EQUITY ACQUISITION AGREEMENT

EXHIBIT 10.1

EQUITY ACQUISITION AGREEMENT

This Equity Acquisition Agreement is made as of June 11, 2008 by and among (1) The Billing Resource, d/b/a Integretel, Inc., a California corporation (“ TBR ”), (2) TBR as the majority shareholder of P1, (3) PaymentOne Corporation, a Delaware corporation (“ P1 ”) and (4) Etelcharge.com, a Nevada  corporation (the “ Buyer ” and together with TBR and P1, the “ Parties ”).  

R E C I T A L S :

A)

P1 provides a payment and marketing service that collects accounts receivable generated through digital services and premium content (the “ P1 Business ”).

B)

TBR currently owns 97.7% of the equity interests in P1 on a non-diluted basis amounting to 3,500,000 shares of common stock of P1, $0.001 par value (together with any and all other known or unknown claims or rights that TBR may have related to the equity of or ownership interests in P1, “ P1 Equity ”), with the balance of P1’s issued stock held by three individuals no longer affiliated with P1.  P1’s management and employees and certain other parties hold unexercised options, which if exercised, would result in such Persons holding collectively 37.65% of P1’s common equity on a fully diluted basis (i.e., all P1 common shares issuable upon exercise of outstanding options combined with all P1 common shares already issued and outstanding).

C)

TBR is subject to a bankruptcy case (“ Bankruptcy Case ”) pending in the United States Bankruptcy Court for the Northern District of California, San Jose Division (the “ Bankruptcy Court ”) filed on or about September 16, 2007 (the “ Petition Date ”).

D)

Pursuant to a Security Agreement dated as of January 26, 2005, P1 has made multiple secured loans and extensions of credit to TBR, incurred prior to the Petition Date, for an aggregate principal amount of approximately Twelve Million Eight Hundred Thousand Dollars ($12,800,000), as described and evidenced in the Proof of Claim filed in the Bankruptcy Case on or about January 11, 2008 (the “ Debt ”).  TBR has asserted that it may have certain defenses to the Debt and the asserted priority of the Debt, which are more fully set forth in its Disclosure Statement filed with the Bankruptcy Court (the “ Disclosure Statement ”) and such disclosures are incorporated by reference herein.  Such defenses include, without limitation, preference claims related to the filing of an amended financing statement within one year of the Petition Date.  P1 disputes such assertions, as set forth in its response to the Disclosure Statement filed with the Bankruptcy Court and incorporated by reference herein.

E)

During the year prior to the Petition Date, TBR made cash payments and other transfers of property rights to P1 (the “ Pre-Petition Transfers ”) and has previously asserted that it may have claims related to such Pre-Petition Transfers.  After the Petition Date, TBR also made approximately Four Million One Hundred Thousand Dollars ($4,100,000) in additional cash payments to P1 on account of debt incurred by TBR prior to the Petition Date as adequate protection under the Cash Collateral Stipulation and Cash Collateral Orders (as hereinafter defined), with a reservation of rights related to such payments.     

 

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F)

P1 and TBR wish to resolve all potential disputes related to the Debt, the Pre-Petition Transfers and the transfers made under the Cash Collateral Stipulation and Cash Collateral Orders.  TBR, on behalf of itself, its bankruptcy estate and its creditors and P1 desire to resolve such disputes and to grant releases to each other in exchange for the benefits of this Agreement.

G)

P1 has continued to do business with TBR after the Petition Date and the parties have engaged in Post-Petition Transactions (as hereinafter defined).   TBR and P1 wish to confirm their rights related to the Post-Petition Transactions on the terms set forth herein.

H)

Buyer desires to acquire the P1 Equity from TBR in exchange for Buyer’s agreement to (i) operate P1’s business in the ordinary course, with an immediate payment by Buyer to P1 of One Million Five Hundred Thousand Dollars ($1,500,000) cash (the “ Cash Consideration ”); and (ii) provide such additional capital support to P1, all of which is to the benefit of TBR and P1.  Buyer and TBR agree that in consideration of the various agreements between Buyer and TBR set forth herein, including but not limited to the undertakings in the Shared and Support Services Agreement of TBR or any successor of TBR party to such agreement, Buyer shall cause P1 immediately after the Effective Date to convey the Debt to TBR, subject to the provisions of Article 12 hereof, with all rights related to the Debt being preserved for the benefit of TBR’s bankruptcy estate under the terms of this Agreement and Bankruptcy Code Section 551 and perform the other undertakings of Buyer described herein.

I)

The Parties desire to set forth the terms upon which the P1 Equity is offered and purchased and desire to confirm certain representations and warranties.

ARTICLE 1
DEFINITIONS

1.1.

For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Article 1 :

“ Agreement ” means this Equity Acquisition Agreement, together with the Recitals and the attached Exhibits;

 

“ Alternative Transaction ” means an alternative transaction for the sale of the P1 Equity, which transaction closes, to a party other than the Buyer or its designee;

 

“ Approval Order ” means an Order from the Bankruptcy Court, in a form satisfactory to Buyer, P1 and TBR, permitting Buyer, P1 and TBR to consummate this Agreement, which among other things, shall provide that the transactions contemplated hereby are made in good faith pursuant to Bankruptcy Code Section 363(m) and that the rights related to the Debt are preserved for the benefit of TBR’s bankruptcy estate (including the relative priority and lien rights pursuant to Bankruptcy Code Section 551);

 

“ Balance Sheet ” has the meaning set forth in Section 4.6 in this Agreement;

 

“ Balance Sheet Date ” has the meaning set forth in Section 4.6 in this Agreement;

 

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“ Bankruptcy Case ” has the meaning set forth in Recital C in this Agreement;

 

“ Bankruptcy Code ” means Title 11 of the United States Code;

 

“ Bankruptcy Court ” has the meaning set forth in Recital C in this Agreement;

 

“ Break Fee ” has the meaning set forth in Section 14.3(a) in this Agreement;

 

“ Break Fee Order ” has the meaning ascribed to it in Section 14.3(a) of this Agreement.

 

“ Business Employees ” has the meaning set forth in Section 4.14(a) in this Agreement;

 

“ Buyer ” means Etelcharge.com, a Nevada corporation;

 

“ Cash Collateral Orders ” means any and all orders entered by the Bankruptcy Court approving and extending the Cash Collateral Stipulation;

 

“ Cash Collateral Stipulation ” means that certain stipulation dated as of September 26, 2007 entered by TBR and P1, establishing the terms on which TBR was entitled to use cash collateral of P1 and granting P1 certain rights and benefits, as such agreement has been modified and amended;

 

“ Cash Consideration ” has the meaning set forth in Recital H in this Agreement;

 

“ Combined cap ” has the meaning set forth in Section 12.1(c) in this Agreement;

 

“ Consulting Agreements ” means the consulting agreement between P1 and Joseph Lynam, in a form satisfactory to P1 and Buyer;

 

“ Contracts ” means any agreement, contract, obligation, promise or undertaking (whether written or oral and whether express or implied) that is legally binding;

 

“ Debt” has the meaning set forth in Recital D in this Agreement;

 

“ Debt Transfer Documents ” shall mean the agreement between P1 and TBR conveying the Debt to TBR without representation, recourse or warranty attached Exhibit D ;

 

“ Deficit Claim ” has the meaning set forth in Section 12.1(a) in this Agreement;

 

“ Disclosure Statement ” has the meaning set forth in Recital D in this Agreement;

 

“ Effective Date ” means the date when all conditions set forth in Article 9 of this Agreement have been satisfied or waived;

 

“ Environmental Law ” has the meaning set forth in Section 4.5(a) in this Agreement;

 

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“ Environmental Permits ” has the meaning set forth in Section 4.5(a) in this Agreement;

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended;

 

“ Golden Gate ” means Golden Gate Investors, Inc.;

 

“ ICS ” means Inmate Calling Solutions, LLC, a California limited liability company;

 

“ Intellectual Property ” has the meaning set forth in Section 4.8(a) in this Agreement;

 

“ Latest Date ” has the meaning set forth in Section 9.1(a)(viii) in this Agreement;

 

“ Laws ” has the meaning set forth in Section 4.9 in this Agreement;

 

“ Lease Agreements ” means (1) the lease between (a) SFF Realty Fund, L.P., (b) ICS and (c) P1 dated December 19, 2007, (2) the sublease between (a) P1, (b) ICS and (c) TBR dated December 19, 2007, (3) the indemnity agreement between (a) ICS and (b) P1 dated December 2007 and (4) the continuing guaranty between (a) TBR and (b) SFF Realty Fund, L.P. dated December 21, 2007;

 

“ Loss before professional fees and transaction adjustments ” has the meaning set forth in Section 12.1(b) in this Agreement;

 

“ Loss Claim ” has the meaning set forth in Section 12.1(b) in this Agreement;

 

“ New Directors ” means Rob Howe, Roger Wagner and Thomas Jackson;

 

“ Order ” means any decree, order, injunction, rule, judgment, consent of or by any court or governmental authority;

 

“ Parties ” has the meaning set forth in the Preamble of this Agreement;

 

“ Permits ” has the meaning set forth in Section 4.11 in this Agreement;

 

“ Person ” has the meaning set forth in Section 11.4 in this Agreement;

 

“ Petition Date” has the meaning set forth in Recital C in this Agreement;

 

“ Post Effective Date Payments ” has the meaning set forth in Section 3.2 in this Agreement;

 

“ Post-Petition Transactions ” has the meaning set forth in Section 13.4 in this Agreement;

 

“ Pre-Petition Transfers ” has the meaning set forth in Recital E in this Agreement;

 

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“ Property ” has the meaning set forth in Section 4.4(a) in this Agreement;

 

“ P1 ” means PaymentOne Corporation, a Delaware corporation;

 

“ P1 Business ” has the meaning set forth in Recital A in this Agreement;

 

“ P1 Contracts ” has the meaning set forth in Section 4.7 in this Agreement;

 

“ P1 Disclosure Schedule ” has the meaning set forth in Article 4 of this Agreement;

 

“ P1 Equity ” has the meaning set forth in Recital B in this Agreement;

 

“ P1 Equity Purchase ” has the meaning set forth in Section 2.1 in this Agreement;

 

“ P1 IP ” has the meaning set forth in Section 4.8(a) in this Agreement;

 

“ P1 knowledge ” or words of similar import shall be deemed to refer to the current actual knowledge following reasonable inquiry of Joseph Lynam and Evan Meyer;

 

“ P1 Proof Of Claim ” has the meaning set forth in Section 12.1(c) in this Agreement;

 

“ P1 Releasees ” has the meaning set forth in Section 13.5 in this Agreement;

 

“ P1 Releasors ” has the meaning set forth in Section 13.6 in this Agreement;

 

“ Releases ” has the meaning set forth in Section 13.7 in this Agreement;

 

“ Replaced Options ” means options originally granted pursuant to the P1 2000 Stock Incentive Plan that, prior to the date of this Agreement, were cancelled and replaced with options under the P1 2007 Equity Incentive Plan.

 

“ Reserved Claim ” has the meaning set forth in Section 12.1(c) in this Agreement;

 

“ SAS 70 Report ” has the meaning set forth in Section 4.6 in this Agreement;

 

“ Shared and Support Services Agreement ” shall mean the agreement between TBR (or any purchaser of all or substantially all of its assets) and P1 attached hereto as Exhibit A , with appropriate modifications mutually acceptable to Buyer, TBR and P1.

 

“ Security Documents ” means the Security Agreement between TBR and P1 dated as of January 26, 2005 and any related financing statements;

 

“ Tax ” or “ Taxes ” has the meaning set forth in Section 4.13(a)(i) in this Agreement;

 

“ Tax Returns ” has the meaning set forth in Section 4.13(a)(ii) in this Agreement;

 

“ TBR ” means The Billing Resource, d/b/a Integretel, Inc., a California Corporation;

 

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“ TBR Disclosure Schedule ” has the meaning set forth in Article 11 of this Agreement;

 

“ TBR Releasees ” has the meaning set forth in Section 13.6 in this Agreement;

 

“ TBR Releasors ” has the meaning set forth in Section 13.5 in this Agreement;

 

“ Third-Party License Agreements ” has the meaning set forth in Section 4.8(b) in this Agreement;

 

“ Total Stockholders’ Deficit ” has the meaning set forth in Section 12.1(a) in this Agreement;

 

“ Unaudited Fiscal Year-to-date Statement of Operations ” has the meaning set forth in Section 4.6 in this Agreement;

 

“ Yearly Balance Sheets ” has the meaning set forth in Section 4.6 in this Agreement; and

 

“ Yearly Statement of Operations ” has the meaning set forth in Section 4.6 in this Agreement;

 

NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows:

ARTICLE 2
EQUITY ACQUISITION

2.1.

Upon the Effective Date, TBR irrevocably conveys, transfers, assigns, sells and delivers to Buyer and Buyer purchases, acquires and assumes from TBR, free and clear of all liens, security interests, mortgages, encumbrances and restrictions, good and valid title to, and all of the rights and interest of TBR to the P1 Equity (the “ P1 Equity Purchase ”) such transfers to be subject to Bankruptcy Code Section 363(f) to the greatest extent legally permissible.  

ARTICLE 3
CONSIDERATION FOR EQUITY

3.1.

As consideration for the P1 Equity, P1’s assignment of the Debt to TBR in consideration therefor and Buyer’s agreement to provide additional capital to P1, Buyer shall, on the Effective Date, take the following steps to recapitalize P1: (i) deliver the Cash Consideration in immediately available funds to P1, (ii) modify Golden Gate’s prepayment obligation set forth in Section 3 of that certain Promissory Note dated December 28, 2007 in favor of the Buyer to be, from and for at least three months after the Effective Date, Five Hundred Thousand Dollars

 

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($500,000) per month (instead of Two Hundred and Fifty Thousand Dollars ($250,000) per month) or another commitment equivalent in amount and duration and convey to P1 Five Hundred Thousand Dollars ($500,000) on each of the monthly anniversaries of the Effective Date for three months following the Effective Date, (iii) covenant and agree to provide such additional capital to P1 as may be necessary to allow P1 to continue to operate its business in the ordinary course and satisfy its existing and reasonably foreseeable debts as they come due; (iv) guaranty P1 debts and obligations identified in Exhibit B attached hereto and (v) perform the other covenants and agreements contained herein (including without limitation those set forth in Article 13 hereof).  TBR and P1 acknowledge that Buyer’s covenants and agreement herein are adequate consideration for the conveyance to Buyer of the P1 Equity.  

3.2.

If P1 receives any payment of interest, principal, fees or any other amounts owing under or otherwise payable with respect to the Debt after the Effective Date, P1 shall retain all such amounts (collectively “ Post Effective Date Payments ”) and P1 shall from time-to-time issue credits to TBR in the amount of the accrued Post-Effective Date Payments (as reduced by any amounts previously used pursuant to this subsection) for use in offsetting amounts payable by TBR to P1 for Post-Petition Transactions.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF P1

P1 represents and warrants to Buyer that except as disclosed in the P1 Disclosure Schedule (the “ P1 Disclosure Schedule ”), each of the representations and warranties contained in this Article 4 are true and correct as of the date hereof and will be true and correct as of the Effective Date, other than those representations and warranties that are made only as of the Effective Date which shall only be true and correct as of the Effective Date.  The P1 Disclosure Schedule shall be arranged to correspond to the numbered and lettered Sections and Subsections contained in this Article 4 of this Agreement.

4.1.

Legal and Beneficial Owner .  As of the date hereof and the Effective Date, P1 is the legal and beneficial owner of the Debt, free and clear of any lien or encumbrance.

4.2.

Organization, Authorization, Validity and Enforceability .

(a)

P1 is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.  P1 has full power and authority and has taken all action necessary, to execute and deliver this Agreement and any and all other documents or agreements required or permitted in connection with this Agreement (such other agreements, the “ Ancillary Agreements ”) to be executed or delivered by P1 by it and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement and such other documents, and no governmental authorizations or other authorizations are required in connection therewith.

(b)

The authorized equity securities of P1 consist of 25,000,000 shares of common stock, par value $0.001, of which 3,583,100 shares are issued and outstanding as of the Effective Date and are owned by the Persons listed in Section 4.2(b) of the P1 Disclosure

 

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Schedule, and of which 2,100,000 are authorized under the 2000 Stock Incentive Plan and of which 2,300,000 shares are authorized for issuance under P1’s 2007 Equity Incentive Plan.  P1’s management and employees and certain third parties hold unexercised options to purchase an aggregate of 2,163,500 shares of P1 common stock (the “ Employee Options ”), which if exercised, would result in such Persons holding collectively 37.65% of P1’s common equity on a fully diluted basis (i.e., all P1 common shares issuable upon exercise of outstanding Employee Options combined with all P1 common shares already issued and outstanding).  Except for the Employee Options, and except as set forth on Section 4.2(b) of the P1 Disclosure Schedule and as provided in this Agreement with respect to the Buyer’s purchase of outstanding P1 Equity, there are (i) no outstanding equity securities of P1 or outstanding options, warrants, debentures, notes or securities or instruments convertible into or exercisable for equity securities of P1, and (ii) no agreements or understandings with respect to which any party has any rights with respect to ownership of equity securities of P1, or to be issued or to acquire equity securities of P1.  The equity securities of P1 set forth on Section 4.2(b) of the P1 Disclosure Schedule have been validly issued, free and clear of any preemptive or similar subscription right.  The Employee Options have been duly authorized and issued from the P1 2000 Stock Incentive Plan or the P1 2007 Equity Incentive Plan, as the case may be.  The Replaced Options were cancelled, and the cancellation of the Replaced Options is binding on P1 and each optionee who originally held Replaced Options.

(c)

This Agreement does, and the Ancillary Agreements to be executed or delivered by P1 upon their execution and delivery will, constitute the legal, valid and binding obligations of P1.

4.3.

Financial Condition of TBR .  P1 makes no representation or warranty and assumes no responsibility with respect to the financial condition of TBR or the performance by TBR of its obligations under the Debt, and P1 makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Debt or the execution, legality, validity, enforceability, genuineness, or sufficiency of the Debt.

4.4.

Property and Title .

(a)

Section 4.4(a)(i) of the P1 Disclosure Schedule contains a complete and accurate list of all real property, leaseholds or other interests owned by P1.   Section 4.4(a)(ii) of the P1 Disclosure Schedule sets forth a complete list of all real property, interests in real property and personal property leased by P1 on the Effective Date (individually, the “ Property ”), copies of which, including any amendments, supplements or other agreements pertaining thereto have been previously delivered to Buyer.  

(b)

Except as disclosed in Section 4.4(b) of the P1 Disclosure Schedule, P1 owns outright and has good and marketable title to the Property free and clear of all encumbrances and the execution of this Agreement and the consummation of the P1 Equity Purchase shall vest good and marketable title to the Property, free and clear of all encumbrances except encumbrances to be discharged at the Effective Date.  The Property constitutes all of the assets necessary to conduct the P1 Business on the Effective Date, except for the assets provided by TBR pursuant to the Shared and Support Services Agreement, and is in good condition, ordinary wear and tear excepted.  No employee, agent or affiliate of TBR or any other Person

 

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owns or has any interest, directly or indirectly, in any part of the Property.  Except for consents which have been obtained prior to the Effective Date, P1 does not require the consent of any other Person to transfer, assign or convey the Property and P1 is not required to seek the consent of, or make any third-party payments to any other Person with respect to the use of the Property.  None of the Property violates, dilutes or infringes any proprietary right of any other Person.    

4.5.

Environmental Matters .

Except as disclosed in Section 4.5 of the P1 Disclosure Schedule:

(a)

P1 is and always has been in compliance with all permits, licenses, registrations and other governmental authorizations required under any applicable foreign, provincial, federal, state or local governmental laws (including common laws), statutes, ordinances, codes, regulations, rules, policies, permits, licenses, certificates, approvals, judgments, decrees, orders, directives, or requirements that pertain to the protection of the environment, protection of public health and safety, or that pertain to the handling, use, manufacturing, processing, storage, treatment, transportation, discharge, release, emission, disposal, re-use, recycling, or other contact or involvement with hazardous materials, including, without limitation, the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as amended and the federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended (“ Environmental Law ”) to conduct the P1 Business (“ Environmental Permits ”) (except for such failures as have been noticed to the relevant governmental authority (if notice is required by Environmental Law) and remedied as indicated by a written letter of confirmation from such governmental authority (if such notice was given from such governmental authority) or remedied to the satisfaction of a reasonable and prudent person if such notice was not given) and P1 is and always has been otherwise in compliance with all Environmental Laws.

(b)

No employee of P1 or other Person has notified P1 that P1 is liable for alleged injury or illness resulting from an alleged exposure to a hazardous material and there is no basis for such a claim.  No civil, criminal or administrative action, proceeding or investigation is pending against P1 or threatened against P1, with respect to hazardous materials or Environmental Laws; and there are no facts or circumstances that would reasonably be expected to form the basis for assertion of a claim against P1 or that would reasonably be expected to form the basis for liability of P1, regarding hazardous materials or regarding actual or potential noncompliance with Environmental Laws.

(c)

P1 has not entered into or agreed to any material consent decree, order or agreement under any Environmental Law, which consent, decree, order or agreement remains in effect and P1 is not subject to any currently effective judgment, decree or order relating to compliance with any Environmental Law or to investigation, cleanup, remediation or removal of hazardous materials under any Environmental Law.

(d)

P1 has all the material Environmental Permits necessary for the conduct and operation of the P1 Business as now being conducted and all such Environmental Permits are valid and in good standing.

 

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(e)

There are no above-ground or underground storage tanks or known or suspected asbestos-containing materials on, under or about the Property, nor were there any underground storage tanks on, under or about any such Property in the past.

(f)

There is not now and during the leasehold term of P1, as applicable, any hazardous materials used, generated, treated, stored, transported, disposed of, released, handled or otherwise existing on or emanating from any Property.

(g)

There is no site to which P1 has transported or arranged for the transport of hazardous materials which is the subject of any claim under the Environmental Laws.

4.6.

Financial Statements; Books of Account; Internal Controls .  P1 has delivered to Buyer the unaudited balance sheet of P1 as of March 31, 2008 (the “ Balance Sheet Date ”).  The unaudited balance sheet of P1 as at the Balance Sheet Date is referred to in this Agreement as the “ Balance Sheet ” and is disclosed in Section 4.6 of the P1 Disclosure Schedule.  P1 has also delivered its statement of operations to Buyer for the nine months ended March 31, 2008, as well as its statement of cash flows for such period (the “ Unaudited Fiscal Year-to-date Statement of Operations ” and is disclosed in Section 4.6 of the P1 Disclosure Schedule).  P1 has also delivered to Buyer its audited balance sheets as of June 30, 2007 and June 30, 2006 (the “ Yearly Balance Sheets ” and is disclosed in Section 4.6 of the P1 Disclosure Schedule) and its statement of operations and statement of cash flows for the years ended June 30, 2007 and June 30, 2006 (the “ Yearly Statement of Operations ” and is disclosed in Section 4.6 of the P1 Disclosure Schedule).  All of the Balance Sheet, the Unaudited Fiscal Year-to-date Statement of Operations, the Yearly Balance Sheets and Yearly Statement of Operations, were prepared in accordance with Generally Accepted Accounting Principles in the United States of America and present fairly and fully the Company’s financial condition and results of operations as at, and for, the dates and periods indicated. The accounts payable of P1 set forth in the P1 Disclosure Schedule are the result of bona fide transactions in the ordinary course of business, except as indicated in such P1 Disclosure Schedule .   Except as disclosed in Section 4.6 of the P1 Disclosure Schedule, P1 does not have any liabilities other than those that are set forth in the Balance Sheet, which, individually or in the aggregate, is material to the business, operations, condition or prospects of P1 .   On March 14, 2007, P1 received its independent service auditor’s “Report on Controls Placed in Operations and Tests of Operating Effectiveness” in accordance with the Statement of Auditing Standards No. 70 for the period from June 1, 2006 through November 30, 2006 (the “ SAS 70 Report ” and the SAS 70 Report is disclosed in Section 4.6 of the P1 Disclosure Schedule).  Since that period, no further SAS 70 reviews or reports have been completed by P1’s independent service auditor.  However, P1 management has reviewed the SAS 70 Report and has compared the relevant aspects of P1’s controls that had been placed in operation as of November 30, 2006 to the controls in operation as of March 31, 2008 and have determined there are no material differences or weaknesses in such controls.

4.7.

Contracts .  P1 has permitted Buyer to see and has placed under Sections 2 , 3 , 12 and 14 of the data room, true and complete copies of all material Contracts legally binding on P1 (the “ P1 Contracts ”), which P1 Contracts are set forth on Section 4.7 of the P1 Disclosure Schedule.  Except as disclosed in Section 4.7 of the P1 Disclosure Schedule, the P1 Contracts are valid and effective in accordance with their terms and to the knowledge of P1, P1 is not in breach of any of the material terms thereof.  Except as disclosed in Section 4.7 of the P1

 

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Disclosure Schedule, the continuation, validity and effectiveness of the P1 Contracts shall not be affected by the P1 Equity Purchase and the P1 Equity Purchase shall not result in a breach of or default under, or require the consent of any other party to, any P1 Contract.  Except as disclosed in Section 4.7 of the P1 Disclosure Schedule, there is no actual or to the knowledge of P1, threatened termination, cancellation or limitation of any P1 Contract. To the knowledge of P1, no customer of P1 has indicated any intention to curtail the level of business done with P1 during the period commencing January 1, 2008 through the date of this agreement.  

4.8.

Intellectual Property .  

(a)

“ P1 IP ” means intellectual property owned or used in the P1 Business and any agreements material to the P1 Business relating to technology or intellectual property, as well as all associated goodwill and all rights against infringement thereof.  As used herein “ Intellectual Property ” means all patents (issued or applications), trademarks (registered or unregistered), trade names (registered or unregistered), service marks (registered or unregistered), copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof, domain names, trade secrets, licenses or licensing rights and all other confidential information related to the P1 Business, held in the United States or elsewhere.

(b)

P1 owns or possesses sufficient legal rights to use, reproduce, distribute, modify, make derivative works of and publicly display and perform all P1 IP, without any infringement of the rights of others. Except for licenses acquired in connection with the acquisition of “off-the-shelf” computer software (for which P1 has a valid license) and any other P1 IP used under third-party license agreements disclosed in Section 4.8(b)(i) of the P1 Disclosure Schedule (“ Third-Party License Agreements ”), P1 owns all P1 IP.  P1 has not violated, diluted or infringed nor is violating, diluting or infringing, any Intellectual Property of any Person.  To the knowledge of P1, no Person has violated, diluted or infringed or is violating, diluting or infringing any P1 IP.  Except as disclosed in Section 4.8(b)(ii) of the P1 Disclosure Schedule, all Intellectual Property or any interest therein made or developed by any employee, independent contractor or consultant of P1, either alone or in conjunction with others, at any time or at any place during such employee’s, independent contractor’s or consultant’s retention by P1, whether or not reduced to writing or practice during such period of retention, which relate to the P1 IP, has been irrevocably assigned or otherwise transferred to P1.  To the knowledge of P1, P1 is not in breach of any of the material terms of the Third Party License Agreements.  Any employee or consultant involved in developing P1 IP has validly assigned all rights in such IP to P1 through work for hire agreements or similar instruments or agreements and has signed confidentiality agreements in the form set forth in section 12.6 of the data room.

4.9.

Regulatory and Legal Compliance .  Except as disclosed in Section 4.9(a) of the P1 Disclosure Schedule and except with respect to Taxes as to which representations and warranties are being made in Section 4.13 , P1 is in material compliance in all respects with all applicable foreign, federal, state and local statutes, laws, ordinances, judgments, decrees, orders, governmental and nongovernmental rules, regulations, policies and guidelines (“ Laws ”).  Except as disclosed in Section 4.9(b) of the P1 Disclosure Schedule, P1 has not received any notice (including surveys) from any governmental or regulatory authority or otherwise of any alleged violation or noncompliance.  In the event that any such action shall have been taken or recommended before the Effective Date, P1 agrees to provide written notice

 

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to Buyer of the same and to diligently and in good faith take prompt corrective or remedial action to cure the same.

4.10.

Required Consents .  Besides the Approval Order, no consent, notice, order, authorization, approval, declaration or filing, including, without limitation, any consent, notice, approval or authorization of or declaration or filing with any governmental or nongovernmental authority is or was required on the part P1 for or in connection with the execution, delivery or performance of this Agreement or the consummation of the P1 Equity Purchase.  Except as disclosed in Section 4.10 of the P1 Disclosure Schedule, the execution, delivery and performance of this Agreement and the Ancillary Agreements to be executed or delivered by P1 does not and shall not result in any violation of, conflict with or default under, any law, statute, regulation, ordinance, contract, permit, agreement, instrument, judgment, decree or order to which P1 is a party or by which P1 is bound.

4.11.

License and Permits .   Section 4.11 of the P1 Disclosure Schedule sets forth all licenses, permits, authorizations and certifications of governmental, non-governmental and other standard-setting or regulatory authorities held by P1 which are required for the operation of the P1 Business, or any division thereof (collectively, the “ Permits ”).  P1 is in compliance with the Permits, all of which are in full force and effect.  There are no other governmental or nongovernmental licenses, permits, authorizations or certifications which are required to operate the P1 Business, or any division thereof, which any such party has not obtained and which are necessary for the conduct of the P1 Business.  P1 does not know of any threatened suspension, cancellation or invalidation of any such license, permit, authorization or certification.  The consummation of the transactions contemplated hereby will not affect the validity or effectiveness of any Permit, except as would not have a material adverse effect on P1.

4.12.

Litigation .  Except as disclosed in Section 4.12 of the P1 Disclosure Schedule, there is no action, suit, proceeding or investigation before any court, arbitrator or governmental authority, pending or, to the knowledge of P1, threatened against P1, in relation to the affairs of the P1 Business and there is no basis known to P1 for any such action, suit, proceeding or investigation.  P1 does not have any plans to initiate any action, suit or proceeding before any court, arbitrator or governmental authority in relation to the P1 Business.  

4.13.

Tax Matters .

(a)

Definitions .  For purposes of this Agreement, the following definitions shall apply:

(i)

“ Tax ” or “ Taxes ” shall mean (1) taxes of any kind whatsoever, whether foreign, federal, state or local and including income, gross receipts, ad valorem, value added, excise, real or personal property, asset, sales, use, license, payroll, transaction, capital, net worth and franchise taxes, estimated taxes, withholding, employment, social security, workers compensation, utility, severance, unemployment compensation, occupation, transfer, goods and services tax and gains taxes or other governmental taxes, stamp duties, customs duties and similar charges imposed by or payable to any governmental authority and including any interest or penalties imposed with respect thereto and (2) any liability of P1 for the payment of amounts with respect to any Tax described in clause (1) whether imposed by law, contractual agreement or

 

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otherwise, including liabilities imposed as a result of being a member of an affiliated, consolidated, combined or unitary group, a transferee of or successor to any Person, or a party to any tax sharing arrangement or tax indemnity arrangement.

(ii)

“ Tax Returns ” shall mean all reports, estimates, declarations of estimated tax, information statements and returns relating to, or required to be filed in connection with, any Taxes and any schedules attached to or amendments of (including refund claims with respect to) any of the foregoing, including (where permitted or required) consolidated, combined or unitary returns for any group of entities.

(b)

Tax Returns Filed and Taxes Paid .  Except as disclosed in Section 4.13(b) of the P1 Disclosure Schedule, (i) all Tax Returns required to be filed by or on behalf of P1 have been timely filed; all Taxes due and payable by or with respect to P1 with respect to any period covered by such Tax Returns have been paid; and such Tax Returns are true, complete and correct; (ii) P1 has not extended any applicable statute of limitations regarding Taxes for which the statute of limitations for assessment of Tax remains open; and (iii) P1 is a “United States person” as such term is used in Code Section 1445.

(c)

All Taxes that P1 was required by law to withhold or collect have been duly withheld or collected and to the extent required have been properly paid to the appropriate governmental authority.

(d)

No examination or audit of any Tax Return of or with respect to P1 by any governmental authority is currently in progress, threatened or contemplated.  P1 has not been informed by any jurisdiction that the jurisdiction believes that P1 was required to file any Tax Return that was not filed.

(e)

None of the assets of P1: (i) is property that is required to be treated as being owned by any other person pursuant to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954; or (ii) is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

(f)

Section 4.13(f) of the P1 Disclosure Schedule sets forth each jurisdiction (other than United States federal) in which P1 files, is required to file or has been required to file a Tax Return or is or has been liable for any Taxes on a “nexus” basis.

(g)

There are no liens or other encumbrances with respect to Taxes upon any of the assets or properties of P1, other than with respect to Taxes not yet due and payable.

4.14.

Employment and Labor Matters .

(a)

P1’s employees are listed in Section 4.14(a) of the P1 Disclosure Schedule (the “ Business Employees ”).   Other than the Business Employees, there are no other employees of P1.  

(b)

With respect to the Business Employees, P1 is in full compliance with all applicable federal, state and local laws respecting employment, hiring of employees and employment practices, terms and conditions of employment, including, but not limited to, the payment and calculation of wages, hours, equal opportunity, anti-discrimination, anti-

 

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harassment, anti-retaliation, collective bargaining, disability rights or benefits, leave laws, labor relations and immigration and naturalization. Without limiting the generality of the foregoing and except as disclosed in Section 4.14(b) of the P1 Disclosure Schedule there are no claims threatened or pending against P1, asserting any violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Equal Pay Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, ERISA or any other similar federal, state or local employment law, statute or ordinance.

(c)

Except as disclosed in Section 4.14(c) of the P1 Disclosure Schedule, with respect to the P1 Business:

(i)

there are no charges, governmental audits, investigations, administrative proceedings, claims in arbitration, or complaints concerning the employment practices of P1 pending or threatened against P1 before any federal, state or local agency or court, or arbitral forum concerning any claim that P1 have violated any employment contract or Law relating to employment, equal opportunity, discrimination, retaliation, harassment, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, trade secret misappropriation, occupational safety and health and/or privacy rights of employees and no basis for any such matter exists;

(ii)

there are no inquiries, investigations or monitoring of activities pending or, to the knowledge of P1, threatened by any state professional board or agency charged with regulating professional activities of any licensed, registered or certified professional personnel employed by, credentialed or privileged by, otherwise affiliated with P1 and who provides services to the P1 Business;

(iii)

P1 is not a party to any union or collective bargaining agreement, no union attempts to organize its employees have been made, nor any such attempts now threatened;

(iv)

P1 has not experienced any organized slowdown work interruption, strike or work stoppage by any of its employees;

(v)

P1 shall not incur any liability to any Business Employee or violate any applicable laws respecting employment and employment practices as a result of the Transaction;

(vi)

P1 is not a party to any contract, agreement, or arrangement with any employee of Buyer that (A) restricts P1’s right to terminate the employment with respect to any Business Employee without cause or without a specified notice period, or (B) obligates P1 to pay severance to any employee of P1 upon termination of such employee’s employment with P1 or upon a change in control of P1;

(vii)

P1 has completed Form I-9s that are on file with respect to each of its Business Employees;

(viii)

Since January 1, 2007, with respect to each Business Employee, P1: (A) has withheld and reported all material amounts required by Law or by agreement

 

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to be withheld and reported with respect to wages, salaries and other payments; (B) has no outstanding liability or any potential material liability, for any arrears of wages, severance pay or any penalty relating thereto for failure to comply with any of the foregoing; (C) has no outstanding liability or any potential material liability, for any payment to any trust or other fund governed by or maintained by or on behalf of any government entity, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the ordinary course of business and consistent with past practice); and (D) has no outstanding liability or any potential material liability, with respect to any misclassification of any person as an independent contractor rather than as an employee, or with respect to any employee leased from another employer, or an employee exempt from state or federal overtime Laws; and

(ix)

No Business Employee is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition or proprietary rights agreement, between such employee and any other Person that in any way materially and adversely affects the performance of his or her duties as an employee of P1.     

4.15.

Insurance .   Section 4.15 of the P1 Disclosure Schedule contains a list of all insurance policies (specifying the location, insured, insurer, amount of coverage, type of insurance and policy number) maintained by P1, including, but not limited to, professional liability, officers’ liability, directors’ liability, workers’ compensation and keyman life insurance.  All such policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the Effective Date have been paid and no notice of cancellation or termination has been received with respect to any such policy.  P1 has at all times during the last three years of operation of the P1 Business had insurance policies in full force and effect with reputable insurers, providing for coverages which are reasonable for the P1 Business as to both amount and scope.  Such policies (i) shall remain in full force and effect through the Effective Date without the payment of additional premiums and (ii) shall not in any way be breached or violated by reason of the P1 Equity Purchase.

4.16.

Accounts Receivable .   Section 4.16 of the P1 Disclosure Schedule lists by Local Exchange Carrier, the amount of P1’s accounts receivable arising out of the P1 Business as of March 31, 2008, net of specified discounts, allowances and rebates. All invoices have been prepared on the basis of available information but are subject to review and correction in accordance with past practices.  All such accounts are bona fide, arose in the ordinary course of business, and to the best knowledge of P1, the accounts receivable of P1 are collectible, and there is no contest, claim, or right of set off, under any contract with any obligor of an accounts receivable relating to the amount or validity of such accounts receivable.

4.17.

Business Forms, Procedures and Practices .  P1’s forms, procedures and practices relating to the P1 Business are in material compliance with all applicable Laws, which forms, procedures and practices include P1’s written and verbal contracts.  All of P1’s brochures, ads and other materials describing the P1 Business, including current price schedules, are true and accurate.  

 

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4.18.

Brokers .  Except as disclosed in Section 4.18 of the P1 Disclosure Schedule, no broker, finder or other intermediary is entitled to any fee, commission or other payment or consideration of any kind in connection with the transactions contemplated by this Agreement as a result of any actions or agreement or commitment entered into by or on behalf of P1.

4.19.

Books and Records .  The minute books of P1 accurately reflect all material actions and proceedings taken to date by the shareholders, board of directors and committees of P1 and such minute books contain true and complete copies of the charter documents of P1 and all related amendments.  The stock record books of P1 reflect accurately all transactions.  

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER  

Buyer hereby represents and warrants to P1 and TBR as follows:

5.1.

Legal Existence and Organization .  Buyer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all requisite power and authority to own its properties and to carry on its business as such business is now conducted and presently proposed by it to be conducted.

5.2.

Authorization Validity and Enforceability .

(a)

Buyer has full power and authority, and has taken all action necessary, to execute and deliver this Agreement and the Ancillary Agreements to be executed or delivered by Buyer and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement and the Ancillary Agreements to be executed or delivered by Buyer, and no governmental authorizations or other authorizations are required in connection therewith.

(b)

The execution, delivery and performance of this Agreement by Buyer and the consummation of the P1 Equity Purchase by it does not and shall not (i) contravene or constitute a default under any provision of (A) any of Buyer’s organizational documents or (B) any contract, agreement or other instrument to which Buyer is a party or by which Buyer is bound, or (ii) contravene any applicable law, regulation, rule, judgment, order or decree binding upon Buyer.

(c)

This Agreement is and each of the Ancillary Agreements to be executed or delivered by Buyer to effect the P1 Equity Purchase shall be when executed and delivered by Buyer, its valid and binding obligation, enforceable, in all material respects, in accordance with their respective terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws, or by equitable principles relating to the rights of creditors generally.

5.3.

Access to Funds .  Buyer has or will have, as of the Effective Date, access to available cash funds necessary to timely pay the Cash Consideration.

 

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5.4.

Buyer’s Credit Analysis .  Buyer has independently and without reliance upon P1 and based on such documents and information as Buyer has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.

ARTICLE 6
[RESERVED]

ARTICLE 7
COVENANTS REGARDING CONVEYANCE OF THE DEBT

7.1.

Subject always to Article 12 hereof, upon the Effective Date, and immediately following the closing of the P1 Equity Purchase, (a) P1 shall execute the Debt Transfer Documents in the form attached hereto as Exhibit D pursuant to which the Debt shall be conveyed to TBR without representation, recourse or warranty, with all rights related to the Debt being preserved for the benefit of TBR and TBR’s bankruptcy estate, including any priorities and other rights related to such Debt under the Security Documents, all of which shall be preserved for the benefit of TBR’s estate pursuant to this Agreement, the Debt Transfer Document and Bankruptcy Code Section 551.  Notwithstanding the foregoing, P1 shall retain all rights related to the Post-Petition Transactions and TBR shall execute the Debt Transfer Document.  

ARTICLE 8
CLOSING  

8.1.

The consummation of the assignment of the Debt to TBR and purchase of the P1 Equity by Buyer shall take place at the offices of O’Melveny & Myers LLP, 400 South Hope Street, Los Angeles, CA 90071-2899 on the Effective Date.  

ARTICLE 9
CONDITIONS TO THE EFFECTIVE DATE

9.1.

The respective obligation of each Party hereto to effect the transactions contemplated by this Agreement is subject to the satisfaction or waiver of the following conditions:

(a)

P1 shall deliver or cause to be delivered to Buyer:

(i)

certified copies of resolutions duly adopted by the Board of Directors of P1, approving the execution and delivery of this Agreement;

(ii)

the P1 Disclosure Schedule as contemplated by Article 4 of this Agreement;

 

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(iii)

a resignation letter from Joseph Lynam as a director, officer and employee of P1;

(iv)

a copy of the Shared and Support Services Agreement in the form attached hereto as Exhibit A , executed by TBR and P1

(v)

agreements assigning and conveying to Buyer all of the outstanding equity interests in P1 not owned by TBR;

(vi)

(a) reasonable information about the investor suitability of all holders of outstanding options and other equity interests in P1 equity interests, (b) reasonably acceptable consents by all holders of outstanding options and other equity interests in P1 equity interests, with such consents containing the agreement of each such holder (i) cancelling all such options and conveying such other equity interests to Buyer on the terms set forth in Exhibit C attached hereto (the “ Plan ”) and (ii) consenting to the terms of the option agreements provided under the Plan, and (c) P1 board approval of the formula used to determine the ratio of P1 options to be canceled in exchange for options in Buyer to be issued as consistent with the terms of the P1 2000 Stock Incentive Plan and the P1 2007 Equity Incentive Plan, respectively;

(vii)

evidence reasonably satisfactory to Buyer, as determined by the Reviewed Financial Statements and the audited Yearly Balance Sheets and Yearly Statement of Operations, that each of the Balance Sheet, the Unaudited Fiscal Year to Date Statement of Operations, the Yearly Balance Sheets and Yearly Statement of Operations was prepared in accordance with Generally Accepted Accounting Principles in the United States of America, and fairly and accurately present in all material respects the Company’s financial cond