AGREEMENT AND PLAN OF MERGER AMONG ONSTREAM MEDIA CORPORATION, ONSTREAM MERGER CORP., NARROWSTEP INC. AND W. AUSTIN LEWIS IV, AS STOCKHOLDER REPRESENTATIVE
Exhibit
2.1
AMONG
ONSTREAM
MEDIA CORPORATION, ONSTREAM MERGER CORP.,
NARROWSTEP
INC.
AND
X. XXXXXX XXXXX XX, AS STOCKHOLDER REPRESENTATIVE
Dated
as of May 29, 2008
THIS
AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of May 29, 2008,
is among Onstream Media Corporation (“Parent”), a Florida corporation, Onstream
Merger Corp. (“Merger Sub”), a Delaware corporation, Narrowstep Inc. (the
“Company”), a Delaware corporation, and X. Xxxxxx Xxxxx XX (the “Stockholder
Representative”) solely for purposes of Sections 1.13, 1.14, 8.4, 8.5 and
Article IX.
R
E C I T A L S
A. The
parties wish to effect the acquisition of the Company by Parent through a merger
(the “Merger”) of Merger Sub with and into the Company on the terms and subject
to the conditions set forth herein.
B. The
respective Boards of Directors of Parent, Merger Sub and the Company have
approved the Merger upon the terms and subject to the conditions of this
Agreement.
C. The
Board
of Directors of the Company has (i) determined that it is fair to and in the
best interests of the Company and the Company Stockholders (as defined herein)
to enter into this Agreement, (ii) approved this Agreement in accordance with
the General Corporation Law of the State of Delaware (the “DGCL”), and (iii)
resolved to recommend the adoption of this Agreement by the Company
Stockholders.
D. The
respective Boards of Directors of Parent and Merger Sub have each determined
that it is in the best interests of their respective companies and shareholders
to enter into this Agreement and the Board of Directors of Parent has resolved
to recommend the approval of the Charter Amendment (as defined herein), the
Share Issuance (as defined herein) and the CVR Issuance (as defined herein)
by
the Parent Shareholders (as defined herein).
NOW,
THEREFORE, In consideration of the mutual representations, warranties and
covenants contained herein, the Parent, Merger Sub and the Company hereby agree
as follows:
ARTICLE
I
- THE
MERGER
1.1 The
Merger.
(a) Upon
the
terms and subject to the conditions hereof, and in accordance with the DGCL,
Merger Sub shall be merged with and into the Company. The Merger shall occur
at
the Effective Time (as defined herein). Following the Merger, the Company shall
continue as the surviving corporation (sometimes referred herein as the
“Surviving Corporation”) and the separate corporate existence of Merger Sub
shall cease.
(b) The
name
of the Surviving Corporation shall be Narrowstep Inc.
1
1.2 Effective
Time.
(a) The
closing of the Merger (the “Closing”) shall take place at 10:00 a.m., Eastern
time, on a date to be specified by Parent and the Company (the “Closing Date”),
which shall be no later than the second business day after satisfaction or
waiver of the conditions set forth in Articles V, VI and VII (other than
delivery of items to be delivered at the Closing and other than satisfaction
of
those conditions that by their nature are to be satisfied at the Closing, it
being understood that the occurrence of the Closing shall remain subject to
the
delivery of such items and the satisfaction or waiver of such conditions at
the
Closing), at the offices of Xxxxxxxx & Xxxx LLP, 000 Xxxx Xxxx
Xxxxxxxxx, Xxxxx 0000, Xxxx Xxxxxxxxxx, Xxxxxxx, unless another date, place
or
time is agreed to in writing by Parent and the Company.
(b) At
the
Closing, the parties hereto shall cause the Merger to be consummated by filing
a
certificate of merger (the “Certificate of Merger”) with the Secretary of State
of the State of Delaware (the “Secretary of State”), in such form as required
by, and executed and filed in accordance with, the relevant provisions of the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State, or such later time as is specified in the Certificate of
Merger and as is agreed to by the parties hereto, being hereinafter referred
to
as the “Effective Time”) and shall make all other filings or recordings required
under the DGCL in connection with the Merger.
1.3 Effects
of the Merger.
The
Merger shall have the effects set forth in this Agreement and the applicable
provisions of the DGCL.
1.4 Certificate
of Incorporation and By-Laws.
Subject
to Section 4.15(a), the Certificate of Incorporation and By-Laws of the Company,
in each case as in effect immediately prior to the Effective Time shall be
amended to read in their entirety as set forth on Exhibits A and B attached
hereto and, as so amended, shall be the Certificate of Incorporation and By-Laws
of the Surviving Corporation until thereafter changed as provided therein or
by
applicable law.
1.5 Directors
and Officers.
The
directors and officers of Merger Sub immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, in each case,
until the earlier of his or her resignation or removal or otherwise ceasing
to
be a director or officer, as the case may be, or until his or her respective
successor is duly elected or appointed and qualified. Each director of the
Company immediately prior to the Effective Time shall submit his or her
resignation at the Closing to be effective at the Effective Time.
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1.6 Conversion
of Common Stock.
(a) At
the
Effective Time, by virtue of the Merger and without any action on the part
of
Parent, Merger Sub, the Company or holders of the following
securities:
(i) Subject
to adjustment for fractional shares as provided in Section 1.6(a)(ii), each
share of Company common stock, $0.000001 par value per share (the “Company
Common Stock”), outstanding immediately prior to the Effective Time, other than
(A) Dissenting Shares (as defined herein), (B) Cancelled Shares (as defined
herein), (C) shares held by any Company Subsidiary (as defined in Section
2.4(a)) (“Subsidiary Held Shares”) and (D) outstanding shares issued under
Company Non-accelerated Restricted Stock Awards, shall be automatically
converted into and become the right to receive: (a) a number of duly authorized,
validly issued, fully paid and nonassessable shares of Parent common stock,
$.0001 par value per share (“Parent Common Stock”), equal to the greater of the
Exchange Ratio (as defined herein) and the Minimum Exchange Ratio (as defined
herein); and (b) one contingent value right (a “Contingent Value Right”) to be
issued by Parent pursuant to the Contingent Value Rights Agreement (the “CVR
Agreement”) in the form of Exhibit C hereto. “Exchange Ratio” means the quotient
obtained by dividing (A) the sum of (x) the Annualized Company Revenue Shares
(as defined herein) plus (y) the greater of (1) the amount of cash and cash
equivalents held by the Company immediately prior to the Effective Time and
(2)
ONE MILLION FIVE HUNDRED THOUSAND (1,500,000) by (B) the total number of shares
of Company Common Stock outstanding immediately prior to the Effective Time
(including any outstanding shares
issued under
Company
Restricted Stock Awards (as defined herein) and excluding Cancelled Shares
and
Subsidiary Held Shares). “Minimum Exchange Ratio” means the quotient obtained by
dividing (X) TEN MILLION FIVE HUNDRED THOUSAND (10,500,000) by (Y) the total
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time (including any outstanding shares
issued under
Company
Restricted Stock Awards and excluding Cancelled Shares and Subsidiary Held
Shares). The (1) shares of Parent Common Stock payable pursuant to this Section
1.6(a)(i), as adjusted for fractional shares pursuant to Section 1.6(a)(ii);
(2)
shares of Parent Common Stock payable pursuant to Section 1.6(a)(iv), as
adjusted for fractional shares pursuant to Section 1.6(a)(ii); (3) shares of
Parent Common Stock payable pursuant to Section 1.7(b)(i) and (4) any additional
shares of Parent Common Stock issued in connection with the Contingent Value
Rights, are referred to collectively as the “Merger Consideration.” The Merger
Consideration shall not exceed twenty million (20,000,000) shares of Parent
Common Stock.
(ii) No
fractional shares of Parent Common Stock shall be issued pursuant to this
Agreement. In lieu of fractional shares, each stockholder who would otherwise
have been entitled to a fraction of a share of Parent Common Stock hereunder
(after aggregating all fractional shares to be received by such stockholder),
shall receive an amount equal to the Parent Common Stock Price (as defined
herein) multiplied by the fraction of a share of Parent Common Stock to which
such holder would otherwise be entitled. “Parent Common Stock Price” means the
average of the last reported sale prices of the Parent Common Stock for the
fifteen consecutive trading days ending on the fifth trading day prior to the
Effective Time on the primary exchange on which the Parent Common Stock is
traded.
(iii) Notwithstanding
anything in the foregoing to the contrary, if between the date of this Agreement
and the Effective Time there is a change in the number or class of issued and
outstanding shares of Parent Common Stock or Company Common Stock as the result
of reclassification, subdivision, recapitalization, stock split (including
reverse stock split), stock dividend, combination or exchange of shares, the
Merger Consideration shall be correspondingly adjusted to reflect such
event.
(iv) Subject
to adjustment for fractional shares as provided in Section 1.6(a)(ii), each
share of Series A preferred stock, par value $0.000001 per share, of the Company
(the “Company Series A Preferred Stock”), outstanding immediately prior to the
Effective Time, shall be automatically converted into and become the right
to
receive: (a) a number of duly authorized, validly issued, fully paid and
nonassessable shares of Parent Common Stock equal to the Preferred Stock
Exchange Ratio (as defined herein). "Preferred Stock Exchange Ratio" means
the
quotient obtained by dividing SIX HUNDRED THOUSAND (600,000) by the number
of
shares of Company Series A Preferred Stock outstanding immediately prior to
the
Effective Time.
3
(b) Each
share of Company Common Stock that is owned, directly or indirectly, by Parent
or Merger Sub immediately prior to the Effective Time, if any, or that is held
in treasury by the Company immediately prior to the Effective Time
(collectively, the “Cancelled Shares”) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and shall
cease to exist, and no consideration shall be delivered in exchange for such
cancellation.
(c) Each
issued and outstanding share of the capital stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into
and
become one fully paid and nonassessable share of common stock, par value $0.01
per share, of the Surviving Corporation.
(d) “Annualized
Company Revenue Shares” means a number of shares of Parent Common Stock equal to
the product of (A) two (2) multiplied by (B) the amount of the Annualized
Company Revenue.
(e) “Annualized
Company Revenue” means an amount equal to four multiplied by the Quarterly
Xxxxxxxx (as defined herein). For purposes of this Agreement, “Quarterly
Xxxxxxxx” means an amount equal to (A) the product of (x) 0.92 and (y) the
Company’s consolidated recognized revenue for the fiscal quarter ended May 31,
2008 (such period, the “Prior Full Period”), as determined in accordance with
generally accepted accounting principles, applied on a basis consistent with
the
Company’s financial statements, plus (B) the product of (i) three (3) multiplied
by (ii) the aggregate of the per month recurring fees and charges (whether
billed or unbilled) payable to the Company for all Eligible Contracts (as
defined below) to which the Company or any subsidiary of the Company is a party
(whether entered into before, during or after the Prior Full Period) for the
initial month of each such contract during which a monthly fee is charged,
but
in the case of this clause (B) only to the extent such amounts have not been
included in the amount calculated pursuant to the immediately preceding clause
(A) less (C) (i) to the extent included in the immediately preceding clause
(A),
any non-recurring fees from a single customer that exceed in the aggregate
for
such customer $212,000; and (ii) to the extent included in the immediately
preceding clause (A), revenues from customers who have terminated contracts
or
agreements (whether terminated before, during or after the Prior Full Period)
on
or prior to the Effective Time. “Eligible Contracts” means those contracts for
which (i) the Company or any subsidiary of the Company has received payment
in
full of “set-up” fees payable to the Company or any subsidiary of the Company
thereunder; and (ii) the Company or any subsidiary of the Company has verified
the credit history of the other party to the contract by performing a credit
check consistent with the Company’s past practices.
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(f) As
of the
Effective Time, the Surviving Corporation shall assume the obligations of the
Company under the warrant agreements set forth on the Company Disclosure
Schedule in respect of the Company Warrants (as defined herein). The holders
of
the Company Warrants shall continue to have, and be subject to, the same terms
and conditions set forth in such Company Warrants (including, without
limitation, any provision contained therein relating to the repurchase or
redemption thereof), except that each such Company Warrant shall (A) (1) in
the
case of a Company Warrant that is not a Company 2007 Warrant (as defined
herein), be exercisable for (i) that number of shares of Parent Common Stock
equal to the product of the number of shares of Company Common Stock covered
by
the Company Warrant immediately prior to the Effective Time multiplied by the
greater of the Exchange Ratio and the Minimum Exchange Ratio, and (ii) the
per
share exercise price for the shares of Parent Common Stock issuable upon the
exercise of such assumed Company Warrant shall be equal to the quotient obtained
by dividing the exercise price per share of Company Common Stock specified
in
such Company Warrant in effect immediately prior to the Effective Time by the
greater of the Exchange Ratio and the Minimum Exchange Ratio, rounding the
resulting exercise price down the nearest whole cent; and (2) in the case of
a
Company 2007 Warrant, be exercisable for that number of shares of Parent Common
Stock, and at a per share exercise price, as set forth in the terms of the
Company 2007 Warrants; and (B) in the case of all Company Warrants, upon such
exercise described in the immediately preceding clause (A), without any further
payment required on the part of the holders, receive such number of Contingent
Value Rights that such holders would have been entitled to receive upon
conversion of the resulting shares of Company Common Stock in connection with
the Merger if such Company Warrants had been exercised by such holders
immediately prior to the Effective Time. Notwithstanding anything to the
contrary, nothing contained herein shall require Parent to issue fractional
shares of Parent Common Stock upon the exercise of any Company Warrant. At
the
Effective Time, Parent shall reserve for issuance the number of shares of Parent
Common Stock that will become issuable upon the exercise of such Company
Warrants pursuant to this Section 1.6(f) assuming the full exercise of all
Company Warrants. Notwithstanding anything in the foregoing to the contrary,
in
the event a holder exercises a Company Warrant (other than a Company 0000
Xxxxxxx) prior to the time of a final determination pursuant to Section 1.13
that the Exchange Ratio is greater than the Minimum Exchange Ratio, then as
soon
as practicable following such determination Parent shall issue and deliver
to
such holder a certificate representing that number of whole shares of Parent
Common Stock into which the Company Warrants so exercised shall have been
converted pursuant to the provisions of this Agreement applying the Exchange
Ratio (as opposed to the Minimum Exchange Ratio) under this Section 1.6(f)
less
any
shares of Parent Common Stock issued and delivered to such holder respect of
such prior exercise. Holders of Company Warrants who exercise such warrants
subsequent to the Final Exercise Date (as defined in the CVR Agreement) shall
not be entitled to Contingent Value Rights. For purposes of this Agreement,
"Company 2007 Warrants" means those Company Warrants issued pursuant to that
certain Purchase Agreement, dated as of August 8, 2007, as amended, by and
among
the Company and the purchasers named therein.
(g) Notwithstanding
anything in this Agreement to the contrary, any shares of Company Common Stock
which are issued and outstanding immediately prior to the Effective Time and
are
held by a person (a “Dissenting
Stockholder”)
who
has not voted in favor of or consented to the adoption of this Agreement and
has
complied with all the provisions of Section 262 of the DGCL concerning the
right
of holders of shares of Company Common Stock to require appraisal of their
Shares (“Dissenting
Shares”)
shall
not be converted into the right to receive the applicable Merger Consideration,
and the holders of such Dissenting Shares shall be entitled to receive payment
of the fair value of such Dissenting Shares in accordance with the provisions
of
Section 262 of the DGCL; provided, however, that if such Dissenting Stockholder
withdraws its demand for appraisal or fails to perfect or otherwise loses its
right of appraisal, in any case pursuant to Section 262 of the DGCL, its shares
of Company Common Stock shall be deemed to be converted as of the Effective
Time
into the right to receive the applicable Merger Consideration for each such
share of Company Common Stock in accordance with the provisions of this
Agreement. At the Effective Time, any holder of Dissenting Shares shall cease
to
have any rights with respect thereto, except the rights set forth in Section
262
of the DGCL and as provided in the previous sentence. The Company shall give
Parent prompt notice of any demands for appraisal of shares of Company Common
Stock received by the Company, withdrawals of such demands and any other
instruments served pursuant to Section 262 of the DGCL and shall give Parent
the
opportunity to participate in all negotiations and proceedings with respect
thereto.
5
1.7 Company
Options, Restricted Stock and Restricted Stock Units.
(a) For
a
period of at least fifteen (15) days prior to the Effective Time, the Company
shall provide each holder of an option (“Company
Option”)
granted by the Company under the Narrowstep Inc. 2004 Stock Plan (the
“Company
Stock Plan”)
or
otherwise with the opportunity to exercise each such Company Option, regardless
of whether such Company Option is otherwise vested or exercisable. To the extent
that any such Company Option is not exercised prior to the Effective Time,
such
Company Option shall be canceled and be of no further force and effect. If
any
Company Options are exercised prior to the Effective Time, any shares of Company
Stock issued as a result thereof will be included in the total number of shares
of Company Common Stock outstanding per Section 1.6(a)(i).
(b) At
the
Effective Time, each outstanding share of Company Common Stock that, immediately
prior to the Effective Time, is then the subject of a restricted stock award
(excluding any Company Accelerated Restricted Stock (as defined herein)) granted
under the Company Stock Plan or otherwise (such awards, "Company Non-accelerated
Restricted Stock Awards") shall automatically and without any action on the
part
of the holder thereof, be converted into (i) a number of shares of restricted
Parent Common Stock (“Parent
Restricted Stock”)
equal
to the greater of the Exchange Ratio and the Minimum Exchange Ratio on the
same
terms and conditions (including applicable vesting rights) as applicable to
such
Company Non-accelerated Restricted Stock Awards set forth in the Company Stock
Plan and the award agreements pursuant to which such Company Non-accelerated
Restricted Stock Awards were issued as in effect immediately prior to the
Effective Time; (ii) cash in lieu of fractional shares pursuant to Section
1.6(a)(ii); and (iii) one (1) Contingent Value Right that is unvested but
subject to future vesting in accordance with the same vesting schedule and
other
requirements (and cancellation conditions) applicable to such Company
Non-accelerated Restricted Stock Award; provided, however, that until such
time
as a final determination of the Exchange Ratio is made pursuant to Section
1.13,
the Parent Restricted Stock issuable pursuant to the immediately preceding
sentence shall be issued in such amount as if the Minimum Exchange Ratio was
used in calculating the conversion of each Company Non-accelerated Restricted
Stock Award pursuant hereto. Notwithstanding anything in the foregoing to the
contrary, in the event that it is finally determined pursuant to Section 1.13
that the Exchange Ratio is greater than the Minimum Exchange Ratio, each share
of Parent Restricted Stock issued or to be issued pursuant to the immediately
preceding sentence, shall, as of the date such final determination,
automatically and without any action on the part of the holder thereof, be
converted into such number of shares of Parent Restricted Stock as if the
Exchange Ratio was applicable at the Effective Time, on the same terms and
conditions of such Parent Restricted Stock issued pursuant to the first sentence
of this Section 1.7(b). Parent shall file a registration statement on Form
S-8
as of or prior to the Effective Time with respect to shares of Parent Restricted
Stock and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the current status
of
the prospectus or prospectuses contained therein) for so long as such shares
of
Parent Restricted Stock remain unvested.
6
(c) Immediately
prior to the Effective Time, each share of Company Common Stock outstanding
on
the date of this Agreement that is (i) subject to a restricted stock award;
(ii)
subject to a written agreement or provision that provides for the acceleration
of vesting in the event of a change in control of the Company that results
in a
termination of employment; and (iii) held by a person who has been terminated
from service by the Company on or after the date of this Agreement and prior
to
the Effective Time ("Company Accelerated Restricted Stock") shall become fully
vested without any further action required on the part of the holder thereof
or
the Company. The shares of Company Accelerated Restricted Stock that vest
pursuant to this Section 1.7(c) shall be treated as outstanding shares of
Company Common Stock immediately prior to the Effective Time.
(d) Immediately
prior to the Effective Time, each restricted stock unit that is then the subject
of a restricted stock unit award evidencing the right to receive shares of
Company Common Stock granted under the Company Stock Plan or otherwise (each
a
“Company
RSU”)
shall
become fully vested and the Company shall issue the holder thereof a share
of
Company Common Stock for each such Company RSU, whereupon the respective Company
RSU shall thereupon be canceled and of be of no further force and effect. The
shares of Company Common Stock issued in respect of Company RSUs will be treated
as outstanding immediately prior to the Effective Time.
(e) Immediately
prior to the Effective Time, the Company shall issue the holder of each Company
RSU that had previously vested, but with respect to which the delivery of shares
of Company Common Stock was delayed or deferred for any reason, a share of
Company Common Stock for each such Company RSU, whereupon the respective Company
RSU shall thereupon be canceled and be of no further force and effect. The
shares of Company Common Stock issued in respect of Company RSUs will be treated
as outstanding immediately prior to the Effective Time.
(f) Each
share of Company Common Stock issued pursuant to Section 1.7(a), (c), (d) or
(e)
above shall by virtue of the Merger and without any action on the part of the
holder thereof be converted into the right to receive the Merger Consideration
in respect of each such share of Company Common Stock in accordance with Section
1.6(a).
7
1.8 Exchange
of Certificates.
Promptly after the Effective Time, Parent shall authorize a bank or trust
company to act as exchange agent hereunder, which bank or trust company shall
be
reasonably acceptable to the Company (the “Exchange Agent”). As soon as
practicable after the Effective Time, Parent shall cause the Exchange Agent
to
mail, to all former holders of record of (i) an outstanding certificate or
certificates which immediately prior to the Effective Time represented shares
Company Common Stock or Company Series A Preferred Stock that were converted
into the right to receive Merger Consideration pursuant to this Agreement (the
“Certificates”) or (ii) shares represented by book-entry which immediately prior
to the Effective Time represented shares of Company Common Stock that were
converted into the right to receive Merger Consideration pursuant to this
Agreement (“Book-Entry Shares”), (A) instructions for surrendering their
Certificates, or in the case of Book-Entry Shares, for surrendering such shares,
in exchange for a certificate representing shares of Parent Common Stock and
cash in lieu of fractional shares and, in the case of former holders of record
of Company Common Stock, a certificate representing a Contingent Value Right,
and (B) a letter of transmittal (the “Letter of Transmittal”), which shall
specify that delivery shall be effected, and risk of loss of, and title to,
the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, or in the case of Book-Entry Shares, upon adherence to the procedures
set
forth in the Letter of Transmittal. Upon surrender of Certificates or Book-Entry
Shares, for cancellation to the Exchange Agent, together with Letter of
Transmittal and such other customary documents reasonably requested by Parent
and in accordance with the instructions thereon, each holder of such
Certificates and Book-Entry Shares shall be entitled to receive in exchange
therefor (a) a certificate representing that number of whole shares of Parent
Common Stock into which the shares of Company Common Stock or Company Series
A
Preferred Stock theretofore represented by the Certificates or Book-Entry Shares
so surrendered shall have been converted pursuant to the provisions of this
Agreement applying the Minimum Exchange Ratio under Section 1.6(a)(i) and with
respect to Company Series A Preferred Stock the Preferred Stock Exchange Ratio,
(b) any cash in lieu of fractional shares pursuant to Section 1.6(a)(ii) hereof,
(c) a certificate representing that number of Contingent Value Rights, if any,
to which such holder is entitled under this Agreement, (d) a check in the amount
of any cash due pursuant to Section 1.12 hereof, and (e) in the case of Company
Common Stock only the right to receive a certificate representing that number
of
whole shares of Parent Common Stock into which the shares of Company Common
Stock theretofore represented by the Certificates or Book-Entry Shares so
surrendered shall have been converted pursuant to the provisions of this
Agreement applying the Exchange Ratio (as opposed to the Minimum Exchange Ratio)
under Section 1.6(a)(i) less any shares of Parent Common Stock issued and
delivered to former holders of Company Common Stock in accordance with clause
(a) of this sentence, but in the case of this clause (e) only to the extent
that
it is determined pursuant to Section 1.13 that the Exchange Ratio is greater
than the Minimum Exchange Ratio. No interest shall be paid or shall accrue
on
any such amounts. Until surrendered in accordance with the provisions of this
Section 1.8, each Certificate and each Book-Entry Share shall represent for
all
purposes only the right to receive Merger Consideration together with cash
in
lieu of any fractional shares to which such holder is entitled pursuant to
Section 1.6(a)(ii) hereof and, if applicable, amounts under Section 1.12 hereof.
Shares of Parent Common Stock into which shares of Company Common Stock and
shares of Company Series A Preferred Stock shall be converted in the Merger
at
the Effective Time shall be deemed to have been issued at the Effective Time.
If
any certificates representing shares of Parent Common Stock are to be issued
in
a name other than that in which the Certificate surrendered is registered,
it
shall be a condition of such exchange that the person requesting such exchange
shall deliver to the Exchange Agent all documents necessary to evidence and
effect such transfer and shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of a certificate representing shares
of
Parent Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. Beginning on the date which
is
twelve (12) months following the Effective Time, Parent shall act as the
Exchange Agent and thereafter any holder of an unsurrendered Certificate or
Book-Entry Share shall look solely to Parent and the Surviving Corporation
for
any amounts to which such holder may be due, subject to applicable law. The
Surviving Corporation shall pay all charges and expenses, including those of
the
Exchange Agent, in connection with the exchange of the shares of Company Common
Stock and Company Series A Preferred Stock for the Merger
Consideration.
8
1.9 No
Liability.
None of
Parent, the Surviving Corporation or the Exchange Agent shall be liable to
any
person in respect of any shares of Parent Company Stock (or dividends or
distributions with respect thereto) or cash payments delivered to a public
official pursuant to any applicable escheat, abandoned property or similar
law.
1.10 Lost
Certificates.
If any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by Exchange Agent, the posting by such
person of a bond in such reasonable amount as Exchange Agent may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall deliver in exchange for such lost, stolen
or destroyed Certificate, applicable certificates representing shares of Parent
Common Stock and any cash in lieu of fractional shares pursuant to Section
1.6(a)(ii) and, if applicable, certificates representing Contingent Value Rights
and any amounts due pursuant to Section 1.12 hereof, deliverable in respect
thereof pursuant to this Agreement.
1.11 Withholding
Rights.
Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock or Company Series A Preferred Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the “Code”), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
and
paid over to the appropriate taxing authority by Parent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to
the
holder of the shares of Company Common Stock or the Company Series A Preferred
Stock, as applicable, in respect of which such deduction and withholding was
made.
1.12 Distributions
with Respect to Unexchanged Shares.
No
dividend or other distribution declared with respect to Parent Common Stock
with
a record date after the Effective Time shall be paid to holders of unsurrendered
Certificates or Book-Entry Shares until such holders surrender such Certificates
or Book-Entry Shares for exchange as provided for herein. Upon the surrender
of
such Certificates and Book-Entry Shares in accordance with Section 1.8, there
shall be paid to such holders, promptly after such surrender in addition to
the
applicable Merger Consideration as provided in Section 1.6 (including any cash
paid or other distributions pursuant to Section 1.6(a)(ii)), (i) the amount
of
dividends or other distributions, without interest, declared with a record
date
after the Effective Time and not paid because of the failure to surrender such
Certificates or Book-Entry Shares for exchange, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, without interest,
declared with a record date after the Effective Time but prior to such surrender
and with a payment date subsequent to such surrender payable with respect to
such whole shares of Parent Common Stock.
9
1.13 Additional
Shares.
(a) Not
later
than five business days after the Closing Date, Parent shall deliver to the
Stockholder Representative, a certificate setting forth the calculation of
the
Exchange Ratio (“Parent’s
Report”).
(b) If
within
thirty (30) days upon delivery of Parent’s Report, Stockholder Representative
has not given written notice of its objection to such report (which notice
shall
state in reasonable detail the basis of Stockholder Representative’s response or
objection), then such Parent’s Report shall be binding. If Stockholder
Representative gives Parent a written objection and if the parties fail to
resolve the issues outstanding with respect to such report within a period
of
thirty (30) days after notification of rejection, the parties shall submit
the
issues remaining in dispute to an independent public accounting firm (the
“Independent
Accountant”)
acceptable to the parties for resolution. The parties agree to execute such
engagement or similar letter as reasonably requested by the Independent
Accountant. If issues are submitted to the Independent Accountant for
resolution, the parties shall or cause to be furnished to the Independent
Accountant such work papers and other documents and information related to
those
disputed issues as the Independent Accountant may request and are available
to
that party or its representatives before the opportunity to present to the
Independent Accountant any material related to the disputed issues and discuss
the issues with the Independent Accountant. Parent and the Stockholder
Representative shall use their commercially reasonable efforts to cause the
Independent Accountant to make a determination within thirty days of accepting
its selection.
(c) The
decision of the Independent Accountant shall be final, binding and conclusive
resolution of the parties’ dispute, shall be non-appealable and shall not be
subject to further review.
(d) Parent
will bear one hundred percent (100%) of the fees and costs of the Independent
Accountant for such determination; provided, however, that in the event that
the
Independent Accountant determines pursuant to Section 1.13(b) that Parent’s
Report, as submitted pursuant to Section 1.13(a), is correct, then the fees
and
costs of the Independent Accountant (the “Accountant Fees”) shall be paid by
Parent to the Independent Accountant and to the extent so paid shall be set
off
against the number of shares of Parent Common Stock issuable pursuant to Section
1.13(g), on a pro rata basis and if no additional shares are issued, pursuant
to
Section 1.13(g), Parent shall be able to offset such amount against any CVR
Shares (as defined in the CVR Agreement) that may be issued pursuant to the
CVR
Agreement, in each case in accordance with the following sentences. The
aggregate number of shares issuable pursuant to Section 1.13(g) shall be reduced
by an amount equal to the quotient obtained by dividing the Accountant’s Fees by
the average of the last reported sales prices of Parent Common Stock on the
primary exchange where it is traded for the last fifteen trading days
immediately preceding the date on which the right to set off arises pursuant
to
the immediately preceding sentence. To the extent the quotient calculated
pursuant to the immediately preceding sentence is less than the amount of the
Accountant’s Fees payable by the former stockholders of the Company (such
deficient amount, the "Accountant’s Fees Deficiency”), the number of CVR Shares
issuable pursuant to the CVR Agreement share be reduced in the aggregate by
an
amount equal to the quotient obtained by dividing the Accountant’s Fees
Deficiency by the average of the last reported sales prices of Parent Common
Stock on the primary exchange where it is traded for the last fifteen trading
days immediately preceding the date on which the CVR Year One Exchange Ratio
and
the CVR Year Two Exchange Ratio, as applicable, are finally determined.
10
(e) Upon
delivery of Parent’s Report, Parent will provide the Stockholder Representative
and its accountants and advisors access to (i) Parent’s Chief Financial Officer
for questions, and (ii) the books and records of the Surviving Corporation
(including any work papers used to prepare Parent’s Report) and such other
information requested by such persons, in each case to the extent reasonably
necessary related to the Stockholder Representative’s evaluation of a Parent’s
Report and the calculations thereof.
(f) As
promptly as practicable after Parent’s Report becomes final pursuant to this
Section 1.13, Parent shall cause to be mailed a notice to each former holder
of
record of Company Common Stock who surrenders Certificates or Book-Entry Shares
pursuant to Section 1.8 specifying the amount of the Exchange Ratio and the
number of any additional shares of Parent Common Stock, if any, issuable to
such
holders pursuant to this Agreement.
(g) In
the
event that the Exchange Ratio is greater than the Minimum Exchange Ratio, as
finally determined pursuant to this Section 1.13, then Parent and Exchange
Agent
shall cause to be issued and delivered, within thirty days of such final
determination, to each former holder of record of Company Common Stock that
surrenders Certificates or Book-Entry Shares pursuant to Section 1.8, (i) a
certificate representing that number of whole shares of Parent Common Stock
into
which the shares of Company Common Stock theretofore represented by the
Certificates or Book-Entry Shares surrendered pursuant to Section 1.8 shall
have
been converted pursuant to the provisions of this Agreement applying the
Exchange Ratio (as opposed to the Minimum Exchange Ratio) under Section
1.6(a)(i) less any shares of Parent Common Stock issued and delivered to such
holder in accordance with clause (a) of the third sentence of Section 1.8
hereof; (ii) any cash in lieu of fractional shares pursuant to Section
1.6(a)(ii) hereof; and (iii) a check in the amount of any cash due pursuant
to
Section 1.12 hereof.
1.14 Appointment
of Stockholder Representative.
(a) The
(i)
adoption of the Merger Agreement by the former holders of record of Company
Common Stock, and (ii) any exercise of the Company Warrants by the holders
thereof (such holders, together with the former stockholders of record of the
Company, the “Former Company Stockholders”), shall constitute by each such
person, respectively, the authorization, designation and appointment of the
Stockholder Representative, in each case to act as the sole and exclusive agent,
attorney-in-fact and representative of each of the Former Company Stockholders
by the consent of the Former Company Stockholders and as such is hereby
authorized and directed to (a) take any and all actions (including without
limitation executing and delivering any documents, incurring any costs and
expenses for the account of the Former Company Stockholders and making any
and
all determinations required by this Agreement) which may be required in carrying
out his duties under this Agreement, (b) give notices and communications on
behalf of the stockholder as set forth in this Agreement, (c) exercise such
other rights, power and authority as are authorized, delegated and granted
to
the Stockholder Representative under this Agreement and hereby, and (d) exercise
such rights, power and authority as are incidental to the foregoing, and any
decision or determination made by the Stockholder Representative consistent
therewith shall be absolutely and irrevocably binding on each Former Company
Stockholder as if such stockholder personally had taken such action, exercised
such rights, power or authority or made such decision or determination in such
Former Company Stockholder’s individual capacity.
11
(b) The
Stockholder Representative shall not be liable, in any manner or to any extent,
for any mistake or fact or error of judgment or for any acts or omissions by
it
of any kind, except to the extent that such action or inaction shall have been
held by a court of competent jurisdiction to constitute willful misconduct
or
gross negligence. The Former Company Stockholders shall jointly and severally
indemnify the Stockholder Representative and hold it harmless against any and
all liabilities incurred by it, except for liabilities incurred by the
Stockholder Representative resulting from its own willful misconduct or gross
negligence, provided, however, that any indemnification obligations of the
Former Company Stockholders shall be satisfied solely out of the shares of
Parent Common Stock issuable pursuant to Section 1.13 of this Agreement and
the
CVR Shares issuable under the CVR Agreement, in each case only to the extent
such shares of Parent Common Stock and CVR Shares were not issued prior to
the
time such indemnification obligation arises. The Stockholder Representative
shall be entitled to receive a number of shares of Parent Common Stock and
CVR
Shares equal to the quotient obtained by dividing the amount of the
indemnification obligation referenced in the immediately preceding sentence
by
the average of the last reported sales prices of Parent Common Stock on the
primary exchange where it is traded for the last fifteen trading days
immediately preceding the date of issuance of shares of Parent Common Stock
pursuant to Section 1.13 hereof, and, in the case of CVR Shares, the date of
issuance of such shares pursuant to the CVR Agreement.
(c) A
decision, act, consent or instruction of the Stockholder Representative shall
constitute a decision of all Former Company Stockholders and shall be final,
binding and conclusive upon each such Holder, and Parent may rely upon any
decision, act, consent or instruction of the Stockholder Representative as
being
the decision, act, consent or instruction of each and every such Former Company
Stockholder.
ARTICLE
II - REPRESENTATIONS
AND WARRANTIES OF COMPANY
Except
(i) as set forth on Schedule C hereto delivered by the Company to Parent and
Merger Sub on the date hereof (the “Company
Disclosure Schedule”),
the
section numbers of which are numbered to correspond to the section numbers
of
this Agreement to which they refer, it being agreed that disclosure of any
item
in any section of the Company Disclosure Schedule shall also be deemed
disclosure with respect to any other section of this Agreement to which the
relevance of such item is reasonably apparent, or (ii) as a result of any
actions taken or not taken by the Company or any Company Subsidiary (as defined
herein) in accordance with or pursuant to the Plan (as defined herein), the
Company hereby makes the following representations and warranties to Parent
and
Merger Sub:
12
2.1 Organization
and Qualification.
(a) Each
of
the Company and each Company Subsidiary (as defined in Section 2.4(a)) is a
corporation or other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions that recognize the concept of good
standing) under the laws of its jurisdiction of organization and has corporate
or similar power and authority to own, lease and operate its assets and to
carry
on its business as now being conducted, except where any such failure to have
such power or authority would not, individually or in the aggregate, have a
Company Material Adverse Effect (as defined herein). Each of the Company and
each Company Subsidiary is qualified or otherwise authorized to transact
business as a foreign corporation or other organization in all jurisdictions
in
which such qualification or authorization is required by law, except for
jurisdictions in which the failure to be so qualified or authorized would not
reasonably be expected to have a Company Material Adverse Effect. “Company
Material Adverse Effect”
means
any fact, circumstance, event, change, effect or occurrence that, individually
or in the aggregate with all other facts, circumstances, events, changes,
effects, or occurrences, has or would be reasonably expected to have a material
adverse effect on or with respect to the business, results of operation or
financial condition of the Company and the Company Subsidiaries taken as a
whole, provided, however, that a Company Material Adverse Effect shall not
include facts, circumstances, events, changes, effects or occurrences (i)
generally affecting the economy or the financial, debt, credit or securities
markets in the United States, including as a result of changes in geopolitical
conditions, (ii) generally affecting any of the industries in which the Company
or the Company Subsidiaries operate, (iii) resulting from the announcement
of
this Agreement, (iv) resulting from changes in any applicable laws or
regulations or applicable accounting regulations or principles or
interpretations thereof, (v) resulting from any actions taken pursuant to or
in
accordance with the terms of this Agreement or the Plan (as defined herein)
(including without limitation, Section 4.1(c)) or at the request of, or with
the
approval by, Parent (collectively, “Permitted
Actions”),
(vi)
resulting from any outbreak or escalation of hostilities or war or any act
of
terrorism, (vii) resulting from any failure by the Company to meet its internal
or published projections, budgets, plans or forecasts of its revenues, earnings
or other financial performance or results of operations, in and of itself (it
being understood that the facts or occurrences giving rise or contributing
to
such failure that are not otherwise excluded from the definition of a “Company
Material Adverse Effect” may be taken into account in determining whether there
has been a Company Material Adverse Effect), or (viii) resulting from a decline
in the price of the Company Common Stock on the Bulletin Board Market (it being
understood that the facts or occurrences giving rise or contributing to such
decline that are not otherwise excluded from the definition of a “Company
Material Adverse Effect” may be taken into account in determining whether there
has been a Company Material Adverse Effect).
(b) The
Company has previously provided or made available to Parent true, correct and
complete copies of the charter and bylaws or other organizational documents
of
the Company and each Company Subsidiary as in effect on the date of this
Agreement, and none of Company or any Company Subsidiary is in violation of
any
provisions of such documents, except as would not reasonably be expected to
have
a Company Material Adverse Effect.
13
2.2 Authority
to Execute and Perform Agreements.
The
Company has the corporate power and authority to enter into, execute and deliver
this Agreement, and, subject to receipt of the Company Requisite Vote (as
defined herein), to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The Board of Directors of the Company has
duly
authorized the execution and delivery of this Agreement and the consummation
of
the transactions contemplated hereby. No other corporate proceeding on the
part
of the Company is necessary to consummate the transactions contemplated hereby
other than the adoption of this Agreement by the requisite holders of Company
Common Stock and, depending on the date and terms of issuance of the Company
Series A Preferred Stock, the requisite holders of Company Series A Preferred
Stock (and the filing with the Secretary of State of the State of Delaware
of
the Certificate of Merger as required by the DGCL). This Agreement has been
duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Laws relating to creditors’ rights generally and to
general principles of equity. The only vote of Company stockholders required
to
adopt this Agreement is (i) the affirmative vote of a majority of the
outstanding shares of Company Common Stock to adopt this Agreement and (ii)
depending on the date and terms of issuance of the Company Series A Preferred
Stock, the affirmative vote of a majority of the outstanding shares of Company
Series A Preferred Stock to adopt this Agreement ((i) and (ii) collectively,
the
“Company Requisite Vote”).
2.3 Capitalization
and Title to Shares.
(a) The
authorized capital stock of the Company consists of (i) 450,000,000 shares
of
Company Common Stock, and (ii) 50,000 shares of undesignated preferred stock,
par value $0.000001 per share (“Company
Preferred Stock”).
As of
February 29, 2008, (A) 137,561,227 shares of Company Common Stock were issued
and outstanding (which amount includes outstanding shares issued under Company
Restricted Share Awards), (B) no shares of Company Preferred Stock were issued
an outstanding and (C) no shares are issued and held in the treasury of the
Company. All of the issued and outstanding shares of Company’s Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Prior to the Effective Time, up to 50,000 shares of Company
Series A Preferred Stock will be issued and outstanding and such shares will
be
duly authorized, validly issued, fully paid and nonassessable.
(b) The
Company has reserved 27,000,000 shares of Company Common Stock for issuance
pursuant to all Company Options. As of February 29, 2008, Company Options to
purchase 8,233,635 shares of Company Common Stock were outstanding. Section
2.3(b) of the Company Disclosure Schedule sets forth with respect to each
Company Option outstanding as of February 29, 2008, (i) the number of shares
of
Company Common Stock issuable therefor and (ii) the purchase price payable
therefor upon the exercise of each such Company Option. True and complete copies
of all instruments (or the forms of such instruments) referred to in this
Section 2.3(b)
have
been furnished previously or otherwise made available to Parent.
(c) The
Company has reserved 27,000,000 shares of Company Common Stock for issuance
pursuant to all shares of Company Common Stock subject to restricted stock
awards granted under the Company Stock Plan or otherwise (including (i) any
“Bonus Restricted Shares” issued pursuant to that certain Employment Agreement,
dated June 8, 2007, by and between the Company and Xxxxx X. XxXxxxx; (ii) any
Company Non-accelerated Restricted Stock Awards; and (iii) any Company
Accelerated Restricted Stock) (collectively, "Company Restricted Stock Awards").
As of February 29, 2008, 17,108,500 shares of Company Common Stock were subject
to Company Restricted Stock Awards. Section 2.3(c) of the Company Disclosure
Schedule sets forth each Restricted Stock Award outstanding as of February
29,
2008, and the number of shares of Company Common Stock subject to the award.
The
Company has reserved 2,500,000 shares of Company Common Stock for issuance
pursuant to all Company RSUs. As of February 29, 2008, 1,250,000 shares of
Company Common Stock were subject to Company RSUs. Section 2.3(c) of the Company
Disclosure Schedule sets forth each Company RSU outstanding as of February
29,
2008, and the number of shares of Company Common Stock subject to the award.
True and complete copies of all instruments (or the forms of such instruments)
referred to in this Section 2.3(c)
have
been furnished previously or otherwise made available to Parent.
14
(d) As
of
February 29, 2008, warrants to acquire 39,433,273 shares of Company Common
Stock
were issued and outstanding (“Company
Warrants”),
which
includes 22,726,400 Company 2007 Warrants. Section 2.3(d) of the Company
Disclosure Schedule includes a true and complete list of all outstanding Company
Warrants.
(e) Except
for (i) shares indicated as issued and outstanding on February 29, 2008 in
Section 2.3(a) and (ii) shares issued after February 29, 2008, upon (A) the
exercise of outstanding Company Options listed in Section 2.3(b) of the Company
Disclosure Schedule, (B) the vesting of outstanding Company Restricted Stock
Awards and Company RSUs listed in Section 2.3(c) of the Company Disclosure
Schedule, or (C) the exercise of outstanding Company Warrants listed in Section
2.3(d) of the Company Disclosure Schedule, there are not as of the date hereof,
and at the Effective Time, except as set forth in Section 2.3(e) of the Company
Disclosure Schedule, there will not be, any shares of Company Common Stock
issued and outstanding.
(f) Other
than Company Options listed in Section 2.3(b) of the Company Disclosure
Schedule, the Company Restricted Stock Awards listed in Section 2.3(c) of the
Company Disclosure Schedule, the Company RSUs listed in Section 2.3(c) of the
Company Disclosure Schedule, and the Company Warrants listed in Section 2.3(d)
of the Company Disclosure Schedule, and except as set forth in Section 2.3(f)
of
the Company Disclosure Schedule, there are not, as of the date of this
Agreement, authorized or outstanding any subscriptions, options, conversion
or
exchange rights, warrants, repurchase or redemption agreements, or other
agreements or commitments of any nature whatsoever obligating the Company to
issue, transfer, deliver or sell, or cause to be issued, transferred, delivered,
sold, repurchased or redeemed, additional shares of the capital stock or other
securities of the Company or obligating the Company to grant, extend or enter
into any such agreement. Except as set forth in Section 2.3(f) of the Company
Disclosure Schedule, to the knowledge of the Company, there are no stockholder
agreements, voting trusts, proxies or other agreements, instruments or
understandings with respect to the voting of the capital stock of the
Company.
(g) The
Company has no outstanding bonds, debentures, notes or other indebtedness,
which
have the right to vote on any matters on which stockholders may vote or which
have the right to be converted into Company Common Stock or Company Preferred
Stock.
15
2.4 Company
Subsidiaries.
(a) Section
2.4(a) of the Company Disclosure Schedule sets forth the name of each Company
Subsidiary, and with respect to each Company Subsidiary, (i) the jurisdiction
in
which each is incorporated or organized and (ii) the jurisdictions, if any,
in
which it is qualified to do business. All issued and outstanding shares or
other
equity interests of each Company Subsidiary are owned directly by the Company
free and clear of any charges, liens, encumbrances, security interests or
adverse claims. As used in this Agreement, “Company Subsidiary” means any
corporation, partnership or other organization, whether incorporated or
unincorporated, (i) of which the Company or any Company Subsidiary is a general
partner or (ii) at least 50% of the securities or other interests having voting
power to elect a majority of the board of directors or others performing similar
functions with respect to such corporation, partnership or other organization
are directly or indirectly owned or controlled by the Company or by any Company
Subsidiary, or by the Company and one or more Company Subsidiaries.
(b) There
are
not as of the date of this Agreement, and at the Effective Time there will
not
be, any subscriptions, options, conversion or exchange rights, warrants,
repurchase or redemption agreements, or other agreements or commitments of
any
nature whatsoever obligating any Company Subsidiary to issue, transfer, deliver
or sell, or cause to be issued, transferred, delivered, sold, repurchased or
redeemed, shares of the capital stock or other securities of the Company or
any
Company Subsidiary or obligating the Company or any Company Subsidiary to grant,
extend or enter into any such agreement. To the knowledge of the Company, there
are no stockholder agreements, voting trusts, proxies or other agreements,
instruments or understandings with respect to the voting of the capital stock
of
any Company Subsidiary, other than as noted in Section 2.2 hereof.
(c) There
are
not as of the date of this Agreement any Company Joint Ventures. The term
“Company Joint Venture” means any corporation or other entity (including
partnerships, limited liability companies and other business associations)
that
is not a Company Subsidiary and in which the Company or one or more Company
Subsidiaries owns an equity interest (other than equity interests held for
passive investment purposes which are less than 10% of any class of the
outstanding voting securities or other equity of any such entity).
2.5 SEC
Reports; Xxxxxxxx-Xxxxx Act.
The
Company previously has filed with the Securities and Exchange Commission (the
“SEC”) its (i) Annual Report on Form 10-KSB for the year ended February 28, 2007
(the “Company 10-K”), as amended, (ii) its quarterly report on Form 10-QSB for
its fiscal quarters ended November 30, 2007, August 31, 2007 and May 31, 2007,
and (iii) all other documents required to be filed by the Company with the
SEC
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) since
March 1, 2005 (all such forms, reports, statements, certificates and other
documents filed since March 1, 2005, including any amendments thereto,
collectively, the “Company SEC Reports”). As of their respective filing dates,
or, if amended or superseded by a subsequent filing made prior to the date
of
this Agreement, as of the date of the last such amendment or superseding filing
prior to the date of this Agreement, the Company SEC Reports complied, and
each
of the Company SEC Reports filed by the Company between the date of this
Agreement and the Closing Date will comply, in all material respects, with
the
Exchange Act and the Securities Act of 1933, as amended (the “Securities Act”),
as the case may be. As of their respective filing dates, or, if amended or
superseded by a subsequent filing made prior to the date of this Agreement,
as
of the date of the last such amendment or superseding filing prior to the date
of this Agreement, the Company SEC Reports did not, or in the case of the
Company SEC Reports filed by the Company on or after the date hereof will not,
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein,
in
light of the circumstances under which they were made, not misleading, except
to
the extent that the information in such Company SEC Reports has been amended
or
superseded by a later Company SEC Report filed prior to the date of this
Agreement. Since March 1, 2005, the Company has filed with the SEC all reports
required to be filed by it under the Exchange Act. No Company Subsidiary is
required to file any form, report or other document with the SEC. There are
no
outstanding loans or other extensions of credit made by the Company or any
of
the Company Subsidiaries to any executive officer (as defined in Rule 3b-7
under
the Exchange Act) or director of the Company. The Company has not, since the
enactment of the Xxxxxxxx-Xxxxx Act, taken any action prohibited by Section
402
of the Xxxxxxxx-Xxxxx Act. No executive officer of the Company has failed in
any
respect to make the certifications required of him or her under Section 302
or
906 of the Xxxxxxxx-Xxxxx Act with respect to any Company SEC Report and to
the
Company’s knowledge the applicable executive officers anticipate making such
certifications in the Company’s Annual Report on Form 10 KSB for the year ended
February 29, 2008. The Company has made available to Parent true, correct and
complete copies of all material written correspondence between the SEC, on
the
one hand, and the Company and any of the Company Subsidiaries, on the other
hand
since March 1, 2006. As of the date of this Agreement, there are no outstanding
or unresolved comments in comment letters received from the SEC staff with
respect to the Company SEC Reports. To the knowledge of the Company, none of
the
Company SEC Reports is the subject of ongoing SEC review or outstanding SEC
comment. None of the Company Subsidiaries is required to file periodic reports
with the SEC pursuant to the Exchange Act.
16
2.6 Financial
Statements.
As of
the dates on which they were filed or amended prior to the date of this
Agreement in the Company SEC Reports filed prior to the date of this Agreement,
the audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company included in such Company SEC Reports (i)
were prepared in accordance with generally accepted accounting principles in
all
material respects applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto and except, in the case of
the
unaudited interim statements, as may be permitted under Form 10-QSB of the
Exchange Act) and (ii) fairly presented, in all material respects (except as
may
be indicated in the notes thereto and subject, in the case of any unaudited
interim financial statements, to normal year-end adjustments that would not
be
reasonably expected to be material in amount), the consolidated financial
position, results of operations and cash flows of the Company and the
consolidated Company Subsidiaries as of the respective dates thereof and for
the
respective periods indicated therein (subject, in the case of financial
statements for any quarter of the current fiscal year, to normal year-end audit
adjustments).
2.7 Absence
of Undisclosed Liabilities.
The
Company has no material liabilities of any nature, whether accrued, absolute,
contingent or otherwise, of a nature required by generally accepted accounting
principles to be reflected in a consolidated balance sheet or disclosed in
the
notes thereto, other than liabilities (i) adequately reflected, accrued or
reserved against on the Company Balance Sheet (as defined herein), (ii) included
in Section 2.7 of the Company Disclosure Schedule, (iii) incurred since November
30, 2007, in the ordinary course of business consistent with past practice,
or
(iv) which have been discharged or paid in full prior to the date of this
Agreement. The consolidated, unaudited balance sheet of the Company as of
November 30, 2007 is referred to herein as the “Company Balance
Sheet.”
17
2.8 Absence
of Adverse Changes.
Since
February 28, 2007 through the date of this Agreement, except as contemplated
by
this Agreement, whether taken before or after the date of this Agreement
(including any actions taken pursuant to the Plan (as defined herein)) (i)
the
Company and the Company Subsidiaries have conducted their respective businesses
in all material respects in the ordinary course consistent with past practice
and (ii) there has not been any change, event or circumstance that has had
a
Company Material Adverse Effect.
2.9 Compliance
with Laws.
(a) The
Company and each of the Company Subsidiaries have all required franchises,
tariffs, grants, licenses, permits, easements, variances, exceptions, consents,
certificates, clearances, accreditation, approvals, orders and authorizations
of
any Governmental Entity (defined in Section 2.9(b)) necessary for the Company
and each of the Company Subsidiaries to operate and use their properties and
assets and to conduct their businesses as presently operated, used and conducted
(“Company
Permits”)
other
than those the failure of which to possess would not have a Company Material
Adverse Effect. Neither the Company nor any of the Company Subsidiaries has
received written notice from any Governmental Entity or third party that any
Company Permit is subject to any adverse action, including but not limited
to,
suspension, termination, revocation or withdrawal, except where the failure
to
have any such Company Permit or the receipt of such notice would not have or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The Company Permits are in full force and effect,
except for any failures to be in full force and effect that, individually or
in
the aggregate, would not have or reasonably be expected to have a Company
Material Adverse Effect. The Company and each of the Company Subsidiaries is
in
compliance with the terms of the Company Permits, as applicable, except for
such
failures to comply that, individually or in the aggregate, would not have or
reasonably be expected to have a Company Material Adverse Effect.
(b) The
Company and the Company Subsidiaries are not in violation of any federal, state,
local or foreign law, ordinance or regulation or any order, judgment,
injunction, decree or other requirement of any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, whether local, state, federal or foreign (a “Governmental
Entity”),
applicable to the Company or any of the Company Subsidiaries or by which its
or
any of their respective properties are bound, except for violations of any
of
the foregoing which would not, in the aggregate, reasonably be expected to
have
a Company Material Adverse Effect.
2.10 Actions
and Proceedings.
There
are no outstanding orders, judgments, injunctions, decrees or other requirements
of any Governmental Entity against the Company, any Company Subsidiary or any
of
their respective assets or properties, except for those that would not,
individually or in the aggregate, have a Company Material Adverse Effect. There
are no actions, suits or claims or legal, administrative or arbitration
proceedings pending or, to the knowledge of the Company, threatened against
the
Company, any Company Subsidiary or any of their respective securities, assets
or
properties, other than any such suit, claim, action, proceeding, arbitration,
mediation or investigation that would not, individually or in the aggregate,
have a Company Material Adverse Effect.
18
2.11 Contracts
and Other Agreements.
(a) Neither
the Company nor any Company Subsidiary is a party to or bound by, and neither
they nor their properties are subject to, any contract or other agreement
required to be disclosed in a Form 10-KSB, Form 10-QSB or Form 8-K of the SEC,
which is not so disclosed. All of such contracts and other agreements and all
of
the contracts required to be set forth in Section 2.11 of the Company Disclosure
Schedule (“Company
Material Contracts”)
are
valid, subsisting, in full force and effect, binding upon the Company or the
Company Subsidiary party thereto, and, to the knowledge of the Company, binding
upon the other parties thereto in accordance with their terms, except for such
failures to be valid and binding or to be in full force and effect which would
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. There is no default under any Company Material Contract
by the Company or any of the Company Subsidiaries and no event has occurred
that
with the lapse of time or the giving of notice or both would constitute a
default thereunder by the Company or any Company Subsidiaries, in each case
except as would not, individually or in the aggregate, reasonably be expected
to
have a Company Material Adverse Effect. Correct and complete copies of the
Company Material Contracts have been previously provided to Parent.
(b) Section
2.11(b) of the Company Disclosure Schedule sets forth a list of the following
contracts and other agreements to which the Company or any Company Subsidiary
is
a party or by or to which they or their assets or properties are bound or
subject:
(i) any
agreement (A) relating to a joint venture, partnership or other arrangement
involving a sharing of profits, losses, costs or liabilities with another person
or entity, (B) providing for the payment or receipt by the Company or a Company
Subsidiary of milestone payments or royalties, or (C) that individually requires
aggregate expenditures by the Company and/or any Company Subsidiary in any
one
year of more than $50,000;
(ii) any
indenture, trust agreement, loan agreement or note that involves or evidences
outstanding indebtedness, obligations or liabilities for borrowed money in
excess of $50,000;
(iii) any
agreement of surety, guarantee or indemnification that involves potential
obligations in excess of $50,000;
(iv) any
agreement that limits or restricts the Company or any Company Subsidiary (or
which, following the consummation of the Merger, could materially restrict
the
ability of the Surviving Corporation) to compete in any business or with any
person or in any geographic area except for and any such Material Contract
that
may be canceled without any penalty or other liability to the Company or any
of
the Company Subsidiaries upon notice of 30 days or less;
(v) any
interest rate, equity or other swap or derivative instrument; or
(vi) any
agreement obligating the Company to register securities under the Securities
Act.
19
(c) Except
as
disclosed on Section 2.11(c) of the Company Disclosure Schedule, no executive
officer or director of the Company has (whether directly or indirectly through
another entity in which such person has a material interest, other than as
the
holder of less than 1% of a class of securities of a publicly traded company)
has any interest in any contract or property (real or personal, tangible or
intangible), used in, or pertaining to the business of the Company which
interest would be required to be disclosed pursuant to Item 404(a) of Regulation
S-K promulgated by the SEC.
2.12 Properties.
(a) Except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, the Company or one of the Company
Subsidiaries, as applicable, has good title to all the properties and assets
reflected in the latest audited balance sheet included in the Company SEC
Reports as being owned by the Company or one of the Company Subsidiaries or
acquired after the date thereof that are material to the Company’s business on a
consolidated basis (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business consistent with past practice),
free and clear of all liens except Permitted Company Encumbrances. “Permitted
Company Encumbrances” means (a) mechanics’, materialmen’s, carrier’s, repairer’s
and other statutory liens arising or incurred in the ordinary course of business
and that are not yet delinquent or are being contended in good faith; (b) liens
for taxes assessments or other governmental charges not yet due and payable;
(c)
defects or imperfections of title in the nature of easements, covenants,
conditions, encumbrances, restrictions, rights of way and similar matters
affecting title as do not materially affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair business
operations at such properties; (d) zoning, building codes and other land use
laws regulating the use or occupancy of the Company Leased Property (defined
in
Section 2.12(b)) or the activities conducted thereon which are imposed by any
Governmental Entity having jurisdiction over such Company Leased Property;
and
(e) mortgages, or deeds of trust, security interests or other encumbrances
on
title related to indebtedness reflected on the consolidated financial statements
of the Company.
(b) Section
2.12(b) of the Company Disclosure Schedule sets forth a complete list as of
the
date of this Agreement of all material real property leased, subleased or
licensed by the Company or any of the Company Subsidiaries (as lessor,
sublessor, landlord, sublandlord or licensor, or lessee, sublessee, tenant,
subtenant or licensee, as the case may be) (collectively, “Company
Leased Property”)
pursuant to which the Company or any of the Company Subsidiaries (and all of
its
and their sublessees and licensees) uses or occupies the Company Leased Property
(all leases, subleases, licenses, sublicenses and other agreements with respect
to such use or occupancy, including all master or ground leases), and all
amendments, modifications and extensions thereof being referred to collectively
as “Company Leases.” The Company has made available to the Parent correct and
complete copies of all Company Leases and, to the knowledge of the Company,
there are no material oral agreements, promises or understandings with respect
to any Company Leased Property, which is subject to a Company
Lease.
20
(c) Except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, (A) each Company Lease is valid
and binding on the Company or the Company Subsidiary party thereto and, to
the
knowledge of the Company, each other party thereto, and is in full force and
effect; (B) there is no breach or default under any Lease by the Company or
the
Company Subsidiary party thereto or, to the knowledge of the Company, any other
party thereto, and neither the Company nor any of the Company Subsidiaries
has
received any written communication from, or given any written communication
to,
any other party to the Company Lease or any lender, alleging that the Company
or
any of the Company Subsidiaries or such other party, as the case may be, is
or
may be in default (and no event has occurred that with or without the lapse
of
time or the giving of notice or both would constitute a breach or default under
any Company Lease by the Company or any of the Company Subsidiaries or, to
the
knowledge of the Company, any other party thereto); and (C) the Company or
the
Company Subsidiary party to each Company Lease has a good and valid leasehold
interest in each parcel of real property which is subject to a Company Lease,
free and clear of all liens except Permitted Company Encumbrances, and is in
possession of the properties purported to be leased or licensed
thereunder.
(d) None
of
the Company or any of the Company Subsidiaries owns any real property or has
any
options or rights or obligations to purchase, rights of first refusal, rights
of
first negotiation or rights of first offer to purchase, any real
property.
2.13 Intellectual
Property.
(a) Schedule
2.13 of the Company Disclosure Schedule sets forth a complete and accurate
list
as of the date of this Agreement of all material patents and patent
applications; registered trademarks, service marks and trade names; registered
domain names; and registered copyrights that are owned by the Company or any
of
the Company Subsidiaries and used by the Company or any of its Subsidiaries
in
the business of the Company and the Company Subsidiaries.
(b) Except
as
set forth on Section 2.13 of the Company Disclosure Schedule:
(i) except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, to the knowledge of the Company,
the Company and/or the Company Subsidiaries (A) exclusively own the Company
Intellectual Property, or (B) license, sublicense or otherwise possess legally
enforceable rights to use all Company Intellectual Property that it does not
so
own, in the case of the foregoing clauses (A) and (B) above, free and clear
of
all Liens granted by the Company, other than Permitted Liens, and as are
reasonably necessary for their businesses as currently conducted;
(ii) to
the
knowledge of the Company, neither the operation of the business of the Company
or any of the Company Subsidiaries, nor any activity of the Company or any
of
the Company Subsidiaries conflicts with, infringes upon or misappropriates
any
Intellectual Property of any third party;
(iii) to
the
knowledge of the Company, the Company Intellectual Property is not being
infringed or misappropriated by any third party.
(iv) the
Company and the Company Subsidiaries have taken reasonable measures and efforts
to protect and maintain the confidentiality of any know-how, trade secrets,
confidential information or proprietary information owned by the Company or
any
of the Company Subsidiaries;
21
(v) the
Company and the Company Subsidiaries are not a party to any claim, suit or
other
action, and to the knowledge of the Company, no claim, suit or other action
is
threatened against any of them, that challenges the validity, enforceability
or
ownership of, or the right to use, sell or license the Company Intellectual
Property and, no third party has alleged in writing during the two (2) year
period prior to the date hereof that any of the operation of the Company
Intellectual Property, the operation of the business of the Company or any
of
the Company Subsidiaries, or any activity of the Company or any of the Company
Subsidiaries conflicts with, infringes upon or misappropriates any Intellectual
Property of any third party;
(vi) except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, no current or former employee
or
consultant of the Company or any of its Subsidiaries owns any material rights
in
or to any Intellectual Property created in the scope of such employee’s
employment or consultant’s engagement by, as applicable, with the Company or any
of the Company Subsidiaries;
(vii) except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, the transactions contemplated
by
this Agreement will not adversely affect the Company’s or the Company
Subsidiaries’ or the Surviving Corporation’s right, title and interest in and to
the Company Intellectual Property; and
(viii) all
patents, patent applications and registrations for trademarks, service marks
and
copyrights which are held by the Company or any of the Company Subsidiaries
and
which are material to the business of the Company and the Company Subsidiaries,
taken as a whole, as currently conducted, are subsisting, have been duly
maintained (including the payment of maintenance fees), and have not expired
or
been cancelled.
(c) For
purposes of this Agreement,
(i) “Intellectual
Property”
means
(i) rights in patents, inventions, copyrights in both published and unpublished
works, works of authorship, software, trademarks, service marks, domain names,
trade dress, trade secrets, (ii) registrations and applications to register
any
of the foregoing in any jurisdiction, (iii) processes, formulae, methods,
schematics, technology, know-how, computer software programs and applications,
(iv) other tangible or intangible proprietary or confidential information and
materials, and (v) any and all other intellectual property rights and/or
proprietary rights relating to any of the foregoing.
(ii) “Company
Intellectual Property”
means
all Intellectual Property owned by the Company or any of the Company
Subsidiaries or used by the Company or any of the Company Subsidiaries in the
business of the Company and the Company Subsidiaries.
22
2.14 Insurance.
Section
2.14 of the Company Disclosure Schedule sets forth a true and correct list
of
all material insurance policies and binders held by or on behalf of the Company
and the Company Subsidiaries. Such policies and binders (i) are in full force
and effect, (ii) are in material conformity with the requirements of all leases
or other agreements to which the Company or the relevant Company Subsidiary
is a
party and (iii) to the knowledge of the Company, are valid and enforceable
in
accordance with their terms, except where the failure to be valid and
enforceable would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. Neither the Company nor any Company
Subsidiary is in material default with respect to any provision contained in
such policy or binder nor has any of the Company or a Company Subsidiary failed
to give any notice or present any claim under any such policy or binder in
due
and timely fashion. There are no material outstanding unpaid claims under any
such policy or binder. As of the date of this Agreement, neither the Company
nor
any Company Subsidiary has received written notice of cancellation or
non-renewal of any such policy or binder.
2.15 Tax
Matters.
Except
as set forth in Section 2.15 of the Company Disclosure Schedule:
(a) For
purposes of this Agreement, the term “Tax”
(and,
with correlative meaning, “Taxes” and “Taxable”) means all United States
federal, state, and local, and all foreign, income, profits, franchise, gross
receipts, payroll, custom chattels, transfer, sales, employment, use, property,
excise, value added, ad valorem, estimated, stamp, alternative or add-on
minimum, recapture, environmental, withholding and any other taxes, charges,
duties, impositions or assessments of any kind whatsoever, together with all
interest, penalties, and additions imposed on or with respect to such amounts,
including any liability for taxes of a predecessor entity. “Tax
Return”
means
any return, declaration, report, claim for refund, or information return or
statement filed or required to be filed with any taxing authority in connection
with the determination, assessment, collection or imposition of any
Taxes.
(b) All
Tax
Returns required to be filed on or before the date hereof by or with respect
to
the Company and the Company Subsidiaries have been filed within the time and
in
the manner prescribed by law. All such Tax Returns are true, correct and
complete in all material respects, and all Taxes owed by the Company or the
Company Subsidiaries, whether or not shown on any Tax Return, have been paid.
The Company and the Company Subsidiaries file Tax Returns in all jurisdictions
where they are required to so file, and no claim has ever been made by any
taxing authority in any other jurisdiction that the Company or the Company
Subsidiaries are or may be subject to taxation by that
jurisdiction.
(c) There
are
no liens or other encumbrances with respect to Taxes upon any of the assets
or
properties of the Company or the Company Subsidiaries, other than with respect
to Taxes not yet due and payable.
(d) No
audit
is currently pending with respect to any Tax Return of the Company or the
Company Subsidiaries. No deficiency for any Taxes has been proposed in writing
against the Company or the Company Subsidiaries, which deficiency has not been
paid in full.
(e) There
are
no outstanding agreements, waivers or arrangements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from or with respect to the Company
or
the Company Subsidiaries for any taxable period. The Company has delivered
to
Parent complete and correct copies of all income Tax Returns, audit reports
and
statements of deficiencies for each of the last three taxable years filed by
or
issued to or with respect to the Company or the Company
Subsidiaries.
23
(f) With
respect to any period for which Tax Returns have not yet been filed, or for
which Taxes are not yet due or owing, the Company has, in accordance with
generally accepted accounting principles, made due and sufficient accruals
for
such Taxes in the Company’s books and records.
(g) Each
of
the Company and the Company Subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing
to any employee, independent contractor, creditor, stockholder, or other third
party, and all Form W-2 and 1099 or corresponding foreign reports required
with
respect thereto have been properly completed and timely filed.
(h) Other
than with respect to the consolidated group of which the Company is the parent,
the Company and the Company Subsidiaries are not and have never been a party
to
or bound by, nor do they have or have they ever had any obligation under, any
Tax sharing agreement or similar contract or arrangement. Other than with
respect to the consolidated group of which the Company is the parent, neither
the Company nor any Company Subsidiary has any liability for the Taxes of any
other person under Treasury Regulation 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract, or
otherwise.
(i) Neither
the Company nor any Company Subsidiary has agreed to, or is required to, make
any adjustments under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(j) Neither
the Company nor the Company Subsidiaries are, or were during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code.
(k) The
Company has made available to Parent correct and complete copies of all state
sales and use Tax Returns filed for the Company and each of the Company
Subsidiaries and each of the Company’s and the Company Subsidiaries’ predecessor
entities, if any, filed since December 31, 2004. The Company has also made
available to Parent correct and complete copies of all material examination
reports received and all statements of deficiencies assessed against, or agreed
to, by the Company or any of the Company Subsidiaries or their predecessor
entities with respect to such Tax Returns described in the preceding
sentence.
(l) Neither
the Company nor any of the Company Subsidiaries will be required to include
any
item of income in, or exclude any item of deduction from, taxable income for
any
taxable period (or portion thereof) ending after the Closing Date as a result
of
any:
(i) change
in
method of accounting for a taxable period ending on or prior to the Closing
Date;
24
(ii) “closing
agreement” as described in Section 7121 of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date;
(iii) intercompany
transactions or any excess loss account described in Treasury Regulations under
Section 1502 of the Code (or any corresponding or similar provision of state,
local or foreign income Tax law);
(iv) installment
sale or open transaction disposition made on or prior to the Closing Date;
or
(v) prepaid
amount received on or prior to the Closing Date.
2.16 Employee
Benefit Plans.
(a) Section
2.16(a) of the Company Disclosure Schedule contains a correct and complete
list
identifying each “employee benefit plan,” as defined in Section 3(3) of ERISA
(whether or not subject to ERISA), each employment, consultancy, non-compete,
severance, termination, change of control, or similar agreement, contract,
plan,
arrangement or policy and each other contract, plan, arrangement or policy
providing for compensation, bonuses, profit-sharing, stock purchase, stock
option or other stock-related rights or other forms of incentive or deferred
compensation, fringe benefits, vacation benefits, insurance (including any
self-insured arrangements), health or medical benefits, employee assistance
program, disability or sick leave benefits, workers’ compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance
benefits and any summary plan descriptions) which covers any current employee
or
former employee, director or consultant of the Company or the Company
Subsidiaries or its ERISA Affiliates or any of their dependents, with respect
to
which the Company or any of its ERISA Affiliates has any material liability,
whether current or contingent (individually, a “Company
Employee Plan”
and
collectively, the “Company
Employee Plans”).
A
copy of each such Company Employee Plan (and, if applicable, related trust
or
funding agreements or insurance policies) and all amendments thereto or a
description of each Company Employee Plan that is unwritten, has been made
available to Parent together with the most recent annual report (Form 5500
including, where applicable, all schedules and actuarial and accountants’
reports) and Tax Return (Form 990) prepared in connection with any such plan
or
trust.
(b) Section
2.16(b) of the Company Disclosure Schedule contains a list of all severance
payments payable by the Company in connection with the termination of any
current employee or consultant of the Company or any Company Subsidiary,
including any amounts, to the Company's knowledge, arising under statutory
obligations and any applicable notice periods.
(c) No
Company Employee Plan is subject to Title IV of ERISA or Section 412 of the
Code.
(d) No
Company Employee Plan is a multiemployer plan, as defined in Section 3(37)
of
ERISA (a “Multiemployer
Plan”),
or a
multiple employer welfare arrangement as defined in Section 3(40) of ERISA
(a
“MEWA”)
or a
multiple employer plan as defined in Section 413(c) of the Code. Neither the
Company, any of the Company Subsidiaries nor any of their ERISA Affiliates
has
(i) ever been obligated to contribute to a “multiemployer plan” (as defined in
Section 4001(a)(3) of ERISA); or (ii) to the knowledge of the Company, ever
maintained a Company Employee Plan which was ever subject to the laws of any
jurisdiction outside of the United States.
25
(e) Except
as
has not and would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, each Company Employee Plan that
is
intended to be qualified under Section 401(a) of the Code (each, a “Company
Qualified Plan”)
is so
qualified and the plan as currently in effect has received a favorable
determination or opinion letter to that effect from the Internal Revenue
Service, no such determination or opinion letter has been revoked and revocation
has not been threatened, and to the Company’s knowledge, there is no reason why
any such determination or opinion letter should be revoked or not be reissued.
The Company has made available to Parent copies of the most recent Internal
Revenue Service determination or opinion letters with respect to each such
Company Qualified Plan. Each Company Employee Plan has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including ERISA and the Code, which
are
applicable to such Company Employee Plan with such exceptions as would not
have
or be reasonably expected, individually or in the aggregate, to have a Company
Material Adverse Effect. Each Company Employee Plan that is a “nonqualified
deferred compensation plan” within the meaning of Section 409A(d)(l) of the Code
and any award thereunder, in each case that is subject to Section 409A of the
Code, has been operated in good faith compliance in all material respects with
Section 409A of the Code and the regulations, guidance and notices issued
thereunder. The Company has complied in all material respects with the reporting
and wage withholding requirements under Section 409A of the Code and applicable
IRS guidance. No events have occurred with respect to any Company Employee
Plan
that could result in payment or assessment by or against the Company or any
of
its ERISA Affiliates of any excise Taxes under Sections 4972, 4975,4976,
4977,4979, 4980B, 4980D, 4980E or 5000 of the Code or any penalty or tax under
Section 5.02(i) of ERISA except for any such payment or assessment as would
not
be reasonably expected, individually or in the aggregate, to have a Company
Material Adverse Effect.
(f) There
is
no current or projected liability in respect of post-employment or
post-retirement health or medical or life insurance benefits or other retiree
benefits for any person, retired, former or current employees of the Company
or
the Company Subsidiaries, except as required by applicable law or under Section
4980B of the Code (“COBRA”). No condition exists that would prevent the Company
or any of its ERISA Affiliates from amending or terminating any Company Employee
Plan providing health or medical benefits in respect of any current or former
employees of the Company or the Company Subsidiaries. None of the Company,
any
of the Company Subsidiaries, or any Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, except as
required by applicable law and there has been no communication to current or
former employees by the Company or any of the Company Subsidiaries which could
reasonably be interpreted to promise or guarantee such employees retiree health
or life insurance or other retiree death benefits on a permanent
basis.
26
(g) All
contributions and payments due under each Company Employee Plan, determined
in
accordance with GAAP, as adjusted to include proportional accruals for the
period ending on the Effective Time, will be discharged and paid on or prior
to
the Effective Time except to the extent accrued as a liability in accordance
with ordinary Company practice. There has been no amendment to, written
interpretation of or announcement (whether or not written) by the Company or
any
of its ERISA Affiliates relating to, or change in employee participation or
coverage under, any Company Employee Plan which would increase materially the
expense of maintaining such Company Employee Plan above the level of the expense
incurred in respect thereof for the most recent fiscal year ended prior to
the
date hereof. With respect to each Company Employee Plan, there are no benefit
obligations for which contributions have not been made or properly accrued
to
the extent required by GAAP on the Company’s financial statements.
(h) Section
2.16(h) of the Company Disclosure Schedule lists all contracts and agreements
between the Company and Xxxxx X. XxXxxxx.
(i) No
employee, consultant or former consultant or employee of the Company or any
of
the Company Subsidiaries will become entitled to any bonus, retirement,
severance, job security or similar benefit, or the enhancement of any such
benefit or any other payment, as a result of the transactions contemplated
hereby alone or together with any other event. Except as set forth on Section
2.16(i) of the Company Disclosure Schedule, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
could (either alone or in conjunction with any other event) result in, or cause
the accelerated vesting, funding or delivery of, or increase the amount or
value
of, any payment or benefit to any employee, officer or director of the Company
or any of the Company Subsidiaries, or could limit the right of the Company
or
any of the Company Subsidiaries to amend, merge, terminate or receive a
reversion of assets from any Company Employee Plan or related trust. There
is no
Contract, plan or arrangement (written or otherwise) covering any employee
or
former employee of the Company or any of the Company Subsidiaries that,
individually or collectively, could give rise to the payment of any amount
that
would not be deductible pursuant to the terms of Sections 280G or 162(m) of
the
Code, as a result of the transactions contemplated hereby alone or together
with
any other event. The information set forth on Section 2.16(g)(ii) of the Company
Disclosure Schedule regarding severance arrangements for certain executive
officers and certain other executives of the Company is true and correct in
all
material respects.
(j) No
“prohibited transactions” within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, that are not otherwise exempt under Section
408
of ERISA, has occurred with respect to any Company Employee Plan. There is
no
material action, suit, investigation, audit, arbitration or proceeding (i)
pending against or involving or, to the knowledge of the Company, threatened
against any Company Employee Plan or (ii) involving the Company’s classification
of individuals as either employees or independent contractors, in each case,
before any arbitrator or any Governmental Entity.
(k) There
is
no material action, suit, investigation, audit, arbitration or proceeding (i)
pending against or involving or, to the knowledge of the Company, threatened
against any Company Employee Plan, (ii) pending or, to the knowledge of the
Company, threatened involving the Company’s or any of the Company Subsidiaries’
classification of individuals as either employees or independent contractors,
(iii) pending or, to the knowledge of the Company, threatened involving the
Company’s or any of the Company Subsidiaries’ classification of Employees as
exempt or non-exempt for purposes of wage and hour laws, rules or regulations,
or (iv) pending or, to the knowledge of the Company, threatened under any
workers compensation policy or long-term disability policy, in each case, before
or by any arbitrator or any Governmental Entity other than routine claims for
benefits payable under any such policy.
27
2.17 Employee
Relations.
(a) The
Company and the Company Subsidiaries, collectively, have the employees and
consultants listed on Schedule 2.17 of the Company Disclosure Schedule. Neither
the Company nor any Company Subsidiary is delinquent in payments to any of
its
employees or consultants for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by them or amounts required
to be
reimbursed to such employees. Except as disclosed in Section 2.17 of the Company
Disclosure Schedule, upon termination of the employment of any employees, none
of the Company, the Company Subsidiaries nor Parent shall be liable, by reason
of the Merger or anything done prior to the Effective Time, to any of such
employees for severance pay or any other payments (other than their accrued
salary, vacation or sick pay in accordance with normal policies). Schedule
2.17
of the Company Disclosure Schedule list all current directors, officers,
employees and consultants of the Company and the Company Subsidiaries including,
in each case, name, current job title and annual rate of base compensation,
minimum employment or contract terms and termination notice
requirement.
(b) The
Company and each Company Subsidiary (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules
and
regulations respecting employment, employment practices, terms and conditions
of
employment and wages and hours, in each case, with respect to employees, (ii)
has withheld all amounts required by law or by agreement to be withheld from
the
wages, salaries and other payments to employees, (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any
of
the foregoing, and (iv) is not liable for any payment to any trust or other
fund
or to any Governmental Entity, with respect to unemployment compensation
benefits, social security or other benefits or obligations for employees (other
than routine payments to be made in the ordinary course of business and
consistent with past practice), except in each case of clauses (i) through
(iv)
where the failure or liability would not be reasonably expected to have a
Company Material Adverse Effect.
(c) No
work
stoppage or labor strike against the Company or any Company Subsidiary is
pending or, to the knowledge of the Company, threatened. Neither the Company
nor
any Company Subsidiary is involved in or, to the knowledge of the Company,
threatened with, any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any employee, including without
limitation charges of unfair labor practices or discrimination complaints,
that,
if adversely determined, would result in material liability to the Company.
Neither the Company nor any Company Subsidiary has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act or any similar
foreign law that would, directly or indirectly result in material liability
to
the Company. Neither the Company nor any Company Subsidiary is presently, nor
has it been in the past, a party to or bound by any collective bargaining
agreement or union contract with respect to employees other than as set forth
in
Section 2.17 of the Company Disclosure Schedule and no collective bargaining
agreement is being negotiated by the Company or any Company Subsidiary. No
union
organizing campaign or activity with respect to non-union employees of the
Company or any Company Subsidiary is ongoing, pending or, to the knowledge
of
the Company, threatened.
28
2.18 No
Breach.
Except
as set forth in Section 2.18 of the Company Disclosure Schedule, the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby will not (i) violate
any
provision of the Certificate of Incorporation or By-Laws of the Company, (ii)
result in a violation or breach of or the loss of any benefit under, or
constitute (with or without due notice or lapse of time or both) a default
(or
give rise to any right of termination, amendment, cancellation or acceleration)
under any instrument, contract or other agreement to which the Company or any
Company Subsidiary is a party or to which any of them or any of their assets
or
properties is bound or subject, (iii) assuming that all consents, approvals,
authorizations and other actions described in subsection (v) have been obtained
and all filings and obligations in subsection (v) have been made or complied
with, violate any law, ordinance or regulation or any order, judgment,
injunction, decree or other requirement of any Governmental Entity applicable
to
the Company or the Company Subsidiaries or by which any of the Company’s or the
Company Subsidiaries’ assets or properties is bound, (iv) violate any Permit,
(v) require any filing with, notice to, or permit, consent or approval of,
any
Governmental Entity, except for (A) compliance with any applicable requirements
of the Exchange Act, (B) any filings as may be required under the DGCL in
connection with the Merger or (C) any filings with the SEC or the NASDAQ Stock
Market, (vi) result in the creation of any lien or other encumbrance on the
assets or properties of the Company or a Company Subsidiary, or (vii) cause
any
of the assets owned by the Company or any Company Subsidiary to be reassessed
or
revalued by any taxing authority or other Governmental Entity, excluding from
clauses (ii) through (vi) where (x) any such violations, breaches, defaults
or
encumbrances, (y) any failure to obtain such permits, authorizations, consents
or approvals, or (z) any failure to make such filings, would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect or materially interfere with the ability of the Company to consummate
the
transactions contemplated hereby.
2.19 Board
Approvals; Takeover Statutes.
(a) At
a
meeting duly called and held, the Company’s Board of Directors unanimously (i)
approved and adopted the Agreement and declared its advisability in accordance
with the provisions of the DGCL; (ii) determined that the terms of the Merger
and the other transactions contemplated by this Agreement are fair and in the
best interests of the Company and the Company’s shareholders; and (iii)
directed, subject to Section 4.4(c),
that
this Agreement be submitted to the Company’s shareholders for their adoption and
resolved to recommend that the shareholders vote in favor of the adoption of
this Agreement.
(b) Assuming
the accuracy of the representations and warranties of Parent and Merger Sub
set
forth in Sections 3.22 and 3.23, no “fair price”, “moratorium”, “control share
acquisition” or other similar anti-takeover statute or regulation enacted under
state or federal laws in the United States applicable to the Company is
applicable to the Merger or the other transactions contemplated
hereby.
29
2.20 Financial
Advisor.
(a) The
Board
of Directors of the Company has received the opinion of Xxxxxxxx Xxxxx &
Company Inc. (“Xxxxxxxx”),
dated
on or about the date of this Agreement, to the effect that, as of such date,
the
Merger Consideration is fair, from a financial point of view, to the holders
of
Company Common Stock, a copy of which opinion has been made available to
Parent.
(b) No
broker, finder, agent or similar intermediary has acted on behalf of the Company
in connection with this Agreement or the transactions contemplated hereby,
and
there are no brokerage commissions, finders’ fees or similar fees or commissions
payable in connection herewith based on any agreement, arrangement or
understanding with the Company, or any action taken by the Company.
2.21 Proxy
Statement and Registration Statement.
None of
the information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Registration Statement (as defined herein)
and
the Joint Proxy Statement/Prospectus (as defined herein) will, (i) at the time
it is declared effective under the Securities Act, (ii) at the time the Joint
Proxy Statement/Prospectus (or any amendment or supplement thereto) is first
mailed to the stockholders of the Company, (iii) at the time of the Company
Stockholders’ Meeting, and (iv) at the Effective Time (with respect to the
Registration Statement only), contain any untrue statement of material fact
or
omit to state any material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under which it is
made, not false or misleading. If at any time prior to the Effective Time any
event or circumstance relating to the Company or any Company Subsidiaries,
or
their respective officers and directors, should be discovered by the Company
which should be set forth in an amendment or supplement to the Registration
Statement or Joint Proxy Statement/Prospectus, the Company shall promptly inform
Parent. Notwithstanding the foregoing, the Company makes no representation
or
warranty with respect to information supplied by Parent or any of its
representatives, which is contained in the Registration Statement or the Joint
Proxy Statement/Prospectus. All documents that the Company is responsible for
filing with the SEC in connection with the transactions contemplated by this
Agreement shall comply in all material aspects with the applicable requirements
of the Securities Act and the rules and regulations promulgated thereunder
and
the Exchange Act and the rules and regulations promulgated
thereunder.
ARTICLE
III - REPRESENTATIONS AND WARRANTIES
OF
PARENT AND MERGER SUB
Except
as
set forth on Schedule D delivered by Parent to the Company on the date hereof
(the “Parent
Disclosure Schedule”),
the
section numbers of which are numbered to correspond to the section numbers
of
this Agreement to which they refer, it being agreed that disclosure of any
item
in any section of the Parent Disclosure Schedule shall also be deemed disclosure
with respect to any other section of this Agreement to which the relevance
of
such item is reasonably apparent, Parent and Merger Sub hereby make the
following representations and warranties to the Company:
30
3.1 Organization
and Qualification.
(a) Each
of
Parent and each Parent Subsidiary (as defined in Section 3.4(a)) is a
corporation or other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions that recognize the concept of good
standing) under the laws of its jurisdiction of organization and has corporate
or similar power and authority to own, lease and operate its assets and to
carry
on its business as now being conducted, except where any such failure to have
such power or authority would not, individually or in the aggregate, have a
Parent Material Adverse Effect (as defined herein). Each of Parent and each
Parent Subsidiary is qualified or otherwise authorized to transact business
as a
foreign corporation or other organization in all jurisdictions in which such
qualification or authorization is required by law, except for jurisdictions
in
which the failure to be so qualified or authorized would not reasonably be
expected to have a Parent Material Adverse Effect. “Parent Material Adverse
Effect” means any fact, circumstance, event, change, effect or occurrence that,
individually or in the aggregate with all other facts, circumstances, events,
changes, effects, or occurrences, has or would be reasonably expected to have
a
material adverse effect on or with respect to the business, results of operation
or financial condition of Parent and the Parent Subsidiaries taken as a whole,
provided, however, that a Parent Material Adverse Effect shall not include
facts, circumstances, events, changes, effects or occurrences (i) generally
affecting the economy or the financial, debt, credit or securities markets
in
the United States, including as a result of changes in geopolitical conditions,
(ii) generally affecting any of the industries in which Parent or the Parent
Subsidiaries operate, (iii) resulting from the announcement of this Agreement,
(iv) resulting from changes in any applicable laws or regulations or applicable
accounting regulations or principles or interpretations thereof, (v) resulting
from any actions taken pursuant to or in accordance with the terms of this
Agreement, (vi) resulting from any outbreak or escalation of hostilities or
war
or any act of terrorism, (vii) resulting from any failure by the Parent to
meet
its internal or published projections, budgets, plans or forecasts of its
revenues, earnings or other financial performance or results of operations,
in
and of itself (it being understood that the facts or occurrences giving rise
or
contributing to such failure that are not otherwise excluded from the definition
of a “Parent Material Adverse Effect” may be taken into account in determining
whether there has been a Parent Material Adverse Effect), or
(viii) resulting from a decline in the price of the Parent Common Stock on
the NASDAQ Capital Market (it being understood that the facts or occurrences
giving rise or contributing to such decline that are not otherwise excluded
from
the definition of a “Parent Material Adverse Effect” may be taken into account
in determining whether there has been a Parent Material Adverse
Effect).
Parent
has previously provided or made available to the Company true, correct and
complete copies of the charter and bylaws or other organizational documents
of
Parent and each Parent Subsidiary as in effect on the date of this Agreement,
and none of Parent or any Parent Subsidiary is in violation of any provisions
of
such documents, except as would not reasonably be expected to have a Parent
Material Adverse Effect.
31
3.2 Authority
to Execute and Perform Agreements.
The
Parent and the Merger Sub each have the corporate power and authority to enter
into, execute and deliver this Agreement, and, subject to receipt of the Parent
Requisite Vote (as defined herein), to perform its obligations hereunder and
to
consummate the transactions contemplated hereby. Each of (i) the Board of
Directors of Parent and (ii) the Board of Directors of the Merger Sub, has
duly
authorized the execution and delivery of this Agreement and the consummation
of
the transactions contemplated hereby and immediately after the execution and
delivery of this Agreement, Parent, as sole stockholder of Merger Sub, will
approve and adopt this Agreement. No other corporate proceeding on the part
of
the Parent or Merger Sub is necessary to consummate the transactions
contemplated hereby other than the approval of the Charter Amendment, the Share
Issuance and the CVR Issuance by the requisite holders of Parent Common Stock
(and the filing with the Secretary of State of the State of Delaware of the
Certificate of Merger as required by the DGCL). This Agreement has been duly
executed and delivered by Parent and the Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a valid and
binding obligation of Parent and Merger Sub, enforceable against Parent and
the
Merger Sub in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar Laws relating to
creditors’ rights generally and to general principles of equity. The only vote
of Parent stockholders required to approve (i) the Charter Amendment is an
affirmative votes of a number of outstanding shares of Parent Common Stock
in
favor of the Charter Amendment that exceeds the number of votes of outstanding
shares of Parent Common Stock against the Charter Amendment and (ii) the Share
Issuance and the CVR Issuance is the affirmative vote of a majority of the
votes
cast by outstanding shares of Parent Common Stock (the requisite votes to
approve required by clauses (i) and (ii) collectively, the “Parent Requisite
Vote”).
3.3 Capitalization
and Title to Shares.
(a) The
authorized capital stock of Parent consists of (i) 75,000,000 shares of Parent
Common Stock and (ii) 5,000,000 shares of preferred stock, par value $0.0001
per
share (“Parent
Preferred Stock”),
of
which 700,000 shares are currently designated Series A-10 Preferred Stock.
As of
May 9, 2008, (A) 42,343,326 shares of Parent Common Stock were issued and
outstanding and (B) 74,841 shares of Series A-10 Preferred Stock, convertible
into 748,410 shares of Parent Common Stock, were issued and outstanding. All
of
the issued and outstanding shares of Parent’s Common Stock and Parent’s
Preferred Stock are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights.
(b) The
Parent has reserved 14,646,528 shares of Parent Common Stock for issuance
pursuant to all of the options to purchase Parent Common Stock issued or
issuable pursuant to Parent's stock option and similar plans (the "Parent
Options"). As of March 31, 2008, Parent Options to purchase 11,806,528 shares
of
Parent Common Stock were outstanding. Section 3.3(b)
of the
Parent Disclosure Schedule sets forth with respect to each Parent Option
outstanding as of March 31, 2008, (i) the number of shares of Parent Common
Stock issuable therefor and (ii) the purchase price payable therefor upon the
exercise of each such Parent Option. True and complete copies of all instruments
(or the forms of such instruments) referred to in this Section 3.3(b)
have
been furnished previously to Company. Except as indicated in Section
3.3(b)
of the
Parent Disclosure Schedule, Parent is not obligated to accelerate the vesting
of
any Parent Options as a result of the Merger.
(c) As
of
March 31, 2008, warrants to purchase 2,857,535 shares of Parent Common Stock
were outstanding (“Parent
Warrants”).
Section 3.3(c) of the Parent Disclosure Schedule includes a true and complete
list of all outstanding Parent Warrants.
32
(d) Except
for (i) shares indicated as issued and outstanding on March 31, 2008 in Section
3.3(a), and (ii) shares issued after March 31, 2008, upon (A) the exercise
of
outstanding Parent Options listed in Section 3.3(b) of the Parent Disclosure
Schedule; (B) the exercise of outstanding Parent Warrants listed in Section
3.3(c) of the Parent Disclosure Schedule; or (C) the exercise of other
outstanding convertible securities or other agreement to issue Parent Common
Stock listed on Section 3.3(e) of the Parent Disclosure Schedule, there are
not
as of the date hereof, and at the Effective Time, except as set forth in Section
3.3(e) of the Parent Disclosure Schedule, there will not be, any shares of
Parent Common Stock issued and outstanding.
(e) Other
than Parent Options listed in Section 3.3(b) of the Parent Disclosure Schedule
and the Parent Warrants listed in Section 3.3(d) of the Parent Disclosure
Schedule, and except as set forth in Section 3.3(e) of the Parent Disclosure
Schedule, there are not, as of the date of this Agreement, authorized or
outstanding any subscriptions, options, conversion or exchange rights, warrants,
repurchase or redemption agreements, or other agreements or commitments of
any
nature whatsoever obligating Parent to issue, transfer, deliver or sell, or
cause to be issued, transferred, delivered, sold, repurchased or redeemed,
additional shares of the capital stock or other securities of Parent or
obligating Parent to grant, extend or enter into any such agreement. Except
as
set forth in Section 3.3(e) of the Parent Disclosure Schedule, to the knowledge
of Parent, there are no stockholder agreements, voting trusts, proxies or other
agreements, instruments or understandings with respect to the voting of the
capital stock of the Company.
(f) The
Parent has no outstanding bonds, debentures, notes or other indebtedness, which
have the right to vote on any matters on which stockholders may
vote.
3.4 Parent
Subsidiaries.
(a) Section
3.4(a) of the Parent Disclosure Schedule sets forth the name of each Parent
Subsidiary, and with respect to each Parent Subsidiary, (i) the jurisdiction
in
which each is incorporated or organized and (ii) the jurisdictions, if any,
in
which it is qualified to do business. All issued and outstanding shares or
other
equity interests of each Parent Subsidiary are owned directly by the Parent
free
and clear of any charges, liens, encumbrances, security interests or adverse
claims. As used in this Agreement, “Parent
Subsidiary”
means
any corporation, partnership or other organization, whether incorporated or
unincorporated, (i) of which the Parent or any Parent Subsidiary is a general
partner or (ii) at least 50% of the securities or other interests having voting
power to elect a majority of the board of directors or others performing similar
functions with respect to such corporation, partnership or other organization
are directly or indirectly owned or controlled by the Parent or by any Parent
Subsidiary, or by the Parent and one or more Parent Subsidiaries.
(b) There
are
not as of the date of this Agreement, and at the Effective Time there will
not
be, any subscriptions, options, conversion or exchange rights, warrants,
repurchase or redemption agreements, or other agreements, claims or commitments
of any nature whatsoever obligating any Parent Subsidiary to issue, transfer,
deliver or sell, or cause to be issued, transferred, delivered, sold,
repurchased or redeemed, shares of the capital stock or other securities of
the
Parent or any Parent Subsidiary or obligating the Parent or any Parent
Subsidiary to grant, extend or enter into any such agreement. To the knowledge
of the Parent, there are no stockholder agreements, voting trusts, proxies
or
other agreements, instruments or understandings with respect to the voting
of
the capital stock of any Parent Subsidiary, other than as noted in Section
3.2
hereof.
33
(c) Section
3.4(c) of the Parent Disclosure Schedule sets forth, for each Parent Joint
Venture, the interest held by the Parent and the jurisdiction in which such
Parent Joint Venture is organized. Interests in Parent Joint Ventures held
by
the Parent are held directly by the Parent, free and clear of any charges,
liens, encumbrances, security interest or adverse claims. The term “Parent Joint
Venture” means any corporation or other entity (including partnerships, limited
liability companies and other business associations) that is not a Parent
Subsidiary and in which the Parent or one or more Parent Subsidiaries owns
an
equity interest (other than equity interests held for passive investment
purposes which are less than 10% of any class of the outstanding voting
securities or other equity of any such entity).
3.5 SEC
Reports; Xxxxxxxx-Xxxxx Act.
Parent
previously has filed with the SEC its (i) Annual Report on Form 10-KSB for
the
year ended September 30, 2007 (the “Parent 10-K”), as amended, (ii) its
quarterly report on Form 10-QSB for its fiscal quarters ended December 31,
2007 and March 31, 2008, and (iii) all other documents required to be filed
by
Parent with the SEC under the Exchange Act since October 1, 2006 (all such
forms, reports, statements, certificates and other documents filed since October
1, 2006, including any amendments thereto, collectively, the “Parent SEC
Reports”). As of their respective filing dates, or, if amended or superseded by
a subsequent filing made prior to the date of this Agreement, as of the date
of
the last such amendment or superseding filing prior to the date of this
Agreement, the Parent SEC Reports complied, and each of the Parent SEC Reports
filed by Parent between the date of this Agreement and the Closing Date will
comply, in all material respects, with the Exchange Act and the Securities
Act,
as the case may be. As of their respective filing dates, or, if amended or
superseded by a subsequent filing made prior to the date of this Agreement,
as
of the date of the last such amendment or superseding filing prior to the date
of this Agreement, the Parent SEC Reports did not, or in the case of the Parent
SEC Reports filed by Parent on or after the date hereof will not, contain any
untrue statement of a material fact or omit to state a material fact required
to
be stated therein or necessary to make the statements therein, in light of
the
circumstances under which they were made, not misleading, except to the extent
that the information in such Parent SEC Reports has been amended or superseded
by a later Parent SEC Report filed prior to the date of this Agreement. Since
October 1, 2006, Parent has filed with the SEC all reports required to be filed
by it under the Exchange Act. No Parent Subsidiary is required to file any
form,
report or other document with the SEC. There are no outstanding loans or other
extensions of credit made by Parent or any of the Parent Subsidiaries to any
executive officer (as defined in Rule 3b-7 under the Exchange Act) or director
of Parent. Parent has not, since the enactment of the Xxxxxxxx-Xxxxx Act, taken
any action prohibited by Section 402 of the Xxxxxxxx-Xxxxx Act. No executive
officer of Parent has failed in any respect to make the certifications required
of him or her under Section 302 or 906 of the Xxxxxxxx-Xxxxx Act with respect
to
any Parent SEC Report and to Parent’s knowledge the applicable executive
officers anticipate making such certifications in Parent’s Annual Report on Form
10-QSB for the quarter ended June 30, 2008. Parent has made available to Company
true, correct and complete copies of all material written correspondence between
the SEC, on the one hand, and Parent and any of the Parent Subsidiaries, on
the
other hand since October 1, 2006. As of the date of this Agreement, there are
no
outstanding or unresolved comments in comment letters received from the SEC
staff with respect to the Parent SEC Reports. To the knowledge of Parent, none
of the Parent SEC Reports is the subject of ongoing SEC review or outstanding
SEC comment. None of the Parent Subsidiaries is required to file periodic
reports with the SEC pursuant to the Exchange Act.
34
3.6 Financial
Statements.
As of
the dates on which they were filed or amended prior to the date of this
Agreement in the Parent SEC Reports filed prior to the date of this Agreement,
the audited consolidated financial statements and unaudited consolidated interim
financial statements of Parent included in such Parent SEC Reports (i) were
prepared in accordance with generally accepted accounting principles in all
material respects applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto and except, in the case of
the
unaudited interim statements, as may be permitted under Form 10-QSB of the
Exchange Act) and (ii) fairly presented, in all material respects (except as
may
be indicated in the notes thereto and subject, in the case of any unaudited
interim financial statements, to normal year-end adjustments that would not
be
reasonably expected to be material in amount), the consolidated financial
position, results of operations and cash flows of Parent and the consolidated
Parent Subsidiaries as of the respective dates thereof and for the respective
periods indicated therein (subject, in the case of financial statements for
any
quarter of the current fiscal year, to normal year-end audit
adjustments).
3.7 Absence
of Undisclosed Liabilities.
The
Parent has no material liabilities of any nature, whether accrued, absolute,
contingent or otherwise, of a nature required by generally accepted accounting
principles to be reflected in a consolidated balance sheet or disclosed in
the
notes thereto, other than liabilities (i) adequately reflected, accrued or
reserved against on the Parent Balance Sheet (as defined herein), (ii) included
in Section 3.7 of the Parent Disclosure Schedule or (iii) incurred since March
31, 2008, in the ordinary course of business consistent with past practice,
or
(iv) which have been discharged or paid in full prior to the date of this
Agreement. The consolidated, unaudited balance sheet of Parent as of March
31,
2008 is referred to herein as the “Parent Balance Sheet.”
3.8 Absence
of Adverse Changes.
Since
September 30, 2007 through the date of this Agreement, except as contemplated
by
this Agreement, whether taken before or after the date of this Agreement (i)
the
Parent and the Parent Subsidiaries have conducted their respective businesses
in
all material respects in the ordinary course consistent with past practice
and
(ii) there has not been any change, event or circumstance that has had a Parent
Material Adverse Effect.
3.9 Compliance
with Laws.
(a) Parent
and each of the Parent Subsidiaries have all required franchises, tariffs,
grants, licenses, permits, easements, variances, exceptions, consents,
certificates, clearances, accreditation, approvals, orders and authorizations
of
any Governmental Entity necessary for Parent and each of the Parent Subsidiaries
to operate and use their properties and assets and to conduct their businesses
as presently operated, used and conducted (“Parent
Permits”)
other
than those the failure of which to possess would not have a Parent Material
Adverse Effect. Neither Parent nor any of the Parent Subsidiaries has received
written notice from any Governmental Entity or third party that any Parent
Permit is subject to any adverse action, including but not limited to,
suspension, termination, revocation or withdrawal, except where the failure
to
have any such Parent Permit or the receipt of such notice would not have or
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. The Parent Permits are in full force and effect, except
for any failures to be in full force and effect that, individually or in the
aggregate, would not have or reasonably be expected to have a Parent Material
Adverse Effect. Parent and each of the Parent Subsidiaries is in compliance
with
the terms of the Parent Permits, as applicable, except for such failures to
comply that, individually or in the aggregate, would not have or reasonably
be
expected to have a Parent Material Adverse Effect.
35
(b) Parent
and the Parent Subsidiaries are not in violation of any federal, state, local
or
foreign law, ordinance or regulation or any order, judgment, injunction, decree
or other requirement of any Governmental Entity, applicable to Parent or any
of
the Parent Subsidiaries or by which its or any of their respective properties
are bound, except for violations of any of the foregoing which would not, in
the
aggregate, reasonably be expected to have a Parent Material Adverse
Effect.
3.10 Actions
and Proceedings.
There
are no outstanding orders, judgments, injunctions, decrees or other requirements
of any Governmental Entity against Parent, any Parent Subsidiary or any of
their
respective assets or properties, except for those that would not, individually
or in the aggregate, have a Parent Material Adverse Effect. There are no
actions, suits or claims or legal, administrative or arbitration proceedings
pending or, to the knowledge of Parent, threatened against Parent, any Parent
Subsidiary or any of their respective securities, assets or properties, other
than any such suit, claim, action, proceeding, arbitration, mediation or
investigation that would not, individually or in the aggregate, have a Parent
Material Adverse Effect.
3.11 Contracts
and Other Agreements.
(a) Neither
Parent nor any Parent Subsidiary is a party to or bound by, and neither they
nor
their properties are subject to, any contract or other agreement required to
be
disclosed in a Form 10-KSB, Form 10-QSB or Form 8-K of the SEC, which is not
so
disclosed. All of such contracts and other agreements and all of the contracts
required to be set forth in Section 3.11 of the Parent Disclosure Schedule
(“Parent
Material Contracts”)
are
valid, subsisting, in full force and effect, binding upon Parent or the Parent
Subsidiary party thereto, and, to the knowledge of Parent, binding upon the
other parties thereto in accordance with their terms, except for such failures
to be valid and binding or to be in full force and effect which would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect. There is no default under any Parent Material Contract
by Parent or any of the Parent Subsidiaries and no event has occurred that
with
the lapse of time or the giving of notice or both would constitute a default
thereunder by Parent or any Parent Subsidiaries, in each case except as would
not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect. Correct and complete copies of the Parent Material
Contracts have been previously provided to the Company.
(b) Section
3.11(b) of the Parent Disclosure Schedule sets forth a list of the following
contracts and other agreements to which Parent or any Parent Subsidiary is
a
party or by or to which they or their assets or properties are bound or
subject:
36
(i) any
agreement (A) relating to a joint venture, partnership or other arrangement
involving a sharing of profits, losses, costs or liabilities with another person
or entity, (B) providing for the payment or receipt by Parent or a Parent
Subsidiary of milestone payments or royalties, or (C) that individually requires
aggregate expenditures by Parent and/or any Parent Subsidiary in any one year
of
more than $100,000;
(ii) any
indenture, trust agreement, loan agreement or note that involves or evidences
outstanding indebtedness, obligations or liabilities for borrowed money in
excess of $100,000;
(iii) any
agreement of surety, guarantee or indemnification that involves potential
obligations in excess of $100,000;
(iv) any
agreement that limits or restricts Parent or any Parent Subsidiary to compete
in
any business or with any person or in any geographic area except for and any
such Material Contract that may be canceled without any penalty or other
liability to Parent or any of the Parent Subsidiaries upon notice of 30 days
or
less;
(v) any
interest rate, equity or other swap or derivative instrument; or
(vi) any
agreement obligating Parent to register securities under the Securities
Act.
(c) Except
as
disclosed on Section 3.11(c) of the Parent Disclosure Schedule, no executive
officer or director of Parent has (whether directly or indirectly through
another entity in which such person has a material interest, other than as
the
holder of less than 1% of a class of securities of a publicly traded company)
has any interest in any contract or property (real or personal, tangible or
intangible), used in, or pertaining to the business of Parent which interest
would be required to be disclosed pursuant to Item 404(a) of Regulation S-K
promulgated by the SEC.
3.12 Properties.
(a) Except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, Parent or one of the Parent
Subsidiaries, as applicable, has good title to all the properties and assets
reflected in the latest audited balance sheet included in the Parent SEC Reports
as being owned by Parent or one of the Parent Subsidiaries or acquired after
the
date thereof that are material to Parent’s business on a consolidated basis
(except properties sold or otherwise disposed of since the date thereof in
the
ordinary course of business consistent with past practice), free and clear
of
all liens except Permitted Parent Encumbrances. “Permitted
Parent Encumbrances”
means
(a) mechanics’, materialmen’s, carrier’s, repairer’s and other statutory liens
arising or incurred in the ordinary course of business and that are not yet
delinquent or are being contended in good faith; (b) liens for taxes assessments
or other governmental charges not yet due and payable; (c) defects or
imperfections of title in the nature of easements, covenants, conditions,
encumbrances, restrictions, rights of way and similar matters affecting title
as
do not materially affect the use of the properties or assets subject thereto
or
affected thereby or otherwise materially impair business operations at such
properties; (d) zoning, building codes and other land use laws regulating the
use or occupancy of the Parent Leased Property (defined in Section 3.12(b))
or
the activities conducted thereon which are imposed by any Governmental Entity
having jurisdiction over such Parent Leased Property; (e) the financing secured
by the Parent's receivables, equipment and software, and other assets, as more
fully disclosed on Section 3.12 of the Parent Disclosure Schedule; and (f)
mortgages, or deeds of trust, security interests or other encumbrances on title
related to indebtedness reflected on the consolidated financial statements
of
Parent.
37
(b) Section
3.12(b) of the Parent Disclosure Schedule sets forth a complete list as of
the
date of this Agreement of all material real property leased, subleased or
licensed by the Parent or any of the Parent Subsidiaries (as lessor, sublessor,
landlord, sublandlord or licensor, or lessee, sublessee, tenant, subtenant
or
licensee, as the case may be) (collectively, “Parent
Leased Property”)
pursuant to which Parent or any of the Parent Subsidiaries (and all of its
and
their sublessees and licensees) uses or occupies the Parent Leased Property
(all
leases, subleases, licenses, sublicenses and other agreements with respect
to
such use or occupancy, including all master or ground leases), and all
amendments, modifications and extensions thereof being referred to collectively
as “Parent Leases.” Parent has made available to the Company correct and
complete copies of all Parent Leases and, to the knowledge of Parent, there
are
no material oral agreements, promises or understandings with respect to any
Parent Leased Property, which is subject to a Parent Lease.
(c) Except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, (A) each Parent Lease is valid
and
binding on Parent or the Parent Subsidiary party thereto and, to the knowledge
of Parent, each other party thereto, and is in full force and effect; (B) there
is no breach or default under any Lease by Parent or the Parent Subsidiary
party
thereto or, to the knowledge of Parent, any other party thereto, and neither
Parent nor any of the Parent Subsidiaries has received any written communication
from, or given any written communication to, any other party to the Parent
Lease
or any lender, alleging that Parent or any of the Parent Subsidiaries or such
other party, as the case may be, is or may be in default (and no event has
occurred that with or without the lapse of time or the giving of notice or
both
would constitute a breach or default under any Parent Lease by Parent or any
of
the Parent Subsidiaries or, to the knowledge of Parent, any other party
thereto); and (C) Parent or the Parent Subsidiary party to each Parent Lease
has
a good and valid leasehold interest in each parcel of real property which is
subject to a Parent Lease, free and clear of all liens except Permitted Parent
Encumbrances, and is in possession of the properties purported to be leased
or
licensed thereunder.
(d) None
of
the Parent or any of the Parent Subsidiaries owns any real property or has
any
options or rights or obligations to purchase, rights of first refusal, rights
of
first negotiation or rights of first offer to purchase, any real
property.
3.13 Intellectual
Property.
(a) Schedule
3.13 of the Parent Disclosure Schedule sets forth a complete and accurate list
as of the date of this Agreement of all material patents and patent
applications; registered trademarks, service marks and trade names; registered
domain names; and registered copyrights that are owned by Parent or any of
the
Parent Subsidiaries and used by Parent or any of its Subsidiaries in the
business of Parent and the Parent Subsidiaries.
38
(b) Except
as
set forth on Section 3.13 of the Parent Disclosure Schedule:
(i) except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, to the knowledge of the Parent,
the
Parent and/or the Parent Subsidiaries (A) exclusively own the Parent
Intellectual Property, or (B) license, sublicense or otherwise possess legally
enforceable rights to use all Parent Intellectual Property that it does not
so
own, in the case of the foregoing clauses (A) and (B) above, free and clear
of
all Liens granted by Parent, other than Permitted Liens, and as are reasonably
necessary for their businesses as currently conducted;
(ii) to
the
knowledge of Parent, neither the operation of the business of Parent or any
of
the Parent Subsidiaries, nor any activity of Parent or any of the Parent
Subsidiaries conflicts with, infringes upon or misappropriates any Intellectual
Property of any third party;
(iii) to
the
knowledge of Parent, the Parent Intellectual Property is not being infringed
or
misappropriated by any third party.
(iv) Parent
and the Parent Subsidiaries have taken reasonable measures and efforts to
protect and maintain the confidentiality of any know-how, trade secrets,
confidential information or proprietary information owned by Parent or any
of
the Parent Subsidiaries;
(v) Parent
and the Parent Subsidiaries are not a party to any claim, suit or other action,
and to the knowledge of Parent, no claim, suit or other action is threatened
against any of them, that challenges the validity, enforceability or ownership
of, or the right to use, sell or license the Parent Intellectual Property and,
no third party has alleged in writing during the two (2) year period prior
to
the date hereof that any of the operation of the Parent Intellectual Property,
the operation of the business of Parent or any of the Parent Subsidiaries,
or
any activity of Parent or any of the Parent Subsidiaries conflicts with,
infringes upon or misappropriates any Intellectual Property of any third
party;
(vi) except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, no current or former employee
or
consultant of Parent or any of its Subsidiaries owns any material rights in
or
to any Intellectual Property created in the scope of such employee’s employment
or consultant’s engagement by, as applicable, with Parent or any of the Parent
Subsidiaries;
(vii) except
as
would not have or reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, the transactions contemplated
by
this Agreement will not adversely affect the Parent’s or the Parent
Subsidiaries’ or the Surviving Corporation’s right, title and interest in and to
the Parent Intellectual Property; and
39
(viii) all
patents, patent applications and registrations for trademarks, service marks
and
copyrights which are held by Parent or any of the Parent Subsidiaries and which
are material to the business of Parent and the Parent Subsidiaries, taken as
a
whole, as currently conducted, are subsisting, have been duly maintained
(including the payment of maintenance fees), and have not expired or been
cancelled.
(c) For
purposes of this Agreement,
(i) “Parent
Intellectual Property”
means
all Intellectual Property owned by Parent or any of the Parent Subsidiaries
or
used by Parent or any of the Parent Subsidiaries in the business of Parent
and
the Parent Subsidiaries.
3.14 Insurance.
Section
3.14 of the Parent Disclosure Schedule sets forth a true and correct list of
all
material insurance policies and binders held by or on behalf of the Parent
and
the Parent Subsidiaries. Such policies and binders (i) are in full force and
effect, (ii) are in material conformity with the requirements of all leases
or
other agreements to which the Parent or the relevant Parent Subsidiary is a
party and (iii) to the knowledge of the Parent, are valid and enforceable in
accordance with their terms, except where the failure to be valid and
enforceable would not, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect. Neither the Parent nor any Parent
Subsidiary is in material default with respect to any provision contained in
such policy or binder nor has any of the Parent or a Parent Subsidiary failed
to
give any notice or present any claim under any such policy or binder in due
and
timely fashion. There are no material outstanding unpaid claims under any such
policy or binder. As of the date of this Agreement, neither the Parent nor
any
Parent Subsidiary has received written notice of cancellation or non-renewal
of
any such policy or binder.
3.15 Tax
Matters.
Except
as set forth in Section 3.15 of the Parent Disclosure Schedule:
(a) All
Tax
Returns required to be filed on or before the date hereof by or with respect
to
Parent and the Parent Subsidiaries have been filed within the time and in the
manner prescribed by law. All such Tax Returns are true, correct and complete
in
all material respects, and all Taxes owed by Parent or the Parent Subsidiaries,
whether or not shown on any Tax Return, have been paid. Parent and the Parent
Subsidiaries file Tax Returns in all jurisdictions where they are required
to so
file, and no claim has ever been made by any taxing authority in any other
jurisdiction that Parent or the Parent Subsidiaries are or may be subject to
taxation by that jurisdiction.
(b) There
are
no liens or other encumbrances with respect to Taxes upon any of the assets
or
properties of Parent or the Parent Subsidiaries, other than with respect to
Taxes not yet due and payable.
(c) No
audit
is currently pending with respect to any Tax Return of Parent or the Parent
Subsidiaries. No deficiency for any Taxes has been proposed in writing against
Parent or the Parent Subsidiaries, which deficiency has not been paid in
full.
(d) There
are
no outstanding agreements, waivers or arrangements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from or with respect to Parent or the
Parent Subsidiaries for any taxable period. Parent has delivered to the Company
complete and correct copies of all income Tax Returns, audit reports and
statements of deficiencies for each of the last three taxable years filed by
or
issued to or with respect to Parent or the Parent Subsidiaries.
40
(e) With
respect to any period for which Tax Returns have not yet been filed, or for
which Taxes are not yet due or owing, Parent has, in accordance with generally
accepted accounting principles, made due and sufficient accruals for such Taxes
in Parent’s books and records.
(f) Each
of
Parent and the Parent Subsidiaries has withheld and paid all Taxes required
to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party,
and all Form W-2 and 1099 or corresponding foreign reports required with respect
thereto have been properly completed and timely filed.
(g) Other
than with respect to the consolidated group of which Parent is the parent,
Parent and the Parent Subsidiaries are not and have never been a party to or
bound by, nor do they have or have they ever had any obligation under, any
Tax
sharing agreement or similar contract or arrangement. Other than with respect
to
the consolidated group of which the Parent is the parent, neither Parent nor
any
Parent Subsidiary has any liability for the Taxes of any other person under
Treasury Regulation 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract, or
otherwise.
(h) Neither
Parent nor any Parent Subsidiary has agreed to, or is required to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(i) Neither
Parent nor the Parent Subsidiaries are, or were during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the
Code.
(j) Parent
has made available to the Company correct and complete copies of all state
sales
and use Tax Returns filed for Parent and each of the Parent Subsidiaries and
each of the Parent’s and the Parent Subsidiaries’ predecessor entities, if any,
filed since December 31, 2004. Parent has also made available to the Company
correct and complete copies of all material examination reports received and
all
statements of deficiencies assessed against, or agreed to, by Parent or any
of
the Parent Subsidiaries or their predecessor entities with respect to such
Tax
Returns described in the preceding sentence.
(k) Neither
Parent nor any of the Parent Subsidiaries will be required to include any item
of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result
of
any:
(i) change
in
method of accounting for a taxable period ending on or prior to the Closing
Date;
(ii) “closing
agreement” as described in Section 7121 of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date;
41
(iii) intercompany
transactions or any excess loss account described in Treasury Regulations under
Section 1502 of the Code (or any corresponding or similar provision of state,
local or foreign income Tax law);
(iv) installment
sale or open transaction disposition made on or prior to the Closing Date;
or
(v) prepaid
amount received on or prior to the Closing Date.
3.16 Employee
Benefit Plans.
(a) Section
3.16(a) of the Parent Disclosure Schedule contains a correct and complete list
identifying each “employee benefit plan,” as defined in Section 3(3) of ERISA
(whether or not subject to ERISA), each employment, consultancy, non-compete,
severance, termination, change of control, or similar agreement, contract,
plan,
arrangement or policy and each other contract, plan, arrangement or policy
providing for compensation, bonuses, profit-sharing, stock purchase, stock
option or other stock-related rights or other forms of incentive or deferred
compensation, fringe benefits, vacation benefits, insurance (including any
self-insured arrangements), health or medical benefits, employee assistance
program, disability or sick leave benefits, workers’ compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance
benefits and any summary plan descriptions) which covers any current employee
or
former employee, director or consultant of Parent or the Parent Subsidiaries
or
its ERISA Affiliates or any of their dependents, with respect to which Parent
or
any of its ERISA Affiliates has any material liability, whether current or
contingent (individually, a “Parent
Employee Plan”
and
collectively, the “Parent
Employee Plans”).
A
copy of each such Parent Employee Plan (and, if applicable, related trust or
funding agreements or insurance policies) and all amendments thereto or a
description of each Parent Employee Plan that is unwritten, has been made
available to the Company together with the most recent annual report (Form
5500
including, where applicable, all schedules and actuarial and accountants’
reports) and Tax Return (Form 990) prepared in connection with any such plan
or
trust.
(b) No
Parent
Employee Plan is subject to Title IV of ERISA or Section 412 of the
Code.
(c) No
Parent
Employee Plan is Multiemployer Plan, or a MEWA or a multiple employer plan
as
defined in Section 413(c) of the Code. Neither Parent, any of the Parent
Subsidiaries nor any of their ERISA Affiliates has (i) ever been obligated
to
contribute to a “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA); or (ii) to the knowledge of Parent, ever maintained a Parent Employee
Plan which was ever subject to the laws of any jurisdiction outside of the
United States.
42
(d) Except
as
has not and would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, each Parent Employee Plan that
is
intended to be qualified under Section 401(a) of the Code (each, a “Parent
Qualified Plan”)
is so
qualified and the plan as currently in effect has received a favorable
determination or opinion letter to that effect from the Internal Revenue
Service, no such determination or opinion letter has been revoked and revocation
has not been threatened, and to the Parent’s knowledge, there is no reason why
any such determination or opinion letter should be revoked or not be reissued.
Parent has made available to the Company copies of the most recent Internal
Revenue Service determination or opinion letters with respect to each such
Parent Qualified Plan. Each Parent Employee Plan has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including ERISA and the Code, which
are
applicable to such Parent Employee Plan with such exceptions as would not have
or be reasonably expected, individually or in the aggregate, to have a Parent
Material Adverse Effect. Each Parent Employee Plan that is a “nonqualified
deferred compensation plan” within the meaning of Section 409A(d)(l) of the Code
and any award thereunder, in each case that is subject to Section 409A of the
Code, has been operated in good faith compliance in all material respects with
Section 409A of the Code and the regulations, guidance and notices issued
thereunder. Parent has complied in all material respects with the reporting
and
wage withholding requirements under Section 409A of the Code and applicable
IRS
guidance. No events have occurred with respect to any Parent Employee Plan
that
could result in payment or assessment by or against the Parent or any of its
ERISA Affiliates of any excise Taxes under Sections 4972, 4975,4976, 4977,4979,
4980B, 4980D, 4980E or 5000 of the Code or any penalty or tax under Section
5.02(i) of ERISA except for any such payment or assessment as would not be
reasonably expected, individually or in the aggregate, to have a Parent Material
Adverse Effect.
(e) There
is
no current or projected liability in respect of post-employment or
post-retirement health or medical or life insurance benefits or other retiree
benefits for any person, retired, former or current employees of Parent or
the
Parent Subsidiaries, except as required by applicable law or under Section
4980B
of the Code (“COBRA”). No condition exists that would prevent the Parent or any
of its ERISA Affiliates from amending or terminating any Parent Employee Plan
providing health or medical benefits in respect of any current or former
employees of Parent or the Parent Subsidiaries. None of Parent, any of the
Parent Subsidiaries, or any Parent Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, except as required
by
applicable law and there has been no communication to current or former
employees by Parent or any of the Parent Subsidiaries which could reasonably
be
interpreted to promise or guarantee such employees retiree health or life
insurance or other retiree death benefits on a permanent basis.
(f) All
contributions and payments due under each Parent Employee Plan, determined
in
accordance with GAAP, as adjusted to include proportional accruals for the
period ending on the Effective Time, will be discharged and paid on or prior
to
the Effective Time except to the extent accrued as a liability in accordance
with ordinary Parent practice. There has been no amendment to, written
interpretation of or announcement (whether or not written) by Parent or any
of
its ERISA Affiliates relating to, or change in employee participation or
coverage under, any Parent Employee Plan which would increase materially the
expense of maintaining such Parent Employee Plan above the level of the expense
incurred in respect thereof for the most recent fiscal year ended prior to
the
date hereof. With respect to each Parent Employee Plan, there are no benefit
obligations for which contributions have not been made or properly accrued
to
the extent required by GAAP on the Parent’s financial statements. The assets of
each Parent Employee Plan which is funded are reported at their fair market
value on the books and records of such Parent Employee Plan and, if applicable,
Parent’s financial statements.
43
(g) Except
as
set forth on Section 3.16(g) of the Parent Disclosure Schedule, no employee,
consultant or former consultant or employee of Parent or any of the Parent
Subsidiaries will become entitled to any bonus, retirement, severance, job
security or similar benefit, or the enhancement of any such benefit or any
other
payment, as a result of the transactions contemplated hereby alone or together
with any other event. Except as set forth on Section 3.16(g)(i) of the Parent
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby could (either alone
or
in conjunction with any other event) result in, or cause the accelerated
vesting, funding or delivery of, or increase the amount or value of, any payment
or benefit to any employee, officer or director of Parent or any of the Parent
Subsidiaries, or could limit the right of Parent or any of the Parent
Subsidiaries to amend, merge, terminate or receive a reversion of assets from
any Parent Employee Plan or related trust. There is no Contract, plan or
arrangement (written or otherwise) covering any employee or former employee
of
Parent or any of the Parent Subsidiaries that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Sections 280G or 162(m) of the Code, as a result of
the
transactions contemplated hereby alone or together with any other event. The
information set forth on Section 3.16(g)(ii) of the Parent Disclosure Schedule
regarding severance arrangements for certain executive officers and certain
other executives of the Parent is true and correct in all material
respects.
(h) No
“prohibited transactions” within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, that are not otherwise exempt under Section
408
of ERISA, has occurred with respect to any Parent Employee Plan. There is no
material action, suit, investigation, audit, arbitration or proceeding (i)
pending against or involving or, to the knowledge of Parent, threatened against
any Parent Employee Plan or (ii) involving the Parent’s classification of
individuals as either employees or independent contractors, in each case, before
any arbitrator or any Governmental Entity.
(i) There
is
no material action, suit, investigation, audit, arbitration or proceeding (i)
pending against or involving or, to the knowledge of the Parent, threatened
against any Parent Employee Plan, (ii) pending or, to the knowledge of the
Parent, threatened involving Parent’s or any of the Parent Subsidiaries’
classification of individuals as either employees or independent contractors,
(iii) pending or, to the knowledge of Parent, threatened involving Parent’s or
any of the Parent Subsidiaries’ classification of Employees as exempt or
non-exempt for purposes of wage and hour laws, rules or regulations, or (iv)
pending or, to the knowledge of Parent, threatened under any workers
compensation policy or long-term disability policy, in each case, before or
by
any arbitrator or any Governmental Entity other than routine claims for benefits
payable under any such policy.
3.17 Employee
Relations.
(a) Parent
and the Parent Subsidiaries, collectively, have the employees and consultants
listed on Schedule 3.17 of the Parent Disclosure Schedule. Neither Parent nor
any Parent Subsidiary is delinquent in payments to any of its employees or
consultants for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them or amounts required to be
reimbursed to such employees. Except as disclosed in Section 3.17 of the Parent
Disclosure Schedule, upon termination of the employment of any employees, none
of Parent, the Parent Subsidiaries nor the Company shall be liable, by reason
of
the Merger or anything done prior to the Effective Time, to any of such
employees for severance pay or any other payments (other than their accrued
salary, vacation or sick pay in accordance with normal policies). Schedule
3.17
of the Parent Disclosure Schedule list all current directors, officers,
employees and consultants of Parent and the Parent Subsidiaries including,
in
each case, name, current job title and annual rate of base compensation, minimum
employment or contract terms and termination notice requirement.
44
(b) Parent
and each Parent Subsidiary (i) is in compliance in all material respects with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to employees, (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to employees, (iii) is not liable for any arrears
of
wages or any taxes or any penalty for failure to comply with any of the
foregoing, and (iv) is not liable for any payment to any trust or other fund
or
to any Governmental Entity, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the ordinary course of business and consistent
with past practice), except in each case of clauses (i) through (iv) where
the
failure or liability would not be reasonably expected to have a Parent Material
Adverse Effect.
(c) No
work
stoppage or labor strike against Parent or any Parent Subsidiary is pending
or,
to the knowledge of Parent, threatened. Neither Parent nor any Parent Subsidiary
is involved in or, to the knowledge of Parent, threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any employee, including without limitation charges of unfair
labor practices or discrimination complaints, that, if adversely determined,
would result in material liability to Parent. Neither Parent nor any Parent
Subsidiary has engaged in any unfair labor practices within the meaning of
the
National Labor Relations Act or any similar foreign law that would, directly
or
indirectly result in material liability to Parent. Neither Parent nor any Parent
Subsidiary is presently, nor has it been in the past, a party to or bound by
any
collective bargaining agreement or union contract with respect to employees
other than as set forth in Section 3.17 of the Parent Disclosure Schedule and
no
collective bargaining agreement is being negotiated by Parent or any Parent
Subsidiary. No union organizing campaign or activity with respect to non-union
employees of Parent or any Parent Subsidiary is ongoing, pending or, to the
knowledge of Parent, threatened.
45
3.18 No
Breach.
Except
as set forth in Section 3.18 of the Parent Disclosure Schedule, the execution,
delivery and performance of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
will not (i) violate any provision of the Certificate of Incorporation or
By-Laws of the Parent or Merger Sub, (ii) result in a violation or breach of
or
the loss of any benefit under, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under any instrument, contract or
other
agreement to which the Parent or any Parent Subsidiary is a party or to which
any of them or any of their assets or properties is bound or subject, (iii)
assuming that all consents, approvals, authorizations and other actions
described in subsection (v) have been obtained and all filings and obligations
in subsection (v) have been made or complied with, violate any law, ordinance
or
regulation or any order, judgment, injunction, decree or other requirement
of
any Governmental Entity applicable to Parent or the Parent Subsidiaries or
by
which any of the Parent’s or the Parent Subsidiaries’ assets or properties is
bound, (iv) violate any Permit, (v) require any filing with, notice to, or
permit, consent or approval of, any Governmental Entity, except for (A)
compliance with any applicable requirements of the Exchange Act, (B) any filings
as may be required under the DGCL in connection with the Merger or (C) any
filings with the SEC or the NASDAQ Stock Market, (vi) result in the creation
of
any lien or other encumbrance on the assets or properties of Parent or a Parent
Subsidiary, or (vii) cause any of the assets owned by the Parent or any Parent
Subsidiary to be reassessed or revalued by any taxing authority or other
Governmental Entity, excluding from clauses (ii) through (vi) where (x) any
such
violations, breaches, defaults or encumbrances, (y) any failure to obtain such
permits, authorizations, consents or approvals , or (z) any failure to make
such
filings, would not, individually or in the aggregate, reasonably be expected
to
have a Parent Material Adverse Effect or materially interfere with the ability
of the Parent to consummate the transactions contemplated hereby.
3.19 Board
Approvals.
At
meetings duly called and held, each of the Parent’s and Merger Sub’s Boards of
Directors unanimously (i) approved the execution, delivery and performance
of
this Agreement and the consummation of the transactions contemplated hereby,
including (a) the Merger, (b) the amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Parent Common
Stock
to 150,000,000 (the "Charter Amendment"), and (c) the issuance of shares of
Parent Common Stock in excess of 19.99% of the outstanding Parent Common Stock
(the "Share Issuance"), and (d) the issuance of Contingent Value Rights and
any
shares of Parent Common Stock issuable thereunder (the "CVR Issuance"); (ii)
directed that the Charter Amendment, the Share Issuance and the CVR Issuance
be
submitted to the Parent’s shareholders for approval and resolved to recommend
that the shareholders vote in favor thereof; and (iii) with respect to such
Merger Sub board meeting, Merger Sub's Board of Directors determined the
Agreement and the Merger to be advisable and fair to and in the best interests
of Merger Sub and its stockholders and recommended its stockholders adopt the
Agreement.
3.20 Financial
Advisor.
Other
than New Century Financial and Brimberg & Co., no broker, finder, agent or
similar intermediary has acted on behalf of Parent in connection with this
Agreement or the transactions contemplated hereby, and, other than the fee
payable to New Century Financial and Brimberg & Co., there are no brokerage
commissions, finders’ fees or similar fees or commissions payable in connection
herewith based on any agreement, arrangement or understanding with the Parent,
or any action taken by the Parent.
3.21 Proxy
Statement and Registration Statement.
(a) None
of
the information supplied or to be supplied by Parent for inclusion or
incorporation by reference in the Registration Statement (as defined herein)
and
the Joint Proxy Statement/Prospectus (as defined herein) will, (i) at the time
it is declared effective under the Securities Act, (ii) at the time the Joint
Proxy Statement/Prospectus (or any amendment or supplement thereto) is first
mailed to the stockholders of Parent, (iii) at the time of the Parent
Shareholders’ Meeting, and (iv) at the Effective Time (with respect to the
Registration Statement only), contain any untrue statement of material fact
or
omit to state any material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under which it is
made, not false or misleading. If at any time prior to the Effective Time any
event or circumstance relating to Parent or any Parent Subsidiaries, or their
respective officers and directors, should be discovered by the Parent which
should be set forth in an amendment or supplement to the Registration Statement
or Joint Proxy Statement/Prospectus, Parent shall promptly inform the Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to information supplied by the Company or any of its representatives,
which is contained in the Registration Statement or the Joint Proxy
Statement/Prospectus. All documents that Parent is responsible for filing with
the SEC in connection with the transactions contemplated by this Agreement
shall
comply in all material aspects with the applicable requirements of the
Securities Act and the rules and regulations promulgated thereunder and the
Exchange Act and the rules and regulations promulgated thereunder.
46
(b) Neither
the Registration Statement or any amendment or supplement thereto will, at
the
time it becomes effective under the Securities Act or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading. No
representation or warranty is made by Parent or Merger Sub in this Section
3.21(b) with respect to statements made or incorporated by reference therein
based on information supplied the Company or any of its subsidiaries for
inclusion by reference in the Registration Statement. The Registration Statement
will comply as to form in all material respects with the applicable provisions
of the Securities Act and the rules and regulations thereunder.
3.22 Interim
Operations of Merger Sub; Ownership of Company Common Stock.
(a) Merger
Sub has been formed solely for the purpose of engaging in the transactions
contemplated hereby and prior to the Effective Time will have engaged in no
other business activities and will have incurred no liabilities or obligations
other than as contemplated herein.
(b) As
of the
date hereof and through and including the Effective Time, Parent shall own
all
of the equity securities of Merger Sub.
(c) As
of
immediately prior to entering into this Agreement, neither Parent nor Merger
Sub, alone or together with any other person, was at any time, or became, an
“interested stockholder” under the applicable provisions of the DGCL or has
taken any action that would cause the restrictions on business combinations
with
interested stockholders set forth in Section 203 of the DGCL to be applicable
to
this Agreement, the Merger or any of the transactions contemplated hereby.
Neither Parent nor Merger Sub owns (directly or indirectly, beneficially or
of
record) or is a party to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of, in each case, any shares
of capital stock of the Company (other than as contemplated by this Agreement).
To the knowledge of Parent, no “moratorium,” “control share,” “fair price” or
other anti-takeover law or regulation is applicable to this Agreement, the
Merger or the other transactions contemplated hereby which would require action
by the Board of Directors of the Company.
47
3.23 Certain
Agreements.
There
are no contracts or agreements (whether oral or written) between Parent or
Merger Sub, on the one hand, and any member of the Company’s management or
directors, on the other hand, as of the date hereof that relate in any way
to
the Company or the transactions contemplated by this Agreement. Prior to the
Board of Directors of the Company approving this Agreement, the Merger and
the
other transactions contemplated hereby for purposes of the applicable provisions
of the DGCL, neither Parent nor Merger Sub, alone or together with any other
person, was at any time, or became, an “interested stockholder” thereunder or
has taken any action that would cause any anti-takeover statute under the DGCL
to be applicable to this Agreement, the Merger, or any transactions contemplated
by this Agreement.
ARTICLE
IV - COVENANTS AND AGREEMENTS
4.1 Conduct
of Business.
Except
with the prior written consent of Parent, as otherwise contemplated herein
or
referred to in Section 4.1 of the Company Disclosure Schedule or as required
by
law or in connection with any actions taken or not taken by the Company or
any
Company Subsidiary in accordance with or pursuant to the Plan, during the period
from the date hereof to the Closing Date, the Company shall observe the
following covenants:
(a) Affirmative
Covenants Pending Closing. The Company shall:
(i) Preservation
of Personnel. Use reasonable commercial efforts to preserve intact and keep
available the services of present employees of the Company and the Company
Subsidiaries;
(ii) Insurance.
Use reasonable commercial efforts to keep in effect casualty, public liability,
worker’s compensation and other insurance policies in coverage amounts not less
than those in effect at the date of this Agreement;
(iii) Preservation
of the Business; Maintenance of Properties, Contracts. Use reasonable commercial
efforts to preserve the business of the Company, advertise, promote and market
the Company’s business activities in accordance with past practices over the
last twelve months, keep the Company’s properties intact, preserve its goodwill
and business, maintain all physical properties in such operating condition
as
will permit the conduct of the Company’s business on a basis consistent with
past practice, and perform and comply in all material respects with the terms
of
the Material Contracts referred to in Section 2.11;
(iv) Intellectual
Property Rights. Use commercially reasonable efforts to preserve and protect
the
Company Intellectual Property;
(v) Expenditures.
Obtain Parent prior written approval for Company expenditures over $1,000 or
commitments to make such expenditures, whether in cash, securities or other
form
of consideration; and
(vi) Ordinary
Course of Business. Operate the Company’s business in the ordinary course
consistent with past practices.
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(b) Negative
Covenants Pending Closing. The Company shall not, without Parent’s prior written
consent:
(i) Disposition
of Assets. Sell or transfer, or mortgage, pledge, lease or otherwise encumber
any of its assets, other than sales or transfers in the ordinary course of
business and in amounts not exceeding $10,000;
(ii) Liabilities.
Incur any indebtedness for borrowed money, obligation or liability or enter
into
any contracts or commitments involving potential payments by the Company or
any
Company Subsidiary, in each case of $10,000 or more;
(iii) Compensation.
Except as required or permitted by this Agreement or any agreement in effect
prior to the date of this Agreement that is set forth on Schedule 4.1 of the
Company Disclosure Schedule, change the compensation payable to any officer,
director, employee, agent or consultant; or enter into any employment, severance
or other agreement with any officer, director, employee, agent or consultant
of
the Company or a Company Subsidiary; or adopt, or increase the benefits under,
any employee benefit plan, except as required by law; provided, that, the
Company may amend any employment agreement or benefit or compensation plan
solely in order to comply with or conform to Section 409A of the
Code;
(iv) Capital
Stock. Except as contemplated or required by this Agreement and except for
the
creation and issuance of the Company Series A Preferred Stock, make any change
in the number of shares of its capital stock authorized, issued or outstanding
or grant or accelerate the exercisability of, any option, warrant or other
right
to purchase, or convert any obligation into, shares of its capital stock, or
declare or pay any dividend or other distribution with respect to any shares
of
its capital stock, or sell or transfer any shares of its capital stock, or
redeem or otherwise repurchase any shares of its capital stock, except upon
the
exercise of any options, warrants or convertible securities outstanding on
the
date of this Agreement and disclosed herein;
(v) Certificate
of Incorporation and By-Laws. Other than the filing of a Certificate of
Designations for the Company Series A Preferred Stock with the Secretary of
State of the State of Delaware, cause, permit or propose any amendments to
the
Certificate of Incorporation or By-laws of the Company;
(vi) Acquisitions.
Make, or permit to be made, any acquisition of property or assets outside the
ordinary course of business;
(vii) Capital
Expenditures. Authorize any single capital expenditure in excess of $10,000
or
capital expenditures which in the aggregate exceed $50,000;
(viii) Accounting
Policies. Except as may be required by law, the SEC or generally accepted
accounting principles, change any of the accounting practices or principles
used
by it or restate, or become obligated to restate, the financial statements
included in the Company 10-KSB for the year ended February 29,
2008;
49
(ix) Taxes.
Make any Tax election or settle or compromise any material federal, state,
local
or foreign Tax liability, change its annual tax accounting period, change any
method of Tax accounting, enter into any closing agreement relating to any
Tax,
surrender any right to claim a Tax refund, or consent to any extension or waiver
of the limitations period applicable to any Tax claim or
assessment;
(x) Legal.
Settle or compromise any pending or threatened suit, action or claim which
is
material or which relates to the transactions contemplated hereby;
(xi) Extraordinary
Transactions. Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of the Company Subsidiaries (other than the
Merger);
(xii) Payment
of Indebtedness. Pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice;
(xiii) Confidentiality
Agreements. Modify, amend or terminate, or waive, release or assign any material
rights or claims with respect to any confidentiality agreement to which the
Company is a party; or
(xiv) Obligations.
Obligate itself to do any of the foregoing.
(c) Notwithstanding
anything to the contrary contained in this Section 4.1, the Company shall use
its commercially reasonable efforts to operate its business, in all material
respects, in accordance with the plan set forth on Exhibit E hereto (the
“Plan”).
4.2 Conduct
of Business by Parent pending the Merger.
Parent
covenants and agrees that, from and after the date of this Agreement until
the
earlier of (x) the date this Agreement is terminated or (y) the Effective Time,
unless the Company shall otherwise agree in writing or except as otherwise
permitted by this Agreement, Parent shall, and shall cause each of its
subsidiaries to, (i) carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted,
and (ii) not take any action of any kind that would impair, restrict, delay
or
otherwise hinder any of their abilities to perform any of their obligations
under this Agreement, the CVR Agreement or any agreement contemplated hereby
or
thereby.
50
4.3 Joint
Proxy Statement/Prospectus; Registration Statement; and Other
Filings.
(a) As promptly as practicable, and in any event within sixty days after
the execution of this Agreement, the Company and Parent will prepare and file
with the SEC a preliminary proxy statement, which shall constitute a joint
proxy
statement and prospectus (such joint proxy statement/prospectus, and any
amendments or supplements thereto, the “Joint Proxy Statement/Prospectus”) (but
in the case of the Company, it shall only be required to file the Joint Proxy
Statement/Prospectus with the SEC to the extent required by applicable law),
and
Parent shall, as promptly as practicable after receipt of notification from
the
SEC that it has no further comments to the Joint Proxy Statement/Prospectus,
in
cooperation with the Company, prepare and file with the SEC on Form S-4 with
respect to the Share Issuance and the CVR Issuance (together with all amendments
thereto, the “Registration Statement”). The Joint Proxy Statement/Prospectus
shall be included in the Registration Statement as the Parent’s prospectus. Each
of the Company and Parent will promptly respond to any comments of the SEC
regarding the Joint Proxy Statement/Prospectus and the Registration Statement
and will use commercially reasonable efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and, prior the effective date of the Registration Statement, Parent
shall take all or any action required under any applicable federal or state
securities laws in connection with the issuance by Parent shares of Parent
Common Stock and Contingent Value Rights pursuant to the Merger. The Company
and
Parent will cause the Joint Proxy Statement/Prospectus to be mailed to their
respective stockholders at the earliest practicable time after the Registration
Statement is declared effective by the SEC; provided, however, that the parties
shall consult and cooperate with each other in determining the appropriate
time
for mailing the Joint Proxy Statement/Prospectus in light of the date set for
the Company Stockholders’ Meeting and the Parent Shareholders’ Meeting. Each of
Parent and the Company shall pay its own expenses incurred in connection with
the Registration Statement, the Joint Proxy Statement/Prospectus, the Company
Stockholders’ Meeting and the Parent Shareholders’ Meeting, except that the
Company and Parent shall each pay one-half of any filing fees and printing
expenses incurred in connection therewith.
(b) No
amendment or supplement to the Joint Proxy Statement/Prospectus or Registration
Statement will be made by Parent or the Company without the approval of the
other party, which shall not be unreasonably withheld or delayed. Parent and
the
Company will each advise the other, promptly after it receives notice thereof,
of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of qualification of Parent Common Stock or Contingent Value Rights
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Joint Proxy Statement/Prospectus
or the Registration Statement or comments thereon and responses thereto or
requests by the SEC for additional information.
(c) Parent
will prepare and submit to the Nasdaq Capital Market a listing application
covering shares of Parent Common Stock issuable in connection with the Merger
(including shares and rights issuable upon exercise of Company Warrants and
shares of Parent Restricted Stock), and shall use its commercially reasonable
efforts to obtain, prior to the Effective Time, approval for listing of such
shares of Parent Common Stock, subject to official notice of issuance. The
Company shall cooperate fully with Parent with respect to such listing.
(d) Parent
shall use commercially reasonable efforts to maintain the effectiveness of
the
Registration Statement (and maintain the current status of the Prospectus
contained therein) for so long as the Company Warrants remain
outstanding.
(e) As
promptly as practicable after the execution of this Agreement, each of the
Company and Parent will prepare and file any filings required to be filed by
it
under the Exchange Act, the Securities Act or any other federal, state or
foreign laws relating to the Merger and the transactions contemplated by this
Agreement (the “Other Filings”). The Company and Parent each shall promptly
supply the other with any information, which may be required in order to
effectuate any filings pursuant to this Section 4.3.
51
(f) Each
of
the Company and Parent will notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials in
connection with any filing made pursuant hereto and of any request by the SEC
or
its staff or any other government officials for amendments or supplements to
the
Registration Statement, the Joint Proxy Statement/Prospectus or for additional
information and will supply the other with copies of all correspondence between
such party or any of its representatives, on the one hand, and the SEC or its
staff or any other government officials, on the other hand, with respect to
the
Registration Statement, the Joint Proxy Statement/Prospectus or the Merger.
Each
of the Company and Parent will cause all documents that it is responsible for
filing with the SEC or other regulatory authorities under this Section 4.3
to
comply in all material respects with all applicable laws. Whenever any event
occurs that is required to be set forth in an amendment or supplement to the
Joint Proxy Statement/Prospectus, the Registration Statement or Other Filing,
the Company or Parent, as the case may be, will promptly inform the other of
such occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of the Company and to
shareholders of Parent, such amendment or supplement.
(g) The
Company, Parent and Merger Sub each hereby (i) consents to the use of its name
and, on behalf of its subsidiaries and affiliates, the names of such
subsidiaries and affiliates, and to the inclusion of financial statements and
business information relating to such party and its subsidiaries and affiliates
(in each case, to the extent required by applicable securities laws), in the
Registration Statement and the Joint Proxy Statement/Prospectus, (ii) agrees
to
use all reasonable efforts to obtain the written consent of any person or entity
retained by which may be required to be named (as an expert or otherwise) in
the
Registration Statement or the Joint Proxy Statement/Prospectus, and (iii) agrees
to cooperate fully, and agrees to use all reasonable efforts to cause its
subsidiaries and affiliates to cooperate fully, with any legal counsel,
investment banker, accountant or other agent or representative retained by
any
of the parties specified in clause (i) above in connection with the preparation
of any and all information required, as determined after consultation with
each
party’s counsel, to be disclosed by applicable securities laws in the
Registration Statement or the Joint Proxy Statement/Prospectus.
4.4 Meeting
of Company Stockholders.
(a) As
promptly as possible after the date hereof, the Company will take all action
necessary in accordance with the DGCL and its Certificate of Incorporation
and
Bylaws to convene a meeting of the Company’s stockholders (the “Company
Stockholders’ Meeting”), and shall use its reasonable best efforts to cause the
Company Stockholders’ Meeting to be held as promptly as practicable, and in any
event (to the extent permissible under applicable law) within forty-five (45)
days after the declaration of effectiveness of the Registration Statement,
for
the purpose of voting upon adoption of this Agreement. Subject to Section
4.4(c), the Company will use its commercially reasonable efforts to solicit
from
its stockholders proxies in favor of adoption of this Agreement and will take
all other action reasonably necessary or advisable to secure the vote or consent
of its stockholders required by the DGCL to obtain such approval. The Company
may adjourn or postpone the Company Stockholders’ Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Joint
Proxy Statement/Prospectus is provided to the Company’s stockholders in advance
of a vote on adoption of this Agreement or, if as of the time for which the
Company Stockholders’ Meeting is originally scheduled (as set forth in the Joint
Proxy Statement/Prospectus) there are insufficient shares of Company Common
Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Company Stockholders’ Meeting. The
Company shall ensure that the Company Stockholders’ Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited by the Company
in
connection with the Company Stockholders’ Meeting are solicited, in compliance
with the DGCL, its Certificate of Incorporation and Bylaws, and all other
applicable laws. The Company’s obligation to call, give notice of, convene and
hold the Company Stockholders’ Meeting in accordance with this Section 4.4(a)
shall not be limited or otherwise affected by the commencement, disclosure,
announcement or submission to the Company of any Acquisition Proposal or
Superior Offer (each as defined below), or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of the Company
with
respect to this Agreement or the Merger or by any other act or action, including
any action contemplated by this Section 4.4. Upon termination of this Agreement
in accordance with Section 8.1, the Company will have no obligation to call,
give notice of, convene or hold the Company Stockholders’ Meeting in accordance
with this Section 4.4(a).
52
(b) Subject
to Section 4.4(c), (i) the Board of Directors of the Company shall recommend
that the Company’s stockholders vote in favor of the adoption of this Agreement
at the Company Stockholders’ Meeting; (ii) the Joint Proxy Statement/Prospectus
shall include a statement of the effect that the Board of Directors of the
Company has recommended that the Company’s stockholders vote in favor of
adoption of this Agreement at the Company Stockholders’ Meeting; and (iii)
neither the Board of Directors of the Company nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify
in
a manner adverse to Parent, the recommendation of the Board of Directors of
the
Company that the Company’s stockholders vote in favor of the adoption of this
Agreement.
(c) Prior
to
the adoption of this Agreement at the Company Stockholders’ Meeting and provided
that the Company shall not have violated any of the restrictions set forth
in
this Section 4.4(c) in any material respect, if the Board of Directors of the
Company determines in good faith, after consultation with its outside counsel,
that such action is required in order for the Board of Directors of the Company
to act in a manner consistent with its fiduciary obligations to the Company’s
stockholders under applicable law, nothing in this Agreement shall prevent
the
Board of Directors of the Company from (A) withholding, withdrawing, amending
or
modifying its recommendation (a “Change of Recommendation”) that the Company’s
stockholders vote in favor of adoption of this Agreement (regardless of whether
the Change of Recommendation occurs before or after delivery of the Joint Proxy
Statement/Prospectus to the Company’s stockholders) and/or (B) terminating this
Agreement pursuant to Section 8.1(d)(ii) and entering into an agreement with
respect to such Superior Offer if, in the case of (B), (i) a Superior Offer
is
made to the Company and is not withdrawn, (ii) the Company shall have provided
prompt (and in any event within thirty-six (36) hours) written notice to Parent
(a “Notice of Superior Offer”) advising Parent that the Company has received a
Superior Offer specifying all of the terms and conditions of such Superior
Offer
identifying the person or entity making such Superior Offer, and providing
a
copy of all documentation relating to the Superior Offer, and (iii) Parent
shall
not, within three (3) business days of Parent’s receipt of the Notice of
Superior Offer, have made an offer (a “Counterproposal”) that the Company’s
Board of Directors determines in good faith (after consultation with its outside
financial and legal advisors) to be at least as favorable to the Company’s
stockholders as such Superior Offer. The Company shall provide Parent with
prior
notice of its intention to make such Change of Recommendation and/or take action
with respect to such Superior Offer, as applicable (a “Notice of Change of
Recommendation”), no later than the later of (i) two (2) business days prior to
such Change of Recommendation or other action or (ii) two (2) business days
after any Counterproposal made by Parent pursuant to Section 4.4(c)(B)(iii)
(the
“Notice Period”). For the avoidance of doubt, the parties hereto acknowledge and
agree that (i) if there is any revision to the financial terms or any other
material term of an Acquisition Proposal which revision affects the
determination of whether an Acquisition Proposal is a Superior Offer to the
Merger or any Counterproposal, the Company shall extend the Notice Period as
necessary to ensure that at least two (2) business days remain in the Notice
Period and (ii) any Notice of Superior Offer shall also constitute a Notice
of
Change of Recommendation if Parent does not make a Counterproposal prior to
the
expiration of the period set forth in Section 4.4(c)(B)(iii).
53
For
purposes of this Agreement, a “Superior Offer” shall mean an unsolicited, bona
fide written offer made by a third party to consummate any of the following
transactions: (i) a merger or consolidation involving the Company pursuant
to
which the stockholders of the Company immediately preceding such transaction
would, as a result of such transaction, hold less than 50% of the voting equity
interest in the surviving or resulting entity of such transaction, (ii) the
acquisition by any person or “group” (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) including by way of
a
tender offer or an exchange offer or a two-step transaction involving a tender
offer followed with reasonable promptness by a cash-out merger involving the
Company), directly or indirectly, of ownership of 50% or more of the then
outstanding shares of capital stock of the Company, or (iii) the sale or other
transfer of all or substantially all of the assets of the Company and the
Company Subsidiaries in one or a series of transactions pursuant to which the
stockholders of the Company immediately preceding such transaction would, as
a
result of such transaction, hold less than 50% of the voting equity of the
acquirer, on terms that the Board of Directors of the Company determines in
good
faith (after consultation with its outside financial advisors and after taking
into account, among other things, the financial, legal and regulatory aspects
of
such offer (including any financing required and the availability thereof),
as
well as any revisions to the terms hereof proposed by Parent pursuant to this
Section 4.4(c) (including any Counterproposal)) is more favorable to the Company
stockholders than the terms of the Merger (taking into account any revisions
to
the terms hereof proposed by Parent pursuant to this Section 4.4(c) (including
any Counterproposal)).
(d) Nothing
contained in this Agreement shall prohibit the Company or its Board of Directors
from disclosing to its stockholders a position contemplated by Rules 14d-9
and
14e-2 promulgated under the Exchange Act (or any similar communication to
stockholders), if, in the good faith judgment of the Company’s Board of
Directors, after consultation with its outside counsel, such disclosure is
required in order for the Board of Directors to comply with its fiduciary
obligations, or is otherwise required, under applicable law; provided that
the
Company shall not disclose a position constituting a Change of Recommendation
unless specifically permitted pursuant to the terms of Section 4.4(c); and
provided, further that any such disclosure (other than a “stop, look and listen”
communication or similar communication of the type contemplated by Section
14d-9(f) under the Exchange Act) shall be deemed to be a Change of
Recommendation unless the Company’s Board of Directors expressly publicly
reaffirms the recommendation that the stockholders of the Company adopt this
Agreement (x) in such communication or (y) within five (5) business days after
requested to do so by Parent.
54
4.5 Confidentiality;
Access to Information.
(a) The
parties acknowledge that the Company and Parent have previously executed that
certain confidentiality agreement dated December 17, 2007, between the Company
and Parent, as amended to date (the “Confidentiality Agreement”), which
Confidentiality Agreement will continue in full force and effect in accordance
with its terms.
(b) Parent,
on the one hand, and the Company, on the other, will afford the other party
and
the other party’s accountants, counsel and other representatives reasonable
access during regular business hours to its properties, books, records and
personnel during the period prior to the Effective Time to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel, as the other party
may
reasonably request. Any investigation pursuant to this Section 4.5 shall be
conducted in such manner as not to interfere unreasonably with the conduct
of
the business of the Company. No information or knowledge obtained by a party
in
any investigation pursuant to this Section 4.5 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the
obligations of the parties to consummate the Merger.
4.6 No
Solicitation.
(a) From
and
after the date of this Agreement until the Effective Time or termination of
this
Agreement pursuant to its terms, the Company and its subsidiaries will not,
nor
will they authorize or permit any of their respective officers, directors or
employees or any investment banker, attorney or other advisor or representative
retained by any of them to, directly or indirectly, (i) solicit, initiate,
encourage or induce the making or submission of any Acquisition Proposal, (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any nonpublic information with respect to any Acquisition Proposal,
(iii)
approve, endorse or recommend any Acquisition Proposal or (iv) enter into any
letter of intent or similar document or any contract, agreement or commitment
contemplating or otherwise relating to any Acquisition Proposal; provided,
however, that prior to adoption of this Agreement at the Company Stockholders’
Meeting, this Section 4.6(a) shall not prohibit the Company from furnishing
nonpublic information, or entering into discussions with, any person or group
who has submitted (and not withdrawn) to the Company an unsolicited, written,
bona fide Acquisition Proposal that the Board of Directors of the Company
reasonably determines in good faith (after consultation its outside financial
advisors) constitutes, or could reasonably be expected to lead to, a Superior
Offer; provided further, however, that (1) neither the Company nor any
representative of the Company and its subsidiaries shall have violated any
of
the restrictions set forth in this Section 4.6(a) or Section 4.6(b), in each
case in any material respect, (2) the Board of Directors of the Company shall
have determined in good faith, after consultation with its outside legal
counsel, that such action is reasonably necessary in order for the Board of
Directors of the Company to act in a manner consistent with its fiduciary
obligations to the Company’s stockholders under applicable law, (3) prior to
furnishing any such nonpublic information to, or entering into any such
discussions with, such person or group, the Company shall have received from
such person or group an executed confidentiality agreement containing terms
at
least as restrictive with regard to the Company’s confidential information as
the Confidentiality Agreement, and (4) contemporaneously with furnishing any
such nonpublic information to such person or group, the Company shall have
furnished such nonpublic information to Parent (to the extent such nonpublic
information shall not have been previously furnished by the Company to Parent).
Subject to the immediately preceding sentence, the Company and its subsidiaries
shall immediately cease, and cause their respective officers, directors,
employees, investment bankers, attorneys and other advisors and representatives
to cease, any and all existing activities, discussions or negotiations with
any
parties conducted heretofore with respect to any Acquisition Proposal. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding two sentences by any officer, director or employee
of
the Company or any of its subsidiaries or any investment banker, attorney or
other advisor or representative of the Company or any of its subsidiaries shall
be deemed to be a breach of this Section 4.6 by the Company.
55
For
purposes of this Agreement, “Acquisition Proposal” shall mean any inquiry, offer
or proposal (other than an inquiry, offer or proposal by Parent, Merger Sub
or
their respective affiliates) relating to, or involving: (A) any acquisition
or
purchase (other than the purchase of Company Series A Preferred Stock) by any
person or “group” (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a 25% beneficial ownership
interest in the total outstanding voting securities of Company or any of its
subsidiaries; (B) any tender offer or exchange offer that if consummated would
result in any person or “group” (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) beneficially owning 25% or more
of
the total outstanding voting securities of the Company or any of its
subsidiaries; (C) any merger, consolidation, business combination or similar
transaction involving the Company or any of its subsidiaries pursuant to which
the stockholders of the Company immediately preceding such transaction hold
or,
in the case of a subsidiary of the Company, the Company holds, less than 50%
of
the equity interests in the surviving or resulting entity of such transaction;
(D) any sale, lease, exchange, transfer, license (other than in the ordinary
course of business), acquisition, or disposition of any assets of the Company
or
any of its subsidiaries that generate or constitute 50% or more of the net
revenue, net income or assets of the Company and its subsidiaries, taken as
a
whole; or (E) any liquidation, dissolution, recapitalization or other
reorganization of the Company (or any of its subsidiaries whose business
constitutes more than 50% of the net revenue, net income or assets of the
Company and its subsidiaries, taken as a whole).
(b) Prior
to
providing any information to or entering into discussions or negotiations with
any person in connection with an Acquisition Proposal by such person, the
Company as promptly as practicable, and in any event within thirty-six (36)
hours of its receipt, shall advise Parent orally and in writing of an
Acquisition Proposal or any request for nonpublic information or other inquiry
which the Company reasonably believes could lead to an Acquisition Proposal,
the
material terms and conditions of such Acquisition Proposal, request or inquiry,
and the identity of the person or group making any such Acquisition Proposal,
request or inquiry, and provide copies of all written materials sent or provided
to the Company by or on behalf of any person or group or provided to any such
person or group by or on behalf of the Company. The Company will keep Parent
promptly informed of any material change in the status of or material change
in
the proposed terms and conditions (including all material revisions or material
proposed revisions) of any such Acquisition Proposal, request or
inquiry.
56
4.7 Public
Disclosure.
Each of
the Company, Parent and Merger Sub agrees that no public release or announcement
concerning the transactions contemplated hereby shall be issued by any party
without the prior written consent of the Company and Parent (which consent
shall
not be unreasonably conditioned, withheld or delayed), except as such release
or
announcement may be required by law or the rules or regulations of any
applicable United States securities exchange or regulatory or governmental
body
to which the relevant party is subject, wherever situated, in which case the
party required to make the release or announcement shall use its reasonable
best
efforts to provide the other party reasonable time to comment on such release
or
announcement in advance of such issuance, it being understood that the final
form and content of any such release or announcement, to the extent so required,
shall be at the final discretion of the disclosing party. The parties hereto
have agreed to the text of the joint press release announcing the signing of
this Agreement.
4.8 Reasonable
Best Efforts; Notification.
(a) Upon
the
terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable,
the
Merger, the Charter Amendment, the Share Issuance, the CVR Issuance and the
other transactions contemplated by this Agreement, including using its
reasonable best efforts to accomplish the following: (i) causing the conditions
precedent set forth herein to be satisfied, (ii) obtaining all necessary actions
or nonactions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and making of all necessary registrations, declarations
and filings (including registrations, declarations and filings with Governmental
Entities) and taking all steps that may be necessary to avoid any suit, claim,
action, investigation or proceeding by any Governmental Entity, (iii) obtaining
all necessary consents, approvals or waivers from, and providing all necessary
notices to third parties, (iv) defending any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by
any
court or other Governmental Entity vacated or reversed and,
(v)
executing and delivering any additional instruments necessary to consummate
the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Subject to the terms and conditions of this Agreement, the Company,
Parent and Merger Sub shall use all reasonable efforts to cause the Effective
Time to occur as soon as practicable after the Parent Stockholders’ Meeting. In
case at any time after the Effective Time any further action is necessary to
carry out the purposes of this Agreement, the proper officers and directors
of
each party shall use their reasonable best efforts to take all such necessary
actions.
(b) Each
of
the Company and Parent will give prompt notice to the other of (i) any notice
or
other communication from any person alleging that the consent of such person
is
or may be required in connection with the Merger or any of the other
transactions contemplated by this Agreement, (ii) any notice or other
communication from any Governmental Entity in connection with the Merger or
any
of the other transactions contemplated by this Agreement, (iii) any litigation
relating to, involving or otherwise affecting the Company, Parent or their
respective Subsidiaries that relates to the Merger or any of the other
transactions contemplated by this Agreement. The Company shall give prompt
written notice to Parent of any representation or warranty made by it contained
in this Agreement becoming untrue or inaccurate in any material respect, or
any
failure of the Company to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement. Parent shall
give prompt written notice to the Company of any representation or warranty
made
by it or Merger Sub contained in this Agreement becoming untrue or inaccurate
in
any material respect, or any failure of Parent or Merger Sub to comply with
or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants
or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
57
4.9 Third
Party Consents.
As soon
as practicable following the date hereof, Parent and the Company will each
use
its commercially reasonable efforts to obtain any consents, waivers and
approvals under any of its or its subsidiaries’ respective material agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the Merger and the other transactions contemplated
hereby.
4.10 Merger
Sub Compliance.
Parent
shall cause Merger Sub to comply with all of its respective obligations under
or
relating to this Agreement. Merger Sub shall not engage in any business which
is
not in connection with the Merger and the transactions contemplated
hereby.
4.11 Resignations.
The
Company shall cause each director of the Company and the Company Subsidiaries
to
deliver to Parent written resignations from such position as director, effective
at or before the Effective Time.
4.12 Meeting
of Parent Shareholders.
(a) As
promptly as possible after the date hereof, Parent will take all action
necessary in accordance with the Florida Business Corporation Act and its
Certificate of Incorporation and Bylaws to convene a meeting of the Parent’s
shareholders (the “Parent Shareholders’ Meeting”), and shall use its reasonable
best efforts to cause the Parent Shareholders' Meeting to be held as promptly
as
practicable, and in any event (to the extent permissible under applicable law)
within forty-five (45) days after the declaration of effectiveness of the
Registration Statement, for the purpose of voting upon approval of the Charter
Amendment, the Share Issuance and the CVR Issuance. Parent will use its
commercially reasonable efforts to solicit from its shareholders proxies in
favor of approval of the Charter Amendment, the Share Issuance and the CVR
Issuance and will take all other actions reasonably necessary or advisable
to
secure the vote or consent of its shareholders required by Parent’s Articles of
Incorporation and Bylaws and the Florida Business Corporation Act, and the
rules
and regulations of the NASDAQ Capital Market. Parent may adjourn or postpone
the
Parent Shareholders’ Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Joint Proxy Statement/Prospectus is
provided to the Parent’s shareholders in advance of a vote on the approval of
Charter Amendment, the Share Issuance and the CVR Issuance or, if as of the
time
for which the Parent Shareholders’ Meeting is originally scheduled (as set forth
in the Joint Proxy Statement/Prospectus) there are insufficient shares of Parent
Common Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Parent Shareholders’ Meeting. Parent
shall ensure that the Parent Shareholders’ Meeting is called, noticed, convened,
held and conducted, and that all proxies solicited by Parent in connection
with
the Parent Shareholders’ Meeting are solicited, in compliance with the Florida
Business Corporation Act, its Certificate of Incorporation and Bylaws, and
all
other applicable laws.
58
(b) (i)
The
Board of Directors of Parent shall recommend that Parent’s shareholders vote in
favor of approval of the Charter Amendment, the Share Issuance and the CVR
Issuance at the Parent Shareholders’ Meeting; (ii) the Joint Proxy
Statement/Prospectus shall include a statement of the effect that the Board
of
Directors of Parent has recommended that Parent’s shareholders vote in favor of
approval of the Charter Amendment, the Share Issuance and the CVR Issuance
at
the Parent Shareholders’ Meeting; and (iii) neither the Board of Directors of
Parent nor any committee thereof shall withdraw, amend or modify, or propose
or
resolve to withdraw, amend or modify in a manner adverse to the Company, the
recommendation of the Board of Directors of Parent that Parent’s shareholders
vote in favor of approval of the Charter Amendment, the Share Issuance and
the
CVR Issuance.
(c) Immediately
following the Parent Shareholders' Meeting, Parent shall file, or cause to
be
filed, the Charter Amendment with the Secretary of State of the State of
Florida.
4.13 Merger
Sub Stockholder Approval.
Immediately following execution of this Agreement, Parent, as sole stockholder
of Merger Sub, shall adopt this Agreement in accordance with Merger Sub’s
Certificate of Incorporation and the DGCL.
4.14 Parent
Board.
Parent
shall take all necessary action to cause Xxxxx XxXxxxx to be appointed to the
Board of Directors of Parent as of the close of business on the date on which
the Effective Time occurs and to serve until the next election of
directors.
4.15 Indemnification
and Insurance.
(a) From
and
after the Effective Time, Parent shall, and shall cause the Surviving
Corporation to, to the fullest extent permitted by applicable laws, indemnify,
defend and hold harmless, and provide advancement of expenses to, each person
who was, is now or who becomes prior to the Effective Time an officer or
director of the Company or any of its subsidiaries (the “Indemnified Parties”)
against all losses, claims, damages, costs, expenses, liabilities or judgments
or amounts that are paid in settlement of or in connection with any claim or
action that is based in whole or in part on, or arises in whole or in part
out
of, the fact that such person is or was a director, officer, employee, fiduciary
or agent of the Company or any of its subsidiaries, and pertaining to any matter
existing or occurring, or any acts or omissions occurring, at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time (including matters, acts or omissions occurring in connection with the
approval of this Agreement and the consummation of the transactions contemplated
hereby). The Certificate of Incorporation and Bylaws of the Surviving
Corporation will contain provisions with respect to exculpation, advancement
of
expenses and indemnification that are at least as favorable to the Indemnified
Parties as those contained in the Certificate of Incorporation and Bylaws of
the
Company as in effect on the date hereof, which provisions will not be amended,
repealed or otherwise modified for a period of six (6) years from the Effective
Time in any manner that would adversely affect the rights thereunder of
Indemnified Parties, unless such modification is required by law.
59
(b) For
a
period of six (6) years after the Effective Time, Parent shall cause the
Surviving Corporation to maintain in effect insurance “tail” policies with
respect to the directors’ and officers’ liability insurance maintained by the
Company covering those persons who are covered by the Company’s directors’ and
officers’ liability insurance policy as of the date hereof (the “D&O
Insurance”)
for
any matter existing or occurring or any acts or omissions or events occurring
at
or prior to the Effective Time (including, the transactions contemplated by
this
Agreement) for a total cost not to exceed $120,000 (the "Insurance Cap"),
provided, if such policy is not available for such cost, then the Surviving
Corporation shall be required to obtain as much coverage as is possible under
substantially similar policies for such premium as does not exceed the Insurance
Cap.
(c) Notwithstanding
anything herein to the contrary, if an Indemnified Party is a party to or is
otherwise involved (including as a witness) in any threatened, pending or
completed claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative (whether arising before, at or after
the Effective Time) (a "Proceeding") on or prior to the sixth anniversary of
the
Effective Time, the provisions of this Section 4.15 shall continue in effect
until the final disposition of such Proceeding.
(d) To
the
fullest extent permitted by law, from and after the Effective Time, all rights
to indemnification now existing in favor of the employees, agents, directors
or
officers of the Company and its subsidiaries with respect to their activities
as
such prior to the Effective Time, as provided in the Company’s Certificate of
Incorporation or Bylaws, or any indemnification agreement, employment agreement
or Company Employee Plan, in each case in effect on the date thereof, shall
survive the Merger and shall continue in full force and effect for a period
of
not less than six years from the Effective Time.
(e) This
covenant is intended to be for the benefit of, and shall be enforceable by,
each
of the Indemnified Parties, such other parties entitled to indemnification
hereunder and their respective heirs and legal representatives. The rights
to
indemnification and advancement and the other rights provided for herein shall
not be deemed exclusive of any other rights to which an Indemnified Party or
any
other person entitled to indemnification hereunder is entitled, whether pursuant
to law, contract or otherwise.
(f) In
the
event that the Surviving Corporation or Parent or any of their respective
successors or assigns (i) consolidates with or merges into any other person
and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or a majority of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation or Parent, as the case may be, shall succeed to the obligations
set
forth in this Section 4.15. In addition, the Surviving Corporation shall not
distribute, sell, transfer or otherwise dispose of any of its assets in a manner
that would reasonably be expected to render the Surviving Corporation unable
to
satisfy its obligations under this Section 4.15.
60
4.16 Tax-Free
Reorganization Treatment.
Parent
shall not, and shall not permit any of its subsidiaries to, intentionally take
or cause to be taken any action, whether before or after the Effective Time,
which would reasonably be expected to disqualify the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
4.17 Certain
Taxes and Fees.
All
transfer, documentary, sales, use, stamp, registration and other such Taxes
and
all conveyance fees, recording charges and other fees and charges (including
any
penalties and interest) incurred in connection with the Merger shall be borne
by
the Surviving Corporation and expressly shall not be a liability of stockholders
of the Company.
4.18 Takeover
Statute.
If any
“fair price,” “moratorium,” “business combination,” “control share acquisition”
or other form of anti-takeover statute or regulation shall become applicable
to
the Merger or the other transactions contemplated by this Agreement after the
date of this Agreement, each of the Company and Parent and the members of their
respective Boards of Directors shall grant such approvals and take such actions
as are reasonably necessary so that the Merger and the other transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated herein and otherwise act to eliminate or minimize the effects
of
such statute or regulation on the Merger, and the other transactions
contemplated hereby. Nothing in this Section 4.18 shall be construed to permit
Parent or Merger Sub to do any act that would constitute a violation or breach
of, or as a waiver of any of the Company’s rights under, any other provision of
this Agreement.
4.19 Rule
16b-3.
Prior
to the Effective Time, the Company shall be permitted to take such steps as
may
be reasonably necessary or advisable hereto to cause dispositions of Company
equity securities (including derivative securities) pursuant to the transactions
contemplated by this Agreement by each individual who is a director or officer
of the Company to be exempt under Rule 16b-3 promulgated under the Exchange
Act.
4.20 Registration
Statement for Certain Resales.
On the
first business day immediately following the six-month anniversary of the
Effective Time, Parent shall file a resale registration statement on Form S-3
(which may be in the form of a new registration statement or post-effective
amendment of the Registration Statement) registering the resale of (i) all
shares of Parent Common Stock owned by any person (such persons collectively,
the “Restricted Holders”) who may not offer or sell any shares of Parent Common
Stock received pursuant to this Agreement or the CVR Agreement without
registration of such offer and sale under the Securities Act, and (ii) all
shares of Parent Common Stock issuable upon the exercise of Company Warrants.
This covenant is for the benefit of, and shall be enforceable by, each of the
Restricted Holders and each of the holders of Company Warrants.
4.21 Certain
Tax Returns.
Prior
to the Effective Time, the Company shall file all Tax Returns for which the
time
prescribed by law to file such Tax Returns has elapsed and the Company has
not
filed such Tax Returns within such time period or subsequent
thereto.
61
ARTICLE
V - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE
MERGER
5.1 Mutual
Closing Conditions.
The
respective obligations of each party to consummate the Merger shall be subject
to the satisfaction or waiver by mutual consent of the other party, at or before
the Effective Time, of each of the following conditions:
(a) Stockholder
Approval. The Company Requisite Vote shall have been obtained at the Company
Stockholders’ Meeting and the Parent Requisite Vote shall have been obtained at
the Parent Shareholders’ Meeting.
(b) Registration
Statement. The Registration Statement shall have been declared effective by
the
SEC and shall remain effective and shall not be subject to a stop order in
effect at the Effective Time.
(c) Absence
of Order. No temporary restraining order, preliminary or permanent injunction
or
other order issued by a court or other governmental entity of competent
jurisdiction (each, an “Order”) or law shall be in effect and have the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger;
provided, however, that each of the parties shall have used all reasonable
efforts to prevent the entry of an such Order that may be entered.
(d) Tax
Opinion. Parent and the Company shall have received the opinion of Xxxxxxxx
& Xxxx LLP, counsel to Parent, dated the Closing Date, to the effect that
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. In rendering such opinion,
counsel to Parent shall be entitled to rely on customary assumptions and
representations provided by Parent and Company that counsel to Parent reasonably
deems relevant.
(e) Regulatory
Approvals. All consents, authorizations, orders and approvals from governmental
entities required in connection with the execution, delivery and performance
of
this Agreement shall have been obtained, except (x) for filings in connection
with the Merger or any other documents required to be filed after the Effective
Time and (y) where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a Company
Material Adverse Effect on the business of the Company and its subsidiaries,
taken as a whole, following the Effective Time, or a Parent Material Adverse
Effect on the business of Parent and its subsidiaries, taken as a whole,
following the Effective Time.
5.2 Frustration
of Closing Conditions.
Neither
the Company nor Parent may rely, either as a basis for not consummating the
Merger or terminating this Agreement and abandoning the Merger, on the failure
of any condition set forth in Articles V, VI or VII, as the case may be, to
be
satisfied if such failure was caused by such relying party’s breach in any
material respect of any provision of this Agreement or failure to use all best
efforts to consummate the Merger and the other transactions contemplated hereby,
as required by and subject to Section 4.8.
62
ARTICLE
VI - CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF PARENT AND MERGER SUB TO CONSUMMATE THE
MERGER
The
obligations of Parent and Merger Sub to consummate the Merger are subject,
to
the fulfillment of the following conditions, any one or more of which may be
waived by Parent:
6.1 Representations,
Warranties and Covenants.
The
representations and warranties made by the Company in this Agreement shall
be
accurate as of the Closing Date as if made on and as of the Closing Date (unless
any such representation or warranty is made only as of a specific date, in
which
event such representation and warranty shall be true and correct as of such
specified date), except to the extent failure to be accurate, in the aggregate,
has not had, and would not reasonably be expected to have, a Company Material
Adverse Effect. The Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Effective Time.
6.2 Material
Adverse Effect.
No
Company Material Adverse Effect shall have occurred since the date of this
Agreement and be continuing.
6.3 Officer’s
Certificate.
Parent
shall receive a certificate signed on behalf of the Company by the Chief
Executive Officer or Chief Financial Officer of the Company certifying that
the
conditions set forth in Sections 6.1 and 6.2 have been satisfied.
6.4 Corporate
Certificates.
The
Company shall have delivered a copy of the Certificate of Incorporation of
the
Company, as in effect immediately prior to the Closing Date, certified by the
Delaware Secretary of State and a certificate, as of the most recent practicable
date, of the Delaware Secretary of State as to the Company’s corporate good
standing, and analogous documentation related to Narrowstep, Ltd. with respect
to good standing in the United Kingdom.
6.5 Capital
Contributions.
The
Company shall have received at or prior to the Effective Time an equity
contribution of $300,000, in accordance with such terms disclosed to Parent
prior to the date of this Agreement.
ARTICLE
VII - CONDITIONS
PRECEDENT TO THE OBLIGATION OF COMPANY TO CONSUMMATE THE
MERGER
The
obligation of the Company to consummate the Merger is subject to the fulfillment
of the following conditions, any one or more of which may be waived by it:
7.1 Representations,
Warranties and Covenants.
The
representations and warranties made by Parent and Merger Sub in this Agreement
shall be accurate as of the Closing Date as if made on and as of the Closing
Date (unless any such representation or warranty is made only as of a specific
date, in which event such representation and warranty shall be true and correct
as of such specified date), except to the extent failure to be accurate has
not
had, and would reasonably be expected to have, a Parent Material Adverse Effect.
Parent and Merger Sub shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed
or
complied with by it on or prior to the Effective Time.
63
7.2 Material
Adverse Effect.
No
Parent Material Adverse Effect shall have occurred since the date of this
Agreement and be continuing.
7.3 Officer’s
Certificate.
The
Company shall receive a certificate signed on behalf of Parent by the Chief
Executive Officer and Chief Financial Officer of Parent certifying that the
conditions set forth in Sections 7.1 and 7.2 have been satisfied.
7.4 Corporate
Certificates.
The
Parent shall have delivered a copy of the Certificate of Incorporation of
Parent, as in effect immediately prior to the Closing Date (and which reflects
the Charter Amendment), certified by the Florida Secretary of State and a
certificate, as of the most recent practicable date, of the Florida Secretary
of
State as to the Company’s corporate good standing.
7.5 Charter
Amendment.
Parent
shall have filed the Charter Amendment with the Secretary of State of the State
of Florida and such filing shall have been accepted, and be
effective.
7.6 Listing.
Parent
and the Company shall have received from the Nasdaq Capital Market evidence
that
the shares of Parent Common Stock to be issued to (i) the stockholders of the
Company in connection with the Merger (including Company Accelerated Restricted
Stock Awards and any shares of Parent Common Stock that may be issued pursuant
to the CVR Agreement), (ii) holders of Company Warrants upon the exercise
thereof (including any shares of Parent Common Stock that may be issued pursuant
to the CVR Agreement), and (iii) holders of Company Non-accelerated Restricted
Stock Awards pursuant to this Agreement (including any shares of Parent Common
Stock that may be issued pursuant to the CVR Agreement), in each case shall
be
listed on the Nasdaq Capital Market immediately following the Effective
Time.
ARTICLE
VIII - TERMINATION,
AMENDMENT AND WAIVER
8.1 Termination.
This
Agreement may be terminated at any time prior to the Effective Time, whether
before or after the requisite approvals of the stockholders of the
Company:
(a) by
mutual
written consent of Parent, Merger Sub and the Company;
(b) by
either
the Company or Parent if the Effective Time shall not have occurred on or before
October 31, 2008 (the “Termination Date”); provided, however, that the right to
terminate this Agreement pursuant to this Section 8.1(b) shall not be available
to the party seeking to terminate if any action of such party (or, in the case
of Parent, Merger Sub) or the failure of such party (or, in the case of Parent,
Merger Sub) to perform any of its obligations under this Agreement required
to
be performed at or prior to the Effective Time has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date and such action or failure to perform constitutes a breach
of
this Agreement, including pursuant to Section 4.8;
(c) by
either
the Company or Parent if a governmental entity shall have issued an order,
decree or ruling or taken any other action, in any case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, which
order, decree, ruling or other action is final and nonappealable; provided
that
the party seeking to terminate this Agreement pursuant to this Section 8.1(c)
shall have used such best efforts as may be required pursuant to Section 4.8
to
prevent, oppose and remove such restraint, injunction or other
prohibition;
64
(d) by
the
Company:
(i) upon
a
breach of any covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have become
untrue, in either case such that the conditions set forth in Section 7.1 would
not be satisfied; provided, however, that if such inaccuracy in Parent’s
representations and warranties or breach by Parent is curable by Parent, then
the Company may not terminate this Agreement under this Section 8.1(d) prior
to
the Termination Date; provided, however, Parent exercises commercially
reasonable efforts to cure such breach, and provided further that the Company
shall not have the right to terminate this Agreement pursuant to this Section
8.1(d)(i) if the Company is then in material breach of any of its covenants
or
agreements contained in this Agreement; or
(ii) prior
to
the approval of this Agreement by the stockholders of the Company, upon a Change
of Recommendation in connection with a Superior Offer; provided, however, that
contemporaneously with the termination of this Agreement (i) the Company pays
to
Parent the Termination Fee (as defined in Section 8.3) and (ii) the Company
enters into a definitive agreement to effect such Superior Offer;
(e) by
Parent:
(i) upon
a
breach of any covenant or agreement on the part of the Company set forth in
this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 6.1 would
not be satisfied, provided that if such inaccuracy in the Company’s
representations and warranties or breach by the Company is curable by the
Company, then Parent may not terminate this Agreement under this Section 8.1(e)
prior to the Termination Date, provided the Company exercises commercially
reasonable efforts to cure such breach; and provided further that Parent shall
not have the right to terminate this Agreement pursuant to this Section
8.1(e)(i) if Parent or Merger Sub is then in material breach of any of its
covenants or agreements contained in this Agreement.
(ii) if
a
Triggering Event, as defined below, shall have occurred. For the purposes of
this Agreement, a “Triggering Event” shall be deemed to have occurred if: (i) a
Change of Recommendation has occurred and is continuing; (ii) the Board of
Directors of the Company shall have failed to comply with the second to last
sentence of Section 4.4(a); (iii) the Company shall have failed to include
in
the Proxy Statement/Prospectus the recommendation of the Board of Directors
of
the Company in favor of adoption of this Agreement; (iv) the Board of Directors
of the Company fails publicly to reaffirm its recommendation in favor of the
adoption of this Agreement within five (5) business days after Parent requests
in writing that such recommendation be reaffirmed at any time following the
public announcement of an Acquisition Proposal; (v) the Board of Directors
of
the Company shall have approved or publicly recommended any Acquisition
Proposal; or (vi) the Company shall have entered into any letter of intent
or
similar document or any agreement, contract or commitment accepting any
Acquisition Proposal; or
65
(f) by
either
Parent or the Company if, upon a vote taken thereon at the Company Stockholders’
Meeting or any postponement or adjournment thereof, this Agreement shall not
have been adopted by the Company Requisite Vote provided, however, that the
right to terminate the Agreement under this Section 8.1(f) shall not be
available to the Company when the failure to obtain the Company Requisite Vote
shall have been caused by the action or failure to act of the Company and such
action or failure to act constitutes material breach by the Company of this
Agreement; or
(g) by
either
Parent or the Company if, upon a vote taken thereon at the Parent Shareholders’
Meeting or any postponement or adjournment thereof, the Charter Amendment,
the
Share Issuance or the CVR Issuance shall not have been approved by the Parent
Requisite Vote provided, however, that the right to terminate the Agreement
under this Section 8.1(g) shall not be available to Parent when the failure
to
obtain the Parent Requisite Vote shall have been caused by the action or failure
to act of the Parent and such action or failure to act constitutes material
breach by the Parent of this Agreement
8.2 Effect
of Termination.
In the
event of the termination of this Agreement pursuant to Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto, except as provided in Sections
4.5(a), this Section 8.2, Section 8.3 and Article IX, which shall survive such
termination; provided, however, that nothing herein shall relieve any party
from
liability for any breach of this Agreement. The parties acknowledge and agree
that nothing in this Section 8.2 shall be deemed to affect their right to
specific performance under Section 9.11. No termination of this Agreement shall
affect the obligations of the parties contained in the Confidentiality
Agreement, all of which obligations shall survive termination of this Agreement
in accordance with their terms.
8.3 Fees
and Expenses.
Except
as set forth in this Section 8.3, all fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid
by
the party incurring such expenses whether or not the Merger is consummated;
provided, however, that Parent and Company shall share equally all fees and
expenses, other than attorneys’ and accountants fees and expenses, incurred in
relation to the printing and filing with the SEC of the Joint Proxy
Statement/Prospectus (including any preliminary materials related thereto)
and
the Registration Statement (including financial statements and exhibits) and
any
amendments or supplements thereto (including SEC filing fees).
In
the
event that this Agreement is terminated by Parent or the Company, as applicable,
pursuant to Sections 8.1(d)(ii), or 8.1(e)(ii), the Company shall promptly,
but
in no event later than two days (or if such day is not a business day, the
next
succeeding business day) after the date of such termination, pay Parent a fee
equal to $377,000 in immediately available funds (the “Termination
Fee”).
In
the absence of fraud on the part of the Company, payment of the Termination
Fee
is the sole and exclusive remedy for the parties in connection with any
termination of this Agreement pursuant to Sections 8.1(d)(ii) or
8.1(e)(ii).
66
8.4 Amendment.
This
Agreement may be amended by the parties hereto at any time, whether before
or
after approval of the transactions contemplated by this Agreement by the
shareholders of the Company, Merger Sub and Parent, by execution of an
instrument in writing signed on behalf of each of Parent, Merger Sub and the
Company; provided, however, that (i) no such amendment may, without the consent
of the Stockholder Representative, change in any manner adverse to the
Stockholder Representative any of its rights or obligations under this Agreement
or the provisions of this Section 8.4, and (ii) after approval of the
transactions contemplated by this Agreement by the shareholders of the Company,
Merger Sub and Parent, no amendment of this Agreement shall be made which by
law
requires further approval by the shareholders of the Company, Merger Sub and
Parent without obtaining such approvals.
8.5 Extension;
Waiver.
At any
time prior to the Effective Time any party hereto may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations
or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) subject to the proviso set forth
in
Section 8.4, waive compliance with any of the agreements or conditions for
the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in
an
instrument in writing signed on behalf of such party. Delay in exercising any
right under this Agreement shall not constitute a waiver of such
right.
ARTICLE
IX - MISCELLANEOUS
9.1 No
Survival.
None of
the representations, warranties, covenants and agreements in this Agreement
or
in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants and
agreements, shall survive the Effective Time, except for (a) those covenants
and
agreements contained herein that by their terms apply or are to be performed
in
whole or in part after the Effective Time and (b) this Article IX.
9.2 Notices.
Any
notice or other communication hereunder shall be in writing and shall be deemed
duly delivered (i) four business days after being sent by registered or
certified mail, return receipt requested, postage prepaid, (ii) one business
day
after being sent for next business day delivery, fees prepaid, via a reputable
overnight courier service, or (iii) on the date of confirmation of receipt
(or
the first business day following receipt if the date of such receipt is not
a
business day) of facsimile transmission, in each case to the intended recipient
set forth below:
if
to
Parent or Merger Sub, to:
Onstream
Media Corporation
0000
X.X.
00xx Xxxxxx
Xxxxxxx
Xxxxx, Xxxxxxx 00000
Attention:
Xxxxx Xxxxxx
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
67
with
a
copy to:
Xxxxxxxx
& Xxxx LLP
000
Xxxx
Xxx Xxxx Xxxxxxxxx, Xxxxx 0000
Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attention:
Xxxx X. Xxxxxxxxx, Esq.
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
if
to the
Company, to:
Narrowstep
Inc.
000
Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx,
Xxx Xxxxxx 00000
Attention:
Xxxxx XxXxxxx
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
with
a
copy to:
Xxxxxxxxxx
Xxxxxxx PC
00
Xxxxxxxxxx Xxxxxx
Xxxxxxxx,
Xxx Xxxxxx 00000
Attention:
Xxxx X. Xxxxxxxx, Esq.
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
if
to the
Stockholder Representative, to:
X.
Xxxxxx
Xxxxx XX
00
Xxxxxxxxxxx Xxxxx, Xxxxx 0000
Xxx
Xxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Any
party
may, by notice given in accordance with this Section 9.2 to the other parties,
change the address for receipt of notices hereunder.
9.3 Certain
Definitions.
For
purposes of this Agreement, the term
(a) “affiliate”
of a person means a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
the
first mentioned person;
(b) “beneficial
owner” with respect to any shares of Company Common Stock means a person who
shall be deemed to be the beneficial owner of such shares (i) which such person
or any of its affiliates or associates (as such term is defined in Rule 12b-2
under the Exchange Act) beneficially owns, directly or indirectly, (ii) which
such person or any of its affiliates or associates (as such term is defined
in
Rule 12b-2 of the Exchange Act) has, directly or indirectly, (A) the right
to
acquire (whether such right is exercisable immediately or subject only to the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of consideration rights, exchange rights, warrants, options
or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or
understanding or (iii) which are beneficially owned, directly or indirectly,
by
any other persons with whom such person or any of its affiliates or associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any Shares (and the term “beneficially owned”
shall have a corresponding meaning);
68
(c) “business
day” means any day on which the principal offices of the SEC in Washington, D.C.
are open to accept filings or, in the case of determining a date when any
payment is due, any day on which banks are not required or authorized by law
to
close in New York, New York;
(d) “control”
(including the terms “controlled”, “controlled by” and “under common control
with”) means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management policies of
a
person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise;
(e) “generally
accepted accounting principles” means the generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants
and
statements and pronouncements of the Financial Accounting Standards Board or
in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession in the United States, in each case, as
applicable, as of the time of the relevant financial statements referred to
herein;
(f) “knowledge”
(i) with respect to the Company means the actual knowledge, as opposed to
implied or constructive knowledge, of any of Xxxxx X. XxXxxxx, Xxx
Xxxxxx
or Xxxx
Xxx Xxxxxx and (ii) with respect to Parent or Merger Sub means the actual
knowledge of Xxxxx Xxxxxx, Xxxxxx Xxxxxxxxx or Xxxxxxxx Xxxxxxxxx;
(g) “person”
means an individual, corporation, partnership, limited liability company,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(h) “subsidiary”
or “subsidiaries” of the Company, the Surviving Corporation, Parent or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other person,
as
the case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, 50% or more of the stock or other equity interests
the holder of which is generally entitled to vote for the election of the board
of directors or other governing body of such corporation or other legal
entity.
9.4 Entire
Agreement.
This
Agreement, including the Exhibits and Schedules attached hereto, contains the
entire agreement between the parties with respect to the Merger and supersedes
all prior agreements, written or oral, between the parties with respect thereto,
other than the Confidentiality Agreement between Parent and the Company, which
shall survive execution of this Agreement and any termination of this Agreement.
69
9.5 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Delaware without regard to conflict of laws provisions
thereof.
9.6 Binding
Effect; No Assignment; Parties in Interest.
(a) This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. This Agreement is not
assignable by operation of law or otherwise without the prior written consent
of
the other parties hereto.
(b) This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement, other than (a) with
respect to the provisions of Sections 4.15 and 4.20 which shall inure to the
benefit of the persons or entities benefiting therefrom who are intended to
be
third-party beneficiaries thereof, (b) at and after the Effective Time, the
rights of the holders of shares of Company Common Stock and Company Series
A
Preferred Stock to receive the Merger Consideration in accordance with the
terms
and conditions of this Agreement and (c) at and after the Effective Time, the
rights of the holders of Company Non-accelerated Restricted Stock Awards to
receive the shares of Parent Restricted Stock, Contingent Value Rights and
other
payments contemplated by the applicable provisions of Section 1.7, in each
case,
at the Effective Time in accordance with the terms and conditions of this
Agreement, (d) at and after the Effective Time, the rights of the holders of
Company Warrants to receive shares of Parent Common Stock, Contingent Value
Rights and other payments contemplated by the applicable provisions of Section
1.6(f), and (e) prior to the Effective Time, the rights of the holders of shares
of Company Common Stock and Company Series A Preferred Stock to pursue claims
for damages and other relief, including equitable relief, for Parent’s or Merger
Sub’s breach of this Agreement; provided, however, that the rights granted to
the holders of Company Common Stock and Company Series A Preferred Stock
pursuant to the foregoing clause (e) of this Section 9.6 shall only be
enforceable on behalf of such holders by the Company (or any successor in
interest thereto) in its sole and absolute discretion.
9.7 Section
Headings, Construction.
The
headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to “Section”
or “Sections” refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word “including” does not limit the preceding words or terms.
9.8 Counterparts.
This
Agreement may be executed in four (4) counterparts, each of which shall be
deemed an original, and both of which together shall constitute one and the
same
instrument.
70
9.9 Severability.
If any
provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement shall remain
in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to
the
extent not held invalid or unenforceable. The parties further agree to replace
such invalid or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such invalid or unenforceable
provision.
9.10 Submission
to Jurisdiction; Waiver.
Each of
Company, Stockholder Representative, Parent and Merger Sub irrevocably agrees
(a) that any legal action or proceeding with respect to this Agreement or for
recognition and enforcement of any judgment in respect hereof brought by the
other party hereto or its successors or assigns may be brought and determined
in
the Court of Chancery of the State of Delaware and each of the Company,
Stockholder Representative, Parent and Merger Sub hereby irrevocably submits
with regard to any action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive jurisdiction of
the
aforesaid courts, and (b) (1) to the extent such party is not otherwise subject
to service or process in the State of Delaware, to appoint and maintain an
agent
in the State of Delaware as such party's agent for acceptance of legal process,
or (2) that, to the fullest extent permitted by applicable law, service of
process may also be made on such party by prepaid certified mail with a proof
of
mailing receipt validated by the United States Postal Service constituting
evidence of valid service, and that service made pursuant to (b)(1) or (2)
above
shall, to the fullest extent permitted by applicable law, have the same legal
force and effect as if served upon such party personally within the State of
Delaware. Each of Company, Stockholder Representative, Parent and Merger Sub
hereby irrevocably waives, and agrees not to assert, by way of motion, as a
defense, counterclaim or otherwise, in any action or proceeding with respect
to
this Agreement, (a) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure
to
lawfully serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum,
(ii)
the venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
9.11 Enforcement.
The
parties recognize and agree that if for any reason any of the provisions of
this
Agreement are not performed in accordance with their specific terms or are
otherwise breached, immediate and irreparable harm or injury would be caused
for
which money damages would not be an adequate remedy. Accordingly, each party
agrees that in addition to other remedies the other party shall be entitled
to
an injunction restraining any violation or threatened violation of the
provisions of this Agreement or to enforce specifically the terms and provisions
of this Agreement. In the event that any action shall be brought in equity
to
enforce the provisions of the Agreement, neither party will allege, and each
party hereby waives the defense, that there is an adequate remedy at
law.
9.12 Rules
of Construction.
The
parties hereto agree that they have been represented by counsel during the
negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or ruling of construction providing
that ambiguities in an agreement or other document will be construed against
the
party drafting such agreement or document.
71
9.13 Waiver
of Jury Trial.
EACH OF
PARENT, MERGER SUB, COMPANY AND STOCKHOLDER REPRESENTATIVE HEREBY IRREVOCABLY
WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT, OR ANY COURSE
OF
CONDUCT, COURSE OF DEALINGS, STATEMENT OR ACTION RELATED HERETO OR
THERETO.
72
IN
WITNESS WHEREOF, the parties have executed this Agreement and Plan of Merger
as
of the date first stated above.
ONSTREAM MEDIA CORPORATION | |
By:
|
/s/
Xxxxx X. Xxxxxx
|
Name:
|
Xxxxx
X. Xxxxxx
|
Title:
|
CEO
|
ONSTREAM
MERGER CORP.
|
|
By:
|
/s/
Xxxxx X. Xxxxxx
|
Name:
|
Xxxxx
X. Xxxxxx
|
Title:
|
President
|
NARROWSTEP
INC.
|
|
By:
|
/s/
Xxxxx XxXxxxx
|
Name:
|
Xxxxx
XxXxxxx
|
Title:
|
Chairman
and interim CEO
|
Solely
for purposes of Sections 1.13, 1.14, 8.4, 8.5 and Article
IX:
|
|
X.
XXXXXX XXXXX XX, AS STOCKHOLDER REPRESENTATIVE
|
|
/s/
X. Xxxxxx Xxxxx XX
|
[Signature
Page to Agreement and Plan of Merger]
73
EXHIBIT
C TO AGREEMENT AND PLAN OF MERGER AMONG ONSTREAM MEDIA
CORPORATION,
ONSTREAM MERGER CORP., NARROWSTEP INC., AND
X.
XXXXXX XXXXX XX
FORM
OF CONTINGENT VALUE RIGHTS AGREEMENT
CONTINGENT
VALUE RIGHTS AGREEMENT (this "Agreement"),
dated
_________ __, 2008, by and among Onstream Media Corporation (“Parent”),
a
Florida corporation, X. Xxxxxx Xxxxx XX, as CVR Representative (the
"CVR
Representative")
and
Interwest Transfer Co., as Rights Agent (the “Rights
Agent”),
in
favor of each person (a “Holder”)
who
from time to time holds one or more Contingent Value Rights (the “CVRs”)
to
receive a number of shares of Parent common stock, $0.0001 par value per share
(the “Parent
Common Stock”),
in
the amounts and subject to the terms and conditions set forth herein. A
registration statement on Form S-4 (No. 333-______) (the “Registration
Statement”)
with
respect to, among other securities, the CVRs, has been prepared and filed by
Parent with the Securities and Exchange Commission (the “Commission”)
and
has become effective in accordance with the Securities Act of 1933, as amended
(the “Act”).
This
Agreement is entered into in connection with the Agreement and Plan of Merger
(the “Merger
Agreement”),
dated
as of May __, 2008, by and among Parent, Onstream Merger Corp. (“Merger
Sub”),
Narrowstep Inc. (the “Company”),
and
X. Xxxxxx Xxxxx XX, which sets forth the allocation of (i) one CVR for each
outstanding share of Company Common Stock immediately prior to the Effective
Time (including any Company Restricted Stock Awards outstanding immediately
prior to the Effective Time) and (ii) one CVR issuable for each share of Company
Common Stock issuable immediately prior to the Effective Time upon exercise
of a
Company Warrant, on the terms and subject to the conditions set forth herein.
Unless the context requires otherwise, terms used but not defined herein shall
have the meanings assigned to such terms in the Merger Agreement.
Section
1. Appointment
of Rights Agent.
Parent
hereby appoints the Rights Agent to act in accordance with the instructions
set
forth herein, and the Rights Agent hereby accepts such appointment, upon the
terms and conditions hereinafter set forth.
Section
2. Issuance
of CVRs; Form of CVR Certificate.
2.1 The
CVRs
shall be issued (i) as a portion of the Merger Consideration at the times and
in
the manner set forth in the Merger Agreement, and (ii) in connection with the
exercise of the Company Warrants pursuant to Section 1.6(f) of the Merger
Agreement at the times and in the manner set forth in the Merger Agreement
and
in this Agreement.
2.2 In
the
event of the exercise of a Company Warrant prior to the Final Exercise Date
(as
defined herein), Parent shall, as soon as practicable following the date of
such
exercise, notify the Rights Agent of such exercise, including the name and
mailing address of the exercising Company Warrant holder; and (ii) the Rights
Agent shall record in the CVR Register (as defined herein) that such holder
owns
a number of CVRs equal to the number of shares of Company Common Stock that
would have been issued if such exercise occurred immediately prior to the
Effective Time.
2.3 As
soon
as practicable following the Final Exercise Date, Parent shall notify the Rights
Agent of any Company Warrants that have not been exercised in full as of such
time. Any Company Warrants that are not exercised prior to the Final Exercise
Date shall not be entitled to receive any CVRs or CVR Consideration (as defined
herein); provided, however, that nothing contained herein shall affect the
rights of the holders of Company Warrants to receive Parent Common Stock upon
the exercise thereof in accordance with their respective terms and the Merger
Agreement.
2.4 The
CVRs
shall be evidenced by certificates (the “CVR
Certificates”),
substantially in the form attached hereto as Exhibit
A.
The CVR
Certificates may have such letters, numbers, or other marks of identification
or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as Parent may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with
applicable law or with any rule or regulation made pursuant
thereto.
2.5 The
CVR
Certificates shall be executed on behalf of Parent by the manual or facsimile
signature of the present or any future President or Vice President of Parent,
under its corporate seal, affixed or in facsimile, attested by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of Parent and countersigned by Rights Agent. CVR Certificates shall
be
dated as of the date of the initial issuance thereof or the date of any
subsequent transfer, as the case may be.
2.6 Notwithstanding
the foregoing, CVRs issued upon exercise of Company Warrants may, at Parent's
option, be issued in uncertificated form. Any CVRs issued in uncertificated
form
shall be the same security, in every manner and in every respect, as a CVR
for
which a CVR Certificate has been issued (including, but not limited, with
respect to the rights, powers, privileges and preferences existing under this
Agreement.
Section
3. Registration.
3.1 The
Rights Agent shall maintain an ownership register (the "CVR
Register")
in
which the Rights Agent shall provide for the registration of the CVRs, including
any CVRs issued in certificated or book entry form to holders of Company
Warrants. Prior to transfer of any CVR as provided for herein, in the case
of
CVRs for which CVR Certificates have been issued, Parent and the Rights Agent
may deem and treat the registered Holder thereof as the absolute owner of the
CVR Certificates (notwithstanding any notation of ownership or other writing
thereon made by anyone other than Parent or the Rights Agent), for the purpose
of the CVR Consideration and for all other purposes, and neither Parent nor
the
Rights Agent shall be affected by any notice to the contrary.
2
3.2 A
Holder
may make a written request to the Rights Agent or Parent to change such Holder's
address of record in the CVR Register. Upon receipt of such written notice
by
the Rights Agent, the Rights Agent shall promptly record the change of address
in the CVR Register.
Section
4. Payment
and Exchange of CVRs.
4.1 CVR
Exchange Ratio.
(a) Subject
to and in accordance with the terms of this Agreement, each CVR (including
any
CVRs owned by Company Warrant holders pursuant to this Agreement) shall be
converted and become the right to receive a
number
of duly authorized, validly issued, fully paid and nonassessable shares of
Parent Common Stock (the "CVR
Shares")
equal
to the sum of (i) the CVR Year One Exchange Ratio (as defined herein),
plus
(ii) the
CVR Year Two Exchange Ratio (as defined herein), plus
(iii) in
the case of CVRs issued other than in respect of Company Warrants, the Warrant
Expiration Exchange Ratio (as defined herein); plus (iv) the 2006 Warrant
Expiration Exchange Ratio (as defined herein); provided,
however,
that,
the maximum number of CVR Shares deliverable hereunder shall not exceed (A)
20,000,000, minus
(B) the
number of shares of Parent Common Stock into which shares of Company Common
Stock are converted pursuant to Section 1.6(a)(i)(a) of the Merger Agreement,
excluding, in the case of this clause (B) any unvested Company Restricted Stock
Awards that fail to vest in accordance with their respective terms, minus
(C) the
number of shares of Parent Common Stock into which shares of Company Series
A
Preferred Stock are converted pursuant to Section 1.6(a)(iv) of the Merger
Agreement. The CVR Shares that may be issued pursuant to the terms of this
Agreement are sometimes referred to herein as the "CVR
Consideration".
Notwithstanding anything in this Agreement to the contrary, the number
referenced in clause (A) of the immediately preceding sentence shall, until
the
such time as any CVR Shares are issuable pursuant to Section 4.3(e) hereof,
be
deemed to equal 19,900,000 and
thereafter shall be 20,000,000 less the number of shares of Parent Common Stock
issued upon the cashless exercise of Company 2006 Warrants but such reduction
not to exceed 100,000.
(b) "CVR
Year One Exchange Ratio"
means
the quotient obtained by dividing (i) the sum of (A) the First Year Revenue
Shares (as defined herein), plus
(B) the
First Year Additional Revenue Shares (as defined herein), less
(C) the
lesser of 100,000 or the sum of the First Year Revenue Shares and the First
Year
Additional Revenue Shares by
(ii) the
sum of (X) the total number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (other than Cancelled Shares and
Subsidiary Held Shares) plus
(Y) the
number of CVRs issuable upon exercise of the Company Warrants pursuant to
Section 1.6(f) of the Merger Agreement. Notwithstanding anything contained
herein to the contrary, in the event the CVR Year One Exchange Ratio is a
negative number, the CVR Year One Exchange Ratio shall be deemed, for all
purposes, to be zero.
3
(c) "First
Year Revenue Shares"
means a
number of shares of Parent Common Stock equal to the product of (A) two (2)
multiplied
by
(B) the
First Year Revenue (as defined herein) minus
the
Annualized Company Revenue (as defined in the Merger Agreement) or minus
$4,500,000 if the Minimum Exchange Ratio (as defined in the Merger Agreement)
exceeded the Exchange Ratio (as defined in the Merger Agreement); provided,
however,
that if
the First Year Revenue exceeds $8,000,000, for purposes of this Section 4.1(c)
only, First Year Revenue shall be deemed to be $8,000,000. "First
Year Revenue"
means
(A) all revenue recognized by Parent, the Surviving Corporation or any of their
respective affiliates, in accordance with generally accepted accounting
principles, applied on a basis consistent with the Company's financial
statements, with respect to the Business, during the period commencing on the
Closing Date and ending on the one year anniversary of the Closing Date (such
period the “First Year” and such anniversary, the "Twelve
Month Anniversary")
(the
"First
Year Gross Revenue"),
minus
(B) any
First Year Bad Debt Expense (as defined herein). "First
Year Bad Debt Expense"
means,
subject to the immediately following sentence, an amount equal to the product
of
(X) (1) the amount recorded by Parent or the Surviving Corporation as actual
write-offs of revenue of the Business during the First Year divided
by
First
Year Gross Revenue (such quotient expressed as a percent) minus
(2) one
percent multiplied
by
(Y)
First Year Gross Revenue, but only to the extent such product exceeds one
percent (1.0%) of the First Year Gross Revenue. Notwithstanding anything in
this
Agreement to the contrary, in the event First Year Bad Debt Expense exceeds
nine
percent (9.0%) of the First Year Gross Revenue, First Year Bad Debt expense
shall be deemed to equal eight percent (8.0%) of the First Year Gross Revenue.
(d) "Business"
means
the business of developing, selling and servicing (including, but not limited
to, with respect to customers of Parent, or any of its affiliates, existing
prior to the Effective Time) (i) any products or services offered by the Company
or its subsidiaries on or prior to the date of the Merger Agreement; (ii) any
products or services in development by the Company or its subsidiaries on or
prior to the date of the Merger Agreement, including, but not limited to, the
Company's "TelvOS" product; and (iii) any products or services derived or based,
in whole or in part, on the products or services referenced in the foregoing
clauses (i) and (ii).
(e) "First
Year Additional Revenue Shares"
means a
number of shares of Parent Common Stock equal to the product of (A) one (1)
multiplied
by
(B) an
amount equal to the First Year Revenue minus
$8,000,000.
(f) "CVR
Year Two Exchange Ratio"
means
the quotient obtained by dividing (i) (A) the Second Year Revenue Shares (as
defined herein) minus
(B) the
lesser of (1) 100,000 less the number determined under Section 4.1(b)(i)(C)
hereof or (2) the Second Year Revenue Shares by
(ii) the
sum of (X) the total number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (other than Cancelled Shares and
Subsidiary Held Shares) plus
(Y) the
number of CVRs issuable upon exercise of the Company Warrants pursuant to
Section 1.6(f) of the Merger Agreement. Notwithstanding anything contained
herein to the contrary, in the event the CVR Year Two Exchange Ratio is a
negative number, the CVR Year Two Exchange Ratio shall be deemed, for all
purposes, to be zero.
4
(g) "Second
Year Revenue Shares"
means a
number of shares of Parent Common Stock equal to the product of (A) one (1)
multiplied
by
(B) an
amount equal to (x) the Second Year Revenue (as defined herein) minus
(y) the
product of 0.5 and the First Year Revenue. "Second
Year Revenue"
means
(A) all revenue recognized by Parent, the Surviving Corporation or any of their
respective affiliates, in accordance with generally accepted accounting
principles, consistently applied, with respect to the Business during the period
commencing on the Twelve Month Anniversary and ending on the eighteen month
anniversary of the Closing Date (such anniversary, the "Eighteen
Month Anniversary")
(the
"Second
Year Gross Revenue"),
minus
(B) any
Second Year Bad Debt Expense (as defined herein). "Second
Year Bad Debt Expense"
means,
subject to the immediately following sentence, an amount equal to the product
of
(X) (1) the amount recorded by Parent or the Surviving Corporation as actual
write-offs of revenue of the Business during the First Year divided
by
First
Year Gross Revenue (such quotient expressed as a percent) minus
(2) one
percent multiplied
by
(Y)
Second Year Gross Revenue, but only to the extent such product exceeds one
percent (1.0%) of the Second Year Gross Revenue. Notwithstanding anything in
this Agreement to the contrary, in the event Second Year Bad Debt Expense
exceeds nine percent (9.0%) of the Second Year Gross Revenue, Second Year Bad
Debt expense shall be deemed to equal eight percent (8.0%) of the Second Year
Gross Revenue.
(h) "Warrant
Expiration Exchange Ratio"
means a
number of shares of Parent Common Stock equal to the quotient obtained by
dividing (i) (A) the number of shares of Parent Common Stock holders of Company
Warrants would have been entitled to receive pursuant to this Agreement if
such
holders exercised all Company Warrants in full prior to the Final Exercise
Date,
minus
(B) the
number of shares of Parent Common Stock holders of Company Warrants received
(or
became entitled to receive) in connection with CVRs acquired (or deemed to
be
acquired) upon exercise of all Company Warrants prior to the Final Exercise
Date, by
(ii) the
total number of shares of Company Common Stock outstanding immediately prior
to
the Effective Time (other than Cancelled Shares and Subsidiary Held
Shares).
(i) "2006
Warrant Expiration Exchange Ratio"
means
the quotient obtained by dividing (i) the positive difference, if any, obtained
by subtracting (A) the product of 0.5 multiplied by the number of shares of
Parent Common Stock acquired in the aggregate upon cashless exercises of the
Company 2006 Warrants (as defined herein) from (B) 100,000 by
(ii) the
sum of (X) the total number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (other than Cancelled Shares and
Subsidiary Held Shares) plus
(Y) the
number of CVRs issuable upon exercise of the Company Warrants pursuant to
Section 1.6(f) of the Merger Agreement. "Company
2006 Warrants"
means
those warrants issued pursuant to that certain Purchase Agreement, dated as
of
February 22, 2006, by and among the Company and the purchasers named therein.
5
(j) Parent
will deliver to Rights Agent all calculations and a list of any CVRs or CVR
Shares to be issued including all registration and issuance information, as
it
is understood that the Rights Agent does not determine these
matters.
4.2 Statements
of Additional Shares.
(a) No
later
than sixty (60) days after the Twelve Month Anniversary, Parent shall deliver
to
CVR Representative a certificate setting forth a calculation of the CVR Year
One
Exchange Ratio. Such statement shall be certified by Parent's chief financial
officer ("Parent's
Year One Report").
(b)
No later
than sixty (60) days after the Eighteen Month Anniversary, Parent shall deliver
to CVR Representative a certificate setting forth a calculation of the CVR
Year
Two Exchange Ratio. Such statement shall be certified by Parent's chief
financial officer ("Parent's
Year Two Report").
Parent's Year One Report and Parent's Year Two Report are sometimes individually
and collectively referred to herein as "Parent's
Report".
(c) If
within
thirty (30) days upon delivery of a Parent's Report, CVR Representative has
not
given written notice of its objection to such report (which notice shall state
in reasonable detail the basis of CVR Representative's response or objection),
then such Parent's Report shall be binding on the Holder. If CVR Representative
gives Parent a written objection and if the parties fail to resolve the issues
outstanding with respect to such report within a period of thirty (30) days
after notification of rejection, the parties shall submit the issues remaining
in dispute to an independent public accounting firm (the "Independent
Accountant")
acceptable to the parties for resolution. The parties agree to execute such
engagement or similar letter as reasonably requested by the Independent
Accountant. If issues are submitted to the Independent Accountant for
resolution, the parties shall or cause to be furnished to the Independent
Accountant such work papers and other documents and information related to
those
disputed issues as the Independent Accountant may request and are available
to
that party or its representatives before the opportunity to present to the
Independent Accountant any material related to the disputed issues and discuss
the issues with the Independent Accountant. Parent and the CVR Representative
shall use their commercially reasonable efforts to cause the Independent
Accountant to make a determination within thirty days of accepting its
selection.
(d) The
decision of the Independent Accountant shall be final, binding and conclusive
resolution of the parties' dispute, shall be non-appealable and shall not be
subject to further review.
6
(e) Parent
will bear one hundred percent (100%) of the fees and costs of the Independent
Accountant for such determination; provided, however, that in the event that
the
Independent Accountant determines pursuant to Section 4.2(d) that a Parent's
Report, as submitted pursuant to Section 4.2(a) or Section 4.2(b), as
applicable, is correct, then the fees and costs of the Independent Accountant
(the "Accountant Fees") shall be paid by Parent to the Independent Accountant
and to the extent so paid shall be set off against the number of CVR Shares
otherwise deliverable to Holders hereunder, in accordance with the following
sentence of this Section 4.2(e). The aggregate CVR Shares issuable in respect
of
(i) the Year One Exchange Ratio shall be reduced by an amount equal to the
quotient obtained by dividing the Accountant Fees relating to Parent's Year
One
Report by the average of the last reported sales prices of Parent Common Stock
on the primary exchange where it is traded for the last fifteen trading days
immediately preceding the date of determination of the Year One Exchange Ratio,
and (ii) the Year Two Exchange Ratio shall be reduced by an amount equal to
the
quotient obtained by dividing the Accountant Fees relating to Parent's Year
Two
Report by the average of the last reported sales prices of Parent Common Stock
on the primary exchange where it is traded for the last fifteen trading days
immediately preceding the date of determination of the Year Two Exchange Ratio.
(f) Upon
delivery of a Parent's Report, Parent will provide the CVR Representative and
its accountants and advisors access to (i) Parent's Chief Financial Officer
for
questions, and (ii) the books and records of the Surviving Corporation
(including any work papers used to prepare a Parent's Report) and such other
information requested by such persons, in each case to the extent reasonably
necessary related to the CVR Representative's evaluation of a Parent's Report
and the calculations therein.
4.3 Issuance
of CVR Shares.
(a) The
date
on which the Parent's Year One Report becomes final and binding on the parties
pursuant to Section 4.2 hereof shall be referred to herein as the "Year
One Final Determination Date"
and the
date on which the Parent's Year Two Report becomes final and binding on the
parties pursuant to Section 4.2 hereof shall be referred to herein as the
"Year
Two Final Determination Date".
Each
of the Year One Final Determination Date and the Year Two Final Determination
Date are sometimes referred to herein as a "Final
Determination Date".
(b) On
the
Year One Final Determination Date, each CVR outstanding immediately prior to
such date shall be entitled to receive a number of shares of Parent Common
Stock
equal to the CVR Year One Exchange Ratio as finally determined hereunder and
subject to the maximum number of CVR Shares set forth in Section 4.1(a).
(c) On
the
Year Two Final Determination Date, each CVR outstanding immediately prior to
such date shall be entitled to receive a number of shares of Parent Common
Stock
equal to the CVR Year Two Exchange Ratio as finally determined hereunder and
subject to the maximum number of CVR Shares set forth in Section 4.1(a).
(d) On
the
Year Two Final Determination Date, each CVR outstanding immediately prior to
such date (other than CVRs issued in respect of Company Warrants) shall be
entitled to receive a number of Shares of Parent Common Stock equal to the
Warrant Expiration Exchange Ratio as finally determined hereunder and subject
to
the maximum number of CVR Shares set forth in Section 4.1(a).
7
(e) On
the
first business day following the expiration date of the Company 2006 Warrants
(or such earlier date as when each outstanding Company 2006 Warrant has been
exercised in full), each CVR outstanding immediately prior to such date shall
be
entitled to receive a number of shares of Parent Common Stock equal to the
2006
Warrant Exchange Ratio, subject to the maximum number of CVR Shares set forth
in
Section 4.1(a). The
Parent may at its sole option elect to issue the shares under this Section
4.3(e) on a date earlier than stated herein.
(f) Notwithstanding
anything in foregoing to the contrary, if prior to either the Year One Final
Determination Date or the Year Two Final Determination Date, there is a change
in the number or class of issued and outstanding shares of Parent Common Stock
as the result of reclassification, subdivision, recapitalization, stock split
(including reverse stock split), stock dividend, combination or exchange of
shares, the number of shares of Parent Common Stock to be issued in exchange
for
the CVRs pursuant to Sections 4.1(a), 4.3(b), 4.3(c), 4.3(d), 4.3(e), 4.4 or
4.5
hereof, as the case may be, shall be correspondingly adjusted to reflect such
event.
(g) No
fractional shares of Parent Common Stock shall be issued pursuant to this
Agreement. In lieu of fractional shares, each Holder who would otherwise have
been entitled to a fraction of a share of Parent Common Stock hereunder (after
aggregating all fractional shares to be received by such Holder), shall have
any
fractional shares rounded down to the nearest whole share of Parent Common
Stock.
4.4 Change
of Control.
(a) Notwithstanding
anything in this Agreement to the contrary, in the event Parent publicly
announces (or is required by law to publicly announce) a Change of Control
(as
defined herein) transaction at any time before the six month anniversary of
the
date of this Agreement (the "Six
Month Anniversary"),
the
Surviving Person (as defined herein) shall assume all of the Parent's and the
Surviving Corporation's obligations under this Agreement pursuant to Section
14.1 through 14.3 hereof. In the event Parent enters into a Change of Control
at
any time on or after the Six Month Anniversary and the Surviving Person does
not
assume all of the Parent’s and the Surviving Corporation’s obligations under
this Agreement pursuant to Section 14.1 through 14.3 hereof, then subject to
and
in accordance with the terms of this Agreement, immediately following such
announcement each CVR shall be converted and become the right to receive a
number of CVR Shares as set forth in Section 4.4(b) below.
(b) Subject
to the conditions set forth in Section 4.4(a) above, in the event Parent
publicly announces (or is required by law to publicly announce) (the date of
such announcement or required announcement, the "Post-Six
Month Change of Control Announcement Date")
a
Change of Control at any time on or after the Six Month Anniversary (a
"Post-Six
Month Change of Control"),
each
CVR (including any CVRs owned by Company Warrant holders pursuant to Section
2.2
hereof and any CVRs issued in respect of Company Restricted Stock Awards) shall
be converted and become the right to receive a number of CVR Shares equal to
the
CVR Year One Exchange Ratio plus
the CVR
Year Two Exchange Ratio (except that in calculating each of such ratios, First
Year Revenue and Second Year Revenue shall each be deemed to equal the
corresponding portion of the Change of Control Revenue (as defined herein)
relative to each of those two periods, respectively).
8
(c) Notwithstanding
the above, nothing in this Section 4.4 shall result in (i) a change in the
calculation of the CVR Year One Exchange Ratio set forth in Section 4.1(b),
or
the replacement of First Year Revenue used in that calculation, if the Change
of
Control occurs after the Twelve Month Anniversary or (ii) a change in the
calculation of the CVR Year Two Exchange Ratio set forth in Section 4.1(f),
or
the replacement of Second Year Revenue, if the Change of Control occurs after
the Eighteen Month Anniversary.
(d) "Change
of Control Revenue
" means
(A) all revenue recognized by Parent, the Surviving Corporation or any of their
respective affiliates, in accordance with generally accepted accounting
principles, applied on a basis consistent with the Company's financial
statements, with respect to the Business ("Business Revenue"), during the period
commencing on the Closing Date and ending on the last full quarter immediately
preceding the Post-Six Month Change of Control Announcement Date, plus
(B) the
Estimated Quarter Amount (as defined below) for the quarter during which the
Post-Six Month Change of Control occurs, plus
(C) an
amount equal to (x) the Estimated Quarter Amount multiplied
by
(y) the
average quarter over quarter growth rate (expressed as a decimal plus 1.0)
for
the immediately preceding two quarters multiplied
by
(z) the
number of quarters remaining until and including the occurrence of Eighteen
Month Anniversary, in each case compounded quarterly. Business Revenue
calculated under this Section 4.4(d), as well as under Section 4.4(e) below,
shall reflect (i) a reduction for (1) bad debt expense computed on basis
consistent with Section 4.1(c) of this Agreement and (2) non-recurring fees
and
terminated contracts computed on a basis consistent with clauses (C)(i) and
(C)(ii) contained in the second sentence of Section 1.1(e) of the Merger
Agreement; and (ii) an increase for Eligible Contracts computed on a basis
consistent with clause (B) of the second sentence of Section 1.1(e) of the
Merger Agreement.
(e)
"Estimated
Quarter Amount"
means
(1) all Business Revenue during each completed month during such quarter
plus
(2) (x)
all Business Revenue for the last completed month during such quarter
multiplied
by
(y) the
average month over month growth rate (expressed as a decimal plus 1.0) for
the
immediately preceding three months multiplied
by
(z) the
number of remaining uncompleted months in such quarter.
(f) For
purposes of this Agreement, "Change
of Control"
means
(1) the consummation of any transaction, including without limitation, any
merger or consolidation, pursuant to which any of the voting stock of Parent
is
converted into or exchanged for cash, securities or other property, other than
any transaction where the voting stock of Parent outstanding immediately prior
to such transaction is converted into or exchanged for voting stock of the
surviving or transferee entity constituting more than 50% of such voting stock
of such surviving or transferee entity (immediately after giving effect to
such
issuance); or (2) a sale of all or substantially all of Parent’s assets.
9
4.5 Issuance
of CVR Shares upon Exercise of Company Warrants.
(a) As
soon
as practicable, and in any event within ten business days, after each of the
Year One Final Determination Date and the Year Two Final Determination Date,
Parent shall deliver to each holder of an outstanding Company Warrant a notice
stating (i) the number of CVR Shares issuable in respect of each share of Parent
Common Stock subject to such Company Warrant with respect to the CVR Year One
Exchange Ratio and the CVR Year Two Exchange Ratio, as applicable; and (ii)
in
order to receive such CVR Shares the holder must exercise the Company Warrant
by
not later than the Initial Exercise Date (as defined herein) and the Final
Exercise Date, as applicable, except that if the holder exercises subsequent
to
the Initial Exercise Date but prior to the Final Exercise Date, such holder
shall be entitled to receive any CVR Shares payable in respect of the CVR Year
One Exchange Ratio and the CVR Year Two Exchange Ratio. "Initial
Exercise Date"
means
the thirty day anniversary of the Year One Final Determination Date.
"Final
Exercise Date"
means
the thirty day anniversary of the Year Two Final Determination Date.
(b) In
the
event of any exercise of any Company Warrant prior to the Final Exercise Date
in
accordance with the terms of such Company Warrants, in lieu of issuing CVR
Certificates to the holder of such Company Warrant, the Rights Agent shall
(i)
record such issuance of CVRs in the CVR Register in accordance with Section
2.2
hereof and (ii) in the same manner and the same times it delivers CVR Shares
to
CVR Holders pursuant to Section 4.6 of this Agreement, deliver to such Company
Warrant holder the number of CVR Shares such holder became entitled to receive
by virtue of exercising such Company Warrant.
(c) As
soon
as practicable, and in any event within ten business days, after the Post-Six
Month Control Announcement Date, Parent shall deliver to each holder of an
outstanding Company Warrant a notice stating (i) the number of CVR Shares
issuable in respect of each share of Parent Common Stock subject to such Company
Warrant pursuant to Section 4.4 hereof; and (ii) in order to receive such CVR
Shares the holder must exercise the Company Warrant by not later than the
Post-Six Month Change of Control Exercise Date. "Post-Six
Month Change of Control Exercise Date"
means
the thirty-five day anniversary of the Post-Six Month Change of Control
Announcement Date.
(d) In
the
event of any exercise of any Company Warrant prior the Post-Six Month Change
of
Control Exercise Date, in accordance with the terms of such Company Warrants,
in
lieu of issuing CVR Certificates to the holder of such Company Warrant, the
Rights Agent shall (i) record such issuance of CVRs in the CVR Register in
accordance with Section 2.2 hereof and (ii) in the same manner and the same
time
it delivers CVR Shares to CVR Holders pursuant to Section 4.6 of this Agreement,
deliver to such Company Warrant holder the number of CVR Shares such holder
became entitled to receive by virtue of exercising such Company
Warrant.
10
(e) Prior
to
any delivery of CVR Shares pursuant to Sections 4.4(b) or 4.4(d) above, each
holder who exercises a Company Warrant shall be the Holder of a CVR evidencing
such CVR Shares deliverable in respect thereof and may transfer such ownership
in accordance with Article 6 hereof, regardless of whether such CVR was issued
in uncertificated form.
4.6 Delivery
of CVR Shares.
(a) Each
Holder of record of CVRs (including CVRs issued to holders of Company Warrants)
as of the Initial Exercise Date and as of the Final Exercise Date, shall be
entitled to receive CVR Shares issuable in respect of the Year One Exchange
Ratio (in the case of the Initial Exercise Date) and the Year Two Exchange
Ratio
(in the case of the Final Exercise Date). Within ten business days after each
of
the Initial Exercise Date and the Final Exercise Date, Parent shall issue and
deliver to each CVR Holder as of such date a certificate representing that
number of whole shares of Parent Common Stock into which the CVRs theretofore
owned by such person shall have been converted pursuant to the provisions of
this Agreement. Shares of Parent Common Stock into which the CVRs shall be
converted (including exercised Company Warrants) at the Year One Final
Determination Date and the Year Two Final Determination Date, as applicable,
shall be deemed to have been issued on such respective date. If any certificates
representing shares of Parent Common Stock are to be issued in a name other
than
that in which the CVR Certificate is registered, it shall be a condition of
such
exchange that the person requesting such exchange shall deliver to the Rights
Agent all documents necessary to evidence and effect such transfer and shall
pay
to the Rights Agent any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Parent Common Stock in a name
other than that of the registered Holder of the CVR Certificate surrendered,
or
establish to the satisfaction of the Rights Agent that such tax has been paid
or
is not applicable.
(b) Notwithstanding
the foregoing, in the event of conversion of the CVRs upon a Change of Control
pursuant to Section 4.4 hereof, Parent shall deliver CVR Shares to the Holders
(including the Company Warrant holders) in accordance with the procedures set
forth in this Section 4.6(b). Parent shall issue and deliver to each CVR Holder
as of the Post-Six Month Change of Control Exercise Date a certificate
representing that number of whole shares of Parent Common Stock into which
the
CVRs theretofore owned by such person shall have been converted pursuant to
the
provisions of this Agreement. Shares of Parent Common Stock into which the
CVRs
shall be converted (including in the case of exercised Company Warrants) shall
be deemed to have been issued on such respective date. If any certificates
representing shares of Parent Common Stock are to be issued in a name other
than
that in which the CVR Certificate is registered, it shall be a condition of
such
exchange that the person requesting such exchange shall deliver to the Rights
Agent all documents necessary to evidence and effect such transfer and shall
pay
to the Rights Agent any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Parent Common Stock in a name
other than that of the registered Holder of the CVR Certificate surrendered,
or
establish to the satisfaction of the Rights Agent that such tax has been paid
or
is not applicable.
11
4.7 Lost
Certificates.
If any
CVR Certificate shall have been lost, stolen or destroyed, upon the making
of an
affidavit of that fact by the person claiming such CVR Certificate to be lost,
stolen or destroyed and, if required by the Rights Agent, the posting by such
person of an open ended indemnity bond as indemnity of both Parent and Rights
Agent against any claim that may be made against it with respect to such CVR
Certificate, the Rights Agent shall deliver in exchange for such lost, stolen
or
destroyed CVR Certificate (a) if prior to a Final Determination Date, a new
CVR
Certificate of like tenor and evidencing the number of CVRs evidenced by the
CVR
Certificate so lost, stolen or destroyed or (b) if after a Final Determination
Date, the applicable certificates representing shares of Parent Common Stock.
4.8 Withholding
Rights.
Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any Holder of CVRs such amounts as it
is
required to deduct and withhold with respect to the making of such payment
under
the any provision of federal, state, local or foreign tax law. To the extent
that amounts are so withheld by Parent and paid over to the appropriate taxing
authority, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Holder of the CVRs in respect of which
such
deduction and withholding was made.
Section
5. Registration
of CVRs.
5.1 The
CVRs
have been registered pursuant to the Registration Statement under the Act.
Parent covenants and agrees:
(a) to
prepare and file with the SEC such amendment and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary
and to maintain the effectiveness of the Registration Statement so long as
any
CVRs or Company Warrants remain outstanding;
(b) as
expeditiously as possible, to register or qualify the CVRs under the Securities
or Blue Sky laws of each jurisdiction in which such registration or
qualification is necessary; and
(c) to
pay
all expenses incurred by it in complying with this Section 5.1, including,
without limitation, (i) all registration and filing fees, (ii) all printing
expenses, (iii) all fees and disbursements of counsel and independent public
accountants for Parent, and (iv) all National Association of Securities Dealers,
Inc., FINRA, and Blue Sky fees and expenses.
12
Section
6. Exchange,
Transfer, or Assignment of CVRs.
6.1 CVRs
and
any interest therein shall not be sold, assigned, transferred, pledged,
encumbered or in any other manner transferred or disposed of, in whole or in
part, other than through a Permitted Transfer (as defined herein) and in
compliance with applicable United States federal and state securities laws
and
the terms and conditions hereof. A “Permitted Transfer” shall mean the transfer
of any or all of the CVRs by operation of law (including a consolidation or
merger) or in connection with the dissolution of any corporation or other
entity.
6.2 In
the
event of a Permitted Transfer, CVRs may be assigned or transferred upon
surrender of CVR Certificates to the Rights Agent (except with respect to such
Holders for which CVR Certificates were not issued), accompanied (if so required
by Parent or the Rights Agent) by a written instrument or instruments of
transfer in form reasonably satisfactory to Parent and the Rights Agent, duly
executed by the registered holder or by a duly authorized representative or
attorney, such signature to be have a Medallion Guarantee from a commercial
bank
or trust company having an office in the United States, by a broker or dealer
that is a member of the National Association of Securities Dealers, Inc., or
by
a member of a national securities exchange. Upon any such registration of
transfer, a new CVR Certificate shall be issued to the transferee and the
surrendered CVR Certificate shall be cancelled by the Rights Agent. CVR
Certificates so cancelled shall be delivered by the Rights Agent to Parent
from
time to time or otherwise disposed of by the Rights Agent in its customary
manner.
6.3 The
cost
of any transfer or assignment of CVRs shall be paid (including the cost of
any
transfer tax) by the holder, based on the Rights Agents customary fee schedule,
and any new CVR Certificates issued pursuant to this Section 6 shall be dated
the date of such transfer or assignment.
6.4 Notwithstanding
anything in the foregoing to the contrary, a Company Warrant holder (or former
Company Warrant holder) that owns a CVR, regardless of whether such CVR was
issued in uncertificated form, may effect a Permitted Transfer by delivering
to
the Rights Agent such documentation as reasonably requested by the Rights Agent.
Section
7. Parent
Covenants Regarding Operation of the Business.
7.1 From
and
after the Effective Time and until the Eighteen Month Anniversary, Parent and
the Surviving Corporation, shall perform, or cause to be performed, the actions
set forth in Sections 7.2 and 7.3 hereof with respect to the
Business.
7.2 Parent
shall keep complete and accurate records with respect to the Business. The
books
and records shall be maintained in such a manner that the CVR Year One Exchange
Ratio and the CVR Year Two Exchange Ratio shall be readily verifiable and shall
be available for inspection by the CVR Representative upon reasonable prior
notice during normal business hours.
7.3 Parent
shall operate the Business, or cause the Business to be operated, (i) using
commercially reasonable efforts to maximize revenues generated by the Business
and to minimize write-offs of such revenues, and (ii) without limiting the
generality of the foregoing, in accordance with the Plan.
13
7.4 Notwithstanding
anything contained in this Agreement, Parent may discontinue the operations
of
the Business of the Surviving Corporation at any time following the three month
anniversary of the Effective Time, without the consent of the Holders or the
CVR
Representative and without liability to the Holders or the CVR Representative
with respect to such discontinuation, in the event that Parent's Board of
Directors determines in good faith that, despite compliance with Sections 7.1
through 7.3 hereof, it is reasonably certain that (i) First Year Revenue will
not exceed the Annualized Company Revenue or (ii) in the case of a determination
after the Twelve Month Anniversary, the Second Year Revenue will not exceed
50%
of the First Year Revenue.
Section
8. Rights
of CVR Certificate Holder.
Except
as otherwise provided in this Agreement, the Holder of any CVR Certificate
or
CVR, shall not, by virtue thereof, be entitled to any rights of a stockholder
of
Parent, either at law or in equity. The rights of the Holders are limited to
those expressed in this Agreement and the Merger Agreement and, in the case
of
holders of any Company Warrants, in such Company Warrants and any related
agreements pursuant to which such Company Warrants were issued.
Section
9. Availability
of Information.
Parent
will provide to the Rights Agent all information in connection with this
Agreement and the CVRs that the Rights Agent may reasonably
request.
Section
10. Reservation
of Stock.
Parent
covenants that it will reserve from its authorized and unissued Parent Common
Stock a sufficient number of shares to provide for the issuance of Parent Common
Stock pursuant to the CVRs (including Parent Common Stock issuable pursuant
to
CVRs issued, or that may be issued, to holders of Company Warrants). Parent
further covenants that all shares that may be issued pursuant to the CVRs will
be free from all taxes, liens and charges in respect of the issue thereof.
Parent agrees that its issuance of the CVRs shall constitute full authority
to
its officers who are charged with the duty of executing stock certificates
to
execute and issue the necessary certificates for shares of Parent Common Stock
issuable pursuant hereto and that upon issuance such shares of Parent Common
Stock shall be validly issued, fully paid and nonassessable.
Section
11. Tax
Treatment.
Parent
(and each of its affiliates) shall for federal income tax purposes treat any
issuance of CVR Shares as a payment made in connection with the acquisition
of
Company Common Stock, and Parent (and each of its affiliates) shall file any
tax
return reporting the issuance of CVR Shares consistent with such
treatment.
Section
12. Duties
of Rights Agent. The
Rights Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which Parent and the Holders,
by their acceptance hereof, shall be bound.
14
12.1 The
statements contained herein and in the CVR Certificates shall be taken as
statements of Parent, and the Rights Agent assumes no responsibility for the
correctness of any of the same except such as describe the Rights Agent or
actions taken or to be taken by it. The Rights Agent assumes no responsibility
with respect to the delivery of CVRs and the CVR Consideration except as herein
otherwise provided.
12.2 The
Rights Agent shall not be responsible for any failure of Parent to comply with
any of the covenants contained in this Agreement or in the CVR Certificates
to
be complied with by Parent.
12.3 The
Rights Agent shall have no duties or obligations other than those specifically
set forth in this Agreement.
12.4 The
Rights Agent shall not be obligated to take any action hereunder which may,
in
the Rights Agent’s sole judgment, involve any expense or liability to the Rights
Agent unless it shall have been furnished with indemnity against such expense
or
liability which, in the Rights Agent’s sole judgment, is adequate.
12.5 The
Rights Agent may rely on and shall be protected in acting upon any certificate,
instrument, opinion, notice, instruction, letter, telegram or other document,
or
any security, delivered to the Rights Agent and believed by the Rights Agent
to
be genuine and to have been signed by the proper party or parties.
12.6 The
Rights Agent may rely on and shall be protected in acting upon the written
instructions of the Parent, its counsel, or its representatives.
12.7 The
Rights Agent shall not be liable for any claim, loss, liability or expense
incurred without the Rights Agent’s gross negligence or willful misconduct,
arising out of or in connection with the administration of the Rights Agent’s
duties hereunder.
12.8 The
Rights Agent may consult with counsel, and the written advice of such counsel
or
any written opinion of such counsel shall be full and complete authorization
and
protection in respect of any action taken, suffered or omitted by the Rights
Agent hereunder in accordance with such advice of such counsel or any such
opinion of such counsel.
12.9.
Notwithstanding any other provision of this Agreement, the Rights Agent shall
not be obligated to perform any obligation hereunder and shall not incur any
liability for the nonperformance or breach of any obligation hereunder to the
extent that the Rights Agent is delayed in performing, unable to perform or
breaches such obligation because of acts of God, war, terrorism, fire, floods,
strikes, electrical outages, equipment or transmission failures, or other causes
reasonably beyond its control.
12.10
IN
NO
EVENT SHALL THE RIGHTS AGENT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY
SPECIAL,
INDIRECT OR CONSEQUENTIAL LOSSES OR DAMAGES OF ANY KIND WHATSOEVER (INCLUDING
BUT NOT LIMITED TO LOST PROFITS), EVEN IF THE RIGHTS AGENT HAS BEEN ADVISED
OF
THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF
ACTION.
15
12.11
In
the
event that the Rights Agent shall be uncertain as to its duties or rights
hereunder or shall receive instructions, claims or demands which, in its
opinion, are in conflict with any of the provisions of this Agreement, it shall
be entitled to refrain from taking any action until the questions regarding
its
duties and rights are clarified to its satisfaction or it shall be directed
otherwise by a final judgment of a court of competent jurisdiction.
12.12
Parent
will pay the Rights Agent its customary fees plus expenses, including without
limitation fees and expenses of legal counsel, and disbursements, as previously
provided to Parent.
12.13
Parent
covenants and agrees to indemnify and hold harmless the Rights Agent, its
directors, officers, employees, attorneys and agents (the “Indemnified
Persons”)
from
and against any and all losses, damages, liabilities, costs or expenses
(including reasonable attorney’s fees and expenses and court costs), arising out
of or attributable to its acceptance of its appointment and execution and
performances of its duties as the Rights Agent hereunder, provided however,
that
such indemnification shall not apply to losses, damages, liabilities, costs
or
expenses finally adjudicated to have been primarily caused by the gross
negligence or willful misconduct of the Rights Agent. The Rights Agent shall
notify the Issuer in writing of any written asserted claim against the Rights
Agent or of any other action commenced against the Rights Agent reasonably
promptly after the Rights Agent shall have received any such written assertion
or shall have been served with a summons in connection therewith. The Issuer
shall be entitled to participate at its own expenses in the defense of any
such
claim or other action and, if the Issuer so elects, the Parent may assume the
defense of any pending or threatened action against the Rights Agent in respect
of which indemnification may be sought hereunder; provided however,
that
the Parent shall not be entitled to assume the defense without Rights Agent’s
explicit agreement and agrees to pay the costs of counsel for Rights Agent
in
monitoring of any such action if defense has been assumed by
Parent.
12.14
Notwithstanding
anything else provided for in this agreement, the
provisions of this Section 12 shall survive the resignation or removal of the
Rights Agent and the termination of this Agreement.
12.15 The
Rights Agent shall act hereunder solely as agent, and its duties shall be
determined solely by the provisions hereof. The Rights Agent shall not be liable
for anything, which it may do or refrain from doing in connection with this
Agreement except for its own gross negligence, willful misconduct or bad
faith.
16
Section
13. Change
of Rights Agent.
13.1 Any
corporation into which the Rights Agent may be merged or with which it may
be
consolidated, or any corporation resulting from any merger or consolidation
to
which the Rights Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Rights Agent, shall be the successor to the
Rights Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
13.2 The
Rights Agent may resign and be discharged from its duties under this Agreement
by giving to Parent notice in writing, specifying a date when such resignation
shall take effect, which notice shall be sent at least 15 days prior to the
date
so specified. If the Rights Agent shall resign or otherwise become incapable
of
acting, Parent shall appoint a successor to the Rights Agent reasonably
acceptable to the CVR Representative. After appointment, the successor Rights
Agent shall be vested with the same powers, rights, duties, and responsibilities
as if it had been originally named as Rights Agent without further act or deed;
but the former Rights Agent shall deliver and transfer to the successor Rights
Agent copies of all books, records, plans, and other documents in the former
Rights Agent's possession relating to the CVRs or this Agreement and execute
and
deliver any further assurance, conveyance, act, or deed necessary for the
purpose. Failure to give any notice provided for in this Section 13.2 or any
defect therein, shall not affect the legality or validity of the resignation
or
removal of the Rights Agent or the appointment of the successor Rights Agent,
as
the case may be.
13.3 The
Rights Agent may be removed at any time upon 15 days written notice by act
of
the CVR Representative and Parent.
13.4 If
at any
time the Rights Agent shall become incapable of acting, any Holder of a CVR
may,
on behalf of himself and all others similarly situated, petition any court
of
competent jurisdiction for the removal of the Rights Agent and the appointment
of a successor Rights Agent.
13.5 Parent
shall give notice of each resignation and each removal of a Rights Agent and
each appointment of a successor Rights Agent by mailing written notice of such
event by first-class mail, postage prepaid, to the Holders as their names and
addresses appear in the CVR Register. Each notice shall include the name and
address of the successor Rights Agent. If Parent fails to send such notice
within ten days after acceptance of appointment by a successor Rights Agent,
the
successor Rights Agent shall cause the notice to be mailed at the expense of
Parent.
13.6 Each
successor Rights Agent appointed hereunder shall execute, acknowledge and
deliver to Parent and to the retiring Rights Agent an instrument accepting
such
appointment and a counterpart of this Agreement, and thereupon such successor
Rights Agent, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Rights Agent;
but, on request of Parent or the successor Rights Agent, such retiring Rights
Agent shall execute and deliver an instrument transferring to such successor
Rights Agent all the rights, powers and trusts of the retiring Rights
Agent.
17
Section
14. Consolidation,
Merger, Sale or Conveyance.
14.1 Company
May Not Consolidate, Etc.
So long
as the CVRs remain outstanding, Parent and the Surviving Corporation shall
not
consolidate with or merge into any other person or convey, transfer or lease
its
properties and assets substantially as an entirety to any person,
unless:
(a) in
the
case where Parent or the Surviving Corporation shall consolidate with or merge
into any other person or convey, transfer or lease its properties and assets
substantially as an entirety to any person, the person formed by such
consolidation or into which Parent or the Surviving Corporation is merged or
the
person which acquires by conveyance or transfer, or which leases, the properties
and assets of Parent or the Surviving Corporation substantially as an entirety
(the “Surviving
Person”)
shall
assume in writing all of Parent's and the Surviving Corporation's obligations
under this Agreement; and
(b) Parent
or
the Surviving Corporation has delivered to the Rights Agent an officer’s
certificate stating that such consolidation, merger, conveyance, transfer or
lease complies with all of the terms of Sections 14.1 through 14.3 hereof and
that all conditions precedent herein provided for relating to such transaction
have been complied with.
(c) For
purposes of this Section 14.1, "convey, transfer or lease its properties and
assets substantially as an entirety" means properties and assets contributing
in
the aggregate at least 60% of Parent's or the Surviving Corporation's total
consolidated revenues as reported in Parent's last available periodic financial
report (quarterly or annual, as the case may be).
14.2 Successor
Substituted.
Upon
any consolidation of or merger by Parent with or into any other person, or
any
conveyance, transfer or lease of the properties and assets substantially as
an
entirety to any person in accordance with Section 14.1, the Surviving Person
shall succeed to, and be substituted for, and may exercise every right and
power
of, Parent under this Agreement with the same effect as if the Surviving Person
had been named as Parent herein.
14.3 Joint
and Several Liability.
Parent,
the Surviving Corporation and Merger Sub are jointly and severally responsible
for the performance of all actions, and the payment of all sums and delivery
of
all CVR Shares, required under this Agreement of any of such party.
18
Section
15. CVR
Representative.
15.1 Designation;
Duties.
The (i)
adoption and approval of the Merger Agreement by the stockholders of the
Company, and (ii) any exercise of the Company Warrants by the holder thereof,
shall constitute by each such person, respectively, the authorization,
designation and appointment of the CVR Representative, in each case to act
as
the sole and exclusive agent, attorney-in-fact and representative of each of
the
Holders by the consent of the Holders and as such is hereby authorized and
directed to (a) take any and all actions (including without limitation executing
and delivering any documents, incurring any costs and expenses for the account
of the Holders and making any and all determinations required by this Agreement)
which may be required in carrying out his duties under this Agreement, (b)
give
notices and communications on behalf of the Holders as set forth in this
Agreement, (c) exercise such other rights, power and authority as are
authorized, delegated and granted to the CVR Representative under this Agreement
in connection with the transactions contemplated by the Merger Agreement and
hereby, and (d) exercise such rights, power and authority as are incidental
to
the foregoing, and any decision or determination made by the CVR Representative
consistent therewith shall be absolutely and irrevocably binding on each Holder
as if such Holder personally had taken such action, exercised such rights,
power
or authority or made such decision or determination in such Holder’s individual
capacity.
15.2 Removal;
Successor CVR Representative.
The CVR
Representative may be removed at any time by act of the Holders of a majority
of
the outstanding CVRs (the “Majority
Holders”).
In
the event the Majority Holders determine to remove the CVR Representative,
the
Majority Holders shall give notice of the removal of the CVR Representative
and
the appointment of a successor CVR Representative by delivering written notice
of such event by first-class mail to Parent. Any such notice shall include
the
name and address of the successor CVR Representative. Any successor CVR
Representative appointed hereunder shall execute, acknowledge and deliver to
Parent an instrument accepting such appointment and a counterpart of this
Agreement, and thereupon such successor CVR Representative shall be become
vested with the powers of the prior CVR Representative.
15.3 No
Liability.
The CVR
Representative shall not be liable, in any manner or to any extent, for any
mistake or fact or error of judgment or for any acts or omissions by it of
any
kind, except to the extent that such action or inaction shall have been held
by
a court of competent jurisdiction to constitute willful misconduct, gross
negligence or bad faith. The Holders shall jointly and severally indemnify
the
CVR Representative and hold it harmless against any and all liabilities incurred
by it, except for liabilities incurred by the CVR Representative resulting
from
its own willful misconduct, gross negligence or bad faith, provided, however,
that any indemnification obligations of the Holders shall be satisfied solely
out of the CVR Shares deliverable under this Agreement, but only to the extent
such CVR Shares were not issued prior to the time such indemnification
obligation arises. The CVR Representative shall be entitled to receive a number
of CVR Shares equal to the quotient obtained by dividing the amount of the
indemnification obligation referenced in the immediately preceding sentence
by
the average of the last reported sales prices of Parent Common Stock on the
primary exchange where it is traded for the last fifteen trading days
immediately preceding the date of issuance of such shares pursuant to this
Agreement.
19
15.4 Decision
of CVR Representative.
A
decision, act, consent or instruction of the CVR Representative shall constitute
a decision of all Holders and shall be final, binding and conclusive upon each
such Holder, and Parent may rely upon any decision, act, consent or instruction
of the CVR Representative as being the decision, act, consent or instruction
of
each and every such Holder.
Section
16. Successors.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns.
Section
17. Counterparts.
This
Agreement may be executed in any number of counterparts; and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute one and the same agreement.
Section
18. Headings.
The
headings of sections of this Agreement have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section
19. Amendments.
This
Agreement may be amended by the written consent of Parent and the affirmative
vote or the written consent of Holders holding not less than a majority of
the
then outstanding CVRs; provided, however, that no such modification or amendment
to this Agreement may, (i) without the consent of each Holder affected thereby,
change in manner adverse to the Holders, (a) the amount of CVR Consideration
to
be issued according to the terms of this Agreement to the Holders of the CVRs,
or (b) the provisions of this Section 19; (ii) without the consent of the Rights
Agent, change in a manner adverse to the Rights Agent any of its rights or
obligations under this Agreement or the provisions of this Section 19; and
(iii)
without the consent of the CVR Representative, change in a manner adverse to
the
CVR Representative any of its rights or obligations under this Agreement or
the
provisions of this Section 19.
Section
20. Notices.
Any
notice or other communication hereunder shall be in writing and shall be deemed
duly delivered (i) four business days after being sent by registered or
certified mail, return receipt requested, postage prepaid, (ii) one business
day
after being sent for next business day delivery, fees prepaid, via a reputable
overnight courier service, or (iii) on the date of confirmation of receipt
(or
the first business day following receipt if the date of such receipt is not
a
business day) of facsimile transmission, in each case to the intended recipient
set forth below:
If
to
Parent:
Onstream
Media Corporation
0000
X.X.
00xx
Xxxxxx
Xxxxxxx
Xxxxx, Xxxxxxx 00000
Attention:
Xxxxx Xxxxxx
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
20
If
to the
Rights Agent:
Interwest
Transfer Co.
0000
X
0000 Xxxxx, Xxx. 000
Xxxx
Xxxx
Xxxx, XX 00000
Telephone:
Facsimile:
If
to CVR
Representative:
X.
Xxxxxx
Xxxxx XX
c/x
Xxxxx
Asset Management
00
Xxxxxxxxxxx Xxxxx, Xxxxx 0000
Xxx
Xxxx,
XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Any
party
may, by notice given in accordance with this Section 20 to the other parties,
change the address for receipt of notices hereunder.
Section
21. Benefits
of this Agreement.
Nothing
in this Agreement shall be construed to give to any person or corporation,
other
than Parent, the Rights Agent, the CVR Representative and the Holders, any
legal
or equitable right, remedy, or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of Parent, the Rights Agent, the
CVR
Representative and the registered Holders.
Section
22. Governing
Law; Submission to Jurisdiction.
As
between Parent and CVR Representative, this Agreement shall be governed by
and
construed in accordance with the laws of the State of Florida without regard
to
its rules of conflict of laws provisions. The parties hereto agree that any
suit, action, or proceeding seeking to enforce any provision of, or based on
any
matter arising out of, this Agreement may be brought in the United States
District Court for the District of Florida, and each of the parties hereby
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such suit, action, or proceeding and irrevocably waives any
objection which it may now or hereafter have to the laying of the venue of
any
such suit, action, or proceeding in any such court or that any such suit,
action, or proceeding which is brought in any such court has been brought in
an
inconvenient forum. Process in any such suit, action, or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party in the manner provided for notices
in Section 20 shall be deemed effective service of process on such party.
As
between the Parent or CVR Representative, on the one hand, and Rights Agent,
on
the other hand, this
Agreement shall be governed by and construed in accordance with the laws of
the
State of Utah applicable to contracts made in Utah by persons domiciled in
Salt
Lake City and without regard to its principles of conflicts of laws. Each of
the
Parties agrees to submit himself to the in
personam
jurisdiction of the state and federal courts situated within the State of Utah
with regard to any controversy arising out of or relating to this Agreement.
Each party hereby irrevocably waives personal service of process and consents
to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence
of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
The parties hereby waive all rights to a trial by jury.
21
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement and caused
the
same to be duly delivered on their behalf on the day and year first written
above.
ONSTREAM
MEDIA CORPORATION
|
|
By:
|
|
Name:
|
|
Title:
|
|
Interwest
Transfer Co., as Rights Agent
|
|
By:
|
|
Name:
|
|
Title:
|
|
X.
Xxxxxx Xxxxx XX, as CVR Representative
|
|
Name:
|
22
Exhibit
A
ONSTREAM
MEDIA CORPORATION
CONTINGENT
VALUE RIGHTS TO RECEIVE SHARES OF COMMON STOCK
THIS
CERTIFIES THAT, FOR VALUE RECEIVED, __________________, or its permitted
assigns, is the registered holder of _______________ Contingent Value Rights
of
Onstream Media Corporation, a Florida corporation (“Parent”), subject to the
terms of the Contingent Value Rights Agreement (“CVR Agreement”), dated
_______________, 2008, between Parent, X. Xxxxxx Xxxxx XX (the "CVR
Representative") and Interwest Transfer Co. (the "Rights Agent").
REFERENCE
IS MADE TO THE PROVISIONS OF THIS CVR CERTIFICATE SET FORTH ON THE REVERSE
SIDE
HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT
AS
THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This
CVR
Certificate shall be governed by and construed in accordance with the laws
of
the State of Florida.
IN
WITNESS WHEREOF, Parent has caused this CVR Certificate to be executed by its
duly authorized officer.
Dated:
______________________
|
ONSTREAM
MEDIA CORPORATION
|
|
By:
|
||
Name:
|
||
Title:
|
||
Countersigned:
|
||
Interwest
Transfer Co., As Rights Agent
|
||
By:
|
||
Name:
|
||
Title:
|
1
This
CVR
Certificate is subject to all of the terms, provisions and conditions of the
Contingent Value Rights Agreement, dated as of _______________________, 2008
(the “CVR Agreement”), by and among Parent, Rights Agent and the CVR
Representative, to all of which terms, provisions and conditions the registered
holder of the CVR consents by acceptance hereof. Copies of the CVR Agreement
are
available for inspection at the principal office of the Rights Agent or may
be
obtained upon written request addressed to the Rights Agent at its principal
office at [__________________________________].
Parent
shall not be required, upon conversion of the CVRs evidenced by this CVR
Certificate into shares of common stock of Parent, to issue fractional shares,
but shall round down to the nearest whole share of Parent Common Stock as
provided in the CVR Agreement.
Parent
has filed and caused to become effective a registration statement under the
Securities Act of 1933, as amended, covering the CVRs and CVR Shares (as defined
in the Agreement) and has agreed to register or qualify the CVRs and the CVR
Shares to be delivered upon conversion of the CVRs under the laws of each
jurisdiction in which such registration or qualification is
necessary.
The
holder of this CVR Certificate shall not, by virtue hereof, be entitled to
any
of the rights of a stockholder in Parent, either at law or in equity, and the
rights of the holder are limited to those expressed in the CVR
Agreement.
Every
holder of this CVR Certificates, by accepting the same, consents and agrees
with
Parent, the Rights Agent and with every other holder of a CVR Certificate that
Parent and the Rights Agent may deem and treat the person in whose name this
CVR
Certificate is registered as the absolute owner hereof (notwithstanding any
notation of ownership or other writing hereon made by anyone other than Parent
or the Rights Agent) for all purposes whatsoever and neither Parent nor the
Rights Agent shall be affected by any notice to the contrary.
2
This
CVR
Certificate shall not be valid or obligatory for any purpose until it shall
have
been countersigned by the Rights Agent.
The
CVR
Agreement and this CVR Certificate shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its rules
of
conflict of laws.
The
following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN
COM,
as tenants in common
TEN
ENT,
as tenants by the entireties
JT
TEN,
as joint tenants with right of survivorship and not as tenants in
common
COM
PROP,
as community property
UNIF
GIFT
MIN ACT, ___________ Custodian ____________________-(Cust) (Minor) Under Uniform
Gifts to Minors Act
_________________________________________________
(State)
Addition
abbreviations may also be used though not in the above list.
For
Value
Received ________________ hereby sells, assigns and transfers unto
________________ Contingent Value Rights ("CVRs") represented by this
Certificate, and do hereby irrevocably constitute and appoint
_____________________________ Attorney in Fact to transfer the said CVRs on
the
books of the within named Corporation with full power of substitution in the
premises.
Dated
_____________________________
In
the
presence of _______________________________________________________
3
AMONG
ONSTREAM
MEDIA CORPORATION, ONSTREAM MERGER CORP.,
AND
NARROWSTEP, INC.
Schedule
E - The Plan
(All amounts in US dollars)
|
|||||||||||||
June 08
|
July 08
|
Aug 08
|
Sept 08
|
||||||||||
Cash
Proceeds:
|
|||||||||||||
Proceeds
from Customer Receivables
|
325,000
|
325,000
|
325,000
|
325,000
|
|||||||||
Proceeds
from Equipment Sales
|
150,000
|
||||||||||||
Proceeds
from Additional Investment
|
300,000
|
||||||||||||
Total
Cash Proceeds
|
325,000
|
325,000
|
325,000
|
775,000
|
|||||||||
Cash
Payments for Operating Expenses:
|
|||||||||||||
Total
Consulting
|
63,483
|
52,658
|
47,458
|
25,208
|
|||||||||
Salaries
(including severance and Xxx Xxxxxx)
|
301,698
|
256,348
|
357,693
|
185,518
|
|||||||||
Benefits/Taxes
(including Xxx Xxxxxx)
|
45,255
|
38,452
|
53,654
|
27,828
|
|||||||||
Network
|
60,000
|
57,500
|
57,500
|
57,500
|
|||||||||
Rent
UK
|
23,000
|
23,000
|
23,000
|
23,000
|
|||||||||
Travel
Related (including Xxx Xxxxxx)
|
18,000
|
18,000
|
18,000
|
20,000
|
|||||||||
Xxx-Xxxxx
Allowances
|
11,000
|
11,000
|
|||||||||||
Telephone/Mobile/Internet
|
8,000
|
8,000
|
8,000
|
8,000
|
|||||||||
Barclays
Lease (principal and interest)
|
15,150
|
15,150
|
15,150
|
15,150
|
|||||||||
Cleaning
|
900
|
900
|
900
|
900
|
|||||||||
Repairs
& Maintenance - Bldg
|
500
|
500
|
500
|
500
|
|||||||||
Office
Supplies
|
500
|
500
|
500
|
500
|
|||||||||
Printing
|
600
|
600
|
600
|
600
|
|||||||||
Expense
Equipment
|
500
|
500
|
500
|
500
|
|||||||||
Auditing
& Tax
|
1,300
|
1,300
|
125,000
|
1,300
|
|||||||||
Dues
& Subscriptions
|
200
|
200
|
200
|
200
|
|||||||||
State
& Reg Fee
|
200
|
200
|
200
|
200
|
|||||||||
License
& Registration
|
200
|
200
|
200
|
200
|
|||||||||
Bank
Charges
|
600
|
600
|
600
|
600
|
|||||||||
Trade
Shows
|
500
|
500
|
500
|
500
|
|||||||||
Postage/Freight
|
1,000
|
1,000
|
1,000
|
1,000
|
|||||||||
Miscellaneous
|
5,000
|
5,000
|
5,000
|
5,000
|
|||||||||
Property
Tax
|
7,870
|
7,870
|
7,870
|
7,870
|
|||||||||
Total
Operating Expenses
|
565,455
|
499,978
|
724,024
|
382,073
|
|||||||||
Other
Cash Payments:
|
|||||||||||||
Sprint
Contract Termination
|
50,000
|
||||||||||||
D&O
insurance
|
120,000
|
||||||||||||
Deal
Costs (Onstream)
|
35,000
|
||||||||||||
Deal
Costs (NS)
|
240,000
|
60,000
|
50,000
|
110,000
|
|||||||||
Total
Other Cash Payments
|
240,000
|
60,000
|
50,000
|
315,000
|
|||||||||
Total
Cash Payments
|
805,455
|
559,978
|
774,024
|
697,073
|
|||||||||
Net
Increase (Decrease) in Cash
|
(480,455
|
)
|
(234,978
|
)
|
(449,024
|
)
|
77,927
|
||||||
Beginning
Cash Balance
|
2,348,048
|
1,867,593
|
1,632,615
|
1,183,591
|
|||||||||
Ending
Cash Balance
|
1,867,593
|
1,632,615
|
1,183,591
|
1,261,518
|
In
the
event the Closing is after September 30, 2008, ONSM will provide NS with
additional monthly columns as necessary to supplement the above
schedule.
Upon
signing of Definitive Agreement, NS will terminate the following employees
and
positions, effective after the indicated number of days, counting from the
date
of the definitive agreement:
See
Schedule E -1
The
following NS employees will be reviewed by Xxxxx Xxxxx and Xxx Xxxxxx and by
June 1, 2008 they will deliver a list of NS employees to be
terminated.
See
Schedule E -1
Headcount
as of Merger Agreement Date
|
37
|
Headcount
as of Closing Date
|
22
|
Headcount at Expiration of Transitional Agreements
|
21
|
On
signing of Definitive Agreement, NS will terminate the following
consultant/third party manpower agreements:
See
Schedule E -1
The
following NS consultants will be reviewed by Xxxxx Xxxxx and Xxx Xxxxxx and
by
June 1, 2008 they will deliver a list of NS consultants to be
terminated.
See
Schedule E -1
Narrowstep
is responsible for the funding of all salaries and benefits for the terminated
employees and consultants, as well as the cost of any severance, from
pre-closing cash.
By
closing, NS will execute employment contracts, effective through one-year after
closing, with the following:
See
Schedule E -1
The
cost
of Onstream's employment agreement with Xxx Xxxxxx, who will be hired as of
the
date of the Definitive Agreement, will be funded from NS cash through closing.
Xxx Xxxxxx, will be a consultant and acting MD of Narrowstep Ltd until
merger.
Narrowstep
is responsible for the funding of all retention bonuses, plus any raises or
additional benefits, for the contracted employees, from pre-closing
cash.
Narrowstep
is responsible for the funding of all costs for the terminated
contracts/agreements, including termination penalties and fees, from pre-closing
cash.
TRAVEL
EXPENSES: From the date of the definitive agreement and through closing, all
remaining employees and consultants will abide by the ONSM Travel and
Reimbursement Policy. All employees will read and sign the ONSM Travel and
Reimbursement Policy. All Travel Expenses need prior approval.
PENDING
TRAVEL EXPENSES: All submitted but unpaid travel expenses will be reviewed
by
ONSM.
TELEPHONE
AND COMMUNICATIONS EXPENSES: All cell phones for terminating employees will
be
returned within 7 days of Definitive Agreement. All remaining employees must
follow the guidelines for use of cell phones.
Telephone
and Communications Expenses for all employees and consultants of NS will follow
the ONSM Travel and Reimbursement Policy. No reimbursements will be made for
any
personal or non NS business related calls.
LEGAL
AND
ACCOUNTING - Deal Costs include all Legal, Accounting, D&O, Tax Opinion,
Printing, Postage, Fees. Only Feb audit and May quarterly review separately
budgeted.
PROCESS
AND APPROVAL POST DEFINITIVE AGREEMENT:
NS
Staff
will provide Onstream with weekly A/P list, A/R, and Cash Balance
NS
Staff
will provide Onstream with monthly recap of Cash Activity corresponding to
the
line items in the above plan.
The
following Onstream Group will be emailed data: xxxxxxxxxx@xxxx.xxx,
xxxxxxxxxx@xxxx.xxx, xxxxx@xxxx.xxx, xxxxxxx@xxxx.xxx, xxxxxx@xxxx.xxx,
xxxxxxxx@xxxx.xxx
A
list of
all payables including payroll to be paid will be provided by NS to Onstream
Group for review at least 3 days before payment. Onstream Group will notify
NS
Staff (to be designated) if any payment does not fall under the guideline of
the
restructuring business plan
An
Aging
A/R will be sent on a weekly basis by NS to the Onstream Group for review.
Any
account past 90 days due will be reviewed for service termination. If the
likelihood that the account will not pay is determined, NS Staff will terminate
the contract.
No
Contracts may be signed by NS without approval of the COO of Onstream
Media.
No
new
hires can be made without the written consent of the COO of Onstream Media
-
Xxxx Xxxxxxxxxx.
All
purchases greater than $1000 must be approved by the COO of Onstream
Media.
Any
payments, contracts, and any other actions by any employees of NS must be
approved by Xxx Xxxxxx.
All
UK
employees will report to Xxx Xxxxxx except that Network Dept will have dotted
line to Xxxxx Xxxxx and Development Group dotted line to Xxxx
Xxxxx.
NS
USA
sales team will report to Xxx Xxxxxx unless otherwise designated by Xxxxx
Xxxxxx. US Sales team will have weekly review meetings with Xxxxx Xxxxxx,
CEO.
At
Closing, NS current assets (excluding cash) will exceed NS current liabilities,
as determined on a basis consistent with the Company's previously issued
financial statements.
Proceeds
from sale of equipment will be limited to equipment located in recently closed
Narrowstep POP located in California.