ASSET PURCHASE AGREEMENT

 

 

ASSET PURCHASE AGREEMENT

RECITALS

AGREEMENT

1.8         “ Contract Rights ” shall mean all rights and obligations of Seller under the Contracts.

1.11         “ Damages ” shall mean damages, Liabilities, losses ( including diminution in value), obligations, deficiencies, claims, demands, Taxes, fines, penalties, costs, and expenses of any kind or nature whatsoever (whether or not arising out of third-party claims), including interest, costs of mitigation, lost profits, attorneys’ fees and all amounts paid in investigation, defense, or settlement of any of the foregoing.

1.12        “ Default ” shall mean (a) a breach of or default under any Contract, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach of or default under any Contract, or (c) the occurrence of an event that with or without the passage of time or the giving of notice or both would (i) give rise to a termination, renegotiation or acceleration under any Contract, or (ii) give rise to a right of termination, renegotiation or acceleration under any Contract.

1.13         “ Disclosure Schedule ” shall mean a schedule executed and delivered by Seller to Buyer as of the date hereof that sets forth the exceptions to the representations and warranties contained in Section 4 and certain other information called for by this Agreement.  Unless otherwise specified, each reference in this Agreement to any numbered schedule is a reference to that numbered schedule that is included in the Disclosure Schedule.

1.14         “ Encumbrance ” shall mean any claim, lien, pledge, option, charge, easement, security interest (including any security interest filed pursuant to a financing statement in order to perfect and/or establish the priority of such security interest), deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other right of third parties, whether voluntarily incurred or arising by operation of law, and includes any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof.

1.15         “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

1.17       “ IT Assets ” shall mean those Purchased Assets comprised of any computers, computer software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, and other information technology equipment, and all associated documentation.

1.19         “ Liabilities ” shall mean any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, guaranty or endorsement of or by any person of any type, whether accrued, absolute, contingent, matured, unmatured or other.

1.20         “ Material Adverse Effect ” shall mean (a) with respect to the Business or the Purchased Assets, any material adverse effect or change in the condition (financial or other), business, results of operations, prospects, assets, Liabilities or operations of the Business and/ or the Purchased Assets or on the ability of Seller to consummate the transactions contemplated hereby, or any event or condition that could, with the passage of time, constitute a material adverse effect or material adverse change, and (b) with respect to Buyer, any material adverse effect or change in the condition (financial or other), business, results of operations, prospects, assets, Liabilities or operations of Buyer or on the ability of Buyer to consummate the transactions contemplated hereby, or any event or condition that could, with the passage of time, constitute a material adverse effect or material adverse change.

1.22         “ Patents ” shall mean United States and foreign patents, letters patent, applications for any of the foregoing, all continuations, continuations in part, divisions, reissues, substitutions and extensions thereof, any and all rights corresponding thereto, and all inventions and discoveries that are or may be patentable.

1.23         “ Permits ” shall mean all licenses, registrations, certifications, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any governmental authority, whether foreign, federal, state or local, or any other person, necessary or desirable for the present conduct of, or relating to the operation of the Business.

1.24         “ Proprietary Rights ” shall mean all Copyrights, Trademarks, Patents, technology rights and licenses, computer software ( including any source or object codes therefor or documentation relating thereto, other than generally commercially available third party software (a) that has not been materially modified by Seller, (b) for which Seller can either freely assign its rights to a successor of Seller or that Buyer may separately obtain on reasonable terms, and (c) that is either subject only to a shrink wrap license agreement, or is immaterial to the Business), Trade Secrets, franchises, know-how, inventions, website content, designs, specifications, plans, drawings and intellectual property rights of Seller, including the Owned Proprietary Rights and the Licensed Proprietary Rights.

1.25         “ Purchased Assets ” shall mean all rights, title and interest of Seller as of the Closing Date in and to the assets set forth on Schedule 2.1 .

1.26         “ Regulations ” shall mean any laws, statutes, ordinances, regulations, rules, court decisions, principles of law and orders of any foreign, federal, state or local government and any other governmental department or agency, including Environmental Laws, energy, motor vehicle safety, public utility, zoning, building and health codes, import and export laws, Foreign Corrupt Practices Act, and occupational safety and health and laws respecting employment practices, employee documentation, terms and conditions of employment and wages and hours.

1.30         “ Tax ” and “ Taxes ” shall mean all taxes, charges, fees, levies or other assessments, including all net income, gross income, gross receipts, sales, use, VAT, service, service use, ad valorem , transfer, franchise, profits, capital stock, alternative or add-on minimum, estimated, license, lease, withholding, social security, payroll, employment, excise, estimated, severance, stamp, recording, occupation, real and personal property, gift, windfall profits or other taxes, customs duties, fees, assessments, or charges of any kind whatsoever, whether computed on a separate, consolidated, unitary, combined or other basis, together with any interest, fines, penalties, additions to tax or other additional amounts imposed thereon or with respect thereto imposed by any taxing authority (domestic or foreign).  The terms “ Tax ” and “ Taxes ” shall include any Liability of Seller for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined, or unitary group, or being a party to any agreement or arrangement whereby Liability of Seller for payment of such amounts was determined or taken into account with reference to the Liability of any other person.

1.31         “ Trade Secrets ” shall mean all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, blue prints, designs, data compilations, research results, and other information.

1.32       “ Trademarks ” shall mean United States and foreign registered trademarks, registered service marks, trademark and service mark applications, unregistered trademarks and service marks, registered domain names, trade names, designs, and general intangibles of a like nature, together with all goodwill related to the foregoing.

2.2   .        Upon the terms and subject to the conditions contained herein, at the Closing, Seller shall sell, convey, transfer, assign, and deliver to Buyer, and Buyer shall purchase and acquire from Seller, the Purchased Assets, free and clear of all Encumbrances, for the consideration specified below in Section 2.3 .    Schedule  2.1 contains an accurate list and summary descriptions of all Purchased Assets.

2.2       No Assumption of Liabilities .  Buyer shall not assume, shall have no obligation to pay, perform or discharge, and shall not otherwise be responsible for, any Liabilities of Seller or its Affiliates, whether arising out of occurrences prior to, on or after the Closing Date (the “ Retained Liabilities ”), including but not limited to any (a) accounts payable of Seller; (b) Taxes of Seller; (c) Liabilities with respect to employees of Seller and their dependents and beneficiaries, including Liabilities with respect to violations of labor or immigration laws, with respect to employment agreements, with respect to any benefits or benefit programs, including accrued vacation time, and with respect to any Tax withholdings to the extent existing or arising at or prior to the Closing Date; (d) Liabilities for tort claims that are based on acts or events that occurred at or prior to the Closing Date; (e) Liabilities with respect to alleged or actual infringement of proprietary rights or other intellectual property rights of any third party in connection with any products developed, produced, manufactured, marketed, sold, or offered for sale by the Business, in each case, at or prior to the Closing Date; (f) Liabilities relating to or arising out of any Default occurring prior to or upon the Closing Date; or (g) litigation or other matters set forth on Schedule 4.9 .

2.3.1   Buyer shall provide Seller at the Closing with the following purchase consideration:

(a)   cash consideration of Seventy Thousand Dollars ($70,000) the “ Cash Consideration ”) less any amount deducted and withheld pursuant to Section 2.5 ;

(b)   One Hundred Twelve Thousand Five Hundred (112,500) restricted shares of Buyer’s common stock (the “ Shares ”, including any additional restricted shares of Buyer’s common stock issued pursuant to Section 2.3.2 below); and

2.4         Purchase Price Allocation .  The Purchase Price shall be allocated among the Purchased Assets in the manner determined by Buyer and as required by Section 1060 of the Code (the “ Allocation ”).  The Allocation shall be conclusive and binding upon Buyer and Seller for all purposes, and Buyer and Seller agree that all returns and reports and all financial statements shall be prepared in a manner consistent with (and Buyer and Seller shall not otherwise file a Tax Return position inconsistent with) the Allocation unless required by the Internal Revenue Service (“ IRS ”) or any other applicable taxing authority.   Buyer shall provide the allocation to Seller as soon as reasonably practicable following the Closing Date.   Buyer and Seller shall each prepare and file on a timely basis with the IRS substantially identical initial and supplemental IRS Forms 8594 “ Asset Acquisition Statements Under Section 1060” consistent with the Allocation.

2.5       Withholding .   Buyer shall be entitled to deduct and withhold from the Purchase Price such amounts as Buyer is required to deduct and withhold under the Code, or any other tax laws, with respect to the making of such payment. To the extent that amounts are so withheld by Buyer, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Seller .

3.1         Closing .  The closing of the transactions contemplated herein (the “ Closing”) shall be held at the offices of Bullivant Houser Bailey PC, 601 California Street, Suite 1800, San Francisco, CA 94108 on July 21, 2008 or on such other date as Buyer and Seller may mutually agree (the “ Closing Date”).

3.2.1   To effect the sale and transfer referred to in Section  2.1 , Buyer and Seller shall execute and deliver or cause to be executed and delivered to the other party, as applicable:

(a)   one or more Bills of Sale, conveying in the aggregate all of Seller’s owned personal property included in the Purchased Assets;

(b)   one or more Assignments of Contract Rights, to the extent necessary to assign in the aggregate all Contract Rights included in the Purchased Assets;

(c)   one or more Trademark Assignments, in recordable form to the extent necessary to assign in the aggregate all Trademarks included in the Purchased Assets;

(d)   one or more Domain Name Assignments, in recordable form to the extent necessary to assign in the aggregate all URLs and Domain Names included in the Purchased Assets; and

3.2.3   Seller shall file (where necessary) and deliver to Buyer all documents necessary, and shall have otherwise made any and all payments and taken any other actions necessary, to release the Purchased Assets from all Encumbrances, which documents shall be in form and substance reasonably satisfactory to Buyer.

3.2.4   Seller shall deliver to Buyer all third party consents required for the valid transfer of the Purchased Assets as contemplated by this Agreement.

4.1         Making of Representations and Warranties .  As a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated hereby and except as set forth on the Disclosure Schedule, Seller hereby makes to Buyer the representations and warranties contained in this Section 4 .

4.2         Organization and Qualifications of Seller .    Seller is a limited liability company  duly organized, validly existing and in good standing under the laws of the State of California with corporate power and authority to conduct the Business in the manner and in the places where the Business is currently conducted or currently proposed to be conducted.  The copies of Seller’s Articles of Organization, as amended to date, certified by the Secretary of State of the State of California (the “ Seller Charter ”), and of Seller’s other organizational documents, as amended to date (together with the Seller Charter, the “ Seller Organizational Documents ”), are complete and correct, and no amendments, restatements, supplements or modifications thereto are pending.   Seller is not in violation of any term of the Seller Organizational Documents.   Seller is duly qualified or authorized to do business as a California limited liability company and is in good standing under the laws of California and each jurisdiction in which the conduct of the Business requires such qualification or authorization.

4.3         Authority of Seller .   Seller has full power and authority to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Seller pursuant to this Agreement and to carry out the transactions contemplated hereby or thereby.  Without limiting the generality of the foregoing, the member(s) of Seller have duly authorized the execution, delivery and performance of this Agreement and each agreement, document and instrument to be executed and delivered by Seller pursuant to this Agreement, and the consummation of the transactions contemplated hereby or thereby by Seller.  The execution, delivery and performance by Seller of this Agreement:

4.3.2   will not violate any applicable Regulations, including the laws of the United States and the State of California, or any state or other jurisdiction applicable to Seller or require Seller to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that has not been obtained or made; and

4.3.3   will not result in a breach of, constitute a Default under, accelerate any obligation under, or give rise to a right of termination of any Contract, Permit, Court Order or arbitration award to which Seller is a party or by which the real or personal property of Seller is bound or affected, or result in the creation or imposition of any Encumbrance on any of Seller’s assets.

4.4       Purchased Assets . Seller has and will transfer to Buyer good, valid and marketable title to the Purchased Assets and upon the consummation of the transactions contemplated hereby, Buyer will acquire good, valid and marketable title to all of the Purchased Assets, free and clear of any Encumbrances.  The Purchased Assets include all assets necessarily used in the Business as currently conducted or currently proposed to be conducted

4.5.1   Seller has delivered to Buyer the statement of results of operations for the Business that covers the year ended December 31, 2007, and a balance sheet for the Business as of December 31, 2007, all of which are attached hereto as Schedule  4.5.1 (collectively, the “ Seller Financial Statements ”).  The December 31, 2007, balance sheet is hereinafter referred to as the “ Seller Balance Sheet ” and December 31, 2007,   is hereinafter referred to as the “ Seller Balance Sheet Date .”  The Seller Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Business as of such dates and the results of operations for the periods covered thereby, are correct and complete, and are consistent with the Books and Records.

4.5.2   As of the date hereof and as of the Closing Date, Seller has not had and will not have any Liabilities relating to the Business of any nature, whether accrued, absolute or contingent ( including Liabilities as guarantor or otherwise with respect to obligations of others, or Liabilities for Taxes due or contingent or potential Liabilities relating to activities of Seller with respect to the operation of the Business prior to the date hereof or the Closing, as the case may be, regardless of whether claims in respect thereof had been asserted as of such date), except Liabilities (i) stated or adequately reserved against on the Seller Balance Sheet or the notes thereto, (ii) incurred in the Ordinary Course of Business of Seller consistent with the terms of this Agreement since the Seller Balance Sheet Date or (iii) relating to future performance obligations under Contracts, none of which relates to any Default, breach of warranty, tort infringement, or violation of any Regulations or Court Orders or arose out of any Action.

4.6.1   Any change in the Business and its real or personal properties, assets, results of operations, financial condition, Liabilities, or prospects of Seller with respect to the Business, which change by itself or in conjunction with all other such changes, whether or not arising in the Ordinary Course of Business, could have a Material Adverse Effect;

4.6.2   Any contingent Liability incurred by Seller as guarantor or otherwise with respect to the obligations of others or any cancellation of any material debt or claim owing to, or waiver of any material right of, Seller with respect to the operation of the Business;

4.6.3   Any Encumbrance placed on any of the Purchased Assets that remains in existence on the date hereof or will remain on the Closing Date;

4.6.4   Any Liability incurred by Seller in the Business other than Liabilities incurred in the Ordinary Course of Business consistent with the obligations under this Agreement (it being understood that claims relating to the failure to perform or the improper performance of services shall not be deemed to be incurred in the Ordinary Course of Business);

4.6.5   Any purchase, sale or other disposition, or any agreement or other arrangement for the purchase, sale or other disposition, of any of the real or personal properties or assets of Seller used in the Business other than in the Ordinary Course of Business;

4.6.6   Any damage, destruction or loss, whether or not covered by insurance, materially adversely affecting the Purchased Assets or the Business;

4.6.7   Any material dispute with employees or claim of unfair labor practices related to the Business; any change in the compensation payable or to become payable by Seller to any of its officers, employees, agents or independent contractors involved in the operation of the Business; or any bonus payment or arrangement made to or with any of such officers, employees, agents or independent contractors;

4.6.8   Any payment or discharge of a material Encumbrance or Liability of Seller relating to the Business that was not shown on the Seller Balance Sheet or incurred in the Ordinary Course of Business thereafter;

4.6.9   Any Liability incurred by Seller to any of the directors, officers or employees of the Business, or any loans or advances made by Seller to any of such directors, officers or employees, except normal compensation and expense reimbursement or severance payable to officers or employees;

4.6.11   Any other transaction relating to the Business entered into by Seller other than transactions in the Ordinary Course of Business.

4.7.1   All Patents, Trademarks and Copyrights that are owned by Seller and used by Seller in the Business are listed on Schedule  4.7.1(a) and hereinafter referred to as the “ Owned Proprietary Rights .”  All Proprietary Rights (other than generally commercially available third party software (i) that have not been materially modified by Seller, and (ii) for which Seller can either freely assign its rights to a successor of Seller or that Buyer may separately obtain on reasonable terms, and (iii) that is either subject only to a shrink wrap license agreement, or is immaterial to the Business) that are either licensed to Seller or are otherwise used in the Business but are not owned by Seller are listed on Schedule 4.7.1(b) and hereinafter referred to as the “ Licensed Proprietary Rights .”

4.7.2   The Proprietary Rights are all of the intellectual property rights and proprietary rights that are necessary to operate and conduct the Business as currently conducted or currently proposed to be conducted by Seller.  All Proprietary Rights immediately prior to the Closing Date owned or licensed and available for use by Seller will be available to Buyer on and after the Closing Date on identical terms and conditions.

4.7.3   Seller has good, valid and marketable title to all of the Owned Proprietary Rights free and clear of any Encumbrances, and has the right to use, exploit, dispose of, license, sublicense, grant the right to sublicense, and distribute, without the payment of any fees, royalties or other payments all Owned Proprietary Rights.

4.7.4   All licenses and other agreements under which Seller has been granted or otherwise has the right to use any of the Licensed Proprietary Rights are in full force and effect, and there is no Default by Seller or any other party thereto.  To the Knowledge of Seller, the licensors under said licenses and other agreements have and had all requisite power and authority to grant the rights purported to be conferred thereby.  Complete and correct copies of all such licenses or other agreements, and any amendments thereto, have been provided to Buyer.  There are no payments due or that will become due after the Closing Date from Seller or Buyer under any of such lic