EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
by and between
ADEX MEDIA, INC.
and
BAY HARBOR MARKETING, LLC
August 29, 2008
WHEREAS, Company owns certain assets that it uses in the conduct of the Business (as defined below); and
AGREEMENT
1.3 “Ancillary Agreements” shall mean the ancillary agreements to be entered into in connection with the consummation of the transactions contemplated by this Agreement.
1.4 “Books and Records” shall mean (a) all records and lists pertaining to the Business, including records and lists of Company relating to the customers, suppliers or personnel of the Business, (b) all product, business and marketing plans of Company relating to the Business, and (c) all books, ledgers, files, reports, plans, drawings and operating records of every kind maintained by Company relating to the Business.
1.9 “Contract” shall mean any agreement, contract, sub-contract, note, loan, evidence of indebtedness, lease, purchase order, letter of credit, indenture, security or pledge agreement, franchise agreement, undertaking, covenant not to compete, employment agreement, license, instrument, obligation or commitment to which the Company is a party or is bound, whether oral or written, that is necessarily related to one or more Purchased Assets or otherwise is material to the Business.
1.13 “Damages” shall mean damages, Liabilities, losses (including diminution in value), obligations, deficiencies, claims, demands, Taxes, fines, penalties, costs, and expenses of any kind or nature whatsoever (whether or not arising out of third-party claims), including interest, costs of mitigation, lost profits, attorneys’ fees and all amounts paid in investigation, defense, or settlement of any of the foregoing.
1.16 “Encumbrance” shall mean any claim, lien, pledge, option, charge, easement, security interest (including any security interest filed pursuant to a financing statement in order to perfect and/or establish the priority of such security interest), deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other right of third parties, whether voluntarily incurred or arising by operation of law, and includes any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement or lease in the nature thereof.
1.17 “Escrow Agent” means the escrow agent identified in the Escrow Agreement.
1.18 “Escrow Agreement” means the escrow agreement entered into by Buyer, the Company and the Escrow Agent, in the form attached hereto as Exhibit C.
1.20 “Financial Statements” shall mean (i) the audited statement of results of operations of the Company and the Subsidiaries that covers the years ended December 31, 2006 and December 31, 2007, (ii) the audited balance sheets of the Company and the Subsidiaries as of December 31, 2006 and December 31, 2007, and (iii) the unaudited statements of results of operations of the Company and the Subsidiaries as of July 31, 2008. The July 31, 2008, balance sheet is hereinafter referred to as the “Most Recent Balance Sheet” and July 31, 2008, is hereinafter referred to as the “Most Recent Balance Sheet Date.”
1.22 “IT Assets” shall mean those Purchased Assets comprised of any computers, computer software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, and other information technology equipment, and all associated documentation.
1.23 “Knowledge” shall mean, with respect to the Company and the Subsidiaries, the knowledge of a particular fact, circumstance, event or matter in question of any manager, member, executive officer or director, or any employee having direct responsibility for the matter at issue (each, an “Entity Representative”). Any such Entity Representative will be deemed to have knowledge of a particular fact, circumstance, event or other matter if (i) such Entity Representative has actual knowledge of the fact, circumstance or event or (ii) knowledge of such fact, circumstance or event would be obtained by reasonable inquiry under the circumstances.
1.24 “Liabilities” shall mean any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, guaranty or endorsement of or by any person of any type, whether accrued, absolute, contingent, matured, unmatured or other.
1.25 “Material Adverse Effect” shall mean (a) with respect to the Business or the Purchased Assets, any material adverse effect or change in the condition (financial or other), business, results of operations, prospects, assets, Liabilities or operations of the Business and/or the Purchased Assets or on the ability of the Company to consummate the transactions contemplated hereby, or any event or condition that could, with the passage of time, constitute a material adverse effect or material adverse change, and (b) with respect to Buyer, any material adverse effect or change in the condition (financial or other), business, results of operations, prospects, assets, Liabilities or operations of Buyer or on the ability of Buyer to consummate the transactions contemplated hereby, or any event or condition that could, with the passage of time, constitute a material adverse effect or material adverse change.
1.29 “Permits” shall mean all licenses, registrations, certifications, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any governmental authority, whether foreign, federal, state or local, or any other person, necessary or desirable for the present conduct of, or relating to the operation of the Business.
1.30 “Proprietary Rights” shall mean all Copyrights, Trademarks, Patents, technology rights and licenses, computer software (including any source or object codes therefor or documentation relating thereto, other than generally commercially available third party software (a) that has not been materially modified by Company, (b) for which Company can either freely assign its rights to a successor of Company or that Buyer may separately obtain on reasonable terms, and (c) that is either subject only to a shrink wrap license agreement, or is immaterial to the Business), Trade Secrets, franchises, know-how, inventions, website and other media and text content, whether copyrighted, copyrightable or otherwise, designs, specifications, plans, processes, drawings, mask works, utility models, URLs and Domain Names, protocols, moral rights, internal operating systems and intellectual property rights of Company, including the Owned Proprietary Rights and the Licensed Proprietary Rights; and any renewal, extension, reissue, continuation, or division rights, applications, and/or registrations for any of the foregoing.
1.32 “Regulations” shall mean any laws, statutes, ordinances, regulations, rules, court decisions, principles of law, orders and other provisions of any foreign, federal, state or local government and any other governmental department or agency, including environmental laws, energy, motor vehicle safety, public utility, zoning, building and health codes, import and export laws, Foreign Corrupt Practices Act, and occupational safety and health and laws respecting employment practices, employee documentation, terms and conditions of employment and wages and hours.
1.36 “Tax” and “Taxes” shall mean all taxes, charges, fees, levies or other assessments, including all net income, gross income, gross receipts, sales, use, VAT, service, service use, ad valorem, transfer, franchise, profits, capital stock, alternative or add-on minimum, estimated, license, lease, withholding, social security, payroll, employment, excise, estimated, severance, stamp, recording, occupation, real and personal property, gift, windfall profits or other taxes, customs duties, fees, assessments, or charges of any kind whatsoever, whether computed on a separate, consolidated, unitary, combined or other basis, together with any interest, fines, penalties, additions to tax or other additional amounts imposed thereon or with respect thereto imposed by any taxing authority (domestic or foreign). The terms “Tax” and “Taxes” shall include any Liability of Company for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined, or unitary group, or being a party to any agreement or arrangement whereby Liability of Company for payment of such amounts was determined or taken into account with reference to the Liability of any other person.
1.37 “Trade Secrets” shall mean all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, blue prints, designs, data compilations, research results, and other information.
2.1 Sale of Assets. Upon the terms and subject to the conditions contained herein, at the Closing, Company shall sell, convey, transfer, assign, and deliver to Buyer, and Buyer shall purchase and acquire from Company, the Purchased Assets, free and clear of all Encumbrances, for the consideration specified below in Section 2.3. Schedule 2.1 contains an accurate list and summary descriptions of all Purchased Assets.
2.2 No Assumption of Liabilities. The Buyer shall not assume, shall have no obligation to pay, perform or discharge, and shall not otherwise be responsible for, any obligations or Liabilities of the Company, any Subsidiary or any Affiliates, whether arising out of occurrences prior to, on or after the Closing Date, including but not limited to any (a) Taxes of Company; (b) Liabilities with respect to employees of Company and their dependents and beneficiaries, including Liabilities with respect to violations of labor or immigration laws, with respect to employment agreements, with respect to any benefits or benefit programs, including accrued vacation time, and with respect to any Tax withholdings to the extent existing or arising at or prior to the Closing Date; (c) Liabilities for tort claims that are based on acts or events that occurred at or prior to the Closing Date; (d) Liabilities with respect to alleged or actual infringement of proprietary rights or other intellectual property rights of any third party in connection with any products developed, produced, manufactured, marketed, sold, or offered for sale by the Business, in each case, at or prior to the Closing Date; (e) Liabilities relating to or arising out of any Default occurring prior to or upon the Closing Date; (f) litigation or other matters set forth on Schedule 4.14; or (g) Liabilities related to any trade or creditor debt.
2.3.1 Buyer will provide consideration for the Purchased Assets as follows:
(b) At the Closing, Buyer will issue to Company fifty thousand (50,000) restricted shares of Buyer’s common stock (the “Closing Shares”), subject to Section 2.3.2;
(c) At the Closing, Buyer will issue to Dufficy one hundred fifty two thousand one hundred fifty one (152,151) restricted shares of Buyer’s common stock (the “Dufficy Shares”) in consideration for Dufficy’s assumption of certain outstanding unsecured obligations of the Company to certain Company creditors;
(d) At the Closing, Buyer will issue to Remington Partners, Inc. (“Remington”), a creditor of the Company, one hundred forty-seven thousand two hundred seventy-three (147,273) restricted shares of the Company’s common stock (the “Remington Shares”) in satisfaction in full of that certain outstanding obligation of the Company to Remington, evidenced by that certain Secured Promissory Note and Security Agreement dated May 24, 2007, by and between Company and Remington;
(e) At the Closing, Buyer and the Company will enter into the Escrow Agreement, pursuant to which Buyer will issue to the Escrow Agent a number of restricted shares of Buyer’s common stock (the “Earn Out Shares”) as follows and subject to Section 2.3.2:
(i) Buyer will deliver to the Escrow Agent a certificate, or certificates, representing one hundred fifty thousand (150,000) restricted shares of Buyer’s common stock in the name of the Company, to be held and distributed by the Escrow Agent in accordance with the terms of this Agreement and the Escrow Agreement.
(ii) During the sixty-day period (the “Earn Out Audit Period”) following the expiration of the period commencing on the Closing Date and terminating on the twelve-month anniversary of the Closing Date (the “Earn Out Period”), Buyer shall conduct and complete an internal audit of the aggregate revenues generated by the Business during the Earn Out Period.
(iii) If, at the conclusion of Buyer’s audit, the number of Earn Out Shares earned by the Company according to the Earn Out formula set forth on Schedule B (the “Earned Shares”) is greater than zero, then no later than ten days after the expiration of the Earn Out Audit Period (the “Earn Out Payment Date”), Buyer will instruct the Escrow Agent to release the Earned Shares from escrow and deliver the Earned Shares to the Company. Buyer’s instruction of the Escrow Agent shall include a written instruction from Buyer to Buyer’s transfer agent, instructing such transfer agent to issue a new certificate in the amount of the Earned Shares to the Escrow Agent in the name of the Company. Upon receipt of such instruction from Buyer, Escrow Agent shall promptly surrender the certificate(s) representing the Earn Out Shares to the Buyer’s transfer agent for cancellation together with the letter of instruction to issue a new certificate. Promptly after Escrow Agent’s receipt of a certificate representing the Earned shares, Escrow Agent shall deliver such certificate to the Company.
(iv) If, at the conclusion of Buyer’s audit, the amount of the Earned Shares is zero, Buyer will instruct the Escrow Agent to surrender the certificate(s) representing the Earn Out Shares to the Buyer’s transfer agent for cancellation and the Company shall have no further interest in the Earn Out Shares.
2.3.2 The Closing Shares and the Earn Out Shares will be subject to a lockup and share release schedule as set forth on Schedule C. The Company will enter into a Lock-Up and Share Release Agreement with the Buyer substantially in the form attached hereto as Exhibit A.
2.3.3 The Closing Shares, the Dufficy Shares, the Remington Shares and the Earn Out Shares (collectively, the “Shares”), along with the Cash Consideration, shall constitute the total purchase price (the “Purchase Price”) for the Purchased Assets.
2.3.4 Buyer shall issue share certificates (“Share Certificates”) evidencing the Shares as soon as reasonably practicable after Closing. The Parties agree and acknowledge that the issuance of Share Certificates by Buyer is not a condition precedent to Closing.
2.5 Withholding. Buyer shall be entitled to deduct and withhold from the Purchase Price such amounts as Buyer is required to deduct and withhold under the Code, or any provision of state, local, provincial or other tax law, with respect to the making of such payment. To the extent that amounts are so withheld by Buyer, such withheld amounts shall be treated for all purposes of this Agreement as having been paid and delivered to the Company.
(d) one or more Domain Name Assignments, in recordable form to the extent necessary to assign in the aggregate all URLs and Domain Names included in the Purchased Assets; and
3.2.4 Buyer shall issue to Dufficy the Dufficy Shares.
3.2.5 Buyer shall issue to Remington the Remington Shares.
3.2.9 The Company shall deliver to Buyer a Members’ Consent (“Members’ Consent”) signed by the Members of the Company holding membership interests in the Company constituting, in the aggregate, a Percentage Interest (as defined in the Company’s Operating Agreement) in the Company that is greater than sixty percent (60%), approving this Agreement and the asset purchase transaction contemplated hereby, and further authorizing the Managing Member of the Company to execute and deliver this Agreement and all additional documents required to be executed and delivered by and on behalf of the Company under this Agreement and to take such additional actions as may be reasonably necessary to close this transaction.
3.2.10 The Company shall deliver to Buyer a certificate signed by the managing Member of the Company (the “Seller Closing Certificate”), stating that (i) Buyer’s acquisition of the Company’s assets and the execution of this Agreement have been approved by the Members of the Company in accordance with the Company Organizational Documents; (ii) the Members of the Company have authorized Dufficy to execute this Agreement and all Ancillary Agreements on the Company’s behalf; (iii) the representations and warranties of the Company are true and correct in all material respects as of the Closing Date, as if made as of the Closing Date; and (iv) the covenants and agreements of the Company to be performed on or prior to the Closing have been duly performed in all material respects.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.2 Organization and Qualifications of Company. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California with corporate power and authority to conduct the Business in the manner and in the places where the Business is currently conducted or currently proposed to be conducted. The copies of the Company’s Articles of Organization, as amended to date, certified by the Secretary of State of the State of California (the “Company Charter”), and of the Company’s other organizational documents, as amended to date (together with the Company Charter, the “Company Organizational Documents”), are complete and correct, and no amendments, restatements, supplements or modifications thereto are pending. The Company is not in violation of any term of the Company Organizational Documents. The Company is duly qualified or authorized to do business as a California limited liability company and is in good standing under the laws of California and each jurisdiction in which the conduct of the Business requires such qualification or authorization.
4.3 Authority of Company. The Company has full power and authority to enter into this Agreement and Ancillary Agreements and to carry out the transactions contemplated hereby or thereby. The execution and delivery by the Company of this Agreement and, subject to requisite Member approval, the performance by the Company of this Agreement and the Ancillary Agreements and the consummation by the Company of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of the Company. Without limiting the generality of the foregoing, the Members of the Company, by a vote in accordance with the Company Organizational Documents, determined that the transactions contemplated by this Agreement are fair to and in the best interests of the Company and its Members. This Agreement has been duly and validly executed and delivered by the Company and constitutes, and each of the Ancillary Agreements, upon its execution and delivery by the Company, will constitute, a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to creditors rights generally, and is subject to general principles of equity.
4.6 Subsidiaries. Each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each Subsidiary is duly qualified to conduct business and is in good standing under the laws of each jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification. Each Subsidiary has all requisite power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has delivered to the Buyer complete and accurate copies of the charter, by-laws or other organizational documents of each Subsidiary. No Subsidiary is in default under or in violation of any provision of its charter, by-laws or other organizational documents. All of the issued and outstanding shares of capital stock of each Subsidiary are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All shares of each Subsidiary that are held of record or owned beneficially by either the Company or any Subsidiary are held or owned free and clear of any restrictions on transfer (other than restrictions under the Securities Act, as amended and state securities laws), claims, security interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Company or any Subsidiary is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary. The Company does not control directly or indirectly or have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture or other business association or entity which is not a Subsidiary.
4.7 Financial Statements; Liabilities.
4.7.2 As of the date hereof and as of the Closing Date, Company has not had and will not have any Liabilities relating to the Business or the Purchased Assets of any nature, whether accrued, absolute or contingent (including Liabilities as guarantor or otherwise with respect to obligations of others, or Liabilities for Taxes due or contingent or potential Liabilities relating to activities of Company with respect to the operation of the Business prior to the date hereof or the Closing, as the case may be, regardless of whether claims in respect thereof had been asserted as of such date), except Liabilities (i) stated or adequately reserved against on the Most Recent Balance Sheet or the notes thereto, (ii) incurred in the Ordinary Course of Business of the Company consistent with the terms of this Agreement since the Most Recent Balance Sheet Date or (iii) relating to future performance obligations under Contracts, none of which relates to any Default, breach of warranty, tort infringement, or violation of any Regulations or Court Orders or arose out of any Action.
4.8.12 Any change made or authorized in the Company Organizational Documents; or
4.8.13 Any grant of a license or sublicense of any rights under or with respect to any Proprietary Rights.
4.9.3 The Company has good, valid and marketable title to all of the Owned Proprietary Rights free and clear of any Encumbrances, and has the right to use, exploit, dispose of, license, sublicense, grant the right to sublicense, and distribute, without the payment of any fees, royalties or other payments all Owned Proprietary Rights.
4.9.5 All Company-owned software has been exclusively developed either (i) internally by employees of Company working within the scope of their employment or (ii) by third parties pursuant to written work made for hire and/or assignment agreements placing ownership of such computer software with Company. True and complete copies of all such agreements have been made available to Buyer.
4.9.6 The conduct and operation of the Business, including with respect to any technology used or products developed, produced, sold or offered for sale by the Business, as currently conducted or currently proposed to be conducted and the use and exploitation by the Company of the Proprietary Rights in connection therewith, do not conflict with, infringe upon, or misappropriate the proprietary rights or other intellectual property rights of any third party. The Company has not received notice of any claim or allegation by any third party alleging that, in connection with the conduct and operation of the Business as currently conducted or as currently proposed to be conducted, the Company has infringed or misappropriated any proprietary rights or other intellectual property rights of such third party, or contesting the validity, enforceability, ownership, exploitation, disposition, license, sublicense or distribution by the Company of any of the Proprietary Rights, and, to the Knowledge of the Company, no such claim has been threatened and there are no grounds for any such claim.
4.9.8 The Company has taken all steps required in accordance with commercially reasonable business practices to establish and preserve its ownership of, and the validity and enforceability of, all Proprietary Rights with respect to the products, services and technology used in the Business. The Company has required all professional and technical employees and all other employees having access to valuable non-public Proprietary Rights of the Company to execute written agreements under which such employees are required to convey all of their right, title and interest to the Company in all inventions and developments conceived or created by them in the course of their employment and to maintain the confidentiality of all such information of the Company. The Company has not made any such non-public Proprietary Rights available to any person other than employees of the Company, except pursuant to written agreements requiring the recipients to maintain the confidentiality of such information and appropriately restricting the use thereof. No current or former employee, officer, director, manager or member has any rights to future royalty payments or any other fees from the Company or Buyer deriving from Buyer’s use or other exploitation of the Proprietary Rights. Neither the Company nor any of the Members has Knowledge of any infringement, misappropriation or other unauthorized use, duplication or performance by others of any Proprietary Rights of Company with respect to the Business.
4.9.11 The Company’s material IT Assets operate and perform in all material respects in accordance with past performance, subject to reasonable scheduled and unscheduled downtime. To the Knowledge of the Company, the IT Assets do not contain any “time bombs,” “Trojan horses,” “back doors,” “trap doors,” “worms,” viruses or other similar devices or effects that (i) enable or assist any person or entity to access without authorization the IT Assets or (ii) otherwise hinder operation of material functionality of the IT Assets except as disclosed in its documentation. The Company has taken reasonable measures to protect the confidentiality of its trade secrets and confidential information contained within the IT Assets. The Company has taken reasonable security measures to protect the operation of the material IT Assets consistent with industry practice. To the Knowledge of the Company, no person or entity has access to any IT Assets without proper authorization.
4.9.12 The Company owns exclusively or has the exclusive right to use, free and clear of all Encumbrances, any and all guides and other informational materials published and distributed by the Company (“Guides”), and the Company has obtained any and all Permits, licenses, certifications, approvals and or consents required in connection with the publication, distribution or dissemination of such Guides, including but not limited to approval and/or certification by FINRA, NASD and other regulatory oversight boards and bodies, and the Company has not received any notice from any third party or governmental entity regarding the failure of any such Guide to comply with relevant Laws or governing body/board/industry watch dog standards.
4.10.1 Section 4.10 of the Disclosure Schedule lists the following agreements (written or oral) to which the Company or any Subsidiary is a party as of the date of this Agreement:
(a) any agreement (or group of related agreements) for the lease of personal property from or to third parties providing for lease payments in excess of $1,000 per annum or having a remaining term longer than twelve (12) months;
(b) any agreement (or group of related agreements) for the purchase or sale of products or for the furnishing or receipt of services that calls for performance over a period of more than one (1) year, that involves more than the sum of $10,000, or in which the Company or any Subsidiary has granted manufacturing rights, most favored nation pricing provisions or exclusive marketing or distribution rights relating to any products or territory or has agreed to purchase a minimum quantity of goods or services or has agreed to purchase goods or services exclusively from a certain party;
(c) any agreement concerning the establishment or operation of a partnership, joint venture or limited liability company;
(d) any agreement (or group of related agreements) under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness (including capitalized lease obligations) involving more than $10,000 or under, which it has imposed (or may impose) a security interest on any of its assets, tangible or intangible;
(e) any agreement for the disposition of any significant portion of the assets or business of the Company or any Subsidiary (other than sales of products in the Ordinary Course of Business) or any agreement for the acquisition of the assets or business of any other entity (other than purchases of inventory or components in the Ordinary Course of Business);
(f) any agreement concerning confidentiality or noncompetition;
(g) any employment or consulting agreement;
(h) any agreement involving any current or former officer, director or member of the Company or an Affiliate thereof;
(i) any agreement under which the consequences of a default or termination would reasonably be expected to have a Material Adverse Effect;
(j) any agreement which contains any provisions requiring the Company or any Subsidiary to indemnify any other party (excluding indemnities contained in agreements for the purchase, sale or license of products entered into in the Ordinary Course of Business); and
(k) any other agreement (or group of related agreements) either involving more than $10,000 or not entered into in the Ordinary Course of Business.
4.10.2 The Company has delivered to the Buyer a true, complete and accurate copy of each agreement listed in Section 4.10 of the Disclosure Schedule, except as otherwise indicated in such Section 4.10 of the Disclosure Schedule. With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) for those agreements to which the Company is a party, the agreement is assignable by the Company to the Buyer without the consent or approval of any party (except as set forth in Sections 4.4 and 4.10 of the Disclosure Schedule) and will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; (iii) neither the Company nor any Subsidiary nor any other party is in breach or violation of, or default under, any such agreement; and (iv) no event has occurred, is pending or is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or any Subsidiary or any other party under such agreement.
4.11 No Real Property. The Company does not own any real property.
4.12 Real Property Leases. Section 4.13 of the Disclosure Schedule lists all leases (the “Leases”). The Company has delivered to the Buyer complete and accurate copies of the Leases. With respect to each Lease:
4.12.1 such Lease is valid;
4.12.2 such Lease is assignable by the Company or a Subsidiary to the Buyer without the consent or approval of any party, except as set forth in Section 4.13 of the Disclosure Schedule, and such Lease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing;
4.12.3 neither the Company nor any Subsidiary nor any other party, is in breach or violation of, or default under, any such Lease;
4.12.4 no event has occurred, is pending or is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or any Subsidiary or any other party under such Lease;
4.12.5 there are no disputes, oral agreements or forbearance programs in effect as to such Lease; and
4.12.6 neither the Company nor any Subsidiary has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold.
4.15 Inventory. All inventory of the Company and the Subsidiaries, whether or not reflected on the Most Recent Balance Sheet, consists of a quality and quantity usable and saleable in the Ordinary Course of Business, except for obsolete items and items of below-standard quality, all of which have been written-off or written-down to net realizable value on the Most Recent Balance Sheet. All inventories not written-off have been priced at the lower of cost or net realizable value on a first-in, first-out basis. The quantities of each type of inventory, whether raw materials, work-in-process or finished goods, are not excessive in the present circumstances of the Company and the Subsidiaries.
4.16 Permits. Except as set forth in Section 4.17 of the Disclosure Schedule, the Company and each Subsidiary has Permits required by applicable Regulations for the carrying on of its current operations. Each such Permit was validly issued, is in full force and effect, and is not subject to appeal or challenge. No suspension, cancellation or termination of any Permit is pending or threatened. There is no Action, suit, proceeding, investigation, complaint or notice that is pending or threatened that challenges or questions the validity of any rights of the Company or any Subsidiary as holder under any Permit or the legal right of the Company or any Subsidiary to own, operate and conduct its Business, nor is the Company or any Subsidiary subject to any outstanding Court Order.
4.17 Powers of Attorney; Bank Accounts. There are no outstanding powers of attorney executed on behalf of the Company or the Subsidiaries. Section 4.18 of the Disclosure Schedule sets forth an accurate and complete list of the names and locations of all financial institutions at which the Company and each Subsidiary maintains accounts of any nature or safe deposit boxes and the names of all persons authorized to draw thereon.
4.21.1 The Company has timely filed with the appropriate taxing authorities all declarations, reports, estimates, statements, schedules, information returns or other information or documents with respect to all Taxes of the Company, including any schedule or amendment thereto (collectively, “Tax Returns”), and will timely file any such Tax Returns required to be filed prior to or on the Closing Date. All such Tax Returns are (or, in the case of Tax Returns and information not yet filed, will be when filed) complete and accurate in all material respects.
4.22 Guaranties. Neither the Company nor any Subsidiary is a guarantor or otherwise liable for any liability or obligation (including indebtedness) of any other entity.
4.23 Environmental, Health, and Safety Matters. The Company and each Subsidiary:
4.23.1 have complied in all material respects and are in material compliance with all Regulations having the force or effect of law, all Court Orders, all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, as now in effect (collectively, “Environmental, Health and Safety Requirements”);
4.23.2 have obtained, and at all times have complied and are in compliance with, all Permits currently required pursuant to Environmental, Health, and Safety Requirements for the operation of the Company and the Subsidiaries;
4.23.3 has not received any written or verbal, notice or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to any of them arising under Environmental, Health, and Safety Requirements; and
4.23.4 has not treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including without limitation any hazardous substance, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance), in a manner that has given or would give rise to liabilities, including any liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), the Solid Waste Disposal Act, as amended (“SWDA”) or any other Environmental, Health, and Safety Requirements.
4.26 Restricted Shares. The Company acknowledges that the Shares are being issued hereunder pursuant to applicable exemptions from registration requirements under the Securities Act and applicable exemptions from the securities qualification requirements of state law, and that the Shares may not be resold or transferred unless an exemption from such registration and qualification requirements is available and unless any prospective transferee enters into a Lock-Up and Share Release Agreement with Buyer in substantially the form as set forth on Exhibit A. the Company is in compliance with the requirements of Section 2.3.2. The Company further understands and acknowledges that the Shares may not be resold pursuant to Rule 144, as promulgated by the Securities and Exchange Commission under the Securities Act, as amended, unless all of the conditions of such Rule 144 are met. Notwithstanding the foregoing, the Company agrees not to effect any transfer or resale of the Shares unless and until:
4.26.2 The Company shall have complied with all requirements of this Agreement and of the Lock-Up and Share Release Agreement applicable to the proposed disposition of such shares; and
4.26.3 The Company shall have provided Buyer with written assurances, in form and substance satisfactory to Buyer including an opinion of counsel, that the proposed disposition does not require registration of such shares under the Act or qualification under state securities laws of any applicable state, or all appropriate action necessary for compliance with the registration requirements of the Act or of any exemption from registration under the Act, and of qualification under applicable state law or exemption therefrom, has been taken.
Company further acknowledges that Buyer shall not be required to transfer on its books any of the Shares that have been sold or transferred in violation of the provisions of this Agreement or treat as the owner of any such Shares, or otherwise to accord voting or dividend rights, to any transferee to whom any such Shares have been transferred in violation of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
6.1 Further Assurances. Upon the terms and subject to the conditions contained herein, the Company and Buyer shall, after the Closing Date, (a) use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, (b) execute any documents, instruments or conveyances of any kind that may be reasonably necessary or advisable to carry out the transactions contemplated hereby, and (c) cooperate with each other in connection with the foregoing. Without limiting the foregoing, the Company shall use its best efforts (i) to obtain all necessary waivers, consents and approvals from other parties to the Contracts (or portions of Contracts) to be assumed by Buyer, (ii) to obtain all necessary Permits as are required to be obtained under any Regulations, (iii) to give all notices to, and make all registrations and filings with third parties, including submissions of information requested by governmental authorities, and (iv) to fulfill all conditions of this Agreement. In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party.
6.2 Domain Name Registrations. The Company shall, immediately or as soon as practicable following the Closing, take all necessary steps to update all Domain Name and URL registrations to reflect the Buyer as the current registrant and owner of such Domain Names and URLs.
8.6 Employees; Independent Contractors. Kevin Dufficy and Allison Skinner shall have entered into appropriate employment agreements, independent contractor agreements and/or Proprietary Information and Invention Agreements, as the case may be, with Buyer.
8.7 Audit. A two (2) year audit (the “Audit”) of the Financial Statements of the Company shall have been agreed to be conducted by a Public Company Accounting Oversight Board (“PCAOB”) firm to be selected by the Company and approved by Buyer, such approval not to be unreasonably withheld, and all costs associated therewith to be paid by Buyer, and such Audit shall not have revealed any material adverse information regarding the Company or any Subsidiary and shall otherwise be acceptable to the Buyer in its sole reasonable discretion.
9.1.2 Tax Matters. The Parties shall (i) each provide the other with such assistance as may reasonably be requested by either of them in connection with the preparation of any Tax Return, audit, or other examination by any taxing authority or judicial or administrative proceedings relating to Liability for Taxes, (ii) each retain and provide the other with any records or other information that may be relevant to such Tax Return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding, or determination that affects any amount required to be shown on any Tax Return of the other for any period. Without limiting the generality of the foregoing, the Parties shall each retain, until the applicable statutes of limitation (including any extensions) have expired, copies of all Tax Returns, supporting work schedules, and other records or information that may be relevant to such Tax Returns for all Tax periods or portions thereof ending on or before the Closing Date and shall not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same.
9.2.4 Company shall be solely responsible for and shall hold Buyer harmless against any Liabilities related to Company’s classification and treatment of persons deemed by the IRS to be employees of the Company as independent contractors.
10.1 Indemnification by Company. Subsequent to the Closing Date, each of the Company and Subsidiaries shall indemnify and hold Buyer, its Affiliates, successors and assigns and persons serving as current and future officers, directors, partners, managers, stockholders, employees, attorneys and agents thereof (individually a “Buyer Indemnified Party” and collectively the “Buyer Indemnified Parties”) harmless from and against any Damages that may be sustained or suffered by any of them arising out of or based upon (a) any fraud, intentional misrepresentation or the cause or knowledge of a deliberate or willful breach of any representations, warranties or covenants of the Company under this Agreement or in any agreement, document, certificate, schedule or exhibit delivered pursuant hereto; or (b) any other breach of any representation, warranty or covenant of the Company under this Agreement or in any agreement, document, certificate, schedule or exhibit delivered pursuant hereto, or by reason of any Action asserted or instituted growing out of any matter or thing constituting a breach of such representations, warranties or covenants.
10.2 Indemnification by Buyer. Buyer shall indemnify and hold the Company and persons serving as their officers, directors, partners, managers, members, employees and agents thereof (individually a “Company Indemnified Party” and collectively the “Company Indemnified Parties”) harmless from and against any Damages which may be sustained or suffered by any of them arising out of or based upon any breach of any representation, warranty or covenant made by Buyer in this Agreement or in any agreement, document, certificate, schedule or exhibit delivered by Buyer hereunder, or by reason of any claim, action or proceeding asserted or instituted growing out of any matter or thing constituting such a breach.
10.3 Indemnification Procedure.
The term “Indemnified Party” shall mean the Buyer Indemnified Party or Buyer Indemnified Parties or the Company Indemnified Party or Company Indemnified Parties, as the case may be, and the term “Indemnifying Party” shall mean the indemnifying party referred to herein.
10.3.1 The Indemnified Party shall use commercially reasonable efforts to mitigate any Damages in respect of which indemnity may be sought hereunder. The Indemnified Party shall give written notice (the “Indemnification Notice”) to the Indemnifying Party within ninety (90) days after discovery by the Indemnified Party of any matters that may be reasonably expected to give rise to a claim for indemnification or reimbursement under this Agreement, specifying in reasonable detail the nature and estimated amount of the claim; provided, however, that failure to give such notice shall not affect the indemnification obligations of the Indemnifying Party hereunder in the absence of actual prejudice and then shall limit such obligations only to the extent of such prejudice.
10.3.2 With respect to any Action, proceeding or claim that is brought by a third party against an Indemnified Party, the Indemnified Party shall be entitled to select counsel of its choice.
10.3.3 The Indemnified Party shall cooperate fully in the defense of any such Action, proceeding or claim. The Indemnified Party shall keep the Indemnifying Party reasonably informed at all times as to the status of the defense. Neither the Indemnified Party nor the Indemnifying Party will consent to the entry of any judgment or enter into any settlement with respect to the third party claim without the prior written consent of the other party, which shall not be unreasonably withheld, delayed or conditioned.
| | 883 North Shoreline Blvd #A200 |
| | Attention: Ben Zadik, Chief Financial Officer |
| | Bullivant Houser Bailey PC |
| | 601 California Street, Suite 1800 |
| | San Francisco, CA 94108-2823 |
| | | Bay Harbor Marketing, LLC |
| | 101 Nellen Avenue, Suite 201 |
11.9 Gender. The use of the masculine, feminine or neuter gender herein shall not limit any provision of this Agreement
AdEx Media, Inc. By: Name: Title: | Bay Harbor Marketing, LLC By: Name: ________________ Title: ________________ |
EXHIBIT A
LOCK-UP AND SHARE RELEASE AGREEMENT
EXHIBIT B
REMINGTON PAYOFF LETTER
EXHIBIT C
ESCROW AGREEMENT
SCHEDULE A
MEMBERS
| | Number of Interests | Capital Contribution | Fully Diluted Ownership % |
Kevin Dufficy 116 Monte Vista Avenue Larkspur, CA 94939 | 83,750 | $26,000 | 63.17 |
Allison Skinner 50 Bryn Mawr Drive San Rafael, CA 94901 | 11,250 | $25,000 | 8.49 |
Rick Boyce PO Box 1097 Ross, CA 94957 | 5,263 | $25,000 | 3.97 |
Nick Pahade 5 Eric Court Lawrenceville, NJ, 08648 | 5,156 | $25,000 | 3.90 |
Marc Heberling 186 Carlisle Way Benecia, CA 94510 | 5,000 | $1,000 | 3.77 |
Stephen Potenza 1850 Urbana Way Sacramento, CA 95833 | 3,977 | - | 3.00 |
Peter Naylor 149 Sunset Ave Ridgewood, NJ 07450 | 3,900 | $25,000 | 2.94 |
Debbie Wogan 204 East 90th street, Apt 3W New York NY 10128 | 3,900 | $25,000 | 2.94 |
Dan Gregory 247 Rome Street Newark, NJ 07105 | 3,900 | $25,000 | 2.94 |
Darian Heyman 60 Spear Street, 9th Floor San Francisco, CA 94105 | 3,900 | $25,000 | 2.94 |
Bob Thompson 6312 Meadowridge Drive Santa Rosa, CA 95409 | 2,572 | - | 1.94 |
| TOTAL | 132,568 | | 100.00% |
SCHEDULE B
EARN OUT
12 Month Forecasted Net Business Revenue from Closing Date: $2,000,000
On the Earn Out Payment Date, as set forth in Section 2.3 of the Agreement, the Company shall receive up to 150,000 Earn Out Shares on a pro rata basis in accordance with the following:
If 12 month Net Business Revenue from Closing Date is $2,000,000 = 150,000 Earn Out Shares*
If 12 month Net Business Revenue from Closing Date is $0 = 0 Earn Out Shares
Earn Out to be paid if 12 month Net Business Revenue from Closing Date is between $0 and $2,000,000 shall be calculated pro-rata based on the above scale.
For example:
Earn Out to be paid if 12 month Net Business Revenue from Closing Date is $1,500,000 = 112,500 Earn Out Shares*
Earn Out to be paid if 12 month Net Business Revenue from Closing Date is $1,000,000 = 75,000 Earn Out Shares*
* For any earn out to be paid, the Business must achieve a “Break Even Profit Margin” over the entire Earn Out Period. Break Even Profit Margin means, for purposes of this Earn Out Schedule, that the gross revenues attributable to the Business, less the direct costs of goods sold, direct headcount, direct contractor costs, and direct lease/office rental costs, must be equal to or greater than zero.
SCHEDULE C
LOCK-UP AND SHARE RELEASE SCHEDULE
Date Percent of Shares Released
12 month anniversary of Share issuance date 20%
13 month anniversary of Share issuance date 15%
14 month anniversary of Share issuance date 15%
15 month anniversary of Share issuance date 15%
16 month anniversary of Share issuance date 15%
17 month anniversary of Share issuance date 10%
18 month anniversary of Share issuance date 10%
SCHEDULE 2.1
PURCHASED ASSETS
| 1. | Source Code & Database |
| 2. | Customer List & Database |
| 3. | Web Domains and Content |
| 4. | Financial Guides (FINRA-reviewed) |
| | Dell Dimension 3000 (1) KEVIN |
| | Oki Data C5500 Color Laser |
| | Executive Filling Cabinets (3) |
| | Basic Filling Cabinets (8) |
DISCLOSURE SCHEDULE
10712980.5
x
