ACQUISITION AGREEMENT
This
ACQUISITION AGREEMENT (the “Agreement”),
is
entered into and effective as of July 15, 2008 (the “Closing Date”), by and
among the members listed on Schedule
A
and
signatories hereto (each, a “Member,”
collectively, the “Members”),
and
Platinum Studios, Inc., a California corporation (“Purchaser”).
Members and Purchaser are sometimes individually or collectively referred to
as
a “Party”
or
the
“Parties.”
RECITALS
WHEREAS,
the Members own collectively one hundred percent (100%) of the issued and
outstanding membership interests and other ownership interests (collectively,
the “Membership
Interests”)
in
WOWIO, LLC, a Pennsylvania limited liability company with its principal office
located at 0000 Xxxxxxxx Xxxxxx, Xxxxxxx, Xxxxx 00000 (the “Company”);
WHEREAS,
the Members desire to sell, assign and transfer to Purchaser, and Purchaser
desires to purchase from the Members, the Membership Interests and to operate
the Company as a wholly-owned subsidiary of the Purchaser, upon the terms and
subject to the conditions set forth in this Agreement.
AGREEMENT
NOW,
THEREFORE, in consideration of the promises and the mutual covenants set forth
in this Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as
follows:
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1.
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Definitions.
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“Action”
means
any action, arbitration, audit, demand, claim, complaint, dispute, hearing,
inquiry, investigation, litigation, prosecution or suit (whether civil,
criminal, administrative, judicial or investigative, whether formal or informal,
whether public or private).
“Ancillary
Documents”
means,
collectively,
the
Covenants Not To Compete, the Investment Representations, the Lock-Up Agreement
and all releases and instruments executed, filed or otherwise prepared,
exchanged or delivered in accordance with this Agreement.
“Assumed
Company Liabilities”
shall
have the meaning set forth in Section
2.3.
“Claims”
have
the meaning set forth in Section
8.5(a).
“Closing”
and
“Closing
Date”
shall
have the meanings set forth in Section
3.1.
“Company
Assets”
shall
have the meaning set forth in Section
2.4
hereto.
“Contested
Claims”
shall
have the meaning set forth in Section
8.6(b).
“Court
Order”
means
any judgment, decision, decree, injunction, order, writ, award, determination
or
ruling of any Governmental Entity or arbitrator.
“Covenants
Not to Compete”
means
those certain Covenants Not to Compete, dated as of the Closing Date,
substantially in the forms set forth in Exhibit
A-1
through
Exhibit
A-5
hereto.
“Disclosure
Schedules”
shall
have the meaning set forth in Section
4.
“Domain
Names”
means
“XXXXX.XXX,” “XXXXXXXXXXX.XXX,” “XXXXXXXXXXXXXXX.XXX,” “XXXXXXXXX.XXX,”
“XXXXXXXXXXXXXXX.XXX,” and all urls associated therewith;
“Domain
Name Transfer Filings”
means
any all necessary forms and documents required to be filed by the Company with
Network Solutions, Inc. for
the
Domain Names in order to transfer full control of the Company’s Domain Names to
Purchaser, free and clear of all Encumbrances.
“Encumbrance”
means
any claim, lien, mortgage, pledge, security interest, restriction, easement,
deed of trust, right of way, encroachment, conditional sales agreement, prior
assignment, option, encumbrance, charge, agreement, or claim or right of any
kind of a third party, whether voluntarily incurred or arising by operation
of
law, and includes, without limitation, any agreement to give any of the
foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof.
“Financial
Statements”
shall
mean, collectively, the financial statements of the Company for the two-year
period ended December 31, 2007 and for the five month period ended May 31,
2008.
“Final
Award”
shall
have the meaning set forth in Section
8.6(c)(iii).
“Force
Majeure”
shall
mean any delay or failure in performance due to any reason or unforeseen
circumstance beyond a Party’s reasonable control, including (without limitation)
acts of God or public authorities, war and war measures (whether or not a formal
declaration of war is in effect), terrorist activities, civil unrest, fire,
epidemics, floods, earthquakes, hurricanes, or other natural disasters, or
delays in transportation, delivery or supply.
“Governmental
Entity”
means
any court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign.
“Governmental
Rule”
shall
have the meaning set forth in Section
4.3.
“Indemnification
Notice”
shall
have the meaning set forth in Section
8.5(a).
“Indemnified
Party”
shall
have the meaning set forth in Section
8.5(a).
“Indemnitor”
shall
have the meaning set forth in Section
8.5(a).
“Intellectual
Property”
means,
collectively, all rights in or affecting intellectual or industrial property
or
other proprietary rights, existing now or in the future, in the United States
or
anywhere in the universe, including, without limitation, any and all rights
in,
to, or subsisting in the following: (a) all issued patents, reissued or
reexamined patents, revivals of patents, Company, continuations and
continuations-in-part of patents, all renewals and extensions thereof, utility
models, certificates and records of invention, invention disclosures, and
published or unpublished nonprovisional and provisional patent applications,
including the right to file other or further applications, reexamination
proceedings; (b) all copyrights and copyrightable works, including, without
limitation, all rights of authorship, use, publication, reproduction,
distribution, performance, transformation, moral rights and ownership of
copyrightable works, the right to create derivative works, and all applications
for registration, registrations, renewals and extensions of registrations;
(c)
all trademarks, service marks, logos, trade names, fictitious business names,
domain names, 1-800, 1-888, 1-877 and other “vanity” telephone numbers, together
with the goodwill of the business associated therewith, all applications for
registration and registrations thereof, renewals thereof, the right to bring
opposition and cancellation proceedings and any and all rights under the laws
of
trade dress; (d) all business information and materials, whether or not
patentable or copyrightable, and whether or not reduced to practice, including,
without limitation, all technology, ideas, research and development, inventions,
proprietary information, manufacturing, engineering, and operating
specifications and practices, methods, processes, procedures, schematics,
know-how, formulae, customer, member, visitor, subscriber and supplier lists
and
information, product surveys, shop rights, designs, drawings, patterns, plans,
prototypes, trade secrets, technical data, research records, market surveys,
computer programs, and all hardware, software and processes; and (e) all other
intangible assets, properties and rights (whether or not appropriate steps
have
been taken to protect, under applicable law, such other intangible assets,
properties or rights) including, without limitation, all claims, causes of
action and rights to xxx for past, present and future infringement or
unconsented use of any of the Intellectual Property, the right to file
applications and obtain registrations, and all rights arising therefrom and
pertaining thereto and all products, proceeds, revenues and royalties arising
from or relating to any and all of the foregoing. Notwithstanding anything
herein to the contrary, “Intellectual Property” shall not include any rights or
copyrights obtained by the Company pursuant to any of the Licensing Agreements.
“Investment
Representations”
means
those investment representations, dated as of the Closing Date, in the form
set
forth in Exhibit
C.
“Lock-Up
Agreement”
means
that certain Lock-Up and Leak Out Agreement, dated as of the Closing Date,
and
executed by all the Members, in substantially the same form as Exhibit
B.
“Losses”
shall
have the meaning set forth in Section
8.1.
“Major
Members”
shall
mean the following Members: Xxxxxxx Xxxxxxx, Xxxxx Xxxxxxx, Xxxxxxxx Xxxxxxxxxx,
Almarmal, LLC and Xxxxxx Kingslyn.
“Material
Adverse Effect”
or
“Material
Adverse Change”
means
any change, event or effect that is or could reasonably be expected to be
materially adverse to the business, assets (including intangible assets),
condition (financial or other), liabilities, properties, prospects or results
of
operations of the Company, the Company Assets or which otherwise could
reasonably be expected to prevent the consummation of the transactions
contemplated by this Agreement.
“Material
Contracts”
shall
have the meaning set forth in Section
2.3(f).
“Permits”
shall
mean all licenses, permits, franchises, approvals, authorizations, consents
or
orders of, or filings with, any Governmental Entity, whether foreign, federal,
state or local, or any other Person, necessary or desirable for the past,
present or anticipated conduct of, or relating to the operation of the business
of the Company and/or the use of the Company Assets.
“Person”
means
any individual, corporation, limited liability company, partnership, joint
venture, trust, business, association or other entity.
“Purchase
Price”
shall
have the meaning set forth in Section
2.1(b).
“Resignations”
shall
have the meaning set forth in Section
3.2.
“Subsidiary”
means,
with respect to any Person (including Members)(the “Owner”), any corporation or
other Person of which securities or other interests having the power to elect
a
majority of that corporation’s or other Person’s board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred), are held by the Owner or one or more of its
Subsidiaries.
“Taxes”
means
all federal, state, local and foreign taxes, charges, fees, levies and other
assessments, including, without limitation, any income, alternative or add-on
minimum tax, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, withholding, payroll, employment, excise, stamp, property,
environmental or other tax, together with all interest, penalties and additions
with respect thereto.
“Uncontested
Claims”
shall
have the meaning set forth in Section
8.6(a).
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2.
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Purchase
and Sale of Membership Interests; Earn-Out; Assumed Liabilities;
Company
Assets.
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2.1
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Purchase
and Sale of Membership Interests.
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(a) Subject
to the terms and conditions of this Agreement, simultaneously with the execution
of this Agreement by all Parties hereto, each of the Members hereby conveys,
transfers, assigns and delivers to the Purchaser, and Purchaser hereby acquires
from each of the Members, good and valid title, free and clear of all
Encumbrances, to the Membership Interests, as set forth opposite each of the
Members names on Schedule
A.
(b)
Purchaser
hereby purchases the Membership Interests from the Members for an aggregate
purchase price of $3,150,000 (“Purchase Price”). The Purchase Price shall be
allocated among the Members in accordance with the percentage holding of
Membership Interests held by each of the Members, as set forth opposite each
of
the Members names on Schedule A (the “Pro Rata Distribution”). The Purchase
Price shall be payable in the form of shares of common stock of Purchaser (the
“Purchase Price Shares”) issued in the names of the Members in accordance with
the Pro Rata Distribution, in the amounts and as of the dates set forth below
(each, a “Payment Date”):
(i) One-third
of the Purchase Price Shares shall be issued simultaneously with the execution
of this Agreement by all Parties hereto (“Closing Purchase Price
Shares”);
(ii) One-third
of the Purchase Price Shares shall be issued on the three-month anniversary
of
the Closing Date; and
(iii) One-third
of the Purchase Price Shares shall be issued on the twelve month anniversary
of
the Closing Date.
(c) The
Purchase Price Shares shall be subject to the Lock-Up Agreement.
(d) The
number of Purchase Price Shares issued on a particular Payment Date shall be
calculated by dividing one third of the Purchase Price by the average closing
trading price of a share of Purchaser’s common stock for the five trading days
immediately prior to such Payment Date (the “Purchase Price Per Share
Denominator”); provided
that, each of the Members acknowledges and agrees, in no event shall the
Purchase Price Per Share Denominator be less than $.15 regardless of the
five-day average closing trading price of a share of Purchaser’s common stock
for the five trading days immediately prior to such Payment
Date.
If the
five-day average closing trading price of a share of Purchaser’s common stock
for any Payment Date is less than $.15, then the Purchase Price Per Share
Denominator shall be $.15. In connection herewith, the Members acknowledge
and
agree that although Purchaser will direct its transfer agent within two business
days of a particular Payment Date to prepare and deliver to the Members the
stock certificates evidencing the Purchase Price Shares, the actual date of
delivery of the stock certificates to Members is in the transfer agent’s control
and it shall not a be a breach of this Agreement that such stock certificates
are not delivered to Members on the particular Payment Date so long as Purchaser
directs the transfer agent to issue such stock certificates within two business
days of the particular Payment Date. .
2.2 Earn-Out.
(a) In
addition to the Purchase Price Shares, the Members shall be entitled to the
issuance of up to an additional $600,000 in shares of common stock of the
Purchaser (the “Earn Out Shares”) during the 18 month period following the
Closing Date (the “Earn Out Period”) based on the gross revenues of the Company
derived from the exploitation of the content licensed pursuant to the Licensing
Agreements (defined below) as well as the eBooks (collectively, the “Earn Out
Revenues”), as follows (each, an “Earn Out Date”):
(i) $150,000
in Earn Out Shares if and when the monthly Earn Out Revenues for two consecutive
calendar months during the Earn Out Period, equal or exceed $50,000,
plus
(ii) $150,000
in Earn Out Shares if and when the monthly Earn Out Revenues for two consecutive
calendar months during the Earn Out Period equal or exceed $100,000,
plus
(iii) $150,000
in Earn Out Shares if and when the monthly Earn Out Revenues for two consecutive
calendar months during the Earn Out Period equal or exceed $200,000, and
plus
(iv) $150,000
in Earn Out Shares if and when the monthly Earn Out Revenues for two consecutive
calendar months during the Earn Out Period equal or exceed
$250,000.
(b) The
Earn
Out Shares, if any, shall be allocated among the Members, and issued in the
names of the Members, in accordance with the Pro Rata Distribution.
(c) The
number of Earn Out Shares issued on a particular Earn Out Date shall be
calculated by dividing $150,000 by the average closing trading price of a share
of Purchaser’s common stock for the five trading days immediately prior to such
Earn Out Date (the “Earn Out Per Share Denominator”); provided that, each of the
Members acknowledges and agrees, in no event shall the Earn Out Per Share
Denominator be less than $.15 five-day average closing trading price of a share
of Purchaser’s common stock for the five trading days immediately prior to such
Earn Out Date. If the five-day average closing trading price of a share for
any
Earn Out Date is less than $.15, then the Purchase Price Per Share Denominator
shall be $.15. In connection herewith, the Members acknowledge and agree that
calculation of the monthly gross revenues for purposes of determining whether
any Earn Out Shares are issuable shall occur within 15 days of the end of each
calendar month during the Earn Out Period and the direction to the transfer
agent to issue the stock certificates evidencing the Earn Out Shares, if any,
shall not be made until such calculation is complete. The monthly gross revenues
of the Company for each month within the Earn Out Period shall be reported
to
the Members within 15 days after the end of such month. Each Earn Out Date
shall
be no later than the 20th day after the end of the month in which the Members
earned the Earn Out Shares pursuant to subsection 2.2(a) above.
(d) The
Earn
Out Shares payable under subsection 2.2(a) above shall be calculated in the
aggregate (i.e. if the monthly Earn Out Revenues of the Company during the
first
two months of the Earn Out Period equal $100,000, the Members shall be entitled
to $300,000 in Earn Out Shares). Earn Out Share eligibility shall be calculated
for each two-month period during the Earn Out Period. Notwithstanding anything
herein to the contrary, the Members shall not be entitled to receive more than
$600,000 in aggregate Earn Out Shares, even if the monthly Earn Out Revenues
would otherwise entitle the Members to additional Earn Out Shares.
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Company
Liabilities.
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(a) Digital
Content Licensing Agreements.
Schedule
B
sets
forth a list of the Company’s Digital Content Licensing Agreements in effect
prior to the Closing Date (the “Licensing Agreements”). After the Closing, the
Purchaser shall attempt to (i) amend the Licensing Agreements to eliminate
any
royalties payable thereunder, or (ii) terminate the Licensing Agreements without
any further liability to the Company. In connection herewith, Purchaser agrees
to consult meaningfully with Will Xxxxxxx and Xxxxx Xxxxxxx with respect to
negotiating amendments to the Licensing Agreements. Purchaser agrees not to
continue offering for download content subject to a License Agreement which
has
not been amended as set forth in (i) or (ii) above, unless there is a
corresponding integrated sponsorship or payment by user which fully covers
the
royalty payable under the Licensing Agreements.
(b) Other
Company Liabilities.
Except
for those specific liabilities of the Company set forth on Schedule
D
attached
hereto (the “Assumed Company Liabilities”), which shall be assumed by Purchaser,
the Company shall remain liable for any and all other liabilities of the Company
of any kind, character or description, whether known or unknown, actual or
contingent, matured or unmatured, liquidated or unliquidated, disputed or
undisputed, executory, determined, determinable or otherwise, related to the
Company Assets and/or the business of the Company which liabilities arise out
of
the operation of the business of the Company prior to the Closing Date or as
a
direct result of the sale of the Membership Interests to Purchaser hereunder
(collectively, the “General Liabilities”), but subject to the indemnification
provisions of Sections 8.1(a) and 8.1(b) hereof. The Company shall maintain
its
current general liability insurance through the Closing Date, until such time
as
Purchaser determines that such coverage is no longer necessary, to cover the
General Liabilities.
2.4 Company
Assets.
On the
Closing Date, the Company shall continue to possess all right, title and
interest in, to and under all the assets, properties and rights of every nature,
kind and description, of the Company which right, title and interest existed
as
of May 31, 2008, whether tangible or intangible, real, personal or mixed,
wherever located and whether or not carried or reflected on the books and
records of the Company, and all goodwill associated therewith (with the
exception of any goodwill possessed individually by the Members), and which
shall include (without limitation) the following (collectively, the “Company
Assets”):
(a) All
accounts receivables of the Company, whether or not reflected on the books
and
records of the Company as of the Closing Date;
(b) the
Licensing Agreements set forth on Schedule
B
attached
hereto;
(c) the
eBooks listed on Schedule
E
attached
hereto, including all copyrights and other proprietary rights therein and the
thereto (the “eBooks”);
(d) the
inventory listed on Schedule
F
attached
hereto;
(e) the
material contracts listed on Schedule
G
attached
hereto (the “Material Contracts”);
(f) the
Domain Names:
(g) a
database of approximately 200,000 registered users;
(h) 14
servers;
(j) United
States Patent Application No. 11/464,154
2.5 Closing
Costs; Taxes and Fees
Members
shall pay, or cause to be paid, when due all Taxes for which the Members are
or
may be liable or that are or may become payable as a direct result of
consummation of the transactions contemplated hereunder. Each of the Members
shall pay any and all income tax liability attributable to such Member as a
result of the sale of such Member’s Membership Interests. Each Party shall be
responsible for filing its own tax returns and other tax forms of whatever
sort
deemed appropriate and necessary by the filing Party.
3. The
Closing.
3.1 Closing
Date.
The
consummation of the sale and transfer of the Membership Interests contemplated
in this Agreement shall take place at the offices of Purchase simultaneously
with the execution of this Agreement by all of the Parties (the “Closing
Date”).
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3.2
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Deliveries.
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(a) On
the
Closing Date, Members shall execute and deliver to Purchaser the
following:
(i) certificate
of good standing for the Company, dated not more than thirty (30) days prior
to
the Closing Date, from the Secretary of State of the State of
Pennsylvania;
(ii) a
certificate executed by the Secretary of the Company certifying, as of the
Closing Date, as to a true and complete copy of the resolutions of the board
of
directors and members of the Company authorizing the sale of the Company through
a sale of all of the membership interests;
(iii) any
certificates or other instruments previously issued to the Members documenting
their Membership Interests, endorsed for transfer to Purchaser, free and clear
of all Encumbrances, including any necessary assignments from the Members to
the
Purchaser;
(iv) any
and
all third party consents required for the valid transfer of the Membership
Interests free and clear of all Encumbrances as contemplated by this
Agreement;
(v) any
and
all third party consents required under any Material Contracts due to a change
in control of the Company which is triggered by the purchase of the Membership
Interests as contemplated hereunder;
(vi) the
resignation of all officers and directors of the Company effective as of the
Closing Date (the “Resignations”);
(vii) Covenants
Not to Compete executed by each of the Major Members;
(viii) the
Lock-Up Agreement;
(ix) the
Investment Representations;
(x) satisfactory
proof of the filing and recordation of all Domain Name Transfer Filings and
other instruments required to be recorded and filed in order to consummate
the
transfer of control of the Domain Names to Purchaser free and clear of all
Encumbrances;
(xi) such
other documents or instruments as Purchaser or its counsel may reasonably
request to demonstrate compliance with the provisions set forth in this
Agreement.
(b) On
the
Closing Date, Purchaser
shall
execute and deliver to the Members the following:
(i) a
copy of
instructions sent by Purchaser to its transfer agent to issue and deliver stock
certificates representing the Closing Purchase Price Shares; and
(ii) the
Covenants Not to Compete.
(iii) the
Lock-Up Agreement.
4. Representations
and Warranties of Members.
The
Members hereby represent and warrant, subject only to the exceptions disclosed
in writing in the disclosure schedule attached to this Agreement as Schedule
I
(the
“Disclosure
Schedule”),
as of
the date hereof, to and for the benefit of Purchaser as follows:
4.1 Organization,
Standing and Power; Capitalization.
The
Company is a limited liability company duly organized, validly existing and
in
good standing under the laws of the State of Pennsylvania and has all requisite
power and authority to own, operate and transfer its properties and assets
and
to carry on its business as now being conducted. The Company is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its activities and
of
its properties (both owned and leased) makes such qualification necessary.
4.2 Membership
Interests.
The
Members collectively own all of the Membership Interests free and clear of
all
Encumbrances and there are no other outstanding equity, ownership or voting
interests in the Company or outstanding options to acquire any equity, ownership
or voting interests in the Company or outstanding securities convertible into
any equity, ownership or voting interests in the Company or any agreements
by
the Company or the Members to issue or grant any of the foregoing.
4.3 Authority
and Enforceability.
Each of
the Members has the full legal power, capacity and authority to enter into
and
execute this Agreement and, to the extent applicable to such Member, the
Ancillary Documents required to be executed hereunder, and to perform such
Member’s obligations and to consummate the transactions contemplated in this
Agreement in accordance with its terms, including the sale and transfer to
Purchaser of such Member’s Membership Interests. The execution, delivery and
performance of this Agreement and all of the transactions required hereunder
to
be performed by the Members have been duly and validly authorized and approved
by all necessary action by the Members as a class or group, and approval of
the
board of directors of the Company has been duly obtained in accordance with
the
provisions of the Company’s Restated and Amended Operating Agreement and any
amendments thereto and applicable law. This Agreement and each Ancillary
Document constitutes the valid and legally binding obligation of the signatory
Members thereto in accordance with their respective terms, except as the same
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally.
4.4 No
Violation, Conflict or Consent.
The
execution, delivery and performance of this Agreement by Members does not,
and
the consummation of the transactions contemplated hereby and the compliance
with
the terms hereof will not: (a) violate any law, judgment, order, decree,
statute, ordinance, rule or regulation of any governmental subdivision or agency
applicable to Members (“Governmental
Rule”);
(b)
conflict with any provision of the Company’s organizational documents; (c)
violate, conflict with, or result in or constitute a default under, or result
in
the termination or acceleration under, or result in the creation of any
Encumbrance upon, any of the Company Assets or under any of the terms,
conditions or provisions of any contract affecting any of the Company Assets;
or
(d) require any consent, approval, order or authorization of, or the
registration, declaration or filing with, any Governmental Entity or other
Person. The Company does not require the consent of any Person to permit
Purchaser to operate the business of the Company in the manner in which it
is
presently being operated. Neither the Company nor any of the Members are
required to give any notice to or obtain any consent from any Person in
connection with the execution and delivery of this Agreement, the Ancillary
Documents or the consummation or performance of any of the transactions
contemplated in this Agreement or the Ancillary Documents.
4.5 Compliance
with the Laws.
The
Company is and has been in compliance with all laws applicable thereto and
all
Court Orders. Neither the Company nor any of the Members has received any
written notice to the effect that, or otherwise been advised in writing that,
the Company is not in compliance with any such applicable laws or Court Orders,
and none of the Members is aware of any circumstances that are likely to result
in violations of any of the foregoing.
4.6 Litigation.
There
are no Actions or Court Orders pending or threatened against or by the Company
in any court or before any arbitrator, private alternative dispute resolution
system or Governmental Entity, nor has the Company been charged with, nor is
the
Company under investigation with respect to any charge concerning any violation
of any provision of any federal, state or other applicable law, rule,
regulation, ordinance, order, decree or governmental restriction. The Company
is
not in default with respect to or subject to any Court Order, and there are
no
unsatisfied judgments against the Company or any consent decrees, writs,
restraining orders, or preliminary or permanent injunctions to the Company
or
the Company Assets are subject.
4.7 Absence
of Changes.
Since
May 31, 2008, there has not been any Material Adverse Change in the business,
financial condition, operations, results of operations or future prospects
of
the Company. Without limiting the generality of the foregoing, and other than
as
listed in the Disclosure Schedule, since May 31, 2008 there
has
not been any:
(a) actual
or
threatened adverse change in the financial condition, working capital, Members’
equity, assets, liabilities, reserves, revenues, income, earnings or results
of
operation or governing documents (including the Restated and Amended Operating
Agreement of the Company and any amendments thereto) of the Company or the
Company Assets or any event, condition or fact, in either case that is, or
would, with the passage of time, result in a Material Adverse Change to the
Company Assets or the prospects the Company’s business as presently
conducted;
(b) sale
or
other disposition, except in the ordinary course of business of any of the
Company Assets, or any Encumbrance placed on the Company Assets;
(c) damage,
destruction or loss (whether or not covered by insurance) materially adversely
affecting the Company Assets;
(d) imposition
of any security interest upon any of the Company Assets, except in the ordinary
course of business;
(e) any
capital expenditure (or series of capital expenditures) by the Company outside
of the ordinary course of business;
(f) acceleration,
amendment, cancellation or termination of any contract, commitment, agreement,
lease, transaction or Permit relating to the Company Assets or entry into any
contract, commitment, agreement, lease, transaction or Permit which is not
in
the ordinary course of the Company’s business;
(i) cancellation,
compromise, waiver or release of any right or claims (or series of related
rights and claims) related to the Company Assets either involving more than
$5,000 or outside the ordinary course of the Company’s business;
(j) adverse
change in relations with publishers and/or users which has or is reasonably
likely to have a material adverse effect on the financial condition, results
of
operations or the business of the Company;
(k) disposition
or lapsing of any Intellectual Property of the Company, which is has or is
reasonably likely to have a material adverse effect on the financial condition,
results of operations or the business of the Company;
(l) any
disposition or disclosure to any person of any Intellectual Property of the
Company not theretofore a matter of public knowledge;
(m) grant
of
any exclusive rights with respect to, or entry into any licensing agreements
with, any third party in connection with any of the Company Assets;
and
(n) commitment
by the Company or any of the Members to any of the foregoing.
4.8 Title
and Condition of the Company Assets.
The
Company has good and marketable title to the Company Assets, free and clear
of
any Encumbrances, other than those Encumbrances which are Assumed Company
Liabilities and no Encumbrance shall be created or attach to the Company Assets
as a result of the consummation of the sale of the Membership Interests to
Purchaser hereunder. The Company Assets include, without limitation, all assets,
tangible and intangible, of any nature whatsoever, necessary or material for
the
conduct of the business of the Company as presently conducted, except for the
Excluded Assets. All tangible assets and properties which are part of the
Company Assets are in good operating condition and repair, properly perform
their intended functions, are usable in the ordinary course of business and
conform to all applicable laws relating to their construction, use and
operation.
|
4.9
|
Intellectual
Property
|
(a) Schedule
4.8
sets
forth a true, complete and accurate list of all Intellectual Property of the
Company (except the Excluded Assets). Schedule
4.8
sets
forth a true, complete and accurate list of all jurisdictions where the
Intellectual Property of the Company is registered or where applications have
been filed, and all patent, registration and application numbers. True and
correct copies of all patents and patent applications, trademark and service
xxxx applications and registrations, copyright applications and registrations
and domain name registrations comprising the Intellectual Property of the
Company have been provided to Purchaser.
(b) The
Company owns exclusively and has the exclusive right to use all of the
Intellectual Property of the Company free and clear of all Encumbrances, and
the
Intellectual Property of the Company will not cease to be valid by reason of
the
execution, delivery and performance of this Agreement or the consummation of
the
transactions contemplated hereby. Neither the Company nor any of the Members
is
aware of any conduct or use by the Company that would void or invalidate or
constitute misuse of any of the Intellectual Property of the Company. Neither
the Company nor any of the Members is aware of any Action that is pending or
threatened and no claim or demand been made, which claims infringement or
misappropriation or challenges the legality, validity, enforceability or
ownership of the Intellectual Property of the Company, and neither the Company
nor any of the Members has received any notice of invalidity or infringement
of
any rights of others with respect to the Intellectual Property of the Company.
The Company has taken reasonable and prudent steps to protect the Intellectual
Property of the Company from infringement by any Person. No other Person has
notified the Company or any of the Members that such Person is claiming any
ownership of or the right to use any of the Intellectual Property of the
Company, or is infringing upon any of the Intellectual Property of the Company.
To the best knowledge of the Members, the Intellectual Property of the Company
is valid, subsisting and enforceable, and does not and will not infringe upon,
misappropriate or otherwise violate the rights of any Person. To the best
knowledge of the Members, all software used in connection with the Company
is
free from any faults, defects, viruses, worms, disabling programming codes,
instructions or other such items that may threaten, infect, damage, disable
or
otherwise interfere with the use of such software.
(c) A
copy of
all documentation relating to any trade secrets and confidential information
comprising any part of the Intellectual Property of the Company has been
furnished to Purchaser. Such documentation is current, accurate, complete and
in
sufficient detail and content to explain all material aspects of the trade
secrets and confidential information and to allow its full and proper use
without reliance on the memory of other Persons. To the best knowledge of the
Members, such trade secrets are not part of the public domain or literature
nor
have they been used, divulged or appropriated for the benefit of any Person
(other than the Company) or to the detriment of the Company. The Company has
taken reasonable security measures to protect the secrecy, confidentiality
and
value of all of such trade secrets and confidential information.
(d) To
the
best of the Members’ knowledge, neither the Members nor any of the employees or
independent contractors of the Company are in violation of any non-competition,
non-disclosure or other similar agreements which would prohibit the Company
from
entering into or consummating the transactions contemplated hereby.
4.10 Absence
of Defaults
All of
the contracts and leases by which any of the Company Assets is bound or affected
are valid, binding and enforceable in accordance with their terms. Except as
specifically set forth in the Disclosure Schedule, the Company has fulfilled,
or
taken all action necessary to enable it to fulfill when due, all of its
obligations under each of such contracts and leases. Except as set forth in
the
Disclosure Schedule, all parties to such contracts and leases have, to the
Members’ best knowledge, complied with the provisions thereof, no party is in
default thereunder and no notice of any claim of default has been given to
the
Company or any of the Members. There is no reason to believe that the services
called for by any unfinished contract cannot be supplied by the Company in
accordance with the terms of such contract, including time specifications,
and
has no reason to believe that any unfinished contract will upon performance
by
the Company result in a loss to the Company. With respect to any leases, neither
the Company nor any of the Members have received any notice of cancellation
or
termination under any option or right reserved to the lessor, or any notice
of
default, thereunder.
4.11 Books
and Records.
The
Company has made and kept (and given Purchaser access to) books and records
and
accounts, which, in reasonable detail, accurately and fairly reflect the
business of the Company as conducted since its formation.
4.12 Financial
Statements.
(a) The
Company has delivered the Financial Statements to Purchaser. Such Financial
Statements were created in the ordinary course of business, consistent with
the
past practice of the Company, and, as of their respective dates, are true and
correct. The Financial Statements were prepared in accordance with generally
accepted accounting principles and with the past practice of the Company and
fairly present the financial position, assets, liabilities, and results of
operations of the Company as of the respective dates thereof or for the periods
then ended (as applicable), subject to normal year-end adjustments consistent
with prior periods. There are no claims, obligations or liabilities of the
Company required to be reflected in the Financial Statements or under generally
accepted accounting principles relating to the period prior to the Closing
Date,
other than those set forth in the Financial Statements. There are no events
or
circumstances that have occurred or come into existence since the date of the
most recent Financial Statements that may reasonably be expected, individually
or in the aggregate, to have or constitute a Material Adverse Effect on the
Company, the Company Assets or the Members’ ability to sell the Membership
Interests to Purchaser and consummate the transactions contemplated hereunder.
(b) The
Company has given Purchaser access to all of the Company’s books and records and
accounts which currently exist, and which in reasonable detail accurately and
fairly reflect the business activities of Company.
4.13 Tax
Matters
(a) Filing
of Tax Returns.
The
Company has timely filed with the appropriate taxing authorities all returns
(including, without limitation, information returns and other material
information) in respect of Taxes required to be filed through the date hereof
and will timely file any such returns required to be filed on or prior to the
Closing Date. The returns and other information filed are complete and
accurate.
(b) Payment
of Taxes.
All
Taxes owed by the Company (whether or not shown on any Tax return of the
Company) have been paid, and the Company does not have, to Members’ knowledge,
any liability for any material Taxes in excess of the amounts so paid, except
for any franchise, income, or other taxes imposed on the Company and applicable
to the portion of the 2008 calendar year prior to the Closing Date, and due
and
payable after the Closing Date.
(c) Audits,
Investigations or Claims.
To the
Members’ knowledge, no deficiencies for Taxes have been claimed, proposed or
assessed by any taxing or other Governmental Entity against the Company. To
the
Members’ knowledge, there are no pending or threatened audits, investigations or
claims for or relating to any additional liability in respect of Taxes, and
there are no matters under discussion with any Governmental Entity with respect
to Taxes that in the reasonable judgment of the Members, is likely to result
in
an additional liability for Taxes.
(d) Liens.
There
are no filed liens for Taxes on the Company Assets.
4.14 Permits.
(a) Schedule
4.13
sets
forth a complete list of all Permits used in the operation of the business
of
the Company. The Company has, and at all times has had, all Permits required
under any applicable law in the operation of the business of the Company or
in
the ownership of the Company Assets, and owns or possesses such Permits free
and
clear of all Encumbrances. The Company is not in default, nor has it received
any notice of any claim of default, with respect to any such Permit. Except
as
otherwise governed by law, all such Permits are renewable by their terms or
in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees
and will not be adversely affected by the completion of the transactions
contemplated by this Agreement.
(b) Other
than as disclosed on the Disclosure Schedule hereto, no notice to, declaration,
filing or registration with, or Permit from, any Government Entity, or any
other
person or entity, is required to be made or obtained by the Company in
connection with the execution, delivery or performance of this Agreement and
the
consummation of the transactions contemplated hereby.
4.15 No
Other Agreements to Sell the Company Assets.
Neither
the Company nor any of its officers, directors, members or affiliates have
any
commitment or legal obligation, absolute or contingent, to any other Person
or
party other than Purchaser to sell, assign, transfer or effect a sale of the
Company Assets, to sell or effect a sale of the Membership Interests, to effect
any merger, consolidation, liquidation, dissolution or other reorganization
of
the Company, or to enter into any agreement or cause the entering into of an
agreement with respect to any of the foregoing, and neither the Company nor
any
of its officers, directors, members or affiliates have made any representations
or entered into any contracts, commitments or other agreements with third
parties which purport to so bind or obligate Purchaser.
4.16 Brokers
and Finders.
Neither
the Company nor any of the Members nor any of its directors, officers,
shareholders, members or employees have employed any broker, finder, or
financial advisor or incurred any liability for any brokerage fee or commission,
finder’s fee or financial advisory fee, in connection with the transactions
contemplated hereby, nor is there any basis known to Members for any such fee
or
commission to be claimed by any Person.
4.17 No
Liabilities.
The
Company has no liabilities due or to become due, which, individually or in
the
aggregate, has or would have a Material Adverse Effect on the business of the
Company or the Company Assets. None of the Members’ has any claim or right
against the Company Assets. In connection herewith, the Members represent and
warrant that as of the Closing Date, any and all outstanding loans to the
Company have been converted into membership interests being sold hereunder
or
have been paid off.
4.18 Accuracy
of Information.
No
representation or warranty made by the any of the Members in this Agreement,
the
Disclosure Schedules attached hereto, or in any agreement, instrument, document,
certificate, statement or letter furnished or to be furnished to Purchaser
prior
to, at or after the Closing by or on behalf of Members in connection with any
of
the transactions contemplated by this Agreement contains or will contain any
untrue statement of material fact or omit or will omit to state any material
fact necessary in order to make the statements herein or therein not misleading
in light of the circumstances in which they are made, and all of the foregoing
completely and correctly present the information required or purported to be
set
forth herein or therein.
5. Representations
and Warranties of Purchaser.
Purchaser
hereby represents and warrants, as of the date hereof, to and for the benefit
of
Members as follows:
5.1 Organization,
Standing and Power.
Purchaser is a California corporation duly organized, validly existing and
in
good standing under the laws of the State of California, and has all requisite
company power and authority to own, operate and lease its properties and assets
and to carry on its business as now being conducted. Purchaser is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its activities and
of
its properties makes such qualification necessary.
5.2 Authority
and Enforceability of the Agreement.
Purchaser has the full company power and authority to enter into and execute
this Agreement and the Ancillary Documents required by this Agreement and to
perform its obligations and to consummate the transactions contemplated in
this
Agreement in accordance with its terms. The execution, delivery and performance
of this Agreement and all of the transactions required hereunder to be performed
by Purchaser have been duly and validly authorized and approved by all necessary
corporate action. This Agreement has been duly and validly executed and
delivered, on behalf of Purchaser, by its duly authorized manager. This
Agreement and each Ancillary Document constitutes the valid and legally binding
obligation of Purchaser, enforceable in accordance with its terms, except as
the
same may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally.
5.3 No
Violation, Conflict or Consent.
The
execution, delivery and performance of this Agreement by Purchaser does not,
and
the consummation of the transactions contemplated hereby and the compliance
with
the terms hereof will not: (a) violate any Governmental Rule applicable to
it;
(b) conflict with any provision of Purchaser’s organizational documents; (c)
violate, conflict with, or result in or constitute a default under, or result
in
the termination or acceleration under, any of the terms, conditions or
provisions of any contract, lease binding on Purchaser; or (d) require any
consent, approval, order or authorization of, or the registration, declaration
or filing with, any Governmental Entity or other Person.
5.4 Accuracy
of Information.
No
representation or warranty made by Purchaser in this Agreement or in any
agreement, instrument, document, certificate, statement or letter furnished
or
to be furnished to Members prior to, at or after the Closing by or on behalf
of
Purchaser in connection with any of the transactions contemplated by this
Agreement contains or will contain any untrue statement of material fact or
omit
or will omit to state any material fact necessary in order to make the
statements herein or therein not misleading in light of the circumstances in
which they are made, and all of the foregoing completely and correctly present
the information required or purported to be set forth herein or
therein.
5.5 Brokers
and Finders.
Neither
Purchaser nor any of its officers, directors, shareholders, employees agents
or
representatives have employed any broker, finder, or financial advisor or
incurred any liability for any brokerage fee or commission, finder’s fee or
financial advisory fee, in connection with the transactions contemplated hereby,
nor is there any basis known to Purchaser for any such fee or commission to
be
claimed by any Person.
5.6 Purchase
Price Shares; Investment Common Stock and Investment Warrants.
The
Purchase Price Shares, Investment Common Stock and shares of common stock
issuable upon exercise of the Investment Warrants when issued in accordance
with
this Agreement, will be duly and validly issued, fully-paid and non-assessable.
6. Post-Closing
Obligations.
6.1 Consulting
Agreements.
As soon
as practicable following the Closing Date, Will Xxxxxxx and Xxxxx Xxxxxxx shall
negotiate in good faith with Purchaser to enter into 12 month consulting
agreements with Purchaser with respect to the operation of the business of
the
Company following the Closing Date.
7. Conditions
to Closing.
7.1 Conditions
Precedent to the Obligations of Purchaser.
The
obligation of Purchaser to consummate the purchase of the Membership Interests
under this Agreement is subject to the fulfillment, as of the Closing, of each
of the following conditions:
(a) Performance
of Obligations of Members.
Members
shall have performed and complied with all obligations and covenants required
by
this Agreement to be performed or complied with by Members prior to or at the
Closing.
(b) No
Injunctions.
On the
Closing Date, there shall be no action threatened or pending, order, executive
order, stay, decree, judgment, injunction, statute, rule or regulation that
challenges or otherwise relates to the transactions contemplated by this
Agreement or which may have a Material Adverse Effect on the Company or which
may otherwise prohibit or make illegal the consummation of the transactions
contemplated by this Agreement.
(c) Deliveries
by Members.
Members
shall have delivered to Purchaser the items set forth in Section
3.2.
(d) Consents.
Members
shall have received, on such terms as approved by Purchaser in its reasonable
discretion, all consents, approvals, assignments, licenses, Permits, orders
and
other authorizations (including, without limitation, the approval and
authorization of the board of directors of the Company) necessary to consummate
the transactions contemplated by this Agreement including the sale and transfer
of the Membership Interests, unless waived, in writing, by Purchaser.
(e) No
Material Adverse Change.
There
shall not have been any Material Adverse Change with respect to the Company
or
the Company Assets since May 31, 2008.
7.2 Conditions
Precedent to Obligations of Members.
The
obligation of Members to consummate the sale and transfer of the Membership
Interests under this Agreement is subject to the fulfillment, as of the Closing
Date, of each of the following conditions (any or all of which may be waived
by
Members in writing):
(a) Performance
of Obligations of Purchaser.
Purchaser shall have performed and complied with all obligations and covenants
required by this Agreement to be performed or complied with by Purchaser prior
to or at the Closing.
(b) No
Injunctions.
On the
Closing Date, there shall be no action threatened or pending order, executive
order, stay, decree, judgment, injunction, statute, rule or regulation that
challenges or otherwise relates to the transactions contemplated by the
Agreement or which may otherwise prohibit or make illegal the consummation
of
the transactions contemplated by this Agreement.
(c) Deliveries
of Purchaser.
Purchaser shall have delivered to Members the items set forth in Section
3.4(a).
8. Indemnification
.
8.1 Indemnification
of Purchaser
(a) Willful
or Grossly Negligent Misrepresentation. For
a
period of five (5) years after the Closing Date, each of the Members hereby
covenants and agrees, jointly and severally, to indemnify, defend and hold
harmless the Company and Purchaser, its affiliates and subsidiaries and its
officers, directors, shareholders, partners, principals, members, employees,
attorneys, agents and representatives from and against any and all claims,
losses, damages of any kind, liabilities, obligations, Actions, deficiencies,
demands, costs, and expenses (whether or not arising out of third party Claims),
including, without limitation, all interest, fines, penalties, amounts paid
in
settlement, costs of mitigation, reasonable attorneys’ fees, court costs and all
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively, “Damages”)
imposed upon, incurred or sustained by the Company or Purchaser arising out
of
or in connection with or as a result of or incident to any willful or grossly
negligent misrepresentation by the Members of any of their representations
and
warranties made in this Agreement. The liability of the Members under this
Section 8.1(a) shall be strictly limited to, in the aggregate, the amount of
the
Purchase Price, and the Members shall have no liability for any Damages
exceeding such amount.
(b) Operational
Liabilities. For
a
period of one (1) year after the Closing Date, each of the Members hereby
covenants and agrees, jointly and severally, to indemnify, defend and hold
harmless the Purchaser, its affiliates and subsidiaries and its officers,
directors, shareholders, partners, principals, members, employees, attorneys,
agents and representatives from and against any and all Damages imposed upon,
incurred or sustained by the Purchaser arising out of or in connection with
or
as a result of or incident to any liabilities or obligations of the Company,
other than the Assumed Company Liabilities, to the extent that such Damages
are
not covered by insurance, arising out of or related to (i) the operation of
the
Company’s business prior to the Closing Date; (ii) the ownership of the Company
Assets prior to the Closing Date; (iii) taxes arising out of the conduct of
the
Company business prior to the Closing Date; (iv) any accrued but unpaid
liabilities under the Company’s contracts set forth on Schedule
C,
all of
which shall be terminated at or prior to the Closing Date (the “Terminated
Contracts”), and any liabilities under the Terminated Contracts which may accrue
through such date of termination; and (v) any liabilities under the Licensing
Agreements that the Purchaser is unable to amend pursuant to Section 2.3(a)
hereof.
The
liability of the Members under this Section 8.1(b) shall be strictly limited
to,
in the aggregate, the amount of $1,000,000, and the Members shall have no
liability for any Damages exceeding such amount. In the event of any claim
for
indemnification under this Section 8.1(b), Purchaser shall first exercise its
right of offset, pursuant to Section 8.8 to the extent available, prior to
seeking reimbursement from the Members directly.
8.2 Indemnification
of Members.
Purchaser hereby covenants and agrees to indemnify, defend and hold harmless
the
Members, and their respective agents and representatives from and against any
and all Damages imposed upon, incurred or sustained by the Members arising
out
of or in connection with or as a result of or incident to:
(a) any
breach by Purchaser of any of its representations or warranties made in this
Agreement;
(c) any
claims arising out of or related to the operation of the Company’s business
after the Closing Date which claims are not otherwise indemnified pursuant
to
Section 8.1 (b) above.
8.3 Survival
of Representations and Warranties, Etc.
All of
the representations and warranties, covenants and agreements made by each Party
in this Agreement or in any Schedule, Exhibit, Disclosure Schedule, certificate,
document, list or other writing delivered by any such Party pursuant hereto
shall survive the consummation of the transactions contemplated herein. Each
Party hereto shall be entitled to rely upon the representations and warranties,
and covenants and agreements of the other Party set forth in this Agreement.
The
right to indemnification, payment of Damages or other remedy based on any
representations, warranties, covenants and obligations will not be affected
by
any investigation conducted with respect to, or any knowledge acquired (or
capable or being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing, with respect to the accuracy
or
inaccuracy of or compliance with, any such representation, warranty, covenant
or
obligation.
8.4 Notice
of Damages;
Reimbursement.
(a) A
party
seeking indemnity hereunder (the “Indemnified
Party”)
will
give the party from whom indemnity is sought hereunder (the “Indemnitor”)
notice
(hereinafter, the “Indemnification
Notice”)
of any
demands, claims, actions or causes of action (collectively, the “Claims”)
asserted against the Indemnified Party.
(b) The
Indemnitor shall reimburse an Indemnified Party promptly after delivery of
an
Indemnification Notice certifying that the Indemnified Party has incurred
damages after compliance with the terms of this Section
8;
provided,
however,
that the
Indemnitor shall have the right to contest any such damages in good faith,
and
further
provided
that no
Indemnitor shall be liable for any special, consequential, incidental, indirect,
or punitive damages of any kind whatsoever (collectively, “Special Damages”)
unless a third party is claiming such Special Damages against the Indemnified
Party, which claim is subject to indemnification by the Indemnitor
hereunder.
8.5 Resolution
of Indemnification Notice.
Any
Indemnification Notice given to the Indemnitor will be resolved as
follows:
(a) Uncontested
Claims.
In the
event that, within thirty (30) calendar days after an Indemnification Notice
is
received by the Indemnitor, the Indemnitor does not contest such indemnification
in writing to the Indemnified Party as provided in Section
8.6(b)
(an
“Uncontested
Claim”),
the
Indemnitor will be conclusively deemed to have consented, to the recovery by
the
Indemnified Party the full amount of Losses specified in the Indemnification
Notice in accordance with this Section
8,
and,
without further notice, to have stipulated to the entry of a final judgment
for
damages against the Indemnitor for such amount in any court having jurisdiction
over the matter where venue is proper.
(b) Contested
Claims.
In the
event that the Indemnitor gives the Indemnified Party written notice contesting
all or any portion of an Indemnification Notice (a “Contested
Claim”)
within
the thirty (30)-day period specified in Section
8.6(a),
then:
(i) such Contested Claim will be resolved by either (A) a written
settlement agreement executed by the Indemnified Party and the Indemnitor after
settlement discussions to take place over a maximum of twenty (20) days or
(B) in the absence of such a written settlement agreement executed by the
Indemnified Party and the Indemnitor within the twenty (20)-day period, by
binding arbitration between the Indemnified Party and the Indemnitor in
accordance with the terms and provisions of Section
8.6(c);
provided,
that if
such notice denies the validity of only part of such Claim, the Indemnitor
will
be conclusively deemed to have consented, to the recovery by the Indemnified
Party the portion of the Losses that is uncontested, and, without further
notice, to have stipulated to the entry of a final judgment for such damages
against the Indemnitor for such amount in any court having jurisdiction over
the
matter where venue is proper.
(c) Arbitration
of Contested Claims.
Each
Party agrees that any Contested Claim will be submitted to mandatory, final
and
binding arbitration in the County of Los Angeles, California, in accordance
with
the with the International Arbitration Rules of the American Arbitration
Association then in effect. Either the Indemnified Party or the Indemnitor
may
commence the arbitration process called for by this Agreement by filing a
written demand for arbitration and giving a copy of such demand to each of
the
other parties to this Agreement. The Parties covenant that they will participate
in the arbitration in good faith, and that they will share in its costs in
accordance with subsection (i) below. The provisions of this Section
8.5(c)
may be
enforced by any federal or state court in the County of Los Angeles, California
having competent jurisdiction over the subject matter of the controversy, and
the party seeking enforcement will be entitled to an award of all costs, fees
and expenses, including reasonable attorneys’ fees, to be paid by the party
against whom enforcement is ordered.
(i) Payment
of Costs.
The
costs of arbitration (including the arbitrators’ fees) initially will be borne
equally (50/50) between the petitioner(s) and respondent(s), and each Party
will
bear its own attorneys’ fees. The arbitrator may, at his or her discretion,
reallocate some or all of costs of arbitration (including the arbitrator’s fees,
but not including attorneys’ fees) of the prevailing party based upon the
arbitrator’s determination, and only to the extent that the arbitrator finds,
that the arbitration was commenced in bad faith by the initiating party.
(ii) Burden
of Proof.
Except
as may be otherwise expressly provided herein, for any Contested Claim submitted
to arbitration, the burden of proof will be as it would be if the Claim were
litigated in a judicial proceeding governed by Pennsylvania law
exclusively.
(iii) Award.
Upon
the conclusion of any arbitration proceedings hereunder, the arbitrator will
render findings of fact and conclusions of law and a final written arbitration
award setting forth the basis and reasons for any decision reached (the
“Final
Award”)
and
will deliver the findings to the Indemnified Party and Indemnitor, together
with
a signed copy of the Final Award. The Final Award will constitute a conclusive
determination of all issues in question, binding upon the Parties, and will
include an affirmative statement to such effect. Judgment upon the award
rendered by the arbitrator may be entered in any court having competent
jurisdiction.
(iv) Timing.
The
Parties and the arbitrator will conclude each arbitration pursuant to this
Section
8.6
as
promptly as possible for the Contested Claim being arbitrated.
(v) Terms
of Arbitration.
The
arbitrator chosen in accordance with these provisions will not have the power
to
alter, amend or otherwise affect the terms of these arbitration provisions
or
the provisions of this Agreement.
(vi) Exclusive
Remedy.
Following the Closing Date, except for injunctive relief or as specifically
otherwise provided in this Agreement, arbitration conducted in accordance with
this Agreement will be the sole and exclusive means of resolution of any
Contested Claim made pursuant to Section
8.
8.6 Conditions
of Indemnification of Third Party Claims
The
obligations and liabilities of an Indemnitor under this Section
8
with
respect to damages resulting from Claims by persons not party to this Agreement
shall be subject to the following terms and conditions:
(a) Promptly
after delivery of an Indemnification Notice in respect of a Claim and subject
to
subsection (c) of this Section
8.6,
if the
Indemnitor shall acknowledge in writing to the Indemnified Party that the
Indemnitor shall be obligated under the terms of its indemnity hereunder in
connection with such Action, the Indemnitor may elect, by written notice to
the
Indemnified Party, to undertake the defense thereof with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and expense of the
Indemnitor; provided,
that
the
Indemnitor shall not enter into a settlement agreement of such Claim without
the
Indemnified Party’s consent, which shall not be unreasonably withheld. If the
Indemnitor chooses to defend any Claim, the Indemnified Party shall cooperate
with all reasonable requests of the Indemnitor and shall make available to
the
Indemnitor any books, records or other documents within its control that are
necessary or appropriate for such defense.
(b) In
the
event that the Indemnitor, within a reasonable time after receipt of an
Indemnification Notice, does not so elect to defend such Claim or, after
undertaking the defense of such Claim, fails to continue the defense of such
Claim, the Indemnified Party will have the right (upon further notice to the
Indemnitor) to undertake the defense, compromise or settlement of such Claim
for
the account of the Indemnitor.
(c) Anything
in this Section
8.6
to the
contrary notwithstanding, (i) if the Indemnified Party believes there is a
reasonable probability that a Claim may materially and adversely affect the
Indemnified Party, the Indemnified Party shall have the right to participate
in
the defense, compromise or settlement of such Claim; provided,
that the
Indemnitor shall not be liable for expenses of separate counsel of the
Indemnified Party engaged for such purpose, unless the named parties to the
Action regarding such Claim (including any impleaded parties) include both
the
Indemnitor and the Indemnified Party and the Indemnified Party has been advised
in writing by counsel that there may be one or more legal defenses available
to
such Indemnified Party that are different from or additional to those available
to the Indemnitor, in which event the Indemnified Party shall be entitled,
at
the indemnitor’s cost, risk and expense, to separate counsel of its own
choosing, and (ii) no Person who has undertaken to defend a Claim under
Section
8.6(a)
hereof
shall, without written consent of all Indemnified Parties, settle or compromise
any Claim or consent to entry of any judgment which does not include as an
unconditional term thereof the release by the claimant or the plaintiff of
all
Indemnified Parties from all liability arising from events which allegedly
give
rise to such Claim.
8.7 Cooperation.
Notwithstanding anything to the contrary contained in this Section 8,
the
Parties shall cooperate with each other to maximize the availability of
insurance coverage for Claims or actions by third parties which may be subject
to indemnification pursuant to this Section 8.
8.8 Right
of Offset.
Purchaser shall offset any Uncontested Claim against the Members, or any of
the
Members successors or assigns, against the Purchase Price Shares and Earn Shares
(collectively, “Acquisition Stock”) allocated to the Members hereunder.
This
offset remedy of Purchaser is not exclusive but is cumulative with all other
remedies of Purchaser against the Members, and this offset remedy does not
in
any way limit the liability of the Members under this Agreement. Purchaser
shall
have no right to offset any Contested Claim until such disputed claim is
resolved pursuant to Section 8.5(b) and (c) hereof; provided, however, that
Purchaser may delay the issuance of any of the Acquisition Stock until such
time
as the disputed claim is resolved, at which time the Purchaser shall either
offset the claim against the withheld Acquisition Stock, or promptly issue
such
withheld Acquisition Stock. In the event of an offset hereunder, the Acquisition
Stock shall be offset based on the Purchase Price Per Share Denominator or
Earn
Out Share Denominator, as applicable, that would otherwise apply to the issuance
of such Acquisition Stock to the Members on the respective Payment Date or
Earn
Out Date (i.e. if a $150,000 Uncontested Claim is being offset by Purchase
Price
Shares, and the five-day average closing trading price per share on the
applicable Payment Date is less than $.15, then the Uncontested Claim would
be
offset by 1,000,000 Purchase Price Shares).
9. Miscellaneous
Provisions.
9.1 Amendment
and Waiver.
This
Agreement may be amended, modified and supplemented only by written agreement
of
each of the Parties hereto. By an instrument in writing, either Party may waive
compliance by the other Party with any term or provision of this Agreement
that
such other Party was or is obligated to comply with or perform.
9.2 Notices.
All
notices, requests, demands and other communications which are required or may
be
given under this Agreement shall be in writing and shall be deemed to have
been
duly given when received if personally delivered; the day after it is sent,
if
sent for next day delivery to a domestic address by recognized overnight
delivery service (e.g.,
Federal Express); upon receipt, if sent by certified or registered mail, return
receipt requested; and upon confirmed transmission if sent by telecopier. In
each case notice shall be sent to:
| If to Members: |
To
the Addresses set forth on Schedule A
|
| If to Purchaser: | Platinum Studios, Inc |
|
00000
X. Xxxxxxx Xxxx., 00xx Xxxxx
Xxx
Xxxxxxx, XX 00000
Attention:
Xxxxx Xxxxxxxxx
Facsimile:
(000) 000-0000
|
| with a copy to: |
Xxxxxx
Xxxxxxx, General Counsel
00000
X. Xxxxxxx Xxxx., 00xx Xxxxx
Xxx
Xxxxxxx, XX 00000
Facsimile:
(000) 000-0000
|
or
to
such other person or address as any Party hereto shall furnish to the other
Party hereto in writing pursuant to this Section
9.2.
9.3 Assignment
This
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective successors and permitted assigns. This Agreement may not
be
assigned by either Party hereto without the prior written consent of the other;
provided
however,
that
Purchaser may assign its rights and obligations under this Agreement to any
Person who acquires all or substantially all of the assets, stock or business
of
Purchaser (whether by sale, merger or otherwise) without the consent of Members
or if such assignee assumes all obligations of Purchaser hereunder.
9.4 Governing
Law
This
Agreement shall be governed by the law of the State of California regardless
of
the laws that might otherwise govern applicable conflicts of laws.
9.5 Consent
and Jurisdiction.
Each
Party hereto irrevocably and unconditionally (a) agrees that any Action arising
out of this Agreement may be brought in the state and federal courts for the
State of California; (b) consents to the jurisdiction or any such court in
any
such Action; and (c) waives any objection which such Party may have to the
laying of venue of any such Action in any such court.
9.6 Attorney
Fees
If any
Party to this Agreement brings an action to enforce its rights under this
Agreement, the prevailing Party shall be entitled to recover its costs and
expenses, including without limitation, reasonable attorneys’ fees, incurred in
connection with such action, including any appeal of such action.
9.7 Invalidity
In the
event that any one or more of the provisions contained in this Agreement or
in
any other instrument referred to herein, shall, for any reason, be held to
be
invalid, illegal or unenforceable in any respect, then to the maximum extent
permitted by law, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement or any other such
instrument.
9.8 Counterparts;
Facsimile
This
Agreement may be signed and delivered either originally or by facsimile, and
in
one or more counterparts, each of which shall be deemed an original, but all
of
which together shall constitute one and the same instrument.
9.9 Headings
The
section headings contained in this Agreement are for reference purposes only
and
shall not affect in any way the meaning or interpretation of this
Agreement.
9.10 Interpretation
When a
reference is made in this Agreement to a Section, Exhibit or Schedule, such
reference shall be to a Section, Exhibit or Schedule of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words “included,”
“includes”
or
“including”
are
used in this Agreement, they shall be deemed to be followed by the phrase
“without
limitation.”
9.11 Third
Parties
Except
for the indemnity provisions of Section 8,
which
are also for the benefit of the Parties identified therein, nothing in this
Agreement, whether express or implied, is intended to: (a) confer any rights
or
remedies on any Person other than Members and Purchaser, and their respective
successors and permitted assignees; (b) relieve or discharge the obligation
or
liability of any third party; or (c) give any third party any right of
subrogation or action against Members or Purchaser.
9.12 Exhibits
and Schedules.
All
Exhibits and Schedules referred to herein are intended to be and hereby are
specifically made a part of this Agreement.
9.13 Entire
Agreement.
This
Agreement (together with all Exhibits and Schedules referred to herein or
attached hereto) embodies the entire agreement and understanding of the Parties
hereto in respect of the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings between the Parties hereto
with respect to such subject matter.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Parties, acting through their duly authorized
representative, to the extent applicable, have executed this Membership
Acquisition Agreement as of the day and year first above written.
“Purchaser”
PLATINUM
STUDIOS, INC
By:
_________________________________________
Xxxxx
Xxxxxxxxx, President
“Members”
_____________________________________________
Xxxxxxx
Xxxxxxx
_____________________________________________
Xxxx
Xxxxx
_____________________________________________
Xxxxx
Learned
EXTREME
HOLDINGS, INC.
By:
__________________________________________
Xxxxx
Xxxxx, Co-President
ALMARMAL,
LLC
By:
__________________________________________
Xxxxx
Xxxxxxx, President
________________________________________________
Xxxxxxxx
Xxxxxxxxxx
[SIGNATURE
PAGE TO MEMBERSHIP ACQUISITION AGREEMENT]
______________________________________________
Xxxxxxx
Xxxxxx
______________________________________________
Xxxxx
Xxxxxxx
______________________________________________
Xxxxxx
Kingslyn
______________________________________________
Xxxx
Xxxxxxx
______________________________________________
Xxxx
Xxxxxxx II
______________________________________________
Xxxxxx
X.
Xxxxxxx
______________________________________________
Xxxxx
X.
Xxxxxx III
[SIGNATURE
PAGE TO MEMBERSHIP ACQUISITION AGREEMENT]
EXHIBITS
|
Exhibits
A-1 thru A-5
|
Covenants
Not to Compete
|
|
Exhibit
B
|
Lock-Up
Agreement
|
|
Exhibit
C
|
Investment
Representations
|
SCHEDULE
C
TERMINATED
CONTRACTS
All
WOWIO
contracts in existence prior to the Closing other than the Material
Contracts
SCHEDULE
D
ASSUMED
COMPANY LIABILITIES
1. All
going-forward (post-closing) liabilities of the Company under the Material
Contracts to the extent such liabilities arise out of facts or events occurring
after the Closing.
2. Up
to a
maximum of $300,000 in Royalties accrued and payable to Publishers under
Licensing Agreements for the calendar quarter ended June 30, 2008.
SCHEDULE
G
MATERIAL
CONTRACTS
Agreement
between WOWIO, LLC and CyrusOne in existence as of the Closing
Date.
Agreement
between WOWIO, LLC and Xxxxxxxxxx.xxx in existence as of the Closing
Date
Agreement
between WOWIO, LLC and Administaff in existence as of the Closing
Date
SCHEDULE
4.8
LIST
OF INTELLECTUAL PROPERTY
TRADEMARKS
USPTO
Registration No. 3,277,651 “WOWIO”
PATENTS
United
States Patent Application No. 11/464,154
DOMAIN
NAMES
XXXXXXXXXXXXXXX.XXX
XXXXXXXXXXXXXX.XXX
XXXXXXXXXXX.XXX
XXXXXXXXX.XXX
XXXXX.XXX
SCHEDULE
4.13
PERMITS
NONE
