Execution Version
STOCK PURCHASE AGREEMENT
dated as of
August 31, 2015
among
GENIMOUS INVESTMENT CO., LTD.
and
RODRIGO SALES, IN HIS CAPACITY ASSELLERS’
REPRESENTATIVE
and
SELLERS NAMED HEREIN
relating to the purchase and sale
of
the Common Stock
of
SPIGOT, INC.
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
Section 1.01 . Definitions. ................................................................................. 1
Section 1.02 . Other Definitional and Interpretative Provisions. . ...................... 8
ARTICLE 2
PURCHASE AND SALE
Section 2.01 . Purchase and Sale. . .................................................................... 9
Section 2.02 . Closing. ...................................................................................... 9
Section 2.03 . Withholding Tax. .. ..................................................................... 10
Section 2.04 . Good Faith Deposit. . ................................................................. 10
Section 2.05 . Post-Closing Contingent Payments. . .......................................... 11
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Section 3.01 . Corporate Existence and Power. ............................................... 11
Section 3.02 . Legal Capacity and Authorization. . ........................................... 11
Section 3.03 . Governmental Authorization. . ................................................... 12
Section 3.04 . Noncontravention. . ................................................................... 12
Section 3.05 . Capitalization. . ......................................................................... 12
Section 3.06 . Ownership of Shares. . ............................................................... 13
Section 3.07 . Subsidiaries. . ............................................................................ 13
Section 3.08 . Financial Statements. . .............................................................. 14
Section 3.09 . Absence of Certain Changes. . ................................................... 14
Section 3.10 . No Undisclosed Liabilities. . ...................................................... 14
Section 3.11 . Intercompany Accounts. . ........................................................... 14
Section 3.12 . Material Contracts. .................................................................. 15
Section 3.13 . Litigation. . ................................................................................ 16
Section 3.14 . Compliance with Laws and Court Orders. . ............................... 17
Section 3.15 . Properties. ................................................................................ 17
Section 3.16 . Software. .................................................................................... 17
Section 3.17 . IT System. ................................................................................... 19
Section 3.18 Intellectual Property.. .................................................................... 19
Section 3.19 . Privacy and Data Security. ......................................................... 23
Section 3.20 . Insurance Coverage. ................................................................. 24
Section 3.21 . Licenses and Permits. . .............................................................. 24
Section 3.22 . Receivables. .............................................................................. 25
Section 3.23 . Selling Documents. ................................................................... 25
Section 3.24 .Finders’ Fees. ........................................................................... 25
i
Section 3.25 . Employees. . .............................................................................. 25
Section 3.26 . Employee Benefit Plans. . .......................................................... 26
Section 3.27 . Labor Matters. . ......................................................................... 29
Section 3.28 . Tax. ........................................................................................... 29
Section 3.29 . Foreign Corrupt Practices Act.. .................................................. 29
Section 3.30 . Change of Control Agreements. . ............................................... 30
Section 3.31 . Representations. . ...................................................................... 31
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.01 . Existence and Power. ................................................................ 31
Section 4.02 . Authorization. ........................................................................... 31
Section 4.03 . Governmental Authorization. . ................................................... 31
Section 4.04 . Noncontravention. .................................................................... 31
Section 4.05 . Purchase for Investment. . ......................................................... 32
Section 4.06 .Finders’ Fees. ........................................................................... 32
ARTICLE 5
COVENANTS OF SELLERS
Section 5.01 . Conduct of the Company. .......................................................... 32
Section 5.02 . Access to Information; Confidentiality. . .................................... 35
Section 5.03 . Notices of Certain Events. ......................................................... 36
Section 5.04 . Noncompetition. ....................................................................... 36
Section 5.05 . Future Seller Acquisitions. . ....................................................... 38
Section 5.06 . Non-U.S. Business. . .................................................................. 38
ARTICLE 6
COVENANTS OF BUYER
Section 6.01 . Confidentiality. . ........................................................................ 38
Section 6.02 . Special Tax Payment. ................................................................ 39
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Section 7.01 . Reasonable Best Efforts; Further Assurances. . ......................... 40
Section 7.02 . Certain Filings. . ....................................................................... 40
Section 7.03 . Public Announcements. . ............................................................ 41
Section 7.04 . Board after the Closing Date.. ................................................... 41
Section 7.05 . Management of the Company after the Closing Date. ............... 41
Section 7.06 . Financial Controller. . .............................................................. 44
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.01 . Conditions to Obligations of Buyer and Sellers. ........................ 45
ii
Section 8.02 . Conditions to Obligation of Buyer. ........................................... 45
Section 8.03 . Conditions to Obligation of Sellers. .......................................... 46
ARTICLE 9
SURVIVAL; INDEMNIFICATION
Section 9.01 . Survival. . .................................................................................. 48
Section 9.02 . Indemnification. ........................................................................ 48
Section 9.03 . Third Party Claim Procedures. . ................................................ 48
Section 9.04 . Direct Claim Procedures. . ........................................................ 52
ARTICLE 10
TERMINATION
Section 10.01 . Grounds for Termination. ....................................................... 53
Section 10.02 . Effect of Termination. ............................................................. 53
ARTICLE 11
MISCELLANEOUS
Section 11.01 . Notices. ................................................................................... 54
Section 11.02 . Amendments and Waivers. ...................................................... 55
Section 11.03 . Disclosure Schedule References. . ............................................ 56
Section 11.04 . Expenses. . ............................................................................... 56
Section 11.05 .Sellers’ Representative. ........................................................... 56
Section 11.06 . Successors and Assigns. . ......................................................... 58
Section 11.07 . Governing Law. . ..................................................................... 58
Section 11.08 . Arbitration. . ............................................................................ 58
Section 11.09 . Counterparts; Effectiveness; Third Party Beneficiaries. . ......... 58
Section 11.10 . Entire Agreement. . .................................................................. 59
Section 11.11 . Severability. . ........................................................................... 59
Section 11.12 . Specific Performance. . ............................................................ 59
Annexes
Annex A Sellers and Shares to Be Sold
Annex B List of Key Employees
Annex C Form of Proprietary Information and Inventions Agreement
Exhibits
Exhibit A Post-Closing Contingent Payments and Transactions
Exhibit B Form of Legal Opinion
iii
STOCK PURCHASE AGREEMENT
This AGREEMENT (this “Agreement”) is entered into as of August 31,
2015 among Genimous Investment Co., Ltd., a company incorporated under the
laws of the PRC with its stocks listed in the Shenzhen Stock Exchange (“Buyer”),
Rodrigo Sales, in his capacity asSellers’ Representative (as defined below), and
the stockholders of the Company set forth on Annex A hereto (collectively, the
“Sellers”, and, each, a “Seller”).
W I T N E S S E T H:
WHEREAS, Sellers own, of record and beneficially, all of the issued and
outstanding shares of capital stock of Spigot, Inc., a Nevada corporation
(“Company”); and
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers the Shares upon the terms and subject to the conditions hereinafter
set forth.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
provided that neither the Company nor any Subsidiary shall be considered an
Affiliate of any Seller. For purposes of this definition, “control” when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms “controlling” and “controlled”
have correlative meanings.
“Applicable Law” means, with respect to any Person, any transnational,
domestic or foreign (including Romania and England and Wales) federal, state or
local law (statutory, common or otherwise), constitution, treaty, convention,
ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or
other similar requirement enacted, adopted, promulgated or applied by a
Governmental Authority that is binding upon or applicable to such Person, as
amended unless expressly specified otherwise. Notwithstanding the foregoing, as
used in Sections 3.04 and 3.19(e), Applicable Law shall not include any law
(statutory, common or otherwise), constitution, treaty, convention, ordinance,
code, rule, regulation, order, injunction, judgment, decree, ruling or other similar
requirement enacted, adopted, promulgated or applied by a Governmental
Authority in thePeople’s Republic of China.
“Balance Sheet” means the unaudited consolidated balance sheet of the
Company and the Subsidiaries as of June 30, 2015.
“Balance Sheet Date” means June 30, 2015.
“Business” shall mean the creation, development, operation or
monetization of browser add-ons and extensions solely for purposes of offering
monetization and distribution solutions for software developers and content
publishers.
“Business Day” means a day, other than Saturday, Sunday or other day on
which commercial banks in San Francisco City, California or Beijing, PRC are
authorized or required by Applicable Law to close.
“Closing Date” means the date of the Closing.
“COBRA” means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, and any rules or regulations promulgated thereunder.
“Code” means the Internal Revenue Code of 1986, as amended, and any
rules or regulations promulgated thereunder.
“Collective Bargaining Agreement” means any written or oral
agreement, memorandum of understanding or other contractual obligation
between the Company or any of its Subsidiaries and any labor organization or
other authorized employee representative representing Service Providers.
“Common Stock” means the common stock, par value$ 0.0001 per share,
of the Company.
“Company” means Spigot, Inc., a Nevada corporation.
“Company Employee” means an employee of the Company or any of its
Subsidiaries.
“Company Plan” means any Employee Plan that is sponsored, maintained
or entered into by the Company or any of its Subsidiaries.
“Company Products” means all proprietary Software products and
related services of the Company and its Subsidiaries that (a) are currently offered,
licensed, sold, distributed, hosted, maintained, supported or otherwise provided or
made available by or on behalf of the Company or any of its Subsidiaries, or (b)
are currently under development by or for the Company or any of its Subsidiaries.
“Company System” means all Software, and computer hardware, servers,
networks, platforms, peripherals, data communication lines and other information
technology equipment and related systems, including any outsourced systems and
processes, that are owned or used by the Company or any of its Subsidiaries.
“Employee Plan” means any (i) “employee benefit plan” as defined in
Section 3(3) of ERISA, (ii) compensation, employment, consulting, severance,
termination protection, change in control, transaction bonus, retention or similar
plan, agreement, arrangement, program or policy or (iii) other plan, agreement,
arrangement, program or policy providing for compensation, bonuses, profit-
sharing, equity or equity-based compensation or other forms of incentive or
deferred compensation, vacation benefits, insurance (including any self-insured
arrangement), medical, dental, vision, prescription or fringe benefits, life
insurance, relocation or expatriate benefits, perquisites, disability or sick leave
benefits, employee assistance program,workers’ compensation, supplemental
unemployment benefits or post-employment or retirement benefits (including
compensation, pension, health, medical or insurance benefits), in each case
whether or not written (x) that is sponsored, maintained, administered, contributed
to or entered into by the Company or any of its Affiliates for the current or future
benefit of any current or former Service Provider or (y) for which the Company or
any of its Subsidiaries has any direct or indirect liability. For the avoidance of
doubt, a Collective Bargaining Agreement shall constitute an agreement for
purposes of clauses (ii) and (iii).
“ERISA” means the Employee Retirement Income Security Act of 1974,
as amended, and any rules or regulations promulgated thereunder.
“ERISA Affiliate” with respect to an entity means any other entity that,
together with such first entity, would be treated as a single employer under
Section 414 of the Code.
“GAAP” means generally accepted accounting principles in the United
States, consistently applied with the past practices of the Company.
“Governmental Authority” means any transnational, domestic or foreign
(including Romania and England and Wales) federal, state or local governmental,
regulatory or administrative authority, department, court, agency or official,
including any political subdivision thereof.
“IFRS” means the International Financial Reporting Standards, as issued
by the International Accounting Standards Board, consistently applied.
“Intellectual Property Rights” means (i) inventions, whether or not
patentable, reduced to practice or made the subject of one or more pending patent
applications, (ii) national and multinational statutory invention registrations,
patents and patent applications (including all reissues, divisionals, provisionals,
continuations, continuations-in-part, extensions, substitutions, renewals and
reexaminations thereof) registered or applied for in the United States and all other
nations throughout the world, all improvements to the inventions disclosed in
each such registration, patent or patent application, (iii) trademarks, service
marks, brands, certification marks, trade dress, logos, domain names and social
media account or user names (including “handles”), all associated web addresses,
trade names and corporate names (whether or not registered) in the United States
and all other nations throughout the world, including all renewals, registrations
and applications for registration of the foregoing and all goodwill associated
therewith, (iv) copyrights and works of authorship (whether or not registered) and
registrations and applications for registration thereof in the United States and all
other nations throughout the world, including all derivative works, moral rights,
renewals, extensions, reversions or restorations associated with such copyrights,
now or hereafter provided by law, regardless of the medium of fixation or means
of expression, (v) computer software (including all source code, object code,
firmware, operating systems, application programming interfaces, data files,
databases, protocols, specifications and other documentation thereof), (vi) trade
secrets and, whether or not confidential, business information (including pricing
and cost information, business and marketing plans and customer and supplier
lists), know-how, technology and technical information (including manufacturing
and production processes and techniques and research and development
information), tools, methods, processes and other confidential and proprietary
information and all rights therein, (vii) industrial designs (whether or not
registered), (viii) databases and data collections, (ix) copies and tangible
embodiments of any of the foregoing, in whatever form or medium, (x) all rights
to obtain and rights to apply for patents, and to register trademarks and
copyrights, (xi) all rights in all of the foregoing provided by treaties, conventions
and common law and (xii) all rights to sue or recover and retain damages and
costs andattorneys’ fees for past, present and future infringement or
misappropriation of any of the foregoing.
“International Plan” means any Employee Plan that is not a US Plan.
“IRS” means the United States Internal Revenue Service.
“Key Employee” means each employee of the Company or any
Subsidiary set forth on Annex B hereto.
“knowledge” of any Person (i) that is not an individual means the
knowledge of suchPerson’s officers after reasonable inquiry, and (ii) that is an
individual means the knowledge of such Person after reasonable inquiry in such
Person’s capacity as theCompany’s officer or director, if applicable.
“Licensed Intellectual Property Rights” means all Intellectual Property
Rights owned by a third party and licensed or sublicensed to either the Company
or any Subsidiary.
“Lien” means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any kind
in respect of such property or asset. For the purposes of this Agreement, a Person
shall be deemed to own subject to a Lien any property or asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement relating
to such property or asset.
“Management Sellers” means, out of the Sellers, Mr. Rodrigo Sales, Mr.
Ryan Stephens, Ms. Celeste Sales and their respective trusts, if any.
“Material Adverse Effect” means a material adverse effect on (i) the
condition (financial or otherwise), business, assets or results of operations of the
Company and its Subsidiaries, taken as a whole, excluding any effect resulting
from (A) changes in the general economic or political conditions not having a
materially disproportionate effect on the Company and its Subsidiaries, taken as a
whole, relative to other participants in the industry in which the Company and its
Subsidiaries operate, (B) changes (including changes of Applicable Law) or
conditions generally affecting the industry in which the Company and its
Subsidiaries operate and not specifically relating to or having a materially
disproportionate effect on the Company and its Subsidiaries, taken as a whole, (C)
acts of war, sabotage or terrorism or natural disasters not having a materially
disproportionate effect on the Company and its Subsidiaries, taken as a whole,
relative to other participants in the industry in which such the Company and its
Subsidiaries operate, or (ii) theCompany’s ability to consummate the transactions
contemplated by this Agreement.
“Multiemployer Plan” means a “multiemployer plan” as defined in
Section 3(37) of ERISA.
“1934 Act” means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
“Open Source Software” means any Software that is distributed as “free
software,” “open source software” or pursuant to any license identified as an
“open source license” by the Open Source Initiative
(www.opensource.org/licenses) or other license that substantially conforms to the
Open Source Definition (http://opensource.org/osd (including the GNU General
Public License (GPL), GNU Lesser General Public License (LGPL), GNU Affero
General Public License (AGPL), MIT License (MIT), Apache License, Artistic
License and BSD Licenses).
“Owned Intellectual Property Rights” means all Intellectual Property
Rights owned by either the Company or any Subsidiary.
“PBGC” means the Pension Benefit Guaranty Corporation.
“Person” means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
Governmental Authority.
“Pre-Closing Tax Period” means any Tax period ending on or before the
Closing Date; and, with respect to a Tax period that begins on or before the
Closing Date and ends thereafter, the portion of such Tax period ending on the
Closing Date.
“Seller Plan” means any Employee Plan that is sponsored, maintained or
entered into by Seller or any of its Affiliates other than the Company or any of its
Subsidiaries.
“Service Provider” means any director, officer, employee or individual
independent contractor of the Company or any of its Subsidiaries.
“Shares” means 14,487,644 shares of Common Stock.
“Software” means any and all computer software and code, including all
new versions, updates, revisions, improvements and modifications thereof,
whether in source code, object code, or executable code format, including systems
software, application software (including mobile apps), firmware, middleware,
programming tools, scripts, routines, interfaces, libraries, and databases, and all
related specifications and documentation, including developer notes, comments
and annotations, user manuals and training materials relating to any of the
foregoing.
“Subsidiary” means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of directors
or other persons performing similar functions are at the time directly or indirectly
owned by the Company.
“Tax” means (i) any tax, governmental fee or other like assessment or
charge (including, but not limited to, withholding on amounts paid to or by any
Person), together with any interest, penalty, addition to tax or additional amount
imposed by any governmental authority (domestic or foreign) responsible for the
imposition of any such tax (a “Taxing Authority”) and (ii) any liability for the
payment of any amount of the type described in the immediately preceding clause
(i) as a result of the Company being a member of an affiliated, consolidated or
combined group with any other corporation at any time on or prior to the Closing
Date.
“Tax Law” means any Applicable Law relating to the Tax.
“Title IV Plan” means any Employee Plan (other than any Multiemployer
Plan) that is subject to Title IV of ERISA.
“US Plan” means any Employee Plan that covers Service Providers
located primarily within the United States.
“VK Agreement” means the agreement entered into between the
Company and Vision Knight Capital Management Company Limited on May 5,
2014, as amended by the First Amendment to Agreement dated May 5, 2015.
“WARN” means the Worker Adjustment and Retraining Notification Act
and any comparable foreign, state or local law.
(a) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
Actual Net Profit Exhibit A
Agreement Preamble
Auditor Exhibit A
Board Section 5.05
Board and Stockholder Approvals Section 4.02
Buyer Preamble
Buyer Earnout Payment Exhibit A
Buyer Indemnified Party/Parties Section 9.02(a)(i)
Closing Section 2.02
Company Preamble
Company Securities Section 3.05(b)
CEO Director Section 7.04
Damages Section 9.02(a)(i)
e-mail Section 11.01
Earnout Indemnification Obligation Section 9.02(a)(iii)
Earnout Notice Exhibit A
Earnout Objection Notice Exhibit A
Earnout Period Exhibit A
Earnout Target Exhibit A
Employment Agreement Section 8.02(l)
Extended Earnout Year Exhibit A
Extended Earnout Year Sellers Earnout Exhibit A
Indemnification Amount
Extended Earnout Year Target Exhibit A
Final Net Profit Exhibit A
Financial Controller Section 7.06
Good Faith Deposit Section 2.04
HKIAC Section 11.08
Indemnification Cap Section 9.02(a)(iii)
Indemnified Party Section 9.02(a)(i)
Indemnifying Party Section 9.02(a)(i)
Term Section
Initial Earnout Year Exhibit A
Management-Appointed Directors Section 7.04
Net Profit Exhibit A
Net Profit Target Bonus Exhibit A
Noncompete Consideration Section 5.04(d)
Non-Compete Period Section 5.04(a)
Opportunity Section 5.05
Outstanding Indebtedness Section 2.02(a)(iii)
Permits Section 3.21
Pledged Shares Exhibit A
PRC Regulatory Approvals Section 4.03
Pro Rata Portion Section 2.02(a)(i)
Purchase Price Section 2.01
Returns Section 3.28
Seller/Sellers Preamble
Seller Tax Payment Section 6.02
Sellers Earnout Indemnification Amount Exhibit A
Sellers Earnout Indemnification Shortfall Exhibit A
Sellers Earnout Payment Exhibit A
Sellers Indemnification Cap Exhibit A
Sellers’ Representative Section 11.05
Seller’s Representative Account Section 2.02(a)(i)
Share Proceeds Section 2.02(a)(i)
Shortfall Year Exhibit A
Stock Pledge Agreement Exhibit A
Subsidiary Securities Section 3.07(b)
Threshold Section 9.02(a)(iv)
Transition Period Profit Section 6.02
Third Party Claim Section 9.02(a)(i)
Unpaid Portion of Sellers Earnout Exhibit A
Indemnification Shortfall
Warranty Breach Section 9.02(a)(i)
Yearly Earnout Installment Exhibit A
Section 1.02. Other Definitional and Interpretative Provisions. The
words “hereof”, “herein” and “hereunder” and words of like import used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation hereof.
References to Annexes, Articles, Sections, Exhibits and Schedules are to Articles,
Annexes, Sections, Exhibits and Schedules of this Agreement unless otherwise
specified. All Annexes, Exhibits and Schedules annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set forth
in full herein. Any capitalized terms used in any Annex, Exhibit or Schedule but
not otherwise defined therein, shall have the meaning as defined in this
Agreement. Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words “include”,
“includes” or “including” are used in this Agreement, they shall be deemed to be
followed by the words “without limitation”, whether or not they are in fact
followed by those words or words of like import. “Writing”, “written” and
comparable terms refer to printing, typing and other means of reproducing words
(including electronic media) in a visible form. References to any statute shall be
deemed to refer to such statute as amended from time to time and to any rules or
regulations promulgated thereunder. References to any agreement or contract are
to that agreement or contract as amended, modified or supplemented from time to
time in accordance with the terms hereof and thereof; provided that with respect
to any agreement or contract listed on any schedules hereto, all such amendments,
modifications or supplements must also be listed in the appropriate schedule.
References to any Person include the successors and permitted assigns of that
Person. References from or through any date mean, unless otherwise specified,
from and including or through and including, respectively. References to “law”,
“laws” or to a particular statute or law shall be deemed also to include any and all
Applicable Law.
ARTICLE 2
PURCHASE AND SALE
Section 2.01. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, each Seller agrees to sell to Buyer, and Buyer
agrees to purchase from each Seller, the Shares set forth opposite suchSeller’s
name on Annex A hereto at the Closing. The aggregate consideration to be paid
by Buyer hereunder shall be an amount equal to the sum of (i)$118,000,000 in
cash (the “Purchase Price”) and (ii) up to a total amount of$133,696,710
additional earnout payments to Sellers, if any, provided for in Exhibit A hereto.
Section 2.02. Closing. The closing (the “Closing”) of the purchase and
sale of the Shares hereunder shall take place at the offices of MagStone Law,
LLP, 4633 Old Ironsides Drive, Suite 106, Santa Clara, California as soon as
possible, but in no event later than 10 Business Days, after satisfaction or, to the
extent permissible, waiver by the party or parties entitled to the benefit of the
conditions set forth in Article 8 (other than conditions that by their nature are to
be satisfied at the Closing, but subject to the satisfaction or, to the extent
permissible, waiver of those conditions at the Closing), or at such other time or
place as Buyer andSellers’ Representative may agree. At the Closing:
(a) Buyer shall:
(i) deliver (A)$116,000,000 less the Good Faith Deposit,
including any interest credited thereon, and further less the sum of all of
the payables for and on behalf of the Company under Section 2.02(a)(ii)-
(v) (such amount, collectively with the Good Faith Deposit, being referred
to herein as the “Share Proceeds”), and (B) the Noncompete
Consideration toSellers’ Representative in immediately available funds by
wire transfer to an account with a bank in the United States designated by
Sellers’s Representative (the“Seller’s Representative Account”), by
notice to Buyer, which notice shall be delivered not later than three
Business Days prior to the Closing Date; which Share Proceeds and
Noncompete Consideration shall be distributed by theSellers’
Representative to the Sellers with each Seller receiving a portion of the
Share Proceeds and Noncompete Consideration equal to (1) the sum of (x)
the amount of the aggregate Share Proceeds plus (y) the Noncompete
Consideration (2) multiplied by a fraction (the “Pro Rata Portion”), the
numerator of which is the number of shares of the Common Stock owned
by such Seller immediately prior to the Closing and the denominator of
which is the total number of shares of the Common Stock outstanding
immediately prior to the Closing;
(ii) deliver$2,067,103, for and on behalf of the Company, to
Vision Knight Capital Management Company Limited in immediately
available funds by wire transfer to an account designated bySellers’s
Representative, by notice to Buyer, which notice shall be delivered not
later than three Business Days prior to the Closing Date;
(iii) deliver$425,000 and$925,000, together with accrued
interest thereon (collectively, the “Outstanding Indebtedness”), for and
on behalf of the Company, to Mr. Michael Levit and Ms. Celeste Sales,
respectively, in immediately available funds by wire transfer to accounts
designated bySellers’ Representative, by notice to Buyer, which notice
shall be delivered not later than three Business Days prior to the Closing
Date;
(iv) deliver$6,440,500, for and on behalf of the Company, to
theSellers’ Representative in immediately available funds by wire transfer
to theSellers’Representative’s Account, which amount shall be allocated
by theSellers’ Representative, at the instruction of theCompany’s senior
management, among certain employees and consultants of the Company;
and
(v) deliver, for and on behalf of the Company, to Silicon Legal
Strategy, a Professional Corporation, and Vinson& Elkins L.L.P., a
Limited Liability Corporation, all legal fees and expenses incurred by the
Company and Sellers in connection with this Agreement.
(b) Sellers’ Representative shall deliver to Buyer certificates for the
Shares duly endorsed or accompanied by stock powers duly endorsed in blank,
with any required transfer stamps affixed thereto.
Section 2.03. Withholding Tax. Buyer shall be entitled to deduct and
withhold from the Purchase Price, any Buyer Earnout Payment and any other
payment to any Person under this Agreement (including Exhibit A), but
excluding any payment under any Employment Agreement, all Taxes that Buyer
and the Company is required to deduct and withhold under any Tax Law. To the
extent they are paid to the appropriate Taxing Authority, all such withheld
amounts shall be treated as delivered to Sellers hereunder. Any Tax refunds or
credits attributable to (i) any Pre-Closing Tax Period shall be paid to theSellers’
Representative for distribution to Sellers, subject to the last sentence of Section
6.02, or (ii) any post-Closing tax period shall be for the account of the Company
and for the benefit of Buyer and such other persons as are holders of Company
Securities at the time such refunds or credits are received.
Section 2.04. Good Faith Deposit. Within 15 Business Days following the
execution of this Agreement, Buyer shall pay to theSellers’ Representative on
behalf of Sellers cash in the amount of$5,000,000 (the “Good Faith Deposit”)
by wire transfer of immediately available funds into an account designated by the
Sellers’ Representative. If the Closing occurs, the Good Faith Deposit and the
interest accrued at a floating rate per annum equal to the effective interest rate per
annum on 90-day U.S. Treasury bills to the Closing Date shall be credited against
the payment made pursuant to Section 2.02(a)(i)(A). If the Closing does not
occur and this Agreement is terminated pursuant to Section 10.01, the Good Faith
Deposit and any interest credited thereon shall be returned to Buyer promptly in
accordance with Section 10.02.
Section 2.05. Post-Closing Contingent Payments. After the Closing, the
Buyer Earnout Payment and the Sellers Earnout Payment, as applicable, shall be
made upon the terms and subject to the conditions set forth in Exhibit A hereto.
Buyer, the Company and Sellers intend to treat all Buyer Earnout Payments as
consideration to Sellers in exchange for the Common Stock and not as
compensation for services, and further agree that they shall file all reports, Tax or
otherwise, consistently with such intent.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Subject to Section 11.03, except as set forth in the Seller Disclosure
Schedule, Sellers, severally but not jointly, represent and warrant to Buyer as of
the date hereof and as of the Closing Date that:
Section 3.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the failure
to so qualify would have a Material Adverse Effect. Sellers have heretofore
delivered to Buyer true and complete copies of the certificate of incorporation and
bylaws of the Company as currently in effect.
Section 3.02. Legal Capacity and Authorization. Each Seller has the legal
capacity and right to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby
without the need for consent or authorization of any other Person. This
Agreement constitutes a valid and binding agreement of each Seller enforceable
against such Seller in accordance with its terms (subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
affectingcreditors’ rights generally and general principles of equity).
Section 3.03. Governmental Authorization. The execution, delivery and
performance by each Seller of this Agreement and the consummation of the
transactions contemplated hereby require no action by or in respect of, or filing
with, any Governmental Authority located in any jurisdiction other than the
People’s Republic of China.
Section 3.04. Noncontravention. The execution, delivery and
performance by each Seller of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate the certificate of
incorporation or bylaws or similar organizational documents, as applicable, of
such Seller or the Company or any Subsidiary, (ii) assuming compliance with the
matters referred to in Section 3.03, violate any Applicable Law, (iii) require any
consent or other action by any Person under, constitute a default or an event that,
with or without notice or lapse of time or both, would constitute a default under,
or give rise to any right of termination, cancellation or acceleration of any right or
obligation of such Seller or the Company or any Subsidiary or to a loss of any
benefit to which such Seller or the Company or any Subsidiary is entitled under
any provision of any agreement or other instrument binding upon such Seller or
the Company or any Subsidiary or (iv) result in the creation or imposition of any
Lien on any asset of the Company or any Subsidiary.
Section 3.05. Capitalization.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock. As of the date hereof, there are outstanding 14,487,644
shares of Common Stock.
(b) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable. Except
as set forth in this Section 3.05, there are no outstanding (i) shares of capital stock
or voting securities of the Company, (ii) securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company or (iii) options or other rights to acquire from the Company, or other
obligation of the Company to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting securities of
the Company (the items in Sections 3.05(a) and 3.05(b) being referred to
collectively as the “Company Securities”). There are no outstanding obligations
of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any
Company Securities.
Section 3.06. Ownership of Shares. Each Seller is the record and
beneficial owner of the Shares set forth opposite suchSeller’s name on Annex A
hereto, free and clear of any Lien and any other limitation or restriction (including
any restriction on the right to vote, sell or otherwise dispose of the Shares), except
for restrictions on transfer under applicable federal and state securities laws, and
will transfer and deliver to Buyer at the Closing valid title to the Shares free and
clear of any Lien and any such limitation or restriction.
Section 3.07. Subsidiaries.
(a) Each Subsidiary is duly formed, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization, has all
powers (corporate or otherwise) and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the failure to so qualify would have a
Material Adverse Effect. All Subsidiaries and their respective jurisdictions of
incorporation or organization are identified on Schedule 3.07.
(b) All of the outstanding capital stock or other voting securities of each
Subsidiary is owned by the Company, directly or indirectly, free and clear of any
Lien and free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other voting
securities), except for restrictions on transfer under applicable federal and state
securities laws,. There are no outstanding (i) securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or voting
securities of any Subsidiary or (ii) options or other rights to acquire from the
Company or any Subsidiary, or other obligation of the Company or any Subsidiary
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of any Subsidiary (the items in
this Section 3.07 (b)(i) and Section 3.07 (b)(ii) being referred to collectively as the
“Subsidiary Securities”). There are no outstanding obligations of the Company
or any Subsidiary to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
(c) Other than the Subsidiaries set forth on Schedule 3.07, the Company
does not presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. Except for strategic
relationships to promote theCompany’s products and services, which
relationships are conducted through contractual relationships between the
Company and its strategic partners, but do not involve any equity interest of the
Company in any separate legal entities, the Company is not a participant in any
joint venture, partnership, or similar arrangement.
(d) Spigot, Inc. incorporated in the State of Delaware was dully
dissolved in accordance with the Applicable Law and any and all of its liabilities
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, has been duly discharged or settled in accordance with
the Applicable Law. None of the Company, any of its Subsidiaries and any Seller
has received any claim in relation thereof, including any such claim relating to the
Tax.
Section 3.08. Financial Statements. The reviewed but unaudited
consolidated balance sheets as of December 31, 2012, 2013 and 2014 and the
related reviewed but unaudited consolidated statements of income and cash flow
charts for each of the years ended December 31, 2012, 2013 and 2014 and the
unaudited interim consolidated balance sheets as of March 31, 2015 and June 30,
2015 and the related unaudited interim consolidated statements of income and
cash flow charts for the three months ended March 31, 2015 and for the six
months ended June 30, 2015 of the Company and the Subsidiaries fairly present,
in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the Company
and the Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements).
Section 3.09. Absence of Certain Changes.
(a) Since the Balance Sheet Date, the business of the Company and its
Subsidiaries has been conducted in the ordinary course consistent with past
practices and there has not been any event, occurrence, development or state of
circumstances or facts that has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) From the Balance Sheet Date until the date hereof, there has not been
any action taken by the Company or any of its Subsidiaries that, if taken during
the period from the date of this Agreement through the Closing Date without
Buyer’s consent, would constitute a breach of Section 5.01.
Section 3.10. No Undisclosed Liabilities. There are no liabilities of the
Company or any Subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected to
result in such a liability, other than (i) liabilities provided for in the Balance Sheet
or disclosed in the notes thereto, or (ii) liabilities incurred after the Balance Sheet
Date in the ordinary course of theCompany’s business that are not individually,
or, if paid or payable to the same Person, in aggregate within one month, in excess
of$500,000.
Section 3.11. Intercompany Accounts. Schedule 3.11 contains a complete
list of all intercompany balances as of the Balance Sheet Date between any Seller
and its Affiliates, on the one hand, and the Company and the Subsidiaries, on the
other hand. Since the Balance Sheet Date there has not been any accrual of
liability by the Company or any Subsidiary to such Seller or any of its Affiliates
or other transaction between the Company or any Subsidiary and such Seller and
any of its Affiliates, except with respect to the period prior to the date of this
Agreement, in the ordinary course of business of the Company and the
Subsidiaries consistent with past practice, and thereafter, as provided in Schedule
3.11.
Section 3.12. Material Contracts.
(a) Other than those set forth on Schedule 3.12, neither the Company
nor any Subsidiary is a party to or bound by:
(i) any lease (whether of real or personal property) providing
for annual rentals of$100,000 or more;
(ii) any agreement for the purchase of materials, supplies,
goods, services, equipment or other assets providing or for the license of
any Intellectual Property Rights for either (A) annual payments by the
Company and the Subsidiaries of$500,000 or more or (B) aggregate
payments by the Company and the Subsidiaries of$500,000 or more;
(iii) any sales, distribution, licensing or other similar agreement
providing for the sale by the Company or any Subsidiary of materials,
supplies, goods, services, equipment, Intellectual Property Rights or other
assets that provides for either (A) annual payments to the Company and
the Subsidiaries of$500,000 or more or (B) aggregate payments to the
Company and the Subsidiaries of$500,000 or more;
(iv) any partnership, joint venture or other similar agreement or
arrangement;
(v) any agreement relating to the acquisition or disposition of
any business (whether by merger, sale of stock, sale of assets or
otherwise);
(vi) any agreement relating to indebtedness for borrowed
money or the deferred purchase price of property (in either case, whether
incurred, assumed, guaranteed or secured by any asset), except any such
agreement (A) with an aggregate outstanding principal amount not
exceeding$100,000 and which may be prepaid on not more than 30days’
notice without the payment of any penalty and (B) entered into subsequent
to the date of this Agreement as permitted by Section 5.01(h);
(vii) any franchise or similar agreement;
(viii) any agency, dealer, sales representative, marketing or other
similar agreement;
(ix) any agreement that limits the freedom of the Company or
any Subsidiary to compete in any line of business or with any Person or in
any area or which would so limit the freedom of the Company or any
Subsidiary after the Closing Date;
(x) any agreement with (A) any Seller or any of its Affiliates,
(B) any Person directly or indirectly owning, controlling or holding with
power to vote,5% or more of the outstanding voting securities of such
Seller or any of its Affiliates, (C) any Person5% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by such Seller or any of its Affiliates or (D) any
director or officer of such Seller or any of its Affiliates or any “associates”
or members of the “immediate family” (as such terms are respectively
defined in Rule 12b-2 and Rule 16a-1 of the 1934 Act) of any such
director or officer;
(xi) any agreement with any director or officer of the Company
or any Subsidiary or with any “associate” or any member of the
“immediate family” (as such terms are respectively defined in Rules 12b-2
and 16a-1 of the 1934 Act) of any such director or officer; or
(xii) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the Company
and the Subsidiaries, taken as a whole.
(b) Each agreement, contract, plan, lease, arrangement or commitment
disclosed in any Schedule to this Agreement or required to be disclosed pursuant
to this Section is a valid and binding agreement of the Company or a Subsidiary,
as the case may be, and is in full force and effect, and none of the Company, any
Subsidiary or, to the knowledge of any Seller, any other party thereto is in default
or breach in any material respect under the terms of any such agreement, contract,
plan, lease, arrangement or commitment, including any exclusivity provision
contained therein, and, to the knowledge of such Seller, no event or circumstance
has occurred that, with notice or lapse of time or both, would constitute any event
of default thereunder. True and complete copies of each such agreement, contract,
plan, lease, arrangement or commitment have been delivered to Buyer.
Section 3.13. Litigation. There is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or to the knowledge of such
Seller, threatened in writing against or affecting, such Seller, the Company or any
Subsidiary or any of their respective properties before (or, in the case of
threatened actions, suits, investigations or proceedings, would be before) any
Governmental Authority or arbitrator which is material to the business of the
Company and its Subsidiaries or which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated by this
Agreement.
Section 3.14. Compliance with Laws and Court Orders. Neither the
Company nor any Subsidiary is in material violation of, and has not since January
1, 2010 violated in any material respects, and to the knowledge of each Seller is
not under investigation with respect to and has not been threatened to be charged
with or given notice of any violation of, any Applicable Law. There is no
judgment, decree, injunction, rule or order of any arbitrator or Governmental
Authority outstanding against the Company or any of its Subsidiaries that has had
or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company or that in any manner seeks to prevent,
enjoin, alter or materially delay the consummation of the transactions
contemplated by this Agreement.
Section 3.15. Properties.
(a) The Company and the Subsidiaries do not own any real property.
The Company and the Subsidiaries have good and marketable, indefeasible, fee
simple title to, or in the case of leased property and assets have valid leasehold
interests in, all property and assets (whether real, personal, tangible or intangible)
reflected on the Balance Sheet or acquired after the Balance Sheet Date, except for
properties and assets sold since the Balance Sheet Date in the ordinary course of
business consistent with past practices. None of such property or assets is subject
to any Lien.
(b) All leases of such real property and personal property are in good
standing and are valid, binding and enforceable in accordance with their
respective terms and there does not exist under any such lease any default or any
event which with notice or lapse of time or both would constitute a default.
(c) The property and assets owned or leased by the Company or any
Subsidiary, or which they otherwise have the right to use, constitute all of the
property and assets used or held for use in connection with the businesses of the
Company or any Subsidiary and are adequate to conduct such businesses as
currently conducted and as planned to be conducted by Buyer.
Section 3.16. Software.
(a) Proprietary Software. (i) Schedule 3.16(a)(i) contains a correct,
current and complete list of all Company Products, identifying for each item all
previous major releases, and all other material proprietary Software of the
Company and its Subsidiaries used in or in connection with the operation of their
businesses. (ii) Schedule 3.16(a)(ii) identifies, with respect to each Company
Product and each other item of material proprietary Software, all Licensed
Intellectual Property (A) used in the development, maintenance, use or support of
such Company Product, (B) incorporated in or distributed or licensed with such
Company Product or otherwise provided by or on behalf of the Company or any
of its Subsidiaries in any manner for use in connection with such Company
Product, or (C) used to deliver, host or otherwise provide services with respect to
such Company Product, and for each identified item of Licensed Intellectual
Property, the Company IP Agreement relating to theCompany’s or its
Subsidiary’s use of such Licensed Intellectual Property.
(b) Source Code. (i) The Company and its Subsidiaries are in actual
possession of and have exclusive control over a complete and correct copy of the
source code for all proprietary components of the Company Products, including
all previous major releases and all other material proprietary Software of the
Company and its Subsidiaries used in or in connection with the operation of their
businesses. (ii) The Company and its Subsidiaries have not disclosed, delivered,
licensed or otherwise made available, and do not have a duty or obligation
(whether present, contingent or otherwise) to disclose, deliver, license or
otherwise make available, any source code for any Company Product to any
escrow agent or any other Person, other than (A) an employee, independent
contractor or consultant of the Company or its Subsidiaries pursuant to a valid and
enforceable written agreement prohibiting use or disclosure except in the
performance of services for the Company or its Subsidiaries, or (B) an
independent third-party escrow agent pursuant to a valid and enforceable written
source code escrow agreement providing for limited release only upon the
occurrence of specified release events, and no such release event has occurred, and
no circumstance or condition exists that would reasonably be expected to result in
the occurrence of any such release event. Without limiting the foregoing, neither
the execution of this Agreement nor the consummation of any of the transactions
contemplated by this Agreement will, or would reasonably be expected to, result
in the release from escrow or other delivery to any Person of any source code for
any Company Product. (iii) As of the date hereof, there has been no unauthorized
theft, reverse engineering, decompiling, disassembling or other unauthorized
disclosure of or access to any source code for any Company Product.
(c) Open Source Software. (i) Schedule 3.16(c)(i) sets forth a correct,
current and complete list of each item of Open Source Software that is or has been
used by the Company or any of its Subsidiaries in the development of or
incorporated into, combined with, linked with or to, called to or from, distributed
with, provided to any Person as a service, provided via a network as a service or
application, or otherwise made available in any form with, any Company Product,
and for each such item of Open Source Software, (A) the applicable Company
Product, and (B) the name and version number of the applicable license agreement.
(ii) The Company and its Subsidiaries have materially complied with all notice,
attribution and other requirements of each license applicable to the Open Source
Software required to be disclosed in Schedule 3.16(c)(i). (iii) The Company and
its Subsidiaries have not used any Open Source Software in a manner that does,
will or would reasonably be expected to, require the (A) disclosure or distribution
of any Company Product or any other proprietary Software in source code form,
(B) license or other provision of any Company Product or any other proprietary
Software on a royalty-free basis, or (C) grant of any patent license, non-assertion
covenant or other rights under any Company Intellectual Property or rights to
modify, make derivative works based on, decompile, disassemble or reverse
engineer any Company Product or any other proprietary Software.
(d) Conformance with Specifications; Defects; Malicious Code. (i) All
Company Products (A) materially comply with all Applicable Laws and industry
standards, including with respect to security and (B) conform to all applicable
contractual commitments, express and implied warranties (to the extent not
subject to legally effective express exclusions thereof), representations and claims
in packaging, labeling, advertising and marketing materials, and applicable
specifications, user manuals, training materials and other documentation. (ii)
None of the Company Products contain any bug, defect or error that adversely
affects, or could reasonably be expected to adversely affect, the use, functionality
or performance of such Company Product.
Section 3.17 IT System.
(a) The Company Systems are reasonably sufficient for the immediate
and anticipated needs of the business of the Company and its Subsidiaries,
including as to capacity, scalability, and ability to process current and anticipated
peak volumes in a timely manner. The Company Systems are in sufficiently good
working condition to perform all information technology operations and include
sufficient licensed capacity (whether in terms of authorized sites, units, users,
seats or otherwise) for all Software, in each case as necessary for the conduct of
the business of the Company and its Subsidiaries as currently conducted or
contemplated to be conducted.
(b) There has been no unauthorized access, use, intrusion or breach of
security, or failure, breakdown, performance reduction or other adverse event
affecting any Company Systems, that has caused or could reasonably be expected
to cause any: (i) substantial disruption of or interruption in or to the use of such
Company Systems or the conduct of the business of the Company or any of its
Subsidiaries; (ii) loss, destruction, damage or harm of or to the Company or any of
its Subsidiaries or its operations, personnel, property or other assets; or (iii)
material liability of any kind to the Company or any of its Subsidiaries. The
Company and its Subsidiaries have taken all reasonable actions, consistent with
applicable prevailing industry practices, to protect the integrity and security of the
Company Systems and the data and other information stored thereon.
(c) The Company and its Subsidiaries maintain commercially
reasonable back-up and data recovery, disaster recovery and business continuity
plans, procedures and facilities, act in compliance therewith, and test such plans
and procedures on a regular basis, and such plans and procedures have been
proven effective upon such testing.
Section 3.18 Intellectual Property.
(a) Schedule 3.18(a) (i) contains a true, current and complete list of each
of the registrations and applications for registrations and other material
Intellectual Property Rights included in the Owned Intellectual Property Rights,
including without limitation, registered trademarks, domain names and copyrights,
issued and reissued patents, and pending applications for any of the foregoing and
specifying as to each, as applicable: the nature of the Intellectual Property Rights
therein; the title, mark or design; the owner and inventor, if any; the jurisdiction
by or in which it has been issued or registered or in which an application for such
issuance or registration has been filed; the registration or application serial
number; and the registration or application date; and material Software, used in
theCompany’s and itsSubsidiaries’ current, or necessary for theCompany’s and
itsSubsidiaries’ planned, businesses, and including, in each case, a brief
description of the Intellectual Property Rights therein and specifying its owner,
jurisdiction, title, design, inventor or date, as applicable. Schedule 3.18(a)(ii)
contains a true, current and complete list of all material agreements (whether
written or otherwise, including all licenses, sublicenses, research agreements,
development agreements, distribution agreements, settlement agreements,
coexistence agreements, consent to use agreements, covenants not to sue, waivers,
releases and permissions) to which the Company or any of its Subsidiaries is a
party or otherwise bound, granting or restricting any right to use, exploit or
practice any Intellectual Property Rights, except for licenses to the Company of
generally commercially available “off the shelf” third party products. Seller has
provided Buyer with true and complete copies (or in the case of any oral
agreements, a complete and accurate written description) of all these Agreements,
including all modifications, amendments and supplements thereto and waivers
thereunder.
(b) The Licensed Intellectual Property Rights and the Owned
Intellectual Property Rights together constitute all the Intellectual Property Rights
necessary to, or used or held for use in, the conduct of the business of the
Company and its Subsidiaries as currently conducted and as currently proposed by
the Company or any of its Subsidiaries to be conducted. There exist no material
restrictions on the disclosure, use, license or transfer of the Owned Intellectual
Property Rights. The consummation of the transactions contemplated by this
Agreement will not alter, encumber, impair, extinguish, incur payment of any
additional amount with respect to, or require the consent of any third party in
respect of any Owned Intellectual Property Rights or Licensed Intellectual
Property Rights. Without limiting the generality of the foregoing, the Company or
one of its Subsidiaries has entered into binding, written agreements with every
current and former employee of the Company and its Subsidiaries, and with every
current and former independent contractor, whereby such employees and
independent contractors: (A) enter into an enforceable “work-made-for-hire”
arrangement or written agreement with the Company or one of its Subsidiaries or
assign to the Company or one of its Subsidiaries any ownership interest and right
they may have in the Owned Intellectual Property Rights; and (B) acknowledge
theCompany’s or one of itsSubsidiaries’ exclusive ownership of all Owned
Intellectual Property Rights.
(c) None of such Seller, the Company and any Subsidiary has given to
any Person an indemnity in connection with any Intellectual Property Right, other
than indemnities (i) that, individually or in the aggregate, could not reasonably be
expected to result in liability to the Company in excess of$100,000 or (ii) that
arise under a standard form sales contract of the Company or a Subsidiary, a copy
of which is attached in Schedule 3.18(c).
(d) None of the Company and its Subsidiaries has infringed,
misappropriated or otherwise violated any Intellectual Property Right of any third
person. There is no claim, action, suit, investigation or proceeding pending
against, or, to the knowledge of such Seller, threatened in writing against or
affecting, the Company, any of its Subsidiaries, any present or former officer,
director or employee of the Company or any of its Subsidiaries (i) based upon, or
challenging or seeking to deny or restrict, the rights of the Company or any
Subsidiary in any of the Owned Intellectual Property Rights and the Licensed
Intellectual Property Rights, (ii) alleging that the use of the Owned Intellectual
Property Rights or the Licensed Intellectual Property Rights or any services
provided, processes used or products manufactured, used, imported or sold by the
Company or any Subsidiary do or may conflict with, misappropriate, infringe or
otherwise violate any Intellectual Property Right of any third party or (iii) alleging
that the Company or any of its Subsidiaries have infringed, misappropriated or
otherwise violated any Intellectual Property Right of any third party. Except as
set forth in Schedule 3.18(d), none of the Company and any Subsidiary has
received from any third party alleging infringement an offer to license any
Intellectual Property Rights of such third party.
(e) None of the Owned Intellectual Property Rights and Licensed
Intellectual Property Rights material to the operation of the business of the
Company and its Subsidiaries has been adjudged invalid or unenforceable in
whole or part, and, to the knowledge of such Seller, all such Owned Intellectual
Property Rights and Licensed Intellectual Property Rights are valid, subsisting and
enforceable.
(f) The Company and its Subsidiaries hold all right, title and interest in
and to all Owned Intellectual Property Rights and all of theCompany’s and its
Subsidiaries’ licenses under the Licensed Intellectual Property Rights, free and
clear of any Lien or obligation to grant licenses to any third party. In each case
where a patent or patent application, trademark registration or trademark
application, service mark registration or service mark application, or copyright
registration or copyright application included in the Owned Intellectual Property is
held by assignment, the assignment has been duly recorded with the
Governmental Authority from which the patent or registration issued or before
which the application or application for registration is pending. The Company and
its Subsidiaries have taken all actions necessary to maintain and protect the
Owned Intellectual Property Rights and their rights in the Licensed Intellectual
Property Rights, including payment of applicable maintenance fees and filing of
applicable statements of use.
(g) To the knowledge of such Seller, no Person has infringed,
misappropriated, diluted or otherwise violated, or is currently infringing,
misappropriating, diluting or otherwise violating any Owned Intellectual Property
Right or Licensed Intellectual Property Right. The conduct of theCompany’s and
itsSubsidiaries’ businesses as currently and formerly conducted and as currently
proposed to be conducted, and the products, processes and services of the
Company and its Subsidiaries, have not infringed, misappropriated, diluted or
otherwise violated, and do not and will not infringe, dilute, misappropriate or
otherwise violate, the Intellectual Property or other rights of any Person.
(h) The Company and its Subsidiaries have taken reasonable steps in
accordance with normal industry practice to maintain the confidentiality of all
confidential Intellectual Property Rights, including requiring all Persons having
access to such confidential Intellectual Property Rights to execute written non-
disclosure agreements.
(i) The Company and its Subsidiaries have taken reasonable steps in
accordance with normal industry practice to preserve and maintain reasonably
complete notes and records relating to the Owned Intellectual Property Rights and
the Licensed Intellectual Property Rights.
(j) With respect to pending applications and applications for registration
of the Owned Intellectual Property Rights and the Licensed Intellectual Property
Rights that are material to the business or operation of the Company or any
Subsidiary, the Company or any Subsidiary is not aware of any reason that could
reasonably be expected to prevent any such application or application for
registration from being granted with coverage substantially equivalent to the latest
amended version of the pending application or application for registration. None
of the trademarks, service marks, applications for trademarks and applications for
service marks included in the Owned Intellectual Property Rights that are material
to the business or operation of the Company or any Subsidiary has been the
subject of an opposition or cancellation procedure. None of the patents and patent
applications included in the Owned Intellectual Property Rights that are material
to the business or operation of the Company or any Subsidiary has been the
subject of an interference, protest, public use proceeding or third party request for
reexamination or inter parte review.
(k) There are no legal actions (including any oppositions, interferences
or re-examinations) settled, pending or threatened in writing (including in the
form of offers to obtain a license): (i) alleging any infringement, misappropriation,
dilution or violation of the Intellectual Property Rights of any Person by the
Company or any of its Subsidiaries; (ii) challenging the validity, enforceability,
registrability or ownership of any Owned Intellectual Property Rights or the
Company’s or any of itsSubsidiaries’ rights with respect to any Licensed
Intellectual Property Rights; or (iii) by the Company or any of its Subsidiaries
alleging any infringement, misappropriation, dilution or violation by any Person
of the Owned Intellectual Property Rights or Licensed Intellectual Property
Rights. The Company and its Subsidiaries are not subject to any outstanding or
prospective Order (including any motion or petition therefor) that does or would
restrict or impair the use of any Owned Intellectual Property Rights or Licensed
Intellectual Property Rights.
(l) All products sold by the Company, any Subsidiary or any licensee of
the Company or any Subsidiary and covered by a patent, trademark or copyright
included in the Owned Intellectual Property Rights have been marked with the
notice (applicable as of the date hereof) of all nations requiring such notice in
order to collect damages.
Section 3.19. Privacy and Data Security.
(a) Privacy Policy. The Company and its Subsidiaries have a privacy
policy regarding the collection, use and disclosure of personal information in the
Company’s or any of itsSubsidiaries’ possession, custody or control, or otherwise
held or processed on its behalf and is and has been in material compliance with
such privacy policy. True and complete copies of all privacy policies that have
been used by the Company and its Subsidiaries and are currently in effect have
been provided to the Buyer. Each of the Company and its Subsidiaries has posted
a privacy policy in a clear and conspicuous location on all websites and any
mobile applications owned or operated by the Company.
(b) Compliance with Privacy and Data Security Laws. Each of the
Company and its Subsidiaries has materially complied at all times with all
Applicable Laws regarding the collection, retention, use and protection of
personal information.
(c) Privacy and Data Security Contractual Obligations. Each of the
Company and its Subsidiaries is in material compliance with the terms of all
Contracts to which the Company or any of its Subsidiaries is a party relating to
data privacy, security or breach notification (including provisions that impose
conditions or restrictions on the collection, use, disclosure, transmission,
destruction, maintenance, storage or safeguarding of personal information).
(d) Privacy and Data Security Complaints and Investigations. No
Person (including any Governmental Authority) has commenced any action
relating to theCompany’s or any of itsSubsidiaries’ information privacy or data
security practices, including with respect to the access, disclosure or use of
personal information maintained by or on behalf of the Company or any of its
Subsidiaries, or threatened in writing any such action, or made any written
complaint, investigation or inquiry relating to such practices.
(e) Effect of the Transaction. The execution, delivery and performance
of this Agreement and the consummation of the contemplated transactions,
including any transfer of personal information resulting from such transactions,
will not violate any Applicable Laws, the privacy policy of the Company and its
Subsidiaries as it currently exists or as it existed at any time during which any
personal information was collected or obtained by or on behalf of Company and
any of its Subsidiaries or other privacy and data security requirements imposed on
Company or any party acting on its behalf under any contracts. Upon the Closing,
the Buyer will continue to have the right to use such personal information on
identical terms and conditions as the Company and any of its Subsidiaries enjoyed
immediately prior to the Closing.
(f) Security Measures. The Company and its Subsidiaries have
established and implemented policies, programs and procedures that are in
compliance with applicable industry practices and are necessary and appropriate,
including administrative, technical and physical safeguards to protect the
confidentiality, integrity and security of personal information in its possession,
custody or control against unauthorized access, use, modification, disclosure or
other misuse.
(g) Security Breaches and Unauthorized Use. Neither the Company nor
any of its Subsidiaries has experienced any loss, damage, or unauthorized access,
disclosure, use or breach of security of any personal information in theCompany’s
or any of itsSubsidiaries’ possession, custody or control, or otherwise held or
processed on its behalf.
Section 3.20. Insurance Coverage. Sellers have furnished to Buyer a list
of, and true and complete copies of, all insurance policies and fidelity bonds
relating to the assets, business, operations, employees, officers or directors of the
Company and the Subsidiaries. There is no claim by the Company or any
Subsidiary pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or bonds
or in respect of which such underwriters have reserved their rights. All premiums
payable under all such policies and bonds have been timely paid and the
Company and the Subsidiaries have otherwise complied fully with the terms and
conditions of all such policies and bonds. Such policies of insurance and bonds
(or other policies and bonds providing substantially similar insurance coverage)
have been in effect since January 1, 2010 and remain in full force and effect.
Such policies and bonds are of the type and in amounts customarily carried by
Persons conducting businesses similar to those of the Company or any Subsidiary.
No Seller knows of any threatened termination of, premium increase with respect
to, or material alteration of coverage under, any of such policies or bonds. Except
as disclosed in Schedule 3.20, the Company and the Subsidiaries shall after the
Closing continue to have coverage under such policies and bonds with respect to
events occurring prior to the Closing.
Section 3.21. Licenses and Permits. Schedule 3.21 correctly describes
each license, franchise, permit, certificate, approval or other similar authorization
issued to the Company that affects, or relates in any way to, the assets or business
of the Company and its Subsidiaries (the “Permits”) together with the name of
the Governmental Authority issuing such Permit. Except as set forth on Schedule
3.21, (i) the Permits are valid and in full force and effect, (ii) neither the Company
nor any Subsidiary is in default under, and no condition exists that with notice or
lapse of time or both would constitute a default under, the Permits (iii) none of the
Permits will be terminated or impaired or become terminable, in whole or in part,
as a result of the transactions contemplated hereby and (iv) other than the Permits,
there is no license, franchise, permit, certificate, approval or other similar
authorization required under the Applicable Law for the Company or any of its
Subsidiaries to conduct its business as currently conducted or proposed to be
conducted.
Section 3.22. Receivables. All accounts, notes receivable and other
receivables (other than receivables collected since the Balance Sheet Date)
reflected on the Balance Sheet are, and all accounts and notes receivable arising
from or otherwise relating to the business of the Company and its Subsidiaries as
of the Closing Date will be, valid, genuine and fully collectible in the aggregate
amount thereof, subject to normal and customary trade discounts, less any
reserves for doubtful accounts recorded on the Balance Sheet. All accounts, notes
receivable and other receivables arising out of or relating to such business of the
Company and its Subsidiaries as of the Balance Sheet Date have been included in
the Balance Sheet in accordance with GAAP applied on a consistent basis.
Section 3.23. Selling Documents. None of the documents or information
delivered to Buyer in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading. The financial projections relating to the Company or any Subsidiary
delivered to Buyer are made in good faith and are based upon reasonable
assumptions, and no Seller is aware of any fact or set of circumstances that would
lead it to believe that such projections are incorrect or misleading in any material
respect.
Section 3.24.Finders’ Fees. Except for Vision Knight Capital
Management Company Limited whose fees and expenses will be paid by Sellers
in accordance with Section 2.02(a)(ii), there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act on
behalf of any Seller or the Company or any Subsidiary who might be entitled to
any fee or commission in connection with the transactions contemplated by this
Agreement.
Section 3.25. Employees.
(a) Schedule 3.25(a) sets forth, for each Key Employee, such
employee’s name, employer, title, hire date, location, whether full- or part-time,
whether active or on leave (and, if on leave, the nature of the leave and the
expected return date), whether exempt from the Fair Labor Standards Act, annual
salary or wage rate, most recent annual bonus received and current annual bonus
opportunity. Schedule 3.25(a) separately sets forth, for each individual
independent contractor engaged by the Company or any of its Subsidiaries whose
annual compensation exceeds$100,000, suchcontractor’s name, duties and rate of
compensation. Five days prior to the Closing Date, the Company will provide
Buyer with a revised version of Schedule 3.25(a), updated as of such date.
(b) Other than (i) shares of Common Stock of the Company outstanding
on the date hereof as set forth in Section 3.05 and (ii) warrants to purchase
Common Stock of the Company outstanding on the date hereof as set forth in
Schedule 3.06 of the Seller Disclosure Schedule, neither the Company nor any
Subsidiary has issued or is obligated to issue any equity award to any of its
employees, officers, directors or consultants.
(c) No Key Employee has indicated to any Seller, the Company or any
of their respective Subsidiaries that he or she intends to resign or retire as a result
of the transactions contemplated by this Agreement or otherwise within one year
after the Closing Date.
(d) Except as set forth on Schedule 3.25(d), neither the Company nor
any of its Subsidiaries has granted or paid or made any commitment to pay any
severance, termination or change of control payment to any director, officer,
employee or consultant.
(e) Each current and former employee, officer and consultant of the
Company and its Subsidiaries has executed an Employee (or Consultant)
Proprietary Information and Inventions Agreement substantially in the form
attached hereto as Annex C. To the knowledge of each Seller, neither the
Company nor any of its Subsidiaries is aware that any of its employees, officers or
consultants are in violation thereof or are obligated under any contract or other
agreement or subject to any judgment, decree or order of any court or any
Government Authorities which would materially interfere with suchperson’s
ability to promote the interest of the Company or any of its Subsidiaries.
Section 3.26. Employee Benefit Plans.
(a) Schedule 3.26(a) lists each Employee Plan and specifies whether
such plan is (i) a US Plan or an International Plan and (ii) a Seller Plan or a
Company Plan.
(b) For each Employee Plan, Sellers have made available in the data
room to Buyer a copy of such plan (or a description, if such plan is not written)
and all amendments thereto and, as applicable: (i) all related trust agreements,
insurance contracts or other funding arrangements and amendments thereto; (ii)
the current prospectus or summary plan description and all summaries of material
modifications; (iii) the most recent favorable determination or opinion letter from
the IRS; (iv) the annual returns/reports (Form 5500) and accompanying schedules
and attachments thereto for the three most recently completed plan years; (v) the
three most recently prepared actuarial reports and financial statements; (vi) all
documents and correspondence relating thereto received from or provided to the
IRS, the Department of Labor, the PBGC or any other Governmental Authority
during the past three years; (vii) all related current administrative and other
service contracts and amendments thereto with third-party services providers;
(viii) all current employee handbooks, manuals and policies; and (ix) if such plan
is an International Plan, documents that are substantially comparable (taking into
account differences in Applicable Law and practices) to the documents required to
be provided in clauses (i) through (viii).
(c) Each Employee Plan has been maintained in compliance with its
terms and all Applicable Law, including ERISA and the Code. No action, suit,
investigation, audit, proceeding or claim (or any basis therefor) (other than routine
claims for benefits) is pending against or involves, or to the knowledge of such
Seller, is threatened against or threatened in writing to involve, any Employee
Plan before any arbitrator or Governmental Authority, including the IRS, the
Department of Labor or the PBGC.
(d) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination or opinion letter from
the IRS or has applied to the IRS for such a letter within the applicable remedial
amendment period or such period has not expired and no circumstances exist that
would reasonably be expected to result in any such letter being revoked or not
being issued or reissued or a penalty under the IRS Closing Agreement Program if
discovered during an IRS audit or investigation. Each trust created under any
such Employee Plan is exempt from Tax under Section 501(a) of the Code and has
been so exempt since its creation.
(e) Neither the Company, nor any of its ERISA Affiliates (nor any
predecessor thereof of any such entity) contributes to, or has in the past
contributed to, any Multiemployer Plan.
(f) Neither the Company nor any of its ERISA Affiliates (nor any
predecessor of any such entity) sponsors, maintains, administers or contributes to
(or has any obligation to contribute to), or has in the past six years sponsored,
maintained, administered or contributed to (or had any obligation to contribute to),
or has or is reasonably expected to have any direct or indirect liability with respect
to, any Title IV Plan, including any Multiemployer Plan.
(g) With respect to any Employee Plan covered by Subtitle B, Part 4 of
Title I of ERISA or Section 4975 of the Code, no non-exempt prohibited
transaction has occurred that has caused or would reasonably be expected to cause
the Company or any of its Subsidiaries to incur any liability under ERISA or the
Code.
(h) Neither the Company nor any of its Subsidiaries has any current or
projected liability for, and no Employee Plan provides or promises, any post-
employment or post-retirement medical, dental, disability, hospitalization, life or
similar benefits (whether insured or self-insured) to any current or former Service
Provider (other than coverage mandated by Applicable Law, including COBRA).
(i) All contributions, premiums and payments that are due have been
made for each Employee Plan within the time periods prescribed by the terms of
such plan and Applicable Law, and all contributions, premiums and payments for
any period ending on or before the Closing Date that are not due are properly
accrued to the extent required to be accrued under applicable accounting
principles and have been properly reflected on the Balance Sheet or disclosed in
the notes thereto.
(j) No events have occurred with respect to any Employee Plan that
would reasonably be expected to result in the assessment of any excise tax against
the Company or any of its Subsidiaries.
(k) There has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company or any of its Affiliates
relating to, or change in employee participation or coverage under, any Employee
Plan that would increase the expense of maintaining such plan above the level of
expense incurred in respect thereof for the most recent fiscal year ended prior to
the date hereof.
(l) Neither the Company nor any of its Subsidiaries has any obligation
to gross-up, indemnify or otherwise reimburse any current or former Service
Provider for any Tax incurred by such Service Provider, including under Section
409A, 457A or 4999 of the Code.
(m) Neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby (either alone or together with any other
event) will (i) entitle any current or former Service Provider to any payment or
benefit, including any bonus, retention, severance, retirement or job security
payment or benefit, (ii) accelerate the time of payment or vesting or trigger any
payment or funding (through a grantor trust or otherwise) of compensation or
benefits under, or increase the amount payable or trigger any other obligation
under, any Employee Plan or (iii) limit or restrict the right of the Company or any
of its Subsidiaries or, after the Closing, Buyer, to merge, amend or terminate any
Employee Plan.
(n) Each International Plan (i) has been maintained in compliance with
its terms and Applicable Law, (ii) if intended to qualify for special tax treatment,
meets all the requirements for such treatment, and (iii) if required, to any extent, to
be funded, book-reserved or secured by an insurance policy, is fully funded, book-
reserved or secured by an insurance policy, as applicable, based on reasonable
actuarial assumptions in accordance with applicable accounting principles. From
and after the Closing Date, Buyer and its Affiliates will receive the full benefit of
any funds, accruals and reserves under the International Plans.
(o) No Employee Plan, individually or collectively, would reasonably
be expected to result in the payment of any amount that would not be deductible
under Section 162(m) or 280G of the Code.
Section 3.27. Labor Matters.
(a) The Company and its Subsidiaries are, and have been since January
1, 2010 in material compliance with all Applicable Law relating to labor and
employment, including those relating to labor management relations, wages,
hours, overtime, employee classification, discrimination, sexual harassment, civil
rights, affirmative action, work authorization, immigration, safety and health,
information privacy and security, workers compensation, continuation coverage
under group health plans, wage payment and the payment and withholding of
Taxes.
(b) Neither the Company nor any of its Subsidiaries is or has been a
party to or subject to, or is currently negotiating in connection with entering into,
any Collective Bargaining Agreement, and there has not been any organizational
campaign, petition or other unionization activity seeking recognition of a
collective bargaining unit relating to any Service Provider. Neither the Company
nor any of its Subsidiaries has failed to comply with the provisions of any
Collective Bargaining Agreement, and there are no grievances outstanding against
the Company or any of its Subsidiaries under any such agreement. There are no
unfair labor practice complaints pending or, to the knowledge of any Seller,
threatened against the Company or any of its Subsidiaries before the National
Labor Relations Board or any other Governmental Authority or any current union
representation questions involving Service Providers. There is no labor strike,
slowdown, stoppage, picketing, interruption of work or lockout pending or, to the
knowledge of any Seller, threatened against or affecting the Company or any of its
Subsidiaries. The consent or consultation of, or the rendering of formal advice by,
any labor or trade union, works council or other employee representative body is
not required for the Company to enter into this Agreement or to consummate any
of the transactions contemplated hereby.
(c) Each of the Company and its Subsidiaries is, and has been since
January 1, 2013, in compliance with WARN and has no liabilities or other
obligations thereunder. Neither the Company nor any of its Subsidiaries has taken
any action that would reasonably be expected to cause Buyer or any of its
Affiliates to have any liability or other obligation following the Closing Date
under WARN.
Section 3.28. Tax. Except as set forth in the Balance Sheet (including the
notes thereto), (i) all Tax returns, statements, reports and forms (collectively, the
“Returns”) that are required by Applicable Law to be filed with any Taxing
Authority on or before the Closing Date with respect to any Pre-Closing Tax
Period by, or with respect to, the Company or any of its Subsidiaries has been, or
will be, timely filed on or before the Closing Date; (ii) each of the Company and
its Subsidiaries has timely paid all Taxes; (iii) the Returns that have been filed are
true, correct and complete, (iv) the charges, accruals and reserves for Taxes with
respect to the Company and any of its Subsidiaries reflected on the books of the
Company are adequate to cover material Tax liabilities accruing for the period(s)
stated in such books of the Company; (v) there is no action, suit, proceeding,
investigation, audit or claim now proposed, or to the knowledge of any Seller,
threatened or pending, against or with respect to the Company or any of its
Subsidiaries in respect of any material Tax; (vi) each of the Company and its
Subsidiaries have complied in all material respects with all Tax Law relating to
the collection and withholding of Taxes and all such Taxes have been duly paid
within the time and in the manner prescribed by Applicable Law by or on behalf
of the Company and its Subsidiaries; (vii) Neither the Company nor any of its
Subsidiaries has any liability for Taxes of any other Person (A) under Treasury
Regulations Section 1.1502-6, (B) as a transferee or successor, or (C) by contract;
(viii) Neither the Company nor any of its Subsidiaries will be required to include
any material item of income or gain in, or exclude any material item of loss or
deduction from, the determination of taxable income for any post-Closing tax
period as a result of any (A) change in method of accounting for a Pre-Closing
Tax Period required by Applicable Law to be made under Section 481 of the Code
(or any corresponding provision of state, local or foreign Law); (B) installment
sale or open transaction made or entered into on or prior to the Closing Date; (C)
prepaid amount received on or prior to the Closing Date; or (D) intercompany
transaction that will be required by Applicable Law to be taken into account under
Treasury Regulations Section 1.1502-13 (or any predecessor provision or any
similar provision of state, local or foreign Law) and that occurs on or prior to the
Closing Date; (x) The Company has been a validly electing S corporation within
the meaning of Sections 1361 and 1362 of the Code at all times since its
formation, and the Company will be validly electing S corporation up to and
including the Closing Date; (xi) Neither the Company nor any of its Subsidiaries
has any amount that would constitute built-in gain under Section 1374 of the
Code; and (xii) None of the Company and its Subsidiaries is a party to any
contract or plan that has resulted or would result, separately or in the aggregate, in
the payment of (i) any “excess parachute payments” within the meaning of
Section 280G of the Code (without regard to the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code) or (ii) any amount for which a deduction
would be disallowed or deferred under Section 162 or Section 404 of the Code.
Section 3.29. Foreign Corrupt Practices Act. Since January 1, 2010,
neither the Company nor any Subsidiary has violated or committed any act or
made any payment in violation of, or that requires disclosure under, the Foreign
Corrupt Practices Act (15 U.S.C.§§ 78m(b), 78dd-1, 78dd-2, 78ff).
Section 3.30. Change of Control Agreements. Except for those listed on
Schedule 3.30, the Company does not have any plan, contract, agreement, scheme
or Employee Plan (1) pursuant to which any amounts may become payable
(whether currently or in the future) to any Person (including any employee and
independent contractor of the Company) as a result of or in connection with the
transactions contemplated hereby or (2) which provides for the acceleration or
early vesting of any right or benefit or lapse of any restriction as a result of or in
connection with transactions contemplated hereby.
Section 3.31. Representations. The representations and warranties of
such Seller contained in this Agreement, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse Effect,
are true and correct with only such exceptions as would not in the aggregate
reasonably be expected to have a Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Subject to Section 11.03, except as set forth in the Buyer Disclosure
Schedule, Buyer represents and warrants to Sellers as of the date hereof and as of
the Closing Date that:
Section 4.01. Existence and Power. Buyer is a limited liability company
duly organized and validly existing under the laws of PRC and has all powers
(corporate or otherwise) and all material governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted.
Section 4.02. Authorization. The execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby are within the corporate powers and authority of Buyer and have been duly
authorized on the part of Buyer except for the approvals of the board of directors
and stockholders of Buyer required under the organizational documents of Buyer
and the Applicable Law (the “Board and Stockholder Approvals”). This
Agreement constitutes a valid and binding agreement of Buyer.
Section 4.03. Governmental Authorization. The execution, delivery and
performance by Buyer of this Agreement and the consummation of the
transactions contemplated hereby require no material action by or in respect of, or
material filing with, any Governmental Authority other than (i) approval by the
Applicable Commission of Commerce, (ii) approval by the China Securities
Regulatory Commission, and (iii) approval by the applicable Commission of
Development and Reform Commission ((i), (ii) and (iii) collectively, the “PRC
Regulatory Approvals”).
Section 4.04. Noncontravention. The execution, delivery and performance
by Buyer of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate the organizational documents
of Buyer or (ii) assuming completion of the PRC Regulatory Approvals, violate
any material Applicable Law of the PRC.
Section 4.05. Purchase for Investment. Buyer is purchasing the Shares
for investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof. Buyer (either alone or together with its
advisors) has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment in
the Shares and is capable of bearing the economic risks of such investment.
Section 4.06.Finders’ Fees. Except for Huatai United Securities Co., Ltd.
whose fees and expenses will be paid by Buyer, there is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized to
act on behalf of Buyer who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
Section 4.07. Solvency, Sufficient Funds and Source of Funds. Buyer
will have sufficient funds available as and when needed to enable it to pay the
Purchase Price. Buyer is not insolvent nor will Buyer be insolvent immediately
after giving effect to the consummation of the transactions contemplated by this
Agreement.
Section 4.08. Litigation. There is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or to the knowledge of Buyer,
threatened against or affecting, Buyer or any Affiliate of Buyer or any of their
respective properties before (or, in the case of threatened actions, suits,
investigations or proceedings, would be before) any Governmental Authority or
arbitrator which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS OF SELLERS
Each Seller agrees that:
Section 5.01. Conduct of the Company. From the date hereof until the
Closing Date, such Seller shall cause each of the Company and the Subsidiaries
to, conduct its business in the ordinary course and use its best efforts to (i)
preserve intact its present business organization, (ii) maintain in effect all of its
foreign, federal, state and local licenses, permits, consents, franchises, approvals
and authorizations, (iii) keep available the services of its directors, officers and
Key Employees, (iv) maintain satisfactory relationships with its material
customers, material lenders, material suppliers and others having material
business relationships with it, and (v) manage its working capital (including the
timing of collection of accounts receivable and of the payment of accounts
payable) in the ordinary course of business. Without limiting the generality of
the foregoing, except as expressly contemplated by this Agreement or approved in
writing by Buyer in advance, such Seller shall not permit any of the Company or
the Subsidiaries to:
(a) amend its articles of incorporation, bylaws or other similar
organizational documents (whether by merger, consolidation or otherwise);
(b) split, combine or reclassify any shares of capital stock of the
Company or any Subsidiary or declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of the capital stock of the Company or any Subsidiary, or redeem,
repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise
acquire any Company Securities or any Subsidiary Securities, except for dividends
by any Subsidiary on a pro rata basis to the equity owners thereof;
(c) (i) issue, deliver or sell, or authorize the issuance, delivery or sale of,
any shares of any Company Securities or Subsidiary Securities, other than the
issuance of any Subsidiary Securities to the Company or any other Subsidiary or
(ii) amend any term of any Company Security or any Subsidiary Security (in each
case, whether by merger, consolidation or otherwise);
(d) incur any capital expenditures or any obligations or liabilities in
respect thereof, except for any capital expenditures not to exceed$50,000
individually or$100,000 in the aggregate which are made in the ordinary course
of business;
(e) acquire (by merger, consolidation, acquisition of stock or assets or
otherwise), directly or indirectly, any assets, securities, properties, interests or
businesses, other than (i) supplies in the ordinary course of business of the
Company and the Subsidiaries in a manner that is consistent with past practice and
(ii) acquisitions with a purchase price (including assumed indebtedness) that does
not exceed$50,000 individually or$100,000 in the aggregate;
(f) sell, lease or otherwise transfer, or create or incur any Lien on, any
of theCompany’s or anySubsidiary’s material assets, securities, properties,
interests or businesses other than in the ordinary course of business consistent
with past practice;
(g) other than in connection with actions permitted by Section 5.01(d) or
Section 5.01(e), make any loans, advances or capital contributions to, or
investments in, any other Person, other than in the ordinary course of business
consistent with past practice;
(h) create, incur, assume, suffer to exist or otherwise be liable with
respect to any indebtedness for borrowed money or guarantees thereof other than
the Outstanding Indebtedness and the use of corporate credit cards in the ordinary
course of business;
(i) enter into any agreement or arrangement that could, after the Closing
Date, limit or restrict in any material respect the Company, any Subsidiary, Buyer
or any of their respective Affiliates, from engaging or competing in any line of
business, in any location or with any Person;
(j) enter into, amend or modify in any material respect or terminate any
contract required to be disclosed by Section 3.12 or otherwise waive, release or
assign any material rights, claims or benefits of the Company or any of its
Subsidiaries if such entering into, amendment, modification, termination, waiver,
release or assignment would have a Material Adverse Effect;
(k) (i) grant any severance, retention, change of control or termination
pay to, or enter into or amend any severance, retention, change of control or
termination agreement with, any current or former Service Provider, other than
pursuant to a separation agreement entered into by the Company in connection
with theCompany’s termination of a Service Provider that is not a Key Employee;
(ii) materially increase the compensation or benefits provided to any Key
Employee, except in the ordinary course of business, (iii) grant any equity or
equity-based awards to, or discretionarily accelerate the vesting or payment of any
such awards held by, any current or former Service Provider, (iv) establish, adopt,
enter into or amend any Employee Plan or Collective Bargaining Agreement, (v)
(x) hire any Company Employees outside the ordinary course of business other
than to fill vacancies arising due to terminations of employment of Company
Employees with base compensation of less than$100,000 or (y) terminate the
employment of any Key Employees, or (vi) transfer the employment or
engagement of any Service Provider from the Company or any of its Subsidiaries
to any Seller or any of its Affiliates (other than the Company or any of its
Subsidiaries) or from any Seller or any of its Affiliates (other than the Company
or any of its Subsidiaries) to the Company or any of its Subsidiaries;
(l) change theCompany’s methods of accounting, except as required by
concurrent changes in GAAP, as agreed to by its independent public accountants;
(m) settle, or offer or propose to settle, (i) any material litigation,
investigation, arbitration, proceeding or other claim involving or against the
Company or any Subsidiary, (ii) any stockholder litigation or dispute against the
Company or any of its officers or directors or (iii) any litigation, arbitration,
proceeding or dispute that relates to the transactions contemplated hereby;
(n) make or change any material Tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, materially
amend any Returns or file claims for material Tax refunds, enter any material
closing agreement, settle any material Tax claim, audit or assessment, or surrender
any right to claim a material Tax refund, offset or other reduction in Tax liability;
(o) take any action that would make any representation or warranty of
the Company hereunder, or omit to take any action necessary to prevent any
representation or warranty of the Company hereunder from being, untrue or
inaccurate in any respect at the Closing Date; or
(p) agree, resolve or commit to do any of the foregoing.
Section 5.02. Access to Information; Confidentiality.
(a) From the date hereof until the Closing Date, each Seller will (i)
give, and will cause the Company and each Subsidiary to give, Buyer, its counsel,
financial advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of the Company and the Subsidiaries and to
the books and records of such Seller, if applicable, relating to the Company and
the Subsidiaries, (ii) furnish, and will cause the Company and each Subsidiary to
furnish, to Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information relating to
the Company or any Subsidiary as such Persons may reasonably request and (iii)
instruct the employees, counsel and financial advisors of such Seller or the
Company or any Subsidiary to cooperate with Buyer in its investigation of the
Company or any Subsidiary. No investigation by Buyer or other information
received by Buyer shall operate as a waiver or otherwise affect any representation,
warranty or agreement given or made by any Seller hereunder.
(b) After the Closing, each Seller and its Affiliates will hold, and will
use their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of Applicable Law, all confidential or proprietary documents and
information concerning the Company and the Subsidiaries, except for the sole
purpose of carrying out the business of the Company or to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by such Seller, (ii) in the public domain through no fault of such Seller or its
Affiliates or (iii) later lawfully acquired by such Seller from sources other than
those related to its prior ownership of the Company and the Subsidiaries; provided
that Sellers may disclose such information to their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents in connection
with (1) seeking any advice or assistance with respect to Tax matters related to the
transactions contemplated hereby or (2) any investigation, dispute or litigation
relating to the transactions contemplated by this Agreement, in each case, so long
as such Persons are legally bound by customary confidentiality obligations with
respect to such information. The obligation of each Seller and its Affiliates to hold
any such information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the confidentiality
of their own similar information.
(c) On and after the Closing Date, each Seller will afford promptly to
Buyer and its agents reasonable access to its books of account, financial and other
records (includingaccountant’s work papers), information, employees and
auditors to the extent necessary for Buyer in connection with any audit,
investigation, dispute or litigation or any other necessary business purpose relating
to the Company or any Subsidiary; provided that any such access by Buyer shall
not unreasonably interfere with the conduct of the business of such Seller and all
such books of account, financial and other records and information shall be held in
confidence by Buyer in accordance with Section 6.01.
Section 5.03. Notices of Certain Events. Each Seller shall promptly
notify Buyer of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting such Seller or the Company or any
Subsidiary that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.13 or that relate to
the consummation of the transactions contemplated by this Agreement;
(d) any inaccuracy of any representation or warranty contained
in this Agreement at any time during the term hereof that could reasonably
be expected to cause the condition set forth in Section 8.02(a) and Section
8.02(f) not to be satisfied; and
(e) any failure of such Seller to comply with or satisfy any
material covenant, condition or agreement to be complied with or satisfied
by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
5.03 shall not limit or otherwise affect the remedies available hereunder to the
party receiving that notice.
Section 5.04. Noncompetition.
(a) Each Seller agrees that for a period commencing on the Closing Date
and ending on (A) with respect to any Seller who is a Company Employee,
director or consultant of the Company or any Subsidiary as of the date hereof, the
later of (i) the third anniversary of the date on which such Seller ceases to be such
Company Employee, director or consultant and (ii) the expiration of the Earnout
Period, (B) with respect to any other Seller, the third anniversary of the Closing
Date (each, the “Non-Compete Period”), other than for and only for purposes of
carrying out the Business of the Company or any Subsidiary, neither it nor any of
its Affiliates shall:
(i) engage, either directly or indirectly, as a principal or for its
own account or solely or jointly with others, or as stockholders in any
corporation or joint stock association, in any business that competes with
the Business, within or with respect to the geographical area of the United
States, Europe, the PRC and anywhere else the Company operates or plans
to operate as of the Closing Date or during the Non-Compete Period;
(ii) entice or otherwise intentionally cause any vendor,
consultant, collaborator, developer, publisher, customer, distributor, agent,
or contractor of the Company or any Subsidiary, including Yahoo! Inc.
and any of its Affiliates, to cease its business relationship with the
Company or such Subsidiary, as applicable; or
(iii) solicit or attempt to solicit any current employee of the
Company or any Subsidiary;
provided that each Seller may make and retain investments, for investment
purposes only, in less than5% of the outstanding capital stock of any publicly-
traded corporation that engages in a business that competes with the Business if
stock of such corporation is listed on a U.S. domestic or foreign national stock
exchange and such Seller is not otherwise affiliated with such corporation; and
further provided that the placement of general advertisements that are not
specifically targeted toward current employees of the Company or any Subsidiary
shall not be deemed to be a breach of this Section 5.04.
(b) If any provision contained in this Section shall for any reason be
held invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Section, but this
Section shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein. It is the intention of the parties that if any of the
restrictions or covenants contained herein is held to cover a geographic area or to
be for a length of time which is not permitted by Applicable Law, or in any way
construed to be too broad or to any extent invalid, such provision shall not be
construed to be null, void and of no effect, but to the extent such provision would
be valid or enforceable under Applicable Law, an arbitrator with competent
jurisdiction shall construe and interpret or reform this Section to provide for a
covenant having the maximum enforceable geographic area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under such Applicable Law. Each Seller acknowledges that Buyer
would be irreparably harmed by any breach of this Section and that there would be
no adequate remedy at law or in damages to compensate Buyer for any such
breach. Each Seller agrees that Buyer shall be entitled to injunctive relief
requiring specific performance by such Seller of this Section, and such Seller
consents to the entry thereof.
(c) Each Seller acknowledges that the limitations of time, geography,
and scope of activity agreed to above are reasonable because, among other things,
(i) the Business is in a highly competitive industry, (ii) such Seller has or will
have access to the trade secrets and know-how of the Business, including without
limitation the plans and strategy (and in particular, the competitive strategy) of the
Company, and (iii) these limitations are necessary to protect the trade secrets,
confidential information, and goodwill of the Company and its Subsidiaries.
(d) In consideration of Sellers agreeing to the provisions of this Section,
at the Closing, Buyer agrees to pay to Sellers the aggregate sum of$2,000,000
(the “Noncompete Consideration”) in the manner provided in Section 2.02.
(e) For the avoidance of doubt, the Noncompete Consideration shall be
in no event deemed as liquidated damages or an adequate amount of the Damages
that the Buyer and the Company may suffer as a result ofSellers’ breach of its
noncompetition obligations hereunder, and Sellers shall be fully liable for any and
all Damages incurred or suffered by Buyer or any other Buyer Indemnified Party
as a result of the breach by any Seller of this Section 5.04.
Section 5.05. Future Seller Acquisitions. Without limiting the generality
of Section 5.04, after the Closing Date, if either of Mr. Rodrigo Sales or Mr. Ryan
Stephens locates or is offered or otherwise approached with any opportunity (the
“Opportunity”) of any acquisition of or investment in, directly or indirectly, in
whichever form including by way of stock purchase, asset purchase, merger,
consolidation, joint venture or otherwise, any entity, asset, security, properties,
interest or business that relates to the Business, Mr. Rodrigo Sales and/or Mr.
Ryan Stephens, as applicable, shall promptly disclose the Opportunity to the
board of directors of the Company (the “Board”) for its approval. The Board
may approve or reject, in its sole discretion, Mr. Rodrigo Sales and/or Mr. Ryan
Stephens’ participation in such Opportunity and/or may condition such
participation on such conditions or requirements as may be determined by the
Board in its sole discretion.
Section 5.06. Non-U.S. Business. After the Closing Date, each Seller shall
use its reasonable best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary or reasonably desirable to assist the
Company in completing a restructuring of the Business, including forming non-
U.S. entities or structures, for purposes of maximizing the Tax benefits of the
Company and its Subsidiaries, taken as a whole, including minimizing the Tax
obligations of the Company and its Subsidiaries relating to their respective
business outside of the U.S.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
Section 6.01. Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold, and will use
their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential or proprietary documents and information
concerning the Company, any Subsidiary or any Seller furnished to Buyer or its
Affiliates in connection with the transactions contemplated by this Agreement,
except to the extent that such information can be shown to have been (i)
previously known on a nonconfidential basis by Buyer, (ii) in the public domain
through no fault of Buyer or (iii) later lawfully acquired by Buyer from sources
other than Seller or the Company or any Subsidiary; provided that Buyer may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement and to its lenders or other Persons in connection
with obtaining the financing for the transactions contemplated by this Agreement
so long as such Persons are informed by Buyer of the confidential nature of such
information and are directed by Buyer to treat such information confidentially.
The obligation of Buyer and its Affiliates to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to such
information as they would take to preserve the confidentiality of their own similar
information. If this Agreement is terminated, Buyer and its Affiliates will, and
will use their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
Sellers’ Representative, upon written request, all documents and other materials,
and all copies thereof, obtained by Buyer or its Affiliates or on their behalf from
Seller or the Company or any Subsidiary in connection with this Agreement that
are subject to such confidence.
Section 6.02. Special Tax Payment. If any Seller pays any Tax (the
“Seller Tax Payment”) which (i) is solely in respect of the taxable profit (the
“Transition Period Profit”) of the Company accrued in the period commencing
on the Balance Sheet Date and ending on the Closing Date to and only to extent
that such profit has not and will not be distributed by the Company to any Seller
and (ii) is required to be paid by the Tax Law solely due to theCompany’s status
as an S corporation within the meaning of Sections 1361 and 1362 of the Code
prior to the Closing, Buyer agrees to, upon receipt of the evidence of payment
reasonably satisfactory to Buyer, indemnify such Seller against the Seller Tax
Payment in a form mutually agreed by Buyer and theSellers’ Representative.
Buyer andSellers’ Representative agree that the parties will take reasonable best
efforts to structure the Seller Tax Payment such that the Taxes on such Seller Tax
Payment are minimized and Buyer agrees to indemnify Sellers, if applicable, from
any Taxes paid by Sellers as required by the Tax Law solely as a result ofSellers’
receipt of the Seller Tax Payment from Buyer. If any Seller receives any Tax
refund or Tax credit in respect of the Seller Tax Payment or the indemnification
from Buyer in the foregoing sentence, such Seller shall pay to Buyer such Tax
refund or cause such Tax credit to be transferred or otherwise used Buyer, as
applicable, each in a form mutually agreed by Buyer and theSellers’
Representative.
ARTICLE 7
COVENANTS OF BUYER AND SELLERS
In respect of Sections 7.01, 7.02 and 7.03, Buyer and each Seller agree
that, and in respect of Sections 7.04, 7.05, 7.06 and 7.08, Buyer and each
Management Seller agree that:
Section 7.01. Reasonable Best Efforts; Further Assurances.
(a) Subject to the terms and conditions of this Agreement, Buyer and
such Seller will use their reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary or reasonably desirable
under Applicable Laws to consummate the transactions contemplated by this
Agreement, including (i) preparing and filing as promptly as practicable with any
Governmental Authority or other third party all documentation to effect all
necessary filings, notices, petitions, statements, registrations, submissions of
information, applications and other documents and (ii) obtaining and maintaining
all approvals, consents, registrations, permits, authorizations and other
confirmations required to be obtained from any Governmental Authority or other
third party that are necessary, proper or advisable to consummate the transactions
contemplated by this Agreement. Such Seller agrees and Buyer, after the Closing,
agrees to cause the Company and each Subsidiary, to execute and deliver such
other documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement.
(b) Without limiting the generality of Section 7.01(a), Buyer shall use its
reasonable best efforts to make appropriate filings and take other actions to obtain
the PRC Regulatory Approvals and each Seller agrees to use its reasonable best
efforts to provide collaboration and assistance, including timely furnishing the
information required by the applicable Governmental Authority relating to the
Company, any Subsidiary or such Seller.
(c) Without limiting the generality of Section 7.01(a), after the Closing,
the Management Sellers shall cause the Company to duly make the filings
required under the Applicable Law in connection with the transactions
contemplated by this Agreement, including (i) filings to reflect theCompany’s
new directors and officers after the Closing; and (ii) the applicable BE-13 forms.
Section 7.02. Certain Filings. Such Seller and Buyer shall cooperate with
one another (i) in determining whether any action by or in respect of, or filing
with, any Governmental Authority is required, or any actions, consents, approvals
or waivers are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and (ii) in taking such actions or making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such actions, consents, approvals or waivers.
Section 7.03. Public Announcements. The parties agree to consult with
each other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except for
any press releases and public statements the making of which may be required by
Applicable Law or any listing agreement with any national securities exchange,
will not issue any such press release or make any such public statement prior to
such consultation.
Section 7.04. Board during the Earnout Period. (a) The Board of the
Company during the Earnout Period shall be consisted of five members, three of
which shall be designated by Buyer or any of its Affiliates, one of which shall be
the Chief Executive Officer of the Company (the “CEO Director”) and the
remaining one shall be a person designated jointly by the Chief Executive Officer
and the President of the Company (together with the CEO Director, the
“Management-Appointed Directors”).
(b) At all meetings of the Board, a majority of the members of the Board
shall constitute a quorum for the transaction of business. The act of a majority of
the members of the Board shall be the act of the board of directors, unless the act
of a greater number is required by the Applicable Laws or pursuant to Section
7.05.
(c) The Board shall hold regular quarterly meetings within four weeks
following the end of the each quarter. No later than seven days prior to a regular
quarterly meeting, the Management Sellers shall submit a report of the financial
and operational performance of the Company and its Subsidiaries in respect of the
period of the prior quarter to each member of the Board. The Management Sellers
shall attend the session of the Board meeting discussing such report and respond
to any questions or inquires relating thereof.
(d) At the first Board meeting after the Closing Date and thereafter the
last regularly quarterly meeting of the Board for any year during the Earnout
Period, a member of the Board designated by Buyer or any of its Affiliates will
deliver a statement to the other members of the Board and the Management Sellers
setting forth the actions of the Company or any of its Subsidiaries that are required
to be approved by, filed with, or publicly announced by Buyer, any of its
Affiliates or any Chinese Governmental Authority in accordance with the Chinese
Applicable Law, including the listing rules of the Shenzhen Stock Exchange,
which may be amended by Buyer from time to time in accordance with the
changes of the Chinese Applicable Law. The Management Sellers shall cause the
Company or any of its Subsidiaries not to take any such action without obtaining
such approval or completing such filing and shall cause the Company or any of its
Subsidiaries to timely report such actions in reasonable details to enable Buyer to
make such public announcements.
Section 7.05. Management of the Company after the Closing Date. Except
as otherwise provided in the Applicable Law, the business and affairs of the
Company after the Closing shall be managed by and under the direction of the
Board. Without limiting the generality of the foregoing sentence, during the
Earnout Period, subject to any additional approval requirements pursuant to
Section 7.04(d), the Company agrees that it will not and it shall cause each of its
Subsidiaries not to, and each of Buyer and the Management Sellers agree that it
will cause the Company or any of its Subsidiaries not to, take any action
(including any action by the Board or any committee thereof) with respect to any
of the following matters without approval of the Board, provided that, during the
Earnout Period, such approval shall include the vote or written consent of at least
one of the Management-Appointed Directors with respect to the matters set forth
in (c), (d), (e), (g), (i), (j) (except for those of the Management-Appointed
Directors), (k), (m) (except for the Management-Appointed Directors), (n), (o),
(q), (r), (s), (t) and (u) below:
(a) any merger, consolidation, reorganization (including
conversion) or any other business combination involving the Company or
any of its Subsidiaries (other than a merger, consolidation, reorganization
or business combination under subsection (c) below);
(b) any recapitalization, reclassification, spin-off or combination
of any securities of the Company or any of its Subsidiaries;
(c) (i) any acquisition by the Company or any of its Subsidiaries
of assets, businesses, operations or securities, in a single transaction or a
series of related transactions, with a value in the aggregate in excess of
US$3,000,000 or (ii) any merger, consolidation, reorganization, business
combination or acquisition by the Company or any of its Subsidiaries
which would be reasonably expected to have a material adverse effect on
the Net Profit of the Company;
(d) any sale, transfer, lease, pledge or other disposition by the
Company or any of its Subsidiaries of any material assets, businesses,
interests, properties or securities;
(e) any creation, incurrence or assumption of any indebtedness
of the Company or any of its Subsidiaries in excess of$3,000,000 in the
aggregate on a consolidated basis;
(f) the declaration of any dividend on or the making of any
distribution with respect to, or the redemption, repurchase or other
acquisition of, any securities of the Company or any of its Subsidiaries,
except as expressly permitted by this Agreement or the Purchase
Agreement, provided that as a principle the Company may distribute at
least30% of its annual profit at the discretion of the Board;
(g) any liquidation, dissolution, commencement of bankruptcy
or similar proceedings with respect to the Company or any of its
Subsidiaries;
(h) any issuance of securities of the Company other than (i)
pursuant to an incentive plan as approved and amended from time to time
by the Board, or any other compensatory option plan approved by the
Board and (ii) the issuance of Company Securities upon the exercise of
such options awarded under any of the plans set forth in clause (i) above;
(i) any material capital expenditure, which in either case is not
specifically contemplated by the annual business plan of the Company or
any of its Subsidiaries approved by the Board;
(j) any determination of compensation, benefits, perquisites and
other incentives for senior management of the Company or any of its
Subsidiaries (including any Key Employee as defined in the Purchase
Agreement) and the approval or amendment of any plans or agreements in
connection therewith;
(k) any material transaction between the Company or any of its
Subsidiaries, on the one hand, and any management member of the
Company or any of his/her Affiliates, on the other hand;
(l) any public offering of the Shares in any jurisdiction;
(m) any appointment or removal of Chief Executive Officer,
Chief Financial Officer, President, VP Engineer and the Financial
Controller or any other executive officer in any similar capacity of the
Company or any of its Subsidiaries;
(n) any formulation or change in accounting or tax principles,
policies with respect to the financial statements, records or affairs of the
Company or any of its Subsidiaries, except as required by generally
accepted accounting principles or by law, or any change in other matters
that could affect any regulatory status or tax liability of the Company or
any of its Subsidiaries;
(o) any appointment or removal of the auditors of the Company
or any of its Subsidiaries;
(p) any amendment to the Charter or Bylaws or any adoption of
or amendment to the certificate of incorporation or bylaws of any of its
Subsidiaries;
(q) the creation, adoption and material amendment of any stock
incentive plan or the equivalent by the Company or any of its Subsidiaries
and any increase of the total number of equity securities reserved for
issuance thereunder;
(r) the commencement, defending or settlement of any
litigation, arbitration or other proceedings which are material to the
business of the Company or any of its Subsidiary;
(s) any approval of the audited or reviewed financial statements
of the Company;
(t) any approval or amendment of the annual business plan,
annual budget or long-term strategic plan of the Company or any of its
Subsidiaries;
(u) any modification of the long-term business strategy or scope
of the business of the Company or any of its Subsidiaries or any material
customer, advertiser or publisher relationships thereof; or
(v) resolution of any other matter which the Chief Executive
Officer, President, theSellers’ Representative (as defined in the Purchase
Agreement) or the Buyer may from time to time raise for theBoard’s
consideration and approval
Section 7.06. Financial Controller. During the Earnout Period, each of
Buyer and the Management Sellers agrees that it will cause the Company to
engage a financial controller (the “Financial Controller”) designated by Buyer
and approved by at least one of the Management-Appointed Directors. The
Financial Controller shall have the powers and authorities as determined by the
Board, including at least one of the Management-Appointed Directors.
Section 7.07 Tax Return Filing. TheSellers’ Representative shall timely
prepare and file or cause to be prepared and filed all Returns of the Company and
each of its Subsidiaries for all Tax periods ending on or before the Closing Date
where such Returns are due on or before the Closing Date. Buyer or the
Company shall, at the cost of the Company, file or cause to be prepared and filed
all Returns of the Company and each of its Subsidiaries for all Tax periods
beginning on or before the Closing Date where such Returns are due after the
Closing Date. Prior to the filing of any such Return, Buyer shall (i) obtain the
written consent ofSellers’ Representative (such consent not to be unreasonably
withheld) and (ii) provide the Sellers with a substantially final draft of such
Return. Buyer shall not file or cause to be filed, any amended Return for the
Company for any Pre-Closing Tax Period without the consent ofSellers’
Representative, which shall not be unreasonably withheld.
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.01. Conditions to Obligations of Buyer and Sellers. The
obligations of Buyer and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:
(a) No provision of any Applicable Law shall prohibit the
consummation of the Closing.
Section 8.02. Conditions to Obligation of Buyer. The obligation of Buyer
to consummate the Closing is subject to the satisfaction of the following further
conditions:
(a) Each Seller shall have performed in all material respects all
of its obligations hereunder required to be performed by it on or prior to
the Closing Date, and the representations and warranties of each Seller
contained in this Agreement and in any certificate or other writing
delivered by such Seller pursuant hereto (i) that are qualified by
materiality or Material Adverse Effect shall be true at and as of the
Closing Date as if made at and as of such date, and (ii) that are not
qualified by materiality or Material Adverse Effect shall be true in all
material respects at and as of the Closing Date as if made at and as of such
time.
(b) There shall have been no material adverse change in the
business, affairs, prospects, operations, properties, assets or condition of
the Company and its Subsidiaries, taken as a whole, since the Balance
Sheet Date.
(c) The President or Chief Executive Officer of the Company
shall deliver to Buyer at the Closing a certificate stating that the conditions
specified in the foregoing (a) and (b) have been fulfilled.
(d) There shall not be threatened, instituted or pending any action
or proceeding by any Person before any Governmental Authority, (i)
seeking to restrain, prohibit or otherwise interfere with the ownership or
operation by Buyer or any of its Affiliates of all or any material portion of
the business or assets of the Company or any Subsidiary or of Buyer or
any of its Affiliates or to compel Buyer or any of its Affiliates to dispose
of all or any material portion of the business or assets of the Company or
any Subsidiary or of Buyer or any of its Affiliates, (ii) seeking to impose
or confirm limitations on the ability of Buyer or any of its Affiliates
effectively to exercise full rights of ownership of the Shares or (iii)
seeking to require divestiture by Buyer or any of its Affiliates of any
Shares or any business or assets of Buyer or any of its Affiliates.
(e) There shall not be any action taken, or any Applicable Law
proposed, enacted, enforced, promulgated, issued or deemed applicable to
the purchase of the Shares, by any Governmental Authority that, could
reasonably be expected to, directly or indirectly, result in any of the
consequences referred to in Sections 8.02(d)(i) through8.02(d)(iii).
(f) Buyer shall have received all of the PRC Regulatory
Approvals.
(g) Buyer or the Company, as applicable, shall have received or
be satisfied that it will receive all consents and approvals contemplated by
Section 3.03 or otherwise necessary in connection with the consummation
of the transactions contemplated by this Agreement or to enable the
Company and the Subsidiaries to continue to carry on their businesses as
currently conducted.
(h) Buyer shall have received all documents it may reasonably
request relating to the existence of each Seller, the Company and the
Subsidiaries, as applicable, and the authority of each Seller to enter into
this Agreement, all in form and substance reasonably satisfactory to
Buyer, including a good standing certificate or similar legal document
under the Applicable Law for each Subsidiary of the Company dated
within five days prior to the Closing Date.
(i) Buyer shall have obtained funds sufficient to enable it to pay
the Purchase Price.
(j) Buyer shall have received certification signed by each Seller
to the effect that each such Seller is not a “foreign person” as defined in
Section 1445 of the Code.
(k) Buyer shall have received from Silicon Legal Strategy,
counsel for the Company, an opinion, dated as of the date hereof, in
substantially the form attached hereto as Exhibit D.
(l) The Company shall have entered into an employment
agreement with each Key Employee in the form and substance satisfactory
to both Buyer and such Key Employee (each an “Employment
Agreement”) which shall include, among others, provisions substantially
similar in scope to the confidentiality, assignment of inventions, non-
solicitation and non-competition obligations provided for herein and
otherwise customary for the industry.
(m) Buyer and the Company shall have received an indebtedness
pay-off letter from each of Mr. Michael Levit and Ms. Celeste Sales in a
form reasonably satisfactory to Buyer and the Company.
(n) Buyer shall have received evidence of termination or
amendment of the VK Agreement pursuant to which the Company, any of
its Subsidiaries and Buyer shall be relieved from any and all liabilities
arising from or in connection with the VK Agreement upon the payment
required to be made by Buyer in accordance with Section 2.02(a)(ii) at
Closing.
(o) Buyer and the Company shall have received a release and
acknowledgment letter from each Person entitled to a change of control or
similar payment in connection with the transaction contemplated by this
Agreement in a form reasonably satisfactory to Buyer, releasing the
Company, any of its Subsidiaries and Buyer from any and all liabilities
arising from or in connection with the change of control or similar
provisions contained in the offer letter or other agreements that he/she has
entered into with the Company or its Subsidiaries.
(p) The Company shall have entered into a contract term
extension agreement with Yahoo! Inc. to the reasonable satisfaction of
Buyer.
(q) Mr. Ryan Stephens shall have exercised the warrants issued
by Michael Levit in respect of a total of 688,160 shares of the Common
Stock.
(r) Each Seller shall have delivered to Buyer (i) an Internal
Revenue Service Form W-9 (Request for Taxpayer Identification Number
and Certification) if such Seller is a “United States person” as defined in
Section 7701(a)(30) of the Code; or (ii) an appropriate Internal Revenue
Service Form W-8 (Certificate of Foreign Status) if such Seller is not a
“United States person” as defined in Section 7701(a)(30) of the Code.
Section 8.03. Conditions to Obligation of Sellers. The obligation of each
Seller to consummate the Closing is subject to the satisfaction of the following
further conditions:
(a) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Closing Date, the representations and warranties of Buyer contained in
this Agreement and in any certificate or other writing delivered by Buyer
pursuant hereto shall be true in all material respects at and as of the
Closing Date as if made at and as of such date.
(b) Buyer shall have received all consents, authorizations or
approvals from the Governmental Authorities referred to in Section 4.03,
in each case in form and substance reasonably satisfactory toSellers’
Representative, and no such consent, authorization or approval shall have
been revoked.
(c) Sellers’ Representative shall have received all documents it
may reasonably request relating to the existence of Buyer and the
authority of Buyer to enter into this Agreement, all in form and substance
reasonably satisfactory toSellers’ Representative.
(d) There shall not be threatened, instituted or pending any
action or proceeding by any Person before any Governmental Authority
seeking to prevent, enjoin, materially alter or materially delay the
transactions contemplated by this Agreement.
(e) Buyer shall have received all of the PRC Regulatory
Approvals.
(f) Buyer shall have received the Board and Stockholder
Approvals.
ARTICLE 9
SURVIVAL; INDEMNIFICATION
Section 9.01. Survival. The representations and warranties of the parties
hereto contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall survive the Closing until the
eighteen (18)-month anniversary of the Closing Date; provided that the
representations and warranties in Sections 3.01, 3.02, 3.03, 3.04, 3.05, 3.06, 3.08,
3.24 and 3.28 shall survive until the expiration of the applicable statutes of
limitations. The covenants and agreements of the parties hereto contained in this
Agreement or in any certificate or other writing delivered pursuant hereto or in
connection herewith shall survive the Closing indefinitely or for the shorter period
explicitly specified therein, except that for such covenants and agreements that
survive for such shorter period, breaches thereof shall survive indefinitely or until
the expiration of the applicable statutes of limitations. Notwithstanding the
preceding sentences, any breach of representation, warranty, covenant or
agreement in respect of which indemnity may be sought under this Agreement
shall survive the time at which it would otherwise terminate pursuant to the
preceding sentences, if notice of the inaccuracy or breach thereof giving rise to
such right of indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time.
Section 9.02. Indemnification.
(a) Indemnification by Sellers.
(i) Effective at and after the Closing, Sellers hereby agree to
indemnify Buyer, its Affiliates and their respective successors and
assignees and, effective at the Closing, without duplication, the Company,
each Subsidiary and their respective successors and assignees (each, a
“Buyer Indemnified Party”, and, collectively, the “Buyer Indemnified
Parties”) against and agrees to hold each of them harmless from any and
all damage, loss, liability and expense (including reasonable expenses of
investigation and reasonableattorneys’ fees and expenses in connection
with any action, suit or proceeding whether involving a third party claim
or a claim solely between the parties hereto) (the “Damages”), incurred or
suffered by any Buyer Indemnified Party arising out of any
misrepresentation or breach of warranty (determined without regard to any
qualification or exception contained therein relating to materiality or
Material Adverse Effect or any similar qualification or standard) (each
such misrepresentation and breach of warranty a “Warranty Breach”) or
breach of covenant or agreement made or to be performed by any Seller
pursuant to this Agreement (including Exhibit A) regardless of whether
such Damages arise as a result of the negligence, strict liability or any
other liability under any theory of law or equity of, or violation of any law
by, Buyer, any of its Affiliates or any of their respective successors and
assignees;
(ii) Notwithstanding anything to the contrary in this
Agreement, Sellers also agree to indemnify the Buyer Indemnified Parties
from and against all Damages, whether accrued, contingent, absolute,
determined, determinable or otherwise, incurred or suffered by such Buyer
Indemnified Party which relate to the Company or any Subsidiary and
which arise out of or relate to (i) all Taxes imposed on the Company or
any of its Subsidiaries, or for which the Company or any of its
Subsidiaries is liable, with respect to the Pre-Closing Tax Period; (ii)
Taxes arising as a result of the Company changing from a cash method of
accounting to an accrual method of accounting for tax purposes after the
Closing; (iii) transactions occurring in a Pre-Closing Tax Period between
the Company or any of its Subsidiaries on one hand and any of their
respective Affiliates on other hand in violation of any Applicable Law
relating to Taxes or Tax matters; (iv) any breach or nonperformance of
any representation, warranty, covenant or agreement by Sellers set forth in
this Agreement to the extent relating to Taxes or Tax matters; and (v) any
reasonable costs or expenses with respect to the Taxes indemnified
hereunder regardless of whether such Damages arise as a result of the
negligence, strict liability or any other liability under any theory of law or
equity of, or violation of any law by, Buyer or any of its Affiliates.
(iii) The aggregate indemnification obligation of Sellers for
money damages pursuant to this Section 9.02(a) (other than as a result of
the breach of Section 5.04, as discussed further below) shall not exceed
the total amount of the Buyer Earnout Payment paid or payable to Sellers
pursuant to Exhibit A (the “Indemnificaton Cap”); provided that the
foregoing limitation shall not limit any right or remedy for fraud,
intentional misrepresentation, gross negligence or willful breach or
misconduct. In the event that the Buyer Indemnified Parties (or any of
them) are entitled to recover Damages related to an indemnification claim
under this Section 9.02(a) (other than as a result of the breach of Section
5.04, as discussed further below), the Buyer Indemnified Parties shall first
recover such Damages by setting off such Damages against any Buyer
Earnout Payment payable to Sellers, provided that if (i) at the time of
Buyer seeking to recover such Damages, no Buyer Earnout Payment is
reasonably expected to be payable pursuant to Exhibit A within three
months therefrom, or (ii) at the end of the three-month period from the
time of Buyer seeking to recover such Damages, no Buyer Earnout
Payment is actually payable pursuant to Exhibit A or the Buyer Earnout
Payment payable then is not sufficient for Buyer to recover such Damage,
Buyer may, at the time of Buyer seeking to recover such Damages or at
the end of such three-month period, as applicable, elect to recover such
Damages from Buyer Earnout Payments previously paid to the Sellers. In
the event that the Damages resulting from a breach of Section 5.04 exceed
the Indemnification Cap, Buyer may recover the excess Damages above
the Indemnification Cap only from the Seller that has breached Section
5.04 and Buyer may not recover any such excess Damages above the
Indemnification Cap from any other Seller; provided, however, that a
Seller’s maximum aggregate indemnification obligation with respect to
suchSeller’s breach of Section 5.04 shall be capped at the amount of the
Share Proceeds received by such Seller. For the sake of clarity,
notwithstanding anything to the contrary herein, the provisions of this
Section 9.02(a)(iii) shall not apply to any indemnification obligations
required pursuant to Exhibit A (the “Earnout Indemnification
Obligations”) and such Earnout Indemnification Obligations shall be
governed by the terms and conditions set forth on Exhibit A.
(iv) The Buyer Indemnified Parties may not recover pursuant to
the indemnity set forth in this Section 9.02(a) unless and until the
Damages incurred or suffered by the Buyer Indemnified Parties exceed
$250,000 in the aggregate (the “Threshold”), and once the Threshold has
been reached, the Buyer Indemnified Parties may make claims for
indemnification for all Damages (including the amount of the Threshold);
provided that the foregoing limitation shall not limit any right or remedy
for fraud, intentional misrepresentation, gross negligence or willful breach
or misconduct.
(v) Damages shall be calculated net of actual recoveries under
existing insurance policies (net of any applicable collection costs and
reserves, deductibles, premium adjustments and retrospectively rated
premiums).
(vi) Sellers’ liabilities under this Section 9.02 shall be severally
but not jointly based on suchSeller’s Pro Rata Portion.
(b) Indemnification by Buyer. Effective at and after the Closing, Buyer
hereby indemnifies each Seller, its Affiliates and their respective successors and
assignees against and agrees to hold each of them harmless from any and all
Damages incurred or suffered by such Seller, any of its Affiliates or any of their
respective successors and assignees arising out of any Warranty Breach or breach
of covenant or agreement made or to be performed by Buyer pursuant to this
Agreement regardless of whether such Damages arise as a result of the negligence,
strict liability or any other liability under any theory of law or equity of, or
violation of any law by, such Seller, any of its Affiliates or any of their respective
successors and assignees; provided that the aggregate indemnification obligation
of Buyer for money damages pursuant to this Section 9.02(b) shall not exceed the
total amount of the Buyer Earnout Payment paid or payable to Sellers pursuant to
Exhibit A; provided further that the foregoing limitation shall not limit any right
or remedy for fraud, intentional misrepresentation, gross negligence or willful
breach or misconduct.
Section 9.03 Third Party Claim Procedures.
(a) The party seeking indemnification under Section 9.02 (the
“Indemnified Party”) agrees to give prompt notice in writing to the party against
whom indemnity is to be sought (the “Indemnifying Party”) of the assertion of
any claim or the commencement of any suit, action or proceeding by any third
party (“Third Party Claim”) in respect of which indemnity may be sought under
such Section. If such notice is being given by a Buyer Indemnified Party, such
notice shall be delivered to theSellers’ Representative. Such notice shall set forth
in reasonable detail such Third Party Claim and the basis for indemnification
(taking into account the information then available to the Indemnified Party). The
failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party
of its obligations hereunder, except to the extent such failure shall have actually
prejudiced the Indemnifying Party.
(b) The Indemnifying Party shall be entitled to participate in the defense
of any Third Party Claim and, subject to the limitations set forth in this Section,
shall be entitled to control and appoint lead counsel for such defense, in each case
at its own expense; provided that prior to assuming control of such defense, the
Indemnifying Party must (i) acknowledge that it would have an indemnity
obligation for the Damages resulting from such Third Party Claim as provided
under this Article 9 and (ii) furnish the Indemnified Party with evidence that the
Indemnifying Party has adequate resources to defend the Third Party Claim and
fulfill its indemnity obligations hereunder.
(c) The Indemnifying Party shall not be entitled to assume or maintain
control of the defense of any Third Party Claim and shall pay the fees and
expenses of counsel retained by the Indemnified Party if (i) the Indemnifying
Party does not deliver the acknowledgment referred to in Section 9.03(b)(i) within
30 days of receipt of notice of the Third Party Claim pursuant to Section 9.03(a),
(ii) the Third Party Claim relates to or arises in connection with any criminal
proceeding, action, indictment, allegation or investigation, (iii) the Indemnified
Party reasonably believes an adverse determination with respect to the Third Party
Claim would be materially detrimental to the reputation or future business
prospects of the Indemnified Party or any of its affiliates, (iv) the Third Party
Claim seeks an injunction or equitable relief against the Indemnified Party or any
of its affiliates or (v) the Indemnifying Party has failed or is failing to prosecute or
defend vigorously the Third Party Claim.
(d) If the Indemnifying Party shall assume the control of the defense of
any Third Party Claim in accordance with the provisions of this Section 9.03, the
Indemnifying Party shall obtain the prior written consent of the Indemnified Party
before entering into any settlement of such Third Party Claim.
(e) In circumstances where the Indemnifying Party is controlling the
defense of a Third Party Claim in accordance with paragraphs (b) and (c) above,
the Indemnified Party shall be entitled to participate in the defense of any Third
Party Claim and to employ separate counsel of its choice for such purpose, in
which case the fees and expenses of such separate counsel shall be borne by the
Indemnified Party; provided that in such event the Indemnifying Party shall pay
the fees and expenses of such separate counsel (i) incurred by the Indemnified
Party prior to the date the Indemnifying Party assumes control of the defense of
the Third Party Claim or (ii) if representation of both the Indemnifying Party and
the Indemnified Party by the same counsel would create a conflict of interest.
(f) Each party shall cooperate, and cause their respective affiliates to
cooperate, in the defense or prosecution of any Third Party Claim and shall
furnish or cause to be furnished such records, information and testimony, and
attend such conferences, discovery proceedings, hearings, trials or appeals, as may
be reasonably requested in connection therewith.
Section 9.04. Direct Claim Procedures. In the event an Indemnified
Party has a claim for indemnity under Section 9.02 against an Indemnifying Party
that does not involve a Third Party Claim, the Indemnified Party agrees to give
prompt notice in writing of such claim to the Indemnifying Party. Such notice
shall set forth in reasonable detail such claim and the basis for indemnification
(taking into account the information then available to the Indemnified Party). The
failure to so notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder, except to the extent such failure shall have
actually prejudiced the Indemnifying Party. If the Indemnifying Party does not
notify the Indemnified Party within 30 days following the receipt of a notice with
respect to any such claim that the Indemnifying Party disputes its indemnity
obligation to the Indemnified Party for any Damages with respect to such claim,
such Damages shall be conclusively deemed a liability of the Indemnifying Party
and the Indemnifying Party shall promptly pay to the Indemnified Party any and
all Damages arising out of such claim. If the Indemnifying Party has timely
disputed its indemnity obligation for any Damages with respect to such claim, the
parties shall proceed in good faith to negotiate a resolution of such dispute and, if
not resolved through negotiations, such dispute shall be resolved by litigation in
an appropriate court of jurisdiction determined pursuant to Section 11.08.
Section 9.05 Tax Treatment of Indemnification. To the extent permitted
by Applicable Law, all indemnification payments under this Article 9, shall be
deemed adjustments to the Purchase Price for United States federal, state and
local income Tax purposes.
ARTICLE 10
TERMINATION
Section 10.01. Grounds for Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual written agreement of theSellers’ Representative
and Buyer;
(b) by Buyer or theSellers’ Representative if the Closing shall
not have been consummated on or before January 31, 2016; or
(c) by eitherSellers’ Representative or Buyer if there shall be
any Applicable Law that makes consummation of the transactions
contemplated hereby illegal or otherwise prohibited or if consummation of
the transactions contemplated hereby would violate any nonappealable
final order, decree or judgment of any Governmental Authority having
competent jurisdiction.
The party desiring to terminate this Agreement pursuant to Section 10.01(b) or
Section 10.01(c) shall give notice of such termination to the other party.
Section 10.02. Effect of Termination. If this Agreement is terminated as
permitted by Section 10.01, such termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; provided that:
(a) if such termination shall result from the (i) willful failure of Buyer
to fulfill a condition to the performance of the obligations of Sellers, (ii) failure of
Buyer to perform a covenant of this Agreement, (iii) material breach by Buyer of
any representation or warranty or agreement contained herein, (iv) failure to
obtain the PRC Regulatory Approvals due to reasons not primarily attributable to
the violation by Sellers of Section 7.01(a) or (v) failure of Buyer to obtain
sufficient funds to pay the Purchase Price, Sellers shall retain the Good Faith
Deposit and any interest accrued thereon as liquidated damages which shall be the
exclusive remedy of Sellers against Buyer in connection with such termination; it
being understood that the Good Faith Deposit will be allocated among Sellers by
theSellers’ Representative in proportion to the respective portions of the Purchase
Price that would have been allocated to each Seller would the Closing have
occurred;
(b) if such termination shall result from the (i) willful failure of any
Seller to fulfill a condition to the performance of the obligations of Buyer (other
than the conditions set forth in Sections 8.02(f) and 8.02(i)), (ii) material failure of
any Seller to perform a covenant of this Agreement, or (iii) material breach by any
Seller of any representation or warranty or agreement contained herein, then the
Good Faith Deposit and any interest accrued thereon shall be returned to Buyer
within five Business Days from the date of termination, in addition to any other
remedy Buyer is entitled at law or in equity; and
(c) if such termination shall result from the reasons other than those set
forth in Section 10.02(a) and (b), the Good Faith Deposit and any interest
accredited thereon shall be returned to Buyer within five Business Days from the
date of termination.
The provisions of Sections 6.01, 11.04, 11.07 and 11.08 shall survive any
termination hereof pursuant to Section 10.01.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission and
electronic mail (“e-mail”) transmission, so long as a receipt of such e-mail is
requested and received) and shall be given,
if to Buyer, to:
Genimous Investment Co., Ltd. Depu Equity Investment LLP
Address: Room C-301,Heng’Ao Center, No. 26 Jinshifang St.,
Financial Avenue, Beijing 100140
Attention: Yu Xingang
Facsimile No.:+86-10 6621 0960
yuxingang@genimous.com
with a copy to:
Beijing Genimous Depu Equity Investment LLP
Address: Room C-301,Heng’Ao Center, No. 26 Jinshifang St.,
Financial Avenue, Beijing 100140
Attention: Sun Jing
Facsimile No.:+86-10 6621 0960
sunjing@genimous.com
if to Sellers, to:
Spigot, Inc.
774 Mays Blvd.,#10-456
Incline Village, NV 89451
Attention: Rodrigo Sales
Facsimile No.:
E-mail:
with a copy to:
Silicon Legal Strategy, A Professional Corporation
90 New Montgomery Street
San Francisco, CA 94105
Attention: Andre Gharakhanian
Facsimile No.: (415) 520-6572
E-mail:andre@siliconlegal.com
if toSeller’s Representative:
Rodrigo Sales
Facsimile No.:
E-mail:
or such other address or facsimile number as such party may hereafter specify for
the purpose by notice to the other parties hereto. All such notices, requests and
other communications shall be deemed received on the date of receipt by the
recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day
is a Business Day in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed not to have been received until the next
succeeding Business Day in the place of receipt.
Section 11.02. Amendments and Waivers.
(a) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement (provided, with respect to Sections
Section 7.04, Section 7.05 and Section 7.06, by each of Buyer and the
Management Sellers) or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
Section 11.03. Disclosure Schedule References. The parties hereto agree
that any reference in a particular Section of either the Seller Disclosure Schedule
or the Buyer Disclosure Schedule shall only be deemed to be an exception to (or,
as applicable, a disclosure for purposes of) (a) the representations and warranties
(or covenants, as applicable) of the relevant party that are contained in the
corresponding Section of this Agreement and (b) any other representations and
warranties of such party that is contained in this Agreement, but only if the
relevance of that reference as an exception to (or a disclosure for purposes of)
such representations and warranties would be readily apparent to a reasonable
person who has read that reference and such representations and warranties,
without any independent knowledge on the part of the reader regarding the
matter(s) so disclosed.
Section 11.04. Expenses. Except as otherwise provided herein, all costs
and expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense. For the avoidance of doubt, Sellers shall
pay all legal, accounting, investment banking/brokerage and other professional
expenses incurred by the Company and Sellers in connection with this Agreement,
and the transactions contemplated hereby and thereby, including the expenses of
legal counsel and accountants engaged by them, all contractual payments arising
out of, based upon or resulting from any contractual change in control provisions
and all other expenses incurred by the Company and Sellers in connection
herewith and not expressly allocated hereunder.
Section 11.05.Sellers’ Representative.
(a) Each Seller hereby irrevocably constitutes and appoints Mr. Rodrigo
Sales (the“Sellers’ Representative”), as suchSeller’s attorney-in-fact and agent
in connection with the matters described in this Section 11.05, subject to the
limitations specified herein. This power is irrevocable and coupled with an
interest, and shall not be affected by the death, incapacity, illness, dissolution or
other inability to act of any Seller.
(b) Each Seller hereby irrevocably grants theSellers’ Representative full
power and authority, effective from and after the date hereof:
(i) to (A) dispute or refrain from disputing, on behalf of such
Seller, any claim made by Buyer or any other Buyer Indemnified Party
under this Agreement for which the Sellers may be liable, (B) negotiate
and compromise, on behalf of such Seller, any dispute involving Sellers
that may arise under, and to exercise or refrain from exercising any
remedies available under, this Agreement with respect to any matter that
involves Sellers, and (C) execute, on behalf of such Seller, any settlement
agreement, release or other document with respect to such dispute or
remedy involving Sellers;
(ii) to amend or modify this Agreement on behalf of all
Sellers, or to grant any waiver hereunder or thereunder;
(iii) to engage attorneys, accountants and agents at the expense
of Sellers with respect to the matters as to which theSellers’
Representative is granted the authority to act under this Section 11.05;
(iv) to pay or distribute to Sellers any portion of the Purchase
Price, the Buyer Earnout Payment and the Net Profit Target Bonus that
may be delivered to theSellers’ Representative on behalf of the Sellers in
accordance with the instructions of Sellers;
(v) to collect from such Seller and to pay Buyer or any other
Buyer Indemnified Party any amount due to such Person pursuant to this
Agreement, including the Sellers Earnout Payment;
(vi) to collect and receive any amount payable by Buyer to
Sellers and designate receiving bank accounts in relation thereof, each
pursuant to this Agreement; and
(c) Each Seller hereby agrees that:
(i) in all matters in which action by theSellers’ Representative
is required or permitted in this Agreement, including Exhibit A and any
other agreement, documents and instruments contemplated under the
Agreement, theSellers’ Representative is authorized to act on behalf of
such Seller, notwithstanding any dispute or disagreement among the
Sellers, or between any Seller and theSellers’ Representative, and Buyer
and the Company shall be entitled to rely on any and all actions taken by
theSellers’ Representative under this Agreement without any liability to,
or obligation to inquire of, any Seller, regardless of whether Buyer or the
Company has knowledge of any such dispute or disagreement; and
(ii) the power and authority of theSellers’ Representative, as
described in this Agreement, shall continue in force until all rights and
obligations of the Sellers under this Agreement shall have terminated,
expired or been fully performed.
(d) Notwithstanding the foregoing, but subject to the limitations on the
authority granted to theSellers’ Representative specified in this Section 11.05,
each Seller agrees, at the request of theSellers’ Representative: (i) to take all
actions reasonably necessary or appropriate to consummate the transactions
contemplated hereby individually on suchSeller’s own behalf, and (ii) to deliver,
individually on suchSeller’s own behalf, any other documents reasonably
required of such Seller pursuant to this Agreement.
(e) Sellers’ Representative and each Seller hereby acknowledge and
agree that neither Buyer nor any Affiliate of Buyer shall have any liability to
Sellers’ Representative or any Seller whatsoever with respect to the actions,
decisions or determinations of theSellers’ Representative.
Section 11.06. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that Section 7.04, Section 7.05 and
Section 7.06 shall be binding upon and inure to the benefit of Buyer and the
Management Sellers and their respective successors and assigns; provided further
that no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of each other party hereto;
except that Buyer may transfer or assign its rights and obligations under this
Agreement, in whole or from time to time in part, to (i) one or more of its
Affiliates at any time and (ii) after the Closing Date, to any Person; provided that
no such transfer or assignment shall relieve Buyer of its obligations hereunder or
enlarge, alter or change any obligation of any other party hereto or due to Buyer.
Section 11.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of California, without regard to
the conflicts of law rules of such state.
Section 11.08. Arbitration. Any dispute arising out of or in connection
with this Agreement shall be submitted to the Hong Kong International
Arbitration Centre (“HKIAC”) for arbitration which shall be conducted in
accordance with the Arbitration Rules of the HKIAC in force when the notice of
arbitration is submitted in accordance with these rules. The dispute shall be
resolved by an arbitral tribunal consisting of three arbitrators, with each of Buyer
and theSellers’ Representative appointing one arbitrator and the two arbitrators
shall appoint the third arbitrator who shall be the president of the tribunal. If the
two arbitrators cannot agree on the third arbitrator, the Chairman of HKIAC shall
appoint the third arbitrator. The arbitration proceedings shall be conducted in
English and Chinese. Any award is final and may be enforced in any court of
competent jurisdiction. The award shall apportion the costs of arbitration. The
parties shall duly and punctually perform their obligations hereunder pending
issuance of the arbitral award.
Section 11.09. Counterparts; Effectiveness; Third Party Beneficiaries.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become effective when
each party hereto shall have received a counterpart hereof signed by all of the
other parties hereto. Until and unless each party has received a counterpart hereof
signed by the other party hereto, this Agreement shall have no effect and no party
shall have any right or obligation hereunder (whether by virtue of any other oral
or written agreement or other communication). No provision of this Agreement is
intended to confer any rights, benefits, remedies, obligations, or liabilities
hereunder upon any Person other than the parties hereto and their respective
successors and assigns.
Section 11.10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this Agreement.
Section 11.11. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
Governmental Authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.
Section 11.12. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement or to
enforce specifically the performance of the terms and provisions hereof, in
addition to any other remedy to which they are entitled at law or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFTBLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and year
first above written.
SELLERS' REPRESENTATIVE, solely in his capacity as Sellers'
Representative
By:
RODRIGO SALES
By:
*
TTIE RODRIGO SALES GRANTOR
RETAINED ANNUITY TRUST
By:
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and year
first above written.
CELESTE SALES
By:C:**--=---**-------
ANNEXT A
NAME OF SELLERS AND SHARES TO BE SOLD
|||
|-|-|
|Stockholders|Number of Shares to be Sold|
|Johnson, Jason|346,558|
|Levit, Michael|3,635,253|
|Michael Levit, Trustee of the Michael Levit2014 Annuity Trust|822,073|
|Linda R. Beaty Trust dated December 15, 2006|74,765|
|Peter I.A. Bosco Trust|49,843|
|Sales, Celeste|38,655|
|Sales, Rodrigo|7,881,814|
|Richard D. Stubblefield Living Trust U/D/T|74,766|
|The Rodrigo Sales Grantor Retained AnnuityTrust|875,757|
|Stephens, Ryan|688,160|
|Total|14,487,644|

ANNEX C
FORM OF PROPRIETARY INFORMATION AND INVENTIONS
AGREEMENT
(ATTACHED SEPERATELY)
EXHIBIT A
POST-CLOSING CONTINGENT PAYMENTS AND SHARE PURCHASE
1. Definitions. Each capitalized term used and not otherwise defined herein
shall have the meaning assigned such terms in the Stock Purchase Agreement
dated August 31, 2015 among Genimous Investment Co., Ltd., a company
incorporated under the laws of the PRC with its stocks listed in the Shenzhen
Stock Exchange, as Buyer, Rodrigo Sales, asSellers’ Representative and Sellers
parties thereto (the “Agreement”). References to a particular section shall mean
the correspondent section of this Exhibit A unless otherwise specified. In
addition, the following terms as used herein shall have the following meanings:
“Earnout Target” means, for any Initial Earnout Year, the Net Profit set
forth opposite such Initial Earnout Year in the table below:
|||
|-|-|
|Initial Earnout Year(as adjusted pursuant toSection 4)|Earnout Target|
|Year ended December31, 2015|$17,210,000|
|Year ended December31, 2016|$25,610,000|
|Year ended December31, 2017|$34,090,000|
|Year ended December31, 2018|$40,060,000|
|Total|$116,970,000|

“Earnout Period” means the period beginning on the Closing Date and
ending on December 31, 2018, as extended by the Extended Earnout Years
pursuant to Section 4.
“Initial Earnout Year” means any of the twelve-month periods ending
December 31, 2015, December 31, 2016, December 31, 2017, or December 31,
2018, as adjusted pursuant to Section 4.
“Net Profit” means, for any Initial Earnout Year or Extended Earnout
Year, the consolidated net income of the Company and its Subsidiaries for such
Earnout Year or Extended Earnout Year, as applicable, after all expenses and
other proper charges including (i) income and franchise taxes and (ii) impairment
loss of intangible assets, account receivable or other assets, determined in
accordance with IFRS but applied and calculated in a manner consistent with past
practice.
“Sellers Earnout Indemnification Amount” means, for any Initial
Earnout Year, an amount equal to (i) the quotient of (A) the amount by which the
applicable Earnout Target exceeds the Net Profit for such Initial Earnout Year,
divided (B)$116,970,000, multiplied by (ii) the sum of (A) the Purchase Price,
and (B)$133,696,710.
“Yearly Earnout Installment” means, with respect to an Initial Earnout
Year during the Earnout Period, the Earnout Target for the applicable Initial
Earnout Year multiplied by 1.143.
2. Earnout Payments to Sellers. As additional consideration for the Shares,
subject to the terms and conditions of this Exhibit A, Buyer shall pay toSellers’
Representative, in respect of each Initial Earnout Year during the Earnout Period,
cash in an amount equal to the following (together with the payment under
Section 4(c), the “Buyer Earnout Payment”):
(a) If the Net Profit for such Initial Earnout Year is no less than the
applicable Earnout Target, such amount shall be equal to the applicable Yearly
Earnout Installment minus the Sellers Earnout Payment due in all prior Initial
Earnout Years but not paid by Sellers and minus the Unpaid Portion of Sellers
Earnout Indemnification Shortfall not paid by Sellers, if any;
(b) if the Net Profit for such Initial Earnout Year is less than the
applicable Earnout Target:
(i) if the applicable Sellers Earnout Indemnification Amount is
no less than the applicable Yearly Earnout Installment, such amount shall
be equal to zero; it being understood that Section 3 and Section 4 shall
apply; and
(ii) if the applicable Sellers Earnout Indemnification Amount is
less than the applicable Yearly Earnout Installment, such amount shall be
equal to the excess of such Yearly Earnout Installment over such Sellers
Earnout Indemnification Amount.
3. Sellers Earnout Payment. If, in respect of each Initial Earnout Year
during the Earnout Period, the applicable Sellers Earnout Indemnification Amount
exceeds the applicable Yearly Earnout Installment, Sellers shall pay to Buyer cash
in an amount (the “Sellers Earnout Payment”) equal to the excess of such
Sellers Earnout Indemnification Amount over such Yearly Earnout Installment
(the “Sellers Earnout Indemnification Shortfall”), up to an amount equal to50%
of the total Buyer Earnout Payment(s) received by theSellers’ Representative on
behalf of Sellers for all previous Initial Earnout Years, (the “Sellers
Indemnification Cap”, which cap amount, for clarification, shall exclude the
deductions pursuant to Section 8); provided that in respect of each Initial Earnout
Year, if the amount of the applicable Sellers Earnout Indemnification Shortfall
exceeds the applicable Sellers Indemnification Cap, in addition to the payment of
the applicable Sellers Earnout Payment pursuant to the foregoing sentence,
Section 4 shall apply. If Sellers fail to make the Sellers Earnout Payment
pursuant to this Sections 3 and Section 6, Buyer shall have the right to set off the
unpaid portion of the Sellers Earnout Payment against any payment due and
payable by the Company or Buyer pursuant to this Agreement or otherwise to any
Seller in his/her/its capacity as a Seller, Company Employee, consultant of the
Company or any Subsidiary or otherwise.
4. Extension of the Earnout Period.
(a) If, in respect of any Initial Earnout Year during the Earnout Period, (i)
the Net Profit for such Initial Earnout Year is less than the applicable Earnout
Target and (ii) the amount of the applicable Sellers Earnout Indemnification
Shortfall exceeds the applicable Sellers Indemnification Cap (such Initial Earnout
Year satisfying both (i) and (ii), a “Shortfall Year”, such excess in (ii), the
“Unpaid Portion of Sellers Earnout Indemnification Shortfall”), then each
calendar year subsequent to such Shortfall Year is an extended Earnout Year (each,
an “Extended Earnout Year”) until the Net Profit for such Extended Earnout
Year is no less than the applicable Extended Earnout Year Target, provided that, if
the Sellers Representative, on behalf of Sellers, within two Business Days
following the date upon which the determination of the Net Profit for the
applicable Shortfall Year becomes final and binding upon the parties as provided
in Section 5, elects in writing to pay to Buyer the entire amount of the applicable
Sellers Earnout Indemnification Shortfall, then there will be no Extended Earnout
Year and the calendar year subsequent to such Shortfall Year will be an Initial
Earnout Year.
(b) For purposes of this Exhibit A, the “Extended Earnout Year Target”
means, in respect of any Extended Earnout Year, an amount equal to the Earnout
Target for the relevant Shortfall Year multiplied by
1.10n,
with the “n” equal to
the number of years that have passed since the Shortfall Year, inclusive the
Shortfall Year. By way of illustration, (i) if the Initial Earnout Year ending on
December 31, 2015 is a Shortfall Year, the Extended Earnout Year Target for the
Extended Earnout Year ending on December 31, 2016 is equal to the Earnout
Target for the Initial Earnout Year ending on December 31, 2015 multiplied by
1.10; and (ii) if the year ending on December 31, 2017 is still an Extended
Earnout Year pursuant to Section 4(a), the Extended Earnout Year Target for the
year ending on December 31, 2017 is equal to the Earnout Target for the Initial
2
Earnout Year ending on December 31, 2015 multiplied by 1.10 .
(c) In respect of any Extended Earnout Year, if the Net Profit for such
Extended Earnout Year is no less than the applicable Extended Earnout Year
Target, Buyer shall pay toSellers’ Representative on behalf of Sellers cash in an
amount equal to (i) the Yearly Earnout Installment for the applicable Shortfall
Year, minus (ii) the Unpaid Portion of Sellers Earnout Indemnification Shortfall
for the applicable Shortfall Year, minus (iii) the total amount of the Extended
Earnout Year Sellers Earnout Indemnification Amount for all prior Extended
Earnout Years with respect to the applicable Shortfall Year, if any. For purposes
of this Exhibit A, the “Extended Earnout Year Sellers Earnout
Indemnification Amount” means, in respect of any Extended Earnout Year, an
amount equal to (i) the quotient of (A) the amount by which the applicable
Extended Earnout Year Target exceeds the Net Profit for such Extended Earnout
Year, divided (B)$116,970,000, multiplied by (ii) the sum of (A) the Purchase
Price, and (B)$133,696,710.
(d) In respect of a Shortfall Year, the Earnout Period shall be extended
and the subsequent Initial Earnout Years and the corresponding Earnout Targets
shall be delayed by the number of the years of the Extended Earnout Year with
respect to such Shortfall Year. By way of illustration, if the Initial Earnout Year
ending on December 31, 2015 is a Shortfall Year and the relevant Extended
Earnout Years end until the year ending on December 31, 2017 pursuant to
Section 4(a), (i) the Earnout Period shall be extended until the year ending on
December 31, 2020, and (ii) the Earnout Target for the Initial Earnout Year
ending on December 31, 2016 shall be the Initial Earnout Target for the Initial
Earnout Year ending on December 31, 2018, the Initial Earnout Target for the
Initial Earnout Year ending on December 31, 2017 shall be the Initial Earnout
Target for the Initial Earnout Year ending on December 31, 2019 and the Initial
Earnout Target for the Initial Earnout Year ending on December 31, 2018 shall be
the Initial Earnout Target for the Initial Earnout Year ending on December 31,
2020, each unless any such adjusted Initial Earnout Year becomes a new Shortfall
Year in which case this Section 4 shall again apply. Notwithstanding the
foregoing, if the Sellers elect to pay to Buyer the entire amount of the applicable
Sellers Earnout Indemnification Shortfall, then the Earnout Period shall not be
extended in respect of such Shortfall Year.
5. Procedures to Determine the Net Profit.
(a) Earnout Notice. As promptly as practicable, but no later than 120
days after the last day of each Initial Earnout Year or the Extended Earnout Year
during the Earnout Period, as applicable, Buyer will cause to be prepared and
delivered toSellers’ Representative a written statement (the “Earnout Notice”)
setting forth in reasonable detail its determination of the Net Profit for the
applicable Initial Earnout Year or the Extended Earnout Year, as applicable.
(b) Earnout Objection Notice. If theSellers’ Representative disagrees
with the calculation of the Net Profit as set forth in the Earnout Notice, the
Sellers’ Representative may, within fifteen (15) days after receipt of such Earnout
Notice, deliver a written notice of disagreement to Buyer setting forth in
reasonable detail theSellers’Representative’s calculation of the Net Profit (an
“Earnout Objection Notice”). The Earnout Objection Notice shall specify the
items and/or the amounts in the applicable Earnout Notice disputed by Sellers and
shall describe in reasonable detail the basis for such objection. TheSellers’
Representative shall be deemed to have agreed to all other items and amounts
contained in the Earnout Notice. If theSellers’ Representative fails to deliver the
Earnout Objection Notice within such seven-day period, the Net Profit set forth in
the Earnout Notice shall be final and binding on all parties, including theSellers’
Representative and Sellers.
(c) Auditor and Final Amount. If an Earnout Objection Notice is timely
delivered bySellers’ Representative pursuant to Section 5(b), Buyer andSellers’
Representative shall negotiate in good faith to agree upon the disputed items
and/or amounts. If, within seven days of the date of receipt by Buyer of the
Earnout Objection Notice, Buyer andSellers’ Representative are unable to reach
an such agreement, they shall promptly thereafter submit the dispute to
independent accountants of nationally recognized standing reasonably satisfactory
to both Buyer andSellers’ Representative (the “Auditor”), who shall resolve
finally and exclusively any such dispute. The Auditor shall review the
Agreement, this Exhibit A and the disputed items or amounts for the purpose of
calculating the Net Profit in accordance with IFRS. The Auditor shall deliver to
Buyer andSellers’ Representatives, as soon as practicable, but in any event within
30 days of submission of the disputed items or amounts to the Auditor, a report
setting forth in reasonable detail such calculation of the Net Profit. In making
such calculation, the Auditor shall consider only those items and amounts in the
calculation of the Net Profit which are identified in the Earnout Objection Notice
as being items as to whichSellers’ Representative has disagreed and the Auditor
may not assign a value to any item greater than the greatest value for such item
claimed by either party or less than the smallest value for such item claimed by
either party. TheAuditor’s calculation will be based solely on written materials
submitted by Buyer orSellers’ Representative (i.e., not on independent review)
and on the provisions of the Agreement and this Exhibit A.
(d) Auditor Expenses. The costs and expenses of the Auditor in
determining the Net Profit for such Initial Earnout Year or the Extended Earnout
Year, as applicable, shall be (i) borne by Buyer if the difference between the Net
Profit for such Initial Earnout Year or the Extended Earnout Year, as applicable,
as determined by the Auditor (the “Final Net Profit”) and the Net Profit for such
Initial Earnout Year or the Extended Earnout Year, as applicable, as determined
by Buyer is greater than the difference between the Final Net Profit and the Net
Profit for such Initial Earnout Year or the Extended Earnout Year, as applicable,
as determined bySellers’ Representative and (ii) borne bySellers’ Representative
on behalf of the Sellers if the difference between the Final Net Profit and the Net
Profit for such Initial Earnout Year as determined by Buyer is less than the
difference between the Final Net Profit and the Net Profit for such Initial Earnout
Year or the Extended Earnout Year, as applicable, as determined bySellers’
Representative.
6. Timing of Payments. Buyer and Sellers shall pay the Buyer Earnout
Payment or the Seller Earnout Payment, as applicable, pursuant to Sections 2, 3
and 4(c) in full no later than 15 Business Days following the date upon which the
determination of the Net Profit for the applicable Initial Earnout Year or Extended
Earnout Year, as applicable becomes final and binding upon the parties as
provided in Section 5 (including any final resolution of any dispute raised by the
Sellers’ Representative in an Earnout Objection Notice) and, if there is any setoff
pursuant to Section 8, the amount of the Damages and the resulting payables
pursuant to this Exhibit A is determined pursuant to Section 9.04 and Section
11.08 of the Agreement or otherwise agreed upon by Buyer and theSellers’
Representative.
7. Condition of Buyer Earnout Payment. Notwithstanding anything
contained herein to the contrary, unless otherwise approved by Buyer in writing,
(i) the obligation of Buyer to make any Buyer Earnout Payment payable to Mr.
Rodrigo Sales under this Agreement shall be conditioned upon that, as of
December
31st
of the year in which such Buyer Earnout Payment was earned, Mr.
Rodrigo Sales shall have continuously served as the Chief Executive Officer of
the Company since the Closing Date and (ii) the obligation of Buyer to make any
Buyer Earnout Payment payable to Mr. Ryan Stephens under this Agreement shall
be conditioned upon that, as of December
31st
of the year in which such Buyer
Earnout Payment was earned, Mr. Ryan Stephens shall have continuously served
as the President of the Company since the Closing Date. Notwithstanding the
foregoing, in the event that (a) Mr. Rodrigo Sales or Mr. RyanStephens’ service
as Chief Executive Officer or President, as applicable, is terminated by the
Company without Cause (as defined in their respective Employment Agreements)
or either of them resigns for Good Reason (as defined in their respective
Employment Agreements) or (b) Mr. Rodrigo Sales or Mr. Ryan Stephens is
demoted without Cause (as defined in their respective Employment Agreements)
such that he no longer hold the positions of Chief Executive Officer and
President, as applicable, but still remain employee or consultant of the Company,
then the condition specified in part (i) or (ii) above, as applicable, shall be deemed
to have been waived by Buyer and the failure of Mr. Rodrigo Sales or Mr. Ryan
Stephens, as applicable, to remain as Chief Executive Officer and President of the
Company, respectively, shall not relieve Buyer from its obligation to pay to Mr.
Rodrigo Sales or Mr. Ryan Stephens, as applicable, the Buyer Earnout Payments.
8. Setoff by Sellers Indemnification Obligation. Notwithstanding anything
contained herein to the contrary, Buyer is entitled to set off the amount of the
Damages that any Buyer Indemnified Party is entitled to recover pursuant to the
Agreement, if any, against any payment payable by Buyer to any Person pursuant
to this Exhibit A.
9. Share Pledge. As security for the payment of the Buyer Earnout Payment,
Buyer agrees to pledge a total of 5,795,057 shares of Common Stock (the
“Pledged Shares”) to theSellers’ Representative at and concurrently with the
Closing upon the terms and subject to the conditions of a Stock Pledge Agreement
in a form mutually agreeable to Buyer andSellers’ Representative (the “Stock
Pledge Agreement”). In respect of each Initial Earnout Year, Sellers shall
irrevocably release or cause the irrevocable release of25% of the Pledge Shares
immediately upon (i) if any Buyer Earnout Payment for such Initial Earnout Year
is payable pursuant to this Exhibit A, receipt by theSellers’ Representative of
such Buyer Earnout Payment; and (ii) otherwise, determination of the amount of
the applicable Net Profit for such Initial Earnout Year pursuant to Section 5.
10. Net Profit Target Bonus. If, with respect to any Initial Earnout Year
during the Earnout Period (for clarification, excluding any Extended Earnout
Year), the Net Profit for such year (the “Actual Net Profit”) exceeds the
applicable Earnout Target, Buyer and the Management Sellers agree to cause the
Company to award a performance bonus (the “Net Profit Target Bonus”) in an
aggregate amount equal to40% of the amount by which the Actual Net Profit for
such year exceeds the applicable Earnout Target to the then senior management
team, with the list of the recipients, their respective entitlements to the Net Profit
Target Bonus and the terms and conditions therefor to be agreed upon by Buyer,
the Chief Executive Officer and the President of the Company.
11. No Negative Net Profit. Sellers shall ensure that the Net Profit for each
Initial Earnout Year and each Extended Earnout Year calculated pursuant to the
then effective IFRS is a positive figure.
12. Post-closing Operation of the Company/Business. Subject to the terms of
this Agreement, subsequent to the Closing, neither Buyer nor any Seller shall,
directly or indirectly, take any actions in bad faith that would have the purpose of
manipulating any payment under this Exhibit A.
13. No Security. The parties understand and agree that, except as pursuant to
the Stock Pledge Agreement, (i) the contingent rights to receive the Buyer
Earnout Payment or the Net Profit Target Bonus shall not be represented by any
form of certificate or other instrument, and do not constitute an equity or
ownership interest in Buyer or the Company, (ii) Seller shall not have any rights
as a security holder of Buyer or the Company as a result ofSeller’s contingent
right to receive the Buyer Earnout Payment or the Net Profit Target Bonus, and
(iii) no interest is payable with respect to the Buyer Earnout Payment or the Net
Profit Target Bonus.
EXHIBIT B
FORM OF LEGAL OPINION
(ATTACHED SEPERATELY)
|||
|-|-|
|Subsidiary|JurisdictionofIncorporation|
|GreenTree Applications SRL|Romania|
|Azureus Software Inc.|Delaware|
|GMGP LLC|Delaware|
|SearchMe Technologies, Inc.|Delaware|

Section3.08–FinancialStatements
Buyer and the Company have agreed to modify the accounting treatment pursuant to the CBS Interactive Agreement to amortize user acquisition costs thereunder over a three (3) year period to more accurately reflectusers’ viable lifetime (the “CBSAccountingChange”).
Section3.09–AbsenceofCertainChanges
Reference is made to the CBS Accounting Change.
On July 29, 2015, Microsoft Corporation released its new Edge internet browser (“Edge”). TheCompany’s Software is currently not compatible with Edge. The Company is currently working to enhance the Software to provide for such compatibility.
Amendment to Consulting Agreement, dated August 5, 2015, between the Company and Claude Tolbert d/b/a Three Sticks Management Group, LLC.
Separation Agreement, dated July 27, 2015, between Azureus Software, Inc. and Sarah Hartshorn.
Section3.10–NoUndisclosedLiabilities
The Company anticipates August 2015 invoices payable by the Company to[],[]. and[] in the amounts of$503,183,85,$742,795.70, and$203,966.50, respectively.
Section3.11–IntercompanyAccounts
The Company manages its financial operations on a consolidated basis, provided that, from time to time, the Company effects customary, non-material transfer pricing adjustments with its subsidiary GreenTree Applications SRL.
Section3.12–MaterialContracts
(a)(ii)
Platform& Co-Marketing Agreement, dated as of October 13, 2014.
License Agreement, dated October 4, 2013.
Browser AddOn Private Label Agreement, dated February 13, 2014.
Toolbar and/or Browser AddOn Private Label Agreement, dated May 15, 2014.
Join Venture Agreement, dated November 26, 2014.
(a)(iii)
Publisher Monetization Services Agreement, dated November 29, 2011.
Direct Navigation Distribution Agreement, dated November 14, 2011.
Insertion Order and Additional Terms and Conditions, dated July 25, 2014.
Advertising Software Agreement, dated November 14, 2014.
E-Commerce Platform& Services Agreement, dated December 2, 2011.
Toolbar Private Label Agreement, dated as of November 1, 2012.
Toolbar Private Label Agreement, dated as of April 1, 2013.
Agreement No. DS-3625-06/14, dated June 1, 2014.
Agreement No. DS-3626-06/14, dated July 1, 2014.
(a)(v)
Asset Purchase Agreement, dated September 4, 2014.
Stock Purchase and Sale and Management Agreement, dated February 26, 2014.
Asset Purchase Agreement, dated July 6, 2012.
Asset Purchase Agreement, dated January 2, 2012.
Asset Sale / Purchase and Noncompete Agreement, dated January 31, 2012.
(a)(vi)
Promissory Notes in the aggregate principal amount of$925,000, issued by the Company to[] and
subsequently transferred to[] on January 25, 2013 (collectively, the“[] Notes”). As of the date hereof,$925,000 in principal, along with accrued interest, under the[] Notes remains outstanding.
Promissory Notes in the aggregate principal amount of$925,000, issued by the Company to[] (collectively, the“[] Notes”). A payment of$500,000 was made to principal on December 31,
2014. As of the date hereof,$425,000 in principal, along with accrued interest, remains outstanding.
(ix)
Reference is made to the Yahoo Agreement.
(x) and (xi)
Restricted Stock Purchase Agreement, dated April 27, 2011, between Spigot, Inc. and Rodrigo Sales
Restricted Stock Purchase Agreement, dated April 27, 2011, between Spigot, Inc. and Michael Levit
Exchange Agreement, dated April 30, 2012, between the Company, Rodrigo Sales, Michael Levit and other stockholders of Spigot, Inc., a Delaware corporation
Stock Restriction Agreement, dated April 30, 2012, between Spigot, Inc. and Rodrigo Sales
Stock Restriction Agreement, dated April 30, 2012, between Spigot, Inc. and Michael Levit
Stock Transfer Agreement, dated June 25, 2014, between Spigot, Inc., Rodrigo Sales and The Rodrigo Sales Grantor Retained Annuity Trust
Stock Transfer Agreement, dated June 26, 2014, between Spigot, Inc., Michael Levit and Michael Levit, a married man as his sole and separate property
Stock Transfer Agreement, dated June 26, 2014, between Spigot, Inc., Michael Levit, a married man as his sole and separate property and Michael Levit, Trustee of the Michael Levit 2014 Annuity Trust
Stock Transfer Agreement, dated June 25, 2014, between Spigot, Inc., Rodrigo Sales and Jason Johnson Stock Transfer Agreement, dated June 25, 2014, between Spigot, Inc., Michael Levit and Jason Johnson Reference is made to the Levit Notes
Employment Agreement, dated January 18, 2015, between the Company and Ryan Stephens
|||
|-|-|
|Distributing DataWithin an InternetHaving a Pluralityof Nodes (Jackson)|Registration:8,559,445|

(a)(i) Trademarks:
||||||
|-|-|-|-|-|
|RegistrationNo.|Mark|Country|DateFiled|DateRegistered|
|897353|AZUREUS**|Austria|6/26/2006|6/26/2006|
|1205219|VUZE|Australia|10/18/2007|6/11/2009|
|897353|AZUREUS**|Benelux|6/26/2006|6/26/2006|
|741603|VUZE|Canada|12/4/2007|6/8/2009|
|897353|AZUREUS**|China|6/26/2006|6/26/2006|
|6328854|VUZE|China|10/18/2007|3/28/2010|
|6328855|VUZE|China|10/18/2007|3/28/2010|
|897353|AZUREUS**|Czech Republic|6/26/2006|6/26/2006|
|897353|AZUREUS**|Denmark|6/26/2006|6/26/2006|
|004594453|AZUREUS|EuropeanCommunity|8/17/2005|11/7/2007|
|006406144||EuropeanCommunity|10/30/2007|11/12/2008|
|007235468||EuropeanCommunity|9/15/2008|6/16/2009|
|007448988|STUDIOHD|EuropeanCommunity|8/12/2008|7/21/2009|
|006076806|VUZE|EuropeanCommunity|7/6/2017|4/25/2008|

||||||
|-|-|-|-|-|
|RegistrationNo.|Mark|Country|DateFiled|DateRegistered|
|063402236|AZUREUS**|France|1/2/2006|1/2/2006|
|897353|AZUREUS**|Greece|6/26/2006|6/26/2006|
|897353|AZUREUS|Int’lRegistrationU.S.(3329674)AustriaBeneluxChinaCzech RepublicDenmarkGreeceIrelandItalyJapanKorea (Republicof)PolandPortugalRussianFederationSingaporeSpainSwedenSwitzerlandU.K.|6/26/2006|11/9/2006|
|941197|AZUREUS|Int’lRegistrationU.S.(3547049)Switzerland|12/19/2006|12/6/2007|
|897353|AZUREUS**|Ireland|6/26/2006|6/26/2006|
|897353|AZUREUS**|Italy|6/26/2006|6/26/2006|
|897353|AZUREUS**|Japan|6/26/2006|6/26/2006|
|897353|AZUREUS**|Korea(Republic of)|6/26/2006|6/26/2006|
|4530635|VUZE|Korea(Republic of)|10/19/2007|3/15/2010|
|897353|AZUREUS**|Poland|6/26/2006|6/26/2006|

||||||
|-|-|-|-|-|
|RegistrationNo.|Mark|Country|DateFiled|DateRegistered|
|897353|AZUREUS**|Portugal|6/26/2006|6/26/2006|
|897353|AZUREUS**|RussianFederation|6/26/2006|6/26/2006|
|897353|AZUREUS**|Singapore|6/26/2006|6/26/2006|
|897353|AZUREUS**|Spain|6/26/2006|6/26/2006|
|897353|AZUREUS**|Sweden|6/26/2006|6/26/2006|
|897353|AZUREUS**|Switzerland|6/26/2006|6/26/2006|
|941197|AZUREUS***|Switzerland|12/19/2006|12/19/2006|
|897353|AZUREUS**|UnitedKingdom|06/09/2006|06/26/2006|
|3329674INT’L REG897353|AZUREUS**|United States|6/26/2006|11/6/2007|
|3547049INT’L REG941197|AZUREUS***|United States|12/19/2006|12/16/2008|
|3285557|Azureus**|United States|6/7/2005|8/28/2007|
|4488730||United States|4/23/2010|2/25/2014|
|3785559||United States|7/30/2008|5/4/2010|
|3722923||United States|10/22/2007|12/08/2009|
|3700207|STUDIOHD|United States|11/25/2008|10/20/2009|
|3493245|VUZE|United States|1/11/2007|8/26/2008|

||||||
|-|-|-|-|-|
|RegistrationNo.|Mark|Country|DateFiled|DateRegistered|
|3415468|VUZE|United States|1/11/2007|4/22/2008|

**COVERED BYINT’L REGISTRATION No. 897353
***COVERED BYINT’L REGISTRATION No. 941197
(a)(i) Domain Name Registrations:
See attached list of domain names owned by the Company and its subsidiaries.
Pursuant to its standard form agreements and other agreements with its customers and partners set forth in Section 3.12 above, the Company customarily grants to its customers and partners a limited, non- exclusive and non-transferable license to use theCompany’s Software solely for purposes of fulfilling the parties obligations under such agreements.
(d) and (k)
On July 22, 2014, the Company received a claim from Mindjet Corporation (“Mindjet”) alleging that theCompany’s use of the term “Spigot” and its previously used lightbulb logo design (the “Lightbulb Logo”) infringed uponMindjet’s trademarks. The Company discussed this claim with Mindjet in July and August 2014 and has not received or sent any further communications to Mindjet regarding the matter. The Company no longer uses the Lightbulb Logo.
(l)
The Company does not place patent notices on its Software.
Section 3.21– Licensesa ndP ermits
||||
|-|-|-|
|Entity|License/Permit|Issuing Governmental Authority|
|Azureus Software, Inc.|Nevada State Business License|Nevada Secretary of State|
|GMGP, LLC|Nevada State Business License|Nevada Secretary of State|
|Spigot, Inc.|Nevada State Business License|Nevada Secretary of State|
|Spigot, Inc.|Certificate of Qualification|Florida Department of State|

Section 3.22– Receivables
The Company received an invoice, effective June 30, 2015, from Yahoo! that contains a discrepancy with respect to amounts payable by Yahoo! to the Company for the period ended June 30, 2015. The Company anticipates that such invoice will be corrected by Yahoo! and that the final amount payable by Yahoo! will be consistent with amounts reflected on the Balance Sheet.
Section 3.25- Employees
Section 3.26– Employee Benefit Plans
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|-|-|
|Plan|Plan Type|
|Company 401(k) Plan, administered by Empower Retirement (a divisionof Great West Life & Annuity Insurance Company)|US, Company Plan|
|Anthem Blue Cross Premium Healthcare Plan|US, Company Plan|
|Anthem Dental Blue Platinum Plan|US, Company Plan|
|VSP Vision Plan|US, Company Plan|
|Anthem Blue Cross Life Insurance|US, Company Plan|

Reference is made to the change of control bonus payments disclosed above in Section 3.25(d) above. Section 3.30– Change of Control Agreements
Reference is made to the disclosure regarding change of control bonuses in Section 3.25(d) above.