Exhibit 10.27
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is entered into as of May 13th, 2004, by and
among PhotoAccess Technologies, Corp., a Delaware corporation ("Seller") and
PhotoWorks, Inc., a Washington corporation ("PhotoWorks") and PhotoWorks Digital
Imaging, Inc. , a Washington corporation and a wholly-owned subsidiary of
PhotoWorks ("Buyer").
RECITALS
A. Seller is engaged in the business of providing services that enable the
delivery of film-quality digital prints and photo merchandise through on-line
points of sale (the "Services").
B. Buyer desires to purchase and Seller desires to sell substantially all
of the assets of Seller used or held in connection with the Services.
NOW THEREFORE, the parties agree as follows:
AGREEMENT
1. Sale and Purchase of Assets.
1.1 Transfer of Assets. Subject to the terms and conditions of this
Agreement, at the closing referred to in Section 3 (the "Closing"), Seller shall
sell, assign, grant and transfer to Buyer, and Buyer shall purchase and accept
from Seller, all of Seller's right, title and interest in and to substantially
all of the assets of Seller, including the following assets (the "Assets"):
(a) The XxxxxXxxxxx.xxx Website and Fulfillment Platform. All
rights, title and interest in and to the Seller's website and fulfillment
platform, including without limitation, all (i) equipment owned by Seller and
used in connection with the Services and listed on Schedule 1.1(a)(i) (the
"Hardware"), (ii) all software owned or licensed by Seller and used in
connection with the Services and listed on Schedule 1.1(a)(ii), including all
improvements, corrections, modifications, updates and enhancements thereto (the
"Software"), and (iii) all documentation used in the development and updating of
the Software, including without limitation, design or development specifications
or reports, and related correspondence and memoranda, and all end-user
instruction manuals that usually accompany the Software instructing end-users in
the use of the Software, whether in printed or electronic form (collectively,
the "Documentation");
(b) Seller Intellectual Property. All rights, title and interest in
and to intangible property of Seller used in the Services (whether owned, used,
registered in the name of, or licensed by Seller or in which Seller otherwise
has an interest), including, without limitation, all research, development,
computer source and object code, trade secrets, copyrights, patents, patent
applications, trademarks, trade names, trade dress, service marks and Internet
domain and other names (either registered, common law or registration applied
for), inventions, know-how and other proprietary rights, including, without
limitation, those listed on Schedule 1.1(b) (together with the Hardware,
Software and Documentation, the "Seller Technology");
(c) Contracts. All rights in and to the agreements and contracts to
which Seller is a party or beneficiary related to the Services and used or
intended to be used in Seller's business as conducted as of the Closing Date,
including without limitation, the agreements listed on Schedule 1.1(c) (the
"Third-Party Technology Contracts");
(d) Fixed Assets and Tangible Personal Property. The fixed assets
and tangible personal property of Seller, including photo finishing equipment,
listed on Schedule 1.1(d) (the "Personal Property");
(e) Customer Lists. All customer lists of Seller (the "Customer
Lists") and all files, records and documents (including credit information and
stored digital images) relating to customers of Seller prior to Closing that are
stored on the Hardware.
(f) In Process Orders. All orders that are entered or have not been
fulfilled as of the close of business on April 30, 2004 shall be the property of
Buyer and Buyer shall be entitled to all revenues therefrom. The fulfillment of
such orders shall be Buyer's sole responsibility.
(g) Accounts Receivable. All accounts receivable of Seller as of the
date of Closing.
1.2 Assumption of Obligations. In connection with the purchase and sale of
the Assets hereunder, Buyer shall assume in writing at the Closing only those
obligations of Seller as set forth on Schedule 1.2 ("Assumed Obligations"). No
other Seller liabilities or obligations of any nature, whether known or unknown,
fixed or contingent ("Excluded Obligations"), shall be assumed by Buyer in
connection with the purchase and sale of the Assets. All Excluded Obligations
shall remain the sole responsibility of Seller. Seller agrees to apply its
existing cash and any cash received between the date hereof and the Closing Date
to the reduction of its accounts payable and outstanding tax obligations.
1.3 Excluded Assets. Notwithstanding the foregoing, the properties and
assets of Seller set forth on Schedule 1.3 shall be retained by Seller and are
expressly excluded from the purchase and sale contemplated by this Agreement
(collectively, the "Excluded Assets"). Notwithstanding anything to the contrary
contained elsewhere in this Agreement, the Assets shall not include any of the
Excluded Assets.
2. Purchase Price; Payment Terms.
2.1 Purchase Price. The consideration (the "Purchase Price") for the
Assets shall consist of the following: (a) One Million Two Hundred Thousand
(1,200,000) shares of the common stock (the "Shares") of PhotoWorks (the "Shares
Payment"); and (b) assumption of the Assumed Obligations by the Buyer.
2.2 Payment. The Purchase Price shall be made as follows:
(a) 800,000 of the Shares shall be paid to Seller at Closing by
PhotoWorks' issuance of one or more stock certificates in the name of Seller
and/or to such stockholders of Seller as directed by Seller.
(b) 400,000 of the Shares shall be retained by PhotoWorks (the
"Holdback Shares") as security for Seller's indemnification obligation under
Section 8.4 hereof. Holdback Shares as to which Buyer has not made a claim
within eleven (11) months of the Closing Date (the "Holdback Period") shall be
delivered to Seller and/or such stockholders of Seller as directed by Seller
promptly at the end of the Holdback Period. The Shares included in the Holdback
Shares may not be assigned by Seller or its shareholders (other than by Seller
to its shareholders) prior to the end of the Holdback Period.
2.3 Restricted Shares. Seller acknowledges that the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act") and
will be restricted securities as defined in Rule 144 promulgated by the
Securities and Exchange Commission under the 1933 Act. PhotoWorks has no
obligation to register the Shares for resale under the 1933 Act. The stock
certificates evidencing all the Shares shall carry a restrictive legend stating:
THIS SECURITY IS NOT BEING REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR APPLICABLE STATE SECURITIES
LAWS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE
BENEFIT OF THE ISSUER THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1) TO THE COMPANY, (2) IN ACCORDANCE WITH
RULE 144 OR A SIMILAR RULE AS THEN IN EFFECT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT
2.4 Tax Consequences. It is intended that this transaction shall qualify
as a reorganization pursuant to Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement shall constitute
a plan of reorganization within the meaning of Section 361 of the Code.
3. Closing.
3.1 Time and Place of Closing. The Closing of the sale and purchase of the
Assets shall take place at 10:00 a.m., Pacific Standard time, as soon as
reasonably practicable after the satisfaction or waiver of the conditions to
Closing set forth herein, but in no event more than 30 days after such
satisfaction or waiver (the "Closing Date") at the offices of Xxxxxx Xxxxxx
White & XxXxxxxxx, LLP, in Seattle, Washington or such other time and date as
the parties may mutually agree upon in writing.
3.2 Items to be Delivered at the Closing.
(a) Items to be Delivered by Seller. At the Closing, Seller shall
deliver or cause to be delivered to Buyer:
(i) an executed Xxxx of Sale substantially in the form
attached hereto as Exhibit 3.2(a)(i);
(ii) an executed Trademark Assignment substantially in the
form attached hereto as Exhibit 3.2(a)(ii);
(iii) an executed Copyright Assignment substantially in the
form attached hereto as Exhibit 3.2(a)(iii);
(iv) an Assignment of Domain Names substantially in the form
attached here to as Exhibit 3.2(a)(iv);
(v) a master copy of each computer software program included
in the Software (in both object and source code format), which shall be in a
form suitable for copying;
(vi) a copy of all Documentation, in both printed and
electronic form;
(vii) a copy of the resolutions of (A) the Board of Directors
of Seller and (B) the shareholders of Seller, in each case authorizing Seller's
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and a certificate of Seller's secretary or
assistant secretary that each of such resolutions were duly adopted and are in
full force and effect as of the Closing;
(viii) The Customer Lists and all related customer records and
files and the business and financial records relating to the Assets set forth in
Section 1.1(e) hereof;
(ix) Copies of executed option agreements and offer letters by
and between Buyer, PhotoWorks and certain of Seller's employees ("Certain
Identified Employees");
(x) A letter from the Washington Department of Revenue with
respect to the tax status of Seller; and
(xi) Such other documents and instruments as shall be
reasonably requested to effect the transactions contemplated hereby.
(b) Items to be Delivered by Buyer. At the Closing, Buyer shall
deliver or cause to be delivered to Seller:
(i) a copy of the resolutions of the Board of Directors of
Buyer authorizing Buyer's execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; and
(ii) the Purchase Price in accordance with the provisions of
Section 2.2 hereof.
(c) Items to be Delivered by Seller and Buyer. At the Closing, Buyer
and Seller shall both execute an Assignment and Assumption Agreement
substantially in the form attached hereto as Exhibit 3.2(c).
4. Representations and Warranties of Seller. Seller represents and warrants to
Buyer as follows:
4.1 Organization, Standing and Authority of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware. Seller has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller. Subject to the approval of the
stockholders of Seller, this Agreement constitutes the valid and binding
obligation of Seller, enforceable against Seller in 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.
4.2 Required Filings and Consent. None of the execution and delivery by
Seller of this Agreement or the consummation of the transactions contemplated
hereby will require any consent, approval, order or authorization of, or
registration, declaration or filing with, any third party except for such
consents, authorizations, filings, approvals and registrations which are listed
on Schedule 4.2 or which in the aggregate, if not obtained or made, would not be
expected to have a material adverse effect on the Services or Assets (a
"Material Adverse Effect").
4.3 No Conflicts or Violations. The execution and delivery by Seller of
this Agreement and the consummation of the transactions contemplated hereby will
not (i) conflict with, or result in a breach of the Articles of Incorporation or
Bylaws of Seller, (ii) violate any statute, law, rule or regulation, or any
order, writ, injunction or decree of any court or governmental authority, or
(iii) violate or conflict with or constitute a default under any agreement,
instrument or writing of any nature to which Seller is a party or by which
Seller or the Assets may be bound.
4.4 Title to Assets.
(a) Except as set forth on Schedule 4.4(a), Seller owns all right,
title and interest in and to, or otherwise possesses legally enforceable rights,
or is licensed to use, all of the Assets, free and clear of any liens and
encumbrances. Seller's right, title and interest in the Seller Technology is
valid and in full force and effect, and consummation of the transactions
contemplated hereby will not alter or impair any of the Seller Technology to be
acquired by Buyer.
(b) No claims have been asserted or threatened against Seller (and
Seller has no knowledge of any claims which are likely to be asserted or
threatened against Seller or which have been asserted or threatened against
others relating to the Seller Technology) by any third party challenging
Seller's use, possession, or distribution of any Seller Technology including
without limitation, any Third Party Technology (as defined below) or challenging
the validity or effectiveness of any license or agreement relating thereto
including without limitation, any Third Party Licenses (as defined below) or
alleging a violation of any third party's or entity's privacy, personal or
confidentiality rights. Seller knows of no valid basis for any claim of the type
specified in the immediately preceding sentence which would be reasonably
expected to interfere with the continued exploitation by Seller of any of the
Seller Technology in the manner currently exploited. Except as set forth on
Schedule 4.4(b), none of the Seller Technology nor the Seller's current use or
exploitation of any Seller Technology including any Third Party Technology
included or related thereto infringes or misappropriates any proprietary right
of any third party. All of the Personal Property is in good operating condition,
except for reasonable wear and tear.
4.5 Intellectual Property.
(a) Schedule 4.5(a) attached hereto contains an accurate and
complete list of all (i) licenses and other agreements with third parties (the
"Third Party Licenses") relating to any proprietary rights that Seller is
licensed or otherwise authorized by such third parties to use, market,
distribute or incorporate in the Seller Technology (the "Third Party
Technology"), (ii) licenses and other agreements with third parties relating to
any information, compilations, data lists or databases that Seller is licensed
or otherwise authorized by such third parties to use, market, disseminate,
distribute or incorporate in the Seller Technology and (iii) licenses and
agreements with third parties under which such third party is licensed or
authorized to use, sell, distribute or incorporate any Seller Technology or any
portion thereof. Except as so identified on Schedule 4.5(a), the Assets are all
the assets essential and required to operate Seller's business as conducted as
of the Closing Date.
(b) Except as set forth on Schedule 4.5(b), Seller has not granted
any third party any right to reproduce, distribute, market or exploit any of the
Seller Technology or any adaptations, translations, or derivative works based on
the Seller Technology or any portion thereof. All of the Seller Technology was
written, developed and created solely by employees of Seller without the
assistance of any third party or were created by third parties who assigned
ownership of their rights to Seller by means of valid and enforceable
confidentiality and invention assignment agreements, true and correct copies of
which have been delivered to Buyer. Seller has taken all steps customary and
reasonable in its industry to protect the confidentiality and proprietary nature
of all Seller Technology and other confidential information not otherwise
protected by patents, patent applications or copyright.
(c) No employee, contractor or consultant of Seller is in violation
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 Seller or any other party because of the nature of
the Services conducted by Seller or currently proposed to be conducted by
Seller. Schedule 4.5(c) lists all employees, contractors and consultants who
have participated in any way in the development of any material portion of the
Seller Technology.
(d) Each person presently or previously employed by Seller
(including independent contractors, if any) has executed a confidentiality,
non-disclosure and proprietary inventions assignment agreement pursuant to the
form of agreement previously provided to Seller or its representatives. There is
no unauthorized use, disclosure, infringement or misappropriation of any of the
Seller Technology, or any Third Party Technology to the extent licensed by or
through Seller, by any third party, including any employee, former employee or
independent contractor of Seller. Except as set forth on Schedule 4.5(d), Seller
has not entered into any agreement to indemnify any third party against any
charge of infringement of any Seller Technology.
(e) Schedule 4.5(e) sets forth a complete and accurate list of all
customers that are licensing the Software from Seller as of the Closing Date
under written contracts (the "Partnership Agreements") with Seller. Seller has
previously provided Buyer with true and complete copies of all Partnership
Agreements (including any amendments, addenda or material correspondence related
thereto). Seller is not a party to any source code escrow agreements or other
agreements giving any customer of Seller the right to obtain, gain access to, or
require the disclosure or delivery of the source code to any Software to which
Seller is a party as of the Closing Date.
4.6 Compliance With Law. Except as set forth on Schedule 4.6, Seller and
the operation of the Services are in compliance in all material respects with
all applicable laws and regulations material to the operation of the Services.
Seller has complied in all material respects at all times with any and all
applicable laws, rules, regulations, proclamations and orders, except for such
noncompliances as would not in the aggregate reasonably be expected to have a
Material Adverse Effect.
4.7 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation pending before any agency, court or tribunal, foreign or
domestic, or threatened against Seller or any of the Assets. There is no
judgment, decree or order against Seller. Except as set forth on Schedule 4.7
and to Seller's knowledge, no circumstances exist that could reasonably be
expected to result in a claim against Seller as a result of the operation of the
Services.
4.8 Tax Returns and Payments. Except as set forth on Schedule 4.8, all
material tax returns and reports required by law to be filed by Seller under the
laws of any jurisdiction, domestic or foreign, have been duly and timely filed
and all Taxes (defined below), fees or other governmental charges of any nature
which were required to have been paid have been paid or provided for. Seller has
no knowledge of any tax audit of Seller by any taxing or other authority in
connection with any of its fiscal years. Seller has no knowledge of any such
audit currently pending or threatened, and there are no tax liens on any of the
properties of Seller, nor have any such liens been threatened, other than for
Taxes not yet due and payable. All taxes that Seller is or was required to
withhold, deduct or collect have been duly withheld, deducted and collected, and
to the extent required, have been paid to the proper governmental agency. Taxes
shall include any income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental, windfall profit,
customs, vehicle, airplane, boat, vessel or other title or registration, capital
stock, franchise, employees' income withholding, foreign or domestic
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, value added, alternative, add-on minimum and
other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever
and any interest, penalty, addition or additional amount thereon imposed,
assessed or collected by or under the authority of any governmental agency or
payable under any tax-sharing agreement or any other contracts.
4.9 Brokers. Other than Seller's obligation for the payment of Five
Thousand Eight Hundred Forty Five Dollars ($ 5,845.00) to Xxx Xxx, neither (i)
Seller or any directors, officer, agent or employee acting on behalf of seller
nor (ii) any Seller stockholder, is obligated for the payment of fees or
expenses of any broker or finder in connection with this Agreement or any
transaction contemplated hereby.
4.10 Third Party Technology Contracts. Except as set forth on Schedule
4.10, neither Seller nor any other party to the Third-Party Technology Contracts
is in default in performance of or not in compliance with any material
provisions of such Third Party Technology Contracts. Seller has no knowledge of
any intent by any other party not to perform its obligations under any such
contracts. Except as forth on Schedule 4.10, Seller has the right to assign all
Third-Party Technology Contracts to Buyer pursuant to this Agreement and neither
the assignment of such contracts nor the consummation of the transactions
contemplated by this Agreement permits or would lead any party to such contract,
to terminate or alter such contract.
4.11 Customer Lists. There are no contractual restrictions that limit
Buyer's ability to use the Customer Lists for any lawful purpose consistent with
the Seller's current use thereof in accordance with Seller's privacy policy.
4.12 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, the schedules or exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement to Buyer by Seller are complete and correct
in all material respects.
4.13 No Discrimination. There is and has not been any claim in writing
against Seller or its officers or employees, or to Seller's knowledge,
threatened against Seller or its officers or employees (in their capacities as
such), based on actual or alleged race, age, sex, disability or other harassment
or discrimination, or similar tortious conduct, or based on actual or alleged
breach of contract with respect to any person's employment by Seller, nor to the
knowledge of Seller is there any basis for any such claim that could reasonably
be expected to have a material adverse effect on Seller.
5. Representations and Warranties of PhotoWorks and Buyer. PhotoWorks and Buyer
represent and warrant to Seller as follows:
5.1 Organization, Standing, and Authority of Buyer. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Washington. Buyer has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement constitutes the valid and
binding obligation of Buyer, enforceable against Buyer in 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.
5.2 Organization, Standing, and Authority of PhotoWorks. PhotoWorks is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington. PhotoWorks has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of PhotoWorks. This Agreement
constitutes the valid and binding obligation of PhotoWorks, enforceable against
PhotoWorks in 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.
5.3 Shares; Capitalization. Upon issuance at Closing, the Shares will be
duly authorized, fully-paid, and non-assessable, and clear of all liens,
charges, security interests, encumbrances or other restrictions and shall not be
subject to preemptive rights or similar rights of stockholders. The number of
shares and type of all authorized, issued and outstanding capital stock, options
and other securities of the PhotoWorks (whether or not presently convertible
into or exercisable or exchangeable for shares of capital stock of PhotoWorks)
is as set forth in the SEC Reports (as defined in Section 5.7) as of the
respective dates thereof, and are set forth on Schedule 5.3 as of the date
hereof. All outstanding shares of capital stock are duly authorized, validly
issued, fully paid and nonassessable and have been issued in compliance with all
applicable securities laws. Except as set forth in the SEC Reports, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
person any right to subscribe for or acquire, any shares of common stock of
PhotoWorks or its subsidiaries, or contracts, commitments, understandings or
arrangements by which PhotoWorks or its subsidiaries is or may become bound to
issue additional shares of its common stock, or securities or rights convertible
or exchangeable into shares of common stock. Except as set forth in the SEC
Reports, there are no anti-dilution or price adjustment provisions contained in
any security issued by PhotoWorks or its subsidiaries (or in any agreement
providing rights to security holders).
5.4 Required Filings and Consent. None of the execution and delivery by
Buyer or PhotoWorks of this Agreement or the consummation of the transactions
contemplated hereby will require any consent, approval, order or authorization
of, or registration, declaration or filing with, any third party except for such
consents, authorizations, filings, approvals and registrations which are listed
on Schedule 5.4 or which in the aggregate, if not obtained or made, would not
have or reasonably be expected to result in (i) an adverse effect on the
legality, validity or enforceability of this Agreement, (ii) a material adverse
effect on the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Buyer or PhotoWorks and its subsidiaries, taken
as a whole, or (iii) adversely impair the Buyer's or PhotoWorks' ability to
perform fully on a timely basis its obligations under this Agreement (any of
(i), (ii) or (iii), a "Buyer Material Adverse Effect").
5.5 No Conflicts or Violations. The execution and delivery by Buyer and
PhotoWorks of this Agreement and the consummation of the transactions
contemplated hereby will not (i) conflict with, or result in a breach of the
Articles of Incorporation or Bylaws of Buyer or PhotoWorks, (ii) violate any
statute, law, rule or regulation, or any order, writ, injunction or decree of
any court or governmental authority, or (iii) violate or conflict with or
constitute a default under any agreement, instrument or writing of any nature to
which Buyer or PhotoWorks is a party or by which Buyer or PhotoWorks may be
bound.
5.6 Brokers and Finders. Neither Buyer nor PhotoWorks has engaged or
authorized any broker, finder, investment banker or other third party to act on
behalf of Buyer or PhotoWorks, directly or indirectly, as a broker, finder,
investment banker or in any other like capacity in connection with this
Agreement or the transactions contemplated hereby, or has consented to or
acquiesced in anyone so acting, and neither the Buyer nor PhotoWorks knows of
any claim for compensation from any such broker, finder, investment banker or
other third party for so acting or of any basis for such a claim.
5.7 Securities Filings; Financial Statements. PhotoWorks has filed all
reports required to be filed by it under the 1933 Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including pursuant to
Section 13(a) or 15(d) of the Exchange Act, for the two years preceding the date
hereof (the foregoing materials, including the exhibits thereto (together with
any materials filed by PhotoWorks under the Exchange Act, whether or not
required), being collectively referred to herein as the "SEC Reports") on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the 1933 Act and the Exchange Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of PhotoWorks included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP or may be
condensed or summary statements, and fairly present in all material respects the
financial position of PhotoWorks (and its subsidiaries) as of and for the dates
thereof and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, year-end audit
adjustments. Since September 27, 2003, the date of the latest audited financial
statements included within the SEC Reports, except as disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Buyer Material Adverse Effect,
(ii) PhotoWorks has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in PhotoWorks' financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) PhotoWorks has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (iv) PhotoWorks has not issued any equity
securities to any officer, director or affiliate, except as an incentive for
hire or pursuant to its existing stock option plans.
5.8 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, the schedules or exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement to Seller by Buyer and PhotoWorks are
complete and correct in all material respects.
5.9 Litigation. Except as set forth in the SEC Reports, there is no
material action, suit, proceeding, claim, arbitration or investigation pending
before any agency, court or tribunal, foreign or domestic, or threatened against
Buyer or PhotoWorks, nor any material judgment, decree or order against Buyer or
PhotoWorks. Except as set forth on Schedule 5.9 and to PhotoWorks' or Buyer's
knowledge, no circumstances exist that could reasonably be expected to result in
a claim against PhotoWorks or Buyer as a result of the operation of the
Services.
6. Conditions to Closing
6.1 Conditions to the Obligation of Each Party. The respective obligations
of PhotoWorks, Buyer and the Seller to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of the following conditions,
unless waived in writing by all parties:
(a) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect.
(b) No suit, government investigation, action or other proceeding
shall be pending or threatened against PhotoWorks, Buyer or Seller before any
court or governmental entity which, in the reasonable opinion of counsel for the
Buyer or Seller, would be likely to restrain or prohibit any such party from
consummating the transactions contemplated hereby or result in damages or other
relief being obtained from such party.
6.2 Conditions to Obligations of PhotoWorks and Buyer. The obligations of
PhotoWorks and Buyer to consummate the transactions contemplated by this
Agreement are further subject to satisfaction or waiver at or prior to the
Closing Date of the following conditions:
(a) The representations and warranties of the Seller in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date and the Seller shall have performed in
all material respects all obligations required to be performed by it under this
Agreement; and the Seller shall have delivered to PhotoWorks and Buyer a
certificate of its President to such effect.
(b) The Seller shall have procured all consents, approvals,
authorizations or permits, including the approval of its shareholders,
("Consents") required for the consummation of the transactions contemplated by
this Agreement, except for any Consents the absence of which would not
reasonably be expected to result in a Material Adverse Effect on the Seller.
(c) The Seller shall not have suffered any Material Adverse Effect
since March 31, 2004, and the Seller shall have delivered to PhotoWorks and
Buyer a certificate of its President to such effect.
(d) The Seller shall have received the consent of its employees and
former employees to the allocation among such persons of the deferred
compensation obligation assumed by the Buyer hereunder.
(e) All certificates and other documents delivered by Seller to
PhotoWorks and Buyer hereunder shall be in form and substance reasonably
satisfactory to counsel for the Buyer.
(f) The Seller, Buyer and PhotoWorks shall have signed and delivered
representation letters to Ernst & Young for use by Ernst & Young in the
preparation of its technical memorandum relating to the qualification of this
transaction as a reorganization under Section 368(a)(1)(C) of the Code.
6.3 Conditions to Obligations of the Seller. The obligations of the Seller
to consummate the transactions contemplated by this Agreement are further
subject to satisfaction or waiver at or prior to the Closing Date of the
following conditions:
(a) The representations and warranties of PhotoWorks and Buyer in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date and PhotoWorks and Buyer shall have
performed in all material respects all obligations required to be performed by
it under this Agreement; and Buyer shall have delivered to the Seller a
certificate of the President of PhotoWorks and Buyer to such effect.
(b) All certificates and other documents delivered by PhotoWorks and
Buyer to the Seller hereunder shall be in form and substance reasonably
satisfactory to counsel for the Seller.
(c) PhotoWorks shall not have suffered any Buyer Material Adverse
Effect since March 31, 2004, and the Seller shall have delivered to PhotoWorks
and Buyer a certificate of its President to such effect.
(d) Seller shall have received the approval of its stockholders with
respect to this Agreement and the transactions contemplated herein.
7. Termination
7.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) By mutual written consent of the Buyer and the Seller;
(b) By either Buyer or Seller if any court of competent jurisdiction
or other governmental entity shall have issued an order, decree, ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and nonappealable; provided however, that
the party terminating this Agreement pursuant to this Section 7.1(b) shall use
all commercially reasonable efforts to have such order, decree, ruling or action
vacated;
(c) By either Buyer or Seller if the Closing shall not have occurred
on or before May 31, 2004; provided, however, that the right to terminate this
Agreement under this Section 7.1 shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the primary
cause of, or resulted in, the failure of the Closing to have occurred on or
before such date; or
(d) By either Buyer or Seller in the event that the other party
shall breach in any material respect any of its respective representations,
warranties, covenants or other obligations hereunder and, within 15 business
days after written notice of such breach to the breaching party, such breach
shall not have been cured.
7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1 hereof, this Agreement shall forthwith be
terminated and have no further effect except as specifically provided herein.
8. Further Covenants of the Parties.
8.1 Publicity. Neither party shall make any public announcement concerning
this Agreement, the terms hereof (including the Purchase Price), the parties'
discussions or any other memoranda, letters or agreements between the parties
relating to the sale of the Assets without the prior written consent of the
other party; provided, however, that either party may make disclosure solely to
the extent required under applicable law after reasonable consultation with the
other party; provided further, however, that both parties recognize the date of
execution of this Agreement represents the most appropriate date for any public
announcement.
8.2 Confidentiality. Each party acknowledges that PhotoWorks and Seller
have previously executed a Mutual Non-Disclosure Agreement dated as of January
23, 2004 (the "Confidentiality Agreement"), which agreement shall continue in
full force and effect in accordance with its terms. Without limiting the
foregoing, Seller agrees that from and after the Closing and for so long
thereafter as the Seller Technology remains proprietary to Buyer, Seller shall
not, and shall take reasonable steps to ensure that its employees and agents
shall not, use or disclose any of the Seller Technology to any third party,
except as may be specifically authorized by Buyer or PhotoWorks.
8.3 Further Assurances. Following the Closing, each party agrees to
cooperate fully with the other party 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 hereby and to carry into effect
the intents and purposes of this Agreement.
8.4 Indemnification.
(a) From and after the Closing, until the termination of the
Indemnification Period described in subsection (b) below, Seller shall indemnify
Buyer, PhotoWorks, Buyer's and PhotoWorks' current and future affiliates, the
respective officers, directors, employees, agents, attorneys, accountants,
advisors and representatives of such entities and the respective successors and
assigns of such entities (collectively, the "Buyer Indemnified Parties") and
hold the Buyer Indemnified Parties 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 the Buyer
Indemnified Parties have incurred arising from or relating to (i) the breach or
non-performance by Seller of any representation, warranty, covenant or agreement
thereof contained in this Agreement, (ii) any Excluded Obligations, or (iii) the
operation of Seller's business prior to the Closing.
(i) Indemnification Threshold. No claim for indemnification
may be made by a Buyer Indemnified Party against Seller under Section 8.4(a)
until the aggregate amount of Damages under Section 8.4 exceeds $15,000 (FIFTEEN
THOUSAND DOLLARS) (the "Threshold Amount"). Notwithstanding the provisions of
this Section 8.4(a)(i), the Threshold Amount shall not apply to claims by a
Buyer Indemnified Party with respect to Excluded Obligations.
(ii) Holdback Shares as Remedy for Claims. The Holdback Shares
shall be the sole and exclusive source of satisfaction of any indemnity claim
made by the Buyer Indemnified Parties for Damages (including costs and expenses
of defense), other than for a breach of the representations and warranties set
forth in Section 4.1, 4.4(a) and 4.8 hereof. The Holdback Shares shall be valued
as of the date the Buyer Indemnified Parties first notify Seller in writing as
to the existence of a claim. The value of the Holdback Shares shall be the
average of the closing bid and asked prices for PhotoWorks' common stock on the
Over the Counter Bulletin Board, or such other market as at the date of claim
may be the principal trading market for PhotoWorks' common shares, for the ten
trading days prior to the date of claim. With respect to a breach of the
representations and warranties contained in Section 4.1, 4.4(a) and 4.8, the
damages that the Buyer Indemnified Parties may recover from Seller shall not
exceed the Purchase Price. The limitation in this section on remedies for
Damages shall not be deemed a waiver by a Buyer Indemnified Party of any right
to specific performance or other equitable relief.
(b) All representations and warranties shall survive the Closing
until the termination of eleven (11) months from the Closing Date, except for
the representations and warranties in Sections 4.1, which shall survive in
perpetuity, Section 4.4(a), which shall survive for a period of three years from
the Closing Date, and Section 4.8, which shall survive until the expiration of
the applicable statutes of limitations. The respective periods set forth in this
subsection are referred to as the "Indemnification Period".
(c) From and after the Closing, for a period of one year from the
Closing Date, Buyer and PhotoWorks, jointly and severally, shall indemnify
Seller, Seller's current and future affiliates, the respective officers,
directors, employees, stockholders, agents, attorneys, accountants, advisors and
representatives of such entities and the respective successors and assigns of
such entities (collectively, the "Seller Indemnified Parties") and hold the
Seller Indemnified Parties harmless against any Damages that the Seller
Indemnified Parties have incurred arising from or relating to (i) the breach or
non-performance by Buyer or PhotoWorks of any representation, warranty, covenant
or agreement thereof contained in this Agreement, (ii) any Assumed Obligations,
or (iii) the operation of the Services subsequent to the Closing.
(d) Notwithstanding anything to the contrary contained in this
Agreement, except in the case of fraud, willful misconduct or intentional
misrepresentation, the indemnity provisions of this Section 8.4 shall be the
sole and exclusive remedy of each party against the other for breach of the
representations and warranties made in this Agreement or in any other agreement
ancillary hereto, or to any breach of any covenant, agreement or obligation made
in this Agreement or any agreement ancillary hereto.
(e) All claims for indemnification by any Indemnified Party under
Section 8.4 will be asserted and resolved as set forth in Appendix I attached
hereto.
8.5 Non-Competition. In consideration of the mutual covenants contained
herein, for a period of three (3) years from the date of this Agreement (the
"Non-Compete Period"), Seller covenants and agrees that it, either directly or
indirectly, whether or not through others acting as such party's employee or
agent, shall not own, manage, operate, join, control, be employed by or
participate in the ownership, management, control, or operation of or be
connected with, in any way, any business which is competitive with the digital
imaging/processing business of PhotoWorks and its subsidiaries as conducted on
the date of this Agreement.
8.6 Non-Solicitation. During the Non-Compete Period, Seller agrees that it
shall not (a) hire any employee of PhotoWorks or any of its subsidiaries or any
former employee of PhotoWorks or any of its subsidiaries whose employment with
PhotoWorks or such subsidiary has ceased within 90 days of such solicitation or
hire; or (b) induce or attempt to induce any customer, supplier, licensee or
other business relation of PhotoWorks or any of its subsidiaries to cease doing
business with PhotoWorks or any of its subsidiaries, or in any way interfere
with the relationship between any customer or business relation and PhotoWorks
or any of its subsidiaries.
8.7 Copies. On and after the Closing, Seller shall cease using the Seller
Technology. Within thirty (30) days of the Closing, Seller shall deliver to
Buyer or destroy (at Buyer's option) and purge from its computer systems all
copies of the Software and Documentation and provide Buyer with written
confirmation thereof.
8.8 Employment Offers to Certain Employees of Seller. Seller hereby (a)
agrees that Buyer and/or PhotoWorks may make offers of employment to Certain
Identified Employees; (b) with respect to Certain Identified Employees hired by
Buyer and/or PhotoWorks, waives its rights under any non-competition agreements
with them; and (c) permits any Certain Identified Employee hired by Buyer and/or
PhotoWorks to disclose Seller's confidential information that relate to the
Assets in connection with the Services.
8.9 Name Change; Liquidation. Seller shall, within forty-five (45) days
after the Closing, amend its Certificate of Incorporation to change its name.
After such name change has been effected, Seller shall discontinue using any
materials bearing the name PhotoAccess, including without limitation stationery
and labels, except that Seller may continue to use such name for the purpose of
winding up its business and affairs with creditors, customers, vendors and
similar parties. No later than four (4) months following the Closing Date;
Seller shall, pursuant to a plan of liquidation, liquidate and cease its
corporate existence. At all times following Closing, Seller shall not conduct
any active trade or business.
8.10 Reorganization. None of Seller, Buyer and/or PhotoWorks shall take
any action that could reasonably be expected to prevent the transaction
contemplated herein from qualifying as a "reorganization" pursuant to Section
368(a)(1)(C) of the Code. Nothing in this Section 8.10 shall prevent PhotoWorks
from engaging in a Going Private Transaction as defined in Section 8.12 hereof.
8.11 Reporting Requirements. With a view to making available to the
Selling Holders the benefits of Rule 144 (or its successor rule) and any other
rule or regulation of the Commission that may at any time permit the Selling
Holders to sell Shares to the public without registration, PhotoWorks covenants
and agrees to: (i) make and keep public information available, as those terms
are understood and defined in Rule 144, until the earlier of (A) such date as,
in the opinion of counsel to PhotoWorks, all of the Shares (other than those
held by an affiliate of PhotoWorks) may be resold pursuant to Rule 144(k) or any
other rule of similar effect or (B) such date as all of the Shares shall have
been resold; (ii) file with the Commission in a timely manner all reports and
other documents required of PhotoWorks under the Exchange Act; and (iii) furnish
to each Selling Holder upon request, as long as such Selling Holder owns any
Shares, (A) a written statement by PhotoWorks that it has complied with the
reporting requirements of the Exchange Act, (B) a copy of PhotoWorks' most
recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such
other information as may be reasonably requested in order to avail Selling
Holder of any rule or regulation of the Commission that permits the selling of
any such Shares without registration.
8.12 Going Private Transactions. For a period of one (1) year following
the Closing Date, in the event that a transaction or series of transactions,
including repurchases of common stock by PhotoWorks, are initiated by PhotoWorks
and/or any affiliate of PhotoWorks pursuant to which PhotoWorks would be enabled
to, or which would have the purpose or likelihood of enabling PhotoWorks to,
deregister as a reporting company under the 1934 Act (a "Going Private
Transaction"), and the Seller (and/or its stockholders, if the Shares have been
distributed to such stockholders (as applicable, the "Selling Holders')) would
not be entitled to receive for its Shares (including the Holdback Shares) cash
consideration or shares of capital stock that would be freely tradable in the
U.S. public equity markets without any restrictions as a result of the Going
Private Transaction, then PhotoWorks shall notify Seller in writing (the
"Notice") at least twenty (20) business days prior to the date that PhotoWorks
or its affiliate enters into a definitive agreement or publicly announces
commencement of any Going Private Transaction and the Selling Holders may,
within ten (10) days after receiving such Notice, notify PhotoWorks of its
intent to cause PhotoWorks to repurchase its Shares (including any Holdback
Shares, the proceeds of which shall be subject to the Holdback Period) at the
highest price as is being offered to the other holders of common stock of
PhotoWorks pursuant to the Going Private Transaction (the "Sale Notice").
PhotoWorks shall, within five (5) business days of the date of the Sale Notice,
provide the Selling Holders with instructions as to the procedure for effecting
the sale to PhotoWorks of the Shares (including the Holdback Shares) described
in the Sale Notice, which sale shall be completed (including the transfer of
payment therefor) within thirty (30) days of the Sale Notice. In the event that
Seller or the Selling Holders exercise their right to require PhotoWorks to
purchase their Shares for cash, PhotoWorks shall have no liability for damages
or reimbursement of any tax liability to Seller or the Selling Holders for a
breach of Section 8.10 hereof in the event that such repurchase causes this
transaction to fail to qualify as a reorganization pursuant to Section
368(a)(1)(C) of the Code.
9. Miscellaneous.
9.1 Survival of Representations and Warranties. Subject to Section 8.4(b),
all representations, warranties, covenants and agreements of the parties
contained in this Agreement shall survive the Closing.
9.2 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 (2) 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 Buyer or PhotoWorks:
PhotoWorks, Inc.
0000 00xx Xxxxxx Xxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx-Xxxx
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
With a copy to:
Xxxxxx Xxxxxx White & XxXxxxxxx LLP
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxx
Fax: (000) 000-0000
(b) If to Seller, to:
PhotoAccess Technologies, Corp.
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention:
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
With a copy to:
Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 0000
Attention: Xxxx Xxxxxx
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
9.3 Entire Agreement. This Agreement (including the schedules and exhibits
attached hereto), (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) is not intended to confer upon any
person other than the parties hereto (including without limitation any Seller
employees) any rights or remedies hereunder.
9.4 Amendment; Waiver. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. The
failure of any party to enforce at any time the provisions of this Agreement
shall not be construed as a waiver of such provisions or the right of such party
thereafter to enforce such provisions. No waiver shall be valid unless set forth
in a written instrument signed on behalf of the waiving party.
9.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, without regard to its
conflict of laws principles. The parties agree that the exclusive jurisdiction
and venue of any lawsuit between them arising under this Agreement or the
transactions contemplated herein shall be the Superior Court of Washington for
King County, or the United States District Court for the Western District of
Washington at Seattle, and each of the parties hereby irrevocably agrees and
submits itself to the exclusive jurisdiction and venue of such courts for the
purposes of such lawsuit.
9.6 Fees and Expenses. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses; provided, however, that upon consummation of the
transaction contemplated herein, Notwithstanding the foregoing, all sales, use,
value added or similar taxes, of any nature whatsoever, applicable to, or
resulting from, the sale and purchase of the Assets shall be paid by Seller.
9.7 Specific Performance. The parties hereto agree that irreparable damage
may occur in the event that Sections 8.5 and 8.6 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 seek injunctive
relief to prevent breaches of these provisions and to enforce specifically the
terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to and not in lieu of any other
right and remedy to which they are entitled at law or in equity. This injunctive
relief shall be in the form of a temporary restraining order, preliminary
injunction or similar relief, and a permanent injunction. No bond or, if one is
required by law, a bond only nominal in amount shall be required of Buyer or
PhotoWorks. In the event Seller contests any of this injunctive relief with
respect to its obligations under Section 8.5 or 8.6, the Non-Compete Period
shall be extended by the period of time during which Seller contests or
continues to contest such relief.
9.8 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
9.9 Severability. If any provision of this Agreement is found to be
invalid or unenforceable, the remaining provisions of this Agreement will remain
in full force and effect.
9.10 Attorneys' Fees. If legal proceedings are brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be awarded
its reasonable attorneys' fees and costs in addition to any other relief or
remedy that may be available.
9.11 Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties.
9.12 Full Understanding. In executing this Agreement, each party fully,
completely and unconditionally acknowledges and agrees that it has consulted
with and had the advice and counsel of a duly licensed and competent attorney
and that it has executed this Agreement voluntarily after independent
investigation, and agrees that no ambiguity shall be construed against any party
based upon a claim that such party drafted the applicable language.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first set forth above.
PHOTOWORKS, INC.
By: /s/ Xxxxxxxx Xxxxxxx
Name: Xxxxxxxx Xxxxxxx
Title: President and CEO
PHOTOWORKS DIGITAL IMAGING, INC.
By: /s/ Xxxxxxxx Xxxxxxx
Name: Xxxxxxxx Xxxxxxx
Title: President and CEO
PHOTOACCESS TECHNOLOGIES, CORP.
By: /s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President and CEO
APPENDIX I
Method for Asserting Indemnity Claims
Capitalized terms not otherwise defined herein shall have the meaning
ascribed to them in the Asset Purchase Agreement. All claims for indemnification
by any Indemnified Party under Section 8.4 will be asserted and resolved as
follows:
(a) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under Section 8.4 is asserted against or
sought to be collected from such Indemnified Party by a Person other than a
Buyer or Seller Indemnified Party (a "Third Party Claim"), the Indemnified Party
shall deliver a written notice of the claim, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim against the Indemnifying Party under
Section 8.4, together with the amount or, if not then reasonably determinable,
the estimated amount, determined in good faith, of the Loss arising from such
Third Party Claim ("Claim Notice") with reasonable promptness to the
Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice
with reasonable promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been materially prejudiced by such
failure of the Indemnified Party or to the extent of any increased amount of
losses resulting from the lack or untimeliness of the notice required by this
provision. The Indemnifying Party will notify the Indemnified Party as soon as
practicable within a thirty day period following receipt of a Claim Notice (the
"Dispute Period") whether the Indemnifying Party disputes its liability to the
Indemnified Party under Section 8.4 and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Indemnified Party with respect to the Third Party Claim pursuant to
this Appendix I, then the Indemnifying Party will have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party, such Third Party
Claim by all appropriate proceedings, which proceedings will be actively
and diligently prosecuted by the Indemnifying Party to a final conclusion
or will be settled at the discretion of the Indemnifying Party (but only
with the consent of the Indemnified Party, which consent will not be
unreasonably withheld, in the case of any settlement that provides for any
relief other than the payment of monetary damages as to which the
Indemnified Party will be indemnified in full). The Indemnifying Party
will have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the Indemnified
Party may, at the sole cost and expense of the Indemnified Party, at any
time prior to the Indemnifying Party's delivery of the notice referred to
in the first sentence of this Appendix I, file any motion, answer or other
pleadings or take any other action that the Indemnified Party reasonably
believes to be necessary or appropriate to avoid a default or to mitigate
its losses or other losses prior to the assumption of the defense of the
Third Party Claim by the Indemnifying Party without prejudicing the
interests of the Indemnifying Party; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will provide
reasonable cooperation to the Indemnifying Party in contesting any Third
Party Claim that the Indemnifying Party elects to contest or, if
appropriate, in making any counterclaim against the Person asserting the
Third-Party Claim, or any cross-complaint against any Person, and further
agrees to take such other action as reasonably may be requested by an
Indemnifying Party to reduce or eliminate any Losses for which the
Indemnifying Party would have responsibility, but the Indemnifying Party
will reimburse the Indemnified Party promptly for any reasonable expenses
incurred by it in so cooperating or acting at the request of the
Indemnifying Party. The Indemnified Party may retain separate counsel to
represent it in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this Appendix
I, and the Indemnified Party will bear its own costs and expenses with
respect to such separate counsel except as provided in the preceding
sentence and except that the Indemnifying Party will pay the reasonable
costs and expenses of such separate counsel if in the Indemnified Party's
good faith judgment, it is advisable, based on advice of counsel, for the
Indemnified Party to be represented by separate counsel because a conflict
or potential conflict exists between the Indemnifying Party and the
Indemnified Party. Notwithstanding the foregoing, the Indemnified Party
may retain or take over the control of the defense or settlement of any
Third Party Claim the defense of which the Indemnifying Party has elected
to control if the Indemnified Party irrevocably waives its right to
indemnity under Section 8.4 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to
defend the Third Party Claim pursuant to Appendix I, or if the
Indemnifying Party gives such notice but fails to prosecute actively and
diligently or settle the Third Party Claim, then the Indemnified Party
will have the right to defend the Third Party Claim by all appropriate
proceedings, which proceedings will be prosecuted by the Indemnified Party
in good faith or will be settled at the discretion of the Indemnified
Party (with the consent of the Indemnifying Party, which consent will not
be unreasonably withheld). The Indemnifying Party shall reimburse the
Indemnified Party for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses).The Indemnified Party
will have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that if requested by
the Indemnified Party, the Indemnifying Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third Party Claim
which the Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this Appendix I, if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying Party
disputes its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below, the
Indemnifying Party will not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this Appendix I or of the
Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party will reimburse the Indemnifying Party
in full for all reasonable costs and expenses incurred by the Indemnifying
Party in connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by
the Indemnified Party pursuant to this Appendix I, and the Indemnifying
Party will bear its own costs and expenses with respect to such
participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability to the Indemnified Party with
respect to the Third Party Claim under Section 8.4 or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes its liability to the Indemnified Party with respect to such Third
Party Claim, the Loss arising from such Third Party Claim will be
conclusively deemed a liability of the Indemnifying Party under Section
8.4 and the Indemnifying Party shall pay the amount of such Loss to the
Indemnified Party on demand following the final determination thereof. If
the Indemnifying Party has timely disputed its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party will proceed
in good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within thirty days following delivery of the
Claim Notice, such dispute shall be resolved by litigation in a court of
competent jurisdiction.
(b) In the event any Indemnified Party should have a claim under Section
8.4 against any Indemnifying Party that does not involve a Third Party Claim,
the Indemnified Party shall deliver written notice specifying the nature of and
basis for such claim and for the Indemnified Party's claim against the
Indemnifying Party under Section 8.4, together with the amount or, if not then
reasonably determinable, the estimated amount, determined in good faith, of the
Loss arising from such claim (an "Indemnity Notice") with reasonable promptness
to the Indemnifying Party. The failure by any Indemnified Party to give the
Indemnity Notice shall not impair such party's rights hereunder except to the
extent that an Indemnifying Party demonstrates that it has been materially
prejudiced thereby or to the extent of any increased amount of losses resulting
from the lack or untimeliness of the notice required by this provision. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim described in such Indemnity Notice or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes the
claim described in such Indemnity Notice, the Loss arising from the claim
specified in such Indemnity Notice will be conclusively deemed a liability of
the Indemnifying Party under Section 8.4 and the Indemnifying Party shall pay
the amount of such Loss to the Indemnified Party on demand following the final
determination thereof. If the Indemnifying Party has timely disputed its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party will proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within thirty days following delivery of
the Indemnity Notice, such dispute shall be resolved by litigation in a court of
competent jurisdiction.
