement or the Disclosure
Schedule.
22
(b) From
the
date of this Agreement until the Closing, the Buyer shall promptly deliver
to
the Seller supplemental information concerning events or circumstances occurring
subsequent to the date hereof which would render any representation, warranty
or
statement in this Agreement inaccurate or incomplete in any material respect
at
any time after the date of this Agreement until the Closing. No such
supplemental information shall be deemed to avoid or cure any misrepresentation
or breach of warranty or constitute an amendment of any representation, warranty
or statement in this Agreement.
5.7 Exclusivity.
(a) The
Seller shall not, and the Seller shall require each of its officers, directors,
employees, representatives and agents not to, directly or indirectly,
(i) initiate, solicit, encourage or otherwise facilitate any inquiry,
proposal, offer or discussion with any party (other than the Buyer) concerning
any merger, reorganization, consolidation, recapitalization, business
combination, liquidation, dissolution, share exchange, sale of stock, sale
of
material assets or similar business transaction involving the Seller, any
Subsidiary or any division of the Seller, (ii) furnish any non-public
information concerning the business, properties or assets of the Seller, any
Subsidiary or any division of the Seller to any party (other than the Buyer)
or
(iii) engage in discussions or negotiations with any party (other than the
Buyer) concerning any such transaction.
(b) The
Seller shall immediately notify any
party
with which discussions or negotiations of the nature described in paragraph (a)
above were pending that the Seller is terminating such discussions or
negotiations. If the Seller receives any inquiry, proposal or offer of the
nature described in paragraph (a) above, the Seller shall, within one
business day after such receipt, notify the Buyer of such inquiry, proposal
or
offer, including the identity of the other party and the terms of such inquiry,
proposal or offer.
6. CONDITIONS
TO CLOSING
6.1 Conditions
to Obligations of each Party.
The
respective obligations of each Party to consummate the transactions contemplated
by this Agreement to be consummated at the Closing are subject to the
satisfaction of the following condition:
(a) the
sale
of all outstanding Membership Interests of the Seller to the Buyer as
contemplated by this Agreement shall have received the Requisite Member
Approval.
6.2 Conditions
to Obligations of the Buyer.
The
obligation of the Buyer to consummate the transactions contemplated by this
Agreement to be consummated at the Closing is subject to the satisfaction of
the
following additional conditions:
(a) the
Seller and the Subsidiaries shall have obtained at their own expense (and shall
have provided copies thereof to the Buyer) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 5.2 which are
required on the part of the Seller or the Subsidiaries;
23
(b) the
representations and warranties of the Seller set forth in the first sentence
of
Section 2.1 and in Section 2.2 and any representations and warranties of
the Seller set forth in this Agreement that are qualified as to materiality
shall be true and correct in all respects, and all other representations and
warranties of the Seller set forth in this Agreement shall be true and correct
in all material respects, in each case as of the date of this Agreement and
as
of the Closing as though made as of the Closing, except to the extent such
representations and warranties are specifically made as of a particular date
(in
which case such representations and warranties shall be true and correct as
of
such date);
(c) the
Seller shall have performed or complied with in all material respects its
agreements and covenants required to be performed or complied with under this
Agreement as of or prior to the Closing;
(d) no
Legal
Proceeding shall be pending or threatened wherein an unfavorable judgment,
order, decree, stipulation or injunction would (i) prevent consummation of
the transactions contemplated by this Agreement, (ii) cause the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) affect adversely the right of the Buyer to own,
operate or control any of the Acquired Assets, or to conduct the business of
the
Seller and the Subsidiaries as currently conducted, following the Closing,
and
no such judgment, order, decree, stipulation or injunction shall be in
effect;
(e) the
Seller shall have delivered to the Buyer the Seller Certificate;
(f) the
Seller shall have delivered to the Buyer documents evidencing the release or
termination of all Security Interests on the Acquired Assets, and copies of
filed UCC termination statements with respect to all UCC financing statements
evidencing Security Interests;
(g) the
Buyer
shall have received from counsel to the Seller an opinion in substantially
the
form attached hereto as Exhibit A,
addressed to the Buyer and dated as of the Closing Date;
(h) the
Buyer
shall have received such other certificates and instruments (including
certificates of good standing of the Seller and the Subsidiaries in their
jurisdiction of organization and the various foreign jurisdictions in which
they
are qualified, certified charter documents, certificates as to the incumbency
of
officers and the adoption of authorizing resolutions) as it shall reasonably
request in connection with the Closing;
(i) the
Buyer
in its sole discretion, shall be satisfied with the results of its business,
legal and financial due diligence review of the Seller;
(j) the
Buyer
shall have received a fully executed employment agreements from ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
& Cem ▇▇▇▇ and consulting agreements from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ &Mark ▇▇▇▇▇;
and
24
(k) the
Buyer
shall have received a fully executed Confidentiality, Invention Assignment
and
Noncompetition Agreement, from each officer, employee and consultant of the
Seller as of the Closing Date.
6.3 Conditions
to Obligations of the Seller.
The
obligation of the Seller to consummate the transactions contemplated by this
Agreement to be consummated at the Closing is subject to the satisfaction of
the
following additional conditions:
(a) the
representations and warranties of the Buyer set forth in the first sentence
of
Section 4.1 and in Section 4.2 and any representations and warranties of
the Buyer set forth in this Agreement that are qualified as to materiality
shall
be true and correct in all respects, and all other representations and
warranties of the Buyer set forth in this Agreement shall be true and correct
in
all material respects, in each case as of the date of this Agreement and as
of
the Closing as though made as of the Closing, except to the extent such
representations and warranties are specifically made as of a particular date
(in
which case such representations and warranties shall be true and correct as
of
such date);
(b) the
Buyer
shall have performed or complied with in all material respects its agreements
and covenants required to be performed or complied with under this Agreement
as
of or prior to the Closing;
(c) no
Legal
Proceeding shall be pending or threatened wherein an unfavorable judgment,
order, decree, stipulation or injunction would (i) prevent consummation of
the transactions contemplated by this Agreement or (ii) cause the
transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(d) the
Buyer
shall have delivered to the Seller the Buyer Certificate;
(e) the
Seller shall have received from counsel to the Buyer an opinion in substantially
the form attached hereto as Exhibit B,
addressed to the Seller and dated as of the Closing Date;
(f) the
Seller shall have received such other certificates and instruments (including
certificates of good standing of the Buyer in its jurisdiction of organization,
certificates as to the incumbency of officers and the adoption of authorizing
resolutions) as it shall reasonably request in connection with the
Closing;
(g) ▇▇▇▇
▇.
▇▇▇▇▇▇▇ & Cem Esin shall each have received a fully executed employment
agreement from the Buyer, and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇ ▇▇▇▇▇ shall each have
received a fully executed consulting agreements from the Buyer.
7. POST-CLOSING
COVENANTS
7.1 Proprietary
Information.
From
and after the Closing, the Members shall not disclose or make use of (except
to
pursue its rights, under this Agreement or the Ancillary Agreements), and shall
use its best efforts to cause all of its Affiliates not to disclose
or make
use
of, any knowledge, information or documents of a confidential nature or not
generally known to the public
with respect to Acquired Assets, the Seller’s business or the Buyer or its
business (including the financial information, technical information or data
relating to the Seller’s products and names of customers of the Seller), as well
as filings and testimony (if any) presented in the course of any arbitration
of
a Dispute pursuant to Section 8.3 and the arbitral award and the Arbitrator’s
reasons therefor relating to the same), except to the extent that such
knowledge, information or documents shall have become public knowledge other
than through improper disclosure by the Members or an Affiliate.
The
Seller shall enforce, for the benefit of the Buyer, all confidentiality,
invention assignments and similar agreements between the Seller and any other
party relating to the Acquired Assets or the business of the Seller which are
not Assigned Contracts.
25
7.2 Solicitation
and Hiring.
For a
period of 3 years after the Closing Date, the Members shall not, either directly
or indirectly (including through an Affiliate), (a) solicit or attempt to induce
any Restricted Employee to terminate his employment with the Buyer or any
Subsidiary of the Buyer or (b) hire or attempt to hire any Restricted Employee;
provided,
that
this clause (b) shall not apply to any individual whose employment with the
Buyer or a Subsidiary of the Buyer has been terminated for a period of six
months or longer.
The
Seller shall enforce, for the benefit of the Buyer, all confidentiality,
non-solicitation and non-hiring assignments and similar agreements between
the
Seller and any other party which are not Assigned Contracts.
7.3 Non-Competition.
(a) For
a
period of 3 years after the Closing Date, the Members shall not, either directly
or indirectly as a stockholder, investor, partner, consultant or otherwise,
(i) design, develop, manufacture, market, sell or license any product or
provide any service anywhere in the world which is competitive with any product
designed, developed (or under development), manufactured, sold or licensed
or
any service provided by the Seller within the three-year period prior to the
Closing Date or (ii) engage anywhere in the world in any business
competitive with the business of the Seller as conducted as of the Closing
Date
or during the three-year period prior to the Closing Date. The Seller shall
enforce, for the benefit of the Buyer, all non-competition and similar
agreements between the Seller and any other party which are not Assigned
Contracts.
(b) The
Members agrees that the duration and geographic scope of the non-competition
provision set forth in this Section 7.3 are reasonable. In the event that
any court determines that the duration or the geographic scope, or both, are
unreasonable and that such provision is to that extent unenforceable, the
Parties agree that the provision shall remain in full force and effect for
the
greatest time period and in the greatest area that would not render it
unenforceable. The Parties intend that this non-competition provision shall
be
deemed to be a series of separate covenants, one for each and every county
of
each and every state of the United States of America and each and every
political subdivision of each and every country outside the United States of
America where this provision is intended to be effective.
26
(c) The
Members shall, and shall use its best efforts to cause their Affiliates to,
refer all inquiries regarding the business, products and services of the Seller
to the Buyer.
7.4 Tax
Matters.
(a) Any
agreement between the Seller and any of the Subsidiaries regarding allocation
or
payment of Taxes or amounts in lieu of Taxes will be terminated at and as of
the
Closing.
(b) All
transfer taxes, deed excise stamps and similar charges related to the sale
of
the Acquired Assets contemplated by this Agreement shall be paid by the
Seller.
7.5 Sharing
of Data.
(a) The
Seller shall have the right for a period of seven years following the Closing
Date to have reasonable access to such books, records and accounts, including
financial and tax information, correspondence, production records, employment
records and other records that are transferred to the Buyer pursuant to the
terms of this Agreement for the limited purposes of concluding its involvement
in the business conducted by the Seller prior to the Closing Date and for
complying with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations. The Buyer shall have the right for
a
period of seven years following the Closing Date to have reasonable access
to
those books, records and accounts, including financial and accounting records
(including the work papers of the Seller's independent accountants), tax
records, correspondence, production records, employment records and other
records that are retained by the Seller pursuant to the terms of this Agreement
to the extent that any of the foregoing is needed by the Buyer for the purpose
of conducting the business of the Seller after the Closing and complying with
its obligations under applicable securities, tax, environmental, employment
or
other laws and regulations. Neither the Buyer nor the Seller shall destroy
any
such books, records or accounts retained by it without first providing the
other
Party with the opportunity to obtain or copy such books, records, or accounts
at
such other Party's expense.
(b) Promptly
upon request by the Buyer made at any time following the Closing Date, the
Seller shall authorize the release to the Buyer of all files pertaining to
the
Seller, the Acquired Assets or the business or operations of the Seller or
the
Subsidiaries held by any federal, state, county or local authorities, agencies
or instrumentalities.
7.6 Use
of
Name.
The
Seller shall not use, and shall not permit any Affiliate to use, the name “PRO
SAT” or any name reasonably similar thereto after the Closing Date in connection
with any business related to, competitive with, or an outgrowth of, the business
conducted by the Seller on the date of this Agreement. Within 10 days following
the Closing, the Seller shall amend its Certificate of Formation and other
corporate records, if necessary, to comply with this provision.
7.7 Cooperation
in Litigation.
From
and after the Closing Date, each Party shall fully cooperate with the other
in
the defense or prosecution of any litigation or proceeding already instituted
or which may be instituted hereafter against or by such other Party relating
to
or arising out of the conduct of the business of the Seller or the Buyer prior
to or after the Closing Date (other
than litigation among the Parties and/or their Affiliates arising out the
transactions contemplated by this Agreement). The Party requesting such
cooperation shall pay the reasonable out-of-pocket expenses incurred in
providing such cooperation (including legal fees and disbursements) by the
Party
providing such cooperation
and by its officers, directors, employees
and agents, but shall not be responsible for reimbursing such Party or its
officers, directors, employees and agents, for their time spent in such
cooperation.
27
7.8 Collection
of Accounts Receivable.
The
Seller agrees that it shall forward promptly to the Buyer any monies, checks
or
instruments received by the Seller after the Closing Date with respect to the
accounts receivable purchased by the Buyer from the Seller pursuant to this
Agreement. The Seller shall provide to the Buyer such reasonable assistance
as
the Buyer may request with respect to the collection of any such accounts
receivable, provided the Buyer pays the reasonable out-of-pocket expenses of
the
Seller and its officers, directors and employees incurred in providing such
assistance.
The
Seller hereby grants to the Buyer a power of attorney to endorse and cash any
checks or instruments payable or endorsed to the Seller or its order which
are
received by the Buyer and which relate to accounts receivable purchased by
the
Buyer from the Seller.
7.9 Employees
and Consultants.
Effective as of the Closing, the Seller shall terminate the employment/services
of each of its employees/consultants listed in Section 2.20 of the Disclosure
Schedule. The Buyer shall offer employment to each such employee and a
consulting agreement with each such consultant, each terminable at the will
of
the Buyer. The Seller hereby consents to the hiring of any such
employees/consultants by the Buyer and waives, with respect to the employment/engagement
by the Buyer of such employees/consultants, any claims or rights the Seller
may
have against the Buyer or any such employee/consultant under any
non-competition, confidentiality, employment or consulting
agreement.
7.10 Maintenance
of Corporate Existence.
The
Seller shall maintain its corporate existence for a period of two years
following the Closing Date.
7.11 Managing
Members of Seller.
At
Closing the Managing Members of the Seller will include three (3) members
designated by Seller and four (4) members designated by Buyer.
7.12 Recovery
of Legal Awards.
The
Buyer covenants and agrees to distribute ratably to the Members fifty percent
(50%) of any amount recovered from a third party in connection with a Legal
Proceeding less all costs, fees and expenses associated with such Legal
Proceeding, including without limitation, amounts paid in settlement, interest,
court costs, costs of investigators, fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation.
8. INDEMNIFICATION
8.1 Indemnification
by the Members.
The
Members shall jointly and severally indemnify the Buyer in respect of, and
hold
the Buyer harmless against, Damages incurred or suffered by the Buyer or any
Affiliate thereof resulting from, relating to or constituting:
28
(a) any
breach, as of the date of this Agreement or as of the Closing Date, of any
representation or warranty of the Seller or the Members contained in this
Agreement, any Ancillary Agreement or any other agreement or instrument
furnished by the Seller or the Members to the Buyer pursuant to this
Agreement;
(b) any
failure to perform any covenant or agreement of the Seller or the Members
contained in this Agreement, any Ancillary Agreement or any agreement or
instrument furnished by the Seller to the Buyer pursuant to this Agreement;
or
(c) any
Retained Liabilities.
8.2 Indemnification
by the Buyer.
The
Buyer shall indemnify the Seller and its members in respect of, and hold them
harmless against, any and all Damages incurred or suffered by the Seller
resulting from, relating to or constituting:
(a) any
breach, as of the date of this Agreement or as of the Closing Date, of any
representation or warranty of the Buyer contained in this Agreement, any
Ancillary Agreement or any other agreement or instrument furnished
by the Buyer to the Seller pursuant to this Agreement;
(b) any
failure to perform any covenant or agreement of the Buyer contained in this
Agreement, any Ancillary Agreement or any other agreement or instrument
furnished by the Buyer to the Seller pursuant to this Agreement; or
(c) any
Assumed Liabilities.
8.3 Indemnification
Claims.
(a) An
Indemnified Party shall give written notification to the Indemnifying Party
of
the commencement of any Third Party Action. Such notification shall be given
within 20 days after receipt by the Indemnified Party of notice of such Third
Party Action, and shall describe in reasonable detail (to the extent known
by
the Indemnified Party) the facts constituting the basis for such Third Party
Action and the amount of the claimed damages; provided, however, that no delay
or failure on the part of the Indemnified Party in so notifying the Indemnifying
Party shall relieve the Indemnifying Party of any liability or obligation
hereunder except to the extent of any damage or liability caused by or arising
out of such failure. Within 20 days after delivery of such notification, the
Indemnifying Party may, upon written notice thereof to the Indemnified Party,
assume control of the defense of such Third Party Action with counsel reasonably
satisfactory to the Indemnified Party; provided that (i) the Indemnifying
Party may only assume control of such defense if (A) it acknowledges in
writing to the Indemnified Party that any damages, fines, costs or other
liabilities that may be assessed against the Indemnified Party in connection
with such Third Party Action constitute Damages for which the Indemnified Party
shall be indemnified pursuant to this Article 8 and (B) the
ad
damnum
is less
than or equal to the amount of Damages for which the Indemnifying Party is
liable under this Article 8 and (ii) the Indemnifying Party may not
assume control of the defense of Third Party Action involving criminal liability
or in which equitable relief is sought against the Indemnified Party. If the
Indemnifying Party does not, or is not permitted under the terms hereof to,
so
assume control of the defense of a Third Party Action, the Indemnified Party
shall control such defense. The Non-controlling Party may participate in such
defense at its own expense. The Controlling Party shall keep the Non-controlling
Party advised of the status of such Third Party Action and the defense thereof
and shall consider in good faith recommendations made by the Non-controlling
Party with respect thereto. The Non-controlling Party shall furnish the
Controlling Party with such information as it may have with respect to such
Third Party Action (including copies of any summons, complaint or other pleading
which may have been served on such party and any written claim, demand, invoice,
billing or other document evidencing or asserting the same) and shall otherwise
cooperate with and assist the Controlling Party in the defense of such Third
Party Action. The fees and expenses of counsel to the Indemnified Party with
respect to a Third Party Action shall be considered Damages for purposes of
this
Agreement if (i) the Indemnified Party controls the defense of such Third Party
Action pursuant to the terms of this Section 8.3(a) or (ii) the Indemnifying
Party assumes control of such defense and the Indemnified Party reasonably
concludes that the Indemnifying Party and the Indemnified Party have conflicting
interests or different defenses available with respect to such Third Party
Action. The Indemnifying Party shall not agree to any settlement of, or the
entry of any judgment arising from, any Third Party Action without the prior
written consent of the Indemnified Party, which shall not be unreasonably
withheld, conditioned or delayed; provided that the consent of the Indemnified
Party shall not be required if the Indemnifying Party agrees in writing to
pay
any amounts payable pursuant to such settlement or judgment and such settlement
or judgment includes a complete release of the Indemnified Party from further
liability and has no other adverse effect on the Indemnified Party. The
Indemnified Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such Third Party Action without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
conditioned or delayed.
29
(b) In
order
to seek indemnification under this Article 8, an Indemnified Party shall deliver
a Claim Notice to the Indemnifying Party. If the Indemnified Party is the Buyer
and is seeking to enforce such claim pursuant to the Escrow Agreement, the
Indemnifying Party shall deliver
a copy
of the Claim Notice to the Escrow Agent.
(c) Within
20
days after delivery of a Claim Notice, the Indemnifying Party shall deliver
to
the Indemnified Party a Response, in which the Indemnifying Party shall:
(i) agree that the Indemnified Party is entitled to receive all of the
Claimed Amount (in which case the Response shall be accompanied by a payment
by
the Indemnifying Party to the Indemnified Party of the Claimed Amount, by check
or by wire transfer; provided that if the Indemnified Party is the Buyer and
is
seeking to enforce such claim pursuant to the Escrow Agreement, the Indemnifying
Party and the Indemnified Party shall deliver to the Escrow Agent, within three
days following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to disburse the Claimed Amount to the
Buyer), (ii) agree that the Indemnified Party is entitled to receive the
Agreed Amount (in which case the Response shall be accompanied by a payment
by
the Indemnifying Party to the Indemnified Party of the Agreed Amount, by check
or by wire transfer; provided that if the Indemnified Party is the Buyer and
is
seeking to enforce such claim pursuant to the Escrow Agreement, the Indemnifying
Party and the Indemnified Party shall deliver to the Escrow Agent, within three
days following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to disburse the Claimed Amount to the
Buyer), or (iii) dispute that the Indemnified Party is entitled to receive
any of the Claimed Amount. The Buyer shall be compensated for its Damages
pursuant to this Agreement in accordance with Section 8.5 hereof.
30
(d) During
the 30-day period following the delivery of a Response that reflects a Dispute,
the Indemnifying Party and the Indemnified Party shall use good faith efforts
to
resolve the Dispute. If the Dispute is not resolved within such 30-day period,
the Indemnifying Party and the Indemnified Party shall discuss in good faith
the
submission of the Dispute to binding arbitration, and if the Indemnifying Party
and the Indemnified Party agree in writing to submit the Dispute to such
arbitration, then the provisions of Section 8.3(e) shall become effective with
respect to such Dispute. The provisions of this Section 8.3(d) shall not
obligate the Indemnifying Party and the Indemnified Party to submit to
arbitration or any other alternative dispute resolution procedure with respect
to any Dispute, and in the absence of an agreement by the Indemnifying Party
and
the Indemnified Party to arbitrate any Dispute, such Dispute shall be resolved
in a state or federal court sitting in the State of California, in accordance
with Section 11.12. If the Indemnified Party is the Buyer and is seeking to
enforce the claim that is the subject of the Dispute pursuant to the Escrow
Agreement, the Indemnifying Party and the Indemnified Party shall deliver to
the
Escrow Agent, promptly following the resolution of the Dispute (whether by
mutual agreement, arbitration, judicial decision or otherwise), a written notice
executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Indemnification Shares shall be disbursed to the Buyer and/or
the
Members (which notice shall be consistent with the terms of the resolution
of
the Dispute).
(e) If,
as
set forth in Section 8.3(d), the Indemnified Party and the Indemnifying Party
agree to submit any Dispute to binding arbitration, the arbitration shall be
conducted by a single arbitrator (the “Arbitrator”)
in
accordance with the Commercial Rules in effect from time to time and the
following provisions.
(i) In
the
event of any conflict between the Commercial Rules in effect from time to time
and the provisions of this Agreement, the provisions of this Agreement shall
prevail and be controlling.
(ii) The
parties shall commence the arbitration by jointly filing a written submission
with the California office of the AAA in accordance with Commercial Rule 5
(or
any successor provision).
(iii) No
depositions or other discovery shall be conducted in connection with the
arbitration.
(iv) Not
later
than 30 days after the conclusion of the arbitration hearing, the Arbitrator
shall prepare and distribute to the parties a writing setting forth the arbitral
award and the Arbitrator’s reasons therefor. Any award rendered by the
Arbitrator shall be final, conclusive and binding upon the parties, and judgment
thereon may be entered and enforced in any court of competent jurisdiction
(subject to Section 11.12), provided that the Arbitrator shall have no power
or
authority to grant injunctive relief, specific performance or other equitable
relief.
31
(v) The
Arbitrator shall have no power or authority, under the Commercial Rules or
otherwise, to (x) modify or disregard any provision of this Agreement,
including the provisions of this Section 8.3(e), or (y) address or resolve
any issue not submitted by the parties.
(vi) In
connection with any arbitration proceeding pursuant to this Agreement, each
party shall bear its own costs and expenses, except that the fees and costs
of
the AAA and the Arbitrator, the costs and expenses of obtaining the facility
where the arbitration hearing is held, and such other costs and expenses as
the
Arbitrator may determine to be directly related to the conduct of the
arbitration and appropriately borne jointly by the parties (which shall not
include any party’s attorneys’ fees or costs, witness fees (if any), costs of
investigation and similar expenses) shall be shared equally by the Indemnified
Party and the Indemnifying Party.
(f) Notwithstanding
the other provisions of this Section 8.3, if a third party asserts (other than
by means of a lawsuit) that an Indemnified Party is liable to such third party
for a monetary or other obligation which may constitute or result in Damages
for
which such Indemnified Party may be entitled to indemnification pursuant to
this
Article 8, and such Indemnified Party reasonably determines that it has a
valid business reason to fulfill such obligation, then (i) such Indemnified
Party shall be entitled to satisfy such obligation, without prior notice to
or
consent from the Indemnifying Party, (ii) such Indemnified Party may
subsequently make a claim for indemnification in accordance with the provisions
of this Article 8, and (iii) such Indemnified Party shall be
reimbursed, in accordance with the provisions of this Article 8, for any
such Damages for which it is entitled to indemnification pursuant to this
Article 8 (subject to the right of the Indemnifying Party to dispute the
Indemnified Party’s entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this
Article 8).
8.4 Survival
of Representations and Warranties.
All
representations and warranties that are covered by the indemnification
agreements in Section 8.1(a) and Section 8.2(a) shall (a) survive the
Closing and (b) shall expire on the date twelve months following the
Closing Date. If an Indemnified Party delivers to an Indemnifying Party, before
expiration of a representation or warranty, either a Claim Notice based upon
a
breach of such representation or warranty, or an
Expected Claim Notice based upon a breach of such representation or warranty,
then the applicable representation or warranty shall survive until, but only
for purposes
of, the resolution of the matter covered by such notice. If the legal proceeding
or written claim with respect to which
an
Expected Claim Notice has been given is definitively withdrawn or resolved
in
favor of the Indemnified Party, the Indemnified Party shall promptly so notify
the Indemnifying Party;
and if
the Indemnified Party has delivered a copy of the Claim Notice to the Escrow
Agent and Indemnification Shares have been retained in escrow, the Indemnifying
Party and the Indemnified Party shall promptly deliver to the Escrow Agent
a
written notice executed by both parties instructing the Escrow Agent to disburse
such retained Indemnification Shares to the Members in accordance with the
terms
of the Escrow Agreement. The rights to indemnification set forth in this Article
8 shall not be affected by (i) any investigation conducted by or on behalf
of an
Indemnified Party or any knowledge acquired (or capable of being acquired)
by an
Indemnified Party, whether before or after the date of this Agreement or the
Closing Date (including through supplements to the Disclosure Schedule permitted
by Section 5.6, except to the extent specifically provided in Section 5.6),
with
respect to the inaccuracy or noncompliance with any representation, warranty,
covenant or obligation which is the subject of indemnification hereunder or
(ii)
any waiver by an Indemnified Party of any closing condition relating to the
accuracy of any representations and warranties or the performance of or
compliance with agreements and covenants.
32
8.5 Limitations.
(a) (i) any
liability of the Members for Damages under this Article 8 shall be satisfied
solely from the Indemnification Shares, for which purpose such shares shall
be
valued at the greater of (A) the original issue price thereof, and (B) the
Average Closing Price thereof on the date on which such shares are released
from
the Indemnification Escrow, and (ii) the Members shall not be liable under
this
Agreement unless and until the aggregate Damages for which it would otherwise
be
liable under this Agreement exceed $50,000 (at which point the Seller shall
become liable for the aggregate Damages under this Agreement, and not just
amounts in excess of $50,000.
(b) (i) the
aggregate liability of the Buyer for Damages under this Article 8 shall not
exceed the value of the Indemnification Shares, and (ii) the Buyer shall
not be liable under this Agreement unless and until the aggregate Damages for
which it would otherwise be liable under this Agreement exceed $50,000 (at
which
point the Buyer shall become liable for the aggregate Damages under this
Agreement and not just amounts in excess of $50,000).
(c) The
limitations set forth in Sections 8.5(a) and 8.5(b) shall not apply to
(i) the representations and warranties set forth in Sections 2.8 (Tax
Matters), 2.18 (Litigation), 2.21 (Employee Benefits), 2.28 (Capital Structure),
4.3 (Capital Structure) and 8.1(c), or (ii) claims based on fraud or intentional
misrepresentation, with respect to which, in each case, (A) all Damages shall
be
recoverable from the first dollar and shall be counted in determining whether
the thresholds in Sections 8.5(a) and 8.5(b) have been exceeded, (B) no Damages
shall be counted in determining whether the cap in Sections 8.5(a) and 8.5(b)
has been exceeded, and (C) the indemnification obligations shall not be limited
in amount. The indemnification obligations of the parties hereto and the rights
and remedies that may be exercised by an Indemnified Party shall not be limited
or otherwise affected by or as a result of any information furnished to, or
any
investigation made by or knowledge of any of the Indemnified Parties or any
of
their Except
with respect to claims based on fraud, after the Closing, the rights of the
Indemnified Parties under this Article 8 shall be the exclusive remedy of
the Indemnified Parties with respect to claims resulting from or relating to
any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement.
8.6 Treatment
of Indemnity Payments.
Any
payments made to an Indemnified Party pursuant to this Article 8, or
pursuant to the Escrow Agreement, shall be treated as an adjustment to the
Purchase Price for tax purposes.
33
9. TERMINATION
9.1 Termination
of Agreement.
The
Parties may terminate this Agreement prior to the Closing (whether before or
after Requisite Member Approval), as provided below:
(a) the
Parties may terminate this Agreement by mutual written consent;
(b) the
Buyer
may terminate this Agreement by giving written notice to the Seller in the
event
the Seller is in breach of any representation, warranty or covenant contained
in
this Agreement, and such breach (i) individually or in combination with any
other such breach, would cause the conditions set forth in clauses (b) or (c)
of
Section 5.2 not to be satisfied and (ii) is not cured within 20 days following
delivery by the Buyer to the Seller of written notice of such
breach;
(c) the
Seller may terminate this Agreement by giving written notice to the Buyer in
the
event the Buyer is in breach of any representation, warranty or covenant
contained in this Agreement, and such breach (i) individually or in
combination with any other such breach, would cause the conditions set forth
in
clauses (a) or (b) of Section 5.3 not to be satisfied and (ii) is not cured
within 20 days following delivery by the Seller to the Buyer of written notice
of such breach;
(d) either
Party may terminate this Agreement by giving written notice to the other Party
at any time after the members of the Seller have voted on whether to approve
the
sale of the Acquired Assets contemplated by this Agreement in the event such
matter failed to receive the Requisite Member Approval; or
(e) the
Buyer
may terminate this Agreement by giving written notice to the Seller if the
Closing shall not have occurred on or before February 28, 2007 by reason of
the
failure of any condition precedent under Section 5.1 or 5.2 (unless the
failure results primarily from a breach by the Buyer of any representation,
warranty or covenant contained in this Agreement).
9.2 Effect
of Termination.
If
either Party terminates this Agreement pursuant to Section 9.1, all
obligations of the Parties hereunder shall terminate without any liability
of
either Party to the other Party (except for any liability of a Party for willful
breaches of this Agreement).
10. DEFINITIONS
For
purposes of this Agreement, each of the following terms shall have the meaning
set forth below.
“AAA”
shall
mean the American Arbitration Association.
“Acquired
Assets”
shall
mean all of the assets, properties and rights of the Seller existing as of
the
Closing, including:
34
(a) all
cash,
short-term investments, deposits, bank accounts and other similar
assets;
(b) all
trade
and other accounts receivable and notes and loans receivable that are payable
to
the Seller, and all rights to unbilled amounts for products delivered or
services provided, together with any security held by the Seller for the payment
thereof;
(c) all
inventories of raw materials, work in process, finished goods, supplies,
packaging materials, spare parts and similar items, wherever located, including
consignment inventory and inventory held on order or in transit;
(d) all
computers, machinery, equipment, tools and tooling, furniture, fixtures,
supplies, leasehold improvements, motor vehicles and other tangible personal
property;
(e) all
real
property, leaseholds and subleaseholds in real property, and easements,
rights-of-way and other appurtenants thereto;
(f) all
Intellectual Property;
(g) all
rights under Assigned Contracts;
(h) all
securities owned by the Seller, including all capital stock held by the Seller
in any Subsidiary;
(i) all
claims, prepayments, deposits, refunds, causes of action, chooses in action,
rights of recovery, rights of setoff and rights of recoupment;
(j) all
Permits;
(k) all
books, records, accounts, ledgers, files, documents, correspondence, lists
(including customer and prospect lists), employment records, manufacturing
and
procedural manuals, Intellectual Property records, sales and promotional
materials, studies, reports and other printed or written materials;
and
(l) all
insurance policies of the Seller, as well as all proceeds which may be payable
thereunder.
“Affiliate”
shall
mean any affiliate, as defined in Rule 12b-2 under the Securities Exchange
Act
of 1934.
“Agreed
Amount”
shall
mean part, but not all, of the Claimed Amount.
“Ancillary
Agreements”
shall
mean the agreements referred to in Section 6.2(k).
“Arbitrator”
shall
have the meaning set forth in Section 8.3(e).
“Assigned
Contracts”
shall
mean any contracts, agreements or instruments to which the Seller is a party,
including any agreements or instruments securing any amounts owed to the Seller,
any leases or subleases of real property, any employment contracts and any
licenses or sublicenses relating to Intellectual Property. A complete list
of
which is set forth on Schedule
9.
35
“Assumed
Liabilities”
shall
mean all of the liabilities of the Seller other than the Retained
Liabilities.
“Average
Closing Price”
shall
mean the average of the closing prices of the Buyer’s Common Stock as reported
on the Over The Counter Bulletin Board during the twenty consecutive trading
days ending one day prior to the relevant date with respect to which such
average is relevant in accordance with the terms hereof.
“Buyer”
shall
have the meaning set forth in the first paragraph of this
Agreement.
“Buyer
Certificate”
shall
mean a certificate to the effect that each of the conditions specified in
clauses (a) through (c) (insofar as clause (c) relates to Legal Proceedings
involving the Buyer) of Section 5.3 is satisfied in all
respects.
“Buyer
Material Adverse Effect”
shall
mean any material adverse change, event, circumstance or development with
respect to, or material adverse effect on, the business, assets, liabilities,
capitalization, prospects, condition (financial or other), or results of
operations of the Buyer and its Subsidiaries, taken as a whole. For the
avoidance of doubt, the parties agree that the terms “material”, “materially” or
“materiality” as used in this Agreement with an initial lower case “m” shall
have their respective customary and ordinary meanings, without regard to the
meaning ascribed to Buyer Material Adverse Effect.
“CERCLA”
shall
mean the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
“Claimed
Amount”
shall
mean the amount of any Damages incurred or reasonably expected to be incurred
by
the Indemnified Party.
“Claim
Notice”
shall
mean written notification which contains (i) a description of the Damages
incurred or reasonably expected to be incurred by the Indemnified Party and
the
Claimed Amount of such Damages, to the extent then known, (ii) a statement
that
the Indemnified Party is entitled to indemnification under Article 8 for such
Damages and a reasonable explanation of the basis therefor, and (iii) a demand
for payment in the amount of such Damages.
“Closing”
shall
mean the closing of the transactions contemplated by this
Agreement.
“Closing
Date”
shall
mean the date two business days after the satisfaction or waiver of all of
the
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (excluding the delivery at the Closing of any of the
documents set forth in Article 6), or such other date as may be mutually
agreeable to the Parties.
36
“Code”
shall
mean the Internal Revenue Code of 1986, as amended.
“Commercial
Rules”
shall
mean the Commercial Arbitration Rules of the AAA.
“Common
Stock”
shall
mean unregistered shares of the common stock, $0.001 par value per share, of
the
Buyer.
“Confidential
Information”
shall
mean any confidential or proprietary information of the Seller or any Subsidiary
that is furnished in writing to the Buyer by the Seller or any Subsidiary in
connection with this Agreement and is labeled confidential or proprietary;
provided, however, that it shall not include any information (A) which, at
the time of disclosure, is available publicly, (B) which, after disclosure,
becomes available publicly through no fault of the Buyer, (C) which the
Buyer knew or to which the Buyer had access prior to disclosure or
(D) which the Buyer rightfully obtains from a source other than the Seller
or a Subsidiary.
“Controlling
Party”
shall
mean the party controlling the defense of any Third Party Action.
“Customer
Deliverables”
shall
mean (a) the products that the Seller or any Subsidiary (i) currently
manufactures, markets, sells or licenses, or (ii) has manufactured, marketed,
sold or licensed within the previous three years and (b) the services that
the
Seller or any Subsidiary (i) currently provides, or (ii) has provided within
the
previous three years.
“Damages”
shall
mean any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due
or
to become due or otherwise), diminution in value, monetary damages, fines,
fees,
penalties, interest obligations, deficiencies, losses and expenses (including
amounts paid in settlement, interest, court costs, costs of investigators,
fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation), other than those costs and expenses of
arbitration of a Dispute which are to be shared equally by the Indemnified
Party
and the Indemnifying Party as set forth in Section 8.3(e)(vi).
“Disclosure
Schedule”
shall
mean the disclosure schedule provided by the Seller to the Buyer on the date
hereof and accepted in writing by the Buyer, as the same may be supplemented
pursuant to Section 5.6.
“Dispute”
shall
mean the dispute resulting if the Indemnifying Party in a Response disputes
its
liability for all or part of the Claimed Amount.
“Employee
Benefit Plan”
shall
mean any “employee pension benefit plan” (as defined in Section 3(2) of ERISA),
any “employee welfare benefit plan” (as defined in Section 3(1) of ERISA), and
any other written or oral plan, agreement or arrangement involving direct or
indirect compensation, including insurance coverage, severance benefits,
disability benefits, deferred compensation, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation.
37
“Environmental
Law”
shall
mean any federal, state or local law, statute, rule, order, directive, judgment,
Permit or regulation or the common law relating to the environment, occupational
health and safety, or exposure of persons or property to Materials of
Environmental Concern, including any statute, regulation, administrative
decision or order pertaining to: (i) the presence of or the treatment,
storage, disposal, generation, transportation, handling, distribution,
manufacture, processing, use, import, export, labeling, recycling, registration,
investigation or remediation of Materials of Environmental Concern or
documentation related to the foregoing; (ii) air, water and noise
pollution; (iii) groundwater and soil contamination; (iv) the release,
threatened release, or accidental release into the environment, the workplace
or
other areas of Materials of Environmental Concern, including emissions,
discharges, injections, spills, escapes or dumping of Materials of Environmental
Concern; (v) transfer of interests in or control of real property which may
be
contaminated; (vi) community or worker right-to-know disclosures with respect
to
Materials of Environmental Concern; (vii) the protection of wild life,
marine life and wetlands, and endangered and threatened species;
(viii) storage tanks, vessels, containers, abandoned or discarded barrels
and other closed receptacles; and (ix) health and safety of employees and
other persons. As used above, the term “release” shall have the meaning set
forth in CERCLA.
“ERISA”
shall
mean the Employee Retirement Income Security Act of 1974, as
amended.
“ERISA
Affiliate”
shall
mean any entity which is, or at any applicable time was, a member of (1) a
controlled group of corporations (as defined in Section 414(b) of the Code),
(2) a group of trades or businesses under common control (as defined in
Section 414(c) of the Code), or (3) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under Section 414(o) of
the
Code), any of which includes or included the Seller or a
Subsidiary.
“Expected
Claim Notice”
shall
mean a notice that, as a result of a legal proceeding instituted by or written
claim made by a third party, an Indemnified Party reasonably expects to incur
Damages for which it is entitled to indemnification under Article
8.
“Financial
Statements”
shall
mean:
(a) the
audited consolidated balance sheets and statements of income, changes in
stockholders’ equity and cash flows of the Seller as of the end of and for each
of the last three fiscal years, and
(b) the
Most
Recent Balance Sheet and the unaudited consolidated statements of income,
changes in stockholders’ equity and cash flows for the period from the Most
Recent Balance Sheet Date to the most recent month end.
“GAAP”
shall
mean United States generally accepted accounting principles.
“Governmental
Entity”
shall
mean any court, arbitrational tribunal, administrative agency or commission
or
other governmental or regulatory authority or agency.
38
“▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Act”
shall
mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended.
“Indemnified
Party”
shall
mean a party entitled, or seeking to assert rights, to indemnification under
Article 8 of this Agreement.
“Indemnifying
Party”
shall
mean the party from whom indemnification is sought by the Indemnified
Party.
“Intellectual
Property”
shall
mean all:
(a) patents,
patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations;
(b) trademarks,
service marks, trade dress, Internet domain names, logos, trade names and
corporate names and registrations and applications for registration thereof;
(c) copyrights
and registrations and applications for registration thereof;
(d) mask
works and registrations and applications for registration thereof;
(e) computer
software, data and documentation;
(f) inventions,
trade secrets and confidential business information, whether patentable or
nonpatentable and whether or not reduced to practice, know-how, manufacturing
and product processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information;
(g) other
proprietary rights relating to any of the foregoing (including remedies against
infringements thereof and rights of protection of interest therein under the
laws of all jurisdictions); and
(h) copies
and tangible embodiments thereof.
“Internal
Systems”
shall
mean the internal systems of the Seller or any Subsidiary that are used in
its
business or operations, including computer hardware systems, software
applications and embedded systems.
“Lease”
shall
mean any lease or sublease pursuant to which the Seller or a Subsidiary leases
or subleases from another party any real property.
“Legal
Proceeding”
shall
mean any action, suit, proceeding, claim, arbitration or investigation before
any Governmental Entity or before any arbitrator.
39
“Materials
of Environmental Concern”
shall
mean any: pollutants, contaminants or hazardous substances (as such terms are
defined under CERCLA), pesticides (as such term is defined under the Federal
Insecticide, Fungicide and Rodenticide Act), solid wastes and hazardous wastes
(as such terms are defined under the Resource Conservation and Recovery Act),
chemicals, other hazardous, radioactive or toxic materials, oil, petroleum
and
petroleum products (and fractions thereof), or any other material (or article
containing such material) listed or subject to regulation under any law,
statute, rule, regulation, order, Permit, or directive due to its potential,
directly or indirectly, to harm the environment or the health of humans or
other
living beings.
“Membership
Interests” shall
have the meaning set forth Recital B.
“Most
Recent Balance Sheet”
shall
mean the audited consolidated balance sheet of the Seller as of the Most Recent
Balance Sheet Date.
“Most
Recent Balance Sheet Date”
shall
mean December 31, 2006.
“Non-controlling
Party”
shall
mean the party not controlling the defense of any Third Party
Action.
“Ordinary
Course of Business”
shall
mean the ordinary course of business consistent with past custom and practice
(including with respect to frequency and amount).
“Owned
Real Property”
shall
mean each item of real property owned by the Seller or a
Subsidiary.
“Parties”
shall
mean the Buyer, the Seller and the Members.
“Permits”
shall
mean all permits, licenses, registrations, certificates, orders, approvals,
franchises, variances and similar rights issued by or obtained from any
Governmental Entity (including those issued or required under Environmental
Laws
and those relating to the occupancy or use of owned or leased real
property).
“Purchase
Price”
shall
mean the purchase price to be paid by the Buyer for the Membership Interests
at
the Closing, as set forth in Section 1.3.
“Reasonable
Best Efforts”
shall
mean best efforts, to the extent commercially reasonable.
“Requisite
Member Approval”
shall
mean the approval of the sale of all outstanding Membership Interests of Seller
by the Members to the Buyer as contemplated by this Agreement.
“Response”
shall
mean a written response containing the information provided for in Section
8.3(c).
40
“Restricted
Employee”
shall
mean any person who either (i) was an employee of the Buyer on either the
date of this Agreement or the Closing Date or (ii) was an employee of the
Seller on either the date of this Agreement or the Closing Date and received
an
employment offer from the Buyer within five business days following the Closing
Date.
“Retained
Liabilities”
shall
mean any and all liabilities or obligations (whether known or unknown, absolute
or contingent, liquidated or unliquidated, due or to become due and accrued
or
unaccrued, and whether claims with respect thereto are asserted before or after
the Closing) of the Seller which are not Assumed Liabilities. The Retained
Liabilities shall include, without limitation, all liabilities and obligations
of the Seller:
(a) for
income, transfer, sales, use or other Taxes arising in connection with the
consummation of the transactions contemplated by this Agreement;
(b) for
costs
and expenses incurred in connection with this Agreement or the consummation
of
the transactions contemplated by this Agreement;
(d) for
any
Taxes, including deferred taxes or taxes measured by income of the Seller earned
prior to the Closing, any liabilities for federal or state income tax and FICA
taxes of employees of the Seller which the Seller is legally obligated to
withhold, any liabilities of the Seller for employer FICA and unemployment
taxes
incurred, and any liabilities of the Seller for sales, use or excise taxes
or
customs and duties;
(e) under
any
agreements, contracts, leases or licenses which are not Assigned
Contracts;
(f) for
any
breach, act or omission by the Seller prior to the Closing under any Assigned
Contract other than those listed on Schedule
9;
(g) arising
out of events, conduct or conditions existing or occurring prior to the Closing
that constitute a violation of or non-compliance with any law, rule or
regulation (including Environmental Laws), any judgment, decree or order of
any
Governmental Entity, or any Permit or that give rise to liabilities or
obligations with respect to Materials of Environmental Concern other than those
listed on Schedule
9;
(i) to
pay
severance benefits to any employee of the Seller whose employment is terminated
(or treated as terminated) in connection with the consummation of the
transactions contemplated by this Agreement, and all liabilities resulting
from
the termination of employment of employees of the Seller prior to the Closing
that arose under any federal or state law or under any Employee Benefit Plan
established or maintained by the Seller;
(j) to
indemnify any person or entity by reason of the fact that such person or entity
was a director, officer, employee, or agent of the Seller or a Subsidiary or
was
serving at the request of the Seller or a Subsidiary as a partner, trustee,
director, officer, employee, or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs, amounts
paid
in settlement, losses, expenses, or otherwise and whether such indemnification
is pursuant to any statute, charter document, bylaw, agreement, or otherwise)
other than in connection with any Legal Proceedings listed in Schedule
2.18;
41
(k) injury
to
or death of persons or damage to or destruction of property occurring prior
to
the Closing (including any workers compensation claim);
(l) all
Seller Plans and all liabilities and obligations of the Seller arising after
the
Closing under the Seller Plans; and
(m) subject
to the terms of the applicable Seller Plan, for medical, dental and disability
benefits arising under each Seller Plan (both long-term and short-term
benefits), whether insured or self-insured, owed to employees or former
employees of the Seller based upon (A) dates of service for medical or dental
benefits under the applicable Seller Plan prior to the Closing or (B)
disabilities determined by the U.S. Social Security Administration or Seller
Plan that is a disability plan as existing prior to the Closing (including
any
such disabilities which may have been aggravated following the
Closing).
“Security
Interest”
shall
mean any mortgage, pledge, security interest, encumbrance, charge or other
lien
(whether arising by contract or by operation of law), other than
(i) mechanic’s, materialmen’s, and similar liens, (ii) liens arising
under worker’s compensation, unemployment insurance, social security,
retirement, and similar legislation (iii) liens on goods in transit incurred
pursuant to documentary letters of credit, in each case arising in the Ordinary
Course of Business of the Seller and not material to the Seller, (iv)
statutory
liens for current Taxes or other governmental charges not yet due and payable
or
the amount or validity of which is being contested in good faith by appropriate
proceedings by the Seller or any of its Subsidiaries and (v) such other liens
as
would not have, individually or in the aggregate, a Seller Material Adverse
Effect.
“Seller”
shall
have the meaning set forth in the first paragraph of this
Agreement.
“Seller
Certificate”
shall
mean a certificate to the effect that each of the conditions specified in clause
(a) of Section 5.1 and clauses (a) through (d) (insofar as clause (d)
relates to Legal Proceedings involving the Seller or a Subsidiary) of
Section 5.2 is satisfied in all respects.
“Seller
Intellectual Property”
shall
mean the Intellectual Property owned by or licensed to the Seller or a
Subsidiary and covering, incorporated in, underlying or used in connection
with
the Customer Deliverables or the Internal Systems.
“Seller
Material Adverse Effect”
shall
mean any material adverse change, event, circumstance or development with
respect to, or material adverse effect on, (i) the business, assets,
liabilities, capitalization, prospects, condition (financial or other), or
results of operations of the Seller and the Subsidiaries, taken as a whole,
or
(ii) the ability of the Buyer to operate the business of the Seller and each
of
the Subsidiaries immediately after the Closing. For the avoidance of doubt,
the
parties agree that the terms “material”, “materially” or “materiality” as used
in this Agreement with an initial lower case “m” shall have their respective
customary and ordinary meanings, without regard to the meaning ascribed to
Seller Material Adverse Effect.
42
“Seller
Plan”
shall
mean any Employee Benefit Plan maintained, or contributed to, by the Seller
or
any Subsidiary.
“Subsidiary”
shall
mean any corporation, partnership, trust, limited liability company or other
non-corporate business enterprise in which the Seller or the Buyer, as the
case
may be (or another Subsidiary thereof), holds stock or other ownership interests
representing (a) more than 50% of the voting power of all outstanding stock
or
ownership interests of such entity or (b) the right to receive more than 50%
of
the net assets of such entity available for distribution to the holders of
outstanding stock or ownership interests upon a liquidation or dissolution
of
such entity.
“Taxes”
shall
mean all taxes, charges, fees, levies or other similar assessments or
liabilities, including income, gross receipts, ad valorem, premium, value-added,
excise, real property, personal property, sales, use, transfer, withholding,
employment, unemployment, insurance, social security, business license, business
organization, environmental, workers compensation, payroll, profits, license,
lease, service, service use, severance, stamp, occupation, windfall profits,
customs, duties, franchise and other taxes imposed by the United States of
America or any state, local or foreign government, or any agency thereof, or
other political subdivision of the United States or any such government, and
any
interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest or dispute
thereof.
“Tax
Returns”
shall
mean all reports, returns, declarations, statements or other information
required to be supplied to a taxing authority in connection with
Taxes.
“Third
Party Action”
shall
mean any suit or proceeding by a person or entity other than a Party for which
indemnification may be sought by a Party under Article 8.
11. MISCELLANEOUS
11.1 Press
Releases and Announcements.
Neither
Party shall issue any press release or public announcement relating to the
subject matter of this Agreement without the prior written approval of the
other
Party; provided,
however,
that
either Party may make any public disclosure it believes in good faith is
required by applicable law, regulation or stock market rule (in which case
the
disclosing Party shall use reasonable efforts to advise the other Party and
provide it with a copy of the proposed disclosure prior to making the
disclosure).
11.2 No
Third Party Beneficiaries.
This
Agreement shall not confer any rights or remedies upon any person other than
the
Parties and their respective successors and permitted assigns.
11.3 Entire
Agreement.
This
Agreement (including the documents referred to herein) constitutes the entire
agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral,
with
respect to the subject matter hereof.
43
11.4 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. Neither Party
may
assign either this Agreement or any of its rights, interests, or
obligations hereunder
without the prior written approval of the other Party; provided that the Buyer
may assign
some or all of its rights, interests and/or obligations hereunder to one or
more
Affiliates of the Buyer.
11.5 Counterparts
and Facsimile Signature.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which together shall constitute
one and the same instrument.
This
Agreement may be executed by facsimile signature.
11.6 Headings.
The
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this
Agreement.
11.7 Notices.
All
notices, requests, demands, claims and other communications hereunder shall
be
in writing. Any notice, request, demand, claim or other communication hereunder
shall be deemed duly delivered four business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent for next business day delivery via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
|
If
to the Seller:
|
Copy
to:
|
|
PRO
SAT, LLC
Attn:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
|
PRO
SAT Counsel
|
|
If
to the Buyer:
|
Copy
to:
|
|
▇▇▇▇▇
Networks, Inc.
Attn:
Chief Executive Officer
▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
|
▇▇▇▇▇▇▇▇▇
Law Group, PLLC
Attn:
▇▇▇▇ ▇. ▇▇▇▇, Esquire
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇. ▇▇▇
▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Tel:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
|
Either
Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but
no
such notice, request, demand, claim or other communication shall be deemed
to
have been duly given unless and until it actually is received by the party
for
whom it is intended. Either Party may change the address to which notices,
requests, demands, claims and other communications hereunder are to be delivered
by giving the other Party notice in the manner herein set forth.
44
11.8 Governing
Law.
This
Agreement (including the validity and applicability of the arbitration
provisions of this Agreement, the conduct of any arbitration of a Dispute,
the
enforcement of any arbitral award made hereunder and any other questions of
arbitration law or procedure arising hereunder) shall be governed by and
construed in accordance with the internal laws of the State of California,
without giving effect to any choice or conflict of law provision or rule
(whether of the State
of
California or any other jurisdiction) that would cause the application of laws
of any jurisdictions other than those of the State
of
California.
11.9 Amendments
and Waivers.
The
Parties may mutually amend any provision of this Agreement at any time prior
to
the Closing; provided,
however,
that
any amendment effected subsequent
to the Requisite Member Approval shall be subject to any restrictions contained
in the California Limited Liability Company Act. No amendment of any provision
of this Agreement shall
be
valid unless the same shall be in writing and signed by each of the Parties.
No
waiver by either Party of any right or remedy hereunder shall be valid unless
the same shall be in writing and signed by the Party giving such waiver. No
waiver by either Party with respect to any default, misrepresentation, or breach
of warranty or covenant hereunder shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
11.10 Severability.
Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability
of
the remaining terms and provisions hereof or the validity or enforceability
of
the offending term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of competent jurisdiction
declares that any term or provision hereof is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the
power
to limit the term or provision, to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision, and this Agreement shall
be
enforceable as so modified.
11.11 Expenses.
Each
Party shall bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby. The Seller agrees
that none of the costs and expenses (including legal fees and expenses) incurred
by it in connection with this Agreement or the transactions contemplated hereby
will be (a) borne by any Subsidiary or (b) paid until after the
Closing.
11.12 Submission
to Jurisdiction.
Each
Party (a) submits to the jurisdiction of any state or federal court sitting
in the State of California in any action or proceeding arising out of or
relating to this Agreement or the Ancillary Agreements (including any action
or
proceeding for the enforcement of any arbitral award made in connection with
any
arbitration of a Dispute hereunder), (b) agrees that all claims in respect
of such action or proceeding may be heard and determined in any such court,
(c) waives any claim of inconvenient forum or other challenge to venue in
such court, (d) agrees not to bring any action or proceeding arising out of
or
relating to this Agreement or the Ancillary Agreements in any other court;
provided in each case that, solely with respect to any arbitration of a Dispute,
the Arbitrator shall resolve all threshold issues relating to the
validity and
applicability of the arbitration provisions of this Agreement, contract
validity, applicability of statutes of limitations and issue preclusion, and
such threshold issues shall not be heard or determined by such court. Each
party
agrees to accept service of any summons, complaint or other
initial pleading made in
the
manner provided for the giving of notices in Section 11.7, provided
that nothing in this Section 11.12 shall affect the right of either Party
to serve such summons, complaint or other initial pleading in any other manner
permitted by law.
45
11.13 Specific
Performance.
Each
Party acknowledges and agrees that the other Party would be damaged irreparably
in the event any of the provisions of this Agreement (including Sections 6.1,
6.2 and 6.3) are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each Party agrees that the other Party
shall be entitled to an injunction or other equitable relief to prevent breaches
of the provisions of this Agreement and to enforce specifically this Agreement
and the terms and provisions hereof in any action instituted in any court of
the
United States or any state thereof having jurisdiction over the Parties and
the
matter, in addition to any other remedy to which it may be entitled, at law
or
in equity.
Notwithstanding the foregoing, the Parties agree that if a Dispute is submitted
to arbitration in accordance with Section 8.3(d) and Section 8.3(e), then the
foregoing provisions of this Section 11.13 shall not apply to such Dispute,
and
the provisions of Section 8.3(d) and Section 8.3(e) shall
govern availability of injunctive relief, specific performance or other
equitable relief with respect to such Dispute.
11.14 Construction.
(a) The
language used in this Agreement shall be deemed to be the language chosen by
the
Parties to express their mutual intent, and no rule of strict construction
shall
be applied against either Party.
(b) Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.
(c) Any
reference herein to "including" shall be interpreted as "including without
limitation".
(d) Any
reference to any Article, Section or paragraph shall be deemed to refer to
an
Article, Section or paragraph of this Agreement, unless the context clearly
indicates otherwise.
[remainder
of page intentionally left blank; signature page follows]
46
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.
|
▇▇▇▇▇
NETWORKS, INC.
a
Nevada corporation
By: /s/
▇▇▇▇▇▇
▇▇▇▇▇
Name: ▇▇▇▇▇▇
▇▇▇▇▇
Title:Chief
Executive Officer
PRO
SAT, LLC
a
California limited liability company
By: /s/
▇▇▇▇ ▇.
▇▇▇▇▇▇▇
Name: ▇▇▇▇
▇. ▇▇▇▇▇▇▇
Title:
Manager
MEMBERS:
/s/ ▇▇▇▇ ▇.
▇▇▇▇▇▇▇
▇▇▇▇
▇. ▇▇▇▇▇▇▇
/s/ Cem
Esin
Cem
Esin
▇▇▇▇▇▇▇▇
▇▇▇▇▇
/s/
▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
|
47