ASSET PURCHASE AND REORGANIZATION AGREEEMENT between COGNIGEN NETWORKS, INC. and COMMISSION RIVER INC.
EXHIBIT
10.29
ASSET
PURCHASE AND REORGANIZATION AGREEEMENT
between
COGNIGEN
NETWORKS, INC.
and
COMMISSION
RIVER INC.
TABLE
OF CONTENTS
i
ii
iii
THIS
ASSET PURCHASE AND REORGANIZATION AGREEMENT (this “Agreement”) is made as of
the
30th
day of November, 2007 by and among COGNIGEN NETWORKS, INC., a Colorado
corporation (the “Purchaser”), and COMMISSION
RIVER INC., a Utah corporation (the “Company”).
WHEREAS,
the Company operates an online affiliate marketing business that provides
technology, tools, and products to affiliate marketers and creates and manages
affiliate programs for select product vendors (the “Business”); and
WHEREAS,
the Company and the Purchaser desire to effectuate a “type C reorganization”
under Section 368(a)(1) of the Code, by selling substantially all of the
Company’s assets and property to Purchaser solely in exchange for 16,000,000
shares of voting common stock of the Purchaser (the “Shares”).
NOW
THEREFORE, for and in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound, the parties hereto agree
as
follows:
1.1. Sale
of
Assets. On the terms and subject to the conditions set
forth in this Agreement, at the Closing and in consideration of the contribution
of the Shares to the Company, the Company shall contribute, assign, transfer
and
convey to the Purchaser, free and clear of all Liens, and the Purchaser shall
accept and acquire from the Company, all of the right, title and interest
of the
Company in, to and under the assets, properties, rights and privileges of
every
kind and nature of the Company used in connection with the Business, as the
same
shall exist at the Closing, including the inventory, tangible personal property,
personal property leases, real property leases, business contracts, accounts
receivable, intellectual property, permits, vehicles, business record, rights
under warranties, real property improvements, goodwill and insurance proceeds
of
the Company, but specifically excluding the Excluded Assets (such assets
and
properties being contributed, assigned, transferred and conveyed are referred
to
herein as the “Assets”).
1.2. Excluded
Assets. Notwithstanding
anything in this Agreement to the contrary, the Assets to be contributed
and
transferred to the Purchaser by the Company hereunder shall not include any
of
the following assets and properties of the Company (collectively, the “Excluded
Assets”):
(a) Except
as
otherwise subject to this Section 1.2, the rights of the Company pertaining
to
any property or asset used in or necessary to the Assets, which have accrued
or
will accrue to the Company, as the case may be, where the consent of another
Person would be invalid or constitute a breach of any agreement or commitment
to
which the Company is a party or by which the Company may be bound, if the
consent of such Person to such assignment or attempted assignment shall not
have
been obtained; provided, however, that in such event, such property or asset
or
the proceeds thereof shall be held and/or received by the Company, for the
benefit of the Purchaser and the Purchaser may act as agent therefor in order
to
1
obtain
for the Purchaser the benefits that would flow from ownership of such property
or asset; and provided further that for so long as any Material Contract
for
which a consent to assignment is legally required but such consent to assignment
or the like has not been obtained, the Purchaser shall be obligated to promptly
pay to the Company any payment, royalty, fee, or other form of compensation
which would be payable to a third party under such Material Contract by the
Company, as the case may be, but for the fact that the Purchaser has acquired
the Assets as of the Closing (the “Third Party Payments”), and
the Company agrees to defend, indemnify, release and hold harmless the Purchaser
for any additional payment, royalty, fee or other form of compensation which
would be payable to a third party under such Material Contract, except to
the
extent any such additional payment, royalty, fee or other form of compensation
relates to any action or omission of the Purchaser occurring after the Closing
that would not be permitted under the applicable Material Contract.
(b) Books
and
Records. The Company’s historical financial statements and tax
records, minutes of the meetings of the Company’s board of directors and
Shareholders, the minute book of the Company, records of the Shareholders,
and
the share ledger; provided that the
Purchaser and its attorneys, accountants and other representatives may, upon
reasonable notice, inspect and copy all of the Company’s financial statements,
records, minutes and ledgers not being turned over to the Purchaser which
relate
to the Business prior to the Closing.
(c) Other
Excluded
Assets. Those assets and properties of the Company set forth
on Schedule
1.2(c); and
(d) Rights
Under this
Agreement. The Company’s rights under or pursuant to this
Agreement or the other Transaction Agreements.
1.3. Liabilities
of the Company to be Assumed by the
Purchaser. Subject to the terms and conditions set forth
in this Agreement, immediately prior to the contribution of the Shares from
the
Purchaser to the Company as provided in Section 1.6, the
Purchaser shall assume and agree to pay, perform and discharge only the
Liabilities of the Company arising in connection with the operation of the
Business as the same shall exist at the Closing as set forth on Schedule 1.3 attached
hereto (the “Assumed
Liabilities”).
1.4. Retained
Liabilities. Except for
the Assumed Liabilities, the Purchaser shall not assume pursuant to this
Agreement or the transactions contemplated hereby, and shall have no liability
for, any Liabilities of the Company (including those related to the Business)
of
any kind, character or description whatsoever (collectively, the “Retained Liabilities”) or any
other Liabilities relating to the Business of any kind, character or description
whatsoever. Without limiting the foregoing, the Retained Liabilities
shall be as set forth on Schedule 1.4 attached
hereto.
1.5. Purchase
Price. The purchase price of
the Assets shall be the Shares, which are valued by the parties at $400,000
(the
“Purchase Price”) and
shall be deemed paid upon the issuance and delivery of all of the Shares
by the
Purchaser to the Company at the Closing as contemplated hereby. The
Purchaser agrees that the Company may assign, transfer or convey all or any
portion of the Shares to its Shareholders in complete liquidation of the
2
Company
in proportion to the number of common shares of the Company owned by each
Shareholder, all without the Purchaser’s written consent; provided that a
Shareholder will receive such Shares subject to the restrictions described
in
Section 2.24
hereof.
1.6. Closing;
Delivery.
(a) Closing. The purchase
and sale of the
Assets shall take place at the offices of Xxxx Xxxxxxxx Xxxxx Xxx &
Xxxxxxxx, 000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxxx Xxxx Xxxx, Xxxx, on or
before
November 30, 2007, or at such other time and place as the Company and Purchaser
mutually agree upon, orally or in writing (which time and place are designated
as the “Closing”).
(b) Company
Deliverables. At Closing, the Company shall deliver, or cause
to be delivered, to the Purchaser: (i) a Xxxx of Sale and Assignment Agreement,
substantially in the form attached hereto as Exhibit A; (ii)
an
Assignment and Assumption Agreement, substantially in the form attached hereto
as Exhibit B
(the “Assignment
Agreement”); (iii) an Intellectual Property Assignment Agreement,
substantially in the form attached hereto as Exhibit C (the “IP
Assignment Agreement”);
(iv) Employment Agreements with Xxxxxxx and Xxxxx substantially in the form
attached hereto as Exhibit D (the “Employment
Agreement”); and
(v) a Stock Restriction Agreement substantially in the form attached hereto
as
Exhibit E (the
“Stock
Restriction
Agreement”).
(c) Purchaser
Deliverables. At Closing, the Purchaser shall deliver to the
Company (i) one or more stock certificates representing the Shares as payment
in
full of the Purchase Price, (ii) the Employment Agreements, and (iii) the
Stock
Restriction Agreement.
1.7. Tax-Free
Reorganization. The
transactions contemplated by this Agreement are intended to be a
“reorganization” within the meaning of Section 368(a)(1)(C) of the Code, all of
the Shares are intended to constitute consideration issued in connection
with
the reorganization, and this Agreement is intended to constitute a “plan of
reorganization” within the meaning of the regulations promulgated under Section
368 of the Code. The parties hereto agree to prepare and file tax
returns that are consistent with the intention of having the transactions
contemplated by this Agreement constitute a reorganization within the meaning
of
Section 368 of the Code.
1.8. Defined
Terms Used in this
Agreement. In addition to the terms defined above, the
following terms used in this Agreement shall be construed to have the meanings
set forth or referenced below.
“Affiliate”
any
Person which,
directly or indirectly, controls, is controlled by, or is under common control
with such Person, including, without limitation, any partner, officer, director,
shareholder or member of such Person.
3
“Agent”
means any consultant,
advisor, marketing representative, independent agent or other Person who
is not
an employee of the Company but is engaged by or on behalf of the Company
for the
purpose of marketing, distributing, promoting or selling the Company’s products
and services, whether or not pursuant to a written agreement.
“Code”
means
the Internal
Revenue Code of 1986, as amended.
“Contracts”
means
all written
or oral contracts, agreements, leases, license agreements, sublicenses,
assignments, purchase agreements, indentures, mortgages, deeds of trust,
instruments of Indebtedness, security agreements, guaranties, purchase orders,
sales orders, offers to sell, options, rights of first refusal, distribution
agreements, rights to discounts, maintenance agreements and rights under
any of
the foregoing.
“Xxxxxxx”
means
Xxxx Xxxxxxx,
an individual.
“Exchange
Act” means the
Securities Exchange Act of 1934, as amended.
“Governmental
Authority” means
any court, tribunal, arbitrator, authority, agency, commission, official
or
other instrumentality of the United States or any domestic state, county,
city
or other political subdivision.
“Key
Employee” means any of
Xxxxxxx or Xxxxx.
“Knowledge”
or
“knowledge”
means,
with respect
to any individual, the actual knowledge of such individual, after reasonable
investigation, of a particular fact or other matter.
“Laws”
means
all laws,
statutes, rules, regulations, ordinances and other pronouncements having
the
effect of law of any Governmental Authority.
“Liabilities” means
all indebtedness,
obligations (contractual, legal or otherwise) and other liabilities of a
Person,
whether absolute, accrued, unaccrued, contingent, fixed or otherwise, whether
known or unknown, and whether due or to become due.
“Liens” means
any mortgage, deed
of trust, pledge, assessment, security interest, lease, lien, adverse claim,
levy, charge, community or other marital property interest, governmental
charge
or other encumbrance of any kind, or any conditional sale contract, title
retention contract, option to lease or purchase, right of first refusal or
other
contract to give any of the foregoing
“Material
Adverse Effect”
means, with respect to any Person, any event, change or effect that
is
materially adverse to the financial condition, properties, assets, liabilities,
business, operations, results of operations or prospects of such entity and
its
subsidiaries, taken as a whole.
“Xxxxx”
means
Xxxxxxx Xxxxx, an
individual.
“Ordinary
Course of Business”
means the ordinary course of business consistent with past custom
and practice
(including with respect to quantity and frequency).
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“Permitted
Liens” means
statutory Liens for the payment of current taxes that are not yet delinquent
and
encumbrances and Liens that arise in the Ordinary Course of Business and
do not
materially impair the Company’s ownership or use of such property or
assets.
“Person”
means any natural
person, corporation, general partnership, limited partnership, proprietorship,
limited liability company, joint venture, other business organization, trust,
union, association or Governmental Authority.
“SEC”
means the United States
Securities and Exchange Commission.
“SEC
Filings” means each
statement, report, registration statement, definitive proxy statement and
other
filings required to be filed with the SEC by Purchaser between June 30, 2006
and
the date hereof, including without limitation Purchaser’s Annual Report on Form
10-KSB for the Fiscal Year Ended June 30, 2007, as filed with the SEC on
October
15, 2007 and amended on Forms 10-KSB/A filed on October 18, 2007 and October
29,
2007; Purchaser’s Quarterly Report on Form 10-QSB for the Quarterly Period Ended
September 30, 2007, as filed with the SEC on November 19, 2007 and Form 12b-25
related thereto, as filed with the SEC on November 14, 2007; Purchaser’s
Definitive Proxy Statement on Form DEF 14A, as filed with the SEC on November
19, 2007, and Purchaser’s Current Reports on Form 8-K, as filed with the SEC on
October 23, 2007, November 1, 2007, and November 8, 2007.
“Securities
Act” means the
Securities Act of 1933, as amended.
“Shareholder”
means
Xxxxxxx,
Xxxxx and Xxxxx X. Xxxxxxxxx, who are all of the shareholders of the
Company.
“Transaction
Agreements” means
this Agreement, the Assignment Agreement, the IP Assignment Agreement and
the
Stock Restriction Agreement, and each of the documents, agreements, instruments
and transactions contemplated thereby.
2. Representations
and Warranties of the
Company. The Company hereby represents and warrants to
Purchaser that, except as set forth on the Disclosure Schedule delivered
by the
Company to Purchaser at the Closing, the following representations are true
and
complete as of the date of Closing. The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 2. For purposes of these representations and
warranties, the phrase “to the Company’s knowledge” shall mean the Knowledge of
Xxxxxxx or Xxxxx.
2.1. Organization,
Good Standing, Corporate Power and
Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of
Utah and has all requisite corporate power and authority to carry on its
business as presently conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in
each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect on the Company.
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2.2. Sufficiency
of Assets;
Title.
(a)
Except for the Excluded Assets, the Assets constitute all of the assets,
properties, rights and interests, tangible and intangible, of any nature
whatsoever, necessary to conduct the Business as conducted immediately prior
to
the Closing by the Company. As of the date hereof, the Company has the right
to
use all of the Assets in the manner that such Assets are presently used in
the
Business. Assuming no limitations exist to which the Purchaser is subject
and
for which the Company has no knowledge and except as set forth on Schedule
2.2,
upon the consummation of the transactions contemplated by this Agreement,
the
Purchaser will have the right to use all of the Assets in the manner that
such
Assets are presently used in the Business by the Company.
(b)
As of the date hereof,except
as set forth on Schedule
2.2, the Company
owns good and valid title to all of the Assets, free and clear of all Liens
(other than Permitted Liens). Assuming no limitations exist to which
the Purchaser is subject and for which the Company has no knowledge, upon
the
consummation of the transaction contemplated by this Agreement or except as set forth on
Schedule
2.2, the Purchaser will own good and valid title to all of the Assets,
free and clear of all Liens. With respect to the Assets it leases,
the Company is in compliance with such leases and holds a valid leasehold
interest free of any Liens, claims or encumbrances other than Liens, claims
or
encumbrances of the lessors of such property or assets.
2.3. Material
Contracts.
(a)
Description of
Material Contracts. Schedule 2.3(a)
contains a true and complete list of the following Contracts (collectively,
the
“Material Contracts”),
other than Excluded Contracts, to which the Company is a party as of the
date
hereof or by which any of the Assets is bound:
(i)
all Contracts (including Contracts with customers, suppliers, distributors,
dealers, manufacturer’s representatives, or sales agencies) that involve the
sale or lease of goods or materials or the performance of services (in each
case, to or by the Company) of an amount of more than $5,000
annually;
(ii)
all Contracts that were not entered into in the Ordinary Course of Business
of
the Company;
(iii)
all Contracts of the Company with officers, directors, shareholders or
Affiliates of the Company;
(iv)
all Contracts providing for a commitment of employment or personal services
to
the Company, and all Contracts with any labor union or other employee
representative of a group of employees relating to wages, hours or other
conditions of employment;
(v)
all Contracts with any Person containing any provision or covenant prohibiting
or limiting the ability of the Company to engage in any business
6
activity
or compete
with any Person, or prohibiting or limiting the ability of any Person to
compete
with the Company;
(vi)
all partnership, joint venture, shareholders’ or other similar Contracts,
including those involving a sharing of profits, losses, costs or liabilities
by
the Company with any other Person;
(vii)
all Contracts relating to the ownership, the right to use, or the disposition
or
acquisition of any of the Assets other than dispositions or acquisitions
of
inventory in the Ordinary Course of Business of the Company;
(viii) all
Contracts relating to an interest in the real property or tangible personal
property, including but not limited to lease hold interests;
(ix)
all Contracts under which the Company has created, incurred, assumed or
guaranteed (or may create, incur, assume or guarantee) indebtedness or under
which the Company has granted (or may grant) a Lien on any of the
Assets;
(x) all
Contracts providing for
payments to or by the Company based on sales, purchases or profits, other
than
direct payments for goods in an aggregate amount not in excess of $5,000
annually;
(xi)
all Contracts under which the Company is a prime contractor or a subcontractor
under or with respect to any Contract with the United States government or
any
state government or any body, subdivision, department, bureau, agency,
commission, board, instrumentality or authority thereof;
(xii)
all Contracts (other than those identified above) that (A) are material to
the
Business or (B) cannot be terminated by the Company on sixty (60) days’ notice
or less without resulting in any cost or penalty to the Company in excess
of
$5,000; and
(xiii)
each amendment, supplement and modification in respect of any of the
foregoing.
(b)
Status of Material
Contracts. As of the date hereof, except as disclosed in Schedule 2.3(b),
the Company is not in violation or breach of or default under any Material
Contract. As of the date hereof, except as disclosed in Schedule 2.3(b),
to the Company’s knowledge, no other party to any Material Contract is in
violation or breach of or default under such Material Contract, except where
such violation, breach or default would not have a Material Adverse Effect
on
the Company. As of the date hereof, to the Company’s knowledge, no
facts or circumstances exist that with notice or lapse of time or both would
constitute any violation or breach of, or constitute any event of default
or
permit termination, modification or acceleration under, any such Material
Contract. As of the date hereof, each Material Contract is in full
force and effect and constitutes a legal, valid and binding agreement of
the
Company, enforceable against the Company in accordance with its terms, and,
to
the Company’s knowledge, enforceable by the Company against the other party or
parties to such Material Contract in accordance with its terms, subject,
as to
enforcement against or by the Company, to (i)
7
bankruptcy,
insolvency, reorganization and other Laws of general applicability now
or
hereafter in effect relating to rights of creditors and (ii) rules of equity
governing specific performance, injunctive relief or other equitable
remedies. Schedule 2.3(b)
lists all authorizations, consents and other approvals required under any
Material Contract to effect Purchaser’s assumption of any Material Contract (the
“Consents”). Except
for the Consents and other approvals, consents and authorizations disclosed
on
Schedule 2.3(b),
the Company is not required to make any filing with or obtain any permit,
authorization, consents or other approvals of any Person, including, but
not
limited to, any lender, customer, vendor, service provider, or lessor under
any
Material Contract in order to effect the transaction contemplated
hereby.
2.4. Capitalization. The
authorized capital
of the Company consists, immediately prior to Closing, solely of:
(a) 2,000
common shares (the “Common
Stock”), 220 shares of which are issued and outstanding immediately prior
to Closing. All of the outstanding shares of Common Stock have been
duly authorized, are fully paid and nonassessable and were issued in compliance
with all applicable federal and state securities laws. The Company
holds no treasury stock and no shares of its capital stock in its
treasury.
(b) Schedule
2.4(b) sets
forth the true and accurate capitalization of the Company immediately prior
to
Closing including the number of shares of the issued and outstanding shares
of
capital stock. There are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, to purchase or acquire
from
the Company any shares of capital stock, or any securities convertible into
or
exchangeable for shares of capital stock.
(c) None
of
the outstanding shares of Common Stock are, or will, following the consummations
of the transactions contemplated hereby, be, subject to (i) any right of
first
refusal in favor of the Company upon any proposed transfer, (ii) any pre-emptive
right, or (iii) to the Company’s knowledge, any other right or limitation
affecting the transfer of such shares. None of the Company’s stock
purchase agreements contains a provision for acceleration of vesting (or
lapse
of a repurchase right) upon the occurrence of any event or combination of
events.
2.5. No
Subsidiaries. The Company does not have any subsidiaries,
and does not own, beneficially or otherwise, any shares or other securities
of,
or any direct or indirect interest of any nature in, any other
Person.
2.6. Authorization. All
corporate action
required to be taken by the Company’s Board of Directors and shareholders in
order to authorize the Company to enter into the Transaction Agreements,
and to
sell the Assets at the Closing, and to consummate the transactions contemplated
by this Agreement and the other Transaction Agreements, has been taken or
will
be taken prior to the Closing. All action on the part of the officers
of the Company necessary for the execution and delivery of the Transaction
Agreements, the performance of all obligations of the Company under the
Transaction Agreements to be performed as of the Closing, and the delivery
of
the Assets has been taken or will be taken prior to the Closing. The
Transaction Agreements, when executed and delivered by the Company, constitute
valid and
8
legally
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
or
other laws of general application relating to or affecting the enforcement
of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (iii) to the extent the indemnification provisions contained
in this Agreement may be limited by applicable federal or state securities
laws.
2.7. Governmental
Consents and
Filings. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with,
any
federal, state or local governmental authority is required on the part of
the
Company in connection with the consummation of the transactions contemplated
by
this Agreement.
2.8. Litigation. There
is no claim, action,
suit, proceeding, arbitration, complaint, charge or investigation pending
or to
the Company’s knowledge, currently threatened (i) against the Company or any
officer, director or Key Employee of the Company; (ii) that questions the
validity of the Transaction Agreements or the right of the Company to enter
into
them, or to consummate the transactions contemplated by the Transaction
Agreements; or (iii) to the Company’s knowledge that would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect on the Company. Neither the Company nor, to the Company’s
knowledge, any of its officers or directors, is a party or is named as subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company pending or which the Company
intends to initiate. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or threatened in writing
(or any basis therefor known to the Company) involving the prior employment
of
any of the Company’s employees, their services provided in connection with the
Company’s business, or any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements
with
prior employers.
2.9. Intellectual
Property. Except as
set forth in Schedule
2.9, the Company owns or possesses all legal rights to use (i) all
trademarks, service marks, tradenames, domain names, copyrights, trade secrets,
licenses, information and proprietary rights and processes and (ii) to the
Company’s knowledge, all patents and patent rights, (such rights are
collectively referred to herein as the “Company Intellectual
Property”) as are necessary to the conduct of the Business as now
conducted and as presently proposed to be conducted, without any known
conflict
with, or infringement of, the rights of others. To the Company’s
knowledge, no product or service marketed or sold (or proposed to be marketed
or
sold) by the Company violates or will violate any license or infringes any
intellectual property rights of any other party. Other than with
respect to commercially available software products under standard end-user
object code license agreements, there are no outstanding options, licenses,
agreements, claims, encumbrances or shared ownership interests of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or
entity. The Company has not received any communications alleging that
the Company has violated or, by conducting its business, would violate any
of
the patents, trademarks, service marks, tradenames, copyrights, trade
9
secrets
or other proprietary rights or processes of any other person or
entity. The Company has obtained and possesses valid licenses to use
all of the software programs present on the computers and other software-enabled
electronic devices that it owns or leases or that it has otherwise provided
to
its employees for their use in connection with the Company’s
business. It will not be necessary for the Company to use any
inventions of any of its employees (or persons it currently intends to
hire). Each Key Employee has assigned to the Company all intellectual
property rights he owns that are related to the Business as now
conducted. Schedule 2.9 lists
all software, patents, patent applications, registered trademarks, trademark
applications, registered service marks, service xxxx applications, registered
copyrights and domain names of the Company. The Company has not
embedded any open source, copyleft or community source code in any of its
products generally available or in development, including but not limited
to any
libraries or code licensed under any General Public License, Lesser General
Public License or similar license arrangement.
2.10. Compliance
with Other
Instruments. The Company is not in violation or default
(i) of any provisions of its Articles of Incorporation or By-laws, (ii) of
any
instrument, judgment, order, writ or decree, (iii) under any note, indenture
or
mortgage, or (iv) under any lease, agreement, Contract or purchase order
to
which it is a party or by which it is bound that is required to be listed
on the
Disclosure Schedule, or to its knowledge, of any provision of federal or
state
statute, rule or regulation applicable to the Company, the violation of which
would have a Material Adverse Effect on the Company. The execution,
delivery and performance of the Transaction Agreements and the consummation
of
the transactions contemplated by the Transaction Agreements will not result
in
any such violation or be in conflict with or constitute, with or without
the
passage of time and giving of notice, either (i) a default under any such
provision, instrument, judgment, order, writ, decree, contract or agreement
or
(ii) an event which results in the creation of any lien, charge or encumbrance
upon any assets of the Company or the suspension, revocation, forfeiture,
or
nonrenewal of any material permit or license applicable to the
Company.
2.11. Agreements;
Actions.
(a) Except
for the Transaction Agreements or as set forth on Schedule 2.11, there
are no agreements, understandings, instruments, Contracts or proposed
transactions to which the Company is a party or by which it is bound that
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $5,000, (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company, (iii) the
grant of rights to manufacture, produce, assemble, license, market, or sell
its
products to any other person or affect the Company’s exclusive right to develop,
manufacture, assemble, distribute, market or sell its products, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(b) The
Company has not (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock, (ii) except as disclosed on Schedule 2.11,
incurred any indebtedness for money borrowed or incurred any other liabilities
individually in excess of $5,000 or in excess of $25,000 in the aggregate,
(iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other
10
than
the
sale of its inventory in the ordinary course of business. For the purposes
of
subsections (b) and (c) of this Section 2.11, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons
or entities the Company has reason to believe are affiliated with each
other)
shall be aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsection.
(c) The
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
2.12. Conflicts
of Interest.
(a) Except
as
set forth on Schedule
2.12(a) and other than standard employee benefits generally made
available to all employees, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, or Key
Employees, or any Affiliate thereof.
(b) Except
as
set forth in Schedule
2.12(b), the Company is not indebted, directly or indirectly, to any of
its directors, officers or employees or to their respective spouses or members
of their immediate family or to any Affiliate of any of the foregoing, other
than in connection with expenses or advances of expenses incurred in the
Ordinary Course of Business or employee relocation expenses. Except
as set forth in Schedule 2.12(b),
none of the Company’s directors, officers or employees, or any members of their
immediate families, or any Affiliate of the foregoing (i) are, directly or
indirectly, indebted to the Company or, (ii) to the Company’s knowledge, have
any direct or indirect ownership interest in any firm or corporation with
which
the Company is affiliated or with which the Company has a business relationship,
or any firm or corporation which competes with the Company except that
directors, officers or employees or shareholders of the Company may own stock
in
(but not exceeding two percent of the outstanding capital stock of) publicly
traded companies that may compete with the Company. Except as
set forth in Schedule
2.12(b), to the Company’s knowledge: (x) none of the Company’s directors,
officers or employees or any members of their immediate families or any
Affiliate of any of the foregoing are, directly or indirectly, interested
in any
material contract with the Company; and (y) none of the directors or officers,
or any members of their immediate families, has any material commercial,
industrial, banking, consulting, legal, accounting, charitable or familial
relationship with any of the Company’s major business relationship partners,
service providers, joint venture partners, licensees and
competitors.
2.13. Voting
Rights. To the Company’s knowledge, no shareholder of the
Company has entered into any agreements with respect to the voting of capital
shares of the Company.
2.14. Absence
of Liens. Except as set forth
on Schedule
2.14, the Assets are free and clear of all Liens, except for Permitted
Liens. With respect to the Assets it leases, the Company is in
compliance with such leases and holds a valid leasehold interest free of
any
Liens, claims or encumbrances other than those of the lessors of such property
or assets.
11
2.15. Financial
Statements. The Company has
delivered to Purchaser its un-audited financial statements (including balance
sheets and income statements) as of October 31, 2007 and for the ten-month
period then ended (collectively, the “Financial
Statements”). Except as set forth in the Financial Statements,
the Company has no material Liabilities or obligations, contingent or otherwise,
other than (i) Liabilities incurred in the Ordinary Course of Business
subsequent to October 31, 2007 and (ii) obligations under contracts and
commitments incurred in the Ordinary Course of Business, which, in both cases,
individually and in the aggregate would not have a Material Adverse Effect
on
the Company.
2.16. Changes. Except
as set forth on Schedule 2.16, since
December 31, 2006 there has not been:
(a) any
change in the Assets, Liabilities, financial condition or operating results
of
the Company from that reflected in the Financial Statements, except changes
in
the Ordinary Course of Business that have not caused, and are not reasonably
likely to result in, a Material Adverse Effect on the Company;
(b) any
damage, destruction or loss, whether or not covered by insurance, that would
have a Material Adverse Effect on the Company;
(c) any
waiver or compromise by the Company of a valuable right or of a material
debt
owed to it involving more than $5,000;
(d) any
satisfaction or discharge of any Lien, claim, or encumbrance or payment of
any
obligation by the Company with respect to any Person, except in the Ordinary
Course of Business of the Company and the satisfaction or discharge of which
would not have a Material Adverse Effect on the Company;
(e) any
change to a material contract or agreement by which the Company or any of
its
assets is bound or subject, except for a change that would not have a Material
Adverse Effect on the Company;
(f) any
material change in any compensation arrangement or agreement with any employee,
officer, director or shareholder;
(g) any
resignation or termination of employment of any officer or Key Employee of
the
Company;
(h) any
mortgage, pledge, transfer of a security interest in, or Lien, created by
the
Company, with respect to any of the Assets, except for Permitted
Liens;
(i) any
loans
or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other
than
travel advances and other advances made in the Ordinary Course of Business
of
the Company;
(j) any
declaration, setting aside or payment or other distribution in respect of
any of
the Company’s shares of capital stock, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock by the Company;
12
(k) any
sale,
assignment or transfer of any Company Intellectual Property that could
reasonably be expected to result in a Material Adverse Effect on the
Company;
(l) receipt
of notice that there has been a loss of, or material order cancellation by,
any
major customer of the Company;
(m) to
the
Company’s knowledge, any other event or condition of any character, other than
events affecting the economy or the Company’s industry generally,
that could reasonably be expected to result in a Material Adverse Effect
on the
Company; or
(n) any
arrangement or commitment by the Company to do any of the things described
in
this Section 2.16.
2.17. Employee
Matters.
(a) As
of the
date hereof, the Company employs two (2) full-time employees. Schedule 2.17 sets
forth a description of all compensation, including salary, bonus, and deferred
compensation paid or payable for each officer or employee of the Company
who is
anticipated to receive compensation in excess of $25,000 for the fiscal year
ending December 31, 2007, or is anticipated to receive compensation in excess
of
$25,000 for the fiscal year ending December 31, 2008.
(b) To
the
Company’s knowledge, none of its employees is obligated under any Contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would materially interfere with such employee’s ability to promote
the interest of the Company or that would conflict with the Business, except
as
set forth in the Employment Agreements or on Schedule
2.17. Except as set forth on Schedule
2.17,
neither the execution or delivery of the Transaction Agreements, nor the
carrying on of the Business by the employees of the Company, nor the conduct
of
the Business as now conducted will, to the Company’s knowledge, conflict with or
result in a breach of the terms, conditions, or provisions of, or constitute
a
default under, any contract, covenant or instrument under which any such
employee is now obligated.
(c) Except
as
set forth on Schedule
2.17, the Company is not delinquent in payments to any of its employees,
consultants or independent contractors for any wages, salaries, commissions,
bonuses, or other direct compensation for any service performed for it to
the
date hereof or amounts required to be reimbursed to such employees, consultants,
or independent contractors. To the Company’s knowledge, the Company has complied
with all applicable state and federal equal employment opportunity Laws and
with
other Laws related to employment, including those related to wages, hours,
worker classification, collective bargaining, and the payment and withholding
of
taxes and other sums as required by law except where noncompliance with any
applicable law would not result in a Material Adverse Effect. The
Company has withheld and paid to the appropriate governmental entity or is
holding for payment not yet due to such Governmental Authority all amounts
required to be withheld from
13
employees
of the Company and, to the Company’s knowledge, is not liable for any arrears of
wages, taxes, penalties, or other sums for failure to comply with any of
the
foregoing.
(d) To
the
Company’s knowledge, no Key Employee intends to terminate employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing; provided, however, that the Company has
informed Purchaser of its intention to liquidate and dissolve the Company
subsequent to the Closing Date, and the Company makes no representation or
warranty regarding the effect of such liquidation and dissolution on the
continued employment of any Key Employee of the Company. The
employment of each employee of the Company is terminable at the will of the
Company. Except as set forth in Schedule 2.17 or as
required by law, upon termination of the employment of any such employees,
no
severance or other payments will become due. Except as set forth in
Schedule 2.17,
the Company has no policy, practice, plan, or program of paying severance
pay or
any form of severance compensation in connection with the termination of
employment services.
(e) The
Company has not made any representations regarding equity incentives to any
officer, employees, director or consultant that are inconsistent with the
share
amounts and terms set forth in the minutes of the meetings of the Company’s
board of directors.
(f) The
Company has not terminated any Key Employee’s employment with the
Company.
(g) Schedule
2.17 sets
forth each employee benefit plan maintained, established or sponsored by
the
Company, or which the Company participates in or contributes to, which is
subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”). The
Company has made all required contributions and has no liability to any such
employee benefit plan, other than liability for health plan continuation
coverage described in Part 6 of Title I(B) of ERISA, and has complied in
all
material respects with all applicable laws for any such employee benefit
plan.
(h)
To the Company’s knowledge, none of the officers or directors of the Company
during the previous five (5) years has been (a) subject to voluntary or
involuntary petition under the federal bankruptcy laws or any state insolvency
law or the appointment of a receiver, fiscal agent or similar officer by
a court
for his business or property; (b) convicted in a criminal proceeding or named
as
a subject of a pending criminal proceeding (excluding traffic violations
and
other minor offenses); (c) subject to any order, judgment, or decree (not
subsequently reversed, suspended, or vacated) of any court of competent
jurisdiction permanently or temporarily enjoining him from engaging, or
otherwise imposing limits or conditions on his engagement in any securities,
investment advisory, banking, insurance, or other type of business or acting
as
an officer or director of a public company; or (d) found by a court of
competent jurisdiction in a civil action or by the SEC or the Commodity Futures
Trading Commission to have violated any federal or state securities,
commodities, or unfair trade practices law, which such judgment or finding
has
not been subsequently reversed, suspended, or vacated.
2.18. Tax
Returns and Payments. There
are no federal,
state, county, local or foreign taxes dues and payable by the Company which
have
not been timely paid, except where
14
the
failure to pay could not be reasonably expected to result in a Material
Adverse
Effect on the Company. To the Company’s knowledge, there are no
accrued and unpaid federal, state, country, local or foreign taxes of the
Company which are due, whether or not assessed or disputed. There
have been no examinations or audits of any tax returns or reports by any
applicable federal, state, local or foreign governmental
agency.
2.19. Insurance. Schedule
2.19
provides a complete list of the Company’s fire and casualty insurance policies
currently in effect.
2.20. Confidential
Information and Invention Assignment
Agreements. Each current and former Key Employee and
officer of the Company has executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the form or
forms
delivered to the counsel for the Purchaser (the “Confidential Information
Agreements”). No current or former Key Employee or officer of
the Company has excluded works or inventions from his or her assignment of
inventions pursuant to such Key Employee’s or officer’s Confidential Information
Agreements. The Company is not aware that any of its Key Employees or
officers is in violation thereof.
2.21. Permits. The
Company and each of its
subsidiaries has all permits, licenses and any similar authority necessary
for
the conduct of the Business, the lack of which could reasonably be expected
to
have a Material Adverse Effect on the Company. To the Company’s
knowledge, the Company is not in default in any material respect under any
of
such permits, licenses or other similar authority.
2.22. Corporate
Documents. The Articles
of Incorporation and Bylaws of the Company are in the form provided to the
Purchaser.
2.23. Environmental
and Safety Laws. Except
as could not reasonably be expected to have a Material Adverse Effect on
the
Company (a) the Company is and has been in compliance with all
Environmental Laws; (b) there has been no release or, to the Company’s
knowledge, threatened release of any pollutant, contaminant or toxic or
hazardous material, substance or waste, or petroleum or any fraction thereof,
(each a “Hazardous
Substance”) on, upon, into or from any site currently or heretofore
owned, leased or otherwise used by the Company; (c) there have been no
Hazardous Substances generated by the Company that have been disposed of
or come
to rest at any site that has been included in any published U.S. federal,
state
or local “superfund” site list or any other similar list of hazardous or toxic
waste sites published by any governmental authority in the United States;
and
(d) there are no underground storage tanks located on, no polychlorinated
biphenyls (“PCBs”) or
PCB-containing equipment used or stored on, and no hazardous waste as defined
by
the Resource Conservation and Recovery Act, as amended, stored on, any site
owned or operated by the Company, except for the storage of hazardous waste
in
compliance with Environmental Laws. The Company has made available to
the Purchaser true and complete copies of all material environmental records,
reports, notifications, certificates of need, permits, pending permit
applications, correspondence, engineering studies, and environmental studies
or
assessments.
For
purposes of this Section 2.23,
“Environmental
Laws” means any law, regulation, or other applicable requirement
relating to (a) releases or threatened release of
15
Hazardous
Substance; (b) pollution or protection of employee health or safety, public
health or the environment; or (c) the manufacture, handling, transport,
use, treatment, storage, or disposal of Hazardous Substances.
2.24. Restricted
Securities. The
Company understands that the Shares have not been, and will not be, registered
under the Securities Act, by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of
the
Company’s representations as expressed herein. The Company
understands that the Shares are “restricted securities” under applicable U.S.
federal and state securities laws and that, pursuant to these laws, the Company
must hold the Shares indefinitely
unless they are registered with the SEC and qualified by state authorities,
or
an exemption from such registration and qualification requirements is
available. The Company acknowledges that the Purchaser has no
obligation to register or qualify the Shares for resale. The Company further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares,
and
on requirements relating to the Purchaser which are outside of the Company’s
control, and which the Purchaser is under no obligation and may not be
able to
satisfy.
2.25. Limited
Market. The Company understands
that the Shares are quoted on the Over-the-Counter Bulletin Board and that
a
limited public market exists for the Shares. The Purchaser has made
no assurances that an active public market will ever exist for the
Shares.
2.26. Legends. The
Company understands that the
Shares and any securities issued in respect of or exchange for the Shares,
may
bear one or all of the following legends:
(a)
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.”
(b)
Any legend set forth in, or required by, the other Transaction
Agreements.
(c)
Any legend required by the securities laws of any state to the extent such
laws
are applicable to the Shares represented by the certificate with such
legend.
(a)
The Company acknowledges and confirms that it has been given a reasonable
16
opportunity
to review all documents, books, records and materials of the Purchaser
pertaining to contribution of the Shares, has been supplied with all additional
information concerning the Purchaser and the Shares that has been requested,
has
had a reasonable opportunity to ask questions of and receive answers from
the
Purchaser or its authorized representatives concerning the Shares and that
all
questions have been answered to the full satisfaction of the
undersigned.
(b)
The Company has received no representations, written or oral, from the Purchaser
or its officers, directors, employees, attorneys or agents other than those
contained in this Agreement. In making the decision to sell the Assets in
exchange for the Shares, the Company has relied solely upon its review of
the
Purchaser’s books and records, the SEC Filings and this Agreement and
independent investigations made by it
2.28. Agent
Relations.
(a)
As of the date hereof, the Company maintains a network of not less than 200
Persons registered as independent agents selling products and services through
the Company’s affiliated self-replicating websites. Schedule 2.28 sets
forth a detailed description of all compensation, including bonus, and deferred
compensation paid or payable for each Agent, including independent agents,
who
received remuneration (in any for whatsoever) in excess of $5,000 for the
fiscal
year ended December 31, 2006 or is anticipated to receive remuneration (in
any
form whatsoever) in excess of $10,000 for the fiscal year ending December
31,
2007.
(b)
To the Company’s knowledge, none of the Agents is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would materially interfere with such Agent’s ability to promote the
interests of the Company or that would conflict with the Company’s
business. Neither the execution or delivery of the Transaction
Agreements, nor the conduct of the Company’s business as now conducted, will, to
the Company’s knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant, arrangement (whether or not in writing) or instrument under which
any
Agent is now engaged.
(c)
Except as described in Schedule 2.28(c), the
Company is not delinquent in payments to any of the Agents for any commissions,
bonuses, or other compensation or remuneration for any service performed
for it
to the date hereof or amounts required to be reimbursed to such
Agent. The Company has complied with all applicable state and federal
laws and regulations related to the Agents, including the development and
operation of the Company’s self-replicating websites, except limited individual
circumstances in which noncompliance with a particular law or regulation
(individually or in the aggregate) would not result in a Material Adverse
Effect
on the Company. The Company has withheld and paid to the appropriate
governmental entity or is holding for payment not yet due to such governmental
entity all amounts required to be withheld from any Agents, and is not liable
for any arrears of taxes, penalties, or other sums for failure to comply
with
any of the foregoing.
(d)
To the Company’s knowledge, no Agent intends to terminate his, her or its
engagement with the Company or is otherwise likely to become unavailable
to
continue to provide services to or for the benefit of the Company, nor does
the
Company have a present intention to terminate the engagement of any
Agent. The employment of each employee of the Company is terminable
at the will of the Company. Except as set forth in Schedule 2.28, the
17
Company
has no policy, practice, plan, or program of paying any form of compensation
in
connection with the termination of any Agent.
3. Representations
and Warranties of the
Purchaser. As of the Closing Date, the Purchaser hereby
represents and warrants to the Company that except as set forth on the Purchaser
Disclosure Schedule delivered by Purchaser to the Company at the Closing,
the
following representations and warranties are true and complete. For
purposes of these representations and warranties, the phrase “to the Purchaser’s
Knowledge” shall mean the Knowledge of Xxxxxx X. Bench, Purchaser’s Chief
Executive Officer, or Xxxx X. Xxxx, Purchaser’s Chief Financial
Officer.
3.1. Organization,
Good Standing, Corporate Power and
Qualification. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of
Colorado and has all requisite corporate power and authority to carry on
its
business as presently conducted and as proposed to be
conducted. Purchaser is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would
have
a Material Adverse Effect on the Purchaser.
3.2. Authorization. The
Purchaser has full
power and authority to enter into the Transaction Agreements. The
Transaction Agreements to which the Purchaser is a party, when executed and
delivered by the Purchaser, will constitute valid and legally binding
obligations of the Purchaser, enforceable in accordance with their terms,
except
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and any other laws of general application
affecting enforcement of creditors’ rights generally, and as limited by laws
relating to the availability of a specific performance, injunctive relief,
or
other equitable remedies, or (b) to the extent the indemnification
provisions contained in this Agreement may be limited by applicable federal
or
state securities laws.
3.3. SEC
Filings. Purchaser has filed
with the SEC each SEC Filing. Each SEC Filing, when filed, complied
with all applicable requirements of the Securities Act, the Exchange Act
and
other requirements of law. Prior to the Closing, Purchaser will file
any additional documents required to be filed with the SEC by Purchaser prior
to
the Closing (collectively with the SEC Filings, the “Purchaser SEC
Documents”). None of the SEC Filings, at the time of filing,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading in light of the circumstances under which they were
made. The Company has taken all necessary actions to ensure its
continued inclusion in, and the continued eligibility of the Common Stock
for
trading on the over-the-counter market (the “OTC”) under all currently
effective and currently proposed inclusion requirements. Purchaser
has made available to the Company all exhibits to the SEC Filings filed prior
to
the date hereof that are (a) requested by the Company, and (b) not available
in
complete form through XXXXX (“Requested Confidential
Exhibits”) and will promptly make available to the Company all Requested
Confidential Exhibits to any additional Purchaser SEC Documents filed prior
to
the Closing.
3.4. Governmental
Consents and
Filings. Assuming the accuracy of the representations made
by the Company in Section 2 of this
Agreement, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with,
18
any
federal, state or local governmental authority is required on the part
of the
Purchaser in connection with the consummation of the transactions contemplated
by this Agreement.
3.5. Litigation. There
is no claim, action,
suit, proceeding, arbitration, complaint, charge or investigation pending
or to
the Purchaser’s Knowledge, currently threatened (i) against the Purchaser or any
officer, director or Key Employee of the Purchaser; (ii) that questions the
validity of the Transaction Agreements or the right of the Purchaser to enter
into them, or to consummate the transactions contemplated by the Transaction
Agreements; or (iii) to the Purchaser’s Knowledge that would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect on the Purchaser. Neither the Purchaser nor, to the
Purchaser’s Knowledge, any of its officers or directors, is a party or is named
as subject to the provisions of any order, writ, injunction, judgment or
decree
of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Purchaser pending or which
the
Purchaser intends to initiate. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
in writing (or any basis therefor known to the Purchaser) involving the prior
employment of any of the Purchaser’s employees, their services provided in
connection with the Purchaser’s business, or any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers.
3.6. Capitalization. The
authorized
capital of the Purchaser consists, immediately prior to Closing, solely
of:
(a) (i)
300,000,000 shares of common stock, par value $0.001 (“Purchaser Common Stock”),
22,265,726 shares of which are issued and outstanding immediately prior to
Closing, and (ii) 20,000,000 shares of preferred stock, no par value (“Purchaser Preferred Stock,”
and together with
Purchaser Common Stock, the “Purchaser Stock”), of which no
shares are issued and outstanding immediately prior to Closing. There
are no other shares of capital stock or voting securities of Purchaser other
than shares of Purchaser Common Stock issued after that same date upon the
exercise of options issued under the 2001 Incentive and Nonstatutory Stock
Option Plan (“Purchaser Option
Plan”). All of the outstanding shares of Purchaser Stock have
been duly authorized, are fully paid and nonassessable and, except as set
forth
on Schedule 3.6 of the Purchaser Disclosure Schedule, to the Purchaser’s
knowledge all such shares of Purchaser Stock issued by the Company since
July 1,
2003 were issued in compliance with all applicable federal and state securities
laws. The Company holds no treasury stock and no shares of its
capital stock in its treasury.
(b) As
of
immediately prior to Closing, there were outstanding options to purchase
902,000
shares of Purchaser Common Stock at prices ranging from $0.09 to $0.71 per
share
and warrants to purchase 275,000 shares of Purchaser Common Stock at prices
ranging from $0.12 to $0.3015 per share, all with terms that expire no later
than June 27, 2013.
(c) As
of
immediately prior to Closing, Purchaser has reserved 625,000 shares of Purchaser
Common Stock for issuance to employees, directors and independent contractors
pursuant to the Purchaser Option Plan, of which 467,000 shares are subject
to
outstanding, unexercised options. Other than as described in this
Agreement (including this Section 3.6) and the Purchaser Option Plan, there
are
there are no outstanding
19
options,
warrants, rights (including conversion or preemptive rights and rights
of first
refusal or similar rights) or agreements, orally or in writing, to purchase
or
acquire from the Company any shares of capital stock, or any securities
convertible into or exchangeable for shares of capital stock.
3.7. Issuance
of Shares. The issuance and
delivery of the Shares, as the Purchaser Price in accordance with this
Agreement, shall be, at or prior to the Closing, duly authorized by all
necessary corporate action on the part of Purchaser, and, when issued at
the
Closing as contemplated by this Agreement, such Shares will be duly and validly
issued, fully paid and nonassessable. Such Shares, when so issued and
delivered in accordance with the provisions of this Agreement, shall be free
and
clear of all Liens (other than restrictions created by the Stock Restriction
Agreement or by applicable securities laws) and will not have been issued
in
violation of any preemptive rights or rights of first refusal or similar
rights. The Shares shall be issued in compliance with all applicable
state and federal securities laws.
3.8. Changes. Except
as disclosed on Schedule 3.8, since
September 30, 2007, there has not been:
(a) any
change in the assets, liabilities, financial condition or operating results
of
the Purchaser from that reflected in the SEC Filings, except changes in the
Ordinary Course of Business that have not caused, and are not reasonably
likely
to result in, a Material Adverse Effect on the Purchaser;
(b) any
damage, destruction or loss, whether or not covered by insurance, that would
have a Material Adverse Effect on the Purchaser;
(c) any
change to a material contract or agreement (or amendments) by which the
Purchaser or any of its assets is bound or subject, except for a change that
would not have a Material Adverse Effect on the Purchaser;
(d) any
material change in any compensation arrangement or agreement with any employee,
officer, director or shareholder, other than in the Ordinary Course of Business
consistent with past practice;
(d) any
amendment or change to the Articles of Incorporation or the Bylaws of the
Purchaser; or
(e) to
the
Purchaser’s Knowledge, any other event or condition of any character, other than
events affecting the economy or the Purchaser’s industry generally, that could
reasonably be expected to result in a Material Adverse Effect on the
Purchaser.
3.9. Compliance
with Laws. Except as
disclosed on Schedule 3.9, the Purchaser has operated its business in compliance
with all applicable Laws having jurisdiction over its assets, its facilities
or
its operations, in all material respects, and the Purchaser has not been
notified in writing of any noncompliance therewith, except circumstances
in
which noncompliance would not result in a Material Adverse Effect on the
Purchaser.
3.10. Tax-Deferred
Reorganization.
20
(a) The
Purchaser has no plan or intention to reacquire any Shares pursuant to Section 1.5
hereof.
(b) It
is the
present intention of the Purchaser to continue at least one significant historic
business line of the Company, or to use at least a significant portion of
the
Company’s historic business assets in a business, in each case within the
meaning of Treasury Regulations Section 1.368-1(d).
3.11. Tax
Returns and Payments. Except
as set forth on
Schedule 3.11, there are no federal, state, county, local or foreign taxes
dues
and payable by the Purchaser which have not been timely paid. Except
as set forth on Schedule 3.11, to the Purchaser’s Knowledge, there are no
accrued and unpaid federal, state, country, local or foreign taxes of the
Purchaser which are due, whether or not assessed or disputed. There
have been no examinations or audits of any tax returns or reports by any
applicable federal, state, local or foreign governmental
agency. Except as set forth on Schedule 3.11, the Purchaser has duly
and timely filed all federal, state, county, local and foreign tax returns
required to have been filed by it and there are in effect no waivers of
applicable statutes of limitations with respect to taxes for any
year.
4. Conditions
to the Purchaser’ Obligations at
Closing. The obligations of the Purchaser to purchase the
Assets at Closing are subject to the fulfillment, on or before the Closing,
of
each of the following conditions, unless otherwise waived:
4.1. Representations
and
Warranties. The representations and warranties of the
Company contained in Section 2 shall
be true and
correct in all material respects as of such Closing, except that any such
representations and warranties shall be true and correct in all respects
where
such representation and warranty is qualified with respect to materiality
in
Section 2, as
the case may be.
4.2. Performance. All
actions to be taken by
the Company in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other documents required
to effect the transactions contemplated hereby shall be satisfactory in form
and
substance to the Purchaser.
4.3. Compliance
Certificate. The
President of the Company shall deliver to the Purchaser at the Closing a
certificate certifying that the conditions specified in Sections 4.1 and
4.2
have been fulfilled.
4.4. Qualifications. All
authorizations,
approvals or permits, if any, of any Governmental Authority or regulatory
body
of the United States or of any state that are required in connection with
the
lawful sale of the Assets pursuant to this Agreement shall be obtained and
effective as of the Closing.
4.5. [RESERVED].
4.6. Secretary’s
Certificate. The
Secretary of the Company shall have delivered to the Purchaser at the Closing
a
certificate certifying (i) the Bylaws of the Company, and (ii) resolutions
of
the Board of Directors of the Company approving the Transaction Agreements
and
the transactions contemplated under the Transaction Agreements.
21
4.7. Employment
Agreements. The
Purchaser shall have received executed the Employment Agreements, in form
satisfactory to the Purchaser, dated as of the date of Closing, from Xxxxxxx
and
Xxxxx.
4.8. Proceedings
and
Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
the
Purchaser, and the Purchaser (or its counsel) shall have received all such
counterpart original and certified or other copies of such documents as
reasonably requested. Such documents may include good standing
certificates.
4.9. No
Proceedings. No action, suit, or proceeding shall be
pending or threatened before (or that could come before) any Governmental
Authority or before (or that could come before) any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A)
prevent consummation of any of the transactions contemplated by this Agreement
or any other Transaction Document, (B) cause any of the transactions
contemplated by this Agreement or any other Transaction Document to be rescinded
following consummation, or (C) adversely affect the right of the Purchaser
to
own the Assets and to operate the Business (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect).
5. Conditions
of the Company’s Obligations at
Closing. The obligations of the Company to sell the Assets
to the Purchaser at Closing or any subsequent Closing are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1. Representations
and
Warranties. The
representations and warranties of the Purchaser contained in Section 3 shall
be true and correct in all material respects as of such Closing.
5.2. Performance. The
Purchaser shall have
performed and complied with all covenants, agreements, obligations and
conditions contained in this Agreement that are required to be performed
or
complied with by them on or before such Closing.
5.3. Qualifications. All
authorizations,
approvals or permits, if any, of any Governmental Authority or regulatory
body
of the United States or of any state that are required in connection with
the
lawful issuance and contribution of the Shares pursuant to this Agreement
shall
be obtained and effective as of the Closing.
5.4. Purchase
Price. The Purchaser shall
have paid the full amount of the Purchase Price as set forth in Section 1.5
herein.
5.5. Compliance
Certificate. The
Chief Executive Officer of the Purchaser shall deliver to the Purchaser at
the
Closing a certificate certifying that the conditions specified in Sections 5.1 and
5.2
have been fulfilled.
5.6. Secretary’s
Certificate. The
Secretary of the Purchaser shall have delivered to the Company at the Closing
a
certificate certifying (i) the Bylaws of the Purchaser, and (ii) resolutions
of
the Board of Directors of the Purchaser approving the Transaction
22
Agreements
to which the Purchaser is a party, and the transactions contemplated by
the
Transaction Agreements.
5.7. Consents. All
government filings, licenses,
consents, authorizations, waivers and approvals that are required to be made
or
obtained for the consummation of the transactions contemplated by this Agreement
will have been duly made and obtained.
5.8. Transaction
Agreements. The
Purchaser shall have executed and delivered a counterpart signature to (a)
each
of the Employment Agreements, (b) the Assignment Agreement, and (c) the Stock
Restriction Agreement.
5.9. Proceedings
and Documents. All
corporate and other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company, and the Company (or its
counsel) shall have received all such counterpart original and certified
or
other copies of such documents as reasonably requested. Such
documents may include good standing certificates for Purchaser.
5.10. Stock
Restriction
Agreement. The Company shall have received from each of
BayHill Capital, LC, BayHill Group, LC and Xxxxxx X. Bench a counterpart
to the
Stock Restriction Agreement.
6.1 Survival
of Representations and
Warranties.. All of the representations
and warranties of the Company contained in Section
2 of this Agreement
shall
survive the Closing and continue in full force and effect for a period of
one year
thereafter; except that
(i) the representations
and
warranties of the Company contained in Sections
2.1 of
this Agreement shall survive the
Closing and continue in full force and effect indefinitely, and (ii) and
the representations
and
warranties of the Company contained in Section
2.18
of this Agreement shall survive the
Closing and continue in full force and effect until all applicable
statute of limitations has
run. All of the representations and warranties of the Purchaser
contained in Section
3 of this Agreement
shall
survive the Closing and continue in full force and effect for a period of one year
thereafter, except that the
representations and warranties of the Purchaser contained in Section 3.11
of
this Agreement shall survive the Closing and continue in full force and effect
until all applicable statute of limitations has run.
6.2 Indemnification.
(a) Indemnification
of
Purchaser. The Company shall indemnify, defend and hold
harmless the Purchaser, and each of its officers, directors, employees, agents,
successors and assigns (collectively the “Purchaser Group”) from and
against any and all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs, amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
court costs and attorneys’ fees and expenses (together, “Adverse Consequences”)
incurred in connection with, arising out of, resulting from or incident to
any
breach or alleged breach of any covenant, representation, warranty or agreement
or the inaccuracy or alleged inaccuracy of any
23
representation
made by the Company pursuant to this Agreement; provided that
in the
event of any payment of the indemnity obligations of the Company set forth
in
this Section
6.2(a) is required to be made, the Company may satisfy such payment by
delivery to Purchaser of any portion of the Shares acquired by the Company
pursuant to this Agreement, which Shares, for such purpose, shall be valued
at
$0.05 per share.
(b) Indemnification
of the
Company. The Purchaser shall indemnify, defend and hold
harmless the Company, and each of its officers, directors, employees, agents,
successors and assigns (collectively the “Company Group”) from and
against any and all Adverse Consequences incurred in connection with, arising
out of, resulting from or incident to any breach or alleged breach of any
covenant, representation, warranty or agreement or the inaccuracy or alleged
inaccuracy of any representation made by the Purchaser pursuant to this
Agreement.
(a)
If any third party shall notify a party to be indemnified under Section 6.2 (the
“Indemnified
Party”)
with respect to any matter (a “Third Party Claim”) which may
give rise to a claim for indemnification against the other party under this
Section 6 (the “Indemnifying Party”), then the
Indemnified Party shall promptly notify the Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified
Party
in notifying the Indemnifying Party shall relieve the Indemnifying Party
from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(b)
The Indemnifying Party shall have the right to defend the Indemnified Party
against the Third Party Claim with counsel of its choice reasonably satisfactory
to the Indemnified Party so long as (A) the Indemnifying Party notifies the
Indemnified Party in writing within 15 days after the Indemnified Party has
given notice of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party
that the Company will have the financial resources to defend against the
Third
Party Claim and fulfill its indemnification obligations hereunder (including
the
payment in cash of all fees and costs associated with such defense), (C)
the
Third Party Claim involves only money damages and does not seek an injunction
or
other equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice materially adverse
to the continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and
diligently.
(c)
So long as the Indemnifying Party is conducting the defense of the Third
Party
Claim in accordance with Section 6(b)
above, (A) the Indemnified Party may retain separate co-counsel at its sole
cost
and expense and participate in the defense of the Third Party Claim, (B)
the
Indemnified Party will not consent to the entry of any judgment or enter
into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), unless
the
following shall apply (in which
24
case
the
Indemnifying Party may settle and compromise such Third Party Claim without
the
prior written consent of the Indemnified Party): (x) there is no
finding or admission of any violation of law or any violation of the rights
of
any person and no affect on any other claims that may be made against the
Indemnified Party; and (y) the sole relief provided is monetary damages
that are
paid in full by the Indemnifying Party; provided that
in the
event the Company is the Indemnifying Party, such amount may be paid by
delivery
of a portion of Shares to the Company in accordance with Section
6.2(a).
(d)
In the event any of the conditions in Section 6.2(b)
above is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner they reasonably may
deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, the Indemnifying Party in connection therewith), (B)
theIndemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys’ fees and expenses), and (C) the Indemnifying Party will
remain responsible for any Adverse Consequences the Purchaser may suffer
resulting from, arising out of, relating to, or caused by the Third Party
Claim
to the fullest extent provided in this Section 6. The
parties agree that the Company, as a Indemnifying Party, may reimburse the
Purchaser, as the Indemnified Party, by delivery of a portion of the Shares
to
Purchaser, which Shares, for such purpose, shall be valued in accordance
with
Section 6.2(a)
hereof.
6.4 Limitation
on Claims. In case any
event shall occur which would otherwise entitle either party to assert a
claim
for indemnification under Section 6.2, no
Adverse Consequences shall be deemed to have been sustained by such party
to the
extent of (a) any tax savings realized by such party with respect thereto,
or
(b) any proceeds received by such party from any insurance policies with
respect
thereto. No Person shall be entitled to recover under Section 6.2 or Section
6.3 until the
total amount which such Person would recover under Section 6.2 or Section
6.3, but for
this Section
6.4, equals Twenty Thousand and No/100 Dollars ($20,000.00) (the “Deductible”),
and
then such Person shall be entitled to recover only for the excess over the
Deductible. No Person shall be entitled to recover under Section 6.2 or Section
6.3 to the
extent (but only to the extent that) the aggregate Adverse Consequences actually
paid to such Person would exceed Two Hundred Thousand Dollars
($200,000.00).
6.5 Sole
Remedy. The sole remedy of Purchaser for any and all
claims of the nature described in Section 6.2 shall
be
the indemnity set forth in Section 6.2, as
limited by the provisions of this Section
6.
7. Termination. Certain
of the parties to
this Agreement may terminate this Agreement as provided below.
7.1. Mutual
Agreement. The Company and the
Purchaser may terminate this Agreement by mutual written consent at any time
prior to the Closing.
7.2. Due
Diligence and Termination. Prior to the Closing, the
Company and its directors, managers, officers, employees, attorneys,
accountants, consultants, advisors and other agents (collectively, “Representatives”)
will have reasonable access during normal
25
business
hours and upon reasonable advance notice to the Purchaser to all properties,
books, accounts, records, contracts, and documents of or relating to the
Purchaser’s business so that the Company may have full opportunity to make such
investigation as it shall desire to make of the affairs of the Purchaser’s
business. Either Party may terminate this Agreement by giving
written notice to the other Party on or before the Closing if such Party
is not
satisfied with the results of its business, legal and accounting due diligence
regarding the other Party.
7.3
Purchaser
Termination for
Breach. The Purchaser may terminate this Agreement by
giving written notice to the Company at any time prior to the Closing (a)
in the
event the Company has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, the Purchaser has notified
the Company of the breach, and the breach has continued without cure for
a
period of ten (10) days after the notice of breach or (b) if the Closing
shall
not have occurred on or before November 30, 2007, by reason of the failure
of
any condition precedent under Section 4 hereof (unless the failure results
primarily from the Purchaser breaching any representation, warranty, or covenant
contained in this Agreement).
7.4
Company
Termination for
Breach. The Company may terminate this Agreement by giving
written notice to the Purchaser at any time prior to the Closing (a) in the
event the Purchaser has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, the Company has notified
the Company of the breach, and the breach has continued without cure for
a
period of ten (10) days after the notice of breach or (b) if the Closing
shall
not have occurred on or before November 30, 2007, by reason of the failure
of
any condition precedent under Section 5 hereof (unless the failure results
primarily from the Company breaching any representation, warranty, or covenant
contained in this Agreement).
7.5
Effect
of Termination. If any
party terminates this Agreement pursuant to Sections 7.1, 7.2, 7.3 or 7.4
above,
all rights and obligations of the parties hereunder shall terminate without
any
liability of any party to any other party (except for any liability of any
party
then in breach).
8. Miscellaneous.
8.1. Transfer;
Successors and
Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto
or
their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement. The parties agree that the Company may be
liquidated following the Closing at the direction of the
Shareholders.
8.2. Governing
Law. This Agreement shall be
governed by and construed in accordance with the internal laws of the State
of
Utah, without regard to its principles of conflicts of
laws. EACH OF THE PARTIES HERETO HEREBY UNCONDITIONALLY AND
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS OF SALT LAKE COUNTY, UTAH, IN CONNECTION WITH
26
ANY
DISPUTE ARISING OUT OF THIS AGREEMENT, AND HEREBY WAIVES ANY OBJECTION
TO SUCH
JURISDICTION INCLUDING WITHOUT LIMITATION OBJECTIONS BY REASON OF LACK
OF
PERSONAL JURISDICTION, IMPROPER VENUE, OR INCONVENIENT FORUM. EACH OF
THE PARTIES HERETO HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING
ANY
DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG
SUCH
PARTIES ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
TRANSACTION AGREEMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT TO
THE PARTIES ENTERING INTO THIS AGREEMENT.
8.3. Counterparts. This
Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument. This Agreement may also be executed and delivered by
facsimile signature and in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
8.4. Titles
and Subtitles. The titles
and subtitles used in this Agreement are used for convenience only and are
not
to be considered in construing or interpreting this Agreement.
8.5. Notices. All
notices and other communications
given or made pursuant to this Agreement shall be in writing and shall be
deemed
effectively given: (a) upon personal delivery to the party to be
notified, (b) when sent by confirmed electronic mail or facsimile if sent
during
normal business hours of the recipient, and if not so confirmed, then on
the
next business day, (c) five (5) days after having been sent by registered
or
certified mail, return receipt requested, postage prepaid, or (d) one (1)
day
after deposit with a nationally recognized overnight courier, specifying
next
day delivery, with written verification of receipt. All
communications shall be sent to the respective parties at their address as
set
forth on the signature page, or to such e-mail address, facsimile number
or
address as subsequently modified by written notice given in accordance with
this
Section
7.6. If notice is given to the Company, a copy shall also be
sent to Xxxx X. Xxxxxx, Xxxxx & Xxxxxx L.L.P., 00 Xxxx Xxxxx Xxxxxx, Xxxxx
0000, Xxxx Xxxx Xxxx, Xxxx 00000 and if notice is given to the Purchaser,
a copy
shall also be given to Xxxxx X. Xxxxx, Xxxx Xxxxxxxx Xxxxx Xxx & Xxxxxxxx,
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxxx Xxxx Xxxx, Xxxx 00000.
8.6. No
Finder’s Fees. Each party represents that it neither is
nor will be obligated for any finder’s fee or commission in connection with this
transaction. Each party agrees to indemnify and hold harmless the
other party from any liability for any commission or compensation in the
nature of a finder’s or broker’s fee arising out of this transaction (and the
costs and expenses of defending against such liability or asserted liability)
for which such party or any of its officers, employees or representatives
is responsible.
8.7. Attorney’s
Fees. If any action at law
or in equity (including arbitration) is necessary to enforce or interpret
the
terms of any of the Transaction Agreements, the prevailing party shall be
entitled to reasonable attorney’s fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
27
8.8. Amendments
and Waivers. Any term
of this Agreement may be amended, terminated or waived only with the written
consent of the Company and the Purchaser. Any amendment or waiver
effected in accordance with this Section 8.8 shall
be
binding upon the Purchaser, the Company and their respective successors and
assigns.
8.9. Severability. The
invalidity of
unenforceability of any provision hereof shall in no way affect the validity
or
enforceability of any other provision.
8.10. Delays
or Omissions. No delay or
omission to exercise any right, power or remedy accruing to any party under
this
Agreement, upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such non-breaching or
non-defaulting party nor shall it be construed to be a waiver of any such
breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any
kind or character on the part of any party of any breach or default under
this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only
to
the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any party,
shall
be cumulative and not alternative.
8.11. Entire
Agreement. This Agreement
(including the Exhibits hereto, if any), and the other Transaction Agreements
(as defined in this Agreement) constitute the full and entire understanding
and
agreement between the parties with respect to the subject matter hereof,
and any
other written or oral agreement relating to the subject matter hereof existing
between the parties are expressly cancelled.
8.12. Other
Agreements of the Purchaser. The Purchaser
hereby covenants and agrees that from the date of Closing and at all times
thereafter:
(a) Continuity
of Business
Enterprise. The Purchaser will continue at least one
significant historic business line of the Company, or use at least a significant
portion of the Company’s historic business assets in a business, in each case
within the meaning of Treasury Regulations Section 1.368-1(d); and
(b) Acquisition
of Common
Stock. There will be no plan or intention by the Purchaser or
any person “related” to the Purchaser (as defined in Treasury Regulations
Section 1.368-1(e)(3) to acquire or redeem any of the Purchaser Common Stock
issued in the transaction contemplated by this Agreement either directly
or
through any transaction, agreement, or other arrangement with any other
person.
28
IN
WITNESS WHEREOF, the parties have executed this Asset Purchase and
Reorganization Agreement as of the date first written above.
COGNIGEN
NETWORKS, INC.,
a
Colorado corporation:
By: _______________________________
Name: _____________________________
(print)
Title: ______________________________
|
Address:
00000 Xxxxx Xxxxxxxxxx Xxxxxxx
|
Xxxxx
000
Xxxxx
Xxxxxx, Xxxx 00000
COMMISSION
RIVER INC.,
a
Utah corporation
By: ______________________________
Name: ____________________________
(print)
Title: _____________________________
|
Address: 00000
Xxxxx 000
Xxxx
|
|
Xxxxx
X-0
|
Xxxxxx,
Xxxx 00000
Signature
Page to Asset Purchase Agreement
EXHIBITS
Exhibit A
-
Form of Xxxx of Sale
Exhibit B
-
Form of Assignment Agreement
Exhibit C
-
Form of Intellectual Property Assignment Agreement
Exhibit
D-
Form of Employment Agreement
Exhibit
E
-
Form of Stock Restriction Agreement
EXHIBIT
A
Form
of Xxxx of Sale
THIS
XXXX OF SALE AND ASSIGNMENT
AGREEMENT (this “Agreement”) is dated
as of November 30, 2007 by and between Commission River Inc., a Utah corporation
(“Transferor”),
and Cognigen Networks, Inc., a Colorado corporation (“Transferee”).
RECITALS:
WHEREAS,
in connection with the
transactions contemplated by that certain Asset Purchase and Reorganization
Agreement by and among Transferor and Transferee, dated as of November 30,
2007
(the “Purchase
Agreement”), Transferor has agreed to sell, transfer, convey, assign and
deliver to Transferee certain assets, and Transferee is willing to purchase
such
assets of Transferor, all in accordance with the terms, conditions and
agreements therein contained; and
WHEREAS,
pursuant to Section 1.6(b) of
the Purchase Agreement, Transferor is obligated to execute and deliver this
Agreement.
NOW,
THEREFORE, for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged:
1.
Transferor hereby irrevocably contributes, sells, transfers, conveys, assigns
and delivers to Transferee, and Transferee hereby purchases and acquires
all
right, title, interest, assumed duties and obligations of Transferor in and
to
the Assets. The assets and properties being sold, transferred, conveyed,
assigned and delivered hereby do not include any of the Excluded
Assets.
2.
This Agreement is subject to and includes by reference all of the
representations, warranties, covenants and indemnities set forth in the Purchase
Agreement.
3.
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Purchase Agreement.
This
Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute one instrument.
[Signature
page
follows]
IN
WITNESS WHEREOF, the undersigned
have caused a duly authorized officer to execute this Xxxx of Sale and
Assignment Agreement as of the date first above written.
TRANSFEROR:
COMMISSION
RIVER INC.
By: _____________________________
Name: ___________________________
Title: ____________________________
TRANSFEREE:
COGNIGEN
NETWORKS, INC.
By: ____________________________
Name: __________________________
Title: ___________________________
EXHIBIT
B
Form
of Assignment Agreement
THIS
ASSIGNMENT AND ASSUMPTION
AGREEMENT (this “Agreement”) is dated
as of November 30, 2007 by and between Commission River Inc., a Utah corporation
(“Assignor”),
and Cognigen Networks, Inc., a Colorado corporation (“Assignee”).
RECITALS:
WHEREAS,
in connection with the
transactions contemplated by that certain Asset Purchase and Reorganization
Agreement by and among Assignor and Assignee, dated as of November 30, 2007
(the
“Purchase
Agreement”), Assignor has agreed to sell, transfer, convey, assign and
deliver to Assignee certain assets, and Assignee is willing to purchase such
assets of Assignor, all in accordance with the terms, conditions and agreements
therein contained; and
WHEREAS,
pursuant to Section 1.6(b) of
the Purchase Agreement, Assignor is obligated to execute and deliver this
Agreement.
NOW,
THEREFORE, for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged:
1.
Assignor hereby assigns and transfers to Assignee, and Assignee hereby assumes
and agrees to pay, perform and discharge the Assumed Liabilities when such
Assumed Liabilities become due. The Assumed Liabilities being assigned and
transferred hereby do not include any of the Retained Liabilities.
2.
This Agreement is subject to and includes by reference all of the
representations, warranties, covenants and indemnities set forth in the Purchase
Agreement.
3.
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Purchase Agreement.
4.
This Agreement shall be governed by, and construed and interpreted with,
the
laws of the State of Utah.
This
Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute one instrument.
[Signature
page
follows]
IN
WITNESS WHEREOF, the undersigned
have caused a duly authorized officer to execute this Assignment and Assumption
Agreement as of the date first above written.
ASSIGNOR:
COMMISSION
RIVER INC.
By: _______________________
Name: _____________________
Title: ______________________
ASSIGNEE:
COGNIGEN
NETWORKS, INC.
By: _______________________
Name: ______________________
Title: ______________________
EXHIBIT
C
Form
of Intellectual Property Assignment Agreement
THIS
INTELLECTUAL PROPERTY ASSIGNMENT
AGREEMENT (this “Agreement”) is dated
as of November 30, 2007 by and between Commission River Inc., a Utah corporation
(“Assignor”),
and Cognigen Networks, Inc., a Colorado corporation (“Assignee”).
RECITALS:
WHEREAS,
in connection with the
transactions contemplated by that certain Asset Purchase and Reorganization
Agreement by and among Assignor and Assignee, dated as of November 30, 2007
(the
“Purchase
Agreement”), Assignor has agreed to sell, transfer, convey, assign and
deliver to Assignee certain assets, and Assignee is willing to purchase such
assets of Assignor, all in accordance with the terms, conditions and agreements
therein contained; and
WHEREAS,
pursuant to Section 1.6(b) of
the Purchase Agreement, Assignor is obligated to execute and deliver this
Agreement.
NOW,
THEREFORE, for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged:
1.
Assignor hereby contributes, assigns, transfers, conveys and delivers unto
Assignee, its successors and assigns, and Assignee hereby accepts and acquires
from Assignor, all of Assignors’ right, title, and interest in, to, and under
any patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights, processes, computer software and
internet domain names, together with the goodwill of the business relating
to
the goods and services in respect upon which the trademarks are
used, rights under and remedies against infringement of any of the
foregoing, all income, royalties, and damages hereafter due or payable to
Assignor with respect to the foregoing, all rights to xxx for past, present,
and
future infringements or misappropriations of the foregoing, and rights to
protection of interests in any of the foregoing under any applicable Laws
used
or held for use by the Assignor in connection with the Business, including
without limitation, the intellectual property identified on Exhibit A attached
hereto, the same to be held and enjoyed by Assignee for its own use and for
the
use of its successors and assigns.
Assignor
further covenants that it will execute all documents, papers, forms and
authorizations and take all other actions that may be necessary for securing,
completing, vesting, or enforcing in Assignee full right, title, and interest
in
any patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights, processes, computer software and
internet domain names owned by Assignor.
2.
This Agreement is subject to and includes by reference all of the
representations, warranties, covenants and indemnities set forth in the Purchase
Agreement.
3.
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Purchase Agreement.
4.
This Agreement shall be governed by, and construed and interpreted with,
the
laws of the State of Utah.
This
Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute one instrument.
[Signature
page
follows]
IN
WITNESS WHEREOF, the undersigned
have caused a duly authorized officer to execute this Intellectual Property
Assignment Agreement as of the date first above written.
ASSIGNOR:
COMMISSION
RIVER INC.
By: ___________________________
Name: _________________________
Title: __________________________
ACKNOWLEDGMENT
STATE
OF
UTAH
)
)
COUNTY
OF
SALT
LAKE
)
On
this
the 30th day of November, 2007, before me, the undersigned Notary Public,
personally appeared _______________________________, personally known to
me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the above and foregoing Assignment, and acknowledged to me that
he
executed it.
WITNESS
my hand and official seal.
___________________________________
Notary
Public in and for the State of Utah
ASSIGNEE:
COGNIGEN
NETWORKS, INC.
By: _____________________________
Name: ___________________________
Title: ____________________________
ACKNOWLEDGMENT
STATE
OF
UTAH
)
)
COUNTY
OF
SALT
LAKE
)
On
this
the 30th day of November, 2007, before me, the undersigned Notary Public,
personally appeared _______________________________, personally known to
me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the above and foregoing Assignment, and acknowledged to me that
he
executed it.
WITNESS
my hand and official seal.
___________________________________
Notary
Public in and for the State of Utah
Exhibit
A
[See
Attached]
ACKNOWLEDGMENT
STATE
OF
UTAH
)
)
COUNTY
OF
SALT
LAKE
)
On
this
the ____ day of November, 2007, before me, the undersigned Notary Public,
personally appeared _______________________________, personally known to
me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the above and foregoing Assignment, and acknowledged to me that
he
executed it.
WITNESS
my hand and official seal.
___________________________________
Notary
Public in and for the State of Utah
EXHIBIT
D
Form
of Employment Agreement
THIS
EMPLOYMENT AGREEMENT (the “Agreement”) is made
and entered into effective as of November __, 2007 (the “Effective Date”), by
and between Cognigen Networks, Inc., a Colorado corporation (the “Company”) and [Xxxx
Xxxxxxx] [Xxxxxxx Xxxxx], an individual (the “Employee”).
RECITAL
WHEREAS,
pursuant to the terms of that certain Asset Purchase and Reorganization
Agreement (the “Purchase Agreement“)
dated November __, 2007 by and among the Company and Commission River Inc.
(“Commission
River”), the Company proposes to acquire substantially all of the assets
of Commission River in exchange for shares of voting common stock of the
Company
(the “Transaction”);
WHEREAS,
an essential condition to the Transaction is the execution of an Employment
Agreement to be entered into between the Employee and the Company;
and
WHEREAS,
the Company desires to employ Employee and the Employee desires to be employed
by the Company, upon the terms and subject to the conditions hereinafter
set
forth.
NOW,
THEREFORE, in consideration of the mutual premises and agreements hereinafter
set forth, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Company and Employee, intending
to
be legally bound, agree as follows:
AGREEMENT
1. Employment. Commencing
on the Effective Date and continuing throughout the term of this Agreement,
the
Company hereby agrees to employ the Employee as the [Vice President of the
Company and President and General Manager of Commission River Operations]
[Vice
President of Marketing of the Company and Vice President of Marketing of
Commission River Operations] or a similar position with a subsidiary of the
Company, and the Employee hereby accepts employment with the Company or
subsidiary of the Company, upon the terms and subject to the conditions set
forth herein.
2. Term. The
Employee shall be employed by the Company for a period of three (3) years
from
the Effective Date or until the Employee’s employment with the Company is
terminated in accordance with Section
6.
3. Duties.
General
Duties. The Employee will initially be employed as the [Vice
President of the Company and President and General Manager of Commission
River
Operations] [Vice President of Marketing of the Company and Vice President
of
Marketing of Commission
River
Operations], and will have and perform those duties and responsibilities
which
are appropriate and customary to the position held by the Employee and assigned
or delegated to the Employee from time to time by the Company’s Board of
Directors (the “Board”), President
or
Chief Executive Officer. The Board or the Company’s President or
Chief Executive Officer may, in their sole discretion, alter, modify, or
change
the Employee’s duties, offices, positions, responsibilities and obligations set
forth in this Agreement at any time (including employing the Employee with
a
subsidiary of the Company), consistent with the Employee’s status as [Vice
President of the Company and President and General Manager of Commission
River
Operations] [Vice President of Marketing of the Company and Vice President
of
Marketing of Commission River Operations].
(a) Performance. To
the best of the Employee’s ability and experience, the Employee will at all
times loyally and conscientiously perform all duties, and discharge all
responsibilities and obligations, required of and from the Employee pursuant
to
the terms hereof, and to the satisfaction of the
Company. Notwithstanding the foregoing, the Employee shall be free to
engage in the business management and ownership of, or employment by, Telarus,
Inc. (“Telarus”), as long
as
such engagement does not materially interfere with his employment with the
Company. For purposes of this Agreement, the scope of Telarus’
business in which Employee may be engaged shall be limited to (i) ownership
of
common shares of Telarus, and (ii) sales, marketing and consulting services
in
the area of commercial information technology, including without limitation
telecommunications services and devices, networking services and devices,
residential broadband sales and services through xxx.xxxx0XXX.xxx, software
and software as a service (collectively, the “Telarus
Business”). Additional products, services and business pursuits may
be added to the Telarus Business by written consent of the Company which
consent
will not be unreasonably withheld.
(b) Place
of
Performance. In connection with the Employee’s employment by
the Company and unless the parties hereto mutually agree otherwise, the Employee
will be based at the Company’s offices in Draper, Utah, except for required
travel on Company business.
4. Compensation
and Related
Matters.
(a) Salary
and
Bonus. In consideration for services rendered to the Company
as provided herein, the Company will pay to the Employee a base salary (the
“Base Salary”)
at a rate of: (x) $72,000 per annum for the first thirteen (13) months following
the Effective Date; and (y) $100,000 per annum thereafter during the term
of
this Agreement. The Base Salary shall be paid as
follows:
(i)
For the
first thirteen (13) months following the Effective Date and calculated on
a per
annum basis: (x) $24,000 of the Base Salary will be paid in cash according
to
the Company’s standard payroll policy as in effect from time to time, which
currently provides for payments to be made twice a month, in arrears; and
(y)
$48,000 of the Base Salary will be paid within thirty (30) days of the Company’s
fiscal year end, and shall be paid in shares of common stock of the Company
(the
“Shares”). The
Company shall issue such Shares to Employee based on the stock price of $.03
per
share of common
stock
of
the Company. The Company shall issue the Shares in compliance with
all applicable state and federal securities laws.
(ii)
Subsequent to the first thirteen (13) months following the Effective Date
and
calculated on a per annum basis, the Base Salary will be paid in cash according
to the Company’s standard payroll policy as in effect from time to time, which
currently provides for payments to be made twice a month, in
arrears.
(iii)
The
Employee shall also be eligible to receive bonuses (each a “Bonus”), payable
in
cash within forty-five (45) days after the Company’s fiscal year
end. Each Bonus will be based upon the Employee achieving certain
performance objectives established and provided to the Employee by the Board
or
the Company’s President or Chief Executive Officer.
Subject
to Section 6(a)(iv) hereof, the Base Salary may be increased from time to
time
in accordance with normal business practices of the Company.
(b) Expenses. The
Employee will be entitled to receive reimbursement for reasonable expenses
incurred by the Employee in performing services hereunder, including expenses
for travel and living expense while away from home on business in the service
of
the Company; provided that all
expenses are incurred, documented, and accounted for in accordance with the
policies and procedures as are from time to time established by the Company
and
expenses in excess of $5,000 are approved in advance by the President, Chief
Executive Officer or Chief Financial Officer of the Company.
(c) Employee
Benefit
Plans. During the term of this Agreement, the Employee is
entitled to participate in any employee benefit plans which may be made
available by the Company to its employees generally, including, but not limited
to, cafeteria plans and health, life, hospitalization, stock purchase plans,
option plans, dental, disability or other insurance plans as may be in effect
from time to time and in accordance with rules established from time to time
for
individual participation in such plans.
(d) Paid
Leave. The Employee will be entitled to the number of paid
leave days in each calendar year as is determined in accordance with the
Company’s paid leave policy as in effect from time to time. The
Employee will also be entitled to all paid holidays given by the Company
to its
employees. Use of paid leave (and, if applicable, accrual of and
compensation for unused paid leave) will be subject to the Company’s
policies.
5. Facilities
and Services
Furnished. The Company will furnish the Employee with office
space, and such other facilities, furniture, equipment, and services as it
may
determine to be reasonably necessary for the performance of the Employee’s
duties as set forth herein.
6. Termination.
(a) Termination
Events. The Employee’s employment hereunder may be terminated
under any of the following circumstances:
(i) Death. The
Employee’s employment hereunder shall terminate upon the Employee’s
death.
(ii) Disability. If
the Employee is determined to be “disabled” in accordance with this Section 6(a)(ii), the
Company may terminate the Employee’s employment hereunder. For
purposes of this Agreement, the Employee shall be considered “disabled”
if in the
reasonable, good faith judgment of a licensed physician selected jointly
by the
Company and the Employee (or the Employee’s personal representative), the
Employee is unable, after any accommodation required by applicable law, to
perform the Employee’s customary duties as an employee of the Company because of
a physical or mental impairment for a period of three (3) consecutive
months. The determination by the physician selected by the Company
and the Employee (or the Employee’s personal representative) shall be binding
and conclusive for all purposes. If the Company and the Employee (or
the Employee’s personal representative) cannot agree on a single physician, the
Company and the Employee (or the Employee’s personal representative) may each
designate a physician. If the two (2) physicians do not agree on
whether the Employee is “disabled” as defined in this Section 6(a)(ii),
they shall jointly appoint a third (3rd) physician, whose judgment concerning
whether the Employee is disabled shall be binding and conclusive on all
parties. The Employee agrees to submit to such physical examinations
as may be ordered by any physician selected pursuant to this Section
6(a)(ii).
(iii) Cause. The
Company may terminate the Employee’s employment hereunder for Cause (as defined
below) at any time upon delivery of written Notice of Termination (as defined
below) to the Employee. For purposes of this Agreement, “Cause”
shall mean
(1)
the conviction of (or the plea of guilty or no contest to) a felony, as
evidenced by a judgment, order or decree of, or acceptance of a plea of nolo
contendere (or similar
plea) by, a
court of competent jurisdiction, which the Board reasonably determines is
likely
to have a material adverse effect on the ability of the Employee to effectively
perform the Employee’s duties, (2) unreasonable neglect or refusal by the
Employee to perform the Employee’s duties or responsibilities that remains
uncured for at least ten (10) days following the Employee’s receipt of written
notice of such neglect or refusal from the Board, (3) the Employee’s performance
of an act or failure to perform an act which, if the Employee were prosecuted
and convicted, would constitute a felony, (4) a material violation by the
Employee of the Company’s established policies and procedures that remains
uncured for at least ten (10) days following the Employee’s receipt of written
notice of such violation from the Board, (5) the breach by the Employee of
any
of the Employee’s material obligations under this Agreement that remains uncured
for at least ten (10) days following the Employee’s receipt of written notice of
such breach from the Board; provided that the
Employee shall not have any opportunity to cure any material breach of Section 8 or Section
9 hereof, or
(6) the Employee’s commission of an act of fraud, misappropriation or
embezzlement against the Company. A determination of whether the
Employee’s actions justify termination for Cause and the date on which such
termination is effective shall in each case be made in good faith by the
Board;
provided that the mere allegation of any act described in clause (3) or
(6)
above
shall not constitute a sufficient basis for “Cause” under such clause (3) or
(6), as applicable, and the Employee shall be given in advance of such
determination a full and detailed written statement of the basis of such
claim
and shall be given the opportunity to provide contrary proof before the Board,
except that such opportunity will not be required to be given in the event
of
actual conviction of the type of felony referred to above.
(iv) Other
Events of
Termination. The Employee’s employment hereunder may be
terminated (1) by the Company at any time for any other reason or no reason
by
providing written Notice of Termination to the Employee; (2) by the Employee,
upon the Company’s breach of any material provision of this Agreement that is
not cured by the Company within ten (10) days of the Company’s written receipt
of written notice of such breach from Employee; or (3) by the Employee for
“Good
Reason” at any time, which shall mean (i) a change in the Employee’s position
that materially reduces his level of authority or responsibility; (ii) a
change
in Employee’s reporting authority to the Company’s Chief Executive Officer or
the Board; (iii) the Company’s failure to pay any amount due or owing to the
Employee under the terms of this Agreement; (iv) the Company’s reduction of the
Base Salary to an amount less than the amount provided for in Section 4(a)
above; or (v) the Company’s breach of any material provisions of this Agreement
not involving the payment of money and the expiration of ten (10) business
days
after the Company’s receipt of written notice of such breach from the Employee
unless cured within twenty (20) business days following the notice
period.
(b) Notice
of
Termination. “Notice
of
Termination” shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for
termination of the Employee’s employment under the provision so
indicated.
(c) Effect
of
Termination. In the event the Employee’s employment is
terminated, all obligations of the Company and the Employee under this Agreement
shall cease, except that if the Employee is terminated pursuant to Section
6(a)(i), 6(a)(ii) or 6(a)(iii) hereof, the terms of Section 7 through
Section 11
shall survive such termination. Upon termination for any reason, the
Employee or the Employee’s representative or estate shall be entitled to receive
any applicable compensation, benefits, and reimbursements set forth in Section
7. The Employee acknowledges that, upon termination of the
Employee’s employment, the Employee is entitled to no other compensation,
severance or other benefits other than those specifically set forth under
Section 7(b) or any other provision of this Agreement.
7. Compensation
and Severance
Upon Termination.
In
the
event the Employee’s employment hereunder is terminated pursuant to Section
6(a)(i), 6(a)(ii) or 6(a)(iii) above, the Employee or his estate shall only
be
entitled to receive the amount of the Base Salary payable through the date
of
termination, and shall not be entitled to any salary, compensation or benefits
from the Company thereafter,
except
as
otherwise specifically provided for under the Company’s employee benefit plans
or as otherwise expressly required by applicable law.
(a)
In the
event the Employee’s employment hereunder is terminated pursuant to Section
6(a)(iv) above, Employee shall be entitled receive the following payments
(all
such payments will be made according to the Company’s standard payroll policy as
in effect from time to time):
(i)
If
Employee’s employment is terminated within the twelve (12) month period from the
Effective Date, the Company shall pay to the Employee an amount that is equal
to
the sum of: (1) twelve (12) months of the Base Salary payable pursuant to
Section 4(a)(x), and (2) any Bonus earned by the Employee in accordance with
Section 4(a) hereof, all paid in cash pro rata over the twelve (12) month
period
commencing on the date of termination, plus the full medical, dental and
vision
premiums for continuation coverage under COBRA for the Employee and his
dependents who qualify for continuation coverage under COBRA for one (1)
year
following the date of termination.
(ii)
If
Employee’s employment is terminated at any time on or after the first
anniversary of the Effective Date, the Company shall pay to the Employee
an
amount that is equal to the sum of three (3) months of the Base Salary for
the
year in which the termination occurred, plus the full medical, dental and
vision
premiums for continuation coverage under COBRA for the Employee and his
dependents who qualify for continuation coverage under COBRA for three (3)
months following the date of termination.
8. Confidentiality
and
Inventions Assignment.
(a) Confidential
Information and
Work for Hire. The Employee and the Company hereby acknowledge
and agree that in connection with the employment of the Employee, the Employee
has been and will be provided with or shall otherwise be exposed to or receive
certain confidential and/or proprietary information of the Company or of
third
parties and may develop certain products, services, methods, know-how,
procedures, formulae, processes, specifications, and information of a similar
nature that relate to the services provided by the Employee to the
Company. The Employee shall abide by the terms of this Section
8.
(b) Definitions. As
used herein:
(i)
“Confidential
Information” shall mean any and all tangible and intangible information,
whether oral or in writing or in any other medium, relating to the management,
business, strategy, plans, intellectual property, operations, products,
inventions, financial condition, financial results, and financial projections
of
Commission River or the Company, including without limitation, any and all
trade
secrets, know-how, designs, drawings, schematics, formulations, ingredients,
samples, processes, machines, prototypes, mock-ups, processing and control
information, product performance data, manuals, supplier lists, customer
lists,
purchase and sales records, marketing information and computer programs,
whether
developed by Commission River or the Company or furnished to Commission River
or
the Company by other third parties; and all information
which
relates to the
analysis and evaluation of the Confidential Information and/or the use
thereof
developed or compiled by Commission River or the Company.
Confidential
Information shall not include Excluded Information (as defined
below).
(ii)
“Excluded
Information” shall refer to information, if any, that would otherwise
constitute Confidential Information and that (1) is generally available to
or
known by the public other than as a result of a disclosure made by Employee
in
breach of this Agreement; (2) was available to Employee on a nonconfidential
basis prior to disclosure to Employee by the Company; (3) is disclosed to
Employee on a nonconfidential basis from a source other than the Company;
provided that
Employee is not, in good faith after reasonable inquiry, aware that such
source
is or was bound by a confidentiality agreement with the Company or otherwise
prohibited from transmitting the information to Employee by any contractual,
legal, or fiduciary obligation or by any other obligation enforceable by
law or
in equity; (4) is hereafter independently developed or compiled by Employee
without the aid, application, or use of the Confidential Information; or
(5) was
available to the Employee or is hereinafter independently developed, compiled
or
obtained by the Employee while the Employee was engaged in the Telarus
Business. Excluded Information does not include information that
would otherwise constitute Confidential Information during the period from
the
date the information was disclosed by the Company to Employee and the date
that
such information became Excluded Information.
(iii)
“Person,”
whether or not the term is capitalized, will be interpreted very broadly
and
will include, without limitation, any individual, corporation (including
a
business trust), partnership, joint stock company, limited liability company,
trust, estate, unincorporated association, joint venture, or other entity,
or a
government or any political subdivision or agency thereof, whether or not
any
such person is an officer, director, employee, or agent of the
Company.
(c) Use
of Confidential
Information. The Confidential Information will be used by the
Employee solely for the purposes of performing services for the
Company. The Confidential Information will not, without the prior
written consent of the Company, be used by the Employee, directly or indirectly,
for any other purpose. Such use shall cease at any time when this
Agreement has terminated in accordance with its terms.
(d) Nondisclosure. The
Employee agrees to safeguard the confidentiality of the Confidential Information
and not to disclose any part of it to any Person except to those employees
of
the Company who need to know such information for the purposes of performing
services for the Company.
(e) Return
of Confidential
Information. Promptly upon the request of the Company, the
Employee will return to the Company all copies of Confidential Information
furnished to the Employee by the Company, together with all copies of any
of the
same (whether in hard-copy form or on intangible media, such as electronic
mail
or computer files), or any part thereof, made by the Employee. All
notes, studies, reports,
memoranda,
and other documents prepared by the Employee that contain or reflect the
Confidential Information shall also be returned to the Company.
(f) Dispute
as to Confidential
Nature of Information. In the event of a dispute or litigation
between the Employee and the Company, the Employee shall have the burden
of
proving that any information disclosed to the Employee by the Company or
used by
the Employee, and which information the Employee claims does not constitute
Confidential Information, is not in fact Confidential Information or a
derivative thereof.
(g) Subpoena;
Court Order; Other
Legal Requirement. If the Employee is requested, under the
terms of a subpoena or order or other compulsory instrument issued by or
under
the authority of a court of competent jurisdiction or by a governmental agency,
or is advised in writing by counsel for any such party that there is otherwise
a
legal obligation to disclose (i) all or any part of the Confidential
Information, (ii) the fact that the Confidential Information has been made
available to the Employee, or (iii) any of the terms, conditions, or other
facts
with respect to the Employee’s employment with the Company or the services
provided by the Employee to the Company, the Employee agrees to, at the
Company’s expense: (1) provide the Company with prompt written notice of the
existence, terms, and circumstances surrounding such request or requirement;
(2)
consult with the Company on the advisability of taking steps to resist or
narrow
that request; (3) if disclosure of Confidential Information is required,
furnish
only such portion of the Confidential Information as the Employee is advised
in
writing by the Employee’s counsel is legally required to be disclosed; and (4)
cooperate with the Company, at the request of the Company and at the Company’s
expense, in its efforts to obtain an order excusing the Confidential Information
from disclosure, or an order or other reliable assurance that confidential
treatment will be accorded to that portion of the Confidential Information
that
is required to be disclosed.
(h) Inventions
and Other
Intellectual Property
Attached
hereto as Schedule
A is a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets which were owned or developed
by
the Employee prior to the Employee’s relationship with Commission River or the
Company, which relate to the Company’s proposed businesses and products, and
which are not assigned to the Company pursuant to this Section
8(h). If no such list is attached, the Employee represents
that there are no such inventions. The Employee agrees to promptly make full
written disclosure to the Company, to hold in trust for the sole right and
benefit of the Company, and to assign to the Company all of the Employee’s
right, title, and interest in and to any and all inventions, original works
of
authorship, developments, improvements, discoveries, ideas, know-how, processes,
methods, formulae, techniques or trade secrets, whether or not patentable
or
copyrightable, which the Employee has solely or jointly conceived or developed
or reduced to practice, may solely or jointly conceive or develop or reduce
to
practice, or cause to be conceived or developed or reduced to practice, during
the Employee’s relationship with the Company, whether as an officer, employee or
other service provider. The Employee acknowledges and understands
that this Section
8(h) will not apply to an invention as to which the Employee can prove
the following:
(1)
It was created by the Employee entirely on the Employee’s own time;
(2)
It was not conceived, developed, reduced to practice or created by the
Employee:
(A)
within the scope of the Employee’s engagement or employment;
(B)
on the Company’s time; or
(C)
with the aid, assistance or use of any of the Company’s property, equipment,
facilities, supplies, resources or intellectual property;
(3)
It does not result from any work, services or duties performed by the Employee
for the Company;
(4)
It does not relate to the industry or trade of the Company; and
(5)
It does not relate to the current or demonstrably anticipated business, research
or development of the Company.
The
Employee acknowledges that all original works of authorship which are made
by
the Employee (solely or jointly with others) within the scope of the Employee’s
work related to the Company and which are protectable by copyright are “works
made by hire,” as that term is defined in the United States Copyright Act (17
U.S.C.A. § 101). The Employee further agrees that, with respect to
any “works made by hire” by the Employee (solely or jointly with others), the
Employee will receive no royalty or other consideration therefor.
(ii)
Maintenance of
Records. The Employee agrees to keep and maintain adequate and
current written records of all inventions and original works of authorship
made
by the Employee (solely or jointly with others) during the term of the
Employee’s relationship with the Company, whether as an officer, employee or
other service provider, which will be in the form of notes, sketches, drawings,
and any other format that may be specified by the Company; provided that the
Employee shall not be required to maintain such records for any invention
or
original work of authorship made by the Employee in connection with the
Employee’s services to Telarus related to the Telarus Business, as permitted
hereunder. Except as limited by the foregoing sentence, the records
will be available to and remain the sole property of the Company at all
times. The records will include, but will not be limited to
information as to all inventions, as well as information as to any studies
or
research projects undertaken on the Company’s behalf or with the aid, assistance
or use of any of the Company’s property, equipment, facilities, supplies,
resources or intellectual property, describing in detail the procedures employed
and the results achieved, and any other information the Company
requires.
(iii)
Inventions Assigned
to
the United States. The Employee agrees to assign to the United
States government or any state or local government all of the Employee’s right,
title, and interest in and to any and all inventions, original works of
authorship, developments, improvements or trade secrets whenever such full
title
is required to be in the United States or any state or local government by
contract between the Company and the United States government or any state
or
local government if applicable, except for inventions, original works of
authorship, developments, improvements or trade secrets that are expressly
excluded in this Agreement.
(iv)
Obtaining Letters
Patent and Copyright Registrations. The Employee agrees that
the Employee will apply, at the Company’s expense and request, for United States
and foreign letters patent or copyrights, either in the Employee’s name or
otherwise as the Company desires, covering inventions and original works
of
authorship assigned hereunder to the Company. The Employee further
agrees that the Employee’s obligation to assist the Company to obtain such
United States or foreign letters patent and copyright registrations will
continue beyond the termination of the Employee’s relationship with the Company,
whether as an officer, employee or other service provider, but the Company
shall
compensate the Employee for such assistance at a reasonable rate for time
actually spent by the Employee beyond termination of the Employee’s relationship
with the Company at the Company’s request. If the Company is unable
because of the Employee’s mental or physical incapacity or for any other reason
to secure the Employee’s signature to apply for or to pursue any application for
any United States or foreign letters patent or copyright registrations covering
inventions or original works of authorship assigned to the Company pursuant
to
this Agreement, then the Employee hereby irrevocably designates and appoints
the
Company and its duly authorized officers and agents as the Employee’s agent and
attorney in fact, to act for and in the Employee’s behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts
to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed
by the
Employee. The Employee hereby waives and quitclaims to the Company
any and all claims, of any nature whatsoever, which the Employee now or may
hereafter have for infringement of any patents or copyright resulting from
any
application for letters patent or copyright registrations assigned hereunder
to
the Company.
9. Non-Competition
Non-Competition
Provision is
Integral Part of Agreement. The Company and the Employee have
negotiated the non-competition provisions as an integral part of this
Agreement. The Company and the Employee agree to the non-competition
and other provisions contained herein and agree that such provisions are
reasonable and are necessary to induce the Company and the Employee to enter
into this Agreement. If, at the time of enforcement of any provision
of this Agreement, a court or other tribunal shall hold that the restrictions
herein are unreasonable or unenforceable under circumstances then existing,
the
Employee agrees that the maximum period, scope or geographical area
reasonable
under such circumstances shall be substituted for the period, scope or area
stated herein.
(a) Non-Competition. The
Employee agrees that during the term of the Employee’s employment with the
Company and for a period of two (2) years thereafter (the “Restrictive Period”),
the Employee will not, unless otherwise agreed by the Company in writing,
directly or indirectly, as promoter, shareholder, agent, representative,
manager, director, officers, owner, independent contractor or otherwise or
in
connection with any consultant, employee, agent, partner, relative, or affiliate
of the Employee:
(i)
Anywhere
in the world (the “Restricted Area”)
own, manage, operate or control any business of the type and character engaged
in and competitive with the Company or any affiliate thereof (for purposes
of
this paragraph, ownership of securities of not in excess of two percent (2%)
of
any class of securities of a public company shall not be considered to be
competition with the Company or any affiliate thereof);
(ii)
Anywhere
in the Restricted Area, act as an employee, officer, director, manager, member,
advisor, representative, partner, consultant or agent for any business of
the
type and character engaged in and competitive with the Company, or any of
its
affiliates; or
(iii)
Solicit
the employment of any employee or independent contractor of the Company or
any
of its affiliates.
The
Company hereby acknowledges and agrees that any of the Employee’s ownership
interest in, or services to, Telarus during the Restricted Period shall not
be
deemed a breach of this Section 9 or any other provision of this agreement,
provided that Telarus does not engage, directly or indirectly, in business
other
than the Telarus Business.
(b) Definitions. For
purposes of this Agreement, the term “competitive with
the
Company” shall mean any business (other than the Telarus Business)
located anywhere in the Restricted Area that (i) conducts business similar
to
the Company during the Employee’s employment with the Company or (ii) is engaged
in the business of providing services and/or products similar to those of
the
Company during Employees employment with the Company related to providing
technology, tools, and products to affiliate marketers and creating and managing
affiliate programs for product vendors, but shall expressly exclude the
Employee’s ownership of, providing services to, or employment by,
Telarus. As used in this Agreement, the term “affiliate”
shall mean
any individual, joint venture, partnership, corporation, limited liability
company, or shareholder which controls, is controlled by, or is under common
control with, the Company, or in which the Company owns any interest, as
required by the context of this Agreement.
10. Availability
of Equitable
Remedies. The Employee hereby acknowledges and agrees that a
breach of any of the agreements contained in this Agreement will cause
irreparable harm and damage to the Company, that the remedy at law for the
breach or threatened breach of the agreements set forth in this Agreement
will
be inadequate, and that, in addition to all other
remedies
available to the Company for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company will be entitled
to injunctive relief for any breach or threatened breach of the agreements
contained in this Agreement.
11. Representations
and
Warranties.
(a) Restricted
Securities. The Employee understands that any Shares that may
be issued to Employee hereunder have not been, and will not be, registered
under
the Securities Act of 1933, as amended (the “Securities Act”), by
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature
of
the investment intent and the accuracy of the Employee’s representations as
expressed herein. The Company understands that the Shares are
“restricted securities” under applicable U.S. federal and state securities laws
and that, pursuant to these laws, the Employee must hold the Shares indefinitely
unless they are registered with the SEC and qualified by state authorities,
or
an exemption from such registration and qualification requirements is
available. The Employee acknowledges that the Company has no
obligation to register or qualify the Shares for resale. The Employee
further acknowledges that if an exemption from registration or qualification
is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares,
and
on requirements relating to the Company which are outside of the Employee’s
control, and which the Company is under no obligation and may not be
able to
satisfy.
(b) Limited
Market. The Employee understands that the Shares are quoted on
the Over-the-Counter Bulletin Board and that a limited public market exists
for
the Shares. The Company has made no assurances that an active public
market will ever exist for the Shares.
(c) Legends. The
Employee understands that the Shares and any securities issued in respect
of or
exchange for the Shares, may bear one or all of the following
legends:
(i)
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.”
(ii)
Any legend required by the securities laws of any state to the extent such
laws
are applicable to the Shares represented by the certificate with such
legend.
(d) Adequate
Knowledge; No
Reliance Upon Representations.
(i)
The Employee acknowledges and confirms that he has been given a reasonable
opportunity to review all documents, books, records and materials of the
Company
pertaining to the Shares, has been supplied with all additional information
concerning the Company and the Shares that has been requested, has had a
reasonable opportunity to ask questions of and receive answers from the Company
or its authorized representatives concerning the Shares and that all questions
have been answered to the full satisfaction of Employee.
(ii)
The Employee has received no representations, written or oral, from the Company
or its officers, directors, employees, attorneys or agents other than those
contained in this Agreement. In making the decision to receive the Shares
as a
portion of the Base Salary, the Employee has relied solely upon his review
of
the Company’s books and records, this Agreement, the Purchase Agreement and
independent investigations made by him.
12. Miscellaneous.
(a) Severability.
In the
event that a court of competent jurisdiction determines that any portion
of this
Agreement is in violation of any statute or public policy, then only the
portions of this Agreement which violate such statute or public policy shall
be
stricken. All portions of this Agreement which do not violate any
statute or public policy shall continue in full force and
effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms to give as much effect as possible
to
the intentions of the parties under this Agreement.
(b) Notices. All
notices, demands, and other communications provided for hereunder shall be
in
writing (including facsimile or similar transmission) and mailed (by U.S.
certified mail, return receipt requested, postage prepaid), sent, or delivered
(including by way of overnight courier service), (i) if to the Company, to
Cognigen Networks, Inc., 0000 Xxxxx Xxxxxxxxxx Xxx, Xxxx, Xxxx, Attn: Xxx
Bench,
and in the case of facsimile transmission, to facsimile number (000) 000-0000;
(ii) if to the Employee, to the address set forth opposite the Employee’s name
on the signature page, and in the case of facsimile transmission, to the
facsimile number set forth opposite the Employee’s name on the signature page
or, as to each party, to such other person and/or at such other address or
number as shall be designated by such party in a written notice to the other
party. All such notices, demands, and communications, if mailed,
shall be effective upon the earlier of (1) actual receipt by the addressee,
(2)
the date shown on the return receipt of such mailing, or (3) three (3) days
after deposit in the mail. All such notices, demands, and
communications, if not mailed, shall be effective upon the earlier of (A)
actual
receipt by the addressee, (B) with respect to facsimile and similar electronic
transmission, the earlier of (x) the time that electronic confirmation of
a
successful transmission is received, or (y) the date of transmission, if
a
confirming copy of the transmission is also mailed as described above on
the
date of transmission, and (C) with respect to delivery by overnight courier
service, the day after deposit with the courier service, if delivery on such
day
by such courier is confirmed with the courier or the recipient orally or
in
writing.
(c) Governing
Law. This Agreement shall be governed by the laws of the State
of Utah without regard to its conflict of law provisions, and all claims
or
disputes arising hereunder shall be subject to the jurisdiction of the state
and
federal courts in the State of Utah.
(d) Successors
and
Assigns. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. This Agreement is for the unique personal
services of the Employee, and the Employee shall not be entitled to assign
any
of Employee’s rights or obligations hereunder.
(e) Entire
Agreement;
Amendment. This Agreement constitutes the entire agreement and
understanding between the parties with respect to the subject matter hereof,
and
supersedes all prior agreements and understandings with respect
thereto. This Agreement can be amended or modified only in a writing
signed by the Employee and the Company.
(f) No
Waiver. No waiver by either party at any time of any breach by
the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar
or dissimilar provisions or conditions at the same time or any prior or
subsequent time.
(g) Headings. The
headings herein contained are for reference only and shall not affect the
meaning or interpretation of any provision of this Agreement.
(h) Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed to be an original but all of which together will constitute one and
the
same instrument.
(i) Attorneys’
Fees. In the event of any action at law, equity, or under this
Agreement to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys’ fees and court costs in
addition to any other relief to which such party may be entitled.
(j) Section
409A of the Internal
Revenue Code. To the extent any payments under this
Agreement are subject to the provisions of Section 409A of the Internal Revenue
Code (the “Code”), it is
intended that the Agreement will comply fully with and meet all the requirements
of Code Section 409A.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
THE
COMPANY:
COGNIGEN
NETWORKS, INC.
_______________________________
By: _________________________________
Its: _________________________________
THE
EMPLOYEE:
____________________________________
[Xxxx
Xxxxxxx][Xxxxxxx Xxxxx]
Address: ____________________________
Facsimile
Number: ___________________________
SCHEDULE
A
LIST
OF
PRIOR INVENTIONS
AND
ORIGINAL WORKS OF AUTHORSHIP
Title
Brief
Description Identifying
Number
EXHIBIT
E
Form
of Stock Restriction Agreement
This
Stock Restriction Agreement (this “Agreement”) is
entered into effective as of November 30, 2007 (the “Effective Date”), by
and among Cognigen Networks, Inc., a Colorado corporation (“Cognigen”),
Commission River Inc., a Utah corporation (“Commission River”),
BayHill Group, LC (“Group”), BayHill
Capital, LC (“Capital”
and together
with Group, collectively, the “BayHill Entities”),
Xxxxxx X. Bench, an individual, and Xxxx Xxxxxxx, an individual, Xxxxxxx
Xxxxx,
an individual, and Xxxxx X. Xxxxxxxxx, an individual, (Messrs. Xxxxxxx, Xxxxx
and Xxxxxxxxx collectively, the “Shareholders”). Cognigen,
Commission River, the BayHill Entities, Mr. Bench and the Shareholders are
referred to in this Agreement collectively as the “Parties.”
RECITALS
WHEREAS,
in connection with the
transactions contemplated by that certain Asset Purchase and Reorganization
Agreement by and among Cognigen and Commission River, dated as of November
30,
2007 (the “Purchase
Agreement”), Commission River has agreed to sell, transfer, convey,
assign and deliver to Cognigen certain assets (the “Assets”), and
Cognigen is willing to purchase such Assets in exchange for Cognigen’s issuance
to Commission River of 16,000,000 shares of common stock of Cognigen (the
“Shares”), all
in
accordance with the terms, conditions and agreements therein
contained;
WHEREAS,
in partial consideration for
Cognigen’s agreement to issue and deliver the Shares to Commission River, and in
accordance with Section 1.6(b) of the Purchase Agreement, Commission River
and
the Shareholders are obligated to execute and deliver this
Agreement;
WHEREAS,
in consideration for
Commission River’s agreement to sell, transfer, convey assign and deliver the
Assets to Cognigen, and in accordance with Section 1.6(c) of the Purchase
Agreement, Cognigen, the BayHill Entities and Mr. Bench are obligated to
execute
and deliver this Agreement;
WHEREAS,
the BayHill Entites are
shareholders of Cognigen, and as such, own shares of common stock of Cognigen
(such shares, the “BayHill Shares”);
and
WHEREAS,
the Shareholders, the Bayhill
Entities and Mr. Bench will benefit from the transactions contemplated by
the
Purchase Agreement, and desire to enter into this Agreement as an inducement
to
Commission River to sell, transfer, convey, assign and deliver the Assets
and
Cognigen to issue and deliver the Shares.
NOW,
THEREFORE, for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt, adequacy and legal sufficiency of which
are
hereby acknowledged, the Parties agree as follows:
AGREEMENT
1.
Restrictions on Transfers of Stock.
(a)
In
addition to the restrictions set forth below, each of Commission River, the
Shareholders and Mr. Bench covenants and agrees that during the six (6) month
period immediately following the Effective Date, they will not assign, sell,
pledge, encumber, give or otherwise transfer, alienate or dispose of, whether
voluntarily or by operation of law (any such action, a “Transfer”) any shares
of common stock of Cognigen held by such Party. Notwithstanding the
foregoing, the Parties agree that Commission River may distribute all, but
not
less than all, of the Shares to the Shareholders in connection with the
liquidation of Commission River as contemplated by Section 1.5 of the Purchase
Agreement, provided that such distribution results in all of the Shares being
owned solely by the Shareholders, each of whom will hold such Shares pursuant
to, and will comply in all respects with, Section 1(c) of this
Agreement.
(b) Commission
River. Subject to the provisions set forth in Section 1(a)
above, Commission River covenants and agrees that it will not, during any
three
(3) month period commencing on or after the Effective Date, Transfer any
Shares
in an amount that exceeds the greater of: (i) one percent (1%) of the then
outstanding shares of common stock of Cognigen; or (ii) the previous three
(3)
week period’s average weekly reported trading volume of shares of common stock
of Cognigen. Notwithstanding Section 1(a) hereof or the foregoing,
the Parties agree that Commission River may distribute all, but not less
than
all, of the Shares to the Shareholders in connection with the liquidation
of
Commission River as contemplated by Section 1.5 of the Purchase Agreement,
provided that such distribution results in all of the Shares being owned
solely
by the Shareholders, each of whom will hold such Shares pursuant to, and
will
comply in all respects with, Section 1(c) of this Agreement.
(c) Shareholders. Subject
to the provisions set forth in Section 1(a) above, each of the Shareholders
covenants and agrees that he will not, during any three (3) month period
commencing on or after the Effective Date, Transfer any Shares in an amount
that
exceeds the greater of: (i) one percent (1%) of the then outstanding shares
of
common stock of Cognigen; or (ii) the previous three (3) week period’s average
weekly reported trading volume of shares of common stock of
Cognigen.
(d) BayHill
Entities. Each of the BayHill Entities covenants and agrees
that it will not, during any three (3) month period commencing on or after
the
Effective Date, Transfer any of the BayHill Shares in an amount that exceeds
the
greater of: (i) one percent (1%) of the then outstanding shares of common
stock
of Cognigen; or (ii) the previous three (3) week period’s average weekly
reported trading volume of shares of common stock of
Cognigen. Notwithstanding the provisions of Section 1(a) above or the
foregoing, the Parties agree that the BayHill Entities may distribute some
or
all of the BayHill Shares to individual members of Group or Capital and that
such members will not be bound by the terms of this Agreement.
(e) Xxxxxx
X.
Bench. Subject to the provisions set forth in Section 1(a)
above, Mr. Bench covenants and agrees that he will not, during any three
(3)
month period commencing on or after the Effective Date, Transfer any of the
shares of common stock of Cognigen acquired
by
him
(the “Bench
Shares”) in an amount that exceeds the greater of: (i) one percent (1%)
of the then outstanding shares of common stock of Cognigen; or (ii) the previous
three (3) week period’s average weekly reported trading volume of shares of
common stock of Cognigen.
(f) Null
and
Void. Any Transfer of Shares, BayHill Shares or Bench Shares
made other than in conformity with the provisions of this Agreement shall
be
null and void, and neither Cognigen nor its transfer agent shall recognize
or
give effect to such Transfer on its books and records.
(g) Restrictive
Legend. Cognigen shall cause the certificates evidencing the
Shares and the BayHill Shares to bear the following legend:
THE
SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS
OF A
STOCK RESTRICTION AGREEMENT DATED NOVEMBER 30, 2007 AMONG COGNIGEN NETWORKS,
INC., COMMISSION RIVER INC., BAYHILL GROUP, LC, BAYHILL CAPITAL, LC, XXXXXX
X.
BENCH, XXXX XXXXXXX, XXXXXXX XXXXX AND XXXXX X. XXXXXXXXX. A COPY OF
THE STOCK RESTRICTION AGREEMENT IS MAINTAINED AT THE PRINCIPAL OFFICE OF
COGNIGEN NETWORKS, INC. AND IS AVAILABLE FOR INSPECTION UPON REASONABLE NOTICE
AND EVIDENCE OF A PROPER PURPOSE FOR THE INSPECTION.
2. Miscellaneous
Provisions.
(a) Termination. This
Agreement shall terminate upon the first to occur of either of the following
events:
(i)
Cognigen's completion of an underwritten public offering of the Cognigen
common
stock pursuant to an effective registration statement under the Securities
Act
of 1933, as amended, with a sales price per share (prior to underwriter
commissions and expenses) of common stock (as adjusted for combinations,
stock
dividends, subdivisions or split-ups and the like) of at least $5.00 and
with
total net offering proceeds to Cognigen, at the public offering price, in
excess
of $30,000,000; or
(ii)
the
unanimous agreement of the Parties.
(b) Notice. All
offers and notices provided for or permitted herein shall be in writing and
shall be delivered either (i) personally or (ii) by recognized overnight
courier
with proof of delivery directed to the Parties at the addresses set forth
below,
or to such other address as either Party designates by notice delivered or
sent
in the above manner. An offer or notice shall be deemed received and
be deemed effective when received by the party or the party’s
agents.
If
to
Cognigen:
Cognigen
Networks, Inc.
00000
Xxxxx Xxxxxxxxxx Xxxxxxx
Xxxxx
000
Xxxxx
Xxxxxx, Xxxx 00000
Attn:
Xxxxxx X. Bench, Chief Executive Officer
Copy
to:
Xxxx
Xxxxxxxx Xxxxx Xxx &
Xxxxxxxx
000
Xxxxx Xxxxx Xxxxxx, Xxxxx
0000
Xxxx
Xxxx Xxxx, Xxxx 00000
Attn:
Xxxxx X. Xxxxx
If
to
BayHill Capital, LC:
BayHill
Capital, LC
0000
X. Xxxxxxxxxx Xxx
Xxxx,
Xxxx 00000
Attention:
Xxxxxx X. Bench
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Copy
to:
Xxxx
Xxxxxxxx Xxxxx Xxx &
Xxxxxxxx
000
Xxxxx Xxxxx Xxxxxx, Xxxxx
0000
Xxxx
Xxxx Xxxx, Xxxx 00000
Attn:
Xxxxx X. Xxxxx
If
to
BayHill Group, LC:
BayHill
Group, LC
0000
X.
Xxxxxxxxxx Xxx
Xxxx,
Xxxx 00000
Attention:
Xxxxxx X. Bench
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Copy
to:
Xxxx
Xxxxxxxx Xxxxx Xxx &
Xxxxxxxx
000
Xxxxx Xxxxx Xxxxxx, Xxxxx
0000
Xxxx
Xxxx Xxxx, Xxxx 00000
Attn:
Xxxxx X. Xxxxx
If
to
Commission River:
00000
Xxxxx 000 Xxxx
Xxxxx
X-0
Xxxxxx,
Xxxx 00000
Copy
to:
Xxxxx
& Xxxxxx L.L.P.
00
Xxxx
Xxxxx Xxxxxx, Xxxxx 0000
Xxxx
Xxxx
Xxxx, Xxxx 00000
Fax:
(000) 000-0000
Attn:
Xxxx X. Xxxxxx, Esq.
If
to
Xxxxxx X. Bench:
Xxxxxx
X.
Bench
0000
X.
Xxxxxxxxxx Xxx
Xxxx,
Xxxx 00000
If
to
Xxxx Xxxxxxx:
Xxxx
Xxxxxxx
12401
South 000 Xxxx
Xxxxx
X-0
Xxxxxx,
Xxxx 00000
If
to
Xxxxxxx Xxxxx:
Xxxxxxx
Xxxxx
12401
South 000 Xxxx
Xxxxx
X-0
Xxxxxx,
Xxxx 00000
If
to
Xxxxx X. Xxxxxxxxx:
Xxxxx
X. Xxxxxxxxx
12401
South 000 Xxxx
Xxxxx
X-0
Xxxxxx,
Xxxx 00000
(c) Specific
Performance. The Parties hereby agree that damages are an
inadequate remedy in the event the terms of this Agreement are breached and
that
any Party to this Agreement may institute and maintain a proceeding to compel
specific performance of this Agreement.
(d) Successors
and
Assigns. Notwithstanding anything to the contrary herein, this
Agreement may not be assigned by any of the Parties without the written consent
of the other Parties. This Agreement and all rights hereunder shall
be binding upon the Parties, their heirs, executors, administrators, successors
and permitted assigns, and they agree for themselves, their heirs, executors,
administrators, successors and permitted assigns to execute any instrument
and
to perform any acts necessary to effectuate this Agreement and its
purposes.
(e) Governing
Law;
Jurisdiction. This Agreement shall be governed and construed
in accordance with the internal laws of the state of Utah, without giving
effect
to conflicts of laws rules. Each of the Parties hereto expressly and
irrevocably consents and submits to the jurisdiction of the state and federal
courts located in Salt Lake County, Utah in connection with any legal proceeding
in connection with this Agreement.
(f) Entire
Agreement; Waiver;
Severability. This Agreement reflects the entire understanding
of the Parties with respect to restrictions and obligations relating to the
Shares except as may be set forth in a contemporaneous or subsequent writing
and
signed by the party against whom enforcement is sought. The
provisions of this Agreement may not be waived or changed except by a writing
signed by the Parties. No waiver of breach shall constitute
a
subsequent
waiver of any subsequent breach, and if any provision of this Agreement is
found
to be invalid, the remaining provisions shall remain enforceable.
(g) Counterparts;
Facsimile. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute
the
same instrument. A facsimile copy or other accurate copy of this
Agreement or any counterpart of this Agreement is binding as an
original.
(h) Attorneys
Fees;
Costs. In any action brought because of a breach or to enforce
or interpret any of the provisions of this Agreement, the party which prevails
in that action by enforcing the provisions of this Agreement shall be entitled
to recover from the other party reasonable attorneys’ fees and court costs
incurred in connection with that action, the amount of which shall be fixed
by
the court and made a part of any judgment rendered.
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first set forth above.
COGNIGEN
NETWORKS, INC.
By:
______________________________________
Name:
Title:
COMMISSION
RIVER INC.
By:
______________________________________
Name:
Title:
BAYHILL
CAPITAL, LC
By:
______________________________________
Name:
Title:
BAYHILL
GROUP LC
By:
______________________________________
Name:
Title:
_____________________________________
Xxxxxx
X.
Bench, an individual
SHAREHOLDERS:
_____________________________________
Xxxx
Xxxxxxx,
an individual
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_____________________________________
|
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_____________________________________
|
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Xxxxx
X. Xxxxxxxxx, an individual
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