SHARE EXCHANGE AGREEMENT
Exhibit 2.1
THIS SHARE EXCHANGE AGREEMENT, dated as of January 7, 2011 (this “Agreement”), is entered into
on January 18, 2011 by and among Iveda Solutions, Inc., a Nevada corporation (“Iveda”), Sole-Vision
Technologies, Inc. (doing business as MegaSys), a corporation organized under the laws of the
Republic of China (“MegaSys”) and the shareholders of MegaSys identified on Exhibit A and
the signature pages hereto (“MegaSys Shareholders”).
A. The MegaSys Shareholders hold 100% of the total issued and outstanding shares of MegaSys.
B. Each of the boards of directors of Iveda and MegaSys have deemed it advisable and in the
best interests of each corporation and its respective stockholders or shareholders that Iveda
acquire MegaSys in order to advance the long-term business interests of Iveda and MegaSys.
C. The acquisition of MegaSys shall be effected according to the terms, but subject to the
conditions, set forth in this Agreement through a transaction pursuant to which, among other
things, (i) Iveda will acquire 100% of the issued and outstanding shares of MegaSys common stock
(the “MegaSys Common Stock”) in exchange for the issuance of common stock of Iveda (“Iveda Common
Stock”) to the MegaSys Shareholders (the “Exchange”), and (ii) MegaSys will become a wholly owned
subsidiary of Iveda.
D. This Agreement has been adopted and approved by the respective boards of directors of Iveda
and MegaSys.
NOW, THEREFORE, in consideration of the foregoing recitals and the respective representations,
warranties, covenants and agreements set forth below, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I.
THE SHARE EXCHANGE
Section 1.1 Effective Time of the Exchange.
(a) Subject to the terms and conditions of this Agreement, and unless this Agreement shall
have been terminated pursuant to ARTICLE VII, the Exchange shall become effective upon the
completion of the Closing (the “Effective Time”).
Section 1.2 Closing. The closing of the Exchange (the “Closing”) will take place at
10:00 a.m., Pacific time, on a date (the “Closing Date”) to be specified by Iveda and MegaSys,
which shall be no later than the second business day after satisfaction or waiver of the latest to
occur of the conditions set forth in ARTICLE VI, at the offices of K&L Gates, located at 000
Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, XX 00000 unless another date, time or place is agreed to
in writing by Iveda and MegaSys.
Section 1.3 The Exchange. On the terms and subject to the conditions set forth in
this Agreement, on the Closing Date, the MegaSys Shareholders shall sell, assign, transfer, convey
and deliver to Iveda, 100% of the total issued and outstanding shares of MegaSys Common Stock, free
and clear of all liens, pledges, encumbrances, charges, restrictions or known claims of any kind,
nature, or description. In consideration for the transfer of such securities by the MegaSys
Shareholders, at the Closing Date, against delivery by MegaSys Shareholders to Iveda of (i) the
share certificates representing all of the MegaSys Common Stock, duly endorsed for transfer to
Iveda and (ii) a sum in cash equal to the securities transaction tax that Iveda is required to
withhold for the MegaSys Shareholders’ sale of MegaSys Common Stock, Iveda shall issue to the
MegaSys Shareholders an aggregate of 3,700,000 shares of Iveda Common Stock in exchange for
2,900,000 shares of MegaSys Common Stock, being all of the issued and outstanding shares of MedaSys
Common Stock. The exchange ratio between MegasSys Common Stock and Iveda Common Stock shall be
1:1.2758. The number of shares of Iveda Common Stock issuable to each MegaSys Shareholder
immediately at Closing are identified in Exhibit A.
All shares of Iveda Common Stock, , issuable pursuant to this Agreement constitute “restricted
securities” for purposes of Rule 144 under the Securities Act of 1933, as amended (the “Securities
Act”), and each certificate representing such shares shall, until such time that the shares are not
so restricted under the Securities Act, bear a legend identical or similar in effect to the
following legend (together with any other legend or legends required by applicable state securities
laws or otherwise, if any):
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE.”
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF MEGASYS
AND THE MEGASYS SHAREHOLDERS
AND THE MEGASYS SHAREHOLDERS
MegaSys and the MegaSys Shareholders jointly and severally represent and warrant to Iveda that
the statements contained in this ARTICLE II are true and correct, except as expressly set forth in
the disclosure schedule delivered by MegaSys and the MegaSys Shareholders to Iveda on or before the
date of this Agreement (the “MegaSys Disclosure Schedule”). The MegaSys Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this
ARTICLE II. As used in this Agreement, the word “Subsidiary” means, with respect to any other
party, any corporation or other organization, whether incorporated or unincorporated, of which (i)
such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization or a majority of the
profit interests in such other organization is directly or indirectly owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
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Section 2.1 Organization of MegaSys. MegaSys is a corporation duly organized and
validly existing under the laws of the Republic of China (“ROC”), has all requisite corporate power
to own, lease and operate its property and to carry on its business as now being conducted, and is
duly qualified or licensed to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or ownership or leasing of properties makes such
qualification or licensing necessary and where the failure to be so qualified or licensed could
reasonably be expected to result in a material adverse effect on the business, assets (including
intangible assets), liabilities, condition (financial or otherwise), property or results of
operations (a “Material Adverse Effect”) of MegaSys. The MegaSys Disclosure Schedule contains a
true and complete listing of the locations of all sales offices, development facilities, and any
other offices or facilities of MegaSys and a true and complete list of all states and countries in
which MegaSys maintains any employees. The MegaSys Disclosure Schedule contains a true and
complete list of all states and countries in which MegaSys is duly qualified or licensed to
transact business as a foreign corporation.
Section 2.2 Capitalization
(a) The authorized capital stock of MegaSys (the authorized MegaSys Capital Stock) consists of
6,000,000 shares of MegaSys Common Stock (the “MegaSys Common Stock”). As of the date hereof, (i)
2,900,000 shares of MegaSys Common Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable, and (ii) no shares of MegaSys Common
Stock are held in the treasury of MegaSys. As of the date hereof, the outstanding shares of
MegaSys Common Stock are owned as set forth in Schedule 2.2 of the MegaSys Disclosure Schedule.
Schedule 2.2 of the MegaSys Disclosure Schedule also provides an accurate and complete description
of the terms of each purchase or repurchase option, right of first refusal or similar agreement to
which any shares of the MegaSys Common Stock is subject.
(b) There are no options, warrants or other rights, agreements, arrangements or commitments of
any character, whether or not contingent, relating to the issued or unissued capital stock of
MegaSys or obligating MegaSys to issue or sell any share of capital stock of, or other equity
interest in, MegaSys.
(c) MegaSys does not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the shareholders of MegaSys on any matter.
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(d) All of the securities offered, sold or issued by MegaSys (i) have been offered, sold or
issued in compliance with the requirements of all applicable securities laws and (ii) are not
subject to any preemptive right, right of first refusal, right of first offer or right of
rescission.
(e) Except as set forth in Schedule 2.2 of the MegaSys Disclosure Schedule, MegaSys has never
repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities of
MegaSys or any Subsidiary, other than unvested securities in the ordinary course upon termination
of employment or consultancy. There are no outstanding contractual obligations of MegaSys to
repurchase, redeem or otherwise acquire any share of capital stock of, or other equity interest in,
MegaSys. There are no shareholder agreements, voting trusts or other agreements or understandings
to which MegaSys is a party, or of which MegaSys is aware, that (i) relate to the voting,
registration or disposition of any securities of MegaSys, (ii) grant to any person or group of
persons the right to elect, or designate or nominate for election, a director to the board of
directors of MegaSys, or (iii) grant to any person or group of persons information rights.
Section 2.3 Authority; No Conflict; Required Filings and Consents.
(a) MegaSys has all requisite corporate power and authority to enter into this Agreement and
all Transaction Documents to which it is or will become a party and to consummate the transactions
contemplated in this Agreement and such Transaction Documents. The execution and delivery of this
Agreement and such Transaction Documents and the consummation of the transactions contemplated in
this Agreement and such Transaction Documents have been duly authorized by all necessary corporate
action on the part of MegaSys. This Agreement has been and such Transaction Documents have been
or, to the extent not executed by MegaSys as of the date hereof, will be duly executed and
delivered by MegaSys. This Agreement and each of the Transaction Documents to which MegaSys is a
party constitutes, and each of the Transaction Documents to which MegaSys will become a party, when
executed and delivered by MegaSys, will constitute, assuming the due authorization, execution and
delivery by the other parties hereto and thereto, the valid and binding obligation of MegaSys,
enforceable by Iveda against MegaSys in accordance with their respective terms, except to the
extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting the enforcement of creditors’ rights generally and by general
principles of equity, regardless of whether such enforceability is considered in a proceeding at
law or in equity. For purposes of this Agreement, “Transaction Documents” means all documents or
agreements required to be delivered by any party under this Agreement.
(b) The MegaSys Shareholders have all requisite power and authority to enter into this
Agreement and all Transaction Documents to which they are or will become a party and to consummate
the transactions contemplated in this Agreement and such Transaction Documents. This Agreement has
been and such Transaction Documents have been or, to the extent not executed by the MegaSys
Shareholders as of the date hereof, will be duly executed and delivered by the MegaSys
Shareholders. This Agreement and each of the Transaction Documents to which the MegaSys
Shareholders are a party constitute, and each of the Transaction Documents to which the MegaSys
Shareholders will become a party, when executed and delivered by the MegaSys Shareholders, will
constitute, assuming the due authorization,
execution and delivery by the other parties hereto and thereto, the valid and binding
obligation of the MegaSys Shareholders, enforceable by Iveda against the MegaSys Shareholders in
accordance with their respective terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors’ rights generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding at law or in equity.
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(c) The execution and delivery by MegaSys of this Agreement and the Transaction Documents to
which it is or will become a party does not, and the consummation of the transactions contemplated
in this Agreement and the Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the articles of
incorporation or bylaws of MegaSys, each as amended to date (ii) result in any violation or breach
of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of any benefit) under
any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which MegaSys is a party or by which it or any of
its properties or assets may be bound, or (iii) conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to MegaSys or any of its properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations which would not
reasonably be expected to have a Material Adverse Effect on MegaSys.
(d) The execution and delivery by the MegaSys Shareholders of this Agreement and the
Transaction Documents to which they are or will become a party does not, and the consummation of
the transactions contemplated in this Agreement and the Transaction Documents to which they are or
will become a party will not, (i) result in any violation or breach of, or constitute (with or
without notice or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which the MegaSys Shareholders are a party or by which they
or any of their properties or assets may be bound, or (ii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the MegaSys Shareholders or any of their properties or assets, except for
any such conflicts, violations, defaults, terminations, cancellations or accelerations which would
not reasonably be expected to have a Material Adverse Effect on MegaSys.
(e) None of the execution and delivery by MegaSys or the MegaSys Shareholders of this
Agreement or of any other Transaction Document to which MegaSys or the MegaSys Shareholders are or
will become a party or the consummation of the transactions contemplated in this Agreement or any
such Transaction Document will require any consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (“Governmental Entity”), except for (i) such consents,
approvals, orders, authorizations, registrations, declarations and filings as may be required under
applicable securities laws and (ii) such other consents, authorizations, filings, approvals and
registrations which are listed on the MegaSys Disclosure Schedule.
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Section 2.4 Financial Statements; Absence of Undisclosed Liabilities.
(a) MegaSys has delivered to Iveda copies of MegaSys’ audited balance sheet as of September
30, 2010 (the “Most Recent Balance Sheet”) and audited statements of operations, shareholders’
equity and cash flows for the nine-month period then-ended (together with the Most Recent Balance
Sheet, the “MegaSys Interim Financials”) and MegaSys’ audited balance sheets as of December 31,
2009 and 2008, and the related audited statements of operations, shareholders’ equity and cash
flows for the years ended December 31, 2009 and 2008, respectively (together with the MegaSys
Interim Financials, the “MegaSys Financial Statements”).
(b) The MegaSys Financial Statements are in accordance with the books and records of MegaSys
and present fairly in all material respects the financial position, results of operations and cash
flows of MegaSys as of their historical dates and for the periods indicated. The MegaSys Financial
Statements have been prepared in accordance with generally accepted accounting principles in the
ROC (“ROC GAAP”) applied on a basis consistent with prior periods. The reserves, if any, reflected
on the MegaSys Financial Statements are adequate in light of the contingencies with respect to
which they were made.
(c) MegaSys has no material debt, liability, or obligation of any nature, whether accrued,
absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or
reserved against in the Most Recent Balance Sheet, except for those that may have been incurred
after the date of the Most Recent Balance Sheet or that would not reasonably be required, in
accordance with ROC GAAP applied on a basis consistent with prior periods, to be included in a
balance sheet or the notes thereto. All material debts, liabilities, and obligations incurred
after the date of the Most Recent Balance Sheet were incurred in the ordinary course of business
and are not material either individually or in the aggregate to MegaSys or its business.
Section 2.5 Tax Matters.
(a) For purposes of this Section 2.5 and other provisions of this Agreement relating to Taxes,
the following definitions shall apply:
(i) The term “Taxes” shall mean all taxes, however denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof, (A) imposed by any
federal, territorial, state, central, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to, profit seeking enterprise
income taxes), payroll and employee withholding taxes, unemployment insurance, labor insurance,
health insurance, pension fund contributions, sales and use taxes, ad valorem taxes, value added
taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation
taxes, real and personal property taxes, stamp duties, environmental taxes, ozone depleting
chemicals taxes, transfer taxes, workers’ compensation, customs tariffs and other governmental
charges, and other obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the payment of amounts
referred to in (A) as a result of being a member of any affiliated,
consolidated, combined or unitary group, or (C) any liability for amounts referred to in (A)
or (B) as a result of any obligations to indemnify another person.
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(ii) The term “Returns” shall mean all reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in connection with, any
Taxes, including information returns or reports with respect to backup withholding and other
payments to third parties.
(b) All Returns required to be filed prior to the date hereof by or on behalf of MegaSys have
been duly filed on a timely basis, and such Returns are true, complete and correct in all material
respects. All Taxes shown to be payable on such Returns or on subsequent assessments with respect
thereto, have been paid in full on a timely basis or have been accrued on the Most Recent Balance
Sheet, and no other Taxes are payable by MegaSys with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns). MegaSys has withheld and paid
over all Taxes required to have been withheld and paid over prior to the date hereof , and complied
with all information reporting and backup withholding requirements, including maintenance of
required records with respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no liens on any of the assets of
MegaSys with respect to Taxes, other than liens for Taxes not yet due and payable or for Taxes that
MegaSys is contesting in good faith through appropriate proceedings and for which appropriate
reserves have been established on the Most Recent Balance Sheet. MegaSys has not at any time been
(i) a member of an affiliated group of corporations filing consolidated, combined or unitary income
tax returns, or (ii) a member of any partnership or joint venture for a period for which the statue
of limitations for any Tax potentially applicable as a result of such membership has not expired.
(c) The amount of MegaSys’ liability for unpaid Taxes (whether actual or contingent) for all
periods through the date of the Most Recent Balance Sheet does not, in the aggregate, exceed the
amount of the current liability accruals for Taxes reflected on the Most Recent Balance Sheet, and
the Most Recent Balance Sheet reflects proper accrual in accordance with ROC GAAP applied on a
basis consistent with prior periods of all liabilities for Taxes payable after the date of the Most
Recent Balance Sheet attributable to transactions and events occurring prior to such date. No
liability for Taxes has been incurred (or prior to Closing will be incurred) since such date other
than in the ordinary course of business.
(d) MegaSys has furnished to Iveda true and complete copies of (i) relevant portions of income
tax audit reports, tax assessments or other agreements received by or on behalf of MegaSys relating
to Taxes, and (ii) all income tax Returns and value added tax Returns for or including MegaSys for
all periods since the inception of MegaSys. MegaSys does not do business in or derive income from
any state other than states for which Returns have been duly filed and furnished to Iveda.
(e) The Returns of or including MegaSys have never been audited by a government or taxing
authority, nor is any such audit in process, pending or, to the knowledge of MegaSys or the MegaSys
Shareholders, threatened (either in writing or verbally, formally or informally), other than the
routine audits conducted by the tax authority of the annual tax Returns. No deficiencies exist or
have been asserted (either in writing or verbally, formally or
informally), and MegaSys has not received notice (either in writing or verbally, formally or
informally) that it has not filed a Return or paid Taxes required to be filed or paid. MegaSys is
neither a party to any action or proceeding for assessment or collection of Taxes, nor has such
event been asserted or, to the knowledge of MegaSys or the MegaSys Shareholders, threatened (either
in writing or orally, formally or informally) against MegaSys or any of its assets. No waiver or
extension of any statute of limitations is in effect with respect to Taxes or Returns of MegaSys.
MegaSys has disclosed on its income tax Returns all positions taken therein that could give rise to
a substantial understatement penalty under the ROC Tax laws.
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(f) Except as may be required as a result of the Exchange, MegaSys and its subsidiaries have
not been and will not be required to include any material adjustment in taxable income for any Tax
period (or portion thereof) pursuant to any ROC Tax laws as a result of transactions, events or
accounting methods employed prior to the Closing.
(g) MegaSys is not, nor has it been, a United States real property holding corporation within
the meaning of Section 897(c)(2) of Internal Revenue Code of 1986, as amended (the “Code”) during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and Iveda is not required
to withhold tax by reason of Section 1445 of the Code. MegaSys is not a “consenting corporation”
under Section 341(f) of the Code. MegaSys has not entered into any compensatory agreements with
respect to the performance of services which payment thereunder would result in a nondeductible
expense to MegaSys under the ROC Income Tax Law. MegaSys has not agreed to, nor is it required to
make any adjustment by reason of, a change in accounting method. MegaSys is not, nor has it been,
a “reporting corporation” subject to the information reporting and record maintenance requirements
of Section 6038A of the Code and the regulations thereunder. MegaSys is in compliance with the
terms and conditions of any applicable tax exemptions, agreements or orders of any foreign
government to which it may be subject or which it may have claimed, and the transactions
contemplated by this Agreement will not have any adverse effect on such compliance.
(h) The MegaSys Disclosure Schedule sets forth accurate and complete information regarding
MegaSys’ net operating losses for ROC income tax purposes. Except as a result of the transactions
contemplated hereby, MegaSys is ineligible for the net operating losses carryovers under the ROC
Income Tax Law.
Section 2.6 Absence of Certain Changes or Events. Since September 30, 2010, other
than as set forth on the MegaSys Disclosure Schedule, MegaSys has not:
(a) suffered any Material Adverse Effect;
(b) suffered any damage, destruction or loss, whether covered by insurance or not, that has
resulted, or could be reasonably expected to result, in a Material Adverse Effect on MegaSys;
(c) granted or agreed to make any increase in the compensation payable or to become payable by
MegaSys to its officers or employees;
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(d) declared, set aside or paid any dividend or made any other distribution on or in respect
of the shares of the capital stock of MegaSys or declared any direct or indirect redemption,
retirement, purchase or other acquisition by MegaSys of such shares;
(e) issued any shares of capital stock of MegaSys or any warrants, rights, options or entered
into any commitment relating to the shares of MegaSys;
(f) made any change in the accounting methods or practices it follows, whether for general
financial or tax purposes, or any change in depreciation or amortization policies or rates adopted
therein;
(g) sold, leased, abandoned or otherwise disposed of any real property or any machinery,
equipment or other operating property with an individual net book value in excess of $5,000;
(h) sold, assigned, transferred, licensed or otherwise disposed of any patent, trademark,
trade name, brand name, copyright (or pending application for any patent, trademark or copyright)
invention, work of authorship, process, know-how, formula or trade secret or interest thereunder or
other intangible asset;
(i) permitted or allowed any of its property or assets to be subjected to any mortgage, deed
of trust, pledge, lien, security interest or other encumbrance of any kind (except those permitted
under Section 2.7);
(j) made any capital expenditure or commitment individually in excess of $10,000 or in the
aggregate in excess of $20,000;
(k) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or
assets to, or entered into any agreement or arrangement with, any of its Affiliates (as defined in
Section 2.16), officers, directors, supervisors or shareholders or any affiliate of any of the
foregoing;
(l) made any amendment to or terminated any agreement which, if not so amended or terminated,
would be required to be disclosed on the MegaSys Disclosure Schedule; or
(m) agreed to take any action described in this Section 2.6 or outside of its ordinary course
of business or which would constitute a breach of any of the representations of MegaSys contained
in this Agreement.
Section 2.7 Title and Related Matters. MegaSys has good and valid title to all its
properties, interests in properties and assets, real and personal, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except the lien of current taxes
not yet due and payable. The equipment of MegaSys used in the operation of its business is, taken
as a whole, (a) adequate for the business conducted by MegaSys and (b) in good operating condition
and repair, ordinary wear and tear excepted. All personal property leases to which MegaSys is a
party are valid, binding, enforceable against the parties thereto and in effect in
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accordance with
their respective terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium, or other laws affecting the
enforcement of creditors’ rights generally and by principles of equity, regardless of whether such
enforceability is considered in a proceeding at law or in equity. There is not under any of such
leases any existing default or event of default or event which, with notice or lapse of time or
both, would constitute a default. Schedule 2.7 of the MegaSys Disclosure Schedule contains a
description of all items of personal property with an individual net book value in excess of $5,000
and real property leased or owned by MegaSys, describing its interest in said property. True and
correct copies of MegaSys’ real property and personal property leases have been provided to Iveda
or its representatives. MegaSys has a valid and enforceable leasehold interest under each of the
real property leases, and all real property leases to which MegaSys is a party are valid, binding,
enforceable against the parties thereto and in effect in accordance with their respective terms,
except to the extent that enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium, or other laws affecting the enforcement of creditors’ rights generally and
by principles of equity, regardless of whether such enforceability is considered in a proceeding at
law or in equity. MegaSys has not received any written notice of any default under any real
property leases, has used the leased real properties in compliance with the purposes set forth in
their occupancy permits and is not in material default of any such real property lease and no event
has occurred and no condition exists that, with notice or lapse of time, or both, would constitute
a material default by MegaSys under any of the real property lease.
Section 2.8 Proprietary Rights.
(a) MegaSys owns all right, title and interest in and to, or otherwise possesses legally
enforceable rights, or is licensed to use, all patents, copyrights, technology, software, software
tools, know-how, processes, trade secrets, trademarks, service marks, trade names, Internet domain
names and other proprietary rights used in the conduct of MegaSys’ business as conducted to the
date of this Agreement, including, without limitation, the technology, information, databases, data
lists, data compilations, and all proprietary rights developed or discovered or used in connection
with or contained in all versions and implementations of MegaSys’ World Wide Web sites (including
the domain names listed in the MegaSys Disclosure Schedule) or any product or service which has
been or is being distributed or sold by MegaSys or currently is under development by MegaSys or has
previously been under development by MegaSys (collectively, including such Web sites, the “MegaSys
Products”), free and clear of all liens, claims and encumbrances (including without limitation
licensing and distribution rights) (all of which are referred to as “MegaSys Proprietary Rights”).
The MegaSys Disclosure Schedule contains an accurate and complete (i) description of all patents,
trademarks (with separate listings of registered and unregistered trademarks), trade names,
Internet domain names and registered copyrights in or related to the MegaSys Products or otherwise
included in the MegaSys Proprietary Rights and all applications and registration statements
therefor, including the jurisdictions in which each such MegaSys Proprietary Right has been issued
or registered or in which any such application of such issuance and registration has been filed,
(ii) list of all licenses and other agreements with third parties (the “Third Party Licenses”)
relating to any material patents, copyrights, trade secrets, software, inventions, technology,
know-how, processes or other proprietary rights that MegaSys is licensed or otherwise authorized by
such third parties to use, market, distribute or incorporate in MegaSys
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Products (such patents,
copyrights, trade secrets, software, inventions, technology, know-how, processes or other
proprietary rights are collectively referred to as the “Third Party Technology”) and (iii)
list of all licenses and other agreements with third parties relating to any material information,
compilations, data lists or databases that MegaSys is licensed or otherwise authorized by such
third parties to use, market, disseminate distribute or incorporate in MegaSys Products. All of
MegaSys’ patents, copyrights, trademarks, trade names or Internet domain name registrations related
to or in the MegaSys Products are valid and in full force and effect, and except as set forth on
the MegaSys Disclosure Schedule, consummation of the transactions contemplated in this Agreement
will not alter or impair any such rights. Except as set forth on the MegaSys Disclosure Schedule,
no claims have been asserted or threatened against MegaSys (and MegaSys is not aware of any claims
which are likely to be asserted or threatened against MegaSys or which have been asserted or
threatened against others relating to MegaSys Proprietary Rights or MegaSys Products) by any person
challenging MegaSys’ use, possession, manufacture, sale or distribution of MegaSys Products under
any MegaSys Proprietary Rights (including, without limitation, the Third Party Technology) or
challenging or questioning the validity or effectiveness of any material license or agreement
relating thereto (including, without limitation, the Third Party Licenses) or alleging a violation
of any person’s or entity’s privacy, personal or confidentiality rights. MegaSys knows of no valid
basis for any claim of the type specified in the immediately preceding sentence which could in any
material way relate to or interfere with the continued enhancement and exploitation by MegaSys of
any of the MegaSys Products. None of the MegaSys Products nor the use or exploitation of any
MegaSys Proprietary Rights in MegaSys’ current business infringes on the rights of or constitutes
misappropriation of any proprietary information or intangible property right of any third person or
entity, including without limitation any patent, trade secret, copyright, trademark or trade name,
and except as set forth on the MegaSys Disclosure Schedule, MegaSys has not been sued or named in
any suit, action or proceeding which involves a claim of such infringement, misappropriation or
unfair competition.
(b) Except as set forth in Schedule 2.11(a) to the MegaSys Disclosure Schedule,
MegaSys has not granted any third party any right to reproduce, distribute, market or exploit any
of the MegaSys Products or any adaptations, translations, or derivative works based on the MegaSys
Products or any portion thereof. Except with respect to the rights of third parties to the Third
Party Technology and except as set forth in Schedule 2.11(a) of the MegaSys Disclosure
Schedule, no third party has any express right to reproduce, distribute, market or exploit any
works or materials of which any of the MegaSys Products are a “derivative work” as that term is
described in the ROC Copyright Law.
(c) All material designs, drawings, specifications, source code, object code, scripts,
documentation, flow charts, diagrams, data lists, databases, compilations and information
incorporating, embodying or reflecting any of the MegaSys Products at any stage of their
development (the “MegaSys Components”) were written, developed and created solely and exclusively
by employees of MegaSys without the assistance of any third party or entity or were created by
third parties who assigned ownership of their rights to MegaSys by means of valid and enforceable
confidentiality and invention assignment agreements, copies of which have been delivered to Iveda.
MegaSys has at all times used commercially reasonable efforts customary in its industry to treat
the MegaSys Proprietary Rights related to MegaSys Products and MegaSys Components as containing
trade secrets and, other than as provided in Schedule 2.11(a) of the MegaSys Disclosure
Schedule, has not disclosed or otherwise dealt with such items in a manner
intended or reasonably likely to cause the loss of such trade secrets by release into the
public domain.
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(d) To the knowledge of MegaSys and the MegaSys Shareholders, no employee, contractor or
consultant of MegaSys is in violation in any material respect of any term of any written employment
contract, patent disclosure agreement or any other written contract or agreement relating to the
relationship of any such employee, consultant or contractor with MegaSys or, to the knowledge of
MegaSys and the MegaSys Shareholders, any other party because of the nature of the business
conducted by MegaSys or proposed to be conducted by MegaSys. The MegaSys Disclosure Schedule lists
all employees, contractors and consultants who have participated in any way in the development of
any material portion of the MegaSys Products or the MegaSys Proprietary Rights.
(e) Each person presently or previously employed by MegaSys (including independent
contractors, if any) with access authorized by MegaSys to confidential information of MegaSys has
executed a confidentiality and non-disclosure agreement pursuant to the form of agreement
previously provided to Iveda or its representatives.
(f) No product liability or warranty claims have been communicated in writing to or threatened
against MegaSys.
(g) To the knowledge of MegaSys and the MegaSys Shareholders, there is no material
unauthorized use, disclosure, infringement or misappropriation of any MegaSys Proprietary Rights,
or any Third Party Technology to the extent licensed by or through MegaSys, by any third party,
including any employee or former employee of MegaSys. MegaSys has not entered into any agreement
to indemnify any other person against any charge of infringement of any MegaSys Proprietary Rights.
(h) MegaSys has taken all steps customary and reasonable in the industry to protect and
preserve the confidentiality and proprietary nature of all MegaSys Proprietary Rights and other
confidential information not otherwise protected by patents, patent applications or copyright
(“Confidential Information”). All use, disclosure or appropriation by MegaSys or, to the knowledge
of MegaSys and the MegaSys Shareholders, by another party pursuant to rights granted to it by
MegaSys, of Confidential Information owned by MegaSys to a third party has been pursuant to the
terms of a written agreement between MegaSys and such third party. All use, disclosure or
appropriation by MegaSys of Confidential Information not owned by MegaSys has been pursuant to the
terms of a written agreement between MegaSys and the owner of such Confidential Information, or is
otherwise lawful.
Section 2.9 Employee Benefit Plans.
(a) The MegaSys Disclosure Schedule lists (i) all employee benefit plans (including any
employee welfare benefit plan or any employee pension benefit plan), (ii) each loan to a
non-officer employee, loans to officers, supervisors and directors and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, meal allowances, health insurance,
labor insurance, life insurance or accident insurance plans, programs or arrangements,
(iii) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans,
programs or arrangements, (iv) other fringe or employee benefit plans, programs or arrangements
that apply to senior management of MegaSys and that do not generally apply to all employees, and
(v) any current or former employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any present or former employee, consultant or
director of MegaSys as to which (with respect to any of items (i) through (v) above) any potential
liability is borne by MegaSys (together, the “MegaSys Employee Plans”).
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(b) MegaSys has delivered to Iveda or its representatives a copy of each of the MegaSys
Employee Plans and related plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing documents, and, to
the extent sill in its possession, any material employee communications related thereto) and has,
with respect to each of MegaSys’s national health, labor, welfare, and pension benefits, duly made
the contributions required by the ROC laws. All employees of MegaSys have opted for the new
pension system under ROC Labor Retirement Law since July 1, 2005. To the extent that any employee
is entitled to the pension benefits under the ROC Labor Standards Law, the Company has established
a pension fund in its name with the Central Trust Bureau and the accumulated reserve in such fund
is sufficient to cover the Company’s pension liability for such employees for their services period
prior to July 1, 2005. The pension, severance and other benefits provided in the MegaSys’ Employee
Plans are no less favorable than those required by ROC Labor Standards Law, and the participants
under each Company Benefit Plan that includes a pension plan include all the employees who would be
entitled to the pension benefit under the ROC Labor Standards Law.
(c) (i) None of the MegaSys Employee Plans promises or provides retiree medical or other
retiree welfare benefits to any person; (ii) each MegaSys Employee Plan has been administered in
accordance with its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including the ROC Labor Standards Law), and MegaSys has performed
all material obligations required to be performed by them under, are not in any material respect in
default, under or violation of, and have no knowledge of any material default or violation by any
other party to, any of the MegaSys Employee Plans; and (iii) all contributions required to be made
by MegaSys to any MegaSys Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each MegaSys Employee Plan for the current
plan years. With respect to each MegaSys Employee Plan, MegaSys has prepared in good faith and
timely filed all requisite governmental reports (which were true and correct as of the date filed)
and has properly and timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such MegaSys Employee Plan. No
suit, administrative proceeding, action or other litigation has been brought, or, to the knowledge
of MegaSys and the MegaSys Shareholders, is threatened, against or with respect to any such MegaSys
Employee Plan, including any audit or inquiry by the ROC tax or labor authorities.
(d) MegaSys has complied with the applicable national health and labor insurance contribution
under the ROC National Health Insurance Act and the ROC Labor Insurance Act.
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(e) The consummation of the transactions contemplated in this Agreement will not (i) entitle
any current or former employee or other service provider of MegaSys to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden parachute or
bonus), except as expressly provided in this Agreement or in the ROC Business Mergers and
Acquisitions Law, or (ii) accelerate the time of payment or vesting of any such benefits, or (iii)
increase or accelerate any benefits or the amount of compensation due any such employee or service
provider.
(f) There has been no amendment to, written interpretation or announcement (whether or not
written) by MegaSys relating to, or change in participation or coverage under, any MegaSys Employee
Plan which would materially increase the expense of maintaining such Plan above the level of
expense incurred with respect to that Plan for the most recent fiscal year included in the MegaSys
Financial Statements.
Section 2.10 Bank Accounts. The MegaSys Disclosure Schedule sets forth the names and
locations of all banks, trust companies, savings and loan associations, and other financial
institutions at which MegaSys maintains accounts of any nature, the account numbers and the names
of all persons authorized to draw thereon or make withdrawals therefrom.
Section 2.11 Contracts.
(a) A list of (i) all contracts to which MegaSys is a party which involves payment by MegaSys
of $50,000 or more in any calendar year, except for those contracts that are cancelable without
penalty and within 30 days by providing notice of the date of cancellation, provided the remaining
payments through cancellation do not exceed $50,000, (ii) each material agreement, credit agreement
or other instrument relating to the borrowing of money by MegaSys or the guarantee by MegaSys of
any such obligation (other than trade payables and (iii) any other contract or agreement or
amendment thereto that (A) is material to the business, financial condition or results of
operations of MegaSys, or (B) places any material restrictions on the ability of MegaSys to engage
in any business activity currently conducted by it (collectively, the “Material Contracts”) is
attached as Schedule 2.11(a) of the MegaSys Disclosure Schedule. Except as identified in
such Schedule 2.11(a):
(i) MegaSys has no agreements, contracts or commitments that provide for the sale, licensing
or distribution by MegaSys of any MegaSys Products or MegaSys Proprietary Rights. Without limiting
the foregoing, except as set forth on the MegaSys Disclosure Schedule, MegaSys has not granted to
any third party (including, without limitation, original equipment manufacturers (“OEMs”) and
site-license customers) any rights to reproduce, manufacture or distribute any of the MegaSys
Products, nor has MegaSys granted to any third party any exclusive rights of any kind (including,
without limitation, exclusivity with regard to categories of advertisers on MegaSys’ World Wide Web
site, territorial exclusivity or exclusivity with respect to particular versions, implementations
or translations of any of the MegaSys Products), nor has MegaSys granted any third party any right
to market any of the MegaSys Products under any private label or “OEM” arrangements, nor has
MegaSys granted any license of any MegaSys trademarks or service marks.
(ii) MegaSys has no Third Party Licenses.
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(iii) MegaSys has no agreements, contracts or commitments that call for fixed and/or
contingent payments or expenditures by or to MegaSys (including, without limitation, any
advertising or revenue sharing arrangement).
(iv) MegaSys has no outstanding sales or advertising contract, commitment or proposal
(including, without limitation, insertion orders, slotting agreements, banner exchange agreements,
linking agreements, co-branding agreements or other agreements under which MegaSys has allowed
third parties to advertise on or otherwise be included in MegaSys’ World Wide Web sites).
(v) MegaSys has no outstanding agreements, contracts or commitments with agents, consultants,
advisors, sales representatives, distributors or dealers that are not cancelable by MegaSys “at
will” and without liability, penalty or premium.
(vi) MegaSys has no independent contractor or similar agreement, contract or commitment that
is not terminable on 30 days’ notice or less without penalty, liability or premium of any type,
including, without limitation, severance or termination pay.
(vii) MegaSys has no currently effective collective bargaining or union agreements, contracts
or commitments.
(viii) MegaSys is not restricted by agreement from competing with any person or from carrying
on its business anywhere in the world.
(ix) MegaSys has not guaranteed any obligations of other persons or made any agreements to
acquire or guarantee any obligations of other persons.
(x) MegaSys has no outstanding loan or advance to any person; nor is it party to any line of
credit, standby financing, revolving credit or other similar financing arrangement of any sort
which would permit the borrowing by MegaSys of any sum.
(xi) MegaSys has no agreements pursuant to which MegaSys has agreed to manufacture for, supply
to or distribute to any third party any MegaSys Products or MegaSys Components.
True and correct copies of each document or instrument listed on the MegaSys Disclosure
Schedule pursuant to this Section 2.11(a) have been provided to Iveda or its
representatives.
(b) All of the Material Contracts listed on the MegaSys Disclosure Schedule are valid,
binding, in full force and effect, and enforceable by MegaSys in accordance with their respective
terms, except to the extent that enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors’ rights
generally and by general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity. Except as disclosed in the MegaSys Disclosure
Schedule, no Material Contract contains any liquidated damages, penalty or similar provision. To
the knowledge of MegaSys and the MegaSys Shareholders, except as
disclosed in the MegaSys Disclosure Schedule, no party to any such Material Contract intends
to cancel, withdraw, modify or amend such contract, agreement or arrangement.
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(c) MegaSys is not in default under or in breach or violation of, nor, to the knowledge of
MegaSys and the MegaSys Shareholders, is there any valid basis for any claim of default by MegaSys
under, or breach or violation by MegaSys of, any material provision of any Material Contract. To
the knowledge of MegaSys and the MegaSys Shareholders, no other party is in default under or in
breach or violation of, nor is there any valid basis for any claim of default by any other party
under or any breach or violation by any other party of, any Material Contract.
(d) Except as specifically indicated on the MegaSys Disclosure Schedule, none of the Material
Contracts provides for indemnification by MegaSys of any third party. No claims have been made or
threatened that would require indemnification by MegaSys, and MegaSys has not paid any amounts to
indemnify any third party as a result of indemnification requirements of any kind.
Section 2.12 Orders, Commitments and Returns. All material agreements, contracts, or
commitments for the purchase of supplies by MegaSys were made in the ordinary course of business.
There are no oral contracts or arrangements for the sale of any product or service by MegaSys.
Section 2.13 Compliance With Law. MegaSys and the operation of its business are in
compliance in all material respects with all applicable laws and regulations material to the
operation of its business. Neither MegaSys nor, to the knowledge of MegaSys and the MegaSys
Shareholders, any of its employees has directly or indirectly paid or delivered any fee, commission
or other sum of money or item of property, however characterized, to any finder, agent, government
official or other party in the United States or any other country, that was or is in violation of
any national or local statute or law or of any statute or law of any other country having
jurisdiction. MegaSys has not participated directly or indirectly in any boycotts or other similar
practices affecting any of its customers. MegaSys has complied in all material respects at all
times with any and all applicable federal, state and foreign laws, rules, regulations,
proclamations and orders relating to the importation or exportation of its products, except for
such noncompliance as would not in the aggregate reasonably be expected to have a Material Adverse
Effect on MegaSys.
Section 2.14 Labor Difficulties; No Discrimination.
(a) MegaSys is not engaged in any unfair labor practice and is not in material violation of
any applicable laws respecting employment and employment practices, terms and conditions of
employment, and wages and hours. There is no unfair labor practice complaint against MegaSys
actually pending or, to the knowledge of MegaSys and the MegaSys Shareholders, threatened before
any Governmental Entity. There is no strike, labor dispute, slowdown, or stoppage actually pending
or, to the knowledge of MegaSys and the MegaSys Shareholders, threatened against MegaSys. To the
knowledge of MegaSys and the MegaSys Shareholders, no union organizing activities are taking place
with respect to the business of MegaSys. No grievance, nor any arbitration proceeding arising out
of or under any collective
bargaining agreement is pending and, to the knowledge of MegaSys and the MegaSys Shareholders,
no claims therefor exist. No collective bargaining agreement that is binding on MegaSys restricts
it from relocating or closing any of its operations. MegaSys has not experienced any material work
stoppage or other material labor difficulty.
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(b) There is not and has not been any claim against MegaSys or its officers or employees, or
to the knowledge of MegaSys and the MegaSys Shareholders, threatened against MegaSys or its
officers or employees, based on actual or alleged race, age, sex, disability or other harassment or
discrimination, or similar conduct, or based on actual or alleged breach of contract with respect
to any person’s employment by MegaSys, nor, to the knowledge of MegaSys and the MegaSys
Shareholders, is there any basis for any such claim.
(c) There are no pending claims against MegaSys or any of its Subsidiaries under any workers
compensation plan or policy or for long term disability. Neither MegaSys nor any of its
subsidiaries has any material obligations with respect to any former employees. There are no
proceedings pending or, to the knowledge of MegaSys and the MegaSys Shareholders, threatened,
between MegaSys and any of its employees, which proceedings have or could reasonably be expected to
have a Material Adverse Effect on MegaSys.
Section 2.15 Trade Regulation. All of the prices charged by MegaSys in connection with
the marketing or sale of any products or services have been in compliance with all applicable laws
and regulations. No claims have been communicated or threatened in writing against MegaSys with
respect to wrongful termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or any other violation
of any laws or regulations relating to anti-competitive practices or unfair trade practices of any
kind, and to the knowledge of MegaSys and the MegaSys Shareholders, no specific situation, set of
facts, or occurrence provides any basis for any such claim against MegaSys.
Section 2.16 Insider Transactions. To the knowledge of MegaSys and the MegaSys
Shareholders, no director, supervisor, or shareholder holding 10% or more as determined by the ROC
Securities Transactions Law and related parties as defined in No. 6 of the Financial Accounting
Standards (collectively, “Affiliate”) of MegaSys has any interest in any equipment or other
property, real or personal, tangible or intangible of MegaSys, including, without limitation, any
MegaSys Proprietary Rights or any creditor, supplier, customer, manufacturer, agent,
representative, or distributor of MegaSys Products; provided, however, that no such Affiliate or
other person shall be deemed to have such an interest solely by virtue of the ownership of less
than 1% of the outstanding stock or debt securities of any publicly-held company, the stock or debt
securities of which are traded on a recognized stock exchange or quoted on the Nasdaq Stock Market.
Section 2.17 Employees, Independent Contractors and Consultants. The MegaSys
Disclosure Schedule lists all past and all currently effective written or oral consulting,
independent contractor and/or employment agreements and other material agreements concluded with
individual employees, independent contractors or consultants to which MegaSys is a party. True and
correct copies of all such written agreements have been provided to Iveda or its representatives.
All independent contractors have been properly classified as independent
contractors for the purposes of applicable tax laws, laws applicable to employee benefits and
other applicable law. All salaries and wages paid by MegaSys are in compliance in all material
respects with applicable laws. Also shown on the MegaSys Disclosure Schedule are the names,
positions and salaries or rates of pay, including bonuses, of all persons presently employed by
MegaSys.
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Section 2.18 Insurance. The MegaSys Disclosure Schedule contains a list of the
principal policies of fire, liability and other forms of insurance currently or previously held by
MegaSys, and all claims made by MegaSys under such policies. MegaSys has not done anything, either
by way of action or inaction, that might invalidate such policies in whole or in part. There is no
claim pending under any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and MegaSys is otherwise in compliance with the terms of
such policies and bonds in all material respects. MegaSys has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such policies.
Section 2.19 Accounts Receivable. Subject to any reserves set forth in the Most
Recent Balance Sheet, the accounts receivable shown on the Most Recent Balance Sheet represent and
will represent bona fide claims against debtors for sales and other charges, and are not subject to
discount except for normal cash and immaterial trade discounts. The amount carried for doubtful
accounts and allowances disclosed in the Most Recent Balance Sheet is sufficient to provide for any
losses which may be sustained on realization of the receivables.
Section 2.20 Litigation. There is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any agency, court or tribunal, foreign or
domestic, or, to the knowledge of MegaSys and the MegaSys Shareholders, threatened against MegaSys
or any of its properties or any of its officers, employees, supervisors or directors (in their
capacities as such). There is no judgment, decree or order against MegaSys, or, to the knowledge
of MegaSys and the MegaSys Shareholders, any of its directors, supervisors, employees, or officers
(in their capacities as such). To the knowledge of MegaSys and the MegaSys Shareholders, no
circumstances exist that could reasonably be expected to result in a claim against MegaSys as a
result of the conduct of MegaSys’ business (including, without limitation, any claim of
infringement of any intellectual property right). The matters described in this Section 2.20
include, but are not limited to, those arising under any applicable data protection laws,
regulations and interpretations of the same relating to the collection and use of personal
information gathered in the course of MegaSys’ operations.
Section 2.21 Governmental Authorizations and Regulations. MegaSys has obtained all
county, local or foreign governmental franchises, easements, variances, exceptions, consents,
certificates approvals, licenses, permits, grants, or other authorizations of a Governmental Entity
(the “MegaSys Permits”) (a) pursuant to which MegaSys currently operates or holds any interest in
any of its properties or (b) that is required for the operation of MegaSys’ business or the holding
of any such interest, and all of such authorizations are in full force and effect, except when the
failure to obtain such authorization could not be reasonably expected to have a Material Adverse
Effect. Neither MegaSys nor any Subsidiary has received any notice or other communication from any
Governmental Entity regarding (i) any actual or possible violation of or
failure to comply with any term or requirement of any MegaSys Permit, or (ii) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or modification of any
MegaSys Permit.
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Section 2.22 Subsidiaries. Except as set forth on the MegaSys Disclosure Schedule,
MegaSys has no Subsidiaries. MegaSys does not own or control (directly or indirectly) any capital
stock, bonds or other securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, limited liability company, firm, association or
business organization, entity or enterprise, and MegaSys does not control (directly or indirectly)
the management or policies of any other corporation, partnership, limited liability company, firm,
association or business organization, entity or enterprise.
Section 2.23 Compliance with Environmental Requirements. MegaSys has obtained all
permits, licenses and other authorizations which are required under laws applicable to MegaSys and
relating to pollution or protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or
toxic materials, substances, or wastes into air, surface water, groundwater, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic materials, substances, or
wastes or which are intended to assure the safety of employees, workers or other persons, except
where the failure to obtain such authorizations could not be reasonably expected to have a Material
Adverse Effect. MegaSys is in compliance in all material respects with all terms and conditions of
all such permits, licenses and authorizations. There are no conditions, circumstances, activities,
practices, incidents, or actions known to MegaSys which could reasonably be expected to form the
basis of any claim, action, suit, proceeding, hearing, or investigation of, by, against or relating
to MegaSys, based on or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or toxic substance,
material or waste, or relating to the safety of employees, workers or other persons.
Section 2.24 Corporate Documents. MegaSys has furnished to Iveda or its
representatives: (a) copies of its articles of incorporation and bylaws, each as amended to date;
(b) its minute book containing consents, actions, and meetings of the shareholders, the board of
directors and any committees thereof; (c) all material permits, orders, and consents issued by any
regulatory agency with respect to MegaSys, or any securities of MegaSys, and all applications for
such permits, orders, and consents; and (d) the stock transfer books of MegaSys setting forth all
transfers of any capital stock. The corporate minute books, stock certificate books, stock
registers and other corporate records of MegaSys are complete and accurate, and the signatures
appearing on all documents contained therein are the true or facsimile signatures of the persons
purporting to have signed the same.
Section 2.25 No Brokers. Neither MegaSys nor any MegaSys Shareholder is obligated for
the payment of fees or expenses of any broker or finder in connection with the origination,
negotiation or execution of this Agreement or the other Transaction Documents or in connection with
any transaction contemplated herein or therein.
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Section 2.26 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 5% of MegaSys’ gross revenues during the 12-month period
preceding the date hereof, and no material supplier of MegaSys, has canceled or otherwise
terminated prior to the expiration of the contract term, or, to the knowledge of MegaSys and the
MegaSys Shareholders, made any threat to MegaSys to cancel or otherwise terminate its relationship
with MegaSys, or has at any time on or after January 1, 2010 decreased materially its services or
supplies to MegaSys in the case of any such supplier, or its usage of the services or products of
MegaSys in the case of such customer, and to the knowledge of MegaSys and the MegaSys Shareholders,
no such supplier or customer intends to cancel or otherwise terminate its contractual relationship
with MegaSys or to decrease materially its services or supplies to MegaSys or its usage of the
services or products of MegaSys, as the case may be. MegaSys has not knowingly (a) breached any
agreement with, or (b) engaged in any fraudulent conduct with respect to, any customer or supplier
of MegaSys.
Section 2.27 MegaSys Action. The board of directors of MegaSys, by unanimous written
consent or at a meeting duly called and held, has by the unanimous vote of all directors (a)
determined that the Exchange is fair and in the best interests of MegaSys and its shareholders, and
(b) approved, and declared the advisability of the Exchange, this Agreement and the transactions
contemplated hereby in accordance with the provisions of ROC Law.
Section 2.28 Privacy Laws and Policies Compliance. MegaSys has complied with all
applicable laws and regulations relating to the collection and use of customer or other user
information gathered in the course of MegaSys’ operations, and MegaSys has at all times complied
with all rules, policies and procedures established by MegaSys from time to time with respect to
the foregoing.
Section 2.29 Disclosure. No statements by MegaSys or the MegaSys Shareholders
contained in this Agreement, its exhibits and schedules nor in any of the certificates or
documents, including any of the Transaction Documents, delivered or required to be delivered by
MegaSys or the MegaSys Shareholders to Iveda under this Agreement contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under which they were
made. MegaSys and the MegaSys Shareholders have disclosed to Iveda all material information of
which it is aware relating specifically to the operations and business of MegaSys as of the date of
this Agreement or the transactions contemplated in this Agreement.
Section 2.30 Absence of Liens and Encumbrances. Except as set forth in Schedule 2.30
of the MegaSys Disclosure Schedule, MegaSys and each Subsidiary own, lease or have the legal right
to use all of the material assets, properties and rights of every kind, nature, character and
description, including, without limitation, real property and personal property (other than MegaSys
Proprietary Rights, which is covered by Section 2.8 hereof), used or intended to be used in the
conduct of the business of MegaSys or such Subsidiary or otherwise owned or leased by MegaSys or
such Subsidiary and, with respect to contract rights, is a party to and enjoys the right to the
benefits of all material contracts, agreements and other arrangements used or intended to be used
by MegaSys or such Subsidiary in or relating to the conduct of the business of MegaSys and each
Subsidiary (all such properties, assets and contract rights being the “Assets”). MegaSys and each
Subsidiary have good and marketable title to, or, in the case of
leased or subleased Assets, valid and subsisting leasehold interests in, all the Assets, free
and clear of all mortgages, liens, pledges, charges, claims, defects of title, restrictions,
infringements, security interests or encumbrances of any kind or character (“Liens”) except for (x)
Liens for current Taxes not yet due and payable, and (y) Liens that have arisen in the ordinary
course of business and that do not, individually or in the aggregate, materially detract from the
value, or materially interfere with the present or contemplated use, of the Assets subject thereto
or affected thereby. The equipment of MegaSys and the Subsidiaries used in the operations of their
business is, taken as a whole, in good operating condition and repair, ordinary wear and tear
excepted.
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Section 2.31 Restrictions on Business Activities. There is no agreement, commitment,
judgment, injunction, order or decree binding upon MegaSys or any Subsidiary or to which MegaSys or
any Subsidiary is a party which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice material to MegaSys or any Subsidiary,
any acquisition of property by MegaSys or any Subsidiary or the conduct of business by MegaSys or
any Subsidiary as currently conducted or as proposed to be conducted.
Section 2.32 Offers. MegaSys has suspended or terminated, and has the legal right to
terminate or suspend, all negotiations and discussions of any acquisition, merger, consolidation or
sale of all or substantially all of the assets of MegaSys and its Subsidiaries with parties other
than Iveda.
Section 2.33 SEC Documents. MegaSys and the MegaSys Shareholders acknowledge that
they have been provided with copies of Iveda’s Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q for the periods since December 31, 2007. MegaSys and the MegaSys Shareholders
acknowledge that they have reviewed such reports, including any “Risk Factors” sections contained
therein.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF IVEDA
Iveda represents and warrants to MegaSys that, except as disclosed in any filing with the
Securities and Exchange Commission (the “Commission”), the statements contained in this ARTICLE III
are true and correct except as set forth in the disclosure schedule delivered by Iveda to MegaSys
on or before the date of this Agreement (the “Iveda Disclosure Schedule”). The Iveda Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this ARTICLE III.
Section 3.1 Organization of Iveda. Iveda is a corporation duly organized and validly
existing under the laws of its respective jurisdiction of incorporation and has all requisite
corporate power to own, lease and operate its property and to carry on its business as now being
conducted and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a Material Adverse
Effect on Iveda. The authorized capital stock of Iveda consists of 100,000,000 shares of Common
Stock and 100,000,000 shares of Preferred Stock.
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Section 3.2 Valid Issuance of Iveda Common Stock. The shares of Iveda Common Stock to
be issued pursuant to the Exchange will be duly authorized, validly issued, fully paid, and
nonassessable, and none of which will be subject to preemptive or repurchase rights or rights of
first refusal created by applicable law, Iveda’s Certificate of Incorporation or Bylaws or any
agreement by which Iveda is a party or is bound, and issued in compliance with all applicable
federal or state securities laws.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Iveda has all requisite corporate power and authority to enter into this Agreement and the
other Transaction Documents to which it is or will become a party and to consummate the
transactions contemplated in this Agreement and such Transaction Documents. The execution and
delivery of this Agreement and such Transaction Documents and the consummation of the transactions
contemplated in this Agreement and such Transaction Documents have been duly authorized by all
necessary corporate action on the part of Iveda. This Agreement has been and such Transaction
Documents have been or, to the extent not executed as of the date hereof, will be duly executed and
delivered by Iveda. This Agreement and each of the Transaction Documents to which Iveda is a party
constitutes, and each of the Transaction Documents to which Iveda will become a party when executed
and delivered by Iveda will constitute, a valid and binding obligation of Iveda, enforceable by
MegaSys and the MegaSys Shareholders against Iveda accordance with its terms, except to the extent
that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting the enforcement of creditors’ rights generally and by general principles of
equity, regardless of whether such enforceability is considered in a proceeding at law or in
equity.
(b) The execution and delivery by Iveda of this Agreement and the Transaction Documents to
which it is or will become a party do not, and consummation of the transactions contemplated in
this Agreement or the Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the certificate of
incorporation (or articles of incorporation, as the case may be) or bylaws of Iveda, (ii) result in
any violation or breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of any obligation or
loss of any material benefit) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or obligation to which Iveda is
a party or by which either of them or any of their properties or assets may be bound, or (iii)
conflict with or violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Iveda or any of their properties or
assets, except in the case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which would not have a Material Adverse Effect on
Iveda.
(c) Neither the execution and delivery of this Agreement by Iveda or the Transaction Documents
to which Iveda is or will become a party or the consummation of the transactions contemplated
herein or therein will require any consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, except for (i) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign
country, and (ii) such other consents, authorizations, filings, approvals and registrations
which, if not obtained or made, could not be expected to have a Material Adverse Effect on Iveda.
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ARTICLE IV.
PRECLOSING COVENANTS
Section 4.1 Advice of Changes. MegaSys and the MegaSys Shareholders will promptly
advise Iveda in writing of any event occurring subsequent to the date of this Agreement which would
render any representation or warranty of MegaSys or the MegaSys Shareholders contained in this
Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect; provided however, that nothing provided by MegaSys or the MegaSys
Shareholders after the date of this Agreement pursuant to this Section 4.1 or any other provision
of this Agreement shall affect the representations, warranties, covenants or agreements of the
parties in this Agreement or the conditions to the obligations of the parties under this Agreement,
except as specifically set forth herein.
Section 4.2 Operation of Business. During the period from the date of this Agreement
and continuing until the earlier of the termination of the Agreement or the Effective Time, MegaSys
agrees (except to the extent that Iveda shall otherwise consent in writing), to carry on its
business in the usual, regular and ordinary course in substantially the same manner as previously
conducted, to pay its debts and taxes when due, subject to good faith disputes over such debts or
taxes, to pay or perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practices and policies to preserve intact
its present business organization, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the extent that its goodwill and ongoing
businesses would be unimpaired at the Effective Time. MegaSys shall promptly notify Iveda of any
event or occurrence not in the ordinary course of business of MegaSys. Except as expressly
contemplated by this Agreement, MegaSys shall not, without the prior written consent of Iveda:
(a) conduct its business other than in the ordinary course or engage in any extraordinary
transactions without Iveda’s prior written consent or sell, lease, license or otherwise dispose of
any of its properties or assets except in the ordinary course of business;
(b) materially increase or agree to increase the annual level of compensation payable or to
become payable to any employee, officer, supervisor, director or consultant, or grant any unusual
or extraordinary bonuses, benefits or other forms of direct or indirect compensation to any
employee, officer, director or consultant, except in amounts in keeping with past practices by
formula or otherwise;
(c) increase, terminate, amend, establish, adopt or otherwise modify any plan, trust, fund,
policy or arrangement for the benefit of any employees, officer or director;
(d) declare or pay any dividends on or make any other distributions in respect of its capital
stock, purchase, redeem or otherwise acquire, directly or indirectly, any of its
securities, or otherwise cause its assets to be distributed to any of its shareholders except
by way of compensation to employees who are also shareholders within the limitations set forth
above;
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(e) borrow any funds, under existing lines of credit or otherwise, except as reasonably
necessary for the ordinary operation of its business in a manner, and in amounts, in keeping with
historical practices, or guarantee any indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities or guarantee any debt securities of others;
(f) issue any equity securities or rights, other than pursuant to agreements or obligations
existing as of the date hereof; issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or
securities convertible into shares of its capital stock, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character obligating it to issue any
such shares or other convertible securities, other than pursuant to agreements or obligations
existing as of the date hereof;
(g) enter into or continue any existing discussions with any other party to sell all or
substantially all of its assets to such party, or to merge or combine with such party;
(h) accelerate, amend or change the period of exercisability or the vesting schedule of
restricted stock granted under any employee stock plan or agreements or authorize cash payments in
exchange for any options granted under any of such plans except as specifically required by the
terms of such plans or any related agreements or any such agreements in effect as of the date of
this Agreement and disclosed in the MegaSys Disclosure Schedule;
(i) split, combine or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for shares of capital stock of
such party;
(j) acquire or agree to acquire by merging or consolidating with, or by purchasing an equity
interest in or a portion of the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise acquire or agree to acquire
any assets;
(k) (i) except as set forth on the MegaSys Disclosure Schedule, grant any additional severance
or termination pay to, or enter into any employment or severance agreements with, officers, (ii)
grant any severance or termination pay to, or enter into any employment or severance agreement,
with any non-officer employee, or (iii) enter into any collective bargaining agreement;
(l) revalue any of its assets, including writing down the value of inventory or writing off
notes or accounts receivable;
(m) amend or propose to amend its articles of incorporation or bylaws;
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(n) incur or commit to incur any capital expenditures in excess of $20,000 in the aggregate or
in excess of $10,000 as to any individual matter;
(o) lease, license, sell, transfer or encumber or permit to be encumbered any asset, MegaSys
Proprietary Right or other property associated with the business of MegaSys (including sales or
transfers to Affiliates of MegaSys);
(p) enter into any lease or contract for the purchase or sale of any property, real or
personal except in the ordinary course of business;
(q) fail to maintain its equipment and other assets in good working condition and repair
according to the standards it has maintained up to the date of this Agreement, subject only to
ordinary wear and tear;
(r) amend or terminate any material contract, agreement or license to which it is a party
except in the ordinary course of business;
(s) loan any amount to any person or entity, or guaranty or act as a surety for any
obligation;
(t) waive or release any material right or claim, except in the ordinary course of business;
(u) make or change any Tax or accounting election, change any annual accounting period, adopt
or change any accounting method, file any amended Return, enter into any closing agreement, settle
any Tax claim or assessment relating to MegaSys, surrender any right to claim refund of Taxes,
consent to any extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to MegaSys, or take any other action or omit to take any action that would have
the effect of increasing the Tax liability of MegaSys or Iveda;
(v) take any action or fail to take any action that could result in a Material Adverse Effect
on MegaSys;
(w) enter into any agreement outside of the ordinary course of business in which the
obligation of MegaSys exceeds $5,000 or shall not terminate or be subject to termination for
convenience within 30 days following execution;
(x) enter into any agreement (including without limitation any material licenses to
information or databases, any OEM agreements, any exclusive agreements of any kind, or any
agreements providing for obligations that would extend beyond 180 days of the date of this
Agreement) not in the ordinary course of business;
(y) continue or begin any discussions or negotiations regarding any international expansion,
licensing, joint ventures, partnership or other arrangements, plans or other similar commitments or
understandings, other than as contemplated by this Agreement; or
(z) take, or agree in writing or otherwise to take, any of the actions described in this
Section 4.2, or any action which is reasonably likely to make any of MegaSys’
representations or warranties contained in this Agreement untrue or incorrect in any material
respect on the date made (to the extent so limited) or as of the Effective Time.
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Section 4.3 Access to Information. Until the Closing, MegaSys shall allow Iveda and
its agents reasonable free access during normal business hours upon reasonable notice to its
officers, directors, supervisors, employees, files, books, records, and offices, including, without
limitation, any and all information relating to taxes, commitments, contracts, leases, licenses,
and personal property and financial condition. Until the Closing, MegaSys shall cause its
accountants to cooperate with Iveda and its agents in making available all financial information
requested, including without limitation the right to examine all working papers pertaining to all
financial statements prepared or audited by such accountants. No information or knowledge obtained
in any investigation pursuant to this Section shall affect or be deemed to modify any
representation or warranty contained in this Agreement or its exhibits and schedules. All such
access shall be subject to the terms of the Confidentiality Agreement (as defined in Section 5.1).
Section 4.4 Satisfaction of Conditions Precedent. MegaSys and the MegaSys
Shareholders will use their reasonable best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 6.1 and Section 6.2, and MegaSys and the
MegaSys Shareholders will use their reasonable best efforts to cause the transactions contemplated
in this Agreement to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on their part in order to
effect the transactions contemplated in this Agreement. MegaSys and the MegaSys Shareholders shall
use their best efforts to obtain any and all consents necessary to consummate the Exchange with
respect to those Material Contracts listed on Schedule 2.11(a) of the MegaSys Disclosure
Schedule (the “Material Consents”).
Section 4.5 Other Negotiations. Following the date hereof and until termination of
this Agreement pursuant to Section 7.1, MegaSys and the MegaSys Shareholders will not (and it will
not permit any of their respective officers, supervisors, directors, employees, agents, Affiliates
or representatives to) take any action to solicit, initiate, seek, encourage or support any
inquiry, proposal or offer from, furnish any information to, or participate in any negotiations
with, any corporation, partnership, person or other entity or group (other than Iveda) regarding
any acquisition of MegaSys, any merger or consolidation with or involving MegaSys, or any
acquisition of any material portion of the stock or assets of MegaSys or any material license of
MegaSys Proprietary Rights (any of the foregoing being referred to in this Agreement as an
“Acquisition Transaction”) or enter into an agreement concerning any Acquisition Transaction with
any party other than Iveda. If between the date of this Agreement and the termination of this
Agreement pursuant to Section 7.1, MegaSys or the MegaSys Shareholders receive from a third party
any offer or indication of interest regarding any Acquisition Transaction, or any request for
information regarding any Acquisition Transaction, MegaSys and the MegaSys Shareholders shall (a)
notify Iveda immediately (orally and in writing) of such offer, indication of interest or request,
including the identity of such party and the full terms of any proposal therein, and (b) notify
such third party immediately of MegaSys’ and the MegaSys Shareholders’ obligations under this
Agreement.
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Section 4.6 Budget and Updated Financial Information. MegaSys shall promptly provide
Iveda with internally generated financial statements, including statements of cash flows, and other
financial statements and information as may be requested by Iveda’s Chief Financial Officer.
Section 4.7 Controller. MegaSys shall use its reasonable best efforts to hire a
full-time controller prior to the Effective Time. The selection of the controller shall be subject
to the approval of Iveda’s Chief Financial Officer. The controller shall be as an employee of
MegaSys and shall be paid by MegaSys, but will report to Iveda’s Chief Financial Officer.
ARTICLE V.
OTHER AGREEMENTS
Section 5.1 Confidentiality. Each party acknowledges that Iveda and MegaSys have
previously executed a Non-Disclosure Agreement (the “Confidentiality Agreement”), which agreement
shall continue in full force and effect in accordance with its terms.
Section 5.2 No Public Announcement. The parties shall make no public announcement
concerning this Agreement, their discussions or any other memoranda, letters or agreements between
the parties relating to the Exchange without the prior written consent of the other party;
provided, however, that either of the parties, but only after reasonable consultation with the
other, may make disclosure if required under applicable law; and provided, further, however, that
following execution of this Agreement or consummation of the Exchange, Iveda may, without the prior
consent of MegaSys, make a public announcement regarding the Exchange and the integration of
MegaSys’ business into that of Iveda as it may determine in its sole discretion to be necessary or
appropriate to comply with applicable laws and regulations.
Section 5.3 Regulatory Filings; Consents; Reasonable Efforts. Subject to the terms
and conditions of this Agreement, the parties shall use their respective reasonable good faith
efforts to (a) make all necessary filings with respect to the Exchange and this Agreement under the
Exchange Act and other applicable securities laws and obtain required approvals and clearances with
respect thereto and supply all additional information requested in connection therewith; (b) make
merger notification or other appropriate filings with governmental bodies or applicable
governmental agencies and obtain required approvals and clearances with respect thereto and supply
all additional information requested in connection therewith; (c) obtain all consents, waivers,
approvals, authorizations and orders required in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Exchange; and (d) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable.
Section 5.4 Further Assurances. Prior to and following the Closing, each party agrees
to cooperate fully with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably requested by any
other party to better evidence and reflect the transactions described herein and contemplated
herein and to carry into effect the intents and purposes of this Agreement.
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Section 5.5 Securities Laws. MegaSys and the MegaSys Shareholders shall use their
reasonable good faith efforts to assist Iveda as may be necessary to comply with the securities
laws of all jurisdictions which are applicable in connection with the issuance of Iveda Common
Stock in connection with the Exchange.
Section 5.6 Other Filings. As promptly as practicable after the date of this
Agreement, the parties will prepare and file any other filings required under the Exchange Act, the
Securities Act or any other securities laws relating to the Exchange and the transactions
contemplated in this Agreement (the “Other Filings”). The Other Filings will comply in all
material respects with all applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Other Filings, the parties will promptly inform the other of such occurrence and
cooperate in making any appropriate amendment or supplement.
Section 5.7 Advisory Board. Prior to the Closing Date, Iveda will establish an
advisory board and invite the Chief Executive Officer of MegaSys to participate as a member.
Section 5.8 Deductions; Withholdings. Iveda shall be entitled to deduct and withhold
from any consideration payable or otherwise deliverable to any MegaSys Shareholder pursuant to this
Agreement such amounts as Iveda may be required to deduct or withhold therefrom under the Code or
under any provision of state, local or foreign tax law. To the extent such amounts are so deducted
or withheld, such amounts shall be treated for all purposes under this Agreement as having been
paid to the person or entity to whom such amounts would otherwise have been paid.
Section 5.9 Further Action. If, at any time after the Effective Time, any further
action is determined by Iveda to be necessary or desirable to carry out the purposes of this
Agreement or to vest Iveda with full right, title and possession for and to all rights and property
of MegaSys, the officers and directors of Iveda shall be fully authorized (in the name of MegaSys,
in the name of Iveda and otherwise) to take such action.
Section 5.10 Right of First Refusal. Before any MegaSys Shareholder may sell or
otherwise transfer for value any shares of Iveda Common Stock issued pursuant to this Agreement (a
“Selling Stockholder”) such Selling Stockholder shall first offer such shares for sale to Iveda on
the terms and conditions set forth in this Section 5.10 (the “Right of First Refusal”).
(a) Notice of Proposed Transfer. The Selling Stockholder shall (a) deliver to
Iveda a written notice (the “Notice”) stating: (i) the Selling Stockholder’s bona fide
intention to sell or otherwise transfer such Iveda Common Stock; (ii) either the name of each
proposed purchaser or other transferee (“Proposed Transferee”) or a statement that the shares
will be sold on the open market; (iii) the number of shares of Iveda Common Stock to be
transferred; (iv) the bona fide cash price or other consideration for which the Selling
Stockholder proposes to transfer the shares of Iveda Common Stock (the
“Offered Price”); and (v) the material terms and conditions of the proposed transfer
(the “Offer Terms”) and (b) offer the shares Iveda Common Stock at the Offered Price and on
the Offer Terms to the Company or its assignee(s).
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(b) Exercise of Right of First Refusal. At any time within fifteen (15) days
after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice
to the Selling Stockholder, elect to purchase all, but not less than all, of the shares of
Iveda Common Stock proposed to be transferred to any one or more of the Proposed Transferees,
at the purchase price and on the terms determined in accordance with subsection (c) below.
(c) Purchase Price. The purchase price (“Purchase Price”) for the Iveda Common
Stock purchased by Iveda or its assignee(s) under this Section shall be the lower of (i) the
Offered Price or (ii) the Fair Market Value of the Iveda Common Stock as of the date of the
Notice, and the terms and conditions of the transfer shall be comparable in all material
respects to the Offer Terms (the “Terms”). Fair Market Value shall have the meaning set
forth in Section 8.4 of this Agreement.
(d) Selling Stockholder’s Right to Transfer. If all of the shares of Iveda
Common Stock proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by Iveda and/or its assignee(s) as provided in this Section, then the Selling
Stockholder may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price and on the Offer Terms, provided that such sale or other
transfer is consummated within thirty (30) days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any applicable
securities laws. If the shares of Iveda Common Stock described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be given to
Iveda, and Iveda and/or its assignees shall again be offered the Right of First Refusal
before any shares of Iveda Common Stock held by the Selling Stockholder may be sold or
otherwise transferred.
(e) Exception for Gifts and Transfers for Estate Planning Purposes. Anything to
the contrary contained in this Section notwithstanding, the transfer of any or all of the
Iveda Common Stock as a gift or to any relative or family member of a MegaSys Shareholder for
estate planning purposes shall be exempt from the provisions of this Section. In such case,
the transferee or other recipient shall receive and hold the Iveda Common Stock so
transferred subject to the provisions of this Agreement and such recipient shall be deemed a
MegaSys Shareholder for purposes of this Section 5.10, and there shall be no further transfer
of such Iveda Common Stock except in accordance with the terms of this Agreement.
(f) Exception for Certain Transfers. Anything to the contrary contained in this Section
notwithstanding, from the Effective Date through the first anniversary of the Effective Date,
the transfer of Iveda Common Stock by the Chairman of the Board of Directors of MegaSys to
not more than ten (10) employees of MegaSys shall be exempt from the provisions of this
Section. In such case, the transferee or other recipient shall receive and hold the Iveda
Common Stock so transferred subject to the provisions of this
Agreement and such recipient shall be deemed a MegaSys Shareholder for purposes of this
Section 5.10, and there shall be no further transfer of such Iveda Common Stock except in
accordance with the terms of this Agreement. The costs for any transfer made pursuant to
this Section 5.10(f) shall be paid by the transferee or other recipient of such Iveda Common
Stock.
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(g) Restrictive Legend; Stop Transfer. Any shares of Iveda Common Stock issued
pursuant to this Agreement shall bear a restrictive legend noting the restrictions on
transfer and Iveda’s right of first refusal set forth in this Section 5.10 and Iveda shall
issue a stop transfer order to the transfer agent for the Iveda Common Stock restricting the
transferability of such shares.
(h) Assignment of Right of First Refusal. Iveda’s rights to purchase Iveda
Common Stock pursuant to the Right of First Refusal shall be assignable by Iveda at any time.
(i) Termination of Right of First Refusal. The Right of First Refusal shall
terminate three years after the Effective Date.
Section 5.11 Options. At Closing, Iveda shall grant to key employees of MegaSys
options to purchase an aggregate of 333,333 shares of Iveda Common Stock (the “Iveda Options”)
under and pursuant to the terms of Iveda’s existing stock option plan. The Iveda Options (i) shall
have an exercise price of $1.40 per share, (ii) shall vest annually from the grant date over three
years in 1/3 installments, and (iii) shall expire ten years after the grant date. Prior to Closing
or as soon as practicable thereafter, the Chief Executive Officer of Iveda and the Chief Executive
Officer of MegaSys shall agree on a final allocation schedule of the options to be issued to each
key employee of MegaSys.
Section 5.12. Escrow. MegaSys Shareholders undertake that MegaSys will achieve the
following financial milestones:
(a) MegaSys will achieve at least US$300,000 post-tax net income for the year ended
December 31, 2011;
(b) If MegaSys will achieve at least US$300,000 post-tax net income for the year ended
December 31, 2012; and
(c) If MegaSys will achieve at least a US$1.3 million increase in net revenues related
to the SafeCity project during the period from 7/1/2010 to 12/31/2012.
2,400,000 shares of the Iveda Common Stock issued to the MegaSys Shareholders at the Closing
(the “Escrowed Iveda Common Stock”) will be held in escrow by Iveda to secure the satisfaction of
MegaSys Shareholdres’ undertaking in this Section 5.12 and shall be subject to adjustment as
specified in Exhibit B hereto. The number of shares of Escrowed Iveda Common Stock
initially attributable to each MegaSys Shareholder is set forth on Exhibit B. The number of
shares of Escrowed Iveda Common Stock to be returned to each of the MegaSys Shareholders shall be
calculated in accordance with the provisions of Exhibit B hereto. If MegaSys fails to
achieve any of the foregoing financial milestones, the Escrowed Iveda Common Stock to be
returned will be reduced as specified in Exhibit B hereto, and the number of shares of
Escrowed Iveda Common Stock which are not returned will be deemed as damages for breach of this
undertaking by the MegaSys Shareholders. In no event shall Iveda issue to the MegaSys
Shareholders an aggregate of less than 400,000 shares of Escrowed Iveda Common Stock on or prior to
the Last Release Date.
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ARTICLE VI.
CONDITIONS TO THE EXCHANGE
Section 6.1 Conditions to Each Party’s Obligation to Effect the Exchange. The
respective obligations of each party to this Agreement to effect the Exchange shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Approvals. All authorizations, consents, orders or approvals of, or declarations
or filings with, or expirations of waiting periods imposed by, any Governmental Entity shall have
been filed, occurred or been obtained, including any ROC Approval for the Transaction. “ROC
Approvals for the Transaction” means any and all authorizations, approvals, consents,
notifications, orders, permits or licenses issued by any applicable Governmental Entity in the ROC
required for the consummation of the Transaction, including but not limited to the approvals of the
Investment Commission of the Ministry of Economic Affairs.
(b) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the consummation of the Exchange or
limiting or restricting the conduct or operation of the business of MegaSys by Iveda after the
Exchange shall have been issued, nor shall any proceeding brought by a domestic administrative
agency or commission or other domestic Governmental Entity or other third party, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Exchange which makes the consummation
of the Exchange illegal.
Section 6.2 Additional Conditions to Obligations of Iveda. The obligations of Iveda
to effect the Exchange are subject to the satisfaction of each of the following conditions, any of
which may be waived in writing exclusively by Iveda:
(a) Representations and Warranties. The representations and warranties of MegaSys and
the MegaSys Shareholders set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except for changes contemplated in this Agreement; and Iveda shall have received a
certificate signed on behalf of MegaSys by the Chairman of the Board of Directors of MegaSys and by
the MegaSys Shareholders to such effect.
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(b) Agreements and Covenants. MegaSys and the MegaSys Shareholders shall have
performed in all material respects all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date; and Iveda shall have received a certificate
signed on behalf of MegaSys by the chief executive officer of MegaSys and by the MegaSys
Shareholders to such effect.
(c) Chairman’s Certificate. MegaSys shall have delivered to Iveda (i) resolutions of
the board of directors of MegaSys, certified by its Chairman of the Board of Directors, authorizing
its execution and delivery of this Agreement and the performance of its obligations hereunder, and
(ii) resolutions adopted by written consent of the holders of MegaSys Capital Stock certified by
its Chairman of the Board of Directors, authorizing the execution and delivery of this Agreement
and the performance of MegaSys’ obligations hereunder.
(d) Certificate and Bylaws. MegaSys shall have delivered a copy of the articles of
incorporation of MegaSys, certified by its Chairman of the Board of Directors.
(e) Securities Laws. Iveda shall have received all securities permits and other
authorizations necessary to issue shares of Iveda Common Stock pursuant to the Exchange.
(f) Due Diligence. Iveda shall have completed a due diligence examination of MegaSys,
the results of which shall be satisfactory to Iveda in its sole discretion.
(g) Key Employees; Employee Agreements. Each of the MegaSys employees identified on
Section 6.2(g) hereto (collectively, the “Key Employees”) shall have executed and delivered
employment, non-competition and non-solicitation agreements in a form satisfactory to Iveda.
(h) Approvals. All authorizations, consents (including the Material Consents), or
approvals of, or notifications to any third party, including any regulatory authority, or as may be
required by MegaSys’ contracts, agreements or other obligations in connection with the consummation
of the Exchange shall have occurred or been obtained.
(i) Financial Statements. MegaSys shall have provided all of the information required
by Section 4.6. In addition, Iveda shall have determined, in its sole discretion, that it will be
able to meet the financial reporting obligations required by securities regulations with respect to
the Exchange.
(j) Board and Officer Resignations. MegaSys shall have delivered to Iveda written
letters of resignation from each of the current members of the board of directors, supervisors and
the officers of MegaSys, in each case effective at the Effective Time.
(k) Securities Exemption. By execution of this Agreement, each shareholder of MegaSys
shall have be deemed to have made the representations, warranties and agreements set forth in
Exhibit C and, based upon such information, Iveda shall have reasonably concluded that the
issuance of shares of Iveda Common Stock shall be exempt from registration under the Securities Act
pursuant to Regulation S promulgated thereunder.
32
(l) No Material Change. There shall not have been any material adverse change in the
financial condition, results of operations, assets, liabilities, business or prospects of MegaSys
since September 30, 2010.
(m) Employment Releases. Each of the employees of MegaSys listed in Section 6.2(m) of
the MegaSys Disclosure Schedule shall have entered into severance and release agreements, in a form
satisfactory to Iveda, and such agreements shall have been delivered to Iveda. Each of those
agreements shall provide that such employee will be terminated prior to the Effective Time.
Section 6.3 Additional Conditions to Obligations of MegaSys and the MegaSys
Shareholders. The obligation of MegaSys and the MegaSys Shareholders to effect the Exchange is
subject to the satisfaction of each of the following conditions, any of which may be waived, in
writing, by MegaSys and the MegaSys Shareholders:
(a) Representations and Warranties. The representations and warranties of Iveda set
forth in this Agreement shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and MegaSys and the MegaSys Shareholders
shall have received a certificate signed on behalf of Iveda by the chief executive officer or chief
financial officer of Iveda to such effect.
(b) Agreements and Covenants. Iveda shall have performed in all material respects all
agreements and covenants required to be performed by them under this Agreement at or prior to the
Closing Date; and MegaSys and the MegaSys Shareholders shall have received a certificate signed on
behalf of Iveda by the chief executive officer or chief financial officer of Iveda to such effect.
(c) Secretary’s Certificate. Iveda shall have delivered to MegaSys and the MegaSys
Shareholders resolutions of the board of directors of Iveda, certified by the Secretary of Iveda,
authorizing the execution and delivery of this Agreement and the performance of its obligations
hereunder.
(d) No Material Change. There shall not have been any material adverse change in the
financial condition, results of operations, assets, liabilities, business or prospects of Iveda
since September 30, 2010.
ARTICLE VII.
TERMINATION AND AMENDMENT
Section 7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) by Iveda, if in its sole discretion it determines not to move forward with the
transactions contemplated by this Agreement;
(b) by mutual written consent of Iveda and MegaSys;
33
(c) by Iveda or MegaSys, by giving written notice to the other party, if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable final order, decree or
ruling or taken any other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Exchange, except, if such party relying on such order,
decree or ruling or other action shall not have complied with its respective obligations under
Section 4.4 or Section 5.3 of this Agreement, as the case may be;
(d) by Iveda or MegaSys, by giving written notice to the other party/parties, if the other
party is in material breach of any representation, warranty, or covenant of such other party
contained in this Agreement, which breach shall not have been cured, if subject to cure, within 10
business days following receipt by the breaching party of written notice of such breach by the
other party;
(e) by Iveda, by giving written notice to MegaSys, if the Closing shall not have occurred on
or before February 28, 2011 by reason of the failure of any condition precedent under Section 6.1
or Section 6.2 (unless the failure results primarily from a breach by Iveda of any representation,
warranty, or covenant of Iveda contained in this Agreement or Iveda’s failure to fulfill a
condition precedent to Closing or other default); and
(f) by MegaSys, by giving written notice to Iveda, if the Closing shall not have occurred on
or before February 28, 2011 by reason of the failure of any condition precedent under Section 6.1
or Section 6.3 (unless the failure results primarily from a breach by MegaSys of any
representation, warranty, or covenant of MegaSys contained in this Agreement or MegaSys’ failure to
fulfill a condition precedent to Closing or other default).
Section 7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall immediately become void and there shall be no
liability or obligation on the part of Iveda, MegaSys, or their respective officers, directors,
stockholders (or shareholders, as the case may be) or Affiliates, except as set forth in Section
7.3 and further except to the extent that such termination results from the willful breach by any
such party of any of its representations, warranties or covenants set forth in this Agreement. If
Iveda terminates this Agreement pursuant to Section 7.1 (other than pursuant to subsection (d)
thereof), then Iveda shall issue and deliver to MegaSys 300,000 shares of Iveda Common Stock as the
sole compensation to MegaSys and the MegaSys Shareholders hereunder. MegaSys and MegaSys
Shareholders shall not be entitled to any other compensation or damages arising from such
termination. Any such Iveda Common Stock issued pursuant to this section shall be characterized as
“restricted securities” for purposes of Rule 144 under the Securities Act, and each certificate
representing such shares shall, until such time that the shares of not so restricted under the
Securities Act, bear a restrictive legend to such effect.
Section 7.3 Fees and Expenses. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions contemplated herein shall
be paid by the party incurring such expenses, whether or not the transactions contemplated by this
Agreement (the “Transactions”) are consummated. MegaSys and the MegaSys Shareholders will not
incur more than $50,000 in legal and other expenses in connection with the Transactions. MegaSys
and the MegaSys Shareholders shall use their best efforts to consummate the Transaction within such
budget and shall not enter into any agreement
inconsistent with such budget. To the extent that MegaSys and the MegaSys Shareholders incur
more than $50,000 in expenses in connection with the Transactions, Iveda shall be entitled to
offset any such excess against the Iveda Common Shares issuable at Closing (including the Escrowed
Iveda Common Shares).
34
ARTICLE VIII.
INDEMNIFICATION
Section 8.1 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements of MegaSys and the MegaSys Shareholders contained in this
Agreement and any other document or certificate relating hereto (collectively, the “Acquisition
Documents”) shall survive the Effective Time for a period of six (6) years (the “Survival Period”);
provided, however, that any claims for fraud or substantial misrepresentation shall survive
indefinitely. Neither the Survival Period nor the liability of the MegaSys Shareholders with
respect to MegaSys’ and the MegaSys Shareholders’ representations and warranties shall be affected
by any investigation made at any time (whether before or after the Effective Time) by or on behalf
of Iveda or by any actual, implied or constructive knowledge or notice of any facts or
circumstances that Iveda may have as a result of such investigation or otherwise. If any
indemnification claims are made by Iveda during the Survival Period, then (notwithstanding the
expiration of such time period) the representation, warranty, covenant or agreement applicable to
such claim shall survive until the resolution of such claims. All representations, warranties,
covenants and agreements of Iveda contained in this Agreement shall terminate as of the Effective
Time.
Section 8.2 Indemnification by the MegaSys Shareholders.
(a) From and after the Effective Time, the MegaSys Shareholders will, jointly and severally,
indemnify and hold Iveda harmless against any loss, expense, liability or other damage, including
attorneys’ fees, to the extent of the amount of such loss, expense, liability or other damage
(collectively “Damages”) that Iveda has incurred by reason of the (a) inaccuracy or breach or
alleged breach of any representation or warranty (without giving effect to any qualification as to
materiality or knowledge (or similar qualifications) contained therein) made by MegaSys or any
MegaSys Shareholder in the Acquisition Documents, (b) the breach of any covenant or agreement made
by MegaSys or any MegaSys Shareholder in the Acquisition Documents; or (c) Damages from breach of
contract or other claims made by any party alleging to have a contractual right or other right to
acquire MegaSys Capital Stock or Assets.
(b) As used herein, “Damages” are not limited to matters asserted by third parties, but
included Damages incurred or sustained by Iveda in the absence of claims by third parties.
(c) By virtue of their adoption of this Agreement and their approval of the transactions
contemplated hereby, the MegaSys Shareholders acknowledge and agree that, if the MegaSys suffers,
incurs or otherwise becomes subject to any Damages as a result of or in connection with any
inaccuracy in or breach of any representation, warranty, covenant or obligation, then (without
limiting any of the rights of the MegaSys as an indemnitee) Iveda shall
also be deemed, by virtue of their ownership of the stock of MegaSys, to have incurred Damages
as a result of and in connection with such inaccuracy or breach.
35
(d) No MegaSys Shareholder shall have any right of contribution, right or indemnity or other
right or remedy against the MegaSys in connection with any indemnification obligation or any other
liability to which such shareholder may become subject under or in connection with this Agreement.
Section 8.3 Indemnification Procedures. Upon receipt by the Shareholders’
Representative (as defined in Section 8.7) on or before the last day of the Survival Period of a
certificate signed by any appropriately authorized officer of Iveda (an “Officer’s
Certificate”):
(a) Stating the aggregate amount of Iveda’s Damages or an estimate thereof, in each case to
the extent known or determinable at such time; and
(b) Specifying in reasonable detail the individual items of such Damages included in the
amount so stated, the date each such item was paid or properly accrued or arose, and the nature of
the misrepresentation, breach or claim to which such item is related, the MegaSys Shareholders
shall, subject to the provisions of Section 8.5 hereof, make payment to Iveda, as applicable, of
the amount of Damages set forth in the Officers’ Certificate.
Section 8.4 Remedies; Offset Against Escrowed Iveda Common Shares. The delivery of
the Officer’s Certificate described in Section 8.3 may be made at any time, or from time to time,
on or before the last day of the Survival Period, and irrespective of whether the claim described
therein has been fully adjudicated. Nothing in this ARTICLE VIII shall be construed as, or deemed
to be, a limitation with respect to the amount of Damages for which Iveda is entitled to
indemnification under this ARTICLE VIII, and Iveda may elect to require the MegaSys Shareholders to
satisfy any such indemnification claims pursuant to any available method including, without
limitation, (a) reduction in the amount of Escrowed Iveda Common Stock on a dollar for dollar basis
in relation to the amount of Iveda’s Damages stated in the Officer’s Certificate, and/or (b)
reimbursement of Iveda, as applicable, through cash payment or otherwise, of the amount of Iveda’s
Damages stated in the Officer’s Certificate. With respect to any indemnification claims satisfied
from the Escrowed Iveda Common Stock pursuant to clause (a) above, the Escrowed Iveda Common Stock
shall be valued at the then current Fair Market Value, provided however, that in no event shall the
value of such Iveda Common Stock used for indemnification pursuant this Article VIII be greater
than $1.00. “Fair Market Value” means the trailing 30-day average closing sale price of the Iveda
Common Stock on the Nasdaq National Market or, if the Iveda Common Stock is not quoted on the
Nasdaq National Market, on such other stock exchange or automated quotation system on which the
Iveda Common Stock is listed or quoted, as the case may be, as may be selected by the Board of
Directors of Iveda, acting reasonably, for such purpose; provided, however, that if the Iveda
Common Stock is not quoted on any stock exchange or automated quotation system, then the Fair
Market Value of Iveda Common Stock shall be determined by the Board of Directors of Iveda, acting
reasonably, in good faith and in its sole discretion, and provided further that any such selection,
opinion, or determination by the Board of Directors of Iveda shall be conclusive and binding.
36
Section 8.5 Objections to Claims. For a period of 30 days after the delivery of the
Officer’s Certificate to the Shareholders’ Representative in accordance with Section 8.4, the
Shareholders’ Representative shall have the right, by written notice received by Iveda within the
30 day period described herein, to object to any claim made in the Officer’s Certificate. In the
event of a timely and valid objection by the Shareholders’ Representative, the MegaSys’
Shareholders shall not be required to make payment of the amount set forth in the Officer’s
Certificate, pending resolution of the dispute under Section 8.6.
Section 8.6 Resolution of Conflicts.
(a) In case the Shareholders’ Representative shall so object in writing to any claim or claims
by Iveda made in any Officer’s Certificate, Iveda shall have 30 days to respond in a written
statement to the objection of the Shareholders’ Representative. If after such 30 day period there
remains a dispute as to any claims, the Shareholders’ Representative and Iveda shall attempt in
good faith for 30 days to agree upon the rights of the respective parties with respect to each of
such claims. If the Shareholders’ Representative and Iveda should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and payment of the applicable
amount shall be made.
(b) If no such agreement can be reached after good faith negotiation, either Iveda or the
Shareholders’ Representative may, by written notice to the other, demand arbitration of the matter
unless the amount of the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained or both parties
agree to arbitration; and in either such event the matter shall be settled by arbitration conducted
by one arbitrator. The decision of the arbitrator as to the validity and amount of any claim in
such Officer’s Certificate shall be binding and conclusive upon the parties to this Agreement.
(c) Judgment upon any award rendered by the arbitrators may be entered in any court having
jurisdiction. Any such arbitration shall be held in Los Angeles, California under the commercial
rules then in effect of the American Arbitration Association. Any such arbitration shall be
conducted in the English language. The non-prevailing party to an arbitration shall pay its own
expenses, the fees of each arbitrator, the administrative fee of the American Arbitration
Association, and the expenses, including, without limitation, the reasonable attorneys’ fees and
costs, incurred by the prevailing party to the arbitration.
Section 8.7 Shareholders’ Representative.
(a) Xx. X. X. Xxxxx shall be constituted and appointed as agent (the “Shareholders’
Representative”) for and on behalf of the MegaSys Shareholders to give and receive notices and
communications, to authorize delivery to Iveda of payments from the MegaSys Shareholders in
satisfaction of claims by Iveda to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of courts and awards
of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the
judgment of the Shareholders’ Representative for the accomplishment of the foregoing. All actions
of the Shareholders’ Representative shall be taken jointly, not individually. Such agency may be
changed by the action of the MegaSys
Shareholders holding a majority of the shares of MegaSys as of immediately prior to the
Effective Time from time to time upon not less than 10 days’ prior written notice to Iveda. No
bond shall be required of the Shareholders’ Representative, and the Shareholders’ Representative
shall receive no compensation for services. Notices or communications to or from the Shareholders’
Representative shall constitute notice to or from each of the MegaSys Shareholders.
37
(b) The Shareholders’ Representative shall not be liable for any act done or omitted hereunder
as Shareholders’ Representative while acting in good faith, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The MegaSys Shareholders
shall severally and pro rata, in accordance with their Pro Rata Portion, indemnify the
Shareholders’ Representative and hold the Shareholders’ Representative harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the part of the
Shareholders’ Representative and arising out of or in connection with the acceptance or
administration of its duties under this Agreement.
(c) The Shareholders’ Representative shall have reasonable access to information about MegaSys
and Iveda and the reasonable assistance of MegaSys’ and Iveda’s officers and employees for purposes
of performing its duties and exercising its rights under this Article IX, provided that the
Shareholders’ Representative shall treat confidentially and not disclose any nonpublic information
from or about MegaSys or Iveda to anyone (except on a need to know basis to individuals who agree
to treat such information confidentially).
Section 8.8 Actions of the Shareholders’ Representative. A decision, act, consent or
instruction of the Shareholders’ Representative shall constitute a decision of all of the MegaSys
Shareholders and shall be final, binding and conclusive upon each such MegaSys Shareholder, and
Iveda may rely upon any decision, act, consent or instruction of the Shareholders’ Representative
as being the decision, act, consent or instruction of each and every such MegaSys Shareholder.
Iveda is hereby relieved from any liability to any person for any acts done by them in accordance
with such decision, act, consent or instruction of the Shareholders’ Representative.
Section 8.9 Claims. In the event Iveda becomes aware of a third-party claim which
Iveda believes may result in a claim for indemnification under this Article VIII, Iveda shall
notify the Shareholders’ Representative of such claim, and the Shareholders’ Representative and the
MegaSys Shareholders shall be entitled, at their expense, to participate in any defense of such
claim. Iveda shall have the right in its sole discretion to settle any such claim; provided,
however, that Iveda may not effect the settlement of any such claim without the consent of the
Shareholders’ Representative, which consent shall not be unreasonably withheld. In the event that
the Shareholders’ Representative has consented to any such settlement, the Shareholders’
Representative shall have no power or authority to object to the amount of any claim by Iveda from
the MegaSys Shareholders for indemnity with respect to such settlement in the amount agreed to.
38
ARTICLE IX.
MISCELLANEOUS
Section 9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or two
business days after being mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as shall be specified by
like notice):
(a) if to Iveda:
Iveda Corporation
0000 Xxxxx Xxxx Xxxxxx Xxxx, Xxxxx 0000
Xxxx, XX 00000
Attention: Xxxxx Xx
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
0000 Xxxxx Xxxx Xxxxxx Xxxx, Xxxxx 0000
Xxxx, XX 00000
Attention: Xxxxx Xx
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
with a copy at the same address to the attention of the Chief Financial Officer and Secretary.
(b) if to MegaSys, to:
Sole-vision Technologies, Inc.
2F-15, Xx. 00, Xxxx 000, Sec. 0
Xxxxxxxx Xx.
Xxxxxxxxxxxxx, Xxxxxx Xxxxxx 000
Xxxxxx (R.O.C.)
Attention: X. X. Xxxxx, President
Fax No: 000-0-0000-0000
Telephone No: 000-0-0000-0000
2F-15, Xx. 00, Xxxx 000, Sec. 0
Xxxxxxxx Xx.
Xxxxxxxxxxxxx, Xxxxxx Xxxxxx 000
Xxxxxx (R.O.C.)
Attention: X. X. Xxxxx, President
Fax No: 000-0-0000-0000
Telephone No: 000-0-0000-0000
Section 9.2 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or
“including” are used in this Agreement they shall be deemed to be followed by the words “without
limitation.” Whenever the words “to the knowledge of MegaSys” or “known to MegaSys” or similar
phrases are used in this Agreement, they mean to the actual knowledge, after due and diligent
inquiry, of the directors, executive officers and supervisors of MegaSys. Whenever the words “to
the knowledge of Iveda” or “known to Iveda” or similar phrases are used in this Agreement, they
mean to the actual knowledge, after due and diligent inquiry, of the executive officers of Iveda.
Any reference to money or $ is a reference to United States dollars unless the context requires
otherwise.
39
Section 9.3 Counterparts. This Agreement may be executed in two or more counterparts,
all of which shall be considered one and the same agreement and shall become effective when two or
more counterparts have been signed by each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same counterpart.
Section 9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement (including
the documents and the instruments referred to herein), the Confidentiality Agreement, and the
Transaction Documents (a) constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties hereto (including without
limitation any MegaSys employees) any rights or remedies hereunder.
Section 9.5 Governing Law; Forum. This Agreement shall be governed and construed in
accordance with the laws of the State of California without regard to any applicable conflicts of
law.
Section 9.6 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law
or otherwise) without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the
parties and their respective successors and assigns.
Section 9.7 Amendment. This Agreement may be amended by the parties hereto, at any
time before or after approval of matters presented in connection with the Exchange by the MegaSys
Shareholders, but after any such shareholder approval, no amendment shall be made which by law
requires the further approval of shareholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 9.8 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the
obligations or the other acts of the other parties hereto, (b) waive any inaccuracies in the
representations or warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
Section 9.9 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any other remedy to which
they are entitled at law or in equity.
(signature page follows)
40
IN WITNESS WHEREOF, Iveda, MegaSys and the MegaSys Shareholders have caused this Share
Exchange Agreement to be signed by their respective officers thereunto duly authorized as of the
date first written above.
IVEDA SOLUTIONS, INC. | ||||||
By: | /s/ Xxxxx Xx
|
|||||
SOLE-VISION TECHNOLOGIES, INC. | ||||||
By: | /s/ Xxxxx Ing-Hang
|
[SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT]
41
XXXXX ING-HANG | ||||
/s/ Xxxxx Ing-Hang
|
||||
XXXXX XXXX-KUNG | ||||
/s/ Xxxxx Xxxx Kung
|
||||
XXXXX XXXX-XX | ||||
/s/ Xxxxx Xxxx Xx
|
||||
XXXX XXXX-XXX | ||||
/s/ Wang Xxxx Xxx
|
||||
XXX XXX-XXXXX | ||||
/s/ Xxx Xxx Xxxxx
|
||||
XXX XXXXX-XXXXX | ||||
/s/ Xxx Xxxxx Chuan
|
[SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT]
42
EXHIBIT A
MEGASYS SHAREHOLDERS
Iveda Common Stock Issuable | ||||
Name of Shareholder | Immediately at Closing | |||
Xxxxx Ing-Hang |
1,840,380 | |||
Xxxxx Xxxx-Kung |
555,000 | |||
Xxxxx Xxxx-Xx |
592,000 | |||
Wang Xxxx-Xxx |
256,410 | |||
Xxx Xxx-Xxxxx |
249,750 | |||
Xxx Xxxxx-Xxxxx |
206,460 |
A-1
EXHIBIT B
SCHEDULE AND FINANCIAL MILESTONES FOR ESCROWED
IVEDA COMMON STOCK
IVEDA COMMON STOCK
Escrowed Iveda Common Stock
Name of Shareholder | Escrowed Iveda Common Stock | |||
Xxxxx Ing-Hang |
1,193,760 | |||
Xxxxx Xxxx-Kung |
360,000 | |||
Xxxxx Xxxx-Xx |
384,000 | |||
Wang Xxxx-Xxx |
166,320 | |||
Xxx Xxx-Xxxxx |
162,000 | |||
Xxx Xxxxx-Xxxxx |
133,920 |
Escrow Release Schedule:
Subject to the satisfaction of the financial milestones and adjustments described below, the
Escrowed Iveda Common Stock shall be returned to the MegaSys Shareholders in the amounts and on the
release dates (the “Release Dates”) specified on the following schedule:
• | US$720,000 of Escrowed Iveda Common Stock on 12/31/2011 |
• | US$720,000 of Escrowed Iveda Common Stock on 6/30/2012 |
• | US$960,000 of Escrowed Iveda Common Stock on 12/31/2012 |
The number of shares of Escrowed Iveda Common Stock to be released on each Release Date shall be
adjusted as follows:
• | If MegaSys does not achieve at least US$300,000 post-tax net income for the year ended
December 31, 2010 (after adjustment for transaction expenses paid by MegaSys in connection
with this Agreement (“Transaction Expenses”) not to exceed US$300,000), then the amount of
Escrowed Iveda Common Stock payable to the MegaSys Shareholders on 12/31/2011 shall be
decreased by 1% for each US$3,000 below the post-tax net income target and Iveda shall be
entitled to retain and cancel the Escrowed Iveda Common Stock not earned on such date. For
example, if MegaSys achieves US$294,000 in post-tax net income, then the MegaSys
Shareholders shall be entitled to US$705,600 of the Escrowed Iveda Common Stock and Iveda
shall retain and cancel the remaining US$14,400 of the Escrowed Iveda Common Stock. |
B-1
• | If MegaSys does not achieve at least US$300,000 post-tax net income for the year ended
December 31, 2011, then the amount of Escrowed Iveda Common Stock payable to the MegaSys
Shareholders on 6/30/2012 shall be decreased by 1% for each US$3,000 below the post-tax net
income target and Iveda shall be entitled to retain and cancel the Escrowed Iveda Common
Stock not earned on such date. |
• | If MegaSys does not achieve at least US$300,000 post-tax net income for the year ended
December 31, 2012, then the amount of Escrowed Iveda Common Stock payable to the MegaSys
Shareholders on December 31, 2012 shall be decreased by 1% for each US$2,000 below the
post-tax net income target and Iveda shall be entitled to retain and cancel the Escrowed
Iveda Common Stock not earned on such date. |
• | If MegaSys does not collect at least a US$1.3 million in net revenues related to the
SafeCity project during the period from 7/1/2010 to 12/31/2012, then the amount of Escrowed
Iveda Common Stock payable to the MegaSys Shareholders on December 31, 2012 shall be
decreased by 1% for each US$50,000 below the net revenue increase target and Iveda shall be
entitled to retain and cancel the Escrowed Iveda Common Stock not earned on such date.
This reduction in the number of Escrowed Iveda Common Stock shall be in addition to any
reductions provided for above. |
• | The per share value of the Escrowed Iveda Common Stock to be released on each
Release Date shall be valued at the greater of (i) the Fair Market Value and (ii)
US$1.00. Accordingly, in no event shall Iveda be required to issue to the MegaSys
Shareholders more than the 2,400,000 shares of Escrowed Iveda Common Stock held in
escrow by Iveda |
• | At each Release Date, any shares of Escrowed Iveda Common Stock which Iveda is
entitled to retain due to the failure of MegaSys to achieve the financial milestones
described above may be immediately released from escrow by Iveda for its own account. |
• | The U.S. dollar amounts in the post-tax net income targets and the net cash increase
target in the financial milestones section above shall be calculated based on the New
Taiwan dollar/U.S. dollar exchange rate prevailing on date of the income statement or
balance sheet applicable to such financial milestone. |
• | References to post-tax net income and net cash herein shall be calculated in
accordance with ROC GAAP. |
B-2
EXHIBIT C
INVESTOR REPRESENTATIONS
INVESTOR REPRESENTATIONS
By execution of the Share Exchange Agreement to which this Exhibit C is attached (the “Share
Exchange Agreement”), each MegaSys Shareholder represents, warrants and agrees with Iveda as set
forth below. Capitalized terms used but not defined in this Exhibit C have the meaning set forth
in the Share Exchange Agreement.
1. The MegaSys Shareholder is not a U.S. person (as such term is defined in Regulation S
under the Securities Act) and is acquiring Iveda Common Stock in an offshore transaction
pursuant to Regulation S.
2. The MegaSys Shareholder understands that the shares of Iveda Common Stock are “restricted
securities” within the meaning of Rule 144(a)(3) under the Securities Act and that if he or
she decides to offer, sell, pledge or otherwise transfer any of the Iveda Common Stock, such
Iveda Common Stock may be offered, sold, pledged or otherwise transferred only: (i) to
Iveda; (ii) outside the United States in accordance with Rule 904 of Regulation S; (iii) in
accordance with exemption from registration provided in Rule 144 under the Securities Act,
to the extent that it is then available; or (iv) pursuant to an effective registration
statement under the Securities Act, and in each case in accordance with any applicable
securities laws of any state of the United States, and in the case of (iii) above, upon the
provision of a legal opinion of counsel of recognized standing, satisfactory to Iveda, to
the effect that the sale of such Iveda Common Stock is not required to be registered under
the Securities Act.
3. The MegaSys Shareholder understands that the certificates representing the Iveda Common
Stock, along with all certificates issued in exchange for or in substitution of such
certificates, must bear, until no longer required under applicable requirements of the
Securities Act, a legend substantially to the following effect:
‘‘THE IVEDA COMMON STOCK REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), OR U.S. STATE SECURITIES LAWS. THE HOLDER
HEREOF, BY PURCHASING THE SHARES REPRESENTED HEREBY, AGREES FOR THE BENEFIT OF THE ISSUER
THAT SUCH SHARES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY: (A) TO THE
ISSUER, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT (‘‘REGULATION S’’), (C) IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT,
IF AVAILABLE, OR (D) UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND
IN EACH CASE IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES; PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C) ABOVE, A LEGAL OPINION
SATISFACTORY TO THE ISSUER MUST FIRST BE PROVIDED.
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