PURCHASE AGREEMENT

Exhibit 10.23

Execution Version

 

P URCHASE A GREEMENT

D ATED AS OF S EPTEMBER 24, 2007

AMONG

W HITE R ABBIT G AME S TUDIO , LLC,

T HE S ELLERS N AMED H EREIN ,

K ENNETH F EDESNA , AS T HE S ELLERS ’ R EPRESENTATIVE

AND

T OUCH T UNES M USIC C ORPORATION

 

T ABLE OF C ONTENTS

 

 

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I NDEX OF D EFINED T ERMS

 

 

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P URCHASE A GREEMENT dated as of September 24, 2007 (this “ Agreement ”), among W HITE R ABBIT G AME S TUDIO , LLC, an Illinois limited liability company (the “ Company ”), K ENNETH F EDESNA , M ARK L OFFREDO , E DWARD P ELLEGRINI , E DWARD S UCHOCKI , W ILLIAM J. F EDERIGHI , T HOMAS M. L OTUS and D ANTE F EDERIGHI (each a “ Seller ” and collectively the “ Sellers ”), K ENNETH F EDESNA , (the “ Sellers ’ Representative ”), and T OUCH T UNES M USIC C ORPORATION , I NC ., a Delaware corporation (the “ Purchaser ”).

I NTRODUCTION

The Sellers hold, directly or indirectly, (i) 100% of the limited liability company interests of the Company (the “ Equity Interests” ) and (ii) all outstanding promissory notes set forth on Section 3.6(b) of the Seller/Company Disclosure Letter (the “ Debt Interests ” , together with the Equity Interests, the “ Interests ”).

The Sellers desire to sell, and the Purchaser desires to purchase, on the terms and subject to the conditions set forth in this Agreement, the Interests for an aggregate consideration of up to (i) $5,000,000 in cash, as adjusted pursuant to the provisions set forth herein, and (ii) up to 2,000,000 shares of Purchaser Common Stock (as defined herein).

In consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties agree as follows:

ARTICLE 1

P URCHASE AND S ALE OF THE I NTERESTS ; C LOSING

Section 1.1. Purchase and Sale . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, each Seller shall sell, transfer and deliver to the Purchaser, and the Purchaser shall purchase from each Seller, (i) the percentage of Equity Interests set forth opposite the name of such Seller on Exhibit A (each a “ Membership Interest Percentage ” and, collectively, the “ Membership Interest Percentages ”), and (ii) the Debt Interests set forth opposite the name of such Seller on Section 3.6(b) of the Seller/Company Disclosure Letter, in each case, free and clear of any lien, pledge, claim, charge, mortgage, encumbrance, security interest or other restriction of any kind, whether arising by Contract or by operation of Law (a “ Lien ”). The purchase and sale of the Interests is referred to in this Agreement as the “ Acquisition ”. Any Stock Consideration payable to the Sellers under this Agreement shall be made pro rata to each Seller, based on the respective Membership Interest Percentages of the Sellers, and shall be paid by delivery of certificates representing the number of shares payable to each Seller to the address for each Seller provided on Exhibit A, or to a subsequent address provided to the Purchaser pursuant to Section 9.1. Any amounts of Cash Consideration payable to the Sellers under this Agreement shall be paid to the Sellers, by the Purchaser’s delivery of the total amount payable to one bank account to be designated in writing by the Sellers at least two Business Days prior to the Closing (the “ Sellers ’ Designated Account ”) , which funds will be distributed to the Sellers from the Sellers’ Designated Account, as agreed by the Sellers.

 

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Section 1.2. Purchase Price; Manner of Payment . (a) The aggregate purchase price (the “ Purchase Price ”) to be paid by the Purchaser for the Interests consists of the following:

(i) an amount in cash equal to $3,008,264 (the “ Base Cash Consideration ”) , payable by the Purchaser as set forth in Section 1.2(b) below, and subject to the adjustment in Section 1.6;

(ii) subject to Sections 1.7 and 1.12 below, up to an amount in cash equal to $2,250,000 (the “ Additional Cash Consideration ” , together with the Base Cash Consideration, the “ Cash Consideration );

(iii) subject to Section 1.12 below, an aggregate of 500,000 shares (the “ Base Stock Consideration ”) of common stock, par value $0.001 per share, of the Purchaser (the “ Purchaser Common Stock ”) , payable on the first anniversary of the Closing; and

(iv) subject to Sections 1.7 and 1.12 below, up to an aggregate of 1,500,000 shares of Purchaser Common Stock (the “ Additional Stock Consideration ” , together with the Base Stock Consideration, the “ Stock Consideration ”).

(A) In the event that, after the date hereof, the number of shares of the Purchaser Common Stock is

(i) increased by a stock dividend or by a subdivision or split-up of shares, then, following the record date for such stock dividend, subdivision or split-up, the aggregate number of shares of Purchaser Common Stock held in escrow for the Sellers by the Purchaser shall be increased in proportion to such increase in outstanding shares; and

(ii) decreased by a combination or reverse-split of the outstanding shares, then, following the record date for such combination or reverse-split, the aggregate number of shares of Purchaser Common Stock held in escrow for the Sellers by the Purchaser shall be decreased in proportion to such decrease in outstanding shares.

The provisions of this Section 1.2(a)(iv)(A) shall apply to successive stock dividends, subdivision, split-up of shares, combination or reverse-split of shares.

(B) Subject to Sections 1.13(a) and 1.14, in the event that, after the date hereof, the Purchaser shall effect any sale of the Purchaser, by means of a consolidation, merger, sale of stock, sale of all or substantially all of its assets or otherwise, with, into or to any other Person and the holders of Purchaser Common Stock shall be entitled to receive cash, securities, evidences of indebtedness or other property with respect to or in exchange for their shares of Purchaser Common Stock, then, at such time as a Seller would have been entitled to receive any Purchaser Common Stock pursuant to Article 1, such Seller shall instead be entitled to receive such cash, securities, evidence of indebtedness or other property that was paid in such merger or consolidation in respect of such Purchaser Common Stock. The foregoing provision shall similarly apply to successive consolidations, mergers or asset acquisitions.

 

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(C) In the event that, after the date hereof, the Purchaser makes or issues to holders of Purchaser Common Stock any cash dividend or other distribution payable in equity securities (other than shares of Purchaser Common Stock), evidences of its indebtedness or other property, then, at such time as a Seller is entitled to receive Purchaser Common Stock pursuant to this Article 1, such Seller will receive such cash, securities, evidence of indebtedness or other property that was paid in such dividend and distribution in addition to Purchaser Common Stock pursuant to this Article 1. The foregoing provision shall similarly apply to successive dividends or distributions.

(D) Each Seller shall be entitled to vote the Escrowed Shares (as defined below) that he could be eligible to receive pursuant to this Article 1 (the “ Eligible Shares ”). In connection with any regular or special meeting of the stockholders of the Purchaser, each Seller shall receive notice of such meeting, at the time and in the manner provided to other stockholders of the Purchaser, and shall have the right to attend and to vote his Eligible Shares at such meeting or to vote his Eligible Shares by proxy at such meeting (or in the case of a written action of stockholders in lieu of a meeting, shall be entitled to receipt thereof).

(b) The Base Cash Consideration shall be payable by the Purchaser as follows:

(i) $1,258,264 payable at Closing, subject to adjustment as provided in Sections 1.3 and 1.6 (as so adjusted, the “ Closing Date Cash Consideration ”) ;

(ii) subject to Section 1.12 below, $1,000,000 payable on the earlier of (A) the first anniversary of Closing or (B) consummation of a Public Offering (as defined below) by the Purchaser (the “ First Anniversary Payment ”). For purposes of Article 1 of this Agreement, a Public Offering by the Purchaser shall mean the registration of any of the Purchaser’s stock or other securities under the Securities Act of 1933, as amended (the “ Act ”) in connection with the public offering of such securities (other than a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of registrable securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered); and

(iii) subject to Section 1.12 below, $750,000 payable on the earlier of (A) the second anniversary of Closing or (B) consummation of a Public Offering by the Purchaser.

Section 1.3. Working Capital Estimate; Estimated Closing Date Cash Consideration . Not less than two Business Days prior to the Closing, the Sellers’ Representative shall deliver to the Purchaser a detailed worksheet certified by the President or Chief Financial Officer of the Company, setting forth in reasonable detail a good faith estimate of the Closing Working Capital (the “Estimated Closing Working Capital” “) and supporting detail thereto. Such worksheet and the determination of the Estimated Closing Working Capital will be prepared by the Sellers in consultation with the Purchaser. For purposes of this Agreement, the “ Estimated Closing Date Cash Consideration ” means the Closing Date Cash Consideration, increased by the amount by which such Estimated Closing Working Capital is greater than $0 (“ Target Working Capital ”),

 

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and decreased by the amount by which such Estimated Closing Working Capital is less than Target Working Capital, as the case may be. The Estimated Closing Date Cash Consideration shall be payable at the Closing pursuant to Section 1.2(b)(i).

Section 1.4. Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall be held at the offices of the Company, Elk Grove Village, Illinois, at 10:00 a.m. on September 24, 2007, 2007, or on such other date and at such other time as mutually agreed upon in writing by the Purchaser and a majority-in-interest of the Sellers. The date on which the Closing occurs is referred to in this Agreement as the “ Closing Date ” .

Section 1.5. Closing Deliveries .

(a) At the Closing, the Sellers shall deliver or cause to be delivered to the Purchaser:

(i) the equity interest and promissory note assignment agreement substantially in the form of Exhibit B (the “ Equity Interest and Note Assignment Agreement ”) , duly executed by each of the Sellers, pursuant to which each of the Sellers assigns to the Purchaser his Interests;

(ii) the original promissory notes set forth on Section 3.6(b) of the Seller/Company Disclosure Letter;

(iii) the Intellectual Property assignment agreement substantially in the form of Exhibit C-1 (the “ Seller-Inventor IP Assignment Agreement ”) , duly executed by Kenneth Fedesna, Mark Loffredo, Edward Pellegrini and Edward Suchocki, pursuant to which each such individual assigns to the Company all Intellectual Property of the Company that has been, is being, or is proposed to be developed in whole or in part by such individual or that could be deemed to have been assigned, transferred or otherwise conveyed to such individual pursuant to the Operating Agreement;

(iv) the Intellectual Property assignment agreement substantially in the form of Exhibit C-2 (the “ Non-Inventor IP Assignment Agreement ”) , duly executed by William J. Federighi, Thomas M. Lotus and Dante Federighi, pursuant to which each such individual assigns to the Company all Intellectual Property of the Company that has been, is being, or is proposed to be developed in whole or in part by such individual or that could be deemed to have been assigned, transferred or otherwise conveyed to such individual pursuant to the Operating Agreement (defined below);

(v) the Intellectual Property assignment agreement substantially in the form of Exhibit C-3 (the “ Pellegrini IP Assignment Agreement ”) , duly executed by Frank J. Pellegrini, pursuant to which Frank J. Pellegrini assigns to the Company all Intellectual Property of the Company that has been, is being, or is proposed to be developed in whole or in part by him;

(vi) the amendment to the Investors’ Rights Agreement dated November 9, 2006 between the Purchaser and the parties listed therein, substantially in the form of Exhibit D (the “ Amendment to Investors’ Rights Agreement ”) , duly executed by each of the Sellers, pursuant to which each of the Sellers shall become a party to such agreement and a “Holder” (as defined in such agreement); and

 

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(vii) duly executed letters of employment or consulting agreements with each of the individuals listed on Section 6.2(f)(iv) of the Purchaser Disclosure Letter, substantially in the form of Exhibit E-1 (each a “ Seller Employment Agreement ”) , and the Pellegrini Employment Agreement”, substantially in the form of Exhibit E-2, duly executed by Frank J. Pellegrini.

(b) At the Closing, the Purchaser shall:

(i) deliver by wire transfer to the Sellers’ Designated Account immediately available funds totaling $1,258,264, subject to increase or decrease as provided in Section 1.3;

(ii) issue and hold in escrow certificates representing the Stock Consideration (any such shares held in escrow from time to time, the “ Escrowed Shares ”, in each case in the name of each Seller and in such denominations as are set forth opposite such Seller’s name on Exhibit A; and

(iii) deliver or cause to be delivered to the Sellers the Equity Interest and Note Assignment Agreement, the Amendment to Investors’ Rights Agreement, the Seller Employment Agreements and the Pellegrini Employment Agreement, each duly executed by the Purchaser.

Section 1.6. Closing Date Cash Consideration Adjustment .

(a) Within 90 days after the Closing Date, the Purchaser shall prepare and deliver to the Sellers’ Representative a statement (the “ Statement ”), setting forth in reasonable detail the calculation of Working Capital as of the close of business on the Closing Date (“ Closing Working Capital ”) .

(b) The Statement shall become final and binding upon the parties on the 30th day following delivery thereof, unless the Sellers’ Representative gives written notice of its disagreement with the Statement (a “ Notice of Disagreement ”) to the Purchaser prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. If a Notice of Disagreement is received by the Purchaser in a timely manner, then the Statement (as revised in accordance with this sentence) shall become final and binding upon the Sellers and the Purchaser on the earlier of (A) the date the Sellers’ Representative and the Purchaser resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (B) the date any disputed matters are finally resolved in writing by the Accounting Firm (in accordance with Section 1.15 below).

(c) The actual Closing Date Cash Consideration shall be an amount equal to the Estimated Closing Date Cash Consideration, increased by the amount by which Closing Working Capital is greater than Estimated Closing Working Capital and decreased by the amount by which Closing Working Capital is less than Estimated Closing Working Capital; provided, that no adjustment to the Closing Date Cash Consideration pursuant to this Section 1.6(c) shall be made unless such adjustment would be equal to $25,000 or more, and if the adjustment would be equal to $25,000 or more, then the full amount of the adjustment shall be made. The Closing Date Cash Consideration, as adjusted pursuant to this Section 1.6(c), is referred to herein as the “ Adjusted Closing Date Cash Consideration ” .

(d) (i) If the Adjusted Closing Date Cash Consideration is greater than the Estimated Closing Date Cash Consideration, the Purchaser shall, within 10 Business Days after

 

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the Statement becomes final and binding on the parties, make payment to the Sellers by wire transfer in immediately available funds to the Sellers’ Designated Account of such difference, together with interest thereon at a rate equal to the rate of interest from time to time announced publicly by Bank of America, N.A. as its prime rate, calculated on the basis of the actual number of days elapsed divided by 365, from the Closing Date to the date of payment.

     (ii) If the Estimated Closing Date Cash Consideration is greater than the Adjusted Closing Date Cash Consideration, the Sellers shall make payment from the Sellers’ Designated Account to the Purchaser of such difference (and if there are insufficient funds in such account, then in accordance with the Sellers’ Specified Percentages), within 10 Business Days after the Statement becomes final and binding on the parties, by wire transfer in immediately available funds, together with interest thereon at a rate equal to the rate of interest from time to time announced publicly by Bank of America, N.A. as its prime rate, calculated on the basis of the actual number of days elapsed divided by 365, from the Closing Date to the date of payment.

(e) The term “ Working Capital ” means Current Assets minus Current Liabilities. The terms “ Current Assets ” and “ Current Liabilities ” mean the current assets and current liabilities, respectively, of the Company, calculated in accordance with United States generally accepted accounting principles applied consistently with, and in the same manner as, the Audited Consolidated Financial Statements (“ GAAP ”).

(f) Following the Closing, the Purchaser shall not take any action with respect to the accounting books and records of the Company on which the Statement is to be based that would obstruct or prevent the preparation of the Statement and the determination of Closing Working Capital as provided in this Section 1.6. During the period of time from and after the date of delivery of the Statement to the Sellers through the resolution of any adjustment to the Closing Date Cash Consideration contemplated by this Section 1.6, the Purchaser shall afford to the Sellers and any accountants, counsel or financial advisers retained by the Sellers in connection with any adjustment to the Closing Date Cash Consideration contemplated by this Section 1.6 reasonable access during normal business hours to the books and records of the Company to the extent relevant to the adjustment contemplated by this Section 1.6, including the Purchaser’s working papers used in the preparation of the Statement that are adequate to support with reasonable specificity the Purchaser’s calculation of Closing Working Capital.

Section 1.7. Additional Consideration.

(a) Payments Based on Performance Milestones . Subject to Section 1.12 below, the Purchaser shall pay by wire transfer of immediately available funds $750,000 to the Sellers’ Designated Account and shall release from escrow 500,000 shares of the Additional Stock Consideration to the Sellers within 10 Business Days following the satisfaction of the Performance Milestones as set forth on Exhibit F.

(b) Payments Based on Sales Milestones . From and after the date on which the Purchaser commences the commercial sale or lease of Units (as defined below) to third parties, the Purchaser shall deliver quarterly statements to the Sellers, within 45 days after the end of each calendar quarter, setting forth the number of Units sold or leased during the previous calendar quarter, and with respect to the first quarterly statement, during all previous calendar quarters. For each Unit sold or leased by the Purchaser to third parties during the calendar quarter which is the subject of a quarterly statement, and with respect to the first quarterly

 

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statement, during all previous calendar quarters, the Purchaser shall, subject to Section 1.12 below, (i) pay to the Sellers $300 in cash to the Sellers’ Designated Account, and (ii) release 200 shares of Stock Consideration from escrow to the Sellers, in accordance with the Membership Interest Percentages set forth on Exhibit A, until an aggregate of $1,500,000 has been paid and an aggregate of 1,000,000 shares have been released. For purposes of this Agreement, “Unit” shall mean a single display, multi-game, video interactive entertainment device that operates wired or wirelessly.

Section 1.8. Assignment of Intellectual Property .

(a) Each Seller hereby sells, assigns, transfers and delivers to the Company, at and conditioned upon the Closing, all of his right, title and interest in, to and under:

(i) all the Intellectual Property relating to the Company, including, without limitation, all games or products listed on Section 1.8 of the Seller/Company Disclosure Letter and any other game or product that has been designed or developed, in each case, by or on behalf of the Company on or prior to the Closing Date, including without limitation, (A) all Intellectual Property conceived, developed, or otherwise created by any Seller on behalf of the Company, solely or jointly with others, including, without limitation, all Intellectual Property conceived, developed, or created by such Seller (x) on behalf of the Company or with any use or assistance of any of the Company’s tangible or intangible property or other resources (including without limitation, any of the Company’s Intellectual Property or Confidential Information), or (y) in the course of employment or while under contract by or with the Company (in connection with the services provided to the Company pursuant to such contract), including without limitation in the case of Edward Suchocki, any and all right, title or interest in any “Work Product” as defined in that certain Work for Hire Agreement dated as of February 1, 2006, between the Company and Gr8 Games, L.L.C., (B) all Intellectual Property of, used, held for use, or otherwise licensed to the Company, including without limitation, the Intellectual Property listed in Section 1.8 of the Seller/Company Disclosure Letter, (C) all Intellectual Property that could be deemed to have been assigned, transferred or otherwise conveyed to such Seller pursuant to Section 9.1 of the Operating Agreement or any other provisions of the Operating Agreement, including all rights, title and interests in and to any and all Intellectual Property that such Seller may obtain in the future pursuant to the Operating Agreement, (D) all rights to collect royalties, income, damages and proceeds, in each case inuring to the benefit of such Seller, in connection with any of the Intellectual Property described in this Section 1.8, and (E) all rights to sue or assert any claims (past, present or future, including, without limitation, damages for past, present or future infringement claims) of such Seller in connection with any of the Intellectual Property listed in this Section 1.8;

(ii) all rights to collect royalties, income, damages and proceeds, in each case inuring to the benefit of such Seller, in connection with any Intellectual Property assigned to or acquired by the Purchaser pursuant to this Agreement; and

(iii) all rights to sue or assert any claims (past, present or future) of such Seller in connection with any Intellectual Property assigned to or acquired by the Purchaser pursuant to this Agreement.

 

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(b) Each Seller acknowledges and agrees that, as between such Seller and the Company, the Company is and shall remain the sole and exclusive owner of all Intellectual Property assigned to the Company pursuant to this Section 1.8, and that, as between such Seller and the Company, the Company shall have the sole and exclusive right to obtain, maintain, hold, register and enforce such Intellectual Property. Each Seller shall not challenge, or assist or encourage any other Person to challenge, (i) the validity, enforceability, scope, duration, priority, effectiveness, or ownership of, or right to use, such Intellectual Property, or (ii) otherwise take any actions which could materially adversely affect such Intellectual Property. Nothing in this Section 1.8 shall affect the rights of the Sellers pursuant to Section 1.13 of this Agreement.

(c) Each Seller shall, from time to time, take such actions and give any written further assurance and execute such individual confirmatory assignment deeds, change of name or address certificates and any other instrument, document and agreement prepared by the Purchaser, at the Purchaser’s expense, necessary or reasonably requested by the Purchaser for the effectuation or recordation of this assignment or for the prosecution, protection, maintenance, defense or enforcement of the Intellectual Property assigned to or acquired by the Purchaser pursuant to this Agreement.

Section 1.9. Covenants Regarding Development Plan and Operations .

(a) Development Plan . The Sellers and the Purchaser have agreed to a Development Plan, dated the date hereof, that sets forth the specifications and performance criteria, estimated costs, budget, time schedule and personnel requirements for the development of the Units, a copy of which has been delivered to the Sellers. No material modifications to the Development Plan can be made without the prior written consent of the Purchaser and a majority-in-interest of the Sellers, which consent will not be unreasonably withheld. In addition, subject to Section 1.13, (i) each of the Sellers and the Purchaser shall use his or its diligent efforts to implement the Development Plan (with such modifications as shall be implemented by the Purchaser consistent with the preceding sentence) and to achieve the Performance Milestones, and (ii) if the objectives set forth in the Development Plan are achieved and the Performance Milestones are satisfied, (A) the Purchaser shall manufacture at least 500 Units within three months following the satisfaction of the Performance Milestones, and (B) the Purchaser shall otherwise use commercially reasonable efforts to market and sell or lease the Units in the United States and Canada; provided, however, that the determination of whether the foregoing obligations of the Purchaser and the Sellers have been met shall take into consideration the cost and feasibility of development and manufacture, the competitiveness of alternative product and service offerings, the proprietary position of the products related to the White Rabbit Division (as defined below), the actual or expected profitability of such products and other relevant factors.

(b) White Rabbit Division . After the Closing and until such time as all Cash Consideration and Stock Consideration have been earned under Sections 1.2 and 1.7 or are no longer payable pursuant to Section 1.11, the Company shall be maintained as a separate limited liability company (the “ White Rabbit Division ”).

Section 1.10. Right to Put Stock Consideration .

(a) During the period from October 1, 2009 through December 31, 2009 (the “ Put Period ”), each of the Sellers shall have the right to elect, in his sole discretion, to have the Purchaser repurchase all (but not less than all) of the shares of Stock Consideration previously

 

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delivered to such Seller pursuant to Sections 1.2(a)(iii) and 1.2(a)(iv) above (the “Put Shares” ), at a price of $2.00 per share (the “Put Price ” ” ), payable in cash to such Seller, by delivering written notice of such election to the Purchaser during the Put Period (such right is referred to as the “ Put ”). Within 30 Business Days after the Purchaser’s receipt of (i) such notice and (ii) the Put Shares, duly endorsed in blank, the Purchaser shall send by wire transfer of immediately available funds to a bank account specified by such Seller a cash payment equal to the product of (x) the number of Put Shares and (y) the Put Price.

(b) In the event of a Purchaser Sale (as defined in Section 1.14(a) below) or a Public Offering by the Purchaser prior to December 31, 2009 (each a “ Put Acceleration Event ”), the Purchaser shall have the right, in its sole discretion, to accelerate the Put with respect to either (at its election) (i) the shares previously earned by the Sellers pursuant to Sections 1.2(a)(iii) and 1.2(a)(iv) above, in which case the Put shall remain in effect for the balance of any shares earned after the date of the Put Acceleration Closing (as defined below) in accordance with Section 1.10(a), or (ii) the maximum number of shares that the Sellers would be eligible to earn pursuant to Sections 1.2(a)(iii) and 1.2(a)(iv) above, whether or not such shares have been earned by the Sellers prior to the Put Acceleration Event, in which case the Put shall terminate in its entirety upon the Put Acceleration Closing (in each case, the applicable shares shall be referred to as the “ Accelerated Put Shares ”) . To accelerate the Put, the Purchaser shall provide written notice of the Put Acceleration Event to each Seller at least 20 days prior to the consummation of a Purchaser Sale or the effective date of the registration statement relating to a Public Offering by the Purchaser, as applicable (the “ Put Acceleration Notice ”) . Each Seller who elects to exercise the Put shall notify the Purchaser in writing of such election within 10 days of the date of the Put Acceleration Notice. The closing of the Put under this Section 1.10(b) (the “ Put Acceleration Closing ”) shall take place immediately after (and conditioned on) the closing of the Purchaser Sale or the Public Offering of the Purchaser (the “ Put Acceleration Termination Date ”) . At any Put Acceleration Closing, each Seller who has exercised the Put shall deliver to the Purchaser all Accelerated Put Shares held by such Seller, duly endorsed in blank, and the Purchaser shall deliver, by wire transfer of immediately available funds to a bank account specified by such Seller, a cash payment equal to the product of (w) the number of Accelerated Put Shares held by such Seller (which, in the case of clause (ii) of this Section 1.10(b), includes the maximum number of additional shares which such Seller would have been entitled to receive had all shares been earned under Sections 1.2(a)(iii) and (iv)) and (x) the Put Price. In the event that any Seller sells shares of Purchaser Common Stock in such Public Offering, the amount payable by the Purchaser to such Seller under this Section 1.10(b) will be reduced by the gross proceeds (net of underwriting discounts and commissions) received by such Seller in the Public Offering. Any Seller who exercises the Put with respect to the Accelerated Put Shares shall deliver such shares to the Purchaser immediately prior to the Purchaser Sale in exchange for the aggregate Put Price and such Sellers shall not participate in the Purchaser Sale with respect to such Put Shares.

(c) The Put will terminate for all Sellers upon the first to occur of (i) the Put Acceleration Closing, with respect to the Accelerated Put Shares only, whether or not each Seller has exercised the Put with respect to such shares, (ii) October 1, 2009 if on such date the Sellers have earned no Stock Consideration other than the Base Stock Consideration, and (iii) December 31, 2009, if the Sellers have not exercised the Put during the Put Period.

 

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(d) Notwithstanding the foregoing, in the event that the funds of the Purchaser legally available to repurchase shares of its capital stock under applicable corporate law are insufficient to repurchase the maximum Stock Consideration payable to any Seller under Sections 1.2(a)(iii) and 1.2(a)(iv) or all of the Put Shares offered to be repurchased under this Section 1.10, then the Purchaser shall use those funds that are legally available to repurchase the maximum number of such shares, on a pro rata basis among the Sellers who have exercised the Put, and shall continue to use such funds as are legally available, on a fiscal quarterly basis, to repurchase such shares under this Section 1.10 on such pro rata basis.

Section 1.11. Cancellation of Shares and Termination of Payment Obligation . All Stock Consideration held in escrow for the Sellers pursuant to this Article 1 shall be cancelled by the Purchaser to the extent not earned by the Sellers under Section 1.7 within 30 months after the first commercial shipment of the Units and, notwithstanding anything herein to the contrary, after such date, no further payment of shares or any cash payment will be made to the Sellers pursuant to this Article 1. The preceding sentence shall not apply to any payment withheld in accordance with Section 1.12 hereof but that would otherwise have been due and payable within such 30 month period.

Section 1.12. Set-off Right . Notwithstanding anything in this Agreement to the contrary, if a claim for indemnification has been made by the Purchaser pursuant to Section 8.1 or 8.2 and has not yet been fully paid or resolved, then (a) the Purchaser, or its successor-in-interest shall not be required to make any payment, up to the amount of the unpaid or unresolved indemnity claim, of cash or release any Stock Consideration pursuant to Sections 1.2(a)(ii), 1.2(a)(iii), 1.2(a)(iv) or 1.7 that has not already been paid or released until the indemnification claim has been fully satisfied, (b) no payment pursuant to Section 1.10 or Section 1.14, up to the amount of the unpaid or unresolved indemnity claim, shall be required until the indemnification claim has been fully satisfied, and (c) the Purchaser may offset any amounts due to a Purchaser Indemnitee under Section 8.1 or 8.2 against any such payment of shares or cash referenced in clauses (a) and (b) that would otherwise be payable; provided, however, that during any period from the time that the Purchaser makes any claim for indemnification in accordance with Article 8 and the final resolution of such claim, the amount of payment withheld shall be placed in escrow with a third party reasonably satisfactory to the Purchaser and a majority-in-interest of the Sellers (and any interest accruing on such amount during such escrow period shall accrue for the benefit of the party or parties who ultimately receive such funds from escrow). For purposes of this Section 1.12, any shares applied to the satisfaction of an indemnification claim under Section 8.1 or 8.2 shall be deemed to be valued at $2.00 a share), it being understood that Purchaser will be permitted, at its option, to offset against any cash payable before offsetting against shares.

Section 1.13. Sellers’ Right of Repurchase

(a) Option to Repurchase Assets of the White Rabbit Division . Subject to Section 1.13(c), in the event that (i) the Purchaser defaults on any payment obligation to the Sellers under this Agreement within the first year after Closing, including but not limited to the First Anniversary Payment, and does not cure such default within 10 days of its receipt of written notice thereof from the Sellers (a “ Payment Default ”), (ii) the Purchaser determines, in its sole discretion, that it will discontinue its activities under the Development Plan or that, following achievement of the Performance Milestones, it will discontinue the manufacture or sale of Units (the “ Discontinuance Notice ”), or (iii) either (x) the Performance Milestones are not satisfied by

 

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April 30, 2008, as a result of the Purchaser’s failure to fund the White Rabbit Division as contemplated by the Development Plan or (y) the Purchaser fails to manufacture at least 500 Units within three months after the satisfaction of the Performance Milestones, and, in the case of both clauses (x) and (y), the Purchaser does not cure such failure within 30 days of its receipt of written notice thereof from the Sellers (a “Deemed Discontinuance ”), the Sellers shall have the right to elect, in their sole discretion, in accordance with the procedure set forth in this Section 1.13, to repurchase and assume all (but not less than all, subject to this subsection 1.13(a)) of the following (the “ Repurchase Option ”) (A) to purchase (1) the assets of the White Rabbit Division that were owned by the Company immediately prior to Closing (the “ Original Assets ”); (2) all enhancements, modifications and improvements to the Original Assets (but excluding any intellectual property owned by the Purchaser prior to Closing and any enhancements, modifications and improvements to such intellectual property and excluding any assets or intellectual property relating to a communication link between a Unit and a digital jukebox); (3) all Intellectual Property related to the White Rabbit Division that is or shall in the future be assigned to the Purchaser pursuant to any Non-disclosure and Intellectual Property Assignment Agreement between the Purchaser and an employee of the White Rabbit Division, and (4) all additional assets related to the White Rabbit Division and designated by the Purchaser, in its sole discretion, as such (the “ Additional Assets ”), in the case of this clause (A), to the extent that the Purchaser can assign or transfer such assets to the Sellers (collectively, the “ White Rabbit Assets ”), and (B) to assume all Liabilities of the White Rabbit Division that are paid or incurred, or relate to a period, on or after the Initial Seller Notice in the Ordinary Course of Business, including without limitation commitments pursuant to agreements between the Purchaser and third parties such as customers, consultants and contract manufacturers, in connection with the operation of the White Rabbit Division or relating to the White Rabbit Assets, but not including any indebtedness of the Purchaser not principally related to the White Rabbit Assets (the “ White Rabbit Liabilities ”) . Notwithstanding the foregoing, “White Rabbit Liabilities” shall not include any outstanding accounts payable incurred to purchase materials for the White Rabbit Division (i) if the Sellers certify that such materials will not be useable by the Sellers in their operation of the business comprising the White Rabbit Division after the repurchase (including excess inventory) and (ii) if, and only to the extent that, such accounts payable, if included in the determination of the Repurchase Price under Subsection 1.13(d) below, would result in a Repurchase Price less than zero. Notwithstanding the foregoing, “White Rabbit Assets” shall not include any cash, cash equivalents or accounts receivable of TouchTunes (including any such assets of TouchTunes relating to or derived from the White Rabbit Division) nor any of the materials referred to in the immediately preceding sentence to the extent that the related White Rabbit Liabilities are not assumed by the Sellers. All elections, requests, determinations, agreements and dispute resolutions by “the Sellers” under this Section 1.13 shall be made by a majority-in-interest of the Sellers. For the avoidance of doubt, delivery by the Purchaser of a Discontinuance Notice under this Section 1.13 shall not be deemed to be a breach of this Agreement with respect to any other obligations of the Purchaser, including without limitation covenants of the Purchaser pursuant to Section 1.9 hereof.

(b) Repurchase Process . Within 10 Business Days following a Payment Default, delivery of a Discontinuance Notice or a Deemed Discontinuance, the Sellers shall deliver to the Purchaser a notice (i) requesting from the Purchaser a determination of the Preliminary Repurchase Price (as defined below) or (ii) waiving all rights under this Section 1.13 (the “Initial Seller Notice ”) .

 

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(i) In the event that the Sellers request a determination of the Preliminary Repurchase Price in the Initial Seller Notice, the Purchaser shall deliver a notice thereof, setting forth in reasonable detail the calculation of such price (the “Preliminary Repurchase Price Statement ”) within 20 Business Days of the Initial Seller Notice. If the Sellers wish to exercise the Repurchase Option, they shall provide the Repurchase Option Notice (as defined in subsection (e) below) within 20 Business Days after delivery by the Purchaser of the Preliminary Repurchase Price Statement, unless the Sellers give written notice of their disagreement with the Preliminary Repurchase Price Statement (a “ Repurchase Notice of Disagreement ) to the Purchaser prior to such date. In such event, the Seller shall provide the Repurchase Option Notice within 20 Business Days after the Preliminary Repurchase Price Statement shall become final, as provided below. Any Repurchase Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. If a Repurchase Notice of Disagreement is received by the Purchaser in a timely manner, then the Preliminary Repurchase Price Statement (as revised, if applicable) shall become final upon the Sellers and the Purchaser on the earlier of (A) the date that the Sellers and the Purchaser resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (B) the date any such disputed matters are finally resolved in writing by the Accounting Firm (as defined in Section 1.15(a) below).

(ii) In the event that the Sellers waive all rights under this Section 1.13 in the Initial Seller Notice, or do not deliver a Repurchase Option Notice within the period specified in clause (i) above, then (A) if the Repurchase Option was triggered by a Deemed Discontinuance or a Discontinuance Notice, all obligations of the Purchaser under this Agreement, including without limitation the obligation to pay any remaining portion of the Purchase Price, shall terminate, but (B) if the Repurchase Option was triggered by a Payment Default, all obligations of the Purchaser under this Agreement shall continue in effect in accordance with this Section 1.13; provided that the Sellers shall only be entitled to one Repurchase Option as a result of any one Payment Default.

(c) Termination of Repurchase Option . The Repurchase Option shall terminate on the earlier to occur of (i) the date on which the Purchaser has paid to the Sellers an aggregate of $2,750,000 and released to the Sellers an aggregate of 1,000,000 shares of Stock Consideration and (ii) the 13-month anniversary of the Closing Date. Notwithstanding anything herein to the contrary, the Sellers shall not be permitted to exercise their Repurchase Option if there exists a material breach of any of the Seller’s obligations or representations under this Agreement or any of the Ancillary Agreements to which any Seller is a party, and such breach is related to the Purchaser’s Payment Default, the Purchaser’s decision to provide a Discontinuance Notice, or a Deemed Discontinuance, and the applicable Seller or Sellers have not cured such breach within 30 days of the Purchaser’s written notice thereof.

 

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(d) Repurchase Price .

(i) The aggregate price to be paid by the Sellers to repurchase the White Rabbit Assets shall be an amount equal to the sum of (A) the Repurchase Price (as defined below), (B) the surrender for cancellation by the Purchaser of all Stock Consideration delivered to the Sellers pursuant to this Agreement, and (C) the release and return to the Purchaser of any amounts paid into escrow pursuant to clause (ii) of this Section 1.13(d) below. The Repurchase Price shall be determined according to the following formula:

 

provided, that in no event shall the Repurchase Price be less than zero.

For purposes of this Section 1.13, “ Net Operating Costs ” shall mean an amount equal to (A) minus (B), in each case determined from the Closing Date through the Repurchase Option Closing, where (A) is equal to the sum of (1) all of the research and development, and manufacturing costs paid or incurred by the Purchaser related to the White Rabbit Division prior to the Initial Seller Notice and, including without limitation any license fees or similar amounts, but not including amounts that constitute White Rabbit Liabilities, (2) a percentage of the total sales and marketing, administrative and other overhead costs of the Purchaser equal to the ratio of the total research and development costs and manufacturing costs relating to the White Rabbit Division during such period to all such operating expenses of the Purchaser during such period, and (3) all capital expenditures paid or incurred by the Purchaser prior to the Initial Seller Notice and related to the operations of the White Rabbit Division, but not including amounts that constitute White Rabbit Liabilities; and (B) is equal to the “Net Revenues ” of the Purchaser or the White Rabbit Division, in the event Units are sold by the White Rabbit Division directly to third parties, related to the sale of Units, which shall be defined as the gross revenues from the sale of such Units, less the following related to such Units: discounts and commissions to third parties, returns and allowances, warranty expenses, shipping, taxes and insurance. In the event that the Units are not sold individually by the Purchaser, but instead are bundled with other products sold by the Purchaser, the Purchaser shall determine the amount of Net Revenue allocable to the Units in good faith. For the purposes of this paragraph, all costs and other expenditures paid or incurred by Purchaser related to the White Rabbit Division shall include any costs and other expenditures paid or incurred directly by the White Rabbit Division.

 

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For purposes of the Preliminary Repurchase Price Statement, the Preliminary Repurchase Price shall be calculated, in accordance with the foregoing formula, as of the end of the calendar month preceding the receipt of the Initial Sellers Notice.

(ii) All payments of Cash Consideration and Stock Consideration, if any, that become payable to the Sellers under this Article 1 during the period from the date of the Initial Sellers Notice until the earlier of the Repurchase Option Closing and the date that the Sellers notify the Purchaser in writing that they will not elect to exercise the Repurchase Option shall be placed in escrow with a third party, reasonably satisfactory to the Purchaser and the Sellers’ Representative (and any interest accruing on such amount during such escrow period shall accrue for the benefit of the party or parties who ultimately receive such funds from escrow), and shall be released in full (i) to the Purchaser at the Repurchase Option Closing if the Sellers exercise the Repurchase Option, and (ii) to the Sellers if the Sellers elect not to exercise the Repurchase Option.

(e) Repurchase Option Notice . To exercise the Repurchase Option, the Sellers shall deliver written notice to the Purchaser (the “ Repurchase Option Notice) stating (i) that they are exercising their Repurchase Option, (ii) a date, not less than 10 days and no more than 30 days after the date of the Repurchase Option Notice, that the Sellers wish to purchase the White Rabbit Assets, and (iii) the name and address of the legal entity that will be transferee of the White Rabbit Assets.

(f) Repurchase Option Closing .

(i) The closing of the Repurchase Option (the “Repurchase Option Closing”) shall take place at such time and place as designated in writing in the Repurchase Option Notice. Not less than two (2) Business Days prior to the Repurchase Option Closing, the Purchaser shall prepare and deliver to the Sellers a statement of the estimated Repurchase Price (estimated as of the Repurchase Option Closing date) (the “ Repurchase Price Statement”), prepared in a manner consistent with the preparation of the Preliminary Repurchase Price Statement (or as adjusted, if applicable, following a Repurchase Notice of Disagreement under Section 1.13(b)).

(ii) At the Repurchase Option Closing, (i) the Sellers shall deliver to the Purchaser (A) the Repurchase Price by wire transfer of immediately available funds to an account designated by the Purchaser prior to such closing, (B) the certificates representing all Stock Consideration received by the Sellers pursuant to this Agreement for cancellation by the Purchaser, duly endorsed by the applicable Seller, (C) a release from each Seller and from the transferee entity of any and all claims against the Purchaser with respect to any obligations of the Purchaser, past, present or future, under this Agreement or in connection with such transfer, including without limitation any further payments of the Purchase Price (it being agreed that any such transfer shall be “as is,” subject to the last sentence of this subsection (f)), and (D) counterpart signatures of the documents, agreements and certificates described in clause (ii)( X) below, effecting among other things the assumption of the White Rabbit Liabilities and all other documents that the Purchaser may reasonably request to effectuate the assignment and assumption by the Sellers or the transferee of the White Rabbit Liabilities, and (ii) the

 

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Purchaser shall deliver to such person or entity as the Sellers’ Representative shall designate (X) duly executed deeds, bills of sale, assignment and assumption agreements or other instruments of transfer for the assignment or transfer of the Original Assets and the Additional Assets to such person or entity, including, without limitation, a duly executed general intellectual property assignment of Intellectual Property related to the White Rabbit Assets, (Y) all other documents that the Sellers may reasonably request to effectuate the assignment and transfer of the Original Assets and the Additional Assets to the Sellers, in all cases, to the extent such assets and such Intellectual Property may be assigned or transferred by the Purchaser, and (Z) a release of any and all claims against the Sellers with respect to any obligations of the Sellers, past, present or future, under this Agreement. Notwithstanding the foregoing, in no event shall the Purchaser be required to make any additional payments to any third party to procure the rights to assign or transfer any of the Original Assets or the Additional Assets which, by their terms, may not be assigned or transferred. Prior to the Repurchase Option Closing, the Purchaser will cause all liens, claims and encumbrances on the White Rabbit Assets, other than liens, claims and encumbrances related to White Rabbit Liabilities, to be released in full.

(g) Repurchase Price Adjustment . Within 10 Business Days after the Repurchase Option Closing, the Purchaser shall deliver to the Sellers’ Representative a statement (the “ Final Repurchase Statement”), setting forth the calculation of the actual Repurchase Price as of the close of business on the Repurchase Option Closing (“ Final Repurchase Price”), based on adjustments, if any, to the Repurchase Price Statement for White Rabbit Liabilities paid or incurred in the Ordinary Course of Business after the date of the Repurchase Price Statement, and prepared in a manner consistent with the preparation of the Repurchase Price Statement. The Repurchase Price shall be increased by any amount by which the Repurchase Price in the Final Repurchase Statement is greater than the Purchase Price in the Repurchase Statement, and the Repurchase Price shall be decreased by the amount by which the Repurchase Price in the Final Repurchase Statement is less than the Purchase Price in the Repurchase Statement; provided, that no adjustment to the Repurchase Price pursuant to this Section 1.13(g) shall be made unless such adjustment is at least $10,000.

Section 1.14. Sale of the Purchaser or the White Rabbit Division

(a) Sale of the Purchaser . As long as the Sellers may be entitled to receive additional Cash Consideration and/or Stock Consideration under this Agreement, in the event that the Purchaser is acquired by a third party (the “ TouchTunes Buyer”), by way of merger, consolidation, sale of stock, sale of all or substantially all of its assets or otherwise (the “ Purchaser Sale”), the Purchaser shall cause the TouchTunes Buyer to assume the obligations of the Purchaser under this Agreement (subject to Section 1.10 above), and to place in escrow, in substitution for the Stock Consideration then held in escrow, a number of shares of the TouchTunes Buyer’s common stock (or equivalent security) as shall be equivalent in value to the value of the Stock Consideration remaining in escrow on such date.

(b) Sale of the White Rabbit Division . As long as the Sellers may be entitled to receive additional Cash Consideration and/or Stock Consideration under this Agreement, if the White Rabbit Assets are sold to a third party (“ White Rabbit Buyer”), whether by means of a merger, consolidation, sale of assets, stock or limited liability company interests or otherwise, (the “ White Rabbit Sale”), then as a condition to the consummation of the White Rabbit Sale, the Purchaser shall cause the White Rabbit Buyer to assume the obligations of the Purchaser under

 

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this Agreement and to place in escrow, in substitution for the Stock Consideration then held in escrow, a number of shares of the White Rabbit Buyer’s common stock (or equivalent security) as shall be equivalent in value to the value of the Stock Consideration remaining in escrow on such date (the “Substitute Stock Consideration”“) . In addition, if a majority-in-interest of the Sellers does not believe, based on a reasonable good faith determination, that the White Rabbit Buyer has the financial ability to satisfy the obligations of the Purchaser under this Agreement to the same extent as the Purchaser, the Purchaser shall agree to guarantee, in the event of a default by the White Rabbit Buyer that is not cured within the time periods specified in this Agreement: (i) the payment of the Cash Consideration, and (ii) the obligations of the White Rabbit Buyer under Section 1.10(a) with respect to the Substitute Stock Consideration.

(c) Determination of Value of Purchase Consideration or White Rabbit Buyer Shares . The value of the common stock of the TouchTunes Buyer or the White Rabbit Buyer, for purposes of Sections 1.14(a) and 1.14(b), shall be determined as follows: (i) if the TouchTunes Buyer or the White Rabbit Buyer is a publicly traded company, the value of the common stock of such party shall be the weighted average of the closing prices of a share of such stock on the 30 trading days ending two trading days prior to the closing of the White Rabbit Sale, or (ii) if the TouchTunes Buyer or the White Rabbit Buyer is not a publicly traded company, the value shall be as set forth in the acquisition agreement, if applicable, or otherwise as determined by the Board of Directors of the Purchaser in good faith. In the event that the consideration payable in the Purchaser Sale or the White Rabbit Sale is other than the common stock of the TouchTunes Buyer or the White Rabbit Buyer, the fair market value of such consideration shall be determined by the Board of Directors of the Purchaser in good faith. If the Sellers dispute any valuation of shares or other consideration pursuant to this Section 1.14(c), and the parties are unable to resolve such dispute in good faith within 30 days of the Purchaser’s receipt of the Sellers’ written notice of such dispute (the “ Valuation Notice of Disagreement”), the valuation in dispute shall be determined by a mutually acceptable valuation firm in accordance with Section 1.15(b) below.

Section 1.15. Dispute Resolution .

(a) During the 30-day period following the delivery of a Notice of Disagreement under Section 1.6(b) or a Repurchase Notice of Disagreement under Section 1.13(c), the Sellers’ Representative and the Purchaser shall seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Notice of Disagreement or the Repurchase Notice of Disagreement. At the end of such 30-day period, the Sellers’ Representative and the Purchaser shall submit for arbitration any and all matters that remain in dispute and which were properly included in the Notice of Disagreement to a nationally recognized independent accounting firm, selected and agreed to in writing by both parties (the “ Accounting Firm”) . The Sellers’ Representative and the Purchaser shall use their respective commercially reasonable efforts to cause the Accounting Firm to render a decision resolving the matters submitted to the Accounting Firm within 30 days following the submission thereof. An order may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. The cost of any arbitration (including the fees and expenses of the Accounting Firm and reasonable attorney fees and expenses of the parties) pursuant to this Section 1.15(a) shall be borne by the Purchaser, on the one hand, and the Sellers, on the other hand, (from the Sellers’ Designated Account, and if there are insufficient funds in such account, then in accordance with the Sellers’ Specified

 

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Percentages) in inverse proportion as each may prevail on matters resolved by the Accounting Firm, which proportionate allocations shall also be determined by the Accounting Firm at the time the determination of the Accounting Firm is rendered on the merits of the matters submitted.

(b) In the event that the Seller Representative and the Purchaser have been unable to resolve any dispute relating to any valuation pursuant to Section 1.14(c) within 30 days following the delivery of the Sellers’ Valuation Notice of Disagreement, the Sellers’ Representative and the Purchaser shall submit to an independent valuation firm (the “ Valuation Firm”) for arbitration any and all matters that remain in dispute and which were properly included in the Valuation Notice of Disagreement. The Valuation Firm shall be an independent valuation firm that shall be agreed upon by the Sellers’ Representative and the Purchaser in writing. The Sellers’ Representative and the Purchaser shall use their respective commercially reasonable efforts to cause the Valuation Firm to render a decision resolving the matters submitted to the Valuation Firm within 30 days following the submission thereof. An order may be entered upon the determination of the Valuation Firm in any court having jurisdiction over the party against which such determination is to be enforced. The cost of any arbitration (including the fees and expenses of the Valuation Firm and reasonable attorney fees and expenses of the parties) pursuant to this Section 1.15(b) shall be borne by the Purchaser, on the one hand, and the Sellers, on the other hand, (from the Sellers’ Designated Account, and if there are insufficient funds in such account, then in accordance with the Sellers’ Specified Percentages) in inverse proportion as each may prevail on matters resolved by the Valuation Firm, which proportionate allocations shall also be determined by the Valuation Firm at the time the determination of the Valuation Firm is rendered on the merits of the matters submitted.

ARTICLE 2

R EPRESENTATIONS AND W ARRANTIES OF THE S ELLERS

Each Seller hereby represents and warrants to the Purchaser, severally as to himself and not jointly, as of the date of this Agreement and as of the Closing as follows:

Section 2.1. Authority; Execution and Delivery; Enforceability Such Seller has duly executed and delivered this Agreement and prior to the Closing will have duly executed and delivered each Ancillary Agreement to which he is, or is specified to be, a party, and this Agreement constitutes, and each Ancillary Agreement to which he is, or is specified to be, a party will after the Closing constitute, his legal, valid and binding obligation, enforceable against such Seller in accordance with its terms.

Section 2.2. Interests . Such Seller owns the Membership Interest Percentage of the Company set forth beside his name under such heading on Exhibit A, and the Debt Interests set forth beside his name on Section 3.6(b) of the Seller/Company Disclosure Letter. Such Seller owns, and at the Closing will transfer to the Purchaser, his Interests free and clear of any Liens (except for any restrictions on sales of securities under applicable securities laws). Such Seller’s Interests are not evidenced by any certificate or otherwise evidenced by any written instrument other than the Operating Agreement and the applicable promissory notes set forth on Section 3.6(b) of the Seller/Company Disclosure Letter. Such Seller is not a party to any option, warrant, purchase right, or other contract or commitment (other than this Agreement) that would require such Seller to sell, transfer, or otherwise dispose of any Interests. Such Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any Equity Interests.

 

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Section 2.3. No Conflicts; Consents The execution and delivery by such Seller of this Agreement do not, the execution and delivery by such Seller of each Ancillary Agreement to which he is, or is specified to be, a party will not, and the consummation of the transactions contemplated hereby and thereby and compliance by such Seller with the terms hereof and thereof will not conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the Interests of such Seller under, any provision of any Contract to which such Seller is a party or by which any of his Interests is bound or (ii) any Order or any Law applicable to such Seller or his properties or assets. No consent, approval, license, permit, order or authorization (“ Consent ”) of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to such Seller in connection with the execution, delivery and performance of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby and thereby.

Section 2.4. Litigation . There are no Actions pending or threatened in writing by or before any court or other Governmental Authority against such Seller that bring into question the validity of this Agreement or would reasonably be expected to have a material adverse effect on the ability of such Seller to consummate the transactions contemplated hereby. No injunction, writ, temporary restraining order, decree or any order of any nature has been issued by any court or other Governmental Authority seeking or purporting to enjoin or restrain the execution, delivery and performance by such Seller of this Agreement or the consummation by such Seller of the transactions contemplated hereby.

Section 2.5. Purchase for Investment . The Stock Consideration issuable to each Seller under this Agreement is being acquired for such Seller’s own account for the purpose of investment. Each Seller will refrain from transferring or otherwise disposing of any of the Stock Consideration, or any interest therein, in such manner as to cause the Purchaser to be in violation of the registration requirements of the Act, or applicable state securities or blue sky laws.

Section 2.6. Investment Experience . Such Seller understands that the transactions contemplated by this Agreement involve substantial risk. Without limiting the generality of the foregoing, such Seller has experience as an investor and acknowledges that he can bear the economic risk of his investment in the Stock Consideration for an indefinite period of time, and has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the investment in the Stock Consideration and protecting his own interests in connection with such investment.

Section 2.7. Restricted Securities . Such Seller understands that the Stock Consideration is characterized as “restricted securities” under the Act inasmuch as the shares of Purchaser Common Stock are being acquired by such Seller in a transaction not involving a public offering, and that such shares may be resold without registration under the Act only in certain limited circumstances. Such Seller is familiar with and understands the resale limitations imposed by the Act. Such Seller further understands that the Stock Consideration (together with any securities that may be issued to such Seller from time to time in respect thereof) are subject to the restrictions on transfer set forth in this Article 2.

 

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Section 2.8. Legends . Such Seller understands that the certificates evidencing the Purchaser Common Stock may bear one or more of the following legends:

(a) “These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated except pursuant to an effective registration statement in effect with respect to the securities under the Act or unless sold pursuant to Rule 144 of such Act or in compliance with Regulation S under the Act.”

(b) Any legend set forth in the Investors’ Rights Agreement.

(c) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the Purchaser Common Stock represented by the certificate so legended.

Section 2.9. Brokers’ Fees . No agent, broker, investment banker, finder, financial advisor or other Person or will be entitled to any broker’s or finder’s fee or any other commission or similar fee from the Sellers in connection with the transactions contemplated by this Agreement.

ARTICLE 3

R EPRESENTATIONS AND W ARRANTIES R ELATING TO THE C OMPANY

Except as set forth in the Seller/Company Disclosure Letter delivered by the Sellers and the Company to the Purchaser dated as of the date hereof (the “ Seller/Company Disclosure Letter”), which Seller/Company Disclosure Letter identifies the Section (or, if applicable, the subsection) to which such exception relates, each Seller hereby represents and warrants to the Purchaser, as of the date of this Agreement and as of the Closing as follows:

Section 3.1. Organization and Standing . The Company is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Illinois. The Company has full limited liability company power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to carry on its business as currently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, would not be material. The conduct of the Company does not require it to be qualified to do business in any jurisdiction other than the State of Illinois. The Company has made available to the Purchaser prior to the date hereof true and complete copies of the Company’s Constitutive Documents, in each case as amended through the date of this Agreement. The minute books of the Company, which have been provided to the Purchaser prior to the date hereof, are true and complete.

Section 3.2. The Interests; Subsidiaries .

(a) The Sellers hold 100% of the Equity Interests of the Company. Except for the Equity Interests, there are no membership interests or other equity interests in the Company issued or outstanding. The Equity Interests are duly authorized and validly issued and were not issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provisions of the Illinois Limited Liability Company Act, the Company’s Constitutive Documents or any Contract to which the Company is a party or otherwise bound. There are not any options, warrants, rights, convertible or

 

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exchangeable securities, “phantom” equity rights, equity appreciation rights, equity-based performance units, commitments, arrangements, undertakings or Contracts of any kind to which the Sellers or the Company is a party or by which they or their respective assets or properties are bound (i) obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional membership or other equity interests in, or any security convertible or exercisable for or exchangeable into any membership or other equity in, the Company, (ii) obligating the Company to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, arrangement, undertaking or Contract, (iii) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of membership or other equity interests of the Company or (iv) that, except as set forth in Section 3.2(a) of the Seller/Company Disclosure Letter, directly or indirectly restrict or limit in any manner the sale or disposition of the Equity Interests. There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any membership or other equity interest in the Company.

(b) The Company does not have any Subsidiaries and does not own or control, directly or indirectly, any membership interest, partnership interest, joint venture interest, or other equity interest in any Person.

Section 3.3. Authority; Execution and Delivery; Enforceability . The Company has full limited liability company power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is, or is specified to be, a party and to consummate the Acquisition and the other transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which it is, or is specified to be, a party and the consummation by the Company of the Acquisition and the other transactions contemplated hereby and thereby have been duly authorized by all necessary limited liability company action. The Company has duly executed and delivered this Agreement and prior to the Closing will have duly executed and delivered each Ancillary Agreement to which it is, or is specified to be, a party, and this Agreement constitutes, and each Ancillary Agreement to which it is, or is specified to be, a party will after the Closing constitute, its legal, valid and binding obligation, enforceable against it in accordance with its terms.

Section 3.4. No Conflict; Consents . The execution and delivery by the Company of this Agreement do not, the execution and delivery by the Company of each Ancillary Agreement to which it is, or is specified to be, a party will not, and the consummation of the Acquisition and the other transactions contemplated hereby and thereby and compliance by the Company with the terms hereof and thereof will not conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company under, any provision of (i) the Constitutive Documents of the Company, (ii) except as set forth in Section 3.4 of the Seller/Company Disclosure Letter, any material Contract to which the Company is a party or by which any of its properties or assets is bound or (iii) any Order or any Law applicable to the Company or its properties or assets. No Consent of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to the Company in connection with (A) the execution, delivery and performance of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby and thereby or (B) the ownership by the Purchaser of the Company immediately following the Closing.

 

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Section 3.5. Financial Statements .

(a) Section 3.5(a) of the Seller/Company Disclosure Letter sets forth (i) the unaudited consolidated balance sheets and profit and loss statements of the Company as of December 31, 2005 and 2006, and the related statements of cash flows and members’ equity for the respective fiscal years then ended (the “ Annual Financial Statements”); and (ii) the unaudited consolidated balance sheet and profit and loss statements of the Company for the period January 1, 2007 through August 31, 2007, and the related statements of cash flows and members’ equity for the eight months then ended (the “ Interim Financial Statements” and, together with the Annual Financial Statements, the “ Financial Statements ”).

(b) The Company (i) maintains books, records, and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, and (ii) the Financial Statements have been prepared from the books, records and accounts of the Company and fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of the respective dates thereof and for the respective periods indicated.

Section 3.6. Undisclosed Liabilities; Indebtedness .

(a) The Company does not have any Liabilities, except (i) as disclosed, reflected or reserved against in the Financial Statements and any notes thereto, (ii) for items set forth in Section 3.6(a) of the Seller/Company Disclosure Letter, (iii) for liabilities and obligations incurred in the Ordinary Course of Business since the date of the Financial Statements and not in violation of this Agreement, and (iv) for Taxes.

(b) Except as set forth in Section 3.6(b) of the Seller/Company Disclosure Letter, the Company does not have any outstanding Indebtedness. All Indebtedness (other than the Debt Interests) will be terminated prior to the Closing.

Section 3.7. Assets other than Real Property Interests . The Company has good and valid title to all the assets (tangible or intangible) reflected on the Financial Statements or thereafter acquired, other than those disposed of since the date of the Financial Statements in the Ordinary Course of Business and not in violation of this Agreement, in each case free and clear of all Liens, except (i) such Liens as are set forth in Section 3.7 of the Seller/Company Disclosure Letter (all of which shall be discharged prior to the Closing), and (ii) Permitted Liens. This Section 3.7 does not relate to real property or interests in real property, such items being the subject of Section 3.8, or to Intellectual Property or interests in Intellectual Property, such items being the subject of Section 3.9.

Section 3.8. Real Property . There is no real property or interest in real property, owned in fee by the Company. Section 3.8 of the Seller/Company Disclosure Letter sets forth a complete list of all real property and interests in real property leased by the Company (individually, a “ Leased Property”) and identifies any base leases and reciprocal easement or operating agreements relating thereto. The Company has made available to the Purchaser prior to the date hereof true and complete copies of all leases and any operating agreements relating to the Leased Properties. The Company has good and valid title to the leasehold estates in all Leased Property, in each case free and clear of all Liens, except (i) Permitted Liens, (ii) such Liens as are set forth in Section 3.7 of the Seller/Company Disclosure Letter (all of which shall be discharged prior to the Closing) and (iii) leases, subleases and similar agreements set forth in Section 3.8 of the Seller/Company Disclosure Letter.

 

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Section 3.9. Intellectual Property

(a) Except as set forth on Section 3.9(a) of the Seller/Company Disclosure Letter, with respect to Intellectual Property owned by the Company, upon the execution of Intellectual Property assignment agreements by the individuals listed on Section 3.9(a) of the Seller/Company Disclosure Letter, the Company will be the sole and exclusive owner of, and will have the right to use, sell and license, as the case may be, free and clear of all Liens all Intellectual Property used, sold or licensed by the Company in the business of the Company as presently conducted and as currently proposed to be conducted, except with respect to licenses of commercial off-the-shelf software.

(b) Section 3.9(b) of the Seller/Company Disclosure Letter accurately discloses all games and other products, and plans therefor, that have been, are being, or are proposed to be, devised, created or originated by or on behalf of the Company. Upon the execution of Intellectual Property assignment agreements by the individuals listed on Section 3.9(a) of the Seller/Company Disclosure Letter, the Company will be the sole and exclusive owner of, all rights, title and interests in, and will have the right to use, sell and license, as the case may be, free and clear of all Liens, all games and other products disclosed on Section 3.9(b) of the Seller/Company Disclosure Letter (except as otherwise disclosed on Section 3.9(b) of the Seller/Company Disclosure Letter).

(c) To the Knowledge of the Sellers, the products and operation of the business of the Company and the use of Intellectual Property and the tangible embodiment thereof owned by the Company, and its present and currently proposed business practices and methods, do not infringe, constitute an unauthorized use of, or violate or otherwise conflict with any Intellectual Property right of any third party. Except as set forth on Section 3.9(c) of the Seller/Company Disclosure Letter, the Intellectual Property owned by or licensed to the Company includes all of the Intellectual Property necessary to enable the Company to conduct its business in the manner in which such business has been and is currently being conducted, and as currently proposed to be conducted.

(d) Except with respect to licenses of commercial off-the-shelf Software, and except pursuant to the licenses listed in Section 3.9(d) of the Seller/Company Disclosure Letter, the Company is not obligated under any Contract to make any payments by way of royalties, fees or otherwise to any owner or licensor of, or other claimant to, any Intellectual Property, with respect to the Company’s use thereof in connection with the conduct of its business.

(e) Section 3.9(e) of the Seller/Company Disclosure Letter sets forth a complete and correct list of all Patents, registered Marks, pending applications for registration of any Marks, unregistered Marks currently being used by the Company, registered Copyrights, and pending applications for registration of Copyrights, in each case, owned by the Company, including the jurisdictions in which such Patents, Marks and Copyrights have been issued or registered or in which such applications have been filed. The Company owns all rights, title and interests in and to all Intellectual Property listed on Section 3.9(e) of the Seller/Company Disclosure Letter, free and clear of all Liens. All registration, renewal, maintenance and other applicable fees have been timely paid in connection with all issued, registered and applied for Intellectual Property owned by the Company, and all reasonable actions have been taken for the prosecution and protection of all issued, registered, applied for, and unregistered Intellectual Property owned or licensed by the Company.

 

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(f) Except as disclosed in Section 3.9(f) of the Seller/Company Disclosure Letter, the Company has not licensed any of its owned or licensed Intellectual Property to any Person, nor has the Company entered into any Contract limiting its ability to exploit fully any of its owned or licensed Intellectual Property.

(g) Except as disclosed in Section 3.9(g) of the Seller/Company Disclosure Letter, the Company is not the subject of any pending or, to the Knowledge of the Sellers, threatened action, suit, proceeding, claim, arbitration, mediation or investigation (a “ Legal Proceeding”) which involves a claim or notice of infringement of, unauthorized use of, or violation of or conflict with any Intellectual Property of any third party or challenging the ownership, use, validity, priority, duration, scope, use, right to use or enforceability of any Intellectual Property owned or licensed by the Company, and has not received written notice of any such threatened claim, and there are no facts or circumstances which are likely to form the basis for any claim of infringement of, unauthorized use of, or violation of or conflict with any Intellectual Property of any third party or challenging the ownership, use, validity, priority, duration, scope, use, right to use or enforceability of any Intellectual Property owned or licensed by the Company. All material Intellectual Property owned or licensed by the Company is valid, enforceable and in full force and effect, and has not through action or failure to act lapsed, been abandoned or otherwise been forfeited, or is likely to be forfeited, in whole or in part.

(h) To the Knowledge of the Sellers, no third party is infringing, violating, misusing or misappropriating any material Intellectual Property owned or licensed by the Company. No such claims have been made against a third party by the Company.

(i) Except as set forth in Section 3.9(i) of the Seller/Company Disclosure Schedule, the Company has taken reasonable measures to protect the secrecy and/or confidentiality of all non-public Intellectual Property owned or licensed by the Company, including requiring all Company employees or consultants with access to such Intellectual Property and all other Persons with access to such Intellectual Property, as necessary, to execute a binding confidentiality agreement. Except as set forth in Section 3.9(i) of the Seller/Company Disclosure Schedule, the Company has taken reasonable measures to protect the value of all Intellectual Property used in the conduct of the business of the Company, including requiring all Company employees to execute an agreement which includes provisions sufficient to ensure that the Company becomes the owner of any Intellectual Property created by such employees within the scope of his or her employment, or in the case of a Person other than an employee from the services such Person performs for the Company. Copies or forms of the agreement or agreements referred to in this clause (i) have been made available to the Purchaser and, to the Knowledge of the Sellers, there has not been a material breach of any such agreement or agreements.

(j) None of the execution and delivery of this Agreement, the consummation of the Sale and the other transactions contemplated hereby nor the performance by the Company of its obligations hereunder shall materially adversely affect any rights of the Company or any of its Subsidiaries with respect to any Company Intellectual Property, or the validity, priority, scope, enforceability, use, right to use, ownership, license rights, or duration of any such Intellectual Property rights.

 

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Section 3.10. Contracts .

(a) Section 3.10(a) of the Seller/Company Disclosure Letter (with paragraph references corresponding to those set forth below) contains a true and complete list of each of the following Contracts, to which the Company is a party or by which any of its properties or assets is bound (each such Contract, whether or not set forth in such section of the Seller/Company Disclosure Letter, a “ Material Contract ”):

(i) all employment agreements;

(ii) all consulting and work-for-hire agreements;

(iii) all collective bargaining agreements or other Contracts with any labor organization, union or association;

(iv) all Contracts containing (A) any provision or covenant purporting to prohibit or limit the ability of the Company to engage in any business activity or compete with any Person or purporting to prohibit or limit the ability of any Person to compete with the Company, in either case in any geographic area or for any current or potential customers anywhere in the world and (B) all Contracts containing any standstill or similar obligation of the Company to a third party or of a third party to the Company;

(v) all Contracts (A) containing any “most favored nations” or similar right in favor of any party other than the Company or (B) containing any right of any party thereto other than the Company to terminate such contract or containing any other consequence upon a “change of control” of the Company;

(vi) all customer Contracts with active customers of the Company to whom the Company has the obligation to deliver products or services where the aggregate amount to be paid to the Company by such customer over the entire term of all such Contracts with such customer exceeds $5,000 (it being understood and agreed by the parties that Section 3.10(a)(vi) of the Seller/Company Disclosure Letter shall set forth the names of each such customer and the aggregate value of the customer Contracts with such customer only, but such Contracts shall nonetheless constitute “Material Contracts” for purposes of this Agreement);

(vii) all Contracts (other than this Agreement) with (A) the Sellers or any Affiliate of any Sellers or (B) any officer or employee of the Company, any Seller, or any Affiliate of any Seller (other than employment agreements covered by clause (i) above);

(viii) all leases, subleases or similar Contracts with any Person under which the Company is a lessor or sublessor of, or makes available for use to any Person, (A) any Leased Property or (B) any portion of any premises otherwise occupied by the Company;

(ix) all leases, subleases or similar Contracts with any Person under which (A) the Company is lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by any Person or (B) the Company is a lessor or sublessor of, or makes available for use by any Person, any tangible personal property owned or leased by the Company, in any such case which has an aggregate future liability or receivable, as the case may be, in excess of $5,000;

(x) other than any licenses of third-party commercial off-the-shelf Software, all material licenses, sublicenses, options or other agreements relating in whole or in part

 

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to the Company Intellectual Property (including any material licenses or other agreements under which the Company is licensee or licensor of any Company Intellectual Property);

(xi) all Contracts (A) with respect to any Indebtedness of the Company, (B) granting a Lien upon any Leased Property or any other asset of the Company or (C) under which any Person has directly or indirectly guaranteed Liabilities of the Company;

(xii) all Contracts under which the Company has, directly or indirectly, made any advance, loan, extension of credit or capital contribution to, or other investment in, any Person;

(xiii) all Contracts (A) for the sale of any substantial portion of the assets of the Company or the grant of any preferential rights to purchase any such assets or requiring the Consent of any party to the transfer thereof or (B) providing for any obligations of any Person for the payment of any deferred or conditional purchase price or purchase price adjustment with respect to the disposition of, or for the indemnification of any Person with respect to any Liabilities relating to, any current or former business of the Company;

(xiv) all Contracts (A) with, or license or Permit by or from, any Governmental Entity or (B) for any joint venture, partnership or similar arrangement;

(xv) all Contracts (including purchase orders, vendor agreements, advertising agreements, dealer, distributor, sales representative, franchisee or similar agreements) of a type not otherwise covered by another clause of this Section 3.10(a) (without regard to materiality and value thresholds contained therein), involving payment by the Company of more than $5,000, other than purchase orders entered into in the Ordinary Course of Business after the date of this Agreement and not in violation of this Agreement; and

(xvi) Contract providing for indemnification of any officer of the Company (other than the Constitutive Documents of the Company);

(b) Each Material Contract is in full force and effect and constitutes a legal, valid and binding agreement of each party thereto, enforceable by the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and general principles of equity (whether considered in a proceeding at law or in equity). The Company has performed all obligations required to be performed by it to date under the Material Contracts, and it is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to the Knowledge of the Sellers, no other party to any Material Contract is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder. None of the Sellers or the Company has, except as disclosed in the applicable subsection of Section 3.10 of the Seller/Company Disclosure Letter, received any written notice of the intention of any party to terminate any Material Contract. True and complete copies of each unwritten Material Contract and reasonably complete and accurate written descriptions of each written Material Contract, together with all amendments and supplements thereto and all waivers of any terms thereof, have been made available to the Purchaser prior to the date hereof.

 

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Section 3.11. Permits . The Company possesses all Permits necessary to own or hold under lease and operate its assets and to conduct the business of the Company as currently conducted. Section 3.11 of the Seller/Company Disclosure Letter sets forth all material federal, state or local, domestic or foreign, governmental Consents, approvals, orders, authorizations, certificates, filings, notices, permits, concessions, registrations, franchises, licenses or rights (“ Permits ”) issued or granted to the Company. Except as set forth in Section 3.11 of the Seller/Company Disclosure Letter, (i) all such Permits are validly held by the Company in its own name, and the Company has complied in all material respects with all terms and conditions thereof; (ii) none of the Sellers or the Company has received written or oral notice of any Proceeding relating to the revocation or modification of any such Permits the loss of which, individually or in the aggregate, would be material; and (iii) none of such Permits will be subject to suspension, modification, revocation or nonrenewal as a result of the execution and delivery of this Agreement and the Ancillary Agreements or the consummation of the Acquisition and the other transactions contemplated hereby and thereby.

Section 3.12. Insurance . The Company maintains policies of fire and casualty, liability and other forms of insurance in such amounts, with such deductibles and against such risks and losses as are, in the Company’s judgment, reasonable for the business and assets of the Company, which insurance policies are set forth in Section 3.12 of the Seller/Company Disclosure Letter. All such policies are in full force and effect, all premiums due and payable thereon have been paid, and no notice of cancellation or termination has been received with respect to any such policy. There is no claim pending under any such policy as to which coverage has been questioned, denied or disputed by the underwriter of such policy. Each such policy will continue to be enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect as of the date hereof.

Section 3.13. Taxes .

(a) (i) The Company has filed or caused to be filed in a timely manner (within any applicable extension periods) all Tax Returns required by applicable tax Laws, (ii) all Taxes with respect to taxable periods covered by such Tax Returns, and all other Taxes for which the Company is or might otherwise be liable for periods prior to the date hereof have been timely paid in full or will be timely paid in full by the due date thereof (if the due date is prior to the Closing) and the Financial Statements reflects an adequate reserve for all Taxes payable by the Company for all taxable periods and portions thereof through the date of the Financial Statements, and (iii) there are no Liens for Taxes with respect to any of the assets or properties of the Company, other than Permitted Liens.

(b) No Tax Return of the Company is under audit or examination by any Taxing Authority. No written or unwritten notice of such an audit or examination has been received by the Company.

(c) Each deficiency resulting from any audit or examination relating to Taxes by any Taxing Authority has been timely paid. No material issues relating to Taxes were raised by the relevant Taxing Authority in any completed audit or examination that can reasonable be expected to recur in a later taxable period.

(d) The Company is not a party to or bound by any tax sharing agreement, tax indemnity obligation or similar agreement, arrangement or practice with respect to Taxes (including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any Taxing Authority).

 

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(e) There are no outstanding agreements or waivers extending, or having the effect of extending, the statutory period of limitation applicable to any material Tax Returns required to be filed with respect to the Company, (ii) the Company has not requested any extension of time within which to file any material Tax Return, which return has not yet been filed, and (iii) no power of attorney with respect to any Taxes has been executed or filed with any Taxing Authority by or on behalf of the Company.

(f) The Company has complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or any comparable provision of any state, local or foreign laws) and have, within the time and in the manner prescribed by applicable Law, withheld from and paid over to the proper Taxing Authorities all amounts required to be so withheld and paid over under applicable Laws.

(g) The Company has made available to the Purchaser for inspection true and complete copies of all material Tax Returns of the Company relating to Taxes for all taxable periods for which the applicable statute of limitations has not yet expired.

(h) No Seller is a “foreign person” within the meaning of Section 1445 of the Code.

(i) The Company has not participated in any “listed transactions” described in Section 1.6011-4(b)(2) of the Treasury Regulations or any similar provision of any applicable law.

(j) The Company has been treated as, and qualified as, a partnership for United States federal and state income tax purposes at all times since its formation.

Section 3.14. Litigation . There is no Action before any Governmental Body pending or, to the Knowledge of the Sellers, threatened, or any Proceeding to which the Company or any Seller is a party, that (i) materially affects the Company or any of its assets; or (ii) questions the validity of this Agreement or the other Ancillary Agreements to which any Seller is a party, or the Sellers’ right to enter into this Agreement or the other Ancillary Agreements to which each Seller is a party or to consummate the transactions contemplated hereby or thereby. The Company is not party to and the Company is not subject to or in default under any Order; and there is no Proceeding or claim by the Company pending, or which the Company intends to initiate, against any other Person.

Section 3.15. Employee Benefit Plans .

(a) Section 3.15(a) of the Seller/Company Disclosure Letter contains a list and brief description of all Employee Benefit Plans, and the Company has delivered to the Purchaser true and complete copies of each Employee Benefit Plan. Except the medical and dental plans listed in Section 3.15(a) of the Seller/Company Disclosure Letter, none of the Employee Benefit Plans constitutes, and neither the Company nor any ERISA Affiliate has ever sponsored, maintained, or been required to contribute to, an “Employee Benefit Plan” as defined in Section 3(3) of ERISA.

 

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(b) Each Employee Benefit Plan has been administered in all material respects in accordance with its terms and applicable Law. There are no lawsuits, actions, or other proceedings pending or threatened with respect to any Employee Benefit Plan.

(c) The Company has not offered to provide health or life insurance coverage to any individual, or to the family members or beneficiaries of any individual, for any period extending beyond the termination of the individual’s employment by the Company, except to the extent required by the health care continuation (also known as “COBRA”) provisions of ERISA and the Code or similar state benefit continuation Laws. Each Employee Benefit Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code, complies in all material respects with Sections 601 et seq. and 701 et seq. of ERISA and Section 4980B and Subtitle K of the Code. No Employee Benefit Plan is a “multiple employer welfare arrangement” within the meaning of section 3(41) of ERISA.

(d) Neither the execution and delivery of this Agreement, nor the consummation of the Acquisition or the other transactions contemplated thereby alone or in connection will result in the payment, vesting, or acceleration of any bonus, stock option or other equity-based award, retirement, severance, job security or similar benefit or any enhanced benefit to any Person. No benefit that is or may become payable by any Employee Benefit Plan as a result of, or arising under, this Agreement shall constitute an “excess parachute payment” (as defined in section 280G(b)(1) of the Code) that is subject to the imposition of an excise tax under section 4999 of the Code or that would not be deductible by reason of section 280G of the Code.

(e) Since the Company’s formation, no Person is or has been a Person which is (or at any relevant time was) an ERISA Affiliate.

(f) Neither the Company nor any Affiliate thereof has a formal plan, commitment, or proposal, whether legally binding or not, or has made a commitment to any individual to create any additional Employee Benefit Plan or modify or change any existing Employee Benefit Plan that would affect any current employee or consultant, or former employee, of the Company, or any beneficiary or alternate payee of such an individual. No events have occurred or are expected to occur with respect to any Employee Benefit Plan that would cause a material change in the cost of providing the benefits under such plan or would cause a material change in the cost of providing for other liabilities of such plan.

Section 3.16. Absence of Changes or Events . Since December 31, 2006, there has not occurred any Company Material Adverse Effect. Since December 31, 2006, (i) the business of the Company has been conducted in the Ordinary Course of Business, (ii) the Company has not suffered any damage, destruction or loss (whether or not covered by insurance) to any of its assets, whether tangible or intangible, and (iii) except as set forth in Section 3.16(iii) of the Seller/Company Disclosure Letter, the Company has not taken any action that, if taken after the date of this Agreement, would constitute a breach of Section 5.1.

Section 3.17. Compliance with Laws .

(a) The Company has, since its inception, been in compliance in all material respects with all applicable Orders and all material applicable Laws. Since August 10, 2005, neither any of the Sellers nor the Company has received any written or oral notice or other communication from any Person that alleges that the Company is not in compliance in any

 

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material respect with any applicable Order or material applicable Law. This Section 3.17(a) does not relate to (i) matters with respect to Taxes, which are the subject of Section 3.13; (ii) matters with respect to ERISA, which are the subject of Section 3.15; or (iii) matters with respect to environmental matters, which are the subject of Section 3.17(b).

(b) Since the Company’s inception, none of the Sellers or the Company has received any written or oral communication from any Person that alleges that the Company is not in compliance in any material respect with any Environmental Law or subject to liability under any Environmental Law. The Company holds, and is in compliance with, all Permits required for the Company to conduct its business under Environmental Laws, and is in compliance in all material respects with all Environmental Laws. The Company has not entered into or agreed to, and are not subject to, any Order relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Material. Except as set forth in Section 3.17(b) of the Seller/Company Disclosure Letter, the Company has no contingent liabilities including any assumed, whether by contract or operation of law, liabilities or obligations, in connection with any Hazardous Materials or arising under any Environmental Laws in connection with its business or any formerly owned or operated divisions, subsidiaries, or companies. The Company has never owned, leased or operated any real property other than the Leased Properties. The Company has not disposed of, or arranged for the disposal of, Hazardous Materials at any onsite or offsite location, and to the Knowledge of the Sellers, there has not been any Release of Hazardous Materials on, at or under any of the Leased Properties or any other property or facility formerly owned, leased or operated by the Company or any of its predecessors.

Section 3.18. Employee and Labor Matters .

(a) There is not, and during the past two years there has not been, any labor strike, dispute, work stoppage or lockout pending or threatened, against or affecting the Company. No union organizational campaign is in progress with respect to the employees of the Company and no question concerning representation of such employees exists. The Company is not engaged in any unfair labor practice and there are not any unfair labor practice charges or complaints against the Company pending or threatened, before the National Labor Relations Board. There are not any pending or threatened, union grievances against the Company. There are not any pending or threatened, charges against the Company before the Equal Employment Opportunity Commission or any state or local agency responsible for the prevention of unlawful employment practices. Neither any of the Sellers nor the Company has received any written or oral notice or other communication during the past two years of the intent of any Governmental Entity responsible for the enforcement of labor or employment laws to conduct an investigation of or affecting the Company and no such investigation is in progress.

(b) Section 3.18(b) of the Seller/Company Disclosure Letter sets forth the name of each employee and consultant of the Company as of the date hereof, together with the current job title or relationship to the Company and the current annual salary (including bonus) for each such Person, including a description of applicable bonus plans.

Section 3.19. Transactions with Affiliates . Section 3.19 of the Seller/Company Disclosure Letter describes any transaction during the past three years between the Company, on the one hand, and any of the Sellers or Affiliate (other than the Company) of any Seller, on the other hand. Except as set forth in Section 3.19 of the Seller/Company Disclosure Letter, none of the transactions or arrangements described in Section 3.19 of the Seller/Company Disclosure

 

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Letter will continue in effect subsequent to the Closing. After the Closing none of the Sellers or any Affiliate of any Seller (other than the Company) will have any interest in any property (real or personal, tangible or intangible) or Contract of the Company used in, pertaining to or necessary for the Company’s business, except as set forth in Section 3.19 of the Seller/Company Disclosure Letter.

Section 3.20. Corporate Name . The Company (i) has the exclusive right to use its name as the name of a limited liability company in Illinois and (ii) has not received any notice of conflict since its formation with respect to the rights of others regarding the corporate name of the Company.

Section 3.21. Accounts Receivable . All customer accounts receivable of the Company, whether reflected in the Financial Statements or subsequently created, have arisen from bona fide transactions in the Ordinary Course of Business. During the twelve months prior to the date of this Agreement, there have not been any write-offs of such customer accounts receivable, except for write-offs in the Ordinary Course of Business that have not exceeded $5,000, in the aggregate. The Company has good and marketable title to its customer accounts receivable, free and clear of all Liens, other than Permitted Liens.

Section 3.22. Suppliers and Customers . Since December 31, 2006: (i) none of the Company’s top 10 vendors (based upon the aggregate payments by the Company to such vendors for the 12 months ended December 31, 2006) has given the Company written notice that such vendor will cease to supply or adversely change its price or terms to the Company of any products or services and (ii) none of the Company’s top 10 customers (based on the aggregate revenue attributable to each such customer for the 12 months ended December 31, 2006) has given the Company written notice that such customer will cease to purchase or adversely change the quantity purchased from the Company of any products or services.

Section 3.23. Brokers . No agent, broker, investment banker or other firm or Person is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement with respect to the Company.

Section 3.24. Accounts; Safe Deposit Boxes; Powers of Attorney . Set forth on Section 3.24 of the Seller/Company Disclosure Letter are (i) a true and complete list of all bank and savings accounts, certificates of deposit and safe deposit boxes of the Company and those persons authorized to sign thereon, and (ii) a true and complete list of all powers of attorney granted by the Company and those Persons authorized to act thereunder.

ARTICLE 4

R EPRESENTATIONS AND W ARRANTIES OF THE P URCHASER

Except as set forth in the Purchaser Disclosure Letter delivered by the Purchaser to the Sellers dated as of the date hereof (the “ Purchaser Disclosure Letter ”), which Purchaser Disclosure Letter identifies the Section (or, if applicable, the subsection) to which such exception relates, the Purchaser hereby represents and warrants to the Sellers, as of the date of this Agreement and as of the Closing as follows:

Section 4.1. Organization . The Purchaser is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware. The Purchaser has made

 

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available to the Company complete and correct copies of its certificate of incorporation and bylaws, with all amendments thereto, as in effect on the date of this Agreement and the Closing Date.

Section 4.2. Authority; Execution and Delivery; Enforceability . The Purchaser has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is, or is specified to be, a party and to consummate the Acquisition and the other transactions contemplated hereby and thereby. The execution and delivery by the Purchaser of this Agreement and the Ancillary Agreements to which it is, or is specified to be, a party and the consummation by the Purchaser of the Acquisition and the other transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action. The Purchaser has duly executed and delivered this Agreement and prior to the Closing will have duly executed and delivered each Ancillary Agreement to which it is, or is specified to be, a party, and this Agreement constitutes, and each Ancillary Agreement to which it is, or is specified to be, a party will after the Closing constitute, its legal, valid and binding obligation, enforceable against it in accordance with its terms.

Section 4.3. Capitalization . As of the date hereof, the authorized and issued and outstanding capital stock of the Purchaser, including the number of shares, options, warrants or similar rights held by each holder thereof, is as set forth in Section 4.3 of the Purchaser Disclosure Letter. All issued and outstanding shares of capital stock of the Purchaser have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth on Section 4.3 of the Purchaser Disclosure Letter, as of the date hereof, there are no outstanding securities convertible into or exchangeable for the capital stock of the Purchaser, or warrants to purchase or to subscribe for any shares of such stock or other securities of the Purchaser. As of the date hereof, there are no outstanding agreements affecting or relating to the voting, issuance, purchase, redemption, repurchase, transfer or registration for sale under the Act of any securities of the Company, except as contemplated hereunder or described on Section 4.3 of the Purchaser Disclosure Letter. The rights, privileges and preferences of the Purchaser’s capital stock as of the Closing are as stated in the certificate of incorporation and bylaws of the Purchaser.

Section 4.4. No Conflict; Consents . Except as would result in a Purchaser Material Adverse Effect, the execution and delivery by the Purchaser of this Agreement do not, the execution and delivery by the Purchaser of each Ancillary Agreement will not, and the consummation of the Acquisition and the other transactions contemplated hereby and thereby and compliance by the Purchaser with the terms hereof and thereof will not conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of the Purchaser under, any provision of (i) the Constitutive Documents of the Purchaser, (ii) except as set forth in Section 4.4 of the Purchaser Disclosure Letter, any Contract to which the Purchaser is a party or by which any of its properties or assets is bound, or (iii) any Order or any Law applicable to the Purchaser or its properties or assets. Except as would result in a Purchaser Material Adverse Effect, no Consent of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to the Purchaser in connection with (A) the execution, delivery and performance of this Agreement or any Ancillary Agreement or the consummation of the transactions contemplated hereby and thereby or (B) the ownership by the Purchaser of the Company immediately following the Closing.

 

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Section 4.5. Litigation . Except as set forth on Section 4.5 of the Purchaser Disclosure Letter, there is no Action before any Governmental Body or any Proceeding pending or, to the Purchaser’s knowledge, threatened, to which the Purchaser is a party, that might have, either individually or in the aggregate, a Purchaser Material Adverse Effect, questions the validity of this Agreement or the other Ancillary Agreements to which the Purchaser is a party, or the Purchaser’s right to enter into this Agreement or the other Ancillary Agreements to which it is a party or to consummate the transactions contemplated hereby or thereby. Except as set forth on Section 4.5 of the Purchaser Disclosure Letter, the Purchaser is not a party to and the Purchaser is not subject to or in default under any Order, and there is no Proceeding or claim by the Company pending, or which the Company intends to initiate, against any other Person.

Section 4.6. Securities Act . The Equity Interests purchased by the Purchaser pursuant to this Agreement are being acquired for investment only and not with a view to any public distribution thereof, and the Purchaser shall not offer to sell or otherwise dispose of the Equity Interests so acquired by it in violation of any of the registration requirements of the Act.

Section 4.7. Brokers . No agent, broker, investment banker or other firm or Person is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement with respect to the Purchaser.

Section 4.8. Financial Condition . The Purchaser has or will have adequate financing or financial resources available to consummate the transactions contemplated by this Agreement, including the payment of the Purchase Price hereunder. The Purchaser has delivered to the Sellers (i) copies of the unaudited consolidated balance sheet and profit and loss statement of the Purchaser and its subsidiaries and the related statement of cash flows and stockholders’ equity, as of and for the fiscal year ended December 31, 2006, and (ii) copies of the unaudited consolidated balance sheet and profit and loss statement of the Purchaser and its subsidiaries for the six months ended June 30, 2007 (the financial statements in (i) and (ii) collectively, the “ Purchaser Financial Statements ”). The Purchaser Financial Statements have been prepared from the books, records and accounts of the Company and fairly present, in all material respects, the financial condition, results of operations and cash flows of the Purchaser as of the respective dates thereof and for the respective periods indicated.

Section 4.9. Contracts . The Purchaser is not in material breach of any material Contract which would impair its ability to perform its obligations under this Agreement in any way.

ARTICLE 5

C OVENANTS

Section 5.1. Covenants Relating to Conduct of Business .

(a) Except for matters set forth in Section 5.1 of the Seller/Company Disclosure Letter or otherwise required by the terms of this Agreement, from the date of this Agreement to the Closing, the Sellers shall cause the business of the Company to be conducted and the business of the Company shall be conducted in the usual, regular and ordinary course in substantially the same manner as previously conducted (including with respect to advertising, promotions and capital expenditures) and, to the extent consistent therewith, use all

 

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commercially reasonable efforts to keep intact the Company’s business, keep available the services of the Company’s current employees and preserve the Company’s relationships with customers, suppliers, licensors, licensees, distributors and others with whom it deals to the end that the Company’s business shall be unimpaired at the Closing. The Sellers shall not, and shall not permit the Company to, and the Company shall not, take any action that would, or that could reasonably be expected to, result in any of the conditions to the purchase and sale of the Interests set forth in Article 6 not being satisfied. In addition (and without limiting the generality of the foregoing), except as set forth in Section 5.1 of the Seller/Company Disclosure Letter or otherwise expressly permitted or required by the terms of this Agreement), the Sellers shall not permit the Company to and the Company shall not do any of the following without the prior written consent of the Purchaser:

(i) amend its Constitutive Documents;

(ii) declare or pay any dividend or make any other distribution to its members;

(iii) redeem or otherwise acquire, or issue, any membership or other equity interests;

(iv) adopt or amend any Employee Benefit Plan (or any plan that would be an Employee Benefit Plan if adopted) or enter into or amend any collective bargaining agreement or other Contract with any labor organization, union or association, except in each case as required by applicable Law;

(v) (A) pay or provide to any Employee any bonus, other amount or other benefit, or make any advance or loan to any Employee, not provided for under any Contract or Employee Benefit Plan in effect on the date of this Agreement other than the payment of base compensation or advances for business expenses in the Ordinary Course of Business, (B) grant to any Employee any increase in compensation (including any increase in severance or termination pay) except to the extent required under existing consulting or work-for-hire agreements, (C) enter into any employment, consulting, indemnification, severance or termination agreement with any Employee, (D) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Employee Benefit Plan or (E) take any action to accelerate the vesting or payment of any compensation or benefit under any Contract or Employee Benefit Plan or to fund or in any other way secure the payment of compensation or benefits under any Contract or Employee Benefit Plan or make any material determinations not in the Ordinary Course of Business;

(vi) except as may be required under existing agreements, grant to any Employee any increase in compensation or benefits;

(vii) permit, allow or suffer any of its assets to become subjected to any Lien of any nature whatsoever;

(viii) enter into any Contract (or any substantially related Contracts, taken together) that would, if it were in effect as of the date of this Agreement, be required to be disclosed in any subsection of Sections 3.9 or 3.10(a) of the Seller/Company Disclosure Letter;

(ix) cancel any Indebtedness owed to the Company (individually or in the aggregate) or waive any claims or rights of substantial value;

 

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(x) pay, loan or advance any amount to, or sell, transfer or lease any of its assets to, or enter into any agreement or arrangement with, the Sellers;

(xi) (A) make any change in any method of accounting or accounting practice or policy other than those required by GAAP or (B) make any election to be classified as a corporation or association under applicable Tax Law for income or franchise Tax purposes;

(xii) acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire any assets (other than inventory in the Ordinary Course of Business);

(xiii) make or incur any capital expenditures that would result in the aggregate amount of the Company’s capital expenditures since May 7, 2007 exceeding $5,000, except as set forth on Section 5.1(a)(xiii) of the Seller/Company Disclosure Letter.

(xiv) sell, lease, license or otherwise dispose of any of its assets, except in the Ordinary Course of Business;

(xv) enter into any lease of real property; or

(xvi) authorize any of, or commit or agree to take, whether in writing or otherwise, to do any of, the foregoing actions.

(b) Affirmative Covenants . Until the Closing, the Sellers shall cause the Company to:

(i) maintain its assets in the Ordinary Course of Business in good operating order and condition, reasonable wear and tear excepted; and

(ii) upon any damage, destruction or loss to any material asset, apply any and all insurance proceeds received with respect thereto to the prompt repair, replacement and restoration thereof to the condition of such asset before such event or, if required, to such other (better) condition as may be required by applicable Law.

(c) Insurance . The Sellers shall keep, or cause to be kept, all insurance policies set forth in Section 3.12 of the Seller/Company Disclosure Letter or suitable replacements therefor, in full force and effect through the close of business on the Closing Date.

Section 5.2. Non-Competition .

(a) Each of the Purchaser and each of the Sellers acknowledges and recognizes the highly competitive nature of the businesses of the Company. Accordingly, in consideration of the transactions contemplated by this Agreement and the premises contained herein, each of the Sellers agrees that he shall not, at any time during the two-year period immediately following the Closing Date (except in the case of Ed Suchocki, who shall be subject to the provisions of this Section 5.2(a) for a period of one year):

(i) directly or indirectly, engage or have any ownership interest in, or be employed by or associated in any manner with, or render services or advice to, any of the companies listed on Schedule 5.2(a)(i) to this Agreement or any of their Affiliates;

 

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provided, however, that the foregoing shall not be violated by any of the Sellers (x) owning, directly or indirectly, solely as an investment, securities of any such company or its affiliates if such company is publicly traded and if such Seller does not, directly or indirectly, beneficially own 1% or more of any class of securities of such company;

(ii) other than as set forth in clause (i) above, directly or indirectly initiate or engage in, or have any ownership interest in, or be employed by or associated in any manner connected with, or render services or advice to, any Restricted Business (as defined below); provided, however, that the foregoing shall not be violated by any of the Sellers owning, directly or indirectly, solely as an investment, securities of any Restricted Business which are publicly traded if such Seller does not, directly or indirectly, beneficially own 1% or more of any class of securities of such Restricted Business; and provided, further, that, Purchaser agrees that, Right Hand Technologies shall not be prohibited under this Section 5.2 from providing services or products, or otherwise engaging in a business activity that would constitute a Restricted Business, solely to the Purchaser and its Affiliates;

(iii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), shareholder, partner or in any other individual or representative capacity whatsoever, either for his or its own benefit or for the benefit of any other Person, solicit, divert or take away any suppliers or customers the Purchaser or any of its Affiliates; or

(iv) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), shareholder, partner or in any other individual or representative capacity whatsoever, either for his or its own benefit or for the benefit of any other person or entity, either (A) hire, attempt to hire, contact or solicit with respect to hiring, any employee of the Purchaser or any of its Affiliates, (B) induce or otherwise counsel, advise or encourage any employee of Purchaser or any of its Affiliates to leave the employment of the Purchaser or any of its Affiliates or (C) induce any representative or agent of the Purchaser or any of its Affiliates to terminate or modify its relationship with the Purchaser or any such Affiliates.

For purposes of Section 5.2(a)(ii) above, “ Restricted Business ” shall mean (A) any business that develops, manufactures, or sells interactive video multi-game amusement-only entertainment devices (other than devices marketed for personal use at home and in other non-public places) located on countertops and operated with a touch screen that operate wired or wirelessly, and directly or indirectly, accept payment via coins, paper money tokens, credit cards or other payment systems and may or may not be connected to a jukebox (a “ Video Game Console Business ”), and (B) any business that develops, manufactures, or sells digital jukeboxes other than digital jukeboxes that utilize compact discs as the music source (a “ Jukebox Business ”); provided, however , that a Seller shall not be deemed to be participating in a “Restricted Business” under Section 5.2(a)(ii) if such Seller is or becomes employed by or associated in any manner with, or renders services or advice to (collectively, “ Services ”), a division or subsidiary of a multi-business enterprise that engages, at the time of commencement of such Seller’s Services or at any time during the provision of Services, in a Jukebox Business (but not a Video Game Console Business) so long as such Seller (x) in no way, directly or indirectly, provides Services to that portion of the multi-business enterprise that constitutes the

 

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Jukebox Business, and (y) notifies the Purchaser at least five Business Days in advance of commencing to provide such Services (or, if the enterprise begins to engage in a Jukebox Business at a later time, within five Business Days of such Seller becoming aware thereof.

(b) It is the desire and intent of the parties hereto that the provisions of this Section 5.3 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, although the Sellers and the Purchaser consider the restrictions contained in this Section 5.2 to be reasonable, if any particular provision of this Section 5.2 shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made.

(c) The parties hereto acknowledge that each party’s damages at law would be an inadequate remedy for the breach by a Seller of any provision of this Section 5.2, and agree in the event of such breach that the Purchaser may seek temporary and permanent injunctive relief restraining such Seller from such breach, and, to the extent permissible under applicable statutes and rules of procedure, a temporary injunction may be granted immediately upon the commencement of any such suit. Nothing contained in this Agreement shall be construed as prohibiting the Purchaser from pursuing other remedies available at law or equity for such breach or threatened breach of this Section 5.2.

Section 5.3. Access to Information . The Sellers shall, and shall cause the Company to, afford to the Purchaser and its accountants, counsel and other representatives reasonable access in the Company’s Elk Grove Village, Illinois office, upon reasonable notice during normal business hours during the period prior to the Closing, to all the personnel, properties, books, contracts, commitments, Tax Returns and records of the Company, and, during such period shall furnish promptly to the Purchaser any information concerning the Company as the Purchaser may reasonably request.

Section 5.4. Confidentiality . For the two-year period immediately following the Closing Date, each Seller shall keep confidential, and cause its Affiliates to keep confidential, all information relating to the Company, the business conducted by the Company, or the Purchaser (“ Confidential Information ”), except (A) as required by Law or administrative process, (B) for information that is available to the public on the Closing Date, or thereafter becomes available to the public other than as a result of a breach of this Section 5.4 by such Seller or by any Person in violation of a confidentiality obligation, and (C) for information that such Seller can demonstrate by tangible evidence is independently developed by such Seller without access to the Confidential Information.

Section 5.5. Commercially Reasonable Efforts . On the terms and subject to the conditions of this Agreement, each of the Sellers and the Purchaser shall use its commercially reasonable efforts to bring about the fulfillment of each of the conditions precedent to the obligations of the other set forth in this Agreement.

Section 5.6. Expenses; Transfer Taxes . Whether or not the Closing takes place, and except as set forth in Section 5.8 and Article 8, all costs and expenses incurred in connection with this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby shall be paid by the party incurring such expense. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including penalties and interest)

 

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applicable to the transfer of the Interests (including any real property transfer tax and similar Tax) shall be paid by the Sellers. Each of the Sellers and the Purchaser shall use reasonable efforts to avail itself of any available exemptions from any such Taxes or fees, and to cooperate with the other parties in providing any information and documentation that may be necessary to obtain such exemptions.

Section 5.7. Tax Matters .

(a) The Purchaser and the Sellers agree to furnish or cause to be furnished to each other, upon request, as promptly as practicable, such information and assistance relating to the Company and its assets (including access to books and records) as is reasonably necessary for the filing of all Tax Returns (including any Tax Returns to be filed by the Sellers), the making of any election relating to Taxes, the preparation for any audit by any taxing authority, and the prosecution or defense of any claim, suit or proceeding relating to any Tax. The Purchaser and the Sellers shall retain all books and records with respect to Taxes pertaining to the Company and its assets for a period of at least six years following the Closing Date. The Purchaser and the Sellers shall cooperate with each other in the conduct of any audit or other proceeding relating to Taxes involving the Company or its assets.

(b) The Sellers shall accurately prepare (or cause to be prepared) and timely file (or cause to be filed) all Tax Returns required to be filed by the Company with respect to any Tax period ending on or before the Closing Date. With respect to any such Tax Returns that have not been filed on or prior to the Closing Date, the Sellers shall provide such Tax Returns to the Purchaser for its review 15 Business Days prior to the due date thereof. The Sellers shall be liable for all Taxes shown on any such Tax Returns to the extent provided pursuant to Section 8.1 hereof.

(c) The Purchaser shall accurately prepare (or cause to be prepared) and timely file (or cause to be filed) all Tax Returns required to be filed by the Company with respect to any Tax period ending after the Closing Date. With respect to any such Tax Returns that relate to a Tax period that begins prior to the Closing Date, the Purchaser shall permit Sellers to review and comment on each such Tax Return described in the preceding sentence prior to filing.

Section 5.8. Post-Closing Cooperation .

(a) The Sellers and the Purchaser shall cooperate with each other, and shall use their respective commercially reasonable efforts to cause their Affiliates and their officers, employees, agents, auditors and representatives to cooperate with each other after the Closing to ensure the orderly transition of the Company from the Sellers to the Purchaser and to minimize any disruption to the Company and the other businesses of the Sellers and the Purchaser that might result from the transactions contemplated hereby. After the Closing, upon reasonable written notice, the Sellers and the Purchaser shall furnish or cause to be furnished to each other and their Affiliates and their respective employees, counsel, auditors and representatives access, during normal business hours, to such information and assistance relating to the Company (to the extent within the control of such party) as is reasonably necessary for financial reporting and accounting matters.

(b) The Sellers, on the one hand, and the Purchaser, on the other hand shall reimburse the other for reasonable out-of-pocket costs and expenses incurred in assisting the other pursuant to this Section 5.8. Neither the Sellers nor the Purchaser shall be required by this

 

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Section 5.8 to take any action that would unreasonably interfere with the conduct of its business or unreasonably disrupt its normal operations (or, in the case of the Purchaser, those of the Company).

Section 5.9. Publicity . No public release or announcement concerning the transactions contemplated hereby shall be issued by any party without the prior consent of (i) the Purchaser, in the case of any such release or announcement by the Sellers, and (ii) the Sellers, in the case of any such release or announcement by the Purchaser (which consent in the case of clauses (i) and (ii) shall not be unreasonably withheld), except as such release or announcement may be required by law or the rules or regulations of any United States or foreign securities exchange, in which case the party required to make the release or announcement shall allow the other party reasonable time to comment on such release or announcement in advance of such issuance; provided, however, that the parties shall be permitted to issue a press release in agreed form; provided, further, that each of the Company and the Purchaser may make internal announcements to their respective employees; provided, that the Sellers shall take commercially reasonable measures to ensure that the Persons to whom it discloses such information pursuant to this proviso comply with the terms contained in Section 5.4 and the Company shall be responsible to the Purchaser for any disclosure by such Persons of such information.

Section 5.10. Records . On the Closing Date, the Sellers shall deliver or cause to be delivered to the Purchaser all agreements, documents, books, records and files, including records and files stored on computer disks or tapes or any other storage medium, if any, in the possession of the Sellers relating to the business and operations of the Company to the extent not then in the possession of the Company.

Section 5.11. Further Assurances . From time to time, as and when requested by any party, each party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions (subject to Section 5.6), as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement, including, in the case of the Sellers, executing and delivering to the Purchaser such assignments, deeds, bills of sale, consents and other instruments as the Purchaser or its counsel may reasonably request as necessary or desirable for such purpose.

Section 5.12. Accounts; Safe Deposit Boxes; Powers of Attorney . Prior to the Closing Date, the Sellers shall deliver to the Purchaser (i) a true and complete list of all bank and savings accounts, certificates of deposit and safe deposit boxes of the Company and those persons authorized to sign thereon, (ii) true and complete copies of all corporate borrowing, depository and transfer resolutions and those Persons entitled to act thereunder, and (iii) a true and complete list of all powers of attorney (other than a power of attorney given in the Ordinary Cause of Business with respect to Tax Matters) granted by the Company and those Persons authorized to act thereunder.

Section 5.13. Employee Salary . For the period beginning on the Closing Date and ending (i) six months after the Closing Date or (ii) upon completion of the Performance Milestones, whichever is earlier (the “ Milestone Development Period ”), the Purchaser shall provide or cause to be provided to each employee of the Purchaser, other than the Sellers, who was an employee of the Company prior to the Closing, an offer letter in the form of Exhibit G, including a rate of base salary or hourly wage while the employee continues to be employed by

 

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the Purchaser during such period that is not less than such employee’s rate of base salary or hourly wage in effect for the portion of the calendar year of the Closing ending immediately prior to the Closing. Notwithstanding the foregoing, and to the extent permitted by Law, but subject to the Seller Employment Agreements, nothing in this Agreement shall be construed to limit the ability of the Purchaser to terminate the employment of any employee for Cause (as defined below) during the Milestone Development Period, and at any time and for any or no reason after the Milestone Development Period. In addition, this Section 5.13 is for the sole benefit of the Sellers and the Purchaser and their permitted successors and assigns and is not an agreement or commitment to any employee of the Company. Nothing herein express or implied shall give or be construed to give to any employee of the Company any legal or equitable rights or remedies hereunder. For purposes of this section, “Cause” means (i) an employee’s gross negligence or willful failure to perform duties of employment with the Purchaser, (ii) an employee’s illegal use or abuse of drugs which is injurious to the reputation or business of the Purchaser, or which impairs, or could reasonably be expected to impair, the performance of the employee’s duties with the Purchaser, (iii) an employee’s conviction of, or plea of guilty or nolo contendere to, a felony, or (iv) an employee’s fraud or embezzlement against the Purchaser.

Section 5.14. Delivery of Financial Statements . From and after the Closing Date and until all payments have been made under Article 1 of this Agreement or are no longer payable pursuant to Section 1.11 of this Agreement, the Purchaser shall deliver to each Seller:

(a) as soon as practicable, but in any event within 90 days after the end of each fiscal year of the Purchaser, an income statement for such fiscal year, a balance sheet of the Purchaser and statement of stockholders’ equity as of the end of such year, and a statement of cash flows for such year, such year end financial reports to be in reasonable detail, prepared in accordance with GAAP, and audited and certified by independent public accountants of nationally recognized standing selected by the Purchaser; and

(b) as soon as practicable, but in any event within 60 days after the end of each of the first three (3) quarters of each fiscal year of the Purchaser, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter.

Section 5.15. Complimentary Units . Upon manufacture of the Units, the Purchaser shall provide at a cost of $100, (i) one (1) tower, two (2) completed Units and two (2) docking stations to each Seller other than Edward Pellegrini, and (ii) two (2) towers, four (4) completed Units and four (4) docking stations to Edward Pellegrini.

ARTICLE 6

C ONDITIONS P RECEDENT

Section 6.1. Condition to Each Party’s Obligation . The obligation of the Purchaser to purchase and pay for the Interests and the obligation of the Sellers to sell the Interests to the Purchaser is subject to the condition that the consummation of the Acquisition and the other transactions by this Agreement shall not be prohibited by any Law or Order.

 

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Section 6.2. Conditions to the Obligations of the Purchaser . The obligation of the Purchaser to purchase and pay for the Interests is subject to the satisfaction (or waiver by the Purchaser) on or prior to the Closing of the following conditions:

(a)  Representations and Warranties . (i) Each of the representations and warranties of each Seller contained in this Agreement and any Ancillary Agreement to which such Seller is a party that are qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, as of the date hereof and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date). The Purchaser shall have received a certificate signed by each Seller (as to the representations and warranties of such Seller) to such effect.

(b) Performance of Obligations . Each Seller and the Company shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by such Seller or the Company, as applicable, by the time of the Closing, and the Purchaser shall have received a certificate signed by each Seller (as to the obligations and covenants of the Seller) to such effect.

(c) Opinion of Counsel . The Purchaser shall have received an opinion dated the Closing Date of Law Offices of Bradford E. Block, counsel to the Sellers and the Company, substantially in the form of Exhibit H.

(d) FIRPTA Certificate . Each Seller shall have delivered to the Purchaser at the Closing a certificate, in form and substance reasonably satisfactory to Purchaser, certifying that such Seller is not a foreign person within the meaning of Section 1445 of the Code.

(e) Consents . The Sellers shall have delivered to the Purchaser evidence, in form and substance reasonably satisfactory to the Purchaser, all Consents and approvals of third parties required in connection with the Acquisition, this Agreement and other transactions contemplated hereby, have been obtained and are in full force and effect.

(f) Ancillary Agreements .

(i) Sellers shall have amended immediately prior to the Closing Date the Operating Agreement as in effect immediately prior to the Closing Date, so that the amended and restated LLC Operating Agreement shall be substantially in the form of Exhibit I.

(ii) Sellers shall have delivered to the Purchaser the Memorandum of Lease substantially in the form of Exhibit J duly executed by Edward Pellegrini and the Company.

(iii) Sellers shall have delivered to the Purchaser the original promissory notes set forth on Section 3.6(b) of the Seller/Company Disclosure Letter.

(iv) Sellers shall have delivered to the Purchaser counterparts of (A) the Equity Interest and Note Assignment Agreement and (B) the Amendment to Investors’

 

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Rights Agreement, each of (A) and (B) duly executed by the Sellers, (C) the Seller-Inventor IP Assignment Agreement, duly executed by Kenneth Fedesna, Mark Loffredo, Edward Pellegrini and Edward Suchocki, (D) the Non-Inventor IP Assignment Agreement, duly executed by William J. Federighi, Thomas M. Lotus and Dante Federighi, (E) the Pellegrini IP Assignment Agreement, duly executed by Frank J. Pellegrini, (F) counterparts of the Seller Employment Agreements, duly executed by the individuals listed on Section 6.2(f)(iv) of the Purchaser Disclosure Letter and (G) the Pellegrini Employment Agreement, duly executed by Frank J. Pellegrini.

(v) Sellers shall have delivered to the Purchaser copies of non-disclosure agreements and intellectual property assignment agreements, in a form satisfactory to the Purchaser, duly executed by each Employee of the Company.

(g) General . All corporate proceedings required to be taken by the Sellers and the Company in connection with the transactions contemplated by this Agreement shall have been taken. The Purchaser shall have received copies of such officers’ certificates, good standing certificates and incumbency certificates of the Company and other customary closing documents with respect to each Seller and the Company as the Purchaser may reasonably request in connection with the transactions contemplated hereby.

Section 6.3. Conditions to the Sellers’ Obligation . The obligation of the Sellers to sell the Interests is subject to the satisfaction (or waiver by the Sellers) on or prior to the Closing of the following conditions:

(a)  Representations and Warranties . The representations and warranties of the Purchaser in this Agreement and each Ancillary Agreement to which it is a party that are qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, as of the date hereof and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date). The Sellers shall have received a certificate signed by an executive officer of the Purchaser to such effect.

(b) Performance of Obligations . The Purchaser shall have performed or complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Purchaser by the time of the Closing, and the Sellers shall have received a certificate signed by an executive officer of the Purchaser to such effect.

(c) Opinion of Counsel . The Sellers shall have received an opinion dated the Closing Date of Covington & Burling LLP, counsel to the Purchaser, substantially in the form of Exhibit K .

(d) Ancillary Agreements .

(i) The Purchaser shall have delivered to the Sellers: counterparts of the (A) Equity Interest and Note Assignment Agreement, (B) Seller Employment Agreements and (C) Pellegrini Employment Agreement, duly executed by the Purchaser, and (D) Amendment to Investors’ Rights Agreement, duly executed by the Purchaser and the holders of a majority of the Registrable Securities (as defined in such agreement) of the Purchaser.

 

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(e) General . All corporate proceedings required to be taken by the Purchaser in connection with the transactions contemplated by this Agreement shall have been taken. The Sellers shall have received copies of such officers’ certificates, good standing certificates, incumbency certificates and other customary closing documents with respect to the Purchaser as the Sellers may reasonably request in connection with the transactions contemplated hereby.

ARTICLE 7

T ERMINATION , A MENDMENT AND