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Exhibit 2.1
MEMBERSHIP INTEREST PURCHASE AGREEMENT
DATED AUGUST 31, 2005
BY AND AMONG
SUPERCLICK, INC.
AND
CHIRAG PATEL, ANIL PATEL, VIMAL PATEL, BELLA INVESTMENTS, LLC AND NITIN SHAH
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ARTICLE I.........................................................................................................1
DEFINITIONS.......................................................................................................1
ARTICLE II........................................................................................................8
SALE AND TRANSFER OF MEMBERSHIP INTERESTS; CLOSING................................................................8
2.1 INTERESTS.............................................................................................8
2.2 PURCHASE CONSIDERATION................................................................................8
2.3 OTHER PAYMENTS........................................................................................9
2.4 CLOSING...............................................................................................9
2.5 CLOSING DELIVERIES...................................................................................10
ARTICLE III......................................................................................................11
REPRESENTATIONS AND WARRANTIES OF SELLERS........................................................................11
3.1 ORGANIZATION AND GOOD STANDING.......................................................................11
3.2 AUTHORITY; NO CONFLICT...............................................................................11
3.3 CAPITALIZATION.......................................................................................12
3.4 FINANCIAL STATEMENTS.................................................................................12
3.5 BOOKS AND RECORDS....................................................................................13
3.6 TITLE TO PROPERTIES; ENCUMBRANCES....................................................................13
3.7 CONDITION AND SUFFICIENCY OF ASSETS AND/OR LEASED ASSETS.............................................13
3.8 ACCOUNTS RECEIVABLE..................................................................................13
3.9 INVENTORY............................................................................................14
3.10 NO UNDISCLOSED LIABILITIES...........................................................................14
3.11 TAXES................................................................................................14
3.12 NO MATERIAL ADVERSE CHANGE...........................................................................15
3.13 BENEFIT PLANS........................................................................................15
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS......................................16
3.15 LEGAL PROCEEDINGS; ORDERS............................................................................17
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS................................................................18
3.17 CONTRACTS; NO DEFAULTS...............................................................................19
3.18 INSURANCE............................................................................................20
3.19 EMPLOYEES............................................................................................21
3.20 LABOR DISPUTES; COMPLIANCE...........................................................................22
3.21 INTELLECTUAL PROPERTY................................................................................22
3.22 CERTAIN PAYMENTS.....................................................................................24
3.23 RELATIONSHIPS WITH RELATED PERSONS...................................................................24
3.24 BROKERS OR FlNDERS...................................................................................25
3.25 [Intentionally omitted.].............................................................................25
3.26 DISCLOSURE...........................................................................................25
ARTICLE IV.......................................................................................................25
REPRESENTATIONS AND WARRANTIES BY BUYER..........................................................................25
4.1 PREEMPTIVE RIGHTS....................................................................................25
4.2 ORGANIZATION.........................................................................................25
4.3 CAPITALIZATION.......................................................................................26
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4.4 AUTHORITY............................................................................................26
4.5 NO CONFLICT..........................................................................................26
4.6 GOVERNMENTAL BODIES..................................................................................27
4.7 UNTRUE STATEMENTS....................................................................................27
4.8 MATERIAL ADVERSE EFFECT..............................................................................27
4.9 NONDISCLOSURE........................................................................................27
4.10 LEGAL PROCEEDINGS; ORDERS............................................................................28
4.11 DEFAULT..............................................................................................28
4.12 CONTROL PERSONS......................................................................................28
4.14 BROKER COMMISSIONS...................................................................................29
4.15 SEC FILINGS..........................................................................................29
4.16 SURVIVAL.............................................................................................29
4.17 INVESTMENT INTENT....................................................................................29
4.18 REPORTS; FINANCIAL STATEMENTS........................................................................30
ARTICLE V........................................................................................................31
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER.................................................................31
5.1 REPRESENTATION AND WARRANTIES TRUE AT THE CLOSING DATE...............................................31
5.2 NO MATERIAL ADVERSE CHANGE...........................................................................31
5.3 SELLERS' PERFORMANCE.................................................................................31
5.4 CERTIFICATES OF GOOD STANDING........................................................................31
5.5 OWNERSHIP OF INTERESTS...............................................................................31
5.6 NO PROHIBITION OF TRANSACTION........................................................................31
5.7 COMPLIANCE WITH LAW..................................................................................32
5.8 DOCUMENTATION AND CONSENTS...........................................................................32
5.9 EMPLOYMENT AGREEMENTS................................................................................32
5.10 CONSENTS TO ASSIGNMENTS..............................................................................32
5.11 RESIGNATIONS.........................................................................................32
5.12 SELLERS' RELEASE.....................................................................................32
5.13 DUE DILIGENCE........................................................................................32
5.14 [Intentionally omitted.].............................................................................33
5.15 RECORDS..............................................................................................33
5.16 [Intentionally omitted.].............................................................................33
5.17 OTHER DOCUMENTS AND ASPECTS OF THE TRANSACTION.......................................................33
5.18 ACTIONS SATISFACTORY.................................................................................33
ARTICLE VI.......................................................................................................33
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS...............................................................33
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE..............................................33
6.2 NO MATERIAL ADVERSE CHANGE...........................................................................33
6.2 INDEMNITY AGREEMENT..................................................................................33
6.3 BUYER'S PERFORMANCE..................................................................................33
6.4 OPINION OF BUYER'S COUNSEL...........................................................................34
6.5 CONTINUED LISTING....................................................................................34
6.6 EMPLOYMENT AGREEMENTS................................................................................34
6.7 NO PROHIBITION OF TRANSACTION........................................................................34
6.8 COMPLIANCE WITH LAW..................................................................................34
6.9 MEMBERS' RELEASE.....................................................................................34
ARTICLE VII......................................................................................................34
COVENANTS OF SELLERS PRIOR TO CLOSING DATE.......................................................................34
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7.1 ACCESS AND INVESTIGATION.............................................................................34
7.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANY..................................................35
7.3 NEGATIVE COVENANT....................................................................................35
7.4 APPROVALS OF GOVERNMENTAL BODIES.....................................................................35
7.5 NOTIFICATION.........................................................................................35
7.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS...........................................................35
7.7 NO NEGOTIATION.......................................................................................35
7.8 BEST EFFORTS.........................................................................................36
ARTICLE VIII.....................................................................................................36
COVENANTS OF BUYER PRIOR TO CLOSING DATE.........................................................................36
8.1 APPROVALS OF GOVERNMENTAL BODIES.....................................................................36
8.2 NOTIFICATION.........................................................................................36
8.3 BEST EFFORTS.........................................................................................36
ARTICLE IX.......................................................................................................36
COVENANTS OF SELLERS AND BUYER SUBSEQUENT TO THE CLOSING DATE....................................................36
9.1 FURTHER ASSURANCES...................................................................................36
9.2 FURTHER CONSENTS.....................................................................................36
9.3 SEC REPORTS..........................................................................................37
ARTICLE X........................................................................................................37
MUTUAL COVENANTS.................................................................................................37
10.1 EXPENSES.............................................................................................37
10.2 PUBLIC ANNOUNCEMENTS.................................................................................37
10.3 CONFIDENTIALITY......................................................................................37
ARTICLE XI.......................................................................................................38
INDEMNIFICATION; REMEDIES........................................................................................38
11.1 SURVIVAL.............................................................................................38
11.2 TIME LIMITATIONS.....................................................................................38
11.3 INDEMNIFICATION BY SELLERS...........................................................................38
11.4 INDEMNIFICATION BY BUYER.............................................................................39
11.5 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS..................................................39
11.6 EXCLUSIVITY OF INDEMNIFICATION FOR CONTRACTUAL BREACHES..............................................40
ARTICLE XII......................................................................................................40
TERMINATION......................................................................................................40
12.1 TERMINATION EVENTS...................................................................................40
12.2 EFFECT OF TERMINATION................................................................................41
ARTICLE XIII.....................................................................................................41
MISCELLANEOUS....................................................................................................41
13.1 NOTICES..............................................................................................41
13.2 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL........................................................42
13.3 FURTHER ASSURANCES...................................................................................43
13.4 WAIVER...............................................................................................43
13.5 ENTIRE AGREEMENT AND MODIFICATION....................................................................43
13.6 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS....................................................43
13.7 SEVERABILITY.........................................................................................44
13.8 SECTION HEADINGS, CONSTRUCTION.......................................................................44
13.9 TIME OF ESSENCE......................................................................................44
13.10 COUNTERPARTS.........................................................................................44
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EXHIBITS.........................................................................................................46
Exhibit 2.5(b)(ii) Secured Convertible Promissory Note issuable to Hotel Net LLC Shareholders..............47
Exhibit 2.5(b)(iii) Earn-Out Convertible Promissory Note....................................................47
Exhibit 2.5(b)(v) Earn-Out Agreement......................................................................47
Exhibit 2.5(b)(vi) Member's Release Agreement..............................................................47
Exhibit 5.9(a) Employment Agreement with Chirag Patel..................................................47
Exhibit 5.9(b) Employment Agreement with Anil Patel....................................................47
Exhibit 5.9(c) Employment Agreement with Vimal Patel...................................................47
Exhibit 5.9(d) Employment Agreement with Brandon Dunn..................................................47
DISCLOSURE LETTER................................................................................................48
Section 3.3 Capitalization.................................................................................48
Section 3.8 Accounts Receivable............................................................................48
Section 3.9 Inventory......................................................................................48
Section 3.10 No Undisclosed Liabilities.....................................................................48
Section 3.11 Taxes..........................................................................................48
Section 3.12 No Material Adverse Change.....................................................................48
Section 3.13 Benefit Plans..................................................................................48
Section 3.14 Compliance with Legal Requirements; Governmental Authorizations................................48
Section 3.15 Legal Proceedings; Orders......................................................................48
Section 3.16 Absence of Certain Changes and Events..........................................................48
Section 3.17 Contracts; No Defaults.........................................................................48
Section 3.18 Insurance......................................................................................48
Section 3.22 Intellectual Property..........................................................................48
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (hereinafter referred to as
this "Agreement"), dated as of August 31, 2005 among SUPERCLICK, INC., a
Washington corporation (hereinafter referred to as the "Buyer"), CHIRAG PATEL,
an individual residing in Georgia, ANIL PATEL, an individual residing in
Florida, VIMAL PATEL, an individual residing in Florida, BELLA INVESTMENTS, LLC,
a Georgia Limited Liability Company, and NITIN SHAH, an individual residing in
Georgia, which shall be collectively referred to hereinafter as "Sellers" or the
"Members," or individually as a "Seller" or "Member." The Buyer and the Sellers
shall be collectively referred to hereinafter as the "Parties."
WHEREAS, Sellers own membership interests of Hotel Net LLC (hereinafter
referred to as the "Interests"), a Georgia limited liability company (the
"Acquired Company"), which constitute 100% of the issued and outstanding
Interests of the Acquired Company;
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the
Interests that they own of the Acquired Company.
NOW, THEREFORE, in consideration of the foregoing, the Parties, intending
to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings specified or referred to in this Section 1:
"Accounts Receivable" - as defined in Section 3.8.
"Acquired Company" - HotelNet, LLC.
"Atlanta Office" - Chirag Patel, Dipan Patel, Amil Patel and Vimal Patel.
"Best Efforts" -- the efforts that a prudent Person desirous of achieving a
result would use under similar circumstances to ensure that such result is
achieved as expeditiously as possible.
"Binder Stock" - as defined in Section 2.2.
"Buyer" - Superclick, Inc.
"Buyer Audit Date" -- as defined in Section 4.8.
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"Buyer's Disclosure Letter" - the disclosure letter delivered by Buyer to
Sellers concurrently with the execution and delivery of this Agreement.
"Buyer Material Adverse Effect" - means any circumstance(s) or event(s), the
result of which would have, or reasonably could be expected to have,
individually or in the aggregate, a material adverse effect on the business,
assets, results of operations, or condition (financial or otherwise) of Buyer
and its Subsidiaries or on the Contemplated Transactions.
"Buyer SEC Reports" -- as defined in Section 4.19.
"Closing" -- as defined in Section 2.4.
"Closing Date" -- shall mean August 31, 2005, or such other date and time
mutually agreed to among the parties hereto.
"Closing Shares" - as defined in Section 2.5(b)(iv).
"Code" -- the Internal Revenue Code of 1986, as amended from time to time, or
any successor law.
"Consent" -- any approval, consent, ratification, permission, waiver or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by this
Agreement, including, but not limited to:
(i) the sale of the Interests by Sellers to Buyer;
(ii) the execution, delivery and performance of the Promissory Notes, the
Employment Agreements, and the Releases;
(iii) the performance by Buyer and Sellers of their respective covenants
and obligations hereunder;
(iv) Buyer's acquisition and exercise of control over the Acquired
Company; and
(v) any change in the managers, officers or other key employees of the
Acquired Company.
"Contract" -- any agreement, contract, instrument, indenture, guaranty, power of
attorney, commitment, promise, assurance, obligation or undertaking.
"Conversion Shares" -- as defined in Section 3.2.
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"Copyrights" -- as defined in Section 3.21(a).
"Damages" -- as defined in Section 11.3.
"Director's Plans" -- as defined in Section 3.13(a).
"Disclosure Letter" -- the disclosure letter delivered by Sellers to Buyer
concurrently with the execution and delivery of this Agreement; provided that on
or prior to 12:00 noon (San Diego, California time) Wednesday, August 31, 2005,
Sellers shall have the right to update the Disclosure Letter solely with respect
to (i) cross referencing information contained in the Disclosure Letter
delivered to Buyer concurrently with the execution and delivery of this
Agreement with the appropriate section numbers of the Agreement, (ii) compiling
Exhibits referenced in the Disclosure Letter delivered to Buyer concurrently
with the execution and delivery of this Agreement, and (iii) disclosing consents
that Sellers are required to obtain from third parties who are parties to
agreements set forth in the Disclosure Letter delivered to Buyer concurrently
with the execution and delivery of this Agreement.
"Employment Agreements" -- as defined in Section 5.9.
"Encumbrance" -- any lien, pledge, hypothecation, charge, mortgage, deed of
trust, security interest, encumbrance, equity, trust, equitable interest, claim,
easement, right-of-way, servitude, right of possession, lease tenancy, license,
encroachment, intrusion, covenant, infringement, interference, Order, proxy,
option, right of first refusal, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any kind, including, but not limited to,
restriction on the use, voting (in the case of any security), transfer, receipt
of income or other exercise of any other attribute of ownership.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as amended from
time to time, or any successor law.
"Exchange Act" - shall mean the Securities Exchange Act of 1934, as amended from
time to time, or any successor law.
"Facilities" -- any real property, leaseholds or other interests currently or
formerly owned or operated by the Acquired Company (or any predecessor Person)
and/or any buildings, plants, structures or equipment of the Acquired Company
(or any predecessor Person).
"Financial Reports" -- as defined in Section 3.4(a).
"GAAP" -- generally accepted United States accounting principles applied on a
basis consistent with the basis on which financial statements referred to were
prepared.
"Governmental Authorization" -- any permit, license, franchise, approval,
consent, ratification, permission, confirmation, endorsement, waiver,
certification, registration, qualification or other authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
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"Governmental Body" -- any:
(i) nation, kingdom, republic, confederation, principality, state,
commonwealth, province, territory, canton, country, parish, city, town,
township, municipality, village, hamlet, borough, district or other jurisdiction
of any nature;
(ii) federal, state, local, municipal, foreign or other government;
(iii) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, ministry,
service, system, corps, administration, bureau, branch, office, commission,
council, board, instrumentality, officer, official, representative,
organization, unit, organ, body or entity and any court or other tribunal);
(iv) multi-national organization or body; or
(v) body exercising, entitled or purporting to exercise, any executive,
legislative, judicial, administrative, regulatory, police or taxing authority or
power of any nature.
"Indemnified Persons" -- as defined in Section 11.3.
"Indemnity Agreement" -- as defined in Section 2.4(b)(vi).
"Intellectual Property Assets" -- as defined in Section 3.21(a)
"Interim Balance Sheet" -- as defined in Section 3.4.
"Knowledge" -- an individual shall be deemed to have "Knowledge" of a particular
fact or other matter if:
(i) such individual is actually aware of such fact or other matter; or
(ii) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the truth or existence of such
fact or other matter.
A Person (other than an individual) shall be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, or employee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter.
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"Legal Requirement" -- any federal, state, local, municipal, foreign or other
law, statute, legislation, bill, act, enactment, constitution, resolution,
proposition, initiative, canon, ordinance, code, edict, decree, proclamation,
treaty, convention, rule, regulation, ruling, directive, guideline, or
interpretation issued, enacted, adopted, passed, approved, ratified, endorsed,
promulgated, made, entered, rendered, published or implemented by or under the
authority of any Governmental Body or by the eligible voters of any
jurisdiction.
"Marks" -- as defined in Section 3.21(a).
"Material Adverse Effect" - means any circumstance(s) or event(s), the result of
which would have, or reasonably could be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, results of
operations, or condition (financial or otherwise) of the Acquired Company or on
the Contemplated Transactions.
"Membership Interests" or "Interests" - the membership interests in the Acquired
Company being transferred hereunder.
"Order" -- any order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, sentence, subpoena, writ or
award issued, made, entered or rendered by any court, administrative agency or
other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person shall be deemed to
have been taken in the "Ordinary Course of Business" only if:
(i) such action is recurring in nature, is consistent with the past
practices of such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person;
(ii) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority), is not required to be authorized by the parent company (if
any) of such Person and does not require any other separate or special
authorization of any nature; and
(iii) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in the
ordinary course of the normal day-to-day operations of other Persons that are in
the same line of business as such Person.
"Organizational Documents" -- (i) the articles or certificate of incorporation
and the bylaws of a corporation; (ii) the partnership agreement and any
statement of partnership of a general partnership; (iii) the limited partnership
agreement and the certificate of limited partnership of a limited partnership;
(iv) any charter or similar document adopted or filed in connection with the
formation, creation, constitution or organization of a Person; and (v) any
amendment to any of the foregoing.
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"Patents" -- as defined in Section 3.21(a).
"Person" -- any individual, corporation (including any non-profit corporation),
general partnership, limited partnership, joint venture, estate, trust,
cooperative, foundation, union, syndicate, league, consortium, coalition,
committee, society, firm, company or other enterprise, association, organization
or other entity or Governmental Body.
"Plan" -- any "employee benefit plan," as defined in Section 3(3) of ERISA, that
covers any employee or former employee of any of the Companies.
"Proceeding" -- any action, suit, litigation, arbitration, proceeding (including
any civil, criminal, administrative, investigative or appellate proceeding and
any informal proceeding), prosecution, contest, hearing, inquiry, inquest,
audit, examination, investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Promissory Notes" -- as defined in Section 2.5(b)(iii) and (iv).
"Purchase Price" -- as defined in Section 2.2.
"Quota" - as defined in Section 2.3(a).
"Related Person" -- with respect to a particular individual:
(i) each other member of such individual's Family;
(ii) any Person that is directly or indirectly controlled by any one or
more members of such individual's Family;
(iii) any Person in which members of such individual's Family hold
(individually or in the aggregate) a Material Interest; and
(iv) any Person with respect to which one or more members of such
individual's Family serves as a director, officer, employee, general partner,
executor or trustee (or in a similar capacity).
(for purposes of this definition, the "Family" of an individual includes (i)
such individual, (ii) the individual's spouse, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual and
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or
other voting interests representing at least twenty percent (20%) of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least twenty percent (20%) of the outstanding equity
securities or equity interests in a Person).
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With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, employee, general
partner, executor or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material Interest;
and
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity).
"Rights in Mask Works" -- as defined in Section 3.21(a).
"SEC" -- as defined in Section 3.4.
"Securities Act" -- the Securities Act of 1933, as amended from time to time, or
any successor law.
"Sellers" -- as defined in the first paragraph of this Agreement.
"Sellers' Release" -- as defined in Section 5.12.
"Subsidiary" -- with respect to any Person ("owner"), any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having that power only upon the happening of a contingency that has
not occurred) are held by owner or one or more of its Subsidiaries; when used
without reference to a particular Person, "Subsidiary" means Subsidiary of the
Buyer.
"Tax" -- any tax (including any income tax, franchise tax, capital gains tax,
gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, inventory tax,
occupancy tax, withholding tax, payroll tax, gift tax, estate tax or inheritance
tax), levy, assessment, tariff, impost, imposition, toll, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body or payable pursuant to any tax-sharing
agreement or pursuant to any other Contract relating to the sharing or payment
of any such tax, levy, assessment, tariff, impost, imposition, toll, duty,
deficiency or fee.
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"Tax Return" -- any return (including any information return), report,
statement, declaration, schedule, notice, notification, form, certificate or
other document or information filed with or submitted to, or required to be
filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
"Threatened" -- a claim, Proceeding, dispute, action or other matter shall be
deemed to have been "Threatened" if any demand or statement shall have been made
(orally or in writing) or any notice shall have been given (orally or in
writing), or if any other event shall have occurred or any other circumstances
shall exist, that might lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action or other matter might be asserted, commenced, taken
or otherwise pursued in the future.
"Transaction" - as defined in the second paragraph of this Agreement.
"Transaction Agreements" -- shall refer to this Agreement and all agreements
described herein to be executed and delivered as part of the Contemplated
Transaction.
"Trade Secrets" -- as defined in Section 3.21(a).
ARTICLE II
SALE AND TRANSFER OF MEMBERSHIP INTERESTS; CLOSING.
2.1 INTERESTS
(a) Subject to the terms and conditions of this Agreement, at the Closing,
each Seller shall sell to Buyer, and Buyer shall purchase from Seller, the
Interests owned by each Seller.
(b) Each Seller shall deliver to Buyer a transfer and assignment or such
other documents of transfer as shall be appropriate representing 100% of the
Seller's Membership Interests of the Acquired Company.
2.2 PURCHASE CONSIDERATION. The purchase consideration (hereinafter referred to
as the "Purchase Consideration") for the Interests shall be as follows:
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(a) One Hundred Twenty Seven Thousand Six Hundred Dollars ($127,600) in
cash to be paid via wire transfer at Closing to the Sellers in such amounts as
directed by the Sellers at Closing, and of which, $50,000 shall be allocated to
Nitin Shah.
(b) One Million Five Hundred Thousand (1,500,000) shares of restricted
common stock of the Buyer ("Binder Stock") which was previously delivered to the
Acquired Company and which the Acquired Company has or shall distribute to each
of the Sellers.
(c) One Million One Hundred Fifty Thousand (1,150,000) shares of the
Buyer's restricted common stock which shall be delivered at Closing by delivery
of certificates fully executed and authorized by the Buyer to each of the
Sellers in such amounts as the Sellers shall direct at Closing, and of which,
490,000 shares shall be allocated to Nitin Shah. In the event any fractional
shares will be required to be delivered, the number of shares of Buyer common
stock to be issued to any Seller shall be rounded up to the nearest number of
whole shares.
(d) Convertible promissory notes each made by the Buyer in the aggregate
principal amount of Three Hundred Fifty Thousand Dollars ($350,000) (with
separate notes being delivered to each Seller in such amounts as the Sellers
shall direct at Closing) due on January 1, 2006 in the form of Exhibit
2.5(b)(ii) hereto.
(e) Buyer shall pay to Sellers by no later than the date which is 240 days
following the date of Closing, the sum of Two Hundred Thousand Dollars
($200,000), less the amount by which the Acquired Company's Accounts Payable
exceed the Acquired Company's Accounts Receivable as of the Closing Date,
determined consistently with the Buyer's prior accounting practices. Sellers
shall give direction at Closing to the Buyer regarding how any payment hereunder
shall be allocated to the Sellers. Buyer shall, within ninety (90) days of the
date of Closing, notify the Sellers if Buyer determines that the Accounts
Payable exceeded the Accounts Receivable and, consequently, that an adjustment
in the $200,000 payment is due, which notice shall be accompanied by the
specific findings and any information necessary to test or review the findings.
In such case, any Seller has thirty (30) days to object to such adjustment and,
if the issue cannot be resolved within one hundred and fifty (150) days from the
date of Closing, either party may submit the matter to binding arbitration
before a single arbitrator located in the San Diego, California metropolitan
area pursuant to the rules of the American Arbitration Association for the
resolution of commercial disputes. The determination of the arbitrator shall be
final and binding to all parties. In the event that the Seller fails to make the
payment required by this subparagraph within such 240-day period, interest shall
accrue, retroactively from the date of Closing, at the rate of nine percent (9%)
per annum.
(f) An Earn-Out Agreement between Buyer and the Atlanta Office in the form
of Exhibit 2.5(b)(v) attached hereto.
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2.3 OTHER PAYMENTS. In addition to the Purchase Consideration described in
Section 2.2, at Closing Buyer shall pay, on behalf of the Acquired Company, the
following amounts:
(a) Repayment of the following Acquired Company outstanding loans:
Anil Patel $26,040
Chirag Patel $49,593
Chintu Patel $50,000
Vimal Patel $ 7,401
Bella Investments, LLC $47,500
Chetan Patel $35,000
Nitin Shah $50,000
RBC $34,275
(b) Payment of legal, accounting and professional fees incurred in
connection with the Contemplated Transaction up to a maximum of $ 22,591.
(c) Buyer shall deliver at Closing fully paid and non-assessable shares of
its restricted common stock to the following employees of Acquired Company as
compensation:
Employee Number of Shares
-------- ----------------
Kirtan Patel 50,000
Brandon Dunn 10,000
Barbara Stafford 10,000
T.M. Ashok Kumar 20,000
David Tyre 10,000
2.4 CLOSING. The purchase and sale provided for in this Agreement shall take
place at the offices of Michael L. Corrigan, 4275 Executive Square Suite 215, La
Jolla, California 92037, counsel for Buyer, at 1:00 p.m. (San Diego time) on
August 31, 2005, or at such other time and place as the parties hereto shall
mutually agree (hereinafter referred to as the "Closing"). Subject to the
provisions of Section 12, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 2.4 shall not result in the termination of this Agreement and
shall not relieve any parties to this Agreement of any obligation hereunder.
2.5 CLOSING DELIVERIES. At the Closing:
(a) Sellers shall deliver, or cause to be delivered, to Buyer:
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(i) Certificates representing the number of Interests to be sold by each
Seller hereunder to be delivered to the Buyer fully endorsed. Each Seller
agrees to furnish to the Buyer such other documentation which may be
reasonably necessary or appropriate to transfer record ownership of the
Interests to the Buyer;
(ii) the Employment Agreements for each of the persons comprising the
Atlanta Office in the form attached as Exhibits 5.9(a) through (d). Chirag
Patel shall also be committed to serve under full-time employment, or no
less than 40 hours per week, to the Buyer through December 31, 2005 and
for no less than 10 hours per week from January 1, 2006 through December
31, 2006;
(iii) such other documents, instruments, certificates and opinions as may
be required by this Agreement or as may be reasonably requested by Buyer;
and
(b) Buyer shall deliver, or cause to be delivered, to Sellers:
(i) One Hundred Twenty Seven Thousand Six Hundred (USD$127,600.00)
dollars in cash;
(ii) Convertible promissory notes payable to Sellers in the aggregate
principal amount of $350,000.00 in the form of Exhibit 2.5(b)(ii)
(hereinafter referred to as the "Promissory Note");
(iii) a certificate(s) of 1,150,000 shares of the Buyer's restricted
common stock (the "Closing Shares"), which in addition to the
1,500,000 shares of Binder Stock issued to Seller concurrent with
the signed Letter of Intent ("LOI") equal 2,750,000 shares (the
"Purchase Price");
(iv) the opinion of Buyer's counsel required pursuant to Section 6.5
hereof;
(v) "Earn-Out Agreement" as referred to in 2.2(f);
(vi) Member's Release Agreement in the form of Exhibit 2.5(b)(vi); and
(vii) such other documents instruments, certificates and opinions as may
be required by this Agreement or as may be reasonably requested by
Sellers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, other than Nitin Shah who is joining in making these representations
and warranties only with respect to Sections 3.1, 3.2 and 3.3, jointly and
severally represent and warrant to Buyer that, as of the date of this Agreement,
all of the following are true and correct in all material respects:
3.1 ORGANIZATION AND GOOD STANDING. The Acquired Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Georgia with full corporate power and authority to carry on its
business as it is now being conducted, to own or hold under lease the properties
and assets which it owns or holds under lease and perform all its obligations
under the agreements and instruments to which it is a party or by which it is
bound.
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3.2 AUTHORITY; NO CONFLICT. This Agreement constitutes the legal, valid and
binding obligation of each Seller, enforceable against each Seller in accordance
with its terms for a period of two years from the Closing Date of this
Agreement. Upon the execution and delivery by Sellers of the Releases, those
documents will constitute the legal, valid and binding obligations of Sellers,
enforceable against Sellers in accordance with their respective terms. Each
Seller has the absolute and unrestricted right, power, authority and capacity to
execute and deliver this Agreement, the Employment Agreements, the Releases and
each other document contemplated hereunder or thereunder and to perform their
obligations hereunder and thereunder. Neither the execution and delivery of this
Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly:
(a) contravene, conflict with or result (with or without notice or lapse
of time) in a violation of (i) any of the provisions of the Organizational
Documents of the Acquired Company or (ii) any resolution adopted by the board of
directors or the members or managers of the Acquired Company;
(b) contravene, conflict with or result (with or without notice or lapse
of time) in a violation of any Legal Requirement or any Order to which the
Acquired Company or either Company, any Seller, or any of the assets owned or
used by the Acquired Company, may be subject, except that, which would not have
a Material Adverse Effect;
(c) cause the Acquired Company to become subject to, or to become liable
for the payment of, any Tax;
(d) cause any of the assets owned by the Acquired Company to be reassessed
or revalued by any taxing authority or other Governmental Body;
(e) contravene, conflict with or result (with or without notice or lapse
of time) in a violation of any of the terms or requirements of, or give any
Governmental Body the right (with or without notice or lapse of time) to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Acquired Company or that otherwise relates to the business
of, or any of the assets owned or used by, any Acquired Company, except that,
which could not have a Material Adverse Effect;
(f) contravene, conflict with or result (with or without notice or lapse
of time) in a violation or breach of any of the provisions of, or give any
Person the right (with or without notice or lapse of time) to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of or
cancel, terminate or modify, any Contract to which the Acquired Company or any
Seller is a party or under which the Acquired Company has any rights, or by
which the Acquired Company or any Seller, or any of the assets owned or used by
the Acquired Company, may be bound, except that, which could not have a Material
Adverse Effect; or
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(g) result (with or without notice or lapse of time) in the imposition or
creation of any Encumbrance upon or with respect to any of the assets owned or
used by the Acquired Company;
The Acquired Company is not nor will be required to give any notice to or obtain
any Consent from, and no Seller is or will be required to give any notice to or
obtain any Consent from, any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions, other than the consent of the Members. Sellers are
acquiring the Promissory Notes and, if applicable, the shares of Buyer's common
stock issuable upon conversion of the Promissory Notes (hereinafter referred to
as the "Conversion Shares") for their own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act. Each
Seller acknowledges that such Seller has had the opportunity to ask questions of
and receive answers from, or obtain additional information from, the executive
officers of Buyer concerning the financial and other affairs of Buyer, and to
the extent deemed necessary in light of such personal knowledge of the Buyer's
affairs, such Seller has asked such questions and received answers to the full
satisfaction of such Seller. Each Seller understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Promissory Notes or
Conversion Shares or the fairness of suitability of the investment in the
Promissory Notes or Conversion Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Promissory Notes or Conversion
Shares.
3.3 CAPITALIZATION. Sellers are and will be on the Closing Date the record and
beneficial owners and holders of the Interests, free and clear of all
Encumbrances. Collectively, these individuals represent the Sellers and this
represents 100% of the Acquired Company's Interests.
All of the outstanding equity securities of the Acquired Company are owned of
record and beneficially by the Sellers. No legend or other reference to any
purported Encumbrance appears upon any certificate representing the Interests.
3.4 FINANCIAL STATEMENTS.
(a) Sellers have made available to Buyer, the Buyer's annual financial
statements as of December 31, 2003 and December 31, 2004 (the "Annual Financial
Statements") (the balance sheet as of December 31, 2004 being referred to herein
as the "Annual Balance Sheet"), and the interim financial statement dated as of
June 30, 2005 (the "Interim Financial Statement") (the interim balance sheet as
of June 30, 2005 being referred to herein as the "Interim Balance Sheet"). Each
of the Annual Financial Statements and the Interim Financial Statement presents
a true and fair view of the financial condition and assets and liabilities or
the results of operation of the Acquired Company as of the dates and for the
periods indicated. The Annual Financial Statements were prepared in accordance
with GAAP, applicable to the business of the Acquired Company consistently
applied in accordance with past accounting practices, with any Interim Financial
Statements having been prepared internally to fairly present the financial
condition of the Acquired Company. Since December 31, 2004, there have been
material adverse changes to the business, financial condition, results of
operations or prospects of the Acquired Company from that described and
reflected in the Interim Financial Statements.
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Since the Acquired Company's inception, wherever required to make filings under
any Legal Requirement has filed with the applicable Governmental Bodies all
material forms, statements, reports and documents (including exhibits, annexes
and any amendments thereto) required to be filed by it, and each such filing
complied in all material respects with all applicable laws, rules and
regulations, other than such failures to file and non-compliance that could not
have a Material Adverse Effect.
(b) The Acquired Company is not and has not been required to file any
reports with the SEC.
3.5 BOOKS AND RECORDS. The books of account and other records of the Acquired
Company, all of which have been made available to Buyer, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices. At the Closing, all of those books and records will be
in the possession of the Acquired Company with the original copies being
available to the Buyer.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Acquired Company has no ownership
interest in any real property.
3.7 CONDITION AND SUFFICIENCY OF ASSETS AND/OR LEASED ASSETS. The buildings,
plants, structures and equipment of the Acquired Company, whether owned or
leased by the Acquired Company, is, to the knowledge of the Sellers,
structurally sound, in good operating condition and repair and adequate for the
uses to which they are being put, and none of such buildings, plants, structures
or equipment is in need of maintenance or repairs, except for ordinary, routine
maintenance and repairs. The building, plants, structures and equipment of the
Acquired Company that are either owned or leased by the Acquired Company are
sufficient for the continued conduct of the Acquired Company's business after
the Closing in substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE. All accounts receivable of the Acquired Company as
reflected on the Annual Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Acquired Company as of the Closing Date (referred to
collectively as the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and, to the
Knowledge of each Seller, collectible net of the respective reserves shown on
the Balance Sheet or the Interim Balance Sheet or on the accounting records of
the Acquired Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve as of
the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the Interim
Balance Sheet represented of the accounts receivable reflected therein and will
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not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the Accounts
Receivable either has been or is scheduled to be collected in full, without any
setoff, within 90 days after the day on which it first becomes due and payable.
Except as set forth in Section 3.8 of the Disclosure Letter, there is no
contest, claim or right of set-off, other than returns in the Ordinary Course of
Business, contained in any agreement with any maker of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. The Acquired
Company has made available to the Buyer a list of all Accounts Receivable of the
Corporation as of the date of the Interim Balance Sheet, which list is correct
and complete in all material respects and sets forth the aging of such Accounts
Receivable.
3.9 INVENTORY. All inventory of the Acquired Company, whether or not reflected
in the Annual Balance Sheet or the Interim Balance Sheet, consists of a quality
and quantity usable and salable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Annual Balance Sheet
or the Interim Balance Sheet or on the accounting records of the Acquired
Company as of the Closing Date, as the case may be. The quantities of each type
of inventory (whether raw materials, work-in-process, or finished goods) are
reasonable and warranted in the present circumstances of the Acquired Company.
All work in process and finished-goods inventory is free of any defect or other
deficiency.
3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in Section 3.10 of the
Disclosure Letter, the Acquired Company has no liabilities or obligations of any
nature (known or unknown, absolute, accrued, contingent or otherwise) that were
not fully reflected or reserved against in the Annual Balance Sheet or the
Interim Balance Sheet.
3.11 TAXES. The Acquired Company has filed or caused to be filed (on a timely
basis) all Tax Returns that are or were required to be filed by the Acquired
Company pursuant to the Legal Requirements of each Governmental Body with taxing
power over them or their assets. Sellers have made available to Buyer copies of,
and Section 3.11 of the Disclosure Letter lists, all such Tax Returns filed
since fiscal year ended December 31, 2003. The Acquired Company has paid, or
made provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns, or otherwise, or pursuant to any assessment
received by Sellers or the Acquired Company, except such Taxes, if any, as are
set forth in Section 3.11 of the Disclosure Letter and are being contested in
good faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Annual Balance Sheet and the Interim Balance
Sheet. the Section 3.11 of the Disclosure Letter describes all adjustments to
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the United States federal income Tax Returns filed by the Acquired Company for
all taxable years since December 31, 2003, and the resulting deficiencies
proposed by the Internal Revenue Service. Except as set forth in Section 3.11 of
the Disclosure Letter, the Acquired Company has not given or been requested to
give waivers or extensions (or is or would be subject to a waiver or extension
given by any other Person) of any statute of limitations relating to the payment
of Taxes of the Acquired Company or for which the Acquired Company may be
liable. The charges, accruals and reserves with respect to Taxes on the
respective books of the Acquired Company are adequate (determined in accordance
with GAAP). There exists no proposed tax assessment against the Acquired
Company, exc