Nutech Digital, Inc. Encino, CA 91436 As of January 15, 2007
Nutech
Digital, Inc.
0000
Xxxxxxxxxxx Xxxxx
Xxxxxx,
XX 00000
As
of
January 15, 2007
Mr.
Xxxx
Xxxxxx
0000
Xxxxxxxx Xxxx.
Xxxxx
000X
Xxxxxxx
Xxxxx, XX 00000
Re:
Nu-Tech
Digital, Inc. - Joint Venture with
The
Co-Op, LLC
Dear
Xx.
Xxxxxx:
This
letter expresses our understanding with respect to your entering into a joint
venture with NuTech Digital, Inc., a California corporation (the “Company”) and
the Company’s Agreement to create a new division to be run by you and/or your
corporate designee (currently to be known as the “The Co-Op, LLC division”,
“CMG” and/or the “CMG Division”) which will operate as a separate division of
the Company.
1.
You,
Xxxx Xxxxxx and/or your corporate designee (“Xxxxxx”), will become a director of
the Company, with the title of Chairman/CEO of the CMG Division and will operate
the CMG Division as a separate division of the Company (i.e. CMG shall not
be
operated as a separate legal entity). CMG will be responsible for operating
its
business consistent with applicable legal requirements, sound business practices
and the overall policies of the Company. Although CMG will be operated as a
separate division for which separate financials will be maintained, the revenues
and earnings of the CMG Division shall be reported as part of the revenues
and
earnings of the Company.
2.
In
order to enable the Company to successfully go forward with the CMG Division,
Xxxxxx will provide content to the CMG Division which is owned by, licensed
to
or otherwise controlled by Xxxxxx, to be used or developed for use in business
to be conducted by the CMG Division.
3.
Xxxxxx
will enter into a non-exclusive consulting agreement with the Company (the
“Consultant Agreement”) on commercially reasonable terms to be determined by the
parties, wherein Xxxxxx shall (i) be the Chief Executive Officer of the CMG
Division and (ii) agree to devote time and attention to the Company and the
CMG
Division thereby utilizing his skill, labor and attention to advance the general
best interests of the Company and the CMG Division. Xxxxxx
shall dedicate that amount of time necessary to maximize Company's business
within the CMG Division, commensurate with similar executives involved in
similar situations. Xxxxxx
has all requisite power and authority to execute this agreement, to consummate
this transaction and to carry out and perform Carter’s obligations under this
agreement.
4.
The
Company will issue to Xxxxxx, upon the execution of the Consultant Agreement,
fifteen million (15,000,000) shares of the Company’s common stock (the “Xxxxxx
Shares”) which shall constitute approximately 30 percent of the issued and
outstanding shares of the Company’s common stock. Such shares shall be, to the
greatest extent possible, unrestricted and unlegended; and those restricted
shares shall be with the shortest possible time period prior to removal of
the
any restriction on sale (not to exceed one (1) year from date of signature
herein). Xxxxxx shall have all customary anti-dilution rights with respect
to
maintaining his proportionate share of ownership of outstanding shares of the
Company. Company
shall xxxxx Xxxxxx so-called “piggy-back registration rights”, to be include on
Company’s future Registration Statement.
5.
Compensation to Xxxxxx and other employees of the Company who provide services
to the CMG Division shall be approved by the Company’s Board of Directors.
Company shall continue to operate its business in normal fashion, as an active
business and a “going concern” (i.e. not in name only and without inactive
operations) and shall use its best efforts to reduce its existing debt from
revenues generated by Company outside of the CMG division. Ten (10%) percent
of
the CMG Division’s gross
revenues shall be paid to Company, however such payment shall be utilized
exclusively by Company for costs associated with its Public Filings, press
releases and/or annual meetings. This ten (10%) percent payment shall be capped
at one third (33.33%) of the actual expenses associated with filings, press
releases, and annual meetings.
6.
The
Board of Directors, after Xxxxxx joins the Company, will consist of four
members, three of whom shall be chosen by Xxxxxx and one of whom shall be or
be
chosen by Xxx Xxxxxx (“Xxxxxx”). Three members of the Board of Directors will
resign subsequent to closing of this transaction, and at such time, the Company
will appoint Xxxxxx and such two other individuals designated by Xxxxxx to
become Board Members. All costs related to the addition of the Xxxxxx designees
to the Company’s Board of Directors shall be divided between Xxxxxx and Company
upon mutual agreement, including the cost of Directors’ and Officers’ Liability
Insurance.
7.
The
Board shall have agreed to appoint Kapser as the Company’s Chief Executive
Officer with Xxxxxx being appointed as head of the CMG Division. Xxxxxx will
also enter into an employment agreement with the Company on commercially
reasonable terms to be determined by the Board of Directors in place immediately
following closing of this transaction.
8.
The
CMG
Division will be responsible solely for any obligations assumed by the CMG
Division and will indemnify Company from any claims or actions arising out
of or
in connection with any assumed obligations, other than those which were
materially misrepresented by the Company. Company shall
be
fully responsible for, and shall pay any audit or other claims by, any licensor,
other company or person,
and
otherwise fulfill any other obligations not expressly comprising the assumed
obligations, including without limitation, monies owed in respect of accounting
statements for and/or royalties payable for periods up to the closing date.
Xxxxxx and Carter’s designees is/are not assuming, and shall not be responsible
for, any indebtedness, liabilities or obligations of Company, whether fixed,
contingent, or otherwise, except for the assumed obligations.
9.
Retained Assets: For the avoidance of doubt, Xxxxxx shall retain any cash that
Xxxxxx had on hand on the closing date, and shall retain any business interest
not specifically delivered to Company at closing.
10.
Xxxxxx and the Company will enter into an indemnification agreement whereby
Xxxxxx and the other Board members designated by Xxxxxx will be personally
indemnified by the Company from any claims, suits, controversies or litigation
commenced against the Company and/or its Board of Directors arising out of
the
Company’s actions, unrelated to the CMG Division, including but not limited to
any and all claims, suits, controversies and/or debts which were incurred or
were in existence prior to this transaction. Response, negotiation, payment
and/or settlement of such claims, suits, controversies or litigation, together
with payment for same, as well as attorney’s fees and court costs in connection
therewith, shall be the sole responsibility of Company, outside of the CMG
Division.
11.
The
Company shall purchase and maintain Errors and Omissions (“E&O”) insurance
coverage in an amount suitable to sufficiently cover all pre-existing and future
claims, suits, controversies and/or debts incurred by the Company prior to
this
transaction, and shall maintain such E&O coverage for the duration of
Carter’s (and Carter’s designees’) involvement with Company. Company warrants
and certifies that its By-Laws empower Company to purchase and maintain such
E&O coverage, and that Company has the financial wherewithal to purchase and
to maintain such E&O coverage. Xxxxxx and the Xxxxxx designees shall have
the unfettered right to tender immediate resignation with no further
responsibility for or to the Company should such E&O coverage lapse, or
should such E&O coverage be denied by a reputable insurer, at any point in
the future. All costs related to the premiums payable to bind such E&O
coverage shall be divided between Xxxxxx and Company upon mutual
agreement.
12.
Representations, warranties, covenants of Company.
Company represents
and warrants to Xxxxxx as follows:
a)
Organization and Qualification:
Company
(a) is duly organized, validly existing and in good standing under the laws
of
the jurisdiction of its formation; (b) has all requisite power and authority,
to
own, lease and operate its properties and to carry on its business as it has
been and is now being conducted, (c) is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the ownership or
lease of its properties or the conduct of its business makes such qualification
necessary other than in such jurisdictions where the failure to be so qualified
(individually or in the aggregate) would not have a material adverse effect.
b)
Authorization and Validity of Agreement:
Company
(a) has all requisite power and the full right and authority to execute this
agreement, to carry out and perform its obligations under this agreement, and
to
consummate the transaction; (b) the execution, delivery and performance by
Company of this agreement and
the
consummation of the transactions contemplated herein, have been or shall be
duly
and validly authorized by all necessary action on the part of Company and no
other action on the part of Company or any other Person is necessary for the
authorization, execution, delivery or performance by Company of this agreement
and the consummation of the transactions hereunder; (c)
this
Agreement has been duly executed and delivered by Company and, assuming that
this agreement is duly executed and delivered by Xxxxxx, this agreement
constitutes the valid and binding obligation of Company enforceable in
accordance with its terms except as limited by any future bankruptcy,
receivership or similar proceeding; and
(d)
the parties executing this document on behalf of Company constitute all parties
necessary to make the grants and perform all the obligations of Company
hereunder.
c)
Financial Statements: Company shall provide
Xxxxxx with all financial statements relating to the Company’s business and
assets, including balance sheets, income and royalty statements and cash flow
statements, as of September 30, 2006 (collectively, the “Financial Statements”).
Company represents that the Financial Statements (a) have been prepared in
conformity with GAAP, (b) conform to the books and records of Company in all
material respects, and (c) fairly present the financial position of Company
as
of the dates indicated and the results of operations and cash flows for the
respective periods indicated. Except to the extent reflected or reserved against
in the Financial Statements, Company has, as of the date of the Financial
Statements, no liability or obligation of any kind, whether accrued, absolute,
contingent, unliquidated or otherwise and whether due or to become due
(including any liability for breach of contract, breach of warranty, torts,
infringements, claims or lawsuits) or, to the best of Company’s knowledge, any
assets not reflected on the Financial Statements or otherwise included in any
documents provided to Xxxxxx. Since the date of the Financial Statements,
Company has not incurred any liability or obligation of any kind that alone
or
in the aggregate is material, except in the ordinary course of
business.
d)
Noncontravention:
Company
represents and warrants that the execution and delivery of this agreement does
not, and the consummation of the transactions and compliance with the provisions
of this agreement will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
the
loss of a material benefit under, or result in the creation of any Lien or
restriction upon any of the Company’s assets.
e)
Government Consents and Filings: No Person other than Xxx Xxxxxx is required
by
or with respect to Company in connection with the execution and delivery of
this
agreement by Company or the consummation by Company of the transaction; the
transactions contemplated hereunder between Company and Xxxxxx will not diminish
in any manner the exploitation or any other rights in the assets currently
enjoyed by Company; and Company’s sale, assignment and transfer of rights to
Xxxxxx under this agreement are not subject to the provisions of the Uniform
Commercial Code relating to bulk transfers or to the provisions of any similar
statute, if any, in effect in California.
f)
Full
Disclosure:
The
representations and warranties of Company in this Agreement and the statements
contained in the schedules, certificates, due diligence materials (including
written financial information) and other writings or information furnished
and
to be furnished by or on behalf of Company to Xxxxxx pursuant to this agreement,
when considered as a whole and giving effect to any supplements or amendments
thereof prior to the closing date, do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact necessary to make the statements herein or therein not misleading, in
light
of the circumstances in which they were made. Company represents and warrants
that all material information concerning the assets and the business of Company
has been disclosed to Xxxxxx.
g)
Legal
Proceedings:
Other
than those disclosed to Xxxxxx, there exist no other suits, actions or
proceedings or investigations pending or, to the best knowledge of Company,
threatened against, involving or affecting Company, and/or any of the Company’s
assets; (ii) no judgment, decree, injunction, rule or order of any Governmental
Entity applicable to Company; and (iii) no action, suit, proceeding or
investigation pending or, to the best knowledge of Company, threatened against
Company that seeks to restrain, enjoin or delay the consummation of the
transactions between Company and Xxxxxx hereunder.
h)
Compliance
with Applicable Laws:
Company
has in effect all material federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights (“Licenses”) necessary for Company to own, lease or operate
its properties and assets and to carry on its business as now conducted in
all
material respects, and there has occurred no default under any of such Licenses.
Company has no reason to believe any Governmental Entity is considering
limiting, suspending or revoking any of Company’s Licenses. Company is in
compliance with, has not violated, and has conducted its business so as to
comply with, the terms of its Licenses and with all applicable statutes, laws,
ordinances, rules, regulations, judgments, orders or decrees (including, without
limitation, environmental laws and those relating to health and safety, hiring,
promotion or pay of employees) of any Governmental Entity.
i)
Brokers:
No
agent, broker, investment banker, financial advisor or other person is or will
be entitled, by reason of any agreement, act or statement by Company or any
of
Company’s affiliates to any financial advisory, broker’s, finder’s or similar
fee or commission, to reimbursement of expenses or to indemnification or
contribution in connection with the transaction between Company and Xxxxxx,
and
Company agrees to indemnify and hold Xxxxxx and his respective affiliates,
harmless from and against any and all claims, liabilities or obligations in
connection therewith
j)
Tax
Matters: Company
hereby
represents and warrants as follows:
1)
All
federal, state, local and foreign tax returns required to be filed by or on
behalf of, or in which is required to be reported the income, gains, losses,
deductions, or credits of, Company under the Internal Revenue Code or any other
applicable statute (“Returns”) have been or will be filed within the time
prescribed by law (including extensions of time approved by the appropriate
Governmental Entity). Such Returns accurately and completely set forth or will
accurately and completely set forth in all material respects all liabilities
for
taxes
and any
other items (including, but not limited to, items of income, gain, loss,
deduction and credit) required to be reflected or included in such
Returns.
2)
Company has
paid
and/or will pay (or will cause to be paid), on a timely basis, all taxes that
accrue or are due on or before the closing date.
3)
No
deficiencies or assessments have been asserted in writing by the Internal
Revenue Service or any other Governmental Entity with respect to the
Returns.
4)
There
are
no Liens for taxes (other than for current taxes not yet due and payable) on
Company or on any of its assets.
5)
There
are
no unsatisfied actual or proposed adjustments or assessments for taxes against
Company or, to the knowledge of Company, any basis for any such assessment
or
adjustment.
6)
There
are
no pending audits, actions, proceedings, disputes or claims with respect to
any
taxes payable by or asserted against Company and, to the knowledge of Company,
there is no basis on which any claim for material taxes can be asserted against
Company. Company has not received notice from any governmental entity of its
intent to examine or audit any Returns of Company. No taxing authority has
notified Company that it will investigate or make further inquiries with respect
to any material liability of Company or any affiliate thereof for any tax that
could reasonably be expected to result in the issuance by any taxing authority
of a notice of deficiency or similar notice for taxes against
Company.
7)
Except
for the United States of America and the State of California, there are no
other
jurisdictions in which income or franchise tax returns and reports, and returns
and reports relating to the payment of tax based upon the ownership or use
of
property therein or the derivation of income therefrom or measured by premiums
or investments in tangible or intangible property, were, or were required to
be,
filed by Company or in which Company was required to be included and to which
Company would have a material tax liability.
8)
All
taxes
required to be withheld or collected by Company (including, but not limited
to,
taxes required to be withheld with respect to amounts paid or owing to
any Representative
or other Person) have been timely withheld or collected and, to the extent
required, have been timely paid, remitted or deposited to or with the relevant
Governmental Entity.
k)
Company represents and warrants that (i) its copyright assets do not and will
not infringe upon or otherwise violate, the intellectual property or other
rights of any other person or entity; (ii) as of the date hereof there are
no
claims or suits pending, nor has there been notice provided or, to the best
knowledge of Company, any claims threatened, alleging that Company or any of
its
activities, products or services, including copyright assets, infringe upon
or
constitute the unauthorized use of any other person’s intellectual property, or
challenging Company’s ownership of, right to use, or the validity or
enforceability or effectiveness of any license or agreement relating to the
copyright assets; (iii) to the best knowledge of Company, none of the Copyright
Assets is being infringed or violated; (iv) Xxxxxx shall have no obligation
in
excess of the Assumed Obligations; and (v) the consummation of this transaction
will not result in the loss of any copyright assets or Carter’s ability to
exploit same.
l)
No
Material Adverse Change:
There
has been no material deterioration or material adverse change in Company’s
financial performance or position or rights from September 30, 2006 to the
date
hereof, and Company has no reason to believe there shall hereafter be any
material adverse change which might hamper Carter’s rights.
m)
Operation of Business:
Company
represents and warrants that since October 1, 2006, it has operated its business
in the usual, regular and ordinary course in substantially the same manner
as
and heretofore conducted and in compliance in all material respects with all
applicable laws and regulations and, to the extent consistent therewith, has
used all commercially reasonable efforts to preserve Company’s relationships
with others having business dealings with Company. Notwithstanding the
foregoing, Company represents and warrants that all of Company’s agreements and
transactions are and/or have been on terms and conditions resulting from or
equivalent to arms-length negotiations between unrelated third
parties.
13.
Xxxxxx shall be responsible for arranging financing, on such terms and
conditions as approved by the Board of Directors, for any projects undertaken
by
the CMG Division.
14.
There
shall be executed among the Company and Xxxxxx, a definitive agreement covering
the proposed transaction (the “Definitive Agreement”) under the terms and
conditions set forth in this letter and such further terms, provisions,
agreements, covenants, representations and warranties satisfactory to all
parties, including:
(i)
general warranties as to the contracts, commitments, lease obligations, patents,
trademarks, technology and debts of the Company and Xxxxxx; and
(ii)
representations, indemnifications and covenants which shall survive the
effective date of the transaction and which will, in the opinion of the parties,
be customary for transactions of this nature in respect of the time, scope
and
subject matter and be adequate to protect their respective
interests.
(iii)
provisions relating to the equal issuance of any additional shares of common
stock, options and/or warrants to Xxxxxx and Xxxxxx after the Xxxxxx Shares
are
issued, and to the respective parties’ anti-dilution rights in connection
therewith.
(iv)
representations as to the By-Laws of Company, the status of the Company’s
securities law filings (state and federal), and status of current claims, suits,
controversies, and litigation involving the Company.
15.
As a
condition of closing, neither the Company nor Xxxxxx shall be subject to
material litigation which would cause the other party, in their sole discretion,
to decide that the party subject to such litigation has a material contingent
liability.
16.
Pending the execution of the Definitive Agreement, the Company shall give to
Xxxxxx or his designated representatives, full access to their books of original
entry, ledgers, bank statements, minute books, stockholder lists, contracts,
patents, trademarks, litigation, securities filings, licenses, intellectual
property rights, and all other documents maintained by it in connection with
its
business operations. The Company shall furnish Xxxxxx or his counsel, with
copies of the Company’s Articles of Incorporation, By-laws, board minutes,
shareholders minutes, stock ledgers and such other documents that Xxxxxx may
reasonably request. Xxxxxx shall furnish the Company with such information
and
documents that Company may reasonably request relating to Carter’s abilities to
develop and run the CMG Division.
17.
The
Company and Xxxxxx shall consult with each other prior to any public
announcement relating to the transaction set forth herein, and they shall
mutually approve the timing, the content, and the dissemination of any public
announcement, except to the extent those situations in which disclosures are
required by applicable law prior to the availability of the party to be
consulted.
18.
The
Company and Xxxxxx shall maintain, in the strictest confidence, all of the
information received from each other, and shall use such information only for
the purposes contemplated by this letter and for no other purpose. If the
transaction contemplated by this Agreement is not consummated for any reason,
each party shall promptly return to the other party all documents and other
information received from the other party, and shall not retain any copies
or
summaries thereof. This Section shall survive the termination of this
letter.
19.
Severability: If any provision hereof is held invalid or unenforceable by a
court of competent jurisdiction, such invalidity shall not affect the validity
or operation of any other provision, and such invalid provision shall be deemed
to be severed from the agreement.
20.
Assignment: Neither party may assign its rights and obligations under this
agreement to any other party without the prior express, written approval of
the
other party.
21.
Integration: This agreement constitutes the entire understanding of the parties,
and revokes and supersedes all prior agreements between the parties and is
intended as a final expression of their agreement. It shall not be modified
or
amended except by the definitive agreement referenced herein to be negotiated
between the parties, which shall be in writing and signed by the parties hereto
and specifically referring to this agreement.
22.
Counterpart Signatures, Facsimile Signatures, Electronic Signatures:
This
agreement may be executed in counterparts, by facsimile, and/or electronically.
All counterpart, facsimile or electronic signatures shall have equal validity
and enforceability as a fully-signed original agreement.
This
letter outlines the major terms of the proposed transaction. It is understood
that, on the basis of the foregoing understanding concerning major terms, the
parties shall begin negotiations of the Definitive Agreement with the view
to
consummating the contemplated transaction. Although each party confirms its
intention to proceed in good faith to conclude a mutually satisfactory
Definitive Agreement, this letter shall not constitute a binding agreement
to so
proceed. Except as set forth herein, no obligation shall arise on the part
of
any party, unless the Definitive Agreement is duly executed and delivered,
and
the respective obligations of the parties shall be those, and only those,
created by the Definitive Agreement.
If
this
letter reflects your understanding, please execute the enclosed copy in the
space provided below and return it to us.
|
Very
truly yours,
NuTech
Digital, Inc.
|
||
| |
|
|
| By: | /s/ Xxx Xxxxxx | |
|
Xxx Xxxxxx, Chief Executive |
||
|
Officer
|
||
Agreed
to
and accepted this 15 day
of January
2007
| |
||
| /s/ Xxxx Xxxxxx | ||
|
Xxxx Xxxxxx, individually and on behalf of his designee(s) |
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