MEMBERSHIP INTEREST PURCHASE AGREEMENT by and among SUB-URBAN BRANDS, INC., THE APPAREL AGENT, LLC JIUN KU AND SHIRLEY FONG
by
and among
THE
APPAREL AGENT, LLC
XXXX
XX
AND
XXXXXXX
XXXX
Dated
May
8, 2007
MEMBERSHIP
INTEREST PURCHASE AGREEMENT (this
"Agreement")
dated
May
8,
2007, by
and
among SUB-URBAN
BRANDS, INC.,
a Nevada
corporation (sometimes referred to herein as the "Purchaser"),
THE
APPAREL AGENT, LLC, a
California limited liability company ("TAA"),
and
XXXX
XX and XXXXXXX
XXXX (each
individually, a “Seller”
and
collectively, the "Sellers").
WITNESSETH
:
WHEREAS,
the
Sellers own an aggregate of 45% of the Membership Interests of TAA (the
"Seller
Membership Interests")
as
follows:
(a) Seller
Xxxx Xx owns an aggregate of 22.5% of the Membership Interests of TAA; and
(b) Seller
Xxxxxxx Xxxx owns an aggregate of 22.5% of the Membership Interests of TAA;
WHEREAS,
TAA
holds an aggregate of 22.5% of the Membership Interests of TAA (the
“Block
Membership Interests”
and
together with the Seller Membership Interests, the “Membership
Interests”)
acquired from former member Xxxxx Xxxxx pursuant to that certain Membership
Interest Redemption Agreement, dated September 11, 2006, between Xxxxx Xxxxx
and
TAA (the “Block
Redemption Agreement”),
which
membership interests are subject to the promissory note dated September 11,
2006, issued by TAA to Xxxxx Xxxxx (the “Block
Note”)
and
that certain Membership Interests Pledge Agreement, dated September 11, 2006,
between Xxxxx Xxxxx and TAA (the “Block
Pledge Agreement”):
WHEREAS,
TAA
is
engaged in the design, production and distribution of apparel (the “Business”);
WHEREAS,
each of
the Sellers desires to sell, and Purchaser desires to purchase, the Seller
Membership Interests, pursuant to the provisions of this Agreement and TAA
desires to sell, and Purchaser desires to purchase, the Block Membership
Interests, pursuant to the provisions of this Agreement;
NOW,
THEREFORE,
in
consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1
ARTICLE
I
SALE
OF THE MEMBERSHIP INTERESTS
Section
1.1 Sale
of the Membership Interests from the Sellers.
Subject
to the terms and conditions herein stated, each of the Sellers agrees
to
sell, assign, transfer and deliver to Purchaser on the Closing Date (as defined
in Section
1.4),
and
Purchaser agrees to purchase from each of the Sellers on the Closing Date,
all
of his or her Membership Interests.
Section
1.2 Purchase
Price.
In full
consideration for the purchase by Purchaser of the Membership Interests, the
purchase price (the "Purchase
Price"),
shall
be calculated and paid by Purchaser to the Sellers as set forth in subsections
(a) and (b) below:
(a) Purchaser
shall pay Seller Xxxx Xx an aggregate amount equal to One Hundred Eighty
Thousand Dollars ($180,000), payable as follows:
(i) at
least
One Hundred Thousand Dollars ($100,000) shall be paid in cash at the Closing
by
direct
wire transfer;
and
(ii) a
secured
promissory note in the maximum principal amount of Eighty Thousand Dollars
($80,000) in form and content reasonably acceptable to Purchaser and Seller
Ku
(the “Ku
Note”)
shall
be delivered by the Company at Closing provided, that the Ku Note shall (i)
bear
interest at eight percent (8%) per annum; (ii) be due and payable not earlier
than 12 months following the Closing Date; be secured by the assets of the
Company (and shall be pari passu with the Xxxx Note (defined below)), subject
to
all currently existing secured debt and Seller shall agree, at the request
of
the Company, to subordinate her security interest to any security interests
granted or to be granted by the Company in connection with any acquisition,
merger or fundraising activities of the Company; and shall be subject to
reduction pursuant the Purchaser’s right of set-off set forth in Sections 6.4
and 6.5 hereof.
(b) Purchaser
shall pay Seller Xxxxxxx Xxxx an aggregate amount equal to One Hundred
Ninety-Five Thousand Dollars ($195,000), payable as follows:
(i) at
least
One Hundred Thousand Dollars ($100,000) shall be paid in cash at the Closing
by
direct
wire transfer;
and
(ii) a
secured
promissory note in the maximum principal amount of Ninety-Five Thousand Dollars
($95,000) in form and content reasonably acceptable to Purchaser and Seller
Xxxx
(the “Xxxx
Note”)
shall
be delivered by the Company at Closing; provided, that the Xxxx Note shall
(i)
bear interest at eight percent (8%) per annum; (ii) be due and payable not
earlier than 12 months following the Closing Date; be secured by the assets
of
the Company (and shall be pari passu with the Xxxx Note (defined below)),
subject to all currently existing secured debt and Seller shall agree, at the
request of the Company, to subordinate her security interest to any security
interests granted or to be granted by the Company in connection with any
acquisition, merger or fundraising activities of the Company; and shall be
subject to reduction pursuant the Purchaser’s right of set-off set forth in
Sections 6.4 and 6.5 hereof.
2
Section
1.3 Sale
of the Membership Interests from TAA.
Subject
to the terms and conditions herein stated, TAA agrees to sell, assign, transfer
and deliver to Purchaser on the Closing Date (as defined in Section
1.4),
and
Purchaser agrees to purchase from TAA on the Closing Date, the Block Membership
Interests of TAA that were acquired from Xxxxx Xxxxx pursuant to the Block
Redemption Agreement. In consideration of the transfer of such Membership
Interests, Purchaser
shall pay the Block Note in full at the Closing.
Section
1.4 Closing.
Subject
to the satisfaction of the conditions set forth in Sections
4.1 and 4.2
hereof
(or the waiver thereof by the party entitled to waive that condition), the
closing
of the transactions contemplated by this Agreement (the
“Closing”)
shall
take place at the offices of the Company (or at such other place as the parties
may mutually agree upon) or
by the
exchange of documents and instruments by mail, courier, telecopy and wire
transfer to the extent mutually acceptable to the parties hereto, on
June
15, 2007
(such
date is herein referred to as the "Closing
Date").
Section
1.5 Termination
of Agreement.
(a) Events
of Termination.
This
Agreement may be terminated prior to the Closing as follows:
(1) at
the
election of the Purchaser, on one hand, or TAA and the Sellers, on the other
hand, on or after June 30, 2007, if the Closing shall not have occurred by
the
close of business on such date, provided that the terminating party is not
in
default of any of its obligations hereunder;
(2) by
mutual
written consent of the Sellers, TAA and Purchaser; or
(3) by
Purchaser, TAA or any Seller if there shall be in effect a final nonappealable
order of a Governmental or Regulatory Authority (as defined below) of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation
of
the transactions contemplated hereby; it being agreed that the parties hereto
shall promptly appeal any adverse determination which is not nonappealable
(and
pursue such appeal with reasonable diligence).
(b) Procedures.
In the
event of termination and abandonment by Purchaser or TAA and Sellers, or both,
pursuant to Section
1.5(a)
hereof,
written notice thereof shall forthwith be given to the other party or parties,
and this Agreement shall terminate, and the purchase of the Membership Interests
hereunder shall be abandoned, without further action by the Purchaser or the
Sellers. If this Agreement is terminated as provided herein each party shall
redeliver all documents, work papers and other material of any other party
relating to the transactions contemplated hereby, whether so obtained before
or
after the execution hereof, to the party furnishing the same.
3
(c) Effect
of Termination.
In the
event that this Agreement is validly terminated as provided herein, then each
of
the parties shall be relieved of their duties and obligations arising under
this
Agreement after the date of such termination and such termination shall be
without liability to Purchaser or the Sellers; provided, however, that nothing
in this Section
1.5
shall
relieve Purchaser, TAA or the Sellers of any liability for a breach of this
Agreement.
ARTICLE
II
REPRESENTATIONS
OF TAA AND THE SELLERS
Except
as
set forth on the Schedules hereto, TAA and
each
of the Sellers,
jointly
and severally, represent, warrant and agree to and with Purchaser as
follows:
Section
2.1 Execution
and Validity of Agreements; Restrictive Documents; Approvals and
Consents.
(a) Execution
and Validity - Sellers.
The
Seller has the full legal right and capacity to enter into this Agreement,
the
other agreements contemplated hereby (the “Transaction
Documents”),
and
to perform his obligations hereunder and thereunder. This Agreement, and the
other agreements contemplated hereby have been duly and validly executed and
delivered by the Seller and, assuming due authorization, execution and delivery
by the other parties hereto, constitutes legal, valid and binding obligations
of
the Seller, enforceable against the Seller in accordance with their terms.
(b) Execution
and Validity - TAA.
TAA has
the
full power and authority to enter into this Agreement and the Transaction
Documents and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Transaction Documents by TAA
and the consummation by it of the transactions contemplated hereby and thereby
have been duly authorized by all required action on behalf of TAA. Each of
this
Agreement and the other Transaction Documents has
been
duly and validly executed and delivered by TAA and,
assuming due authorization, execution and delivery by the other parties thereto,
constitutes a valid and binding obligation of TAA, enforceable against it in
accordance with its terms,
except
to the extent that enforceability may be limited by the effect of (i) any
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity, regardless of whether such enforceability is considered
in
a proceeding at law or in equity.
Each of
the Block Redemption Agreement and Block Pledge Agreement has
been
duly and validly executed and delivered by the parties thereto and constitutes
a
valid and binding obligation of the parties thereto.
(c) No
Restrictions.
To
TAA’s and the Seller’s knowledge, there is no suit, action, claim, investigation
or inquiry by any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision
("Governmental
or Regulatory Authority"),
and
no legal, administrative or arbitration proceeding pending or threatened against
him or any of the Membership Interests to be sold hereby or the Assets (as
defined in Section
2.7)
with
respect to the execution, delivery and performance of this Agreement, the other
Transaction Documents or the transactions contemplated hereby or
thereby.
4
(d) Non-Contravention.
The
execution, delivery and performance by each of the Sellers
and TAA
of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) violate, conflict with or result in the breach
of any provision of the Articles of Organization or Operating Agreement of
TAA;
(b) to
TAA’s
and the Seller’s knowledge,
result
in the violation by the Seller
or TAA
of any statute, law, rule, regulation or ordinance (collectively, "Laws"),
or
any judgment, decree, order, writ, permit or license (collectively,
"Orders"),
of
any Governmental or Regulatory Authority, applicable to the Seller
or
any of the Membership Interests to be sold hereby, TAA or any of the
Assets,
or (c)
if the consents and notices set forth in Schedule
2.1(e) are
obtained, conflict with, result in a violation or breach of, constitute (with
or
without notice or lapse of time or both) a default under, or require TAA or
the
Seller
to
obtain any consent, approval or action of, make any filing with or give any
notice to, or result in or give to any Person (as defined in Section
7.3)
any
right of payment or reimbursement, termination, cancellation, modification
or
acceleration of, or result in the creation or imposition of any Lien upon any
of
the Membership Interests to be transferred hereby or any of the Assets, under
any of the terms, conditions or provisions of any agreement
(including the Block Pledge Agreement and Block Redemption Agreement),
commitment, lease, license, evidence of indebtedness, mortgage, indenture,
security agreement, instrument, note,
bond, franchise, permit, concession, or other instrument, obligation or
agreement of any kind, written or oral (collectively, "Contracts"),
to
which TAA or the Seller is a party or by which the Seller or to which
any
of
the Membership Interests to be sold hereby or any of the Assets were or are
bound.
With
respect to any asset, a "Lien"
shall
mean (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance,
charge or security interest in, on or of such asset, (b) the interest of a
vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement (other than an operating lease) (or any financial lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call
or
similar right of a third party with respect to such securities.
(e) Approvals
and Consents.
Except
as set forth on Schedule
2.1(e),
no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other Person is necessary or required under any of
the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which TAA
or the
Seller is
a
party, or by which the Membership Interests or Assets were or are bound for
the
execution and delivery of this Agreement or the Transaction Documents by
TAA
or the
Sellers,
the
performance by TAA
or the
Sellers of
their
respective obligations hereunder or thereunder, or the consummation of the
transactions contemplated hereby or thereby.
Section
2.2 Existence
and Good Standing. TAA
is
validly existing and in good standing under the laws of the State of California,
with the full power and authority to own its property and to carry on its
business all as and in the places where such properties are now owned or
operated or such business is now being conducted. TAA is duly qualified,
licensed or admitted to do business and are in good corporate/company and tax
standing in the jurisdictions set forth on Schedule
2.2,
which
are the only jurisdictions in which the ownership, use or leasing of their
assets and properties, or the conduct or nature of their business, makes such
qualification, licensing or admission necessary.
5
Section
2.3 Equity
Sellership; No Options or Restrictions; Subsidiaries and
Investments.
Seller
Xxxx Xx owns
of
record and beneficially has valid title to
22.5% of
the Membership Interests of TAA, Seller Xxxxxxx Xxxx owns
of
record and beneficially has valid title to
22.5% of
the Membership Interests of TAA, and such ownership is free and clear of all
Liens. The Sellers, collectively, own
of
record and beneficially have valid title to
45% of
the Membership Interests of TAA. TAA also holds 22.5% of the Membership
Interests that were acquired pursuant to the Block Redemption Agreement and
such
Membership Interests are free and clear of all Liens. There are no outstanding
subscriptions, options, warrants, rights, calls, commitments, understandings,
conversion rights, rights of exchange, plans or other agreements of any kind
providing for the purchase, issuance or sale of any equity, ownership or
proprietary interest of TAA, or which grants any Person other than the
Sellers
and
members Xxxxx Xxxxx and Xxx Xxxxxxxxx the right to share in the earnings or
profits of TAA. There are no voting or other similar agreements to which any
of
the Sellers or TAA is a party. There are no outstanding subscriptions, options,
rights, warrants, calls, commitments or arrangements of any kind to acquire
any
of the Membership Interests owned by the Seller and there are no agreements
or
understandings with respect to the sale or transfer of any of the Membership
Interests owned by the Seller (other than this Agreement). TAA owns no capital
stock or other equity or ownership or proprietary interest in any
Person.
Section
2.4 Financial
Statements and No Material Changes.
Schedule
2.4
sets
forth (a) the unaudited balance sheet of TAA at December 31, 2006, and the
related unaudited statement of income and statement of operations for the fiscal
year ended December 31, 2006, and (b) the unaudited balance sheet of TAA as
at
March 31, 2007 and the related unaudited statement of income and statement
of
operation for the three months then ended (the unaudited balance sheet of TAA
as
at March 31, 2007 being referred to herein as the "Balance
Sheet").
Such
financial statements have been prepared in accordance with GAAP throughout
the
periods indicated. Except for the absence of footnotes and normal year-end
adjustments, the balance sheet fairly presents the financial condition of TAA,
at the respective date thereof, and reflects all claims against and all debts
and liabilities of TAA, fixed or contingent, as at the respective date thereof,
required to be shown thereon under GAAP and the related statements of income
and
statements of operations fairly present the results of income for the respective
period indicated. Since March 31, 2007 (the "Balance
Sheet Date"),
there
has been no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
of TAA.
Section
2.5 Liabilities.
TAA
has no
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) that would have
been
required to be reflected in, reserved against or otherwise described on the
Balance Sheet or in the notes thereto in accordance with GAAP which was not
fully reflected in, reserved against or otherwise described in the Balance
Sheet
or the notes thereto or was not incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date.
6
Section
2.6 Books
and Records.
TAA
does not have
any
of its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent on or held by
any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
were not prior to the date hereof and are not now under the exclusive ownership
and possession of TAA. The Sellers and TAA have delivered to Purchaser complete
and correct copies of the Articles
of Organization dated as of ____________ and the Operating Agreement dated
as of
_______________ of TAA.
Section
2.7 Title
to Properties; Encumbrances.
TAA has
good and valid title to, or enforceable leasehold interests in or valid rights
under contract to use, all the material properties and assets owned or used
by
TAA (real,
personal, tangible and intangible) (the “Assets”),
including, without limitation (a) all the properties and assets reflected in
the
Balance Sheet, and (b) all the material properties and assets purchased or
otherwise contracted for by TAA since
the
Balance Sheet Date (except for properties and assets reflected in the Balance
Sheet or acquired or otherwise contracted for since the Balance Sheet Date
that
have been sold or otherwise disposed of in the ordinary course of business),
in
each case free and clear of all Liens, except for Liens set forth on
Schedule
2.7.
The
Assets constitute all of the material property and assets which TAA utilized
to
conduct its Business immediately prior to the Closing. The Assets, whether
owned
or otherwise contracted for, are in a state of good maintenance and repair
(ordinary wear and tear excepted) and is adequate and suitable for the purposes
for which they are presently being used.
Section
2.8 Real
Property.
(a) Owned
Real Property. TAA
does
not own any real property (including ground leases) or hold a freehold interest
in any real property or any option or right of first refusal or first offer
to
acquire any real property.
(b) Leased
Real Property.
Schedule
2.8(b) contains
an accurate and complete list of all real property leases, subleases, licenses
and other occupancy agreements, including without limitation, any modification,
amendment or supplement thereto and any other related document or agreement
executed or entered into by TAA (each
individually, a "Real
Property Lease"
and
collectively, the "Real
Property Leases").
Each
Real Property Lease is valid, binding and in full force and effect; all rents
and additional rents and other sums, expenses and charges due thereunder to
date
on each such Real Property Lease have been paid; and the lessee has been in
peaceable possession since the commencement of the original term of such Real
Property Lease and no waiver, indulgence or postponement of the lessee's
obligations thereunder has been granted by the lessor. There exists no default
or event of default by TAA to
the
knowledge of the Seller and TAA, by any other party to any Real Property Lease;
and there exists no occurrence, condition or act (including the purchase of
100%
of the Membership Interests of TAA hereunder) which, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a default or event of default by TAA under
any
Real Property Lease, and there are no outstanding claims of breach or
indemnification or notice of default or termination of any Real Property Lease.
TAA holds the leasehold estate on all the Real Property Leases free and clear
of
all Liens except as set forth on Schedule
2.8(b)
and any
mortgagees' liens on the real property in which such leasehold estate is
located. The real property leased by TAA is
in a
state of good maintenance and repair, is adequate and suitable for the purposes
for which it is presently being used, and there are no material repair or
restoration works currently required in connection with any of the leased real
properties which are the responsibility of the Company. TAA is
in
physical possession and actual and exclusive occupation of the whole of each
of
its leased properties. TAA owes no brokerage commission with respect to any
of
the Real Property Leases.
7
Section
2.9 Contracts.
Schedule 2.9
hereto
contains an accurate and complete list of the following Contracts to
which
TAA is
currently a party or by which any of the Assets are bound: (a) all Plans (as
such term is defined in Section
2.18),
(b)
any personal property lease with a fixed annual rental of $10,000 or more,
(c)
any Contract relating to capital expenditures which involves payments of $10,000
or more in any single transaction or series of related transactions,
(d) any Contract relating to the making of a loan or advance to or
investment in, any other Person, (e) any agreement, instrument or
arrangement evidencing or relating in any way to indebtedness for money borrowed
or to be borrowed, whether directly or indirectly, by way of loan, purchase
money obligation, guarantee (other than the endorsement of negotiable
instruments for collection in the ordinary course of business), conditional
sale, purchase or otherwise, (f) any management service, employment,
consulting or similar type of Contract which is not cancelable by TAA without
penalty or other financial obligation within 30 days, (g) any Contract
limiting TAA's
freedom
to engage in any line of business or to compete with any other
Person,
including, without limitation, any agreement limiting the ability of
TAA
or any
affiliate to take on competitive accounts during or after the term
thereof,
(h) any collective bargaining or union agreement, (i) any Contract
between TAA and
any
officer or director of TAA not
covered by subsection (f) above (including indemnification agreements),
(j) any secrecy or confidentiality agreement (other than standard
confidentiality agreements in computer software license agreements or agreements
with clients entered into in the ordinary course of business), (k) any
agreement with respect to any Intellectual Property (as defined in Section
2.13)
other
than "shrink-wrap" and similar end-user licenses, (l) any agreement with a
client required to be listed on Schedule
2.15,
(m) any agreement, indenture or other instrument which contains
restrictions with respect to the payment of distributions in respect of the
Membership Interests, (n) any joint venture agreement involving a sharing
of profits not covered by clauses (a) through (m) above, (o) any
Contract (not covered by another subsection of this Section
2.9)
which
involves $10,000 or more over the unexpired term thereof and is not cancelable
by TAA without penalty or other financial obligation within 30 days; provided,
however, Contracts of a similar nature with related parties which individually
do not involve $10,000 but in the aggregate involve $10,000 or more over the
unexpired terms shall also be set forth on Schedule
2.9,
and (p)
any agreement between TAA, on the one hand, and any Seller, on the other hand.
Notwithstanding anything to the contrary contained above, estimates or purchase
orders given in the ordinary course of business relating to the execution of
projects, do not have to be set forth on Schedule
2.9.
Each
Contract, including without limitation, those required to be set forth on
Schedule 2.9,
is in
full force and effect, and there exists no material default or event of material
default by TAA or
to the
knowledge of the Seller and TAA, by any other party, or occurrence, condition,
or act (including the purchase of 100% of the Membership Interests of TAA
hereunder) which, with the giving of notice, the lapse of time or the happening
of any other event or condition, would become a default or event of default
thereunder by TAA, and there are no outstanding claims of breach or
indemnification or notice of default or termination of any such
Contract.
8
Section
2.10 Litigation.
Except
as set forth on Schedule 2.10,
there
is no action, suit, proceeding at law or in equity by any Person, or any
arbitration or any administrative or other proceeding by or before (or to the
knowledge of the Seller and TAA, any investigation by) any Governmental or
Regulatory Authority, pending or, to the knowledge of the Seller and TAA,
threatened, against TAA
or the
Seller with
respect to this Agreement, the other Transaction Documents or the transactions
contemplated hereby or thereby, or against or affecting TAA, the Assets or
the
Membership Interests; and, to the knowledge of the Seller, no acts, facts,
circumstances, events or conditions occurred or exist which are a basis for
any
such action, proceeding or investigation. TAA is not subject to any Order
entered in any lawsuit or proceeding. Schedule
2.10
also
sets forth with respect to each pending or threatened action, suit or proceeding
listed thereon, the amount of costs, expenses or damages TAA
has
incurred to date and reasonably expects to incur through the conclusion
thereof.
Section
2.11 Taxes.
TAA
has
timely
completed and filed, or caused to be filed, taking into account any valid
extensions of due dates, completely and accurately, all federal, state, local
and foreign (if any) tax or information returns (including estimated tax
returns) required under the statutes, rules or regulations of such jurisdictions
to be filed by them during the three (3) years prior to the Closing Date. The
term "Taxes"
means
taxes, duties, charges or levies of any nature imposed by any taxing or other
Governmental or Regulatory Authority, including without limitation income,
gains, capital gains, surtax, capital, franchise, capital stock, value-added
taxes, taxes required to be deducted from payments made by the payor and
accounted for to any tax authority, employees' income withholding, back-up
withholding, withholding on payments to foreign Persons, social security,
national insurance, unemployment, worker’s compensation, payroll, disability,
real property, personal property, sales, use, goods and services or other
commodity taxes, business, occupancy, excise, customs and import duties,
transfer, stamp, and other taxes (including interest, penalties or additions
to
tax in respect of the foregoing), and includes all taxes payable by TAA
pursuant
to Treasury Regulations §1.1502-6 or any similar provision of state, local or
foreign law. All Taxes shown on said returns to be due and all other Taxes
due
and owing (whether or not shown on any Tax return) have been paid and all
additional assessments received prior to the date hereof have been paid or
are
being contested in good faith, in which case, such contested assessments are
set
forth on Schedule
2.11. TAA
has
collected all sales, use, goods and services or other commodity Taxes required
to be collected and remitted or will remit the same to the appropriate taxing
authority within the prescribed time periods. TAA
has
withheld all amounts required to be withheld on account of Taxes from amounts
paid to employees, former employees, directors, officers, members, residents
and
non-residents and remitted or will remit the same to the appropriate taxing
authorities within the prescribed time periods. The
amount set up as an accrual for Taxes (aside from any reserved for deferred
Taxes established to reflect timing differences between book and Tax accrual)
on
the Balance Sheet (as opposed to the notes thereto) is sufficient for the
payment of all unpaid Taxes of TAA,
whether
or not disputed, for all periods ended on and prior to the date thereof. Since
the Balance Sheet Date, TAA has
not
incurred any liabilities for Taxes other than in the ordinary course of the
business of TAA
consistent
with past custom and practice. No member, manager, director or officer (or
employee responsible for Tax matters) of TAA expects
any authorities to assess any additional Taxes for any period for which Tax
returns have been filed. TAA
has
delivered to Purchaser correct and complete copies of all federal, state and
local income tax returns filed with respect to TAA for
all
taxable periods beginning on or after January 1, 2004. Except as set forth
on
Schedule
2.11,
none of
the federal, state or local income tax returns of TAA have
ever
been audited by the Internal Revenue Service or any other Governmental or
Regulatory Authority. No examination of any return of TAA is
currently in progress, and TAA has
not
received notice of any proposed audit or examination. No deficiency in the
payment of Taxes by TAA for
any
period during the three (3) years preceding the Closing Date has been asserted
in writing by any taxing authority and remains unsettled at the date of this
Agreement. TAA
has made
no agreement,
waiver or other arrangement providing for an extension of time with respect
to
the assessment or collection of any Taxes against it. TAA has
not
been a member of an affiliated group filing consolidated federal income tax
returns nor has it been included in any combined, consolidated or unitary state
or local income tax return. TAA will
not
be required as a result of a change in accounting method for any period ending
on or before the Closing Date to include any adjustment under Section 481 of
the
Internal
Revenue Code of 1986, as amended (the "Code")
(or
any
similar provision of state, local or foreign income tax law) in income for
any
period ending after the Closing Date, including any change which may be required
by law in connection with this transaction.
TAA
is
not obligated to make any payments or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not
be
deductible under Section 280G of the Code. TAA
has
not entered into any Tax sharing or indemnification agreement with any party.
Purchaser will not be required to include any item of income in, or exclude
any
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of any: (i) change in method
of accounting for a taxable period ending on or within three (3) years prior
to
the Closing Date; (ii) "closing agreement" as described in Code Section 7121
(or
any corresponding or similar provision of state, local, or foreign income tax
law); (iii) installment sale or open transaction disposition made on or prior
to
the Closing Date; or (iv) prepaid amount received on or prior to the Closing
Date.
9
Section
2.12 Insurance.
Schedule
2.12
contains
a true and complete list (including the names and addresses of the insurers,
the
names of the Persons to whom such insurance policies have been issued, the
expiration dates thereof, the annual premiums and payment terms thereof, whether
it is a "claims made" or an "occurrence" policy and a brief description of
the
interests insured thereby) of all liability, property, workers' compensation
and
other insurance policies currently in effect that insure the property, assets
or
business of TAA
or
the
employees of TAA
(other
than self-obtained insurance policies by such employees). Each such insurance
policy is valid and binding and in full force and effect, all premiums due
thereunder have been paid and TAA has
not
received any notice of cancellation or termination in respect of any such policy
or default thereunder. To the knowledge of the Seller and TAA,
such
insurance policies are placed with financially sound and reputable insurers,
and
in light of the nature of the business, assets and properties of TAA
and
the
Seller
believes
they are in amounts and have coverage that are reasonable and customary for
Persons engaged in the Business. Neither
TAA
nor
to
the knowledge of the Seller and TAA,
the
Person to whom such policy has been issued has received notice that any insurer
under any policy referred to in this Section
2.12
is
denying liability with respect to a claim thereunder or defending under a
reservation of rights clause. Within
the last two years TAA has
not
filed for any claims exceeding $10,000 against any of its insurance policies,
exclusive of automobile and health insurance policies. None
of
such policies shall lapse or terminate by reason of the transactions
contemplated by this Agreement or the Transaction Document and all such policies
shall continue in effect after the Closing Date for the benefit of TAA. TAA
has
not
received
any notice of cancellation of any such policy. TAA
has not
received
written notice from any of its insurance carriers that any premiums will be
materially increased in the future or that any insurance coverage listed on
Schedule
2.12
will not
be available in the future on substantially the same terms now in
effect.
10
Section
2.13 Intellectual
Properties.
(a) Definitions.
For
purposes of this Agreement, the following terms have the following
definitions:
"Intellectual
Property"
shall
include, without limitation, any or all of the following and all rights
associated therewith: (a) all domestic and foreign patents, and applications
therefor, and all reissues, reexaminations, divisions, renewals, extensions,
continuations and continuations-in-part thereof; (b) all inventions (whether
patentable or not), invention disclosures, improvements; (c) trade secrets,
confidential and proprietary information, know how, technology, technical data
and customer lists, financial and marketing data, pricing and cost information,
business and marketing plans, databases and compilations of data, rights of
privacy and publicity, and all documentation relating to any of the foregoing;
(d) all copyrights, copyright registrations and applications therefor,
unregistered copyrights, the content of all World Wide Web sites of TAA and
all
other rights corresponding thereto throughout the world; (e) all mask works,
mask work registrations and applications therefor; (f) all industrial designs
and any registrations and applications therefor; (g) all trade names, corporate
names, logos, trade dress, common law trademarks and service marks, trademark
and service xxxx registrations and applications therefor and all goodwill
associated therewith; (h) any and all Internet domain names and Web sites
(including all software and applications, and all components and/or modules
thereof), used in connection therewith; and (i) all computer software including
all source code, object code, firmware, development tools, files, records and
data, all media on which any of the foregoing is recorded, and all documentation
related to any of the foregoing.
"Intellectual
Property of the Company"
shall
mean any Intellectual Property that: (a) is owned by or exclusively licensed
to
TAA,
or (b)
which is used in the operation of the Business, including the design,
manufacture and use of the products of TAA
as it
currently is operated, but shall specifically not include any rights in or
to
materials created for clients as "work-made-for-hire" or which are subject
to an
assignment in favor of clients of TAA.
(b) Representations.
(1) Schedule
2.13
hereto
contains an accurate and complete list of all patents, patent applications,
registered trademarks, applications for registered trademarks, registered
service marks, applications for registered service marks, logos, registered
copyrights, applications for registered copyrights and Internet domain names
which are used in connection with the operation of the Business (the
"Registered
IP").
Except as set forth on Schedule
2.13,
the
registrations and applications of the Registered IP listed on Schedule
2.13
owned by
TAA are in the name of TAA and are valid, in proper form, enforceable and
subsisting, all necessary registration and renewal fees in connection with
such
registrations have been made and all necessary documents and certificates in
connection with such registrations have been filed with the relevant patent,
Internet domain names, copyrights and trademark authorities in the United States
or other jurisdiction for the purposes of maintaining such Intellectual Property
registrations, and applications therefor. No registration, or application
therefor, for any of the Registered IP has lapsed, expired, or been abandoned,
and no such registrations, or applications therefor, are the subject of any
opposition, interference, cancellation, or other legal, quasi-legal, or
governmental proceeding pending before any governmental, registration, or other
authority in any jurisdiction.
11
(2) Except
as
set forth on Schedule
2.13,
(i) no
Person has any rights to use any of the Intellectual Property of TAA, (ii)
TAA
has not granted to any Person, nor authorized any Person to retain, any rights
in the Intellectual Property of TAA, and (iii) TAA owns all rights, title and
interest in, or has the right to use pursuant to valid license agreements,
all
Intellectual Property used in, or necessary for, the conduct of the Business,
free and clear of all Liens. TAA is not in material default in the payment
of
any fees or other amounts payable under any Contract to use Intellectual
Property. Except as set forth on Schedule
2.13, the
consummation of the transactions contemplated hereby will not result in any
material loss or impairment of Company's rights to own or use any Intellectual
Property, nor will such consummation require the consent of any third party
in
respect of any Intellectual Property.
(3) To
the
knowledge of Seller, neither TAA, nor the operation of the Business infringes
the Intellectual Property of any other Person. There are no proceedings pending
or, to the knowledge of the Seller and TAA, threatened against TAA with respect
to the Intellectual Property, or with respect to any other Intellectual
Property, alleging the infringement or misappropriation by TAA of any
Intellectual Property of any Person, and TAA has not received notice from any
Person that the operation of the Business infringes the Intellectual Property
of
any Person. There are no claims pending or, to the knowledge of the Seller
and
TAA, threatened challenging the validity of any Intellectual Property of the
Company or any Intellectual Property used by TAA in the conduct of the Business.
TAA has not entered into or is otherwise bound by any consent, forbearance
or
any settlement agreement which limits the rights of TAA to use the Intellectual
Property of TAA.
(4) To
the
knowledge
of the Seller and TAA,
no
Person is infringing or misappropriating any of the Intellectual Property of
TAA. All computer software and applications, other than off-the-shelf
applications subject to shrink-wrap and similar end-user licenses, included
in
the Intellectual Property of the Company ("Software")
was
either developed (a) by employees of TAA within the scope of such employee's
employment duties; (b) by independent contractors as "works-made-for-hire,"
as
that term is defined under Section 101 of the United States Copyright Act,
17
U.S.C. § 101, pursuant to written agreement; or (c) by third parties who have
assigned all of their rights therein to TAA pursuant to a written agreement.
Except as set forth on Schedule
2.13,
no
former or present employees, officers or directors of TAA retain any rights
of
ownership or use of any Software, and no employees or third parties who have
developed or participated in the development of Software have any claims to
any
rights therein.
12
Section
2.14 Compliance
with Laws; Permits.
(a) Compliance.
TAA
is, and
the Business has been conducted, in compliance with all applicable Laws and
Orders, except in each case (other than with respect to compliance with
environmental Laws and Orders relating to the regulation or protection of the
environment ("Environmental
Laws and Orders"))
where
the failure to so comply would not reasonably be expected to have a Material
Adverse Effect (as defined below), including without limitation: (a) all Laws
and Orders promulgated by the Federal Trade Commission or any other Governmental
or Regulatory Authority; (b) all Environmental Laws and Orders; and (c) all
Laws
and Orders relating to labor, civil rights, and occupational safety and health
laws, worker's compensation, employment and wages, hours and vacations, or
pay
equity. TAA
has
not been
charged
with, or, to the knowledge of the Seller and TAA,
threatened with or under any investigation with respect to, any charge
concerning any violation of any Laws or Orders. The term "Material
Adverse Effect"
as it
applies to TAA,
shall
mean a material adverse effect on the operations, business, prospects, assets
or
financial condition of TAA.
(b) Permits.
TAA
has
all
permits, licenses, and other government certificates, authorizations and
approvals ("Permits")
required by any Governmental or Regulatory Authority for the operation of
the
Business and
the
use of the Assets tra, except where the failure to have such Permits would
not
reasonably be expected to have a Material
Adverse Effect.
All of
the Permits are in full force and effect and no action or claim is pending,
nor
to the knowledge of the Seller and TAA
is
threatened, to revoke or terminate any such Permit or declare any such Permit
invalid in any material respect.
Section
2.15 Client
Relations.
Schedule 2.15
sets
forth (a) the 20 largest clients of TAA
taken as
a whole (measured by revenues), and the revenues from each such client and
from
all clients (in the aggregate) for the calendar years ended December 31, 2005
and December 31, 2006 and (b) the clients projected to be the 20 largest clients
(measured by revenues) of the Company based on TAA's
current profit plan for the twelve months ending December 31, 2007, together
with the estimated revenues from each such client and all clients (in the
aggregate) for such period. The Seller and TAA
do
not
warrant that the estimated revenues set forth on Schedule
2.15
will
prove to be accurate; provided, however, they do represent that they were made
in good faith. Except as set forth on Schedule
2.15,
no
client of TAA
has
advised TAA
or the
Seller in writing that it is (x) terminating or considering terminating the
handling of its business by TAA
or in
respect of any particular product, project or service or (y) planning to reduce
its future spending with TAA
in any
material manner.
Section
2.16 Accounts
Receivable; Work-in-Process.
The
amount of all work-in-process, accounts receivable, unbilled invoices (including
without limitation unbilled invoices for services and out-of-pocket expenses)
and other debts due or recorded in the records and books of account of
TAA
represent or will represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business and will
be
good and collectible in full (less the amount of any provision, reserve or
similar adjustment therefor reflected on the Balance Sheet and the Closing
Balance Sheet) in the ordinary course of business, and none of the accounts
receivable or other debts (or accounts receivable arising from any such
work-in-process or unbilled invoices) is or will be subject to any counterclaim
or set-off except to the extent of any such provision, reserve or adjustment.
The accounts payable set forth on the Balance Sheet represent trade payables
resulting from bona fide transactions incurred in the ordinary course of
business. There has been no change since the Balance Sheet Date in the amount
or
aging of the work-in-process, accounts receivable, accounts payable, unbilled
invoices, or other debts due to TAA, or the reserves with respect thereto,
or
accounts payable of TAA
which
would have a Material Adverse Effect.
13
Section
2.17 Employment
Relations.
(a) No
unfair labor practice complaint against
TAA is pending before any Governmental or Regulatory Authority; (b) there is
no
organized labor strike, dispute, slowdown or stoppage actually pending or to
the
knowledge of the Seller and TAA threatened against or involving TAA
or
the Assets;
(c)
there are no labor unions representing or, to the knowledge of the Seller and
TAA, attempting to represent the employees of TAA; (d) no claim or grievance
nor
any arbitration proceeding arising out of or under any collective bargaining
agreement is pending against any of TAA or the Sellers and to the knowledge
of
the Seller and TAA, no such claim or grievance has been threatened; (e) no
collective bargaining agreement is currently being negotiated by TAA; and (f)
TAA did not experience any work stoppage or similar organized labor dispute
during the last three years. Except as set forth on Schedule
2.10,
there
is no legal action, suit, proceeding or claim pending or, to the knowledge
of
TAA, threatened between TAA and any employees or former employees of TAA, agents
or former agents of TAA, job applicants or any association or group of any
employees of TAA.
Section
2.18 Employee
Benefit Matters.
(a)
List
of Plans.
Schedule
2.18
to this
Agreement lists all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
and
all bonus, incentive, deferred compensation, stock option, restricted stock,
stock appreciation rights, phantom stock rights, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all termination, severance or other Contracts, whether
covering one Person or more than one Person, and whether or not subject to
any
of the provisions of ERISA, which are or have been maintained, contributed
to or
sponsored by TAA,
or any
ERISA Affiliate (as defined in Section 2.18(c)) for the benefit of any employee
(each item listed on Schedule 2.18
being
referred to herein individually, as a "Plan"
and
collectively, as the "Plans").
TAA
has delivered to Purchaser, to the extent applicable, a complete and accurate
copy of: (a) each written Plan and descriptions of any unwritten Plan (including
all amendments thereto whether or not such amendments are currently effective);
(b) each summary plan description and all summaries of material modifications
relating to a Plan; (c) each trust agreement or other funding arrangement with
respect to each Plan, including insurance contracts; (d) the most recently
filed
IRS Form 5500 relating to each Plan; (e) the most recently received IRS
determination letter for each Plan; and (f) the three most recently prepared
actuarial reports and financial statements in connection with each Plan.
TAA
has made
no commitment, (i) to create or cause to exist any Plan not set forth on
Schedule
2.18
or (ii)
to modify, change or terminate any Plan.
(b) Severance.
None of
the Plans, nor any employment agreement or other Contract to which TAA
is a
party or bound, (a) provides for the payment of or obligates TAA
to pay
separation, severance, termination or similar-type benefits to any Person;
or
(b) obligates TAA
to pay
separation, severance, termination or similar-type benefits as a result of
any
transaction contemplated by this Agreement or as a result of a "change in
control," within the meaning of such term under Section 280G of the Code, either
alone or in conjunction with any subsequent occurrence.
14
(c) Multi-Employer
Plans.
None of
TAA
or
any
ERISA Affiliate has maintained, contributed to or participated in a
multi-employer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
or a multiple employer plan subject to Sections 4063 and 4064 of ERISA, nor
has
any obligations or liabilities, including withdrawal, reorganization or
successor liabilities, regarding any such plan. As used herein, the term
"ERISA
Affiliate"
means
any Person that is or has been a member of a controlled group of organizations
(within the meaning of Sections 414(b), (c), (m) or (o) of the Code) of which
TAA
is a
member.
(d) Welfare
Benefit Plans.
TAA
has
expressly reserved the right, in all Plan documents relating to welfare benefits
provided to employees, former employees, officers, directors and other
participants and beneficiaries, to amend, modify or terminate at any time the
Plans which provide for welfare benefits, and the Stockholder is not aware
of
any fact, event or condition that could reasonably be expected to restrict
or
impair such right. Except as required under Section 601 of ERISA, none of TAA
or
any ERISA Affiliate has made any promises or commitments to provide, and is
not
obligated to provide (i) medical benefits (including without limitation through
insurance) to retirees or former employees of TAA or any ERISA Affiliate or
their respective dependants, or (ii) life insurance or other death benefits
to
retired employees or former employees of TAA or any ERISA Affiliate or their
respective dependants.
(e) Administrative
Compliance.
Each
Plan is now and has been operated in all material respects in accordance with
the requirements of all applicable Laws, including, without limitation, ERISA,
the Health Insurance Portability and Accountability Act of 1996 and the Code,
the Age Discrimination in Employment Act, Family and Medical Leave Act, the
Americans with Disabilities Act, the Equal Pay Act, and Title VII of the Civil
Rights Act of 1964, and the regulations and authorities published thereunder.
TAA has performed all material obligations required to be performed by them
under, are not in any respect in default under or in violation of, and neither
TAA nor the Sellers has any knowledge of any default or violation by any Person
under, any Plan. Except as set forth on Schedule
2.10,
no
legal action, suit, audit, investigation or claim is pending or, to the
knowledge of the Seller, and TAA, threatened with respect to any Plan (other
than claims for benefits in the ordinary course), and no fact, event or
condition exists that would be reasonably likely to provide a legal basis for
any such action, suit, audit, investigation or claim. All reports, disclosures,
notices and filings with respect to such Plans required to be made to employees,
participants, beneficiaries, alternate payees and any Governmental or Regulatory
Authority have been timely made or an extension has been timely obtained. With
respect to any insurance policy providing funding for benefits or an investment
alternative under any Plan, (i) no liability or loss shall be incurred by the
Company or any such Plan in the nature of a retroactive rate adjustment, loss
sharing arrangement or other liability or loss, and (ii) no insurance company
issuing any such policy is in receivership, conservatorship, liquidation or
similar proceeding and, to the knowledge of the Seller, and TAA, no such
proceedings with respect to any insurer are imminent.
15
(f) Tax-Qualification.
Each
Plan which is intended to be qualified under Section 401(a) of the Code is
qualified under Sections 401(a) or 408(k) of the Code (and, if applicable,
complies with the requirements of Section 401(k) and 408(k) of the Code), and
has received a favorable determination letter from the IRS that it is so
qualified. Each trust established in connection with any Plan which is intended
to be exempt from federal income taxation under Section 501(a) of the Code
is
exempt under Section 501(a) of the Code and has received a determination letter
from the IRS that it is so exempt; and no fact or event has occurred or
condition exists since the date of such determination letter from the IRS which
would be reasonably likely to adversely affect the qualified status of any
such
Plan or the exempt status of any such trust.
(g)
Funding;
Excise Taxes.
There
has been no prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) with respect to any Plan subject to ERISA. Neither
TAA nor any ERISA Affiliate has incurred any liability for any excise tax
arising under Sections 4971, 4972, 4973, 4974, 4975, 4976, 4977, 4978, 4978B,
4979, 4979A, 4980, 4980B, 4980D or 4980E of the Code or any civil penalty
arising under Sections 409, 502(i) or 502(l) of ERISA, and no fact, event or
condition exists which could give rise to any such liability. Neither TAA nor
any ERISA Affiliate has incurred any liability under, arising out of or by
operation of Section 302(c)(11) or Title IV of ERISA (other than liability
for
premiums to the Pension Benefit Guaranty Corporation ("PBGC")
arising in the ordinary course), including, without limitation, any liability
in
connection with the termination of any employee benefit plan subject to Title
IV
of ERISA (a "Title
IV Plan");
and,
no fact, event or condition exists which could give rise to any such liability.
No complete or partial termination has occurred within the five years preceding
the date hereof with respect to any Plan maintained by TAA,
the
Company
or any
ERISA Affiliate, and no reportable event (within the meaning of Section 4043
of
ERISA), notice of which has not been waived by the PBGC, has occurred or is
expected to occur with respect to any Plan maintained by TAA
or any
ERISA Affiliate. The transactions contemplated by this Agreement and the
Transaction Document will not result in liability to TAA or Purchaser under
Section 4069 of ERISA. No Title IV Plan or Plan subject to Section 302 of ERISA
maintained by TAA,
the
Company
or any
ERISA Affiliate had an accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived, as
of
the most recently ended plan year of such Plan. None of the assets of
TAA
or any
ERISA Affiliate is the subject of any Lien arising under Section 302(f) of
ERISA
or Section 412(n) of the Code; neither TAA
nor any
ERISA Affiliate has been required to post any security under Section 307 of
ERISA or Section 401(a) (29) of the Code relating to any Plan; and no fact
or
event exists which could give rise to any such Lien or requirement to post
any
such security. As of the Closing Date, no Plan which is a Title IV Plan will
have an "unfunded benefit liability" (within the meaning of Section 4001(a)(18)
of ERISA) and no Plan which is subject to Section 302 of ERISA will have in
"accumulated funding deficiency" (within the meaning of Section 302(a)(2) of
ERISA).
(h) Tax
Deductions.
All
contributions, premiums or payments (including
all employer contributions and, if applicable, employee salary reduction
contributions) required
to be made, paid or accrued with respect to any Plan have been made, paid or
accrued on or before their due dates, including extensions thereof. All such
contributions have been fully deducted or in the case of the current year will
be deducted for income tax purposes and no such deduction has been challenged
or
disallowed by any Governmental or Regulatory Authority, and no fact or event
exists which could give rise to any such challenge or disallowance.
16
Section
2.19 Interests
in Customers, Suppliers, Etc.
Except
as set forth on Schedule 2.19,
neither
the
Seller nor
TAA,
nor
to the knowledge of the Seller or TAA,
any
officer, director, manager or employee of TAA
immediately prior to the Closing Date, nor any parent, brother, sister, child
or
spouse of any such officer, director, key executive or employee of TAA
or
the
Seller
(collectively, the "Related
Group"),
or
any Person controlled by anyone in the Related Group:
(i) owns,
directly or indirectly, any interest in (excepting for ownership, directly
or
indirectly, of less than 1% of the issued and outstanding shares of any class
of
securities of a publicly held and traded company), or received or has any right
to receive payments from, or is an officer, director, employee, agent or
consultant of, any Person which is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, sales agent, customer or client of
TAA;
(ii) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
(including, but not limited to Intellectual Property), that TAA
used
in
the conduct of the Business, other than immaterial personal items owned and
used
by employees at their work stations; or
(iii) has
any
cause of action or other claim whatsoever against, or owes any amount to,
TAA,
except
for claims in the ordinary course of business such as for accrued vacation
pay,
accrued benefits under employee benefit plans, and similar matters and
agreements existing on the date hereof.
Section
2.20 Bank
Accounts and Powers of Attorney.
Set
forth in Schedule 2.20
is an
accurate and complete list showing (a) the name and address of, and account
information for, each bank in which immediately prior to the transfer of the
Business, TAA
had an
account, credit line or safe deposit box and the names of all Persons authorized
to draw thereon or to have access thereto, and (b) the names of all Persons,
if
any, holding powers of attorney from TAA
and a
summary statement of the terms thereof, in each case in connection with the
Business.
Section
2.21 Compensation
of Employees.
Schedule 2.21
is an
accurate and complete list showing: (a) the names and positions of all employees
and exclusive consultants who immediately prior to the transfer of the
Business were
being compensated by TAA
at an
annualized rate of $30,000 or more, together with a statement of the current
annual salary, and the annual salary, bonus and incentive compensation paid
or
payable with respect to calendar years 2005 and 2006, and a statement of the
projected annual salary, bonus and incentive compensation payable with respect
to the calendar year ending December 31, 2007, and the material fringe benefits
of such employees and exclusive consultants not generally available to all
employees of TAA;
(b) all
bonus and incentive compensation paid or payable (whether by agreement, custom
or understanding) to any employee of TAA
not
listed in clause (a) above for services rendered or to be rendered during the
calendar years 2004, 2005 and 2006; (c) the names of all retired employees,
if
any, of TAA
who are
receiving or entitled to receive any healthcare or life insurance benefits
or
any payments from TAA
not
covered by any pension plan to which TAA
is a
party, their ages and current unfunded pension rate, if any; and (d) a
description of the current severance and vacation policy of TAA.
TAA
has not,
because of past practices or previous commitments with respect to its employees,
established any rights on the part of any of its employees to additional
compensation with respect to any period after the Closing Date (other than
wage
increases in the ordinary course of business). No employee of TAA has terminated
their employment, or to the knowledge of TAA or the Seller, threatened to
terminate their employment with TAA, as a result of the transactions
contemplated by this Agreement.
17
Section
2.22 No
Changes Since the Balance Sheet Date.
From
the Balance Sheet Date through the date hereof, except as specifically stated
on
Schedule 2.22,
TAA
has not
(i) incurred any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), except in the ordinary course of business,
(ii) permitted any of its material assets to be subjected to any Lien
other
than in the ordinary course of business consistent with past
practices,
(iii) sold, transferred or otherwise disposed of any assets except in the
ordinary course of business, (iv) made any capital expenditure or
commitment therefor which individually or in the aggregate exceeded $10,000;
(v)
made any distributions or dividend payments on any shares of its capital stock
or equity participation rights, or redeemed, purchased or otherwise acquired
any
shares of its capital stock, or any option, warrant or other right to purchase
or acquire any shares of capital stock or equity participation rights of
TAA,
(vi) made any bonus or profit sharing distribution, (vii) increased or
prepaid its indebtedness for borrowed money, except current borrowings under
credit lines listed on Schedule 2.9,
or made
any loan to any Person other than to any employee for normal travel and expense
advances, (viii) wrote down the value of any work-in-process, or wrote off
as
uncollectible any notes or accounts receivable, except write-downs and
write-offs in the ordinary course of business, none of which individually or
in
the aggregate, were material to TAA,
(ix)
granted any increase in the rate of wages, salaries, bonuses or other
remuneration of any employee who, whether as a result of such increase or prior
thereto, received aggregate compensation from TAA
at an
annual rate of $30,000 or more, or except in the ordinary course of business
to
any other employees, (x) entered into any employment or exclusive consulting
agreement which is not cancelable by TAA
without
penalty or other financial obligation within 30 days, (xi) canceled or waived
any claims or rights of material value, (xii) made any material change in any
method of accounting procedures, (xiii) otherwise conducted its
business
or
entered into any material transaction, except in the usual and ordinary manner
and in the ordinary course of its business, (xiv) amended or terminated any
agreement which is material to their businesses, (xv) renewed, extended or
modified any lease of real property or any lease of personal property, except
in
the ordinary course of business, or (xvi) adopted, amended or terminated
any Plan or (xvii) agreed, whether or not in writing, to do any of the actions
set forth in any of the above clauses.
Section
2.23 Corporate
Controls.
To the
knowledge of the Seller and TAA,
no
officer, authorized agent, employee, consultant or any other Person while acting
on behalf of TAA,
has,
directly or indirectly: used any corporate fund for unlawful contributions,
gifts, or other unlawful expenses relating to political activity; made any
unlawful payment to foreign or domestic government officials or employees or
to
foreign or domestic political parties or campaigns from corporate funds;
established or maintained any unlawful or unrecorded fund of corporate monies
or
other assets; made any false or fictitious entry on its books or records;
participated in any racketeering activity; or made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other payment of
a
similar or comparable nature, to any Person, private or public, regardless
of
form, whether in money, property, or services, to obtain favorable treatment
in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained,
and
TAA
has
not
participated in any illegal boycott or other similar illegal practices affecting
any of its actual or potential customers.
18
Section
2.24 Brokers.
Except
as set forth on Schedule
2.24,
no
broker, finder, agent or similar intermediary has acted on behalf of
the
Seller or TAA
in
connection with this Agreement or the transactions contemplated hereby, and
no
brokerage commissions, finder's fees, consulting fees or similar fees or
commissions are payable by TAA
or
the
Seller in
connection therewith based on any agreement, arrangement or understanding with
any of them.
Section
2.25 Forecasts
and Projections.
All
of
the forecasts and projections delivered
by TAA to Purchaser or any of its affiliates pursuant to this Article II or
otherwise in connection with transactions contemplated hereby were made in
good
faith; provided, however, TAA and the Seller
do
not
represent that any forecasted or projected results will be
achieved.
ARTICLE
III
REPRESENTATIONS
OF THE PURCHASER
Purchaser
represents, warrants and agrees to and with the
Sellers as
follows:
Section
3.1 Existence
and Good Standing.
Purchaser is a corporation validly existing and in good standing under the
laws
of the State of Nevada, with full corporate power and authority to own its
property and to carry on its business all as and in the places where such
properties are now owned or operated or such business is now being
conducted.
Section
3.2 Execution
and Validity of Agreement.
Purchaser has the full corporate power and authority to make, execute, deliver
and perform this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement and the other Transaction Documents
by
Purchaser and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all required corporate action on behalf
of
Purchaser, and this Agreement and the other Transaction Documents have been
duly
and validly executed and delivered by Purchaser and, assuming due authorization,
execution and delivery by other
parties thereto,
constitute legal, valid and binding obligations of Purchaser, enforceable
against it in accordance with their respective terms,
except
to the extent that enforceability may be limited by the effect of (i) any
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity, regardless of whether such enforceability is considered
in
a proceeding at law or in equity.
Section
3.3 Litigation.
There
is no action, suit, proceeding at law or in equity by any Person, or any
arbitration or any administrative or other proceeding by or before (or to the
knowledge of Purchaser, any investigation by), any Governmental or Regulatory
Authority (“Legal
Proceedings”)
pending or, to the knowledge of Purchaser, threatened against Purchaser or
any
of its properties or rights with respect to this Agreement and the other
Transaction Documents or the transactions contemplated hereby and
thereby.
19
Section
3.4 Non-Contravention;
Approvals and Consents.
(a) Non-Contravention.
The
execution, delivery and performance by Purchaser of its obligations under this
Agreement and
the
other Transaction Documents and
the
consummation of the transactions contemplated hereby and thereby will not
(a) violate, conflict with or result in the breach of any provision of the
Certificate of Incorporation or By-laws of Purchaser, or (b) result in the
violation by Purchaser of any Laws or Orders of any Governmental or Regulatory
Authority applicable to Purchaser or any of its assets or properties, or
(c) result in a violation or breach of, constitute (with or without notice
or lapse of time or both) a default under, or require Purchaser to obtain any
consent, approval or action of, make any filing with or give any notice to,
or
result in or give to any Person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of
Purchaser, under any of the terms, conditions or provisions of any Contract
to
which Purchaser is a party or by which Purchaser or any of its assets or
properties are bound.
(b) Approvals
and Consents.
Other
than consents which have been obtained, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority or other
public or private third party is necessary or required under any of the terms,
conditions or provisions of any Law or Order of any Governmental or Regulatory
Authority or any Contract to which Purchaser is a party or by which Purchaser
or
any of its assets or properties are bound for Purchaser's execution and delivery
of this Agreement and the other Transaction Documents, the performance by
Purchaser of its obligations hereunder and thereunder or Purchaser's
consummation of the transactions contemplated hereby and thereby.
Section
3.5 Brokers.
No
broker, finder, agent or similar intermediary has acted on behalf of Purchaser
in connection with this Agreement or the transactions contemplated hereby,
and
no brokerage commissions, finder's fees or similar fees or commissions are
payable by Purchaser in connection therewith based on any agreement, arrangement
or understanding with any of them.
Section
3.6 Cash
Reserves and Payment of TAA Liabilities.
Purchaser shall, at the Closing, have at least Three Hundred Thousand Dollars
($300,000) in cash or cash equivalents deposited in one or more accounts
maintained for the Company or TAA (the “Current
Deposit”).
In
addition Purchaser shall directly invest into TAA an
aggregate amount of at least One
Million Fifty Thousand Dollars ($1,050,000) during the twelve (12) months
following the Closing (the “Capital
Commitment”).
The
Current Deposit and the Capital Commitment shall be exclusively used for TAA
operations and capital expenditures in order to support the development and
growth of the Business and for no other purposes. The parties acknowledge that
Seventy-Five Thousand Dollars ($75,000) will be deemed to have been invested
by
Purchaser in TAA at Closing pursuant to the terms of the promissory note issued
by TAA to Purchaser dated February 23, 2007.
20
ARTICLE
IV
CONDITIONS
TO CLOSING
Section
4.1 Conditions
Precedent to Obligations of Purchaser.
The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement is subject to the fulfillment, on or prior to the Closing Date, of
each of the following conditions (any or all of which may be waived by Purchaser
in whole or in part to the extent permitted by applicable Law):
(a) all
representations and warranties of TAA and the Sellers contained herein shall
be
true and correct as of the date hereof; all representations and warranties
of
TAA and the Sellers contained herein qualified as to materiality shall be true
and correct, and the representations and warranties of TAA and the Sellers
contained herein not qualified as to materiality shall be true and correct
in
all material respects, at and as of the Closing Date with the same effect as
though those representations and warranties had been made again at and as of
that time;
(b) TAA
and
the Sellers shall have performed and complied in all material respects with
all
obligations and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing Date;
(c) Purchaser
shall have been furnished with certificates (dated the Closing date and in
form
and substance reasonably satisfactory to Purchaser) executed by TAA certifying
as to the fulfillment of the conditions specified in subsection (a) and (b)
hereof;
(d) there
shall not have been or occurred any event which will have a Material Adverse
Effect;
(e) TAA
and
the Sellers shall
have obtained or given, at no expense to Purchaser, and there shall not have
been withdrawn or modified, any consents or approvals or other actions listed
on
Schedule
2.1(e)
hereof
(including without limitation, obtaining all such consents, approvals and/or
waivers required under the Contracts listed on Schedule 2.9
in order
to permit the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents without causing or resulting in a default,
event of default, acceleration event or termination event under any of such
documents and without entitling any party to any of such documents to exercise
any other right or remedy adverse to the interests of Purchaser or TAA
thereunder); each such consent or approval shall be in form reasonably
satisfactory to counsel for Purchaser;
(f) no
legal
proceedings shall have been instituted or threatened or claim or demand made
against TAA, the Sellers or Purchaser seeking to restrain or prohibit or to
obtain substantial damages with respect to the consummation of the transactions
contemplated hereby, and there shall not be in effect any order by a
Governmental or Regulatory Authority of competent jurisdiction restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby;
21
(g) Purchaser
shall have received disclosure schedules required pursuant to Article II hereof,
which shall be reasonably satisfactory to Purchaser;
(h)
TAA
shall
have delivered to Purchaser
a copy
of the resolutions of its Managers and/or Members, authorizing the execution,
delivery and performance of this Agreement and the Transaction Document and
the
transactions contemplated hereby and thereby, certified by one of its
officers.
TAA and
the Sellers shall
have delivered to Purchaser: (1) a copy of the Company's Certificate of
Formation, including all amendments, certified by the California Secretary
of
State; (2) a certificate from the California Secretary of State that the Company
is in good standing in such state; and (3) a certificate from the appropriate
authority of each state in which the Company is qualified as a foreign
corporation to do business to the effect that the Company is in good standing
in
such state;
(i)
the
Sellers shall
sell and deliver to the Purchaser an aggregate of 45% of the Membership
Interests of TAA and TAA shall sell and deliver to the Purchaser an aggregate
of
22.5% of the Membership Interests of TAA;
(j)
TAA
shall,
if requested by Purchaser, shall have executed and delivered an Amended and
Restated Operating Agreement (the "Amended
and Restated Operating Agreement")
with
Purchaser dated the Closing Date in form and content reasonably acceptable
to
Purchaser;
(k) TAA
and
former member Xxxxx Xxxxx
shall
have executed and delivered such documents as Purchaser may reasonably request
evidencing termination of the Block Pledge Agreement and payment in full of
the
Block Note; and
(k all
proceedings to be taken in connection with the transactions contemplated by
this
Agreement and the other Transaction Documents must be reasonably satisfactory
in
form and substance to Purchaser and its counsel, and Purchaser shall have
received copies of all such documents and other evidences as it or its counsel
reasonably requested in order to establish the consummation of such transactions
and the taking of all proceedings in connection therewith.
Section
4.2 Conditions
Precedent to Obligations of TAA and the Sellers.
The
obligations of TAA and the Sellers to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, prior to or on the Closing
Date, of each of the following conditions (any or all of which may be waived
by
TAA and the Sellers in whole or in part to the extent permitted by applicable
Law):
(a) all
representations and warranties of Purchaser contained herein shall be true
and
correct as of the date hereof; all representations and warranties of Purchaser
contained herein qualified as to materiality shall be true and correct, and
all
representations and warranties of Purchaser contained herein not qualified
as to
materiality shall be true and correct in all material respects, at and as of
the
Closing Date with the same effect as though those representations and warranties
had been made again at and as of that date;
22
(c) Purchaser
shall have performed and complied in all material respects with all obligations
and covenants required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date;
(d) the
Sellers shall have been furnished with certificates (dated the Closing Date
and
in form and substance reasonably satisfactory to the Sellers) executed by the
Chief Executive Officer of Purchaser certifying as to the fulfillment of the
conditions specified in subsections (a) and (b), and resolutions of the Board
of
Directors of Purchaser authorizing the acquisition of the Membership Interests
of TAA;
(e) there
shall not be in effect any order by a Governmental or Regulatory Authority
of
competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby;
(f) Purchaser
shall, at the Closing, have deposited at least Three Hundred Thousand Dollars
in
($300,000) in cash or cash equivalents;
(g) Purchaser
shall have delivered the Ku Note and the Xxxx Note;
(h) Purchaser
shall have paid all accrued and unpaid principal and interests on the Block
Note
in full;
and
(i) all
proceedings to be taken in connection with the transactions contemplated by
this
Agreement, and all documents incident thereto must be reasonably satisfactory
in
form and substance to the
Sellers
and
TAA
and
their counsel and the
Sellers shall have
received
copies of all such documents and other evidences as they or their counsel may
reasonably request in order to establish the consummation of such transactions
and the taking of all proceedings in connection therewith.
ARTICLE
V
OTHER
AGREEMENTS
Section
5.1 Tax
Matters.
(a)Company
Tax Returns.
Purchaser shall prepare or cause to be prepared and file or cause to be filed
all Tax returns for TAA that are filed after the Closing Date for any period
ending on the Closing Date except as otherwise specifically provided in the
Amended and Restated Limited Liability Company Agreement. Purchaser shall permit
the Sellers to review and comment on each such Tax return described in the
preceding sentence prior to filing.
(b) Tax
Cooperation.
Purchaser, TAA and the Sellers shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of Tax
returns pursuant to this Section
5.1
or any
other Tax returns relating to the operations of TAA, and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records pursuant
to Section
5.16.
23
(c)
Sales
Taxes.
To
the
extent that any of the transactions contemplated by the
Transaction Document or this Agreement gives rise to sales and/or use tax
liability or other transfer, purchase, stamp or recordation documentary tax
and
fees (collectively, "Sales
Taxes"),
TAA
shall promptly pay such Sales Taxes to the appropriate tax
authorities.
Section
5.2 Access
to Information.
TAA and
the Sellers agree that, prior to the Closing Date, Purchaser shall be entitled,
through its officers, employees and representatives (including, without
limitation, its legal advisors and accountants), to make such investigation
of
the properties, businesses and operations of TAA and such examination of the
books, records and financial condition of TAA as it reasonably requests and
to
make extracts and copies of such books and records. Any such investigation
and
examination shall be conducted during regular business hours and under
reasonable circumstances, and TAA and the Sellers shall cooperate fully therein.
No investigation by Purchaser prior to or after the date of this Agreement
shall
diminish or obviate any of the representations, warranties, covenants or
agreements of TAA contained in the Transaction Documents.
TAA
shall
cause its officers, employees, consultants, agents, accountants, attorneys
and
other representatives to cooperate fully with such representatives in connection
with such review and examination.
Section
5.3 Conduct
of the Business Pending the Closing.
(a) Except
as
otherwise expressly contemplated by this Agreement or with the prior written
consent of Purchaser, TAA shall:
(1) conduct
its business only in the ordinary course consistent with past
practice;
(2) use
its
best efforts to (A) preserve its present business operations, organization
(including, without limitation, management and the sales force) and goodwill
and
(B) preserve its present relationship with Persons having business dealings
with
it;
(3) maintain
(A) all of its assets and properties in their current condition, ordinary wear
and tear excepted and (B) insurance upon all of its properties and assets in
such amounts and of such kinds comparable to that in effect on the date of
this
Agreement;
(4) (A)
maintain its books, accounts and records in the ordinary course of business
consistent with past practices, (B) continue to collect accounts receivable
and
pay accounts payable utilizing normal procedures and without discounting or
accelerating payment of such accounts, and (C) comply with all contractual
and
other obligations applicable to its operation; and
(5) comply
in
all material respects with applicable Laws.
(b) Except
as
otherwise expressly contemplated by this Agreement or with the prior written
consent of Purchaser, TAA shall not:
24
(1) except
for trade payables and for indebtedness for borrowed money incurred in the
ordinary course of business and consistent with past practice, borrow monies
for
any reason or draw down on any line of credit or debt obligation, or become
the
guarantor, surety, endorser or otherwise liable for any debt, obligation or
liability (contingent or otherwise) of any other Person;
(2) subject
to any Lien (except for liens that do not materially impair the use of the
property subject thereto in their respective businesses as presently conducted),
any of its properties or assets (whether tangible or intangible);
(3) acquire
any material properties or assets or sell, assign, transfer, convey, lease
or
otherwise dispose of any of its material properties or assets (except for fair
consideration in the ordinary course of business consistent with past
practice);
(4) cancel
or
compromise any debt or claim or waive or release any material right except
in
the ordinary course of business consistent with past practice;
(5) enter
into any commitment for capital expenditures in excess of $10,000 for any
individual commitment and $15,000 for all commitments in the
aggregate;
(6) introduce
any material change with respect to its operation, including any material change
in the types, nature, composition or quality of its products or services,
experience any material change in any contribution of its product lines to
its
revenues or net income, or, other than in the ordinary course of business,
make
any change in product specifications or prices or terms of distributions of
such
products;
(7) enter
into any transaction or make or enter into any Contract which by reason of
its
size or otherwise is not in the ordinary course of business consistent with
past
practice;
(8) enter
into or agree to enter into any merger or consolidation with, any corporation
or
other entity, and not engage in any new business or invest in, make a loan,
advance or capital contribution to, or otherwise acquire the securities of
any
other Person;
(9) except
for transfers of cash pursuant to normal cash management practices, make any
investments in or loans to, or pay any fees or expenses to, or enter into or
modify any Contract with any Affiliate; or
(10) agree
to
do anything prohibited by this Section
5.3
or
anything which would make any of the representations and warranties of TAA
in
this Agreement or Transaction Documents untrue or incorrect in any material
respect as of any time through and including the Effective Time.
25
Section
5.4 Consents. TAA
shall
use its best efforts, and Purchaser shall cooperate with TAA, to obtain at
the
earliest practicable date all consents and approvals required to consummate
the
transactions contemplated by this Agreement, including, without limitation,
the
consents and approvals referred to in Section
2.1(b)
hereof;
provided, however, that neither TAA nor Purchaser shall be obligated to pay
any
consideration therefore to any third party from whom consent or approval is
requested.
Section
5.5 Other
Actions. Each
of
TAA, the Sellers and Purchaser shall use its best efforts to (i) take all
actions necessary or appropriate to consummate the transactions contemplated
by
this Agreement and (ii) cause the fulfillment at the earliest practicable date
of all of the conditions to their respective obligations to consummate the
transactions contemplated by this Agreement and
the
other Transaction Documents.
The
parties acknowledge that the Sellers have provided personal guarantees of
certain obligations of TAA, including the current factoring line of credit
(the
“Guarantees”).
Purchaser shall take any and all action necessary or appropriate to cause any
and all applicable creditors of TAA to cancel or terminate such Guarantees
within 120 days after the Closing. Purchaser shall also indemnify each of the
Sellers, pursuant to the terms of Section 6.3 below, for any Losses related
to
demand by any lender or creditor to make any payment related to any Guarantee
after the Closing Date.
Section
5.6 No
Solicitation. TAA and
the
Sellers will not, and will not cause or permit any of its partners, officers,
employees, representatives or agents (collectively, the “Representatives”)
to,
directly or indirectly, (i) discuss, negotiate, undertake, authorize, recommend,
propose or enter into, either as the proposed surviving, merged, acquiring
or
acquired corporation, any transaction involving a merger, consolidation,
business combination, purchase or disposition of any amount of the Assets or
Membership Interests or other equity interest in it other than the transactions
contemplated by this Agreement (an “Acquisition
Transaction”),
(ii)
facilitate, encourage, solicit or initiate discussions, negotiations or
submissions of proposals or offers in respect of an Acquisition Transaction,
(iii) furnish or cause to be furnished, to any Person, any information
concerning its business, operations, properties or assets in connection with
an
Acquisition Transaction, or (iv) otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing. TAA will inform Purchaser in writing
immediately following the receipt by TAA or any Representative of any proposal
or inquiry in respect of any Acquisition Transaction.
Section
5.7 Preservation
of Records. TAA,
the
Sellers and Purchaser agree that each of them shall preserve and keep the
records held by it relating to the business of TAA for a period of three years
from the Closing Date (six years with respect to tax related records) and shall
make such records and personnel available to the other as may be reasonably
required by such party in connection with, among other things, preparation
of
financial statements, disclosure of information to the Securities and Exchange
Commission, stock exchange or similar entity, any insurance claims by, legal
proceedings against or governmental investigations of TAA, Purchaser or any
of
their Affiliates or in order to enable TAA and Purchaser to comply with their
respective obligations under this Agreement and each other agreement, document
or instrument contemplated hereby or thereby. In the event TAA, Purchaser or
a
Seller wishes to destroy such records after that time, such party shall first
give ninety (90) days prior written notice to the other and such other party
shall have the right at its option and expense, upon prior written notice given
to such party within that ninety (90) day period, to take possession of the
records within one hundred and eighty (180) days after the date of such
notice.
26
Section
5.8 Publicity. Neither
TAA, the Sellers nor Purchaser shall issue any press release or public
announcement concerning this Agreement or the transactions contemplated hereby
without obtaining the prior written approval of the other party hereto, which
approval will not be unreasonably withheld or delayed, unless, in the sole
judgment of Purchaser or TAA, disclosure is otherwise required by applicable
Law
or by the applicable rules of any stock exchange on which Purchaser or TAA
lists
securities, provided that, to the extent required by applicable Law, the party
intending to make such release shall use its best efforts consistent with such
applicable Law to consult with the other party with respect to the text thereof.
Section
5.9 Use
of Name. TAA and
the
Sellers hereby agrees that upon the consummation of the transactions
contemplated hereby, Purchaser shall have the sole right to the use of the
name
“The Apparel Agent”, “Motive”, “Ammo” and variations thereof.
Section
5.10 Agreement
To Refrain From Competition.
Each of
the Sellers hereby acknowledges that this agreement to refrain from competition
is executed by him as a part of the inducement to Seller to enter into this
Agreement and to consummate the transactions contemplated herein. In connection
herewith, Seller acknowledges its obligation to refrain from competition for
a
twelve (12) month period following the Closing of this Agreement. Seller each
further acknowledges that the Purchase Price given in consideration of the
Membership Interests is part of the consideration for them entering into this
Agreement to refrain from competition and that they are receiving full and
adequate consideration for their covenants and agreements contained in each
of
subsection (a) through (e) of this Section
5.10.
(a) Non-solicitation
of Employees.
For a
period of twelve (12) months following the Closing, Seller shall not in any
way
or in any capacity entice, or try to entice, away from Purchaser or TAA any
person who, in the twelve months preceding the Closing was an employee of
Purchaser or TAA.
(b) Non-solicitation
of Clients or Customers.
For a
period of twelve (12) months following the Closing, Seller shall not, whether
on
their own behalf or on behalf of any other person or organization, canvass
or
approach or procure another person to canvass or approach any person or
organization who or which was a client or customer of Purchaser or TAA with
a
view to providing to them services which compete directly with the Business
of
Purchaser or TAA.
(c)
Non-competition.
For a
period of twelve (12) months following the Closing, Seller shall not, whether
on
its own behalf or on behalf of any other person or organization, be involved
in
the provision of any services which compete with the business of Purchaser
or
TAA within Los Angeles County, California.
27
(d) Reasonableness
of restrictions.
Each of
subsections (a) through (e) of Section 5.10 set out above is acknowledged by
Seller to be reasonable in duration, extent and application and is the minimum
protection necessary for Purchaser and TAA in respect of its goodwill, trade
connections and business. Each of the covenants and obligations on Seller’s part
set out in this Section 5.10 is deemed to be separate and severable and
enforceable by Purchaser and TAA accordingly. If any of the restrictions set
out
above are held to be void but would be valid if part of the wording was deleted
by a court of competent jurisdiction such restriction shall apply with such
deletion as may be necessary to make it valid and effective. Therefore, in
furtherance of and not in derogation of the provisions of this Agreement, Seller
agrees that in the event any court of competent jurisdiction should decline
to
enforce any provision, in whole or in part, of subsections (a) through (e)
of
this Section 5.10, then the obligations of Seller under such subsections shall
be deemed to be modified to the extent which the court shall find enforceable.
If any court of competent jurisdiction shall at any time deem the time period
too lengthy under subsection (a) through (e) of this Section 5.10, the other
subsections of this Section
5.10
shall
nevertheless stand, and the time period shall be deemed to be the longest period
permissible by law under the circumstances. In such case, the parties agree
that
the court may reduce the duration of the time period. Seller acknowledges that
Purchaser and TAA will be irreparably harmed if Seller’s obligations under this
Section
5.10
hereunder are not specifically enforced and that Purchaser and TAA would not
have an adequate remedy at law in the event of an actual or threatened violation
by Seller of these obligations hereunder. Therefore, Seller agrees and consents
that Purchaser and TAA shall be entitled to an injunction or any appropriate
decree of specific performance for any actual or threatened violations or
breaches by Seller and such other relief as may be just and proper, including
the right to recover all losses or damages suffered by Purchaser or TAA
resulting from any such breach or threatened breach.
(e)
Exceptions.
Notwithstanding anything to the contrary herein, this Section 5.10 shall not
restrict Seller Xxxx Xx from continuing to own and operate his company Perfect
Cotton, subject only to the restrictions set forth in subsections (a) and (b)
above.
(f) Survival.
The
provisions of this Section 5.10 shall survive the Closing of this Agreement
and
shall remain in full force and effect for a period of twelve (12) months from
the date of the Closing.
ARTICLE
VI
SURVIVAL;
INDEMNITY
Section
6.1 Survival.
Notwithstanding any right of any party hereto fully to investigate the affairs
of any other party, and notwithstanding any knowledge of facts determined or
determinable pursuant to such investigation or right of investigation, each
party hereto shall have the right to rely fully upon the representations,
warranties, covenants and agreements of the other parties contained in this
Agreement and the Schedules, if any, furnished by any other party pursuant
to
this Agreement, or in any certificate or document delivered at the Closing
by
any other party. Subject to the limitations set forth in Sections
6.4 and 6.6,
the
respective representations, warranties, covenants and agreements of the
Sellers, TAA
and
Purchaser contained in this Agreement shall survive the Closing until the first
anniversary of the Closing Date (the “Termination
Date”).
28
Section
6.2 Obligation
of the Sellers to Indemnify.
Subject
to the limitations contained in Sections
6.4 and 6.6,
the
Sellers, hereby agree, jointly and severally, to indemnify Purchaser and its
affiliates, stockholders, officers, directors, employees, agents,
representatives and successors, permitted assignees of Purchaser and their
affiliates (individually, a "Purchaser
Indemnified Party"
and
collectively, the "Purchaser
Indemnified Parties")
against, and to protect, save and keep harmless Purchaser Indemnified Parties
from, and to pay on behalf of or reimburse Purchaser Indemnified Parties as
and
when incurred for, any and all Losses that may be imposed on or incurred by
any
Purchaser Indemnified Party as a consequence of, in connection with, incident
to, resulting from or arising out of or in any way related to or by virtue
of:
(a) any material misrepresentation, inaccuracy or breach of any warranty or
representation contained in this Agreement or in any certificate delivered
by
TAA or the Sellers at the Closing; (b) any breach or failure by TAA or the
Sellers to comply with, perform or discharge any obligation, agreement or
covenant by TAA or the Sellers contained in this Agreement; and (c) any action,
demand, proceeding, investigation or claim by any third party (including any
Governmental or Regulatory Authority) against or affecting any Purchaser
Indemnified Party which
may
give rise to or evidence the existence of or relate to a misrepresentation
or
breach of any of the representations and warranties of TAA or Sellers contained
in Article II hereof or in any certificate delivered by Sellers at the Closing,
provided that Purchaser Indemnified Parties’ claim therefor is instituted by
written notice to the Sellers within the time period specified in Sections
6.5.
Section
6.3 Obligation
of Purchaser to Indemnify.
Subject
to the limitations contained in Sections
6.4 and 6.6 hereof,
Purchaser hereby agrees to indemnify the
Sellers their agents, representatives and successors, permitted assignees and
affiliates (individually
an "TAA
Indemnified Party"
and
collectively, the "TAA
Indemnified Parties")
against, and to protect, save and keep harmless the
TAA
Indemnified Parties
from,
and to pay on behalf of or reimburse the
TAA
Indemnified Parties
as and
when incurred for, any and all Losses that may be imposed on or incurred by
any
TAA
Indemnified Party
as a
consequence of, in connection with, incident to, resulting from or arising
out
of or in any way related to or by virtue of: (a) any material misrepresentation,
inaccuracy or breach of any warranty or representation of Purchaser contained
in
this Agreement or
in any
certificate delivered by Purchaser at the Closing;
(b)
any
breach or failure by Purchaser to comply with, perform or discharge any
obligation, agreement or covenant by Purchaser contained in this
Agreement;
or
(c)
any
action, demand, proceeding, investigation or claim by any third party (including
any Governmental or Regulatory Authority) against or affecting any TAA
Indemnified Party which
may
give rise to or evidence the existence of or relate to a misrepresentation
or
breach of any of the representations and warranties of Purchaser contained
in
Article III hereof or in any certificate delivered by Purchaser at the Closing,
provided that TAA Indemnified Parties’ claim therefor is instituted by written
notice to Purchaser within the time period specified in Section
6.5.
Section
6.4 Limitations
on Indemnification.
An
indemnifying party shall not have any liability under Section
6.2 or Section 6.3
hereof
unless the aggregate amount of Losses to the indemnified parties finally
determined to arise thereunder based upon, attributable to or resulting from
the
failure of any representation or warranty to be true and correct, exceeds
$150,000 (the “Basket”)
and,
in such event, the indemnifying party shall be required to pay the entire amount
of such Losses in excess of $150,000 (the “Deductible”).
Notwithstanding anything herein to the contrary, no Seller shall be responsible
to the Purchaser Indemnified Parties hereunder for Losses in excess of the
value
of the portion of the Purchaser Price received by such Seller
hereunder.
29
Section
6.5 Indemnification
Procedures.
(a) In
the
event that any claim or demand (“Claim”)
shall
be asserted by any Person in respect of which payment may be sought under
Sections
6.2 and 6.3
hereof
(regardless of the Basket and Deductible referred to above), the indemnified
party shall reasonably and promptly cause written notice of the assertion of
any
Claim of which it has knowledge which is covered by this indemnity to be
forwarded to the indemnifying party. The indemnifying party shall have the
right, at its sole option and expense, to be represented by counsel of its
choice, which must be reasonably satisfactory to the indemnified party, and
to
defend against, negotiate, settle or otherwise deal with any Claim which relates
to any Losses indemnified against hereunder. If the indemnifying party elects
to
defend against, negotiate, settle or otherwise deal with any Claim which relates
to any Losses indemnified against hereunder, it shall within five (5) days
(or
sooner, if the nature of the Claim so requires) notify the indemnified party
of
its intent to do so. If the indemnifying party elects not to defend against,
negotiate, settle or otherwise deal with any Claim which relates to any Losses
indemnified against hereunder, fails to notify the indemnified party of its
election as herein provided or contests its obligation to indemnify the
indemnified party for such Losses under this Agreement, the indemnified party
may defend against, negotiate, settle or otherwise deal with such Claim. If
the
indemnified party defends any Claim, then the indemnifying party shall reimburse
the indemnified party for the Losses of defending such Claim upon submission
of
periodic bills. If the indemnifying party shall assume the defense of any Claim,
the indemnified party may participate, at his or its own expense, in the defense
of such Claim; provided, however, that such indemnified party shall be entitled
to participate in any such defense with separate counsel at the expense of
the
indemnifying party if, (i) so requested by the indemnifying party to participate
or (ii) in the reasonable opinion of counsel to the indemnified party, a
conflict or potential conflict exists between the indemnified party and the
indemnifying party that would make such separate representation advisable;
and
provided, further, that the indemnifying party shall not be required to pay
for
more than one such counsel for all indemnified parties in connection with any
Claim. The parties hereto agree to cooperate fully with each other in connection
with the defense, negotiation or settlement of any such Claim.
(b) After
any
final judgment or award shall have been rendered by a court, arbitration board
or administrative agency of competent jurisdiction and the expiration of the
time in which to appeal therefrom, or a settlement shall have been consummated,
or the indemnified party and the indemnifying party shall have arrived at a
mutually binding agreement with respect to a Claim hereunder, the indemnified
party shall forward to the indemnifying party notice of any sums due and owing
by the indemnifying party pursuant to this Agreement with respect to such matter
and the indemnifying party shall be required to pay all of the sums so due
and
owing to the indemnified party by wire transfer of immediately available funds
within 10 business days after the date of such notice.
(c) The
failure of the indemnified party to give reasonably prompt notice of any Claim
shall not release, waive or otherwise affect the indemnifying party’s
obligations with respect thereto except to the extent that the indemnifying
party can demonstrate actual loss and prejudice as a result of such
failure.
(d) Notwithstanding
the foregoing, in order to satisfy the indemnification obligations of the
Sellers, or any of them, Purchaser shall have the right, in its sole discretion
(in addition to collecting directly from a Seller) to set off any portion of
its
indemnification claims for which payment is due under Section
6.5(b)
above
against any unpaid principal and accrued and unpaid interest under the Ku Note
and the Xxxx Note.
30
Section
6.6 Termination
of Indemnification Obligations of the Sellers and
Purchaser.
The
obligation of the Sellers and Purchaser to indemnify under Article
VI
hereof
shall terminate on the Termination Date, except as to matters as to which an
Indemnified Party has made a claim for indemnification on or prior to such
date,
in which case the right to indemnification with respect thereto shall survive
the expiration of such period until such claim for indemnification is finally
resolved and any obligations with respect thereto are fully satisfied. Any
indemnity payments by an Indemnifying Party to an Indemnified Party under this
Article VI shall be treated by the parties as an adjustment to the Purchase
Price. Each of the limitations set forth above in this Section
6.6
shall in
no event (a) apply to any Losses incurred by an indemnified party which relate,
directly or indirectly, to (i) any fraudulent acts committed by TAA, Sellers
or
Purchaser, as the case may be, and (ii) the obligations of the
parties set
forth
in Section
7.1
to pay
certain expenses.
Section
6.7 Definition
of “Losses”.
The
term
“Losses” as used in this Agreement means any and all liabilities (including
liabilities for Taxes), obligations, losses, damages, penalties, demands,
claims, actions, suits, judgments, settlements, penalties, interest,
out-of-pocket costs, expenses and disbursements (including reasonable costs
of
investigation, and reasonable attorneys', accountants' and expert witnesses'
fees) of whatever kind and nature. The term "Losses" as used in this Agreement
is not limited to matters asserted by third parties against an indemnified
party
but includes actual damages incurred or sustained by an indemnified party in
the
absence of third party claims. Notwithstanding anything herein to the contrary,
there shall not be included in the definition of Losses, and an indemnified
party shall not be entitled to recover under any action hereunder, any indirect,
punitive, special, exemplary or consequential damages (other than indirect,
punitive, special, exemplary or consequential damages which are paid to third
parties). Losses shall be determined net of any insurance benefits or actual
tax
savings, realized by an indemnified party that is specifically related to the
Losses. In the event an indemnified party and an indemnifying party cannot
agree
to the amount of the actual tax savings (or whether such tax savings exists),
the parties shall jointly retain an independent accountant, which is among
the
top four nationally recognized firms, to calculate such tax savings, if any,
which calculation shall be binding on all parties. The cost of such accountant
shall be paid one-half by Purchaser and one-half by the Sellers.
ARTICLE
VII
MISCELLANEOUS
Section
7.1 Expenses.
Except
as otherwise provided in this Agreement, each of Purchaser, on the one hand,
and
the Seller and TAA,
on the
other hand, shall pay its, his or her own expenses relating to the transactions
contemplated by this Agreement, including, without limitation, the fees and
expenses of their respective counsel, financial advisors and
accountants.
31
Section
7.2 Governing
Law.
The
interpretation and construction of this Agreement, and all matters relating
hereto (including, without limitation, the validity or enforcement of this
Agreement), shall be governed by the laws of California without regard to any
conflicts or choice of laws provisions of the State of California that would
result in the application of the law of any other jurisdiction. Each party
hereto irrevocably submits to the jurisdiction of the state courts sitting
in
Los Angeles, California, in any action or proceeding arising out of or relating
to this Agreement or any of the exhibits or schedules referenced herein, and
each party hereby irrevocably agrees that all claims in respect of any such
action or proceeding must be brought and/or defended in such court; provided,
however, that matters which are under the exclusive jurisdiction of the Federal
courts shall be brought in the Federal District Court for the Central District
of California. Each party hereto consents to service of process by any means
authorized by the applicable law of the forum in any action brought under or
arising out of this Agreement or any of the exhibits or schedules referenced
herein, and each party irrevocably waives, to the fullest extent each may
effectively do so, the defense of an inconvenient forum to the maintenance
of
such action or proceeding in any such court.
Section
7.3 "Person"
Defined.
"Person"
shall
mean and include an individual, a company, a joint venture, a corporation
(including any non-profit corporation), an estate, an association, a trust,
a
general or limited partnership, a limited liability company, a limited liability
partnership, an unincorporated organization and a government or other department
or agency thereof.
Section
7.4 "Knowledge"
Defined.
Where
any representation and warranty contained in this Agreement is expressly
qualified by reference to the knowledge of the Seller, such term shall be
limited to the actual knowledge of the Seller . Where any representation and
warranty contained in this Agreement is expressly specified by reference to
the
knowledge of TAA, such term shall be limited to the actual knowledge of the
executive officers of TAA.
Section
7.5 "Affiliate"
Defined.
As used
in this Agreement, an "affiliate"
of any
Person, shall mean any Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
such Person.
Section
7.6 Captions.
The
Article and Section captions used herein are for reference purposes only, and
shall not in any way affect the meaning or interpretation of this
Agreement.
Section
7.7 Notices.
Unless
otherwise provided herein, any notice, request, instruction or other document
to
be given hereunder by any party to any other party shall be in writing and
shall
be deemed to have been given (a) upon personal delivery, if delivered by hand
or
courier, (b) three days after the date of deposit in the mails, postage prepaid,
or (c) the next business day if sent by facsimile transmission (if receipt
is
electronically confirmed) or by a prepaid overnight courier service, and in
each
case at the respective addresses or numbers set forth below or such other
address or number as such party may have fixed by notice:
If
to
Purchaser, addressed to:
0000
Xxxxxxxx Xxxxxx, Xxxxxxxx X,
Xxx
Xxxxxxx, XX 00000
Attn: Xxxxxx
X.
Xxxxxxx, CEO
Phone:000-000-0000
Fax:000-000-0000
32
If
to
Sellers to:
Xxxx
Xx
________________________
________________________
________________________
Phone:
___________________
Fax:
_________________
Xxxxxxx
Xxxx
000
Xx
Xxxxxx Xx.
Xxxxxxx
Xx. 00000
Phone:
___________________
Fax:
_________________
If
to TAA
to:
Xxxxx
Xxxxx
The
Apparel Agent, LLC
0000
X.
Xxxx Xxxx
Xxx
Xxxxxxx, XX 00000
Attn:
Xxxxx Xxxxx
Phone:
_______________
Fax:
_________________
Any
party
may change the address to which notices are to be sent by giving notice of
such
change of address to the other parties in the manner herein provided for giving
notice.
Section
7.8 Parties
in Interest.
This
Agreement may not be transferred, assigned, pledged or hypothecated by any
party
hereto, other than by operation of law. Any purported such transfer, assignment,
pledge, or hypothecation (other than by operation of law) shall be void and
ineffective. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
Section
7.9 Severability.
In the
event any provision of this Agreement is found to be void and unenforceable
by a
court of competent jurisdiction, the remaining provisions of this Agreement
shall nevertheless be binding upon the parties with the same effect as though
the void or unenforceable part had been severed and deleted.
Section
7.10 Counterparts.
This
Agreement may be executed in two or more counterparts, or by facsimile
transmission, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
33
Section
7.11 Entire
Agreement.
This
Agreement, including the other documents referred to herein and the Exhibits
and
Schedules hereto that form a part hereof, contains the entire understanding
of
the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
Section
7.12 Amendments.
This
Agreement may not be amended, supplemented or modified orally, but only by
an
agreement in writing signed by each of the parties hereto.
Section
7.13 Third
Party Beneficiaries.
Each
party hereto intends that this Agreement shall not benefit or create any right
or cause of action in or on behalf of any Person other than the parties hereto
and their respective successors and assigns as permitted hereunder.
Section
7.14 No
Strict Construction; Representation by Counsel.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties hereto to express their mutual intent, and no
rule
of law or contract interpretation that provides that in the case of ambiguity
or
uncertainty a provision should be construed against the draftsman will be
applied against any party hereto. The provisions of this Agreement shall be
construed according to their fair meaning and neither for nor against any party
hereto irrespective of which party caused such provisions to be drafted. Each
of
the parties acknowledge that it has been represented by an attorney in
connection with the preparation and execution of this Agreement.
Section
7.15 Remedies.
The
rights and remedies provided by this Agreement are cumulative, and the use
of
any one right or remedy by any party hereto shall not preclude or constitute
a
waiver of its right to use any or all other remedies. Such rights and remedies
are given in addition to any other rights and remedies a party may have by
law,
statute or otherwise.
Section
7.16 Attorneys'
Fees.
In the
event any suit or other legal proceeding is brought for the enforcement of
any
of the provisions of this Agreement, the parties hereto agree that the
substantially prevailing party or parties shall be entitled to recover from
the
other party or parties upon final judgment on the merits reasonable attorneys'
fees (and sales taxes thereon, if any), including attorneys' fees for any
appeal, and costs incurred in bringing such suit or proceeding.
Section
7.17 Confidentiality.
TAA and
the Sellers shall, and shall cause each of their affiliates, employees, agents,
accountants, legal counsel and other representatives and advisers to, hold
in
strict confidence all, and not divulge or disclose any, information of any
kind
concerning Purchaser and the transactions contemplated by this Agreement;
provided, however, that the foregoing obligation of confidence shall not apply
to (i) information that is or becomes generally available to the public other
than as a result of a disclosure by the Seller or TAA, or their affiliates
or
any of their respective employees, agents, accountants, legal counsel or other
representatives or advisers and (ii) information that is required to be
disclosed by the Seller or TAA, or their affiliates or any of their respective
employees, agents, accountants, legal counsel or other representatives or
advisers as a result of any applicable law, rule or regulation of any
Governmental or Regulatory Authority.
34
IN
WITNESS WHEREOF,
the
parties hereto have executed this Membership Interest Purchase Agreement under
seal, on the day and year first above written.
PURCHASER:
By: /s/
Xxxxxx X. Xxxxxxx _______________
Name: Xxxxxx
X. Xxxxxxx ________________
Title: CEO
and President________________
TAA:
The
Apparel Agent, LLC
By: /s/ Xxxxx
Xxxxx
Name: Xxxxx
Xxxxx
Title: CEO
THE
SELLERS:
/s/
Xxxx
Xx
_____________________________________
Xxxx
Xx
/s/
Xxxxxxx Xxxx
_____________________________________
Xxxxxxx
Xxxx
35
SECURITY
AGREEMENT
This
Security
Agreement
(as
amended, modified or otherwise supplemented from time to time, this
“Security
Agreement”),
dated
as of June 15, 2007, is executed by Sub-Urban
Brands, Inc.,
a
Nevada corporation (together with its successors and assigns, “Debtor”),
in
favor of Xxxx
Xx and Xxxxxxx Xxxx
(the
“Secured
Parties”).
RECITALS
A. Debtor
and the Secured Parties are parties to a Membership Interest Purchase Agreement,
dated as of May 8, 2007 (the “Purchase
Agreement”);
B. Pursuant
to the Purchase Agreement, Debtor
has executed secured convertible promissory notes (each a “Note”
and
collectively, the “Notes”)
in an
aggregate principal amount of $175,000 in favor of Secured Parties.
C. As
a
condition to closing under the Purchase Agreement, the Secured Parties have
required Debtor to execute this Security Agreement for the purpose of securing
repayment of the Notes:
AGREEMENT
NOW,
THEREFORE, for and in consideration of the premises, the mutual covenants and
undertakings hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
parties agree as follows:
1.
Definitions.
All
terms used herein which are defined in the California Uniform Commercial Code
(the “Code”) shall have the same meaning herein as in the Code unless the
context in which used indicates otherwise.
2.
Incorporation
by Reference.
All of
the terms, provisions, and definitions of the Purchase Agreement and any
agreements, notes or obligations from Debtor to the Secured Parties arising
under or in connection with such Purchase Agreement (as such agreements or
notes
may be amended or entered into from time to time) are hereby incorporated herein
by reference as though set forth in full herein unless expressly stated
otherwise in such agreements or notes.
3.
Security
Interests.
Debtor
hereby grants to the Secured Parties a security interest in the Collateral
described in paragraph 4 to secure the performance and payment of Liabilities
described in paragraph 5. The Secured Parties acknowledge and agree that they
are not granted a first priority security interest hereby and that the security
interest granted hereby shall subject to any and all currently existing and
perfected security interests previously granted by Debtor with respect to the
Collateral. The Secured Parties further agree to subordinate the security
interests and liens granted hereby or pursuant to any Financing Statement filed
pursuant hereto, as requested by Debtor in connection with any merger,
acquisition or other reorganization transaction by Debtor or any financing
transaction by Debtor, pursuant to which Debtor may grant security interests
prior and superior to the lien or charge of the Secured Parties. The Secured
Parties shall executed and deliver any and all instruments or agreements
requested by Debtor evidencing such subordination. In addition, in the event
that Debtor elects to refinance existing Collateral, the Secured Parties shall
cooperate promptly and fully in subordinating its interest to the security
interest of any person or entity refinancing the existing the
Collateral.
4.
Collateral.
The
Collateral in which the Secured Parties are granted a security interest by
this
Agreement (the “Collateral”)
is all
assets of any kind of Debtor, whether now owned or hereafter acquired,
including, without limitation:
(a)
all
Debtor's inventory presently owned, acquired contemporaneously herewith, or
pursuant to this Agreement, or acquired at any time subsequent to this
Agreement, wherever located, and all replacements, additions, and accessions
thereto;
(b)
all
equipment of Debtor now owned or hereafter acquired, including, without
limitation, vehicles, machinery, and office equipment;
(c)
all
Debtor's accounts, instruments, or chattel paper of any kind and description
presently existing or hereafter arising, now owned, or hereafter acquired,
and
all goods or inventory repossessed or returned in connection
therewith;
(d)
all
goods, contract rights, documents, deposit accounts, money, general intangibles,
and other property of Debtor now owned or hereafter acquired, including, without
limitation, rights in real property leased by Debtor as lessee, customer and
vendor lists, books and records, loan agreements between Debtor and other
persons, insurance policies, royalty contracts, copyrights, trademarks,
tradenames, patents, contracts for the purchase of real property, and all right
of the Debtor to the payment of money, no matter how evidenced; and
(e)
proceeds and products of all of the foregoing Collateral, including, without
limitation, whatever is received or receivable when Collateral or proceeds
are
sold, collected, exchanged, or otherwise disposed of, whether such disposition
is voluntary or involuntary, including rights to payment and return premiums
and
insurance proceeds under insurance with respect to any Collateral, tort claims,
and all rights to payment with respect to any cause of action affecting or
relating to the Collateral.
5.
Liabilities.
Liabilities secured by this Agreement (“Liabilities”)
are
the obligation to repay the Notes and any other amounts owing from Debtor to
the
Secured Parties under the Purchase Agreement.
6.
Representations,
Warranties and Covenants.
Debtor
hereby represents, warrants and covenants as follows:
6.1
Financing
Statements and Related Documents.
Debtor
consents to the Secured Parties filing one or more Financing Statements pursuant
to the Code in form satisfactory to the Secured Parties in all public offices
wherever filing is deemed by the Secured Parties to be necessary or desirable.
Debtor shall duly endorse to the Secured Parties all instruments or documents,
the possession of which is necessary to perfect the Secured Parties' interest
hereunder, and shall take all other steps necessary, including, without
limitation, causing Secured Parties' name to be shown as a secured party on
any
certificates or other documents evidencing title as shall be necessary to
perfect the Secured Parties' interest hereunder.
6.2
Transfers.
Except
for transactions in the ordinary course of Debtor's business, neither Debtor
nor
its agents, servants or employees will sell, assign or offer to sell or assign
or otherwise transfer the Collateral, either in whole or in part, or any
interest therein without the written consent of the Secured Parties, which
shall
not be unreasonably withheld. The Secured Parties shall cooperate in the release
of any Collateral sold in the ordinary course of business. Debtor shall take
all
steps to ensure that the Secured Parties obtain a perfected security interest
in
all new or replacement Collateral junior only to the security interest of any
person or entity financing the purchase of new or replacement Collateral.
6.3
Maintenance
of Collateral, Taxes.
In the
event Debtor fails to do so, Debtor hereby authorizes the Secured Parties to
discharge taxes, assessments, liens, security interests or other encumbrances
at
any time levied or placed on the Collateral, and pay for, make or provide for
any maintenance, repair or preservation of the Collateral as herein required,
provided, however, that the Secured Parties shall be under no obligation to
do
so; Debtor agrees to reimburse the Secured Parties on demand with interest,
at a
rate equal to the lower of ten percent (10%) per annum (calculated on the basis
of the actual number of days in the year) or the maximum rate permitted by
applicable law, for any payment made or any expense incurred by the Secured
Parties pursuant to this paragraph, and any payment made or expense incurred
by
the Secured Parties pursuant to the foregoing authorization shall be a Liability
secured hereunder.
6.4
Additional
Covenants of Debtor.
In
addition the covenants set forth above, Debtor hereby agrees:
(a)
to do
all acts that may be necessary to maintain, preserve, protect and perfect the
Collateral, the security interest granted to Secured Parties herein, and the
priority of such security interest;
(b)
not
to use or permit any Collateral to be used: (i) in violation of any provision
of
this Security Agreement; (ii) unlawfully or in violation of any applicable
statute, regulation or ordinance (including, without limitation, applicable
environmental protection statues and regulations) where such use might
materially adversely affect the business or condition (financial or otherwise)
of Debtor; or (iii) in violation of any policy of insurance covering the
Collateral;
(c)
to
appear in and defend any action or proceeding which may affect its title to
or
the Secured Parties' interest in the Collateral;
(d)
to
keep separate, accurate and complete records of the Collateral and to provide
the Secured Parties with existing reports and information relating to the
Collateral as the Secured Parties may request from time to time;
(e)
to
keep the Collateral free of all levies and security interests or other liens
or
charges except for those approved in writing by the Secured Parties, junior
to
that of Secured Parties, or otherwise permitted pursuant hereto;
(f)
to
keep the Collateral in good condition and repair;
(g)
not
to cause or permit any waste or unusual or unreasonable depreciation of the
Collateral;
(h)
at
any reasonable time, upon demand by the Secured Parties, to exhibit to and
allow
inspection by the Secured Parties (or persons designated by Secured Parties)
of
the Collateral, so long as such inspection does not unreasonably cause a delay
or disruption of Debtor's business; and
(i)
to
comply with all laws, regulations and ordinances relating to the possession,
operation, maintenance and control of the Collateral.
7.
Events
of Default.
Debtor
shall be in default under this Agreement upon the happening of any of the
following events or conditions (“Events of Default”):
(a)
The
default of Debtor or any endorser, guarantor, accommodation party or surety
for
Debtor in the payment or material performance when due of any indebtedness,
obligations, liability or covenant contained or referred to herein or in any
of
the Liabilities secured hereby or in any agreement, undertaking or writing
evidencing, securing, referring or appertaining to said
Liabilities;
(b)
The
loss, theft, damage, destruction, sale, assignment, transfer or encumbrance
to
or of any material part of the Collateral, except in the ordinary course of
Debtor's business, or any levy, seizure or attachment thereof or thereon, except
in the event that Debtor delivers written notice of such event to the Secured
Parties within five (5) days from the date of discovery thereof;
and
(c)
The
entry
of a decree or order by a court hav-ing jurisdiction in the premises for relief
in respect of Debtor under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable Federal or state
bankruptcy, insolvency or similar law, or appointing a receiver, trustee, or
custodian of Debtor or for any substan-tial part of Debtor’s property, which
decree or order is not stayed or set aside within sixty (60) days thereafter;
or
(d) The
filing by Debtor of a petition, answer or consent seeking relief under Title
11
of the United States Code, as now constituted or hereafter amended, or the
consent by Debtor to the institution of proceedings thereunder or to the
appointment of a receiver, trustee or custodian.
8. Rights
and Remedies Upon Default.
Upon
occurrence of any of the above Events of Default and at any time thereafter
(such default not having previously been cured), the Secured Parties may
accelerate all the Liabilities secured hereby and shall have, in addition to
all
other rights and remedies, the rights and remedies of a Secured Parties under
the Code or at law, including, but not limited to, the right to take possession
of the Collateral in accordance with the Code and the provisions hereof, and
sell the same in accordance with the Code and the provisions hereof, and for
that purpose the Secured Parties may, so far as Debtor can give authority
therefor, enter upon any premises on which Collateral may be located or situated
and remove the same therefrom or without removal render same unusable and may
use or dispose of the Collateral on such premises without any liability for
rent, storage, utilities or other sums, and upon request Debtor shall, to the
extent practicable, assemble and make the Collateral available to the Secured
Parties at a place to be designated by the Secured Parties, which is reasonably
convenient to Debtor and the Secured Parties. The Secured Parties shall give
Debtor at least five (5) days' prior written notice of the time and place of
any
public sale or the time after which any private sale or any other intended
disposition is to be made. Debtor shall remain liable for any deficiency on
the
Liabilities. The Secured Parties shall also have the right to apply for and
have
a receiver appointed by a court of competent jurisdiction in any action taken
by
the Secured Parties to enforce their rights and remedies hereunder in order
to
manage, protect and preserve the Collateral and continue the operation of the
business of Debtor and to collect all revenues and profits thereof and apply
the
same to the payment of all expenses and other charges of such receivership,
including the compensation of the receiver, and to the payment of Liabilities
secured hereby until a sale or other disposition of such Collateral shall be
finally made
and
consummated. In the event of any disposition of any or all of the Collateral
by
Secured Parties after default, the proceeds of disposition shall be applied
in
the order following to:
(a)
the
reasonable expenses of retaking, holding, preparing for sale or lease, selling,
leasing and the like, and the reasonable attorneys' fees and legal expenses
incurred by Secured Parties in the enforcement hereof;
(b)
the
satisfaction of all of the Liabilities other than the Notes; and
(c)
the
satisfaction of the Notes.
9.
Further
Assurances and Power of Attorney.
Debtor
will execute and deliver to the Secured Parties, at the Secured Parties'
request, at any time and from time to time, such replacement or update Financing
Statements and other instruments (and pay the cost of filing or recording the
same in all public offices deemed necessary or desirable by the Secured
Parties), and do such other acts and things as the Secured Parties may
reasonably deem necessary or desirable in order to establish and maintain a
valid security interest in the Collateral in favor of the Secured Parties (free
and clear of all other liens, claims and rights of third parties whatsoever,
whether voluntarily or involuntarily created, other than those permitted herein)
to secure payment of the Liabilities, and in order to facilitate the collection
of the Collateral. To effectuate the rights and remedies of the Secured Parties
hereunder, in the event of an Event of Default hereunder which is not cured
within the applicable cure period, Debtor hereby irrevocably appoints the
Secured Parties attorney-in-fact for Debtor in the name of Debtor or the Secured
Parties, with full power of substitution, to sign, execute and deliver any
and
all instruments and documents and do all acts and things to the same extent
as
Debtor could do, to sell, assign and transfer any Collateral, including, but
not
limited to, taking all action necessary or desirable to obtain the approval
of
any governmental body to the transfer or issuance to the Secured Parties or
any
other person, firm, or corporation of any intangible Collateral.
10.
Waivers.
The
Secured Parties shall have no duty as to the collection or protection of the
Collateral or any income thereon, nor as to the preservation of rights against
prior parties, or as to the preservation of any rights pertaining to the
Collateral beyond reasonable care in the custody or preservation thereof. The
Secured Parties may exercise their rights and remedies with respect to the
Collateral without resorting or regard to other security or sources for payment.
All rights and remedies of the Secured Parties hereunder or on the Liabilities
or the Collateral shall be cumulative and may be exercised singularly or
concurrently. Any forbearance, failure or delay by Secured Parties in exercising
any right, power or remedy shall not preclude the further exercise thereof,
and
every right, power or remedy of Secured Parties shall continue in full force
and
effect until such right, power or remedy is specifically waived in a writing
executed by Secured Parties. Debtor waives any right to require the Secured
Parties to proceed against any person or to exhaust any Collateral or to pursue
any remedy in the Secured Parties' power.
11.
Notices.
All
notices, requests, demands, consents, instructions or other communications
required or permitted hereunder shall in writing and faxed, mailed or delivered
to each party at the respective addresses of the parties as set forth in the
Purchase Agreement, or at such other address or facsimile number as Debtor
shall
have furnished to the Secured Parties in writing. All such notices and
communications will be deemed effectively given the earlier of (i) when
received, (ii) when delivered personally, (iii) one business day after
being delivered by facsimile (with receipt of appropriate confirmation),
(iv) one business day after being deposited with an overnight courier
service of recognized standing or (v) four days after being deposited in
the U.S. mail, first class with postage prepaid.
12.
Miscellaneous.
Neither
this Agreement nor any provision hereof may be changed, waived, discharged
or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. This Agreement shall be binding upon the Debtor and its successors
and
assigns, and all persons claiming under or through Debtor or any such successor
or assign, and shall inure to the benefit of and be enforceable by the Secured
Parties and their successors and assigns. The
rights or obligations of Secured Parties under this Agreement may not be
assigned. Any assignment in violation of the foregoing shall be null and
void.
Signature
Page Follows
IN
WITNESS WHEREOF, Debtor has caused this Agreement to be duly executed and
delivered as of the day and year first above written.
DEBTOR:
a
Nevada
corporation
By:_____________________
Name:
Xxx
Xxxxxxx
Title:
President
SECURED
PARTIES:
__________________________
Xxxx
Xx
__________________________
Xxxxxxx
Xxxx
SECURED
PROMISSORY NOTE
| $75,000 |
June
15, 0000
|
|
|
Xxx
Xxxxxxx,
Xxxxxxxxxx
|
FOR
VALUE
RECEIVED, Sub-Urban
Brands, Inc.,
a
Nevada corporation (the “Company”)
promises to pay to Xxxx
Xx
(“Holder”),
or
its registered assigns, in lawful money of the United States of America, the
principal sum of Seventy-Five Thousand Dollars ($75,000), or such lesser amount
as shall equal the outstanding principal amount hereof, together with interest
from the date of this Note on the unpaid principal balance at a rate equal
to
8.00% per annum, computed on the basis of the actual number of days elapsed
and
a year of 365 days. Subject to the terms hereof, all unpaid principal, together
with any then unpaid and accrued interest and other amounts payable hereunder,
shall be due and payable on the earlier of (i) June
15, 2008
(the
“Maturity
Date”),
or
(ii) when, upon or after the occurrence of an Event of Default (as defined
below), such amounts are declared due and payable by Holder or made
automatically due and payable in accordance with the terms hereof.
THE
OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT (THE
“SECURITY
AGREEMENT”)
DATED
AS OF THE DATE HEREOF AND EXECUTED BY COMPANY FOR THE BENEFIT OF THE HOLDER.
ADDITIONAL RIGHTS OF HOLDER ARE SET FORTH IN THE SECURITY AGREEMENT.
ALL
UNPAID PRINCIPAL AND ACCRUED AND UNPAID INTEREST UNDER THIS NOTE IS ALSO SUBJECT
TO SET-OFF AND REDUCTION PURSUANT TO THE TERMS OF A MEMBERSHIP INTEREST PURCHASE
AGREEMENT DATED MAY 2, 2007 AND EXECUTED BY THE COMPANY AND HOLDER (THE
“PURCHASE
AGREEMENT”).
THIS
NOTE IS ONE OF TWO SIMILAR NOTES ISSUED TO SELLERS UNDER THE PURCHASE
AGREEMENT.
The
following is a statement of the rights of Holder and the conditions to which
this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1. Interest.
Accrued
interest on this Note shall be payable at maturity.
2. Prepayment.
The
Company may prepay this Note at any time in whole or in part; provided that
any
such prepayment will be applied first to the payment of expenses due under
this
Note, second to interest accrued on this Note and third, if the amount of
prepayment exceeds the amount of all such expenses and accrued interest, to
the
payment of principal of this Note. All unpaid principal and accrued and unpaid
interest under this Note is also subject to set-off and reduction pursuant
to
the terms of the Purchase Agreement.
3. Events
of Default.
The
occurrence of any of the following shall constitute an “Event
of Default”
under
this Note and the Security Agreement:
(a) Failure
to Pay.
The
Company shall fail to pay (i) when due any principal or interest payment on
the due date hereunder or (ii) any other payment required under the terms
of this Note or Security Agreement on the date due and such payment shall not
have been made within five days of the Company’s receipt of Holder’s written
notice to the Company of such failure to pay; or
(b) Breaches
of Covenants. The
Company shall fail to observe or perform any other covenant, obligation,
condition or agreement contained in this Note or the Security Agreement (other
than those specified in Sections 3(a))
and
(i) such failure shall continue for 15 days, or (ii) if such failure
is not curable within such 15-day period, but is reasonably capable of cure
within 30 days, either (A) such failure shall continue for 30 days or
(B) the Company shall not have commenced a cure in a manner reasonably
satisfactory to Holder within the initial 15-day period; or
(c) Voluntary
Bankruptcy or Insolvency Proceedings. The
Company shall (i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a substantial part
of
its property, (ii) be unable, or admit in writing its inability, to pay its
debts generally as they mature, (iii) make a general assignment for the
benefit of its or any of its creditors, (iv) be dissolved or liquidated,
(v) become insolvent (as such term may be defined or interpreted under any
applicable statute), (vi) commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or consent to any such relief or to the appointment of or taking
possession of its property by any official in an involuntary case or other
proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or
(d) Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall
be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within 30 days of commencement.
4. Rights
of Holder upon Default.
Upon
the occurrence or existence of any Event of Default (other than an Event of
Default described in Sections 3(c)
or
3(d))
and at
any time thereafter during the continuance of such Event of Default, Holder
may,
by written notice to the Company, declare all outstanding obligations payable
by
the Company hereunder to be immediately due and payable without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein or in the Security Agreement to
the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Sections 3(c)
and
3(d),
immediately and without notice, all outstanding obligations payable by the
Company hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the Security
Agreement to the contrary notwithstanding. In addition to the foregoing
remedies, upon the occurrence or existence of any Event of Default, Holder
may
exercise any other right power or remedy granted to it by the Security Agreement
or otherwise permitted to it by law, either by suit in equity or by action
at
law, or both.
2
5. Successors
and Assigns.
The
rights and obligations of the Company and Holder shall be binding upon and
benefit the successors, assigns, heirs, administrators and transferees of the
parties. Neither this Note nor any of the rights, interests or obligations
hereunder may be assigned, by operation of law or otherwise, in whole or in
part, by the Company without the prior written consent of Holder.
6. Waiver
and Amendment.
Any
provision of this Note may be amended, waived or modified upon the written
consent of the Company and Holder.
7. Notices.
All
notices, requests, demands, consents, instructions or other communications
required or permitted hereunder shall in writing and faxed, mailed or delivered
to each party at the respective addresses of the parties as set forth in the
Purchase Agreement, or at such other address or facsimile number as the Company
shall have furnished to Holder in writing. All such notices and communications
will be deemed effectively given the earlier of (i) when received,
(ii) when delivered personally, (iii) one business day after being
delivered by facsimile (with receipt of appropriate confirmation), (iv) one
business day after being deposited with an overnight courier service of
recognized standing or (v) four days after being deposited in the U.S.
mail, first class with postage prepaid.
8. Default
Rate; Usury.
During
any period in which an Event of Default has occurred and is continuing, the
Company shall pay interest on the unpaid principal balance hereof at a rate
per
annum equal to the rate otherwise applicable hereunder plus five
percent (5%). In the event any interest is paid on this Note which is
deemed to be in excess of the then legal maximum rate, then that portion of
the
interest payment representing an amount in excess of the then legal maximum
rate
shall be deemed a payment of principal and applied against the principal of
this
Note.
9. Expenses;
Waivers.
If
action is instituted to collect this Note, the Company promises to pay all
costs
and expenses, including, without limitation, reasonable attorneys’ fees and
costs, incurred in connection with such action. The Company hereby waives notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor and all other notices or demands relative to this
instrument.
10. Governing
Law.
This
Note and all actions arising out of or in connection with this Note shall be
governed by and construed in accordance with the laws of the State of
California, without regard to the conflicts of law provisions of the State
of
California, or of any other state.
Signature
Page Follows
3
The
Company has caused this Note to be issued as of the date first written
above.
a
Nevada
corporation
By:
__________________________
Name:
Xxx
Xxxxxxx
Title:
President
4
SECURED
PROMISSORY NOTE
|
$100,000
|
|
June
15, 0000
|
|
Xxx
Xxxxxxx,
Xxxxxxxxxx
|
FOR
VALUE
RECEIVED, Sub-Urban
Brands, Inc.,
a
Nevada corporation (the “Company”)
promises to pay to Xxxxxxx
Xxxx
(“Holder”),
or
its registered assigns, in lawful money of the United States of America, the
principal sum of One Hundred Thousand Dollars ($100,000), or such lesser amount
as shall equal the outstanding principal amount hereof, together with interest
from the date of this Note on the unpaid principal balance at a rate equal
to
8.00% per annum, computed on the basis of the actual number of days elapsed
and
a year of 365 days. Subject to the terms hereof, all unpaid principal, together
with any then unpaid and accrued interest and other amounts payable hereunder,
shall be due and payable on the earlier of (i) June
15, 2008
(the
“Maturity
Date”),
or
(ii) when, upon or after the occurrence of an Event of Default (as defined
below), such amounts are declared due and payable by Holder or made
automatically due and payable in accordance with the terms hereof.
THE
OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT (THE
“SECURITY
AGREEMENT”)
DATED
AS OF THE DATE HEREOF AND EXECUTED BY COMPANY FOR THE BENEFIT OF THE HOLDER.
ADDITIONAL RIGHTS OF HOLDER ARE SET FORTH IN THE SECURITY AGREEMENT.
ALL
UNPAID PRINCIPAL AND ACCRUED AND UNPAID INTEREST UNDER THIS NOTE IS ALSO SUBJECT
TO SET-OFF AND REDUCTION PURSUANT TO THE TERMS OF A MEMBERSHIP INTEREST PURCHASE
AGREEMENT DATED MAY 2, 2007 AND EXECUTED BY THE COMPANY AND HOLDER (THE
“PURCHASE
AGREEMENT”).
THIS
NOTE IS ONE OF TWO SIMILAR NOTES ISSUED TO SELLERS UNDER THE PURCHASE
AGREEMENT.
The
following is a statement of the rights of Holder and the conditions to which
this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1. Interest.
Accrued
interest on this Note shall be payable at maturity.
2. Prepayment.
The
Company may prepay this Note at any time in whole or in part; provided that
any
such prepayment will be applied first to the payment of expenses due under
this
Note, second to interest accrued on this Note and third, if the amount of
prepayment exceeds the amount of all such expenses and accrued interest, to
the
payment of principal of this Note. All unpaid principal and accrued and unpaid
interest under this Note is also subject to set-off and reduction pursuant
to
the terms of the Purchase Agreement.
3. Events
of Default.
The
occurrence of any of the following shall constitute an “Event
of Default”
under
this Note and the Security Agreement:
(a) Failure
to Pay.
The
Company shall fail to pay (i) when due any principal or interest payment on
the due date hereunder or (ii) any other payment required under the terms
of this Note or Security Agreement on the date due and such payment shall not
have been made within five days of the Company’s receipt of Holder’s written
notice to the Company of such failure to pay; or
(b) Breaches
of Covenants. The
Company shall fail to observe or perform any other covenant, obligation,
condition or agreement contained in this Note or the Security Agreement (other
than those specified in Sections 3(a))
and
(i) such failure shall continue for 15 days, or (ii) if such failure
is not curable within such 15-day period, but is reasonably capable of cure
within 30 days, either (A) such failure shall continue for 30 days or
(B) the Company shall not have commenced a cure in a manner reasonably
satisfactory to Holder within the initial 15-day period; or
(c) Voluntary
Bankruptcy or Insolvency Proceedings. The
Company shall (i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a substantial part
of
its property, (ii) be unable, or admit in writing its inability, to pay its
debts generally as they mature, (iii) make a general assignment for the
benefit of its or any of its creditors, (iv) be dissolved or liquidated,
(v) become insolvent (as such term may be defined or interpreted under any
applicable statute), (vi) commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or consent to any such relief or to the appointment of or taking
possession of its property by any official in an involuntary case or other
proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or
(d) Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall
be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within 30 days of commencement.
4. Rights
of Holder upon Default.
Upon
the occurrence or existence of any Event of Default (other than an Event of
Default described in Sections 3(c)
or
3(d))
and at
any time thereafter during the continuance of such Event of Default, Holder
may,
by written notice to the Company, declare all outstanding obligations payable
by
the Company hereunder to be immediately due and payable without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein or in the Security Agreement to
the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Sections 3(c)
and
3(d),
immediately and without notice, all outstanding obligations payable by the
Company hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the Security
Agreement to the contrary notwithstanding. In addition to the foregoing
remedies, upon the occurrence or existence of any Event of Default, Holder
may
exercise any other right power or remedy granted to it by the Security Agreement
or otherwise permitted to it by law, either by suit in equity or by action
at
law, or both.
2
5. Successors
and Assigns.
The
rights and obligations of the Company and Holder shall be binding upon and
benefit the successors, assigns, heirs, administrators and transferees of the
parties. Neither this Note nor any of the rights, interests or obligations
hereunder may be assigned, by operation of law or otherwise, in whole or in
part, by the Company without the prior written consent of Holder.
6. Waiver
and Amendment.
Any
provision of this Note may be amended, waived or modified upon the written
consent of the Company and Holder.
7. Notices.
All
notices, requests, demands, consents, instructions or other communications
required or permitted hereunder shall in writing and faxed, mailed or delivered
to each party at the respective addresses of the parties as set forth in the
Purchase Agreement, or at such other address or facsimile number as the Company
shall have furnished to Holder in writing. All such notices and communications
will be deemed effectively given the earlier of (i) when received,
(ii) when delivered personally, (iii) one business day after being
delivered by facsimile (with receipt of appropriate confirmation), (iv) one
business day after being deposited with an overnight courier service of
recognized standing or (v) four days after being deposited in the U.S.
mail, first class with postage prepaid.
8. Default
Rate; Usury.
During
any period in which an Event of Default has occurred and is continuing, the
Company shall pay interest on the unpaid principal balance hereof at a rate
per
annum equal to the rate otherwise applicable hereunder plus five
percent (5%). In the event any interest is paid on this Note which is
deemed to be in excess of the then legal maximum rate, then that portion of
the
interest payment representing an amount in excess of the then legal maximum
rate
shall be deemed a payment of principal and applied against the principal of
this
Note.
9. Expenses;
Waivers.
If
action is instituted to collect this Note, the Company promises to pay all
costs
and expenses, including, without limitation, reasonable attorneys’ fees and
costs, incurred in connection with such action. The Company hereby waives notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor and all other notices or demands relative to this
instrument.
10. Governing
Law.
This
Note and all actions arising out of or in connection with this Note shall be
governed by and construed in accordance with the laws of the State of
California, without regard to the conflicts of law provisions of the State
of
California, or of any other state.
Signature
Page Follows
3
The
Company has caused this Note to be issued as of the date first written
above.
SUB-URBAN
BRANDS, INC.
a
Nevada
corporation
By:
_______________________
Name:
Xxx
Xxxxxxx
Title:
President
4
