**Exhibit 10.5**

 

**AMENDMENT NO. 2 TOASSET PURCHASE AGREEMENT**

 

This AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT(this “Amendment”), dated as of October 16, 2003, is made and entered into byand between INTERNATIONAL INTEGRATEDINCORPORATED, a British Virgin Islands company (“Purchaser”), * * *****(“Seller”)and INTERNATIONAL INTEGRATED DEVELOPMENT COMPANY, a Delaware corporation(“Servicer”).

 

**RECITALS**

 

WHEREASPurchaser and Seller are parties to that certain Asset Purchase Agreement,dated April 19, 2002 (as amended pursuant to Amendment No. 1 to Asset PurchaseAgreement dated as of November 20, 2002, the “Agreement”), pursuant to which,Purchaser agreed to purchase certain assets and assume certain liabilities ofSeller.  Capitalized terms used in thisAmendment but not defined herein shall have the same meanings given to suchterms in the Agreement.

 

WHEREASpursuant to the Agreement, Purchaser agreed to make certain payments to beapplied to the Purchase Price, including Weekly Payments in the amount of *** * ***beginning on Thursday April 25, 2002and on each Thursday thereafter until the first to occur of the Closing,termination of the Agreement, or January 1, 2004.

 

WHEREASSeller and Purchaser have agreed to amend the Purchase Price to provide for asingle additional lump sum cash payment and a stock payment, each to be paid inaccordance with this Agreement.

 

*** * ***

 

WHEREASSeller and Purchaser have agreed that Seller will engage Servicer to assistSeller in *** * *******inaccordance with the terms of this Amendment.

 

WHEREASSeller and Purchaser have agreed to terminate all Weekly Payments and haveagreed that Purchaser shall be responsible for funding and paying any relatedcosts associated with *** * ***, whichhave been previously the Seller’s responsibility.

 

WHEREASPurchaser and Seller desire to amend the Agreement as hereinafter provided.

 

NOW, THEREFORE,in consideration of the foregoing and of the covenants and agreements containedherein, and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties hereto agree herebyas follows:

 

1.     Deposits.  Seller acknowledges and agrees that, as of October 16, 2003, thesum total of the Initial Deposit, the Execution Deposit and all Weekly Depositsequals *** * *******(the sum of all suchpayments are referred to herein as the “Payments to Date”).

 

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*** * * = Confidential TreatmentRequested**

 

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2.     Amendment to the Purchase Price; ClosingDate; Payment.

 

2.1           The Purchase Price is hereby amendedto equal the sum of (a) the Payments to Date, (b) * * *****in cash (the “CashPayment”), and (c) the Equity Shares (as defined in Section 2.3 below).  Payment of the Purchase Price, as amendedhereby shall be, full and timely performance of Purchaser’s obligations underthe Agreement.

 

2.2           The Closing Date shall be a date notlater than 30 calendar days following the date on which both of the followingevents shall have occurred:  (a) *** * ***.

 

2.3           At the Closing Purchaser shall (a)pay to Seller the Cash Payment and (b) deliver to Seller certificatesrepresenting the Equity Shares, duly issued in Seller’s name or in the name ofSeller’s nominee, with such legends thereon as shall be appropriate underapplicable securities law. *** * ***.

 

3.     Transition Services.

 

3.1           Seller hereby retains Servicer as itssole and exclusive supplier of management services for the purpose ofconducting all operations and managing all assets of Seller other than thePrincipal Obligations (collectively, the “Operations”) until the Closing.  The Operations shall specifically includeall operations, asset administration, expenditures, and other actions inconnection with *** * ***.

 

3.2           Servicer agrees to provide suchpersonnel that, in addition to Seller’s personnel, are in Servicer’s judgmentreasonably necessary or appropriate to manage the Operations until theClosing.  Servicer shall otherwise beentitled to exercise its reasonable business judgment in managing theOperations and shall be under no other obligation to Seller or its officers,directors or shareholders.

 

3.3           Seller agrees to cooperate, and shalluse its best efforts to cause all of its employees, consultants and otheragents and representatives to cooperate, with Servicer in conducting theOperations.  In addition, Seller shallremain responsible, in cooperation with Servicer, for the timely and efficientconduct of the Principal Obligations and agrees to use its reasonable bestefforts to keep available the services of its current officers, key employees andconsultants and to preserve the current relationships of Seller with such ofthe customers, suppliers, regulators and other persons and entities with whichSeller has significant business relations as is reasonably necessary topreserve substantially intact its business organization.  As used herein, the “Principal Obligations”shall be the obligations of Seller under the Agreement, as amended by thisAmendment, and all actions deemed necessary or appropriate by Servicer to betaken by Seller in * * *.  Except forany conduct necessary to discharge the Principal Obligations and which areapproved by Servicer and liabilities incurred or obligations created byServicer on Seller’s behalf after the date hereof and which will be funded byPurchaser, Seller shall not incur any liability or create any obligation fromor after the date hereof until after the Closing.

 

3.4           Purchaser, at no risk, cost orliability to Seller, agrees to provide such funding to Seller as Servicer shallreasonably require to manage the Operations, including the payment of amountsdue to Seller’s employees, including taxes and related benefits, andconsultants from and after the date hereof, other than sums due to any employeeor consultant of

 

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Seller pursuant to an agreement who have provided services to Sellerprior to the date hereof and payable in connection with or related to the * * *****(the“Success Fees”).  To accommodate thefunding required hereunder and Servicer’s administration of the payment ofSeller’s operating liabilities and the expenses of the Operations, Seller shallon or before November 1, 2003 establish a mutually acceptable operating bankaccount with appropriate signatories designated by Servicer.  Seller shall maintain, without alteration,such account until the Closing and thereafter for such time as is mutuallyagreed to accommodate the transition of the business and operations of Sellerto Purchaser.

 

4.     Indemnification.  In consideration for the change in thisPurchase Price and the elimination of the obligation to make Weekly Deposits,the provisions of Sections 1.4 and 5.6 are hereby modified and amended asfollows:

 

4.1           The indemnification provided inSection 1.4 is hereby amended and restated in its entirety to provide asfollows:

 

Except with respect to the AssumedLiabilities and the liabilities disclosed to Purchaser in Schedule 4.1 to thisAmendment (collectively, the “Seller Indemnified Liabilities”) and provided thata Closing occurs, Seller agrees to indemnify and hold harmless Purchaser, itssubsidiaries and its shareholders from and against any loss, liability orexpense arising from or related to (i) the Assets which arise prior to the datehereof or (ii) the Success Fees.  Theforegoing indemnity shall include but not be limited to any loss, liability orexpense arising from or related to claims of creditors of Seller or any of itssubsidiaries.  The amount of anyindemnification due pursuant to this Section shall be calculated after takinginto account the amount of all insurance, cash or other direct financialbenefits paid to any indemnified person (including any such benefits paid bythird parties) and after taking into account the United States federal, stateand local and foreign national, provincial and local tax benefits or detrimentsto such indemnified person, calculated assuming such indemnified person was ataxpayer subject to tax at the highest marginal rate in effect when the paymentis made, of the payments made in respect of such loss, claim, demand, cost orexpense giving rise to the indemnification and the payments, includingindemnification payments made in respect thereto.

 

4.2           Except with respect to the SellerIndemnified Liabilities and provided that a Closing occurs, Purchaser agrees toindemnify and hold harmless Seller, its subsidiaries and its shareholders fromand against any loss, liability or expense arising from or related to theAssets which arise prior to or after the date hereof.  The foregoing indemnity shall include but not be limited to anyloss, liability or expense arising from or related to claims of creditors ofSeller or Purchaser or any of its subsidiaries that are not Seller IndemnifiedLiabilities.  The amount of any indemnificationdue pursuant to this Section shall be calculated after taking into account theamount of all insurance, cash or other direct financial benefits paid to anyindemnified person

 

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* * * = **Confidential TreatmentRequested**

 

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(including any such benefits paid by third parties) and after takinginto account the United States federal, state and local and foreign national,provincial and local tax benefits or detriments to such indemnified person,calculated assuming such indemnified person was a taxpayer subject to tax atthe highest marginal rate in effect when the payment is made, of the paymentsmade in respect of such loss, claim, demand, cost or expense giving rise to theindemnification and the payments, including indemnification payments made inrespect thereto.

 

4.3           Section 5.6(a)(1)(C) of the Agreementis hereby amended and restated in its entirety to provide as follows:

 

(C)           exceptwith respect to the Seller Indemnified Liabilities, the business, operations orassets of Seller prior to the date of this Amendment or the actions oromissions of Seller’s directors, officers, shareholders, employees or agentsprior to the Closing Date (other than such actions or omissions taken at thedirection of Servicer);

 

4.4           Purchaser hereby covenants and agreesto indemnify, defend, protect and hold harmless Seller and its officers,directors, employees, shareholders, assigns, successors and affiliates(individually, an “Indemnified Party” and collectively, “Indemnified Parties”)from, against and in respect of:

 

(a)           allliabilities, losses, claims, damages, punitive damages, causes of action,lawsuits, administrative proceedings (including informal proceedings),investigations, audits, demands, assessments, adjustments, judgments,settlement payments, deficiencies, penalties, fines, interest (includinginterest from the date of such damages) and costs and expenses (includingreasonable attorneys’ fees and disbursements of every kind, nature anddescription) (collectively, “Damages”) suffered, sustained, incurred or paid bythe Indemnified Parties in connection with, resulting from or arising out of,directly or indirectly:

 

(1)           any breach of any representation orwarranty of Purchaser set forth in this Agreement (as amended) or any Scheduleor certificate delivered by or on behalf of Purchaser in connection herewith;

 

(2)           any nonfulfillment of any covenant oragreement by Purchaser under the Agreement (as amended);

 

(3)           except as provided in Section5.6(a)(1)(C) of the Agreement (as amended), the Seller Indemnified Liabilitiesand the business, operations or assets of Seller prior to the Closing Date orthe actions or omissions of Purchaser’s or Servicer’s directors, officers,shareholders, employees or agents prior to or after the date hereof; and

 

(4)           any and all Damages incident to anyof the foregoing or to the enforcement of this Section 4.4.

 

4.5           Notwithstanding anything to thecontrary in Section 4.4 above:

 

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(a)           there shall be no liability forindemnification under Section 4.4 unless and until, the aggregate amount ofDamages exceeds $10,000 upon which Purchaser shall be liable for all Damagesincluding the $10,000 (the “Indemnification Threshold”).

 

(b)           the indemnification obligations underSection 4.4, or under any certificate or writing furnished in connectionherewith, shall terminate at the date that is the later of clause (1) or (2) ofthis Section 4.4(b):

 

(1)           the third anniversary of the ClosingDate; or

 

(2)           the final resolution of Claims (asdefined in Section 4.6 below) pending as of the date described in clause (1) ofthis Section 4.5(b) (such Claims referred to as “Pending Claims”).

 

4.6           All claims or demands forindemnification under Section 4.4 (“Claims”) shall be asserted and resolved asfollows:

 

(a)           In the event that any IndemnifiedParty has a Claim against any party obligated to provide indemnificationpursuant to Section 4.4 hereof (the “Indemnifying Party”) which does notinvolve a Claim being asserted against or sought to be collected by a thirdparty, the Indemnified Party shall with reasonable promptness notify Purchaserof such Claim, specifying the nature of such Claim and the amount or theestimated amount thereof to the extent then feasible (the “Claim Notice”).  If Purchaser does not notify the IndemnifiedParty within 30 days after the date of delivery of the Claim Notice thatPurchaser disputes such Claim, with a detailed statement of the basis of suchposition, the amount of such Claim shall be conclusively deemed a liability ofPurchaser hereunder.  In case anobjection is made in writing in accordance with this Section 4.6(a), theIndemnified Party shall respond in a written statement to the objection within30 days and, for 60 days thereafter, attempt in good faith to agree upon therights of the respective parties with respect to each of such Claims (and, ifthe parties should so agree, a memorandum setting forth such agreement shall beprepared and signed by both parties).

 

(b)           (1) In the event that any Claim forwhich Purchaser would be liable to an Indemnified Party hereunder is assertedagainst an Indemnified Party by a third party (a “Third-Party Claim”),the Indemnified Party shall deliver a Claim Notice to Purchaser.  Purchaser shall have 30 days from the dateof delivery of the Claim Notice to notify the Indemnified Party (i) whether theIndemnifying Party disputes liability to the Indemnified Party hereunder withrespect to the Third-Party Claim, and, if so, the basis for such adispute, and (ii) if such party does not dispute liability, whether or notPurchaser desires, at the sole cost and expense of Purchaser, to defend againstthe Third-Party Claim, provided that the Indemnified Party is herebyauthorized (but not obligated) to file any motion, answer or other pleading andto take any other action which the Indemnified Party shall deem necessary orappropriate to protect the Indemnified Party’s interests.

 

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(c)           In the event that Purchaser timelynotifies the Indemnified Party that Purchaser, as the Indemnifying Party, doesnot dispute Purchaser’s obligation to indemnify with respect to the Third-PartyClaim, Purchaser shall defend the Indemnified Party against such Third-PartyClaim by appropriate proceedings, provided that, unless the Indemnified Partyotherwise agrees in writing, Purchaser may not settle any Third-PartyClaim (in whole or in part) if such settlement does not include a complete andunconditional release of the Indemnified Party.  Purchaser shall have the right to control all aspects of anylitigation, including, but not limited to, the final consent with respect toany settlement discussions (in accordance with the previous sentence) as wellas the selection of counsel.  If theIndemnified Party desires to participate in, but not control, any such defenseor settlement the Indemnified Party may do so at its sole cost and expense. IfPurchaser elects not to defend the Indemnified Party against a Third-PartyClaim, whether by failure of such party to give the Indemnified Party timelynotice as provided herein or otherwise, then the Indemnified Party, withoutwaiving any rights against such party, may settle or defend against such Third-PartyClaim in the Indemnified Party’s sole discretion and the Indemnified Partyshall be entitled to recover from Purchaser the amount of any settlement orjudgment and, on an ongoing basis, all indemnifiable costs and expenses of theIndemnified Party with respect thereto, including interest from the date suchcosts and expenses were incurred.

 

(d)           If at any time, in the reasonableopinion of the Indemnified Party, notice of which shall be given in writing toPurchaser, any Third-Party Claim seeks material prospective relief whichcould have an adverse effect on any Indemnified Party or Seller or anyaffiliate, the Indemnified Party shall have the right but not the obligation tocontrol or assume (as the case may be) the defense of any such Third-PartyClaim and the amount of any judgment or settlement and the reasonable costs andexpenses of defense shall be included as part of the indemnificationobligations of Purchaser hereunder. If the Indemnified Party elects to exercisesuch right, Purchaser shall have the right to participate in, but not control,the defense of such Third-Party Claim at the sole cost and expense ofSeller.

 

(e)           Nothing herein shall be deemed toprevent the Indemnified Party from making a Claim, and an Indemnified Party maymake a Claim hereunder, for potential or contingent Damages provided the ClaimNotice sets forth the specific basis for any such potential or contingent claimor demand to the extent then feasible and the Indemnified Party has reasonablegrounds to believe that such Claim may be made.

 

(f)            Subject to the provisions of Section4.5, the Indemnified Party’s failure to give reasonably prompt notice asrequired by this Section 4.6 of any actual, threatened or possible claim ordemand which may give rise to a right of indemnification hereunder shall notrelieve Purchaser of any liability which Purchaser may have to the IndemnifiedParty unless and to the extent the failure to give such notice prejudicedPurchaser.

 

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(g)           The amount of any indemnification dueto an Indemnified Party pursuant to Section 4.4 shall be calculated aftertaking into account the amount of all insurance, cash or other direct financialbenefits payable to such Indemnified Party (including any such benefits payableto third parties) and after taking into account the United States federal,state and local and foreign national, provincial and local tax benefits ordetriments to the Indemnified Party, as the case may be, calculated assumingthe Indemnified Party were a taxpayer subject to tax at the highest marginalrate in effect when the payment is made, of the payments made in respect ofsuch loss, claim, demand, cost or expense giving rise to the indemnificationand the payments, including indemnification payments made in respect thereto.Seller or its affiliates shall, in addition to the obligations of Purchaserpursuant to Section 4.4, have a right to set off the amount of anyindemnification due to an Indemnified Party pursuant to Section 4.4, as thecase may be, against any payment to Purchaser or its affiliates from Seller orits affiliates under the Agreement (as amended) or otherwise, if and when suchpayment obligation ever comes due at any time in the future.

 

5.     Effect.  Except as and to the extent amended by this Amendment, theAgreement shall remain in full force and effect in accordance with its terms.

 

6.     Miscellaneous.

 

6.1           Successors and Assigns.  This Amendment shall be binding upon andinure to the benefit of the parties hereto and their respective successors andassigns.  No party hereto may assignthis Amendment or any rights or obligations hereunder without the prior writtenconsent of the other party; provided, however, that Purchaser and Servicer mayassign their respective rights and obligations hereunder to an affiliatewithout the consent of Seller.

 

6.2           Entire Agreement.  This Amendment and the Agreement, asamended, sets forth the entire understanding of the parties hereto with respectto the transactions contemplated hereby and thereby.

 

6.3           Amendment; Waiver.  This Amendment shall not be amended ormodified except by a written instrument duly executed by each of the partieshereto.  Any extension or waiver by anyparty of any provision hereto shall be valid only if set forth in an instrumentin writing signed on behalf of such party.

 

6.4           Counterparts.  This Amendment may be executed in any numberof counterparts and any party hereto may execute any such counterpart,including by electronic facsimile, each of which when executed and deliveredshall be deemed to be an original, and all of which counterparts taken togethershall constitute but one and the same instrument.

 

6.5           Governing Law.  This Amendment and the rights andobligations of the parties hereunder shall be governed by and construed andinterpreted in accordance with the laws of the State of California, withoutregard to the conflict of laws principles thereof.

 

6.6           Severability.  If one or more provisions of this Amendmentare held to be unenforceable under applicable law, such provision shall beexcluded from this Amendment and 

 

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the balance of the Amendment shall be interpreted as if such provisionwere so excluded and shall be enforceable in accordance with its terms.

 

[Signaturepage follows]

 

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In WITNESS WHEREOF,the parties hereto have executed this Amendment No. 2 to Asset PurchaseAgreement as of the date first above written.

 
|   | **INTERNATIONAL INTEGRATED**                                                |
|--------|-----------------------------------------------------------------------------|
|   | **INCORPORATED**, a British Virgin  Islands company                         |
|   |                                                                        |
|   | By:                                                                         |   |   |
|   | Name:  Donald K. McGhan                                                |
|   | Title:  Chairman                                                       |
|   |                                                                        |
|   | **INTERNATIONAL INTEGRATED  DEVELOPMENT COMPANY**,  a  Delaware corporation |
|   |                                                                        |
|   | By:                                                                         |   |   |
|   | Name:  Donald K. McGhan                                                |
|   | Title:  Chairman                                                       |
|   |                                                                        |
|   | * * *                                                                       |
|   |                                                                        |
|   | By:                                                                         |   |   |
|   | Name:  * * *                                                           |
|   | Title:  President                                                      |

 

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* * * = **Confidential TreatmentRequested**

 

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