Exhibit 10.1

 

Agreement and Plan of Merger

 

Dated as of October 15, 2014

 

by and among

 

 

Fusion Telecommunications International, Inc.,

 

 

Fusion PTC Acquisition Inc.

 

 

PingTone Communications, Inc.,

 

 

The Majority Stockholders of PingTone Communications Inc.

 

and

 

 

J. Shelby Bryan, as Stockholder Representative

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

	Section 5.04		Stockholders Consent	46
	Section 5.05		Notice of Certain Events	46
	Section 5.06		Resignations	47
	Section 5.07		Governmental Approvals and Consents	48
	Section 5.08		Organizational Integration	48
	Section 5.09		Closing Conditions	48
	Section 5.10		Public Announcements	48
	Section 5.11		Further Assurances	48
ARTICLE VI		Tax Matters		49
	Section 6.01		Tax Covenants	49
	Section 6.02		Termination of Existing Tax Sharing Agreements	49
	Section 6.03		Tax Indemnification	49
	Section 6.04		Tax Returns	49
	Section 6.05		Straddle Period	50
	Section 6.06		Contests	50

 

 

 

Exhibit A - Form of Merger Certificate

Exhibit B - Form of Letter of Transmittal

Exhibit C - Form of Option Termination Agreement

Exhibit D - GAAP Financials

Exhibit E - Disclosure Schedule

Exhibit F - Form of Escrow Agreement

 

 

AGREEMENT AND PLAN OF MERGER

 

This Agreement and Plan of Merger (this “ Agreement ”), dated as of October 15, 2014, is entered into among Fusion Telecommunications International, Inc., a corporation formed under the laws of Delaware (“ Parent ”), Fusion PTC Acquisition Inc., a Delaware corporation (“ Merger Sub ”), PingTone Communications, Inc., a Delaware corporation (“ Company ”), J. Shelby Bryan, solely in his capacity as Stockholder Representative (“ Stockholder Representative ”) and J. Shelby Bryan, Steven Wheeler, and Janal LLLP (collectively, the “ Majority Stockholders ”).

 

RECITALS

 

WHEREAS , the parties intend that Merger Sub be merged with and into the Company, with the Company surviving that merger on the terms and subject to the conditions set forth herein (the “ Merger ”);

 

WHEREAS , the board of directors of the Company (the “ Company Board ”) has  (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of the Company and its stockholders, (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, and (c) resolved to recommend adoption of this Agreement by the stockholders of the Company in accordance with the Delaware General Corporation Law (the “ DGCL ”);

 

WHEREAS , following the execution of this Agreement, the Company shall seek to obtain, in accordance with Section 228 of the DGCL, a written consent of its stockholders approving this Agreement, the Merger and the transactions contemplated hereby in accordance with Section 251 of the DGCL;

 

WHEREAS , the respective boards of directors of Parent and Merger Sub have  (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of Parent, Merger Sub and their respective stockholders, and (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger; and

 

WHEREAS , a portion of the cash and Parent stock otherwise payable by Parent to the stockholders and option holders of the Company in connection with the Merger shall be placed in escrow by Parent, the release of which shall be contingent upon certain events and conditions, all as set forth in this Agreement and the Escrow Agreement (as defined herein);

 

WHEREAS , the Majority Shareholders are parties to this Agreement solely for purposes of the provisions of Section 10.14 regarding Non Competition and Non Solicitation and Section 10.15 regarding certain voting covenants.

 

NOW, THEREFORE , in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

 

The following terms have the meanings specified or referred to in this Article I :

 

“ Acquisition Proposal ” has the meaning set forth in Section 5.03(a) .

 

“ Action ” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

 

“ Affiliate ” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“ Agreement ” has the meaning set forth in the preamble.

 

“ Aggregate Options Exercise Price ” means the aggregate amount of the per share exercise price of all In-Money Options as referred to in Section 2.09 (a)(i)(y) .

 

“ Ancillary Documents ” means the Escrow Agreement.

 

 “ Balance Sheet ” has the meaning set forth in Section 3.06 .

 

“ Balance Sheet Date ” has the meaning set forth in Section 3.06 .

 

“ Basket ” has the meaning set forth in Section 8.04(a) .

 

“ Benefit Plan ” has the meaning set forth in Section 3.20(a) .

 

“ Business Day ” means any day except Saturday, Sunday or any other day on which commercial banks located in New York, New York are authorized or required by Law to be closed for business.

 

 “ CERCLA ” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

 

“ Certificate ” has the meaning set forth in Section 2.11(a) .

 

“ Certificate of Merger ” has the meaning set forth in Section 2.04 .

 

“ Closing ” has the meaning set forth in Section 2.02 .

 

“ Closing Adjustment ” has the meaning set forth in Section 2.17(a)(ii) .

 

“ Closing Date ” has the meaning set forth in Section 2.02 .

 

“ Closing Indebtedness Certificate ” means a certificate executed by the President  of the Company certifying on behalf of the Company an itemized list of all outstanding Indebtedness as of the open of business on the Closing Date and the Person to whom such outstanding Indebtedness is owed and an aggregate total of such outstanding Indebtedness.

 

“ Closing Merger Consideration ” means the Purchase Price, minus the Indemnification Escrow Amount.

 

“ Closing Per Share Merger Consideration ” means (a) the Closing Merger Consideration, divided by (b) the Fully Diluted Share Number.

 

“ Closing Net Working Capital ” means: (a) the Current Assets of the Company, less (b) the Current Liabilities of the Company, determined as of the open of business on the Closing Date; plus (c) the Aggregate Options Exercise Price.

 

“ Closing Net Working Capital Statement ” has the meaning set forth in Section 2.17(b)(i) .

 

“ Code ” means the Internal Revenue Code of 1986, as amended.

 

“Common Stock”  means shares of Parent’s common stock, $0.01 par value per share, tradable in accordance with the terms and conditions of Rule 144 of the Securities Act of 1933, as amended.

 

“ Company ” has the meaning set forth in the preamble.

 

“ Company Board ” has the meaning set forth in the recitals.

 

“ Company Board Recommendation ” has the meaning set forth in Section 3.02(b) .

 

“ Company Charter Documents ” has the meaning set forth in Section 3.03 .

 

“ Company Capital Stock ” means, in the aggregate, the Company Class A Stock; the Company Class B Stock; and the Company Series A Convertible Preferred Stock.

 

“ Company Common Stock” or “Company Class A Stock ” means the Class A Common Stock par value of $.01 per share authorized by the Company.

 

“ Company Class B Stock ” means the Class B Common Stock par value of $.01 per share authorized by the Company.

 

“ Company Series A Convertible Preferred Stock ” means the Series A Convertible Preferred Stock par value of $.01 per share authorized by the Company.

 

“ Company Intellectual Property ” means all Intellectual Property that is owned or held for use by the Company.

 

 

“ Company IP Agreements ” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, permissions and other Contracts (including any right to receive or obligation to pay royalties or any other consideration), whether written or oral, relating to Intellectual Property to which the Company is a party, beneficiary or otherwise bound.

 

“ Company IP Registrations ” means all Company Intellectual Property that is subject to any issuance registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.

 

“ Company Transaction Costs ” means the out of pocket costs incurred by the Company to third parties (including outside legal counsel, Q Advisors and other consultants) in connection with this Agreement and the transactions set forth herein.

 

“ Consideration Spreadsheet ” has the meaning set forth in Section 2.18(a) .

 

“ Confidentiality Agreement ” has the meaning set forth in Section 5.02(b) .

 

“ Contracts ” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

 

“ Current Assets ” means cash and cash equivalents, accounts receivable, inventory and prepaid expenses, but excluding (a) deferred Tax assets and (b) receivables from any of the Company’s Affiliates, directors, employees, officers or stockholders and any of their respective Affiliates, determined in accordance with GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the financial statements for the most recent fiscal year end, as if such accounts were being prepared and audited as of a fiscal year end.

 

“ Current Liabilities ” means accounts payable, accrued Taxes and accrued expenses, but excluding payables to any of the Company’s Affiliates, directors, employees, officers or stockholders and any of their respective Affiliates, deferred Tax liabilities, Transaction Expenses and the current portion of any Indebtedness of the Company, determined in accordance with GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the financial statements for the most recent fiscal year end, as if such accounts were being prepared and audited as of a fiscal year end.

 

“ DGCL ” has the meaning set forth in the recitals.

 

“ Direct Claim ” has the meaning set forth in Section 8.05(c) .

 

“ Disclosure Schedules ” means the Disclosure Schedules delivered by the Company and Parent concurrently with the execution and delivery of this Agreement.

 

“ Disputed Amounts ” has the meaning set forth in Section 2.17(c)(iii) .

 

“ Dissenting Shares ” has the meaning set forth in Section 2.10 .

 

“ Dollars or $ ” means the lawful currency of the United States.

 

“ Effective Time ” has the meaning set forth in Section 2.04 .

 

“ Encumbrance ” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

 

“ Environmental Claim ” means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.

 

“ Environmental Law ” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.

 

“ Environmental Notice ” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.

 

 

“ Environmental Permit ” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

“ ERISA Affiliate ” means all employers (whether or not incorporated) that would be treated together with the Company or any of its Affiliates as a “single employer” within the meaning of Section 414 of the Code.

 

“ Escrow Agent ” means Collateral Agents, LLC.

 

“ Escrow Agreement ” means the Escrow Agreement to be entered into by Parent, the Stockholder Representative and the Escrow Agent at the Closing, substantially in the form of Exhibit F .

 

“ Escrow Funds ” has the meaning set forth in Section 2.12(a) .

 

“ Estimated Closing Net Working Capital ” has the meaning set forth in Section 2.17(a)(i) .

 

“ Estimated Closing Net Working Capital Statement ” has the meaning set forth in Section 2.17(a)(i) .

 

“ Exchange Act” has the meaning set forth in Section 4.07

 

“ Exchange Agent ” has the meaning set forth in Section 2.11(b) .

 

“ FCC ” means the U.S. Federal Communications Commission.

 

“ Financial Review ” has the meaning set forth in Section 10.02.

 

“Financial Review Costs”  has the meaning set forth in Section 10.02 .

 

“ Financial Statements ” has the meaning set forth in Section 3.06 .

 

“ FIRPTA Statement ” has the meaning set forth in Section 6.10 .

 

“ Fully Diluted Share Number ” means (a) the aggregate number of Shares outstanding immediately prior to the Effective Time assuming that all outstanding shares of Company Class B Stock and Company Series A Convertible Preferred Stock have been converted into Company Common Stock (but not including  Shares owned by the Company which are to be cancelled and retired in accordance with Section 2.08(a) which shall be excluded from the calculation of the Fully Diluted Share Number), plus (b) the aggregate number of Shares issuable upon the exercise in full of all Options (whether vested or unvested) outstanding immediately prior to the Effective Time (other than Out-of-Money Options, which shall be excluded from the calculation of the Fully Diluted Share Number).

 

 

“ GAAP ” means United States generally accepted accounting principles in effect from time to time.

 

“ Government Contracts ” has the meaning set forth in Section 3.09(a)(ix) .

 

“ Governmental Authority ” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

 

“ Governmental Order ” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

“ Hazardous Materials ” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.

 

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“ In-Money Option ” means any Option other than an Out-of-Money Option.

 

“ Indebtedness ” means, without duplication and with respect to the Company, all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services (other than Current Liabilities taken into account in the calculation of Closing Net Working Capital), (c) long or short-term obligations evidenced by notes, bonds, debentures or other similar instruments; (d) obligations under any interest rate, currency swap or other hedging agreement or arrangement; (e) capital lease obligations; (f) reimbursement obligations under any letter of credit, banker’s acceptance or similar credit transactions; (g) guarantees made by the Company on behalf of any third party in respect of obligations of the kind referred to in the foregoing clauses (a) through (f); and (h) any unpaid interest, prepayment penalties, premiums, costs and fees that would arise or become due as a result of the prepayment of any of the obligations referred to in the foregoing clauses (a) through (g).

 

“ Indemnification Escrow Amount ” means a total of $1,150,000 of the Purchase Price, consisting of $862,500 Purchase Price Cash Consideration and $287,500 of Purchase Price Stock Consideration.

 

“ Indemnification Escrow Fund ” has the meaning set forth in Section 2.12(a) .

 

“ Indemnified Party ” has the meaning set forth in Section 8.05 .

 

“ Indemnifying Party ” has the meaning set forth in Section 8.05 .

 

 

“ Independent Accountant ” has the meaning set forth in Section 2.17(c)(iii) .

 

“ Integration Plan ” has the meaning set forth in Section 5.08 .

 

“ Insurance Policies ” has the meaning set forth in Section 3.16 .

 

“ Intellectual Property ” means all intellectual property and industrial property rights and assets, and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); and (f) software and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other related specifications and documentation; and (g) toll free numbers.

 

 “ Interim Balance Sheet ” has the meaning set forth in Section 3.06 .

 

“ Interim Balance Sheet Date ” has the meaning set forth in Section 3.06 .

 

“ Interim Financial Statements ” has the meaning set forth in Section 3.06 .

 

“ Knowledge ” means, when used with respect to the Company, the actual or constructive knowledge of Shelby Bryan, Bill Smedberg, Robyn Smith, Glen Gaillard and John Adams., after due inquiry.

 

“ Law ” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

 

“ Letter of Transmittal ” has the meaning set forth in Section 2.11(c) .

 

“ Liabilities ” has the meaning set forth in Section 3.07 .

 

 

“ Losses ” means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that “ Losses ” shall not include punitive damages, except to the extent actually awarded to a Governmental Authority or other third party.

 

“ Majority Holder ” has the meaning set forth in Section 10.01(b) .

 

“ Majority Stockholders ” means J. Shelby Bryan, Steven Wheeler, and Janal LLLP.

 

“ Material Adverse Effect ” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets or liabilities of the Company, or (b) the ability of the Company to consummate the transactions contemplated hereby on a timely basis; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the Company operates; (iii) any changes in financial or securities markets in general; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement, except pursuant to Section 3.03 and Section 5.07 ; (vi) any changes in applicable Laws or accounting rules, including GAAP; or (vii) the public announcement, pendency or completion of the transactions contemplated by this Agreement; provided further, however, that any event, occurrence, fact, condition or change referred to in clauses (i) through (iv) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Company compared to other participants in the industries in which the Company conducts its businesses.

 

“ Material Contracts ” has the meaning set forth in Section 3.09(a) .

 

“ Material Customers ” has the meaning set forth in Section 3.15(a) .

 

“ Material Suppliers ” has the meaning set forth in Section 3.15(b) .

 

 “ Merger ” has the meaning set forth in the recitals.

 

“ Merger Consideration ” means the Closing Merger Consideration, together with those portions of the Indemnification Escrow Fund and the Post-Closing Adjustment (if any) that the Stockholders and the Optionholders become entitled to receive pursuant to the terms of this Agreement and the Escrow Agreement.

 

“ Merger Sub ” has the meaning set forth in the preamble.

 

“ Multiemployer Plan ” has the meaning set forth in Section 3.20(c) .

 

“ Option ” means any option to purchase Company Common Stock granted under the Stock Option Plan and still outstanding as of immediately prior to the Effective Time.

 

 

“ Option Termination Agreement ” has the meaning set forth in Section 2.11(d) .

 

“ Optionholder ” means a holder of an Option.

 

 “ Out-of-Money Options ” means Options having an exercise price in excess of the Closing Per Share Merger Consideration, calculated for this purpose as if all Options were included in clause (ii) of the definition of “Closing Merger Consideration” and in the definition of “Fully Diluted Share Number.”

 

“ Parent ” has the meaning set forth in the preamble.

 

“ Parent Indemnitees ” has the meaning set forth in Section 8.02 .

 

“ Permits ” means all permits, licenses, franchises, grants, approvals, authorizations, registrations, certificates, variances, easements, exceptions, consents, approvals, clearances, qualifications, registrations and similar rights obtained, or required to be obtained, from Governmental Authorities.

 

“ Permitted Encumbrances ” has the meaning set forth in Section 3.10(a) .

 

“ Person ” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

 

“ Post-Closing Adjustment ” has the meaning set forth in Section 2.17(b)(ii) .

 

“ Post-Closing Tax Period ” means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.

 

“ Post-Closing Taxes ” means Taxes of the Company for any Post-Closing Tax Period.

 

“ Pre-Closing Tax Period ” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.

 

“ Pre-Closing Taxes ” means Taxes of the Company for any Pre-Closing Tax Period.

 

“ Pro Rata Share ” means, with respect to any Stockholder or Optionholder, such Person’s ownership interest in the Company as of immediately prior to the Effective Time, determined by dividing (a) the number of Shares owned of record by such Person as of immediately prior to the Effective time (assuming all outstanding shares of Company Class B Stock and Company Series A Convertible Preferred Stock have been converted into Company Common Stock), plus the number of Shares issuable upon exercise of all Options held by such Person as of immediately prior to the Effective Time (other than Out-of-Money Options), by (b) the Fully Diluted Share Number.

 

“ Purchase Price ” means $10.0 million, which shall be payable $7.5 million in cash and $2.5 million in the Parent’s Common Stock, all as adjusted pursuant to Section 2.17 .  The number of shares of Parent’s Common Stock to be issued to stockholders of the Company shall be calculated based on the average closing price of the Parent’s Common Stock during the fifteen (15) trading days immediately preceding the Closing Date.

 

 

 

“ Purchase Price Cash Consideration ” means the $7.5 million in cash of the Purchase Price, subject to the provisions of Section 2.17.

 

“ Purchase Price Stock Consideration ” means the $2.5 million in Parent’s Common Stock of the Purchase Price with the number of shares of Parent’s Common Stock to be determined as set forth in the definition of “Purchase Price.”

 

“ Qualified Benefit Plan ” has the meaning set forth in Section 3.20(c) .

 

“ Real Property ” means the real property owned, leased or subleased by the Company, together with all buildings, structures and facilities located thereon.

 

“ Release ” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).

 

“ Representative ” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

 

“ Representative Losses ” has the meaning set forth in Section 10.01(c) .

 

“ Requisite Company Vote ” has the meaning set forth in Section 3.02(a) .

 

“ Resolution Period ” has the meaning set forth in Section 2.17(c)(ii) .

 

“ Restricted Business ” means the provision of integrated, cloud-based communications solutions, including, but not limited to, hosted IP voice services, contact center services, audio and video conferencing, SIP trunking and any other service currently offered by the Company,  or contemplated to be offered by the current business plans of the Company.

 

“ Restricted Period ” has the meaning set forth in Section 10.14 .

 

“ Review Period ” has the meaning set forth in Section 2.17(c)(i) .

 

“ Securities Act ” has the meaning set forth in Section 3.25 .

 

“ SEC Reports ” has the meaning set forth in Section 4.08 .

 

“ Shares ” has the meaning set forth in Section 2.08(a) .

 

“ Statement of Objections ” has the meaning set forth in Section 2.17(c)(ii) .

 

 

“ Stock Option Plan ” means the PingTone Communications, Inc. 2003 Amended and Restated Stock Option Plan.

 

“ Stockholder ” means a holder of Company Common Stock.

 

“ Stockholder Indemnitees ” has the meaning set forth in Section 8.03 .

 

“ Stockholder Notice ” has the meaning set forth in Section 5.04(b) .

 

“ Stockholder Representative ” has the meaning set forth in the preamble.

 

“ Straddle Period ” has the meaning set forth in Section 6.05 .

 

“ Surviving Corporation ” has the meaning set forth in Section 2.01 .

 

 “ Taxes ” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments,  charges or surcharges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties and any surcharges (including federal and state universal service fund fees and surcharges) imposed by any Government Authority.

 

“ Tax Claim ” has the meaning set forth in Section 6.06 .

 

“ Tax Return ” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“ Territory ” means any state in which the Company, Parent or subsidiary of Parent is engages in business.

 

“ Third Party Claim ” has the meaning set forth in Section 8.05(a) .

 

“ Unaudited Annual Financial Statements ” has the meaning set forth in Section 3.06 .

 

 “ Undisputed Amounts ” has the meaning set forth in Section 2.17(c)(iii) .

 

“ Union ” has the meaning set forth in Section 3.21(b) .

 

“ VEVRAA ” has the meaning set forth in Section 3.21(e) .

 

“ WARN Act ” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, mass layoffs and employment losses.

 

“ Written Consent ” has the meaning set forth in Section 5.04(a) .

 

 

 

                           

 

ARTICLE II

The Merger

 

Section 2.01   The Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, (a) Merger Sub will merge with and into the Company, and (b) the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under the DGCL as the surviving corporation in the Merger (sometimes referred to herein as the “ Surviving Corporation ”).

 

Section 2.02   Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the “ Closing ”) shall take place at 9:00 a.m., New York City  time, no later than five (5) Business Days after the last of the conditions to Closing set forth in Article VII have been satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), at the offices of Parent, 420 Lexington Avenue, Suite 1718, New York, New York 10170, or at such other time or on such other date or at such other place as the Company and Parent may mutually agree upon in writing (the day on which the Closing takes place being the “ Closing Date ”).

 

Section 2.03   Closing Deliverables.

 

(a)   At or prior to the Closing, the Company shall deliver to Parent the following:

 

(i)   the Escrow Agreement duly executed by the Stockholder Representative;

 

(ii)   resignations of the directors and officers of the Company pursuant to Section 5.06 ;

 

(iii)   a certificate, dated the Closing Date and signed by a duly authorized officer of Company, that each of the conditions set forth in Section 7.02(a) and Section 7.02(b) have been satisfied;

 

(iv)   a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Company certifying that (A) attached thereto are true and complete copies of (1) all resolutions adopted by the Company Board authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, (2) resolutions of the holders of Company Series A Convertible Preferred Stock approving the conversion of their shares to Company Common Stock, (3) resolutions of the Stockholders approving the Merger and adopting this Agreement, and (B) all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby;

 

(v)   a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Company certifying the names and signatures of the officers of the Company authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder;

 

 

(vi)   a good standing certificate  from the secretary of state or similar Governmental Authority of the jurisdiction under the Laws in which the Company is organized and each state in which the Company is qualified to do business as a foreign corporation;

 

(vii)   at least three (3) Business Days prior to the Closing, the Closing Indebtedness Certificate;

 

(viii)   the Estimated Closing Net Working Capital Statement contemplated in Section 2.17(a) ;

 

(ix)   the Consideration Spreadsheet contemplated in Section 2.18 ;

 

(x)   the FIRPTA Statement; and

 

(xi)   such other documents or instruments as Parent may reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

 

(b)   At the Closing, Parent shall deliver to the Company (or such other Person as may be specified herein) the following:

 

(i)   a certificate setting forth the calculation (together with information substantiating such calculation) of the aggregate number of shares of Parent Common Stock constituting the Purchase Price Stock Consideration;

 

(ii)   the Escrow Agreement duly executed by Parent;

 

(iii)   payment to the Exchange Agent of the Purchase Price, less amounts paid to the Company or Escrow Agent as set forth in Sections 2.03 (b) (iv) and (v) below and less amounts paid to Q Advisors and Foley & Lardner (Company legal counsel) for Company Transaction Costs as set forth in Section 2.03 (b)(vi) below and as adjusted pursuant to Section 2.17 , with Purchase Price Cash Consideration being done by wire transfer of immediately available funds and Purchase Price Stock Consideration by the delivery of duly executed stock certificates evidencing the issuance by Parent of the shares of Purchase Price Stock Consideration and in the names of the holders of Shares consistent with the Spreadsheet provided pursuant to Section 2.18 and to be used by Exchange Agent: (X) to pay Company Transaction Costs in cash to third parties (i.e., legal counsel, Q Advisors, etc.); and (Y) to make payments pursuant to Section 2.08 in exchange for Shares and Section 2.09 in exchange for cancellation of In-Money Options held by employees of the Company;

 

(iv)   payment to the Company or its designee payroll service provider by wire transfer of immediately available funds of Purchase Price Cash Consideration payable pursuant to Section 2.09 in exchange for cancellation of In-Money Options held by employees of the Company;

 

(v)   payment to the Escrow Agent by wire transfer of immediately available funds and certificates representing shares of Parent Common Stock in amounts equal to the Indemnification Escrow Amount, as set forth in Section 2.12 ;

 

 

(vi)   payment to Q Advisors (the Company’s investment banker) and Foley & Lardner (the Company’s legal counsel) for fees owed to them as Company Transaction Costs pursuant to invoices submitted by each of them;

 

(vii)   a certificate, dated the Closing Date and signed by a duly authorized officer of Company, that each of the conditions set forth in Section 7.03(a) and Section 7.03(b) have been satisfied;

 

(viii)   a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Parent and Merger Sub certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Parent and Merger Sub authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby;

 

(ix)   a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Parent and Merger Sub certifying the names and signatures of the officers of Parent and Merger Sub authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder; and

 

(x)   such other documents or instruments as the Company may reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

 

Section 2.04   Effective Time. Subject to the provisions of this Agreement, at the Closing, the Company, Parent and Merger Sub shall cause a certificate of merger (the   “ Certificate of Merger ”), substantially in the form of Exhibit A hereto to be executed, acknowledged and filed with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or at such later date or time as may be agreed by the Company and Parent in writing and specified in the Certificate of Merger in accordance with the DGCL (the effective time of the Merger being hereinafter referred to as the “ Effective Time ”).

 

Section 2.05   Effects of the Merger. The Merger shall have the effects set forth herein and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions and duties of each of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions and duties of the Surviving Corporation.

 

Section 2.06   Certificate of Incorporation; By-laws. At the Effective Time, (a) the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with the terms thereof or as provided by applicable Law, and (b) the by-laws of Merger Sub as in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended in accordance with the terms thereof, the certificate of incorporation of the Surviving Corporation or as provided by applicable Law; provided, however , in each case, that the name of the corporation set forth therein shall be changed to the name of the Company.

 

 

Section 2.07   Directors and Officers. The directors and officers of Merger Sub, in each case, immediately prior to the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws of the Surviving Corporation.

 

Section 2.08   Effect of the Merger on Common Stock. At the Effective Time, as a result of the Merger and without any action on the part of Parent, Merger Sub, the Company or any Stockholder:

 

(a)   Cancellation of Certain Company Common Stock. Shares of Company Common Stock (the “ Shares ”) that are owned by Parent, Merger Sub or the Company (as treasury stock or otherwise) or any of their respective direct or indirect wholly owned Subsidiaries shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

 

(b)   Conversion of Company Common Stock. Each Share issued and outstanding immediately prior to the Effective Time (other than (i) Shares to be cancelled and retired in accordance with Section 2.08(a) , and (ii) Dissenting Shares) shall be converted into the right to receive the Closing Per Share Merger Consideration to be received in cash and stock on a pari passu basis, without interest, together with any amounts that may become payable in respect of such Share in the future from the Indemnification Escrow Fund as provided in this Agreement and the Escrow Agreement or in respect of the Post-Closing Adjustment, at the respective times and subject to the contingencies specified herein and therein; provided, however, that the Closing Per Share Merger Consideration paid to any Company shareholder surrendering Shares that does not represent in the Letter of Transmittal (as referenced in Section 2.11) that such shareholder is an “Accredited Investor” (as defined in Regulation D of the Securities Act of 1933) shall be paid only in cash.

 

(c)   Conversion of Merger Sub Capital Stock. Each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one newly issued, fully paid and non-assessable share of common stock of the Surviving Corporation.

 

 

Section 2.09   Treatment of Options and Corporate Actions.

 

(a)   At the Effective Time, each Option that is outstanding and unexercised immediately prior to the Effective Time, whether or not then vested or exercisable, shall be, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company, the Optionholder or any other Person, cancelled and each Optionholder shall cease to have any rights with respect thereto other than the right to receive with respect to In-Money Options (i) an amount in cash, without interest, equal to the product of (x) the aggregate number of Shares subject to such In-Money Option, multiplied by (y) the excess of the Closing Per Share Merger Consideration over the per share exercise price under such In-Money Option less the portion of such cash that is part of the Escrow Funds, and (ii) any amounts that may become payable in respect of such In-Money Option in the future from the Escrow Funds as provided in this Agreement and the Escrow Agreement or in respect of the Post-Closing Adjustment, in each case, at the respective times and subject to the contingencies specified herein and therein. After the Effective Time, each Optionholder shall only be entitled to the payments described in this Section 2.09 . For the avoidance of doubt, all Out-of-Money Options shall be cancelled and shall not have any right to receive any consideration in respect thereof.

 

(b)   At or prior to the Effective Time, the Company, the Company Board and the compensation committee of the Company Board, as applicable, shall adopt any resolutions and take any actions necessary to (i) effectuate the provisions of Section 2.09(a) and (ii) cause the Stock Option Plan to terminate at or prior to the Effective Time.

 

Section 2.10   Dissenting Shares. Notwithstanding any provision of this Agreement to the contrary, including Section 2.08 , Shares issued and outstanding immediately prior to the Effective Time (other than Shares cancelled in accordance with Section 2.08(a) ) and held by a holder who has not voted in favor of adoption of this Agreement or consented thereto in writing and who has properly exercised appraisal rights of such Shares in accordance with Section 262 of the DGCL (such Shares being referred to collectively as the “ Dissenting Shares ” until such time as such holder fails to perfect or otherwise loses such holder’s appraisal rights under the DGCL with respect to such Shares) shall not be converted into a right to receive a portion of the Merger Consideration, but instead shall be entitled to only such rights as are granted by Section 262 of the DGCL; provided, however, that if, after the Effective Time, such holder fails to perfect, withdraws or loses such holder’s right to appraisal pursuant to Section 262 of the DGCL or if a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Section 262 of the DGCL, such Shares shall be treated as if they had been converted as of the Effective Time into the right to receive the portion of the Merger Consideration, if any, to which such holder is entitled pursuant to Section 2.08(b) , without interest thereon. The Company shall provide Parent prompt written notice of any demands received by the Company for appraisal of Shares, any withdrawal of any such demand and any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL that relates to such demand, and Parent shall have the opportunity and right to direct all negotiations and proceedings with respect to such demands. Except with the prior written consent of Parent, the Company shall not make any payment with respect to, or settle or offer to settle, any such demands.

 

 

Section 2.11   Surrender and Payment.

 

(a)   At the Effective Time, all Shares and all Options outstanding immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and, subject to Section 2.10 , each holder of a certificate formerly representing any Shares (each, a “ Certificate ”) and each holder of record of an Option shall cease to have any rights as a stockholder of the Company or a holder of Options.

 

(b)   Prior to the Effective Time, the Company shall appoint an exchange agent (the “ Exchange Agent ”) to act as the exchange agent in the Merger.

 

(c)   As promptly as practicable following the date the Written Consent has been obtained pursuant to Section 5.04 (a) , the Corporation shall mail to each holder of Company Common Stock (including all holders of Company Class B Stock and Company Series A Convertible Preferred Stock) a letter of transmittal in substantially the form attached as Exhibit B (a “ Letter of Transmittal ”) which shall contain the Stockholder Notice, as set forth in Section 5.04 (b) and instructions for use in effecting the surrender of Certificates in exchange for the applicable portion of Merger Consideration pursuant to Section 2.08(b), such surrender and exchange to be administered by the Exchange Agent. The Exchange Agent shall, no later than the later of (i) the Closing Date or (ii) five (5) Business Days after receipt of a Certificate (or properly executed Affidavit of Loss of Certificate as set forth in Section 2.16 ), together with a Letter of Transmittal duly completed and validly executed in accordance with the instructions thereto, and any other customary documents that the Exchange Agent may reasonably require in connection therewith, pay to the holder of such Certificate a cash and stock amount as provided in Section 2.08(b) with respect to such Certificate so surrendered and the Certificate shall forthwith be cancelled. Unless otherwise provided herein, no interest shall be paid or shall accrue on any cash payable upon surrender of any Certificate. Until so surrendered, each outstanding Certificate that prior to the Effective Time represented shares of Company Common Stock (other than Dissenting Shares) shall be deemed from and after the Effective Time, for all purposes, to evidence the right to receive the portion of the Merger Consideration as provided in Section 2.08(b) . If after the Effective Time, any Certificate is presented to the Exchange Agent, it shall be cancelled and exchanged as provided in this Section 2.11 .

 

(d)   As promptly as practicable following the date hereof and in any event not later than five (5) Business Days thereafter, the Company shall mail to each Optionholder an option termination agreement substantially in the form attached as Exhibit C (an “ Option Termination Agreement ”) and instructions for completing, executing and returning such Option Termination Agreement in exchange for the applicable portion of the Merger Consideration pursuant to Section 2.09 . With respect to employee Optionholders, Parent shall, no later than the later of (i) the Closing Date or (ii) five (5) Business Days after receipt of an Option Termination Agreement duly completed and validly executed in accordance with the instructions thereto and any other customary documents that Parent may reasonably require in connection therewith, cause the Company’s current payroll provider, on behalf of the Company, to deliver such Optionholder the cash amount such Optionholder has the right to receive pursuant to Section 2.09(a) . With respect to a non-employee Optionholder, the Exchange Agent shall, no later than the later of (i) the Closing Date or (ii) five (5) Business Days after receipt of an Option Termination Agreement duly completed and validly executed in accordance with the instructions thereto and any other customary documents that the Exchange Agent may reasonably require in connection therewith, pay to such Optionholder a cash amount as provided in Section 2.09(a) with respect to the In-Money Options in respect of which the Option Termination Agreement was delivered. Unless otherwise provided herein, no interest shall be paid or shall accrue on any cash payable upon delivery of any Option Cancellation Agreement.

 

(e)   Each Stockholder and Optionholder shall also be entitled to any amounts that may be payable in the future in respect of the Shares formerly represented by such Certificate and the cancelled In-Money Options from the Indemnification Escrow Fund as provided in this Agreement and on account of the Post-Closing Adjustment, at the respective time and subject to the contingencies specified herein and therein. Unless otherwise provided herein, no interest shall be paid or accrued for the benefit of Stockholders or Optionholders on the Merger Consideration.

 

(f)   If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition to such payment that (i) such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer, and (ii) the Person requesting such payment shall pay to the Exchange Agent any transfer or other Tax required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the reasonable satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

 

(g)   Any portion of the Merger Consideration that remains unclaimed by the Stockholders and Optionholders six (6) months after the Effective Time shall be returned to Parent, upon demand, and any such Stockholder or Optionholder who has not exchanged Certificates or delivered Option Termination Agreements for the Merger Consideration in accordance with this Section 2.11 prior to that time shall thereafter look only to Parent for payment of the Merger Consideration; provided , that any such portion of the Merger Consideration payable from the Indemnification Escrow Fund shall be held and distributed to the Persons entitled thereof in accordance with the terms of this Agreement and the Escrow Agreement, at the respective times and subject to the contingencies specified herein and therein and any portion of the Post-Closing Adjustment to which the Stockholders or Optionholders may become entitled shall become payable at the times and subject to the contingencies specified herein. Notwithstanding the foregoing, Parent shall not be liable to any holder of Certificates for any amounts paid to a public official pursuant to applicable abandoned property, escheat or similar Laws. Any amounts remaining unclaimed by Stockholders or Optionholders two (2) years after the Effective Time (or such earlier date, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Entity) shall become, to the extent permitted by applicable Law, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

 

(h)   Any portion of the Merger Consideration made available to the Exchange Agent in respect of any Dissenting Shares shall be returned to Parent, upon demand.

 

 

Section 2.12   Escrow Fund . In accordance with the Escrow Agreement, Parent shall deposit or cause to be deposited with the Escrow Agent cash and shares of Parent Common Stock constituting the Indemnification Escrow Amount (such amount, including any interest or other amounts earned thereon and less any disbursements therefrom in accordance with the Escrow Agreement, the “ Indemnification Escrow Fund ”), to be held for the purpose of securing  the indemnification obligations of the Stockholders set forth in this Agreement and the obligations pursuant to Section 2.17(d) and Section 6.03 ;

 

Section 2.13   No Further Ownership Rights in Company Common Stock And Options. All Merger Consideration paid or payable upon the surrender of Certificates, and all Merger Consideration paid or payable in respect of the Options, in accordance with the terms hereof shall be deemed to have been paid or payable in full satisfaction of all rights pertaining to the Shares formerly represented by such Certificate and such Options, and from and after the Effective Time, there shall be no further registration of transfers of Shares on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article II and elsewhere in this Agreement.

 

Section 2.14   Adjustments. Without limiting the other provisions of this Agreement, if at any time during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of the Company shall occur, including by reason of any reclassification, recapitalization, stock split (including reverse stock split) or combination, exchange or readjustment of shares, or any stock dividend or distribution paid in stock (but excluding the conversion of outstanding Company Class B Stock and Company Series A Convertible Stock into Company Common Stock), the Merger Consideration and any other amounts payable pursuant to this Agreement shall be appropriately adjusted to reflect any such change.

 

Section 2.15   Withholding Rights. Each of the Exchange Agent, Parent, Merger Sub and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article II such amounts as may be required to be deducted and withheld with respect to the making of such payment under any provision of Tax Law. To the extent that amounts are so deducted and withheld by the Exchange Agent, Parent, Merger Sub or the Surviving Corporation, as the case may be, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which the Exchange Agent, Parent, Merger Sub or the Surviving Corporation, as the case may be, made such deduction and withholding.

 

Section 2.16   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 , including agreeing to an indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the Shares formerly represented by such Certificate as contemplated under this Article II .

 

 

 

Section 2.17

Working Capital Adjustment.

 

(a)   Closing Adjustment .

 

(i)   At least three (3) Business Days before the Closing, the Company shall prepare and deliver to Parent a statement setting forth its good faith estimate of Closing Net Working Capital (the “ Estimated Closing Net Working Capital ”), which statement shall contain an estimated balance sheet of the Company as of the Closing Date (without giving effect to the transactions contemplated herein), a calculation of Estimated Closing Net Working Capital (the “ Estimated Closing Net Working Capital Statement ”), and a certificate of the President of the Company that the Estimated Closing Net Working Capital Statement was prepared in accordance with the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the unaudited financial statements for the most recent fiscal year end, as if such Estimated Closing Net Working Capital Statement was being prepared as of a fiscal year end.  To the extent that the Estimated Closing Net Working Capital exceeds the sum of $100,000, the Purchase Price shall be increased by such excess amount and such increase shall increase the Purchase Price Cash Consideration.  To the extent that the Estimated Closing Net Working Capital is less than the sum of $100,000 plus the Aggregate Options Exercise Price, the Purchase Price shall be decreased by the amount of such deficit and such decrease shall reduce the Purchase Price Cash Consideration.

 

(b)   Post-Closing Adjustment .

 

(i)   Within sixty (60)  days after the Closing Date, Parent shall prepare and deliver to the Stockholder Representative a statement setting forth its calculation of Closing Net Working Capital, which statement shall contain an unaudited balance sheet of the Company as of the Closing Date (without giving effect to the transactions contemplated herein), a calculation of Closing Net Working Capital (the “ Closing Net Working Capital Statement ”) and a certificate of the Vice President- Finance of Parent or its Acting Chief Financial Officer that the Closing Net Working Capital Statement was prepared in accordance with GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the unaudited financial statements for the most recent fiscal year end, as if such Closing Net Working Capital Statement was being prepared as of a fiscal year end.

 

(ii)   The “ Post-Closing Adjustment ” shall be an amount equal to the Closing Net Working Capital minus the Estimated Closing Net Working Capital.

 

(c)   Examination and Review .

 

(i)   Examination. After receipt of the Closing Net Working Capital Statement, the Stockholder Representative shall have thirty (30) days (the “ Review Period ”) to review the Closing Net Working Capital Statement. During the Review Period, the Stockholder Representative and its accountants shall have reasonable access to the books and records of the Surviving Corporation and to the personnel of, and workpapers prepared by, Parent and/or its accountants to the extent that they relate to the Closing Net Working Capital Statement as the Stockholder Representative may reasonably request for the purpose of reviewing the Closing Net Working Capital Statement and to prepare a Statement of Objections (defined below), provided, that such access shall be in a manner that does not interfere with the normal business operations of Parent or the Surviving Corporation.

 

 

 

(ii)   Objection. On or prior to the last day of the Review Period, the Stockholder Representative may object to the Closing Net Working Capital Statement by delivering to Parent a written statement setting forth its objections in reasonable detail, indicating each disputed item or amount and the basis for its disagreement therewith (the “ Statement of Objections ”). No objection may be raised by the Stockholder Representative as to any items in the Closing Net Working Capital Statement that gives effect to the accounting issues raised by Parent’s advisor, Citrin Cooperman, and which are reflected in the adjusted GAAP financial statements attached hereto as Exhibit  D .  If the Stockholder Representative fails to deliver the Statement of Objections before the expiration of the Review Period, the Closing Net Working Capital Statement and the Post-Closing Adjustment, as the case may be, reflected in the Closing Net Working Capital Statement shall be deemed to have been accepted by the Stockholder Representative. If the Stockholder Representative delivers the Statement of Objections before the expiration of the Review Period, Parent and the Stockholder Representative shall negotiate in good faith to resolve such objections within thirty (30) days after the delivery of the Statement of Objections (the “ Resolution Period ”), and, if the same are so resolved within the Resolution Period, the Post-Closing Adjustment and the Closing Net Working Capital Statement with such changes as may have been previously agreed in writing by Parent and the Stockholder Representative, shall be final and binding.

 

(iii)   Resolution of Disputes. If the Stockholder Representative and Parent fail to reach an agreement with respect to all of the matters set forth in the Statement of Objections before expiration of the Resolution Period, then any amounts remaining in dispute (“ Disputed Amounts ”) then Parent and the Stockholder Representative shall appoint by mutual agreement an impartial firm of independent certified public accountants (the “ Independent Accountant ”) who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make any adjustments to the Post-Closing Adjustment, as the case may be, and the Closing Net Working Capital Statement. The Independent Accountant shall only decide the specific items under dispute by the parties and their decision for each Disputed Amount must be within the range of values assigned to each such item in the Closing Net Working Capital Statement and the Statement of Objections, respectively.

 

(iv)   Fees of the Independent Accountant. The fees and expenses of the Independent Accountant shall be paid by the Stockholder Representative (on behalf of the Stockholders and Optionholders), on the one hand, and by Parent, on the other hand, based upon the percentage that the amount actually contested but not awarded to the Stockholder Representative or Parent, respectively, bears to the aggregate amount actually contested by the Stockholder Representative and Parent. Any such fees and expenses payable by the Stockholder Representative shall be paid from the Stockholder Representative Expense Fund to the extent available.

 

(v)   Determination by Independent Accountant. The Independent Accountant shall make a determination as soon as practicable within forty five (45) days (or such other time as the parties hereto shall agree in writing) after their engagement, and their resolution of the Disputed Amounts and their adjustments to the Closing Net Working Capital Statement and/or the Post-Closing Adjustment shall be conclusive and binding upon the parties hereto.

 

 

(d)   Payment of Post-Closing Adjustment .

 

(i)   If the Post-Closing Adjustment is a negative number, the Stockholder Representative shall, within three (3) Business Days after the final determination of the Post-Closing Adjustment, jointly pay by wire transfer of immediately available funds to Parent, the Post-Closing Adjustment.

 

(ii)   If the Post-Closing Adjustment is a positive number, Parent shall, within three (3)  Business Days after the final determination of the Post-Closing Adjustment, (A) deposit with the Exchange Agent, for distribution to the Stockholders and non-employee Optionholders in accordance with their Pro Rata Shares, such Stockholders’ and Optionholders aggregate Pro Rata Share of the Post-Closing Adjustment, (B) deposit with the Surviving Corporation, for distribution to the employee Optionholders in accordance with their Pro Rata Shares, such Optionholders’ aggregate Pro Rata Share of the Post-Closing Adjustment.

 

(e)   Adjustments for Tax Purposes. Any payments made pursuant to this Section 2.17 shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.

 

Section 2.18

Consideration Spreadsheet.

 

(a)   At least three  (3) Business Days before the Closing and concurrently with the delivery of the Estimated Closing Net Working Capital Statement, the Company shall prepare and deliver to Parent a spreadsheet (the “ Consideration Spreadsheet ”), certified by the President  of the Company, which shall set forth, as of the Closing Date and immediately prior to the Effective Date, the following:

 

(i)   the names and addresses of all Stockholders and the number of Company Common Stock held by such Persons;

 

(ii)   the names and addresses of all Optionholders, together with the number of Shares subject to Options held by such Optionholders, the grant date, exercise price and vesting schedule for such Options;

 

(iii)   detailed calculations of the Closing Merger Consideration, Fully Diluted Share Number and Closing Per Share Merger Consideration;

 

(iv)   each Stockholder’s and Optionholder’s Pro Rata Share (as a percentage interest and the interest in dollar terms) of the Closing Merger Consideration, amount of Purchase Price Cash Consideration and Purchase Price Stock Consideration; and

 

(v)   each Stockholder’s and Optionholder’s Pro Rata Share (as a percentage interest and the interest in dollar terms) of the amount to be contributed to the Indemnification Escrow Funds.

 

(b)   The parties agree that Parent and Merger Sub shall be entitled to rely on the Consideration Spreadsheet in making payments under Article II and Parent and Merger Sub shall not be responsible for the calculations or the determinations regarding such calculations in such Consideration Spreadsheet.

 

                     

 

       Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, the Company represents and warrants to Parent that the statements contained in this Article III are true and correct as of the date hereof.

 

Section 3.01   Organization and Qualification of the Company. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the state of Delaware and has full corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it has been and is currently conducted. Section 3.01 of the Disclosure Schedules sets forth each jurisdiction in which the Company is licensed or qualified to do business, and the Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a Material Adverse Effect on the Company.

 

Section 3.02

Authority; Board Approval.

 

(a)   The Company has full corporate power and authority to enter into and perform its obligations under this Agreement and the Ancillary Documents to which it is a party and, subject to: (i) with regard to the conversion of the Company Series A Convertible Preferred Stock into Company Common Stock, the affirmative vote or consent of holders of a majority of the outstanding shares of Company Series A Convertible Preferred Stock and (ii) in the case of the consummation of the Merger, adoption of this Agreement by the affirmative vote or consent of Stockholders representing a majority of the outstanding Shares (“ Requisite Company Vote ”), to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and any Ancillary Document to which it is a party and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery and performance of this Agreement or to consummate the Merger and the other transactions contemplated hereby and thereby, subject only, in the case of consummation of the Merger, to the receipt of the Requisite Company Vote. The Requisite Company Vote is the only vote or consent of the holders of any class or series of the Company’s capital stock required to approve and adopt this Agreement and the Ancillary Documents, approve the Merger and consummate the Merger and the other transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general applicability relating to or affecting the enforcement of creditor’s rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained herein may be limited by applicable federal and state securities laws. When each Ancillary Document to which the Company is or will be a party has been duly executed and delivered by the Company (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of the Company enforceable against it in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general applicability relating to or affecting the enforcement of creditor’s rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained herein may be limited by applicable federal and state securities laws.

 

 

 

(b)   The Company Board, by resolutions duly adopted by unanimous vote at a meeting of all directors of the Company duly called and held and, as of the hereof, not subsequently rescinded or modified in any way, has, as of the date hereof (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to, and in the best interests of, the Stockholders, (ii) approved and declared advisable the “agreement of merger” (as such term is used in Section 251 of the DGCL) contained in this Agreement and the transactions contemplated by this Agreement, including the Merger, in accordance with the DGCL, (iii) directed that the “agreement of merger” contained in this Agreement be submitted to the Stockholders for adoption, and (iv) resolved to recommend that the Stockholders adopt the “agreement of merger” set forth in this Agreement (collectively, the “ Company Board Recommendation ”) and directed that such matter be submitted for consideration of the Stockholders at the Company Stockholders Meeting.

 

Section 3.03   No Conflicts; Consents. The execution, delivery and performance by the Company of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, including the Merger, do not and will not: (i) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of the Company (“ Company Charter Documents ”); (ii) subject to, in the case of the Merger, obtaining the Requisite Company Vote, conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to the Company; (iii) except as set forth in Section 3.02 of the Disclosure Schedules, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which the Company is a party or by which the Company is bound or to which any of their respective properties and assets are subject (including any Material Contract) or any Permit affecting the properties, assets or business of the Company; or (iv) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on any properties or assets of the Company.  No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Company in connection with the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for the filing of the Certificate of Merger with the Secretary of State of Delaware, the receipt of the approval of any state regulatory commissions and the FCC, and such filings, if any, as may be required under the HSR Act.

 

 

Section 3.04   Capitalization.

 

(a)   The authorized capital stock of the Company consists of: (i) 800,000 shares Common Stock of which 71,313 shares of Company Class A Common Stock are issued and outstanding and 52,139 shares of Company Class B Common Stock are issued and outstanding; and (ii)  600,000 shares of Company Series A Convertible Preferred Stock, of which 423,429 shares are issued and outstanding.  Upon conversion, the outstanding shares of Company Class B Common Stock would convert into 73,365 shares of Company Common Stock and the outstanding shares of Company Series A Convertible Preferred Stock would convert into 423,429 shares of Company Common Stock.

 

(b)   Section 3.04(b) of the Disclosure Schedules set forth, as of the date hereof, (i) the name of each Person that is the registered owner of any Company Capital Stock; the type of stock and the number of shares owned by such Person, and (ii) a list of all holders of outstanding Options, including the number of Shares subject to each such Option, the grant date, exercise price and vesting schedule for such Option, the extent to which such Option is vested and exercisable and the date on which such Option expires. Each Option was granted in compliance with all applicable Laws and all of the terms and conditions of the Stock Option Plan pursuant to which it was issued. Each Option was granted with an exercise price per share equal to or greater than the fair market value of the underlying shares on the date of grant and has a grant date identical to the date on which the Company Board or compensation committee actually awarded the Option. Each Option qualifies for the tax and accounting treatment afforded to such Option in the Company’s tax returns and the Company’s financial statements, respectively, and does not trigger any liability for the Optionholder under Section 409A of the Code. The Company has heretofore provided or made available to Parent a true and complete copies of the standard form of option agreement and any stock option agreements that differ from such standard form.

 

(c)   Except for currently outstanding Options to purchase 83,840  shares of Company Common Stock which have been granted to employees, consultants or directors pursuant to the Stock Option Plan, , (i) no subscription, warrant, option, convertible or exchangeable security, or other right (contingent or otherwise) to purchase or otherwise acquire equity securities of the Company is authorized or outstanding, and (ii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible or exchangeable securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset, to repurchase or redeem any securities of the Company or to grant, extend, accelerate the vesting of, change the price of, or otherwise amend any warrant, option, convertible or exchangeable security or other such right. There are no declared or accrued unpaid dividends with respect to any shares of Company Capital Stock.

 

 

(d)   All issued and outstanding shares of Company Capital Stock are, and all shares which may be issued pursuant to the exercise of Options, when issued in accordance with the applicable security, will be (i) duly authorized, validly issued, fully paid and non-assessable; (ii) not subject to any preemptive rights created by statute, the Company Charter Documents or any agreement to which the Company is a party; and (iii) free of any Encumbrances created by the Company in respect thereof. All issued and outstanding shares of Company Common Stock and Options were issued in compliance with applicable Law.

 

(e)   No outstanding Company Capital Stock is subject to vesting or forfeiture rights or repurchase by the Company. There are no outstanding or authorized stock appreciation, dividend equivalent, phantom stock, profit participation or other similar rights with respect to the Company or any of its securities.

 

(f)   All distributions, dividends, repurchases and redemptions of the capital stock (or other equity interests) of the Company were undertaken in compliance with the Company Charter Documents then in effect, any agreement to which the Company then was a party and in compliance with applicable Law.

 

Section 3.05   No Subsidiaries. The Company does not own, or have any interest in any shares or have an ownership interest in any other Person.

 

Section 3.06   Financial Statements. Complete copies of (i) the Company’s unaudited balance sheets at December 31, 2012 and 2013, the unaudited income statements for the years ended December 31, 2012 and 2013  and the related notes thereto (collectively, the “ Unaudited Annual Financial Statements ”), and (ii) unaudited financial statements consisting of the balance sheet of the Company as at June 30, 2014 and the related statements of income for the  six month period then ended (the “ Interim Financial Statements ”, and together with the Unaudited Annual Financial Statements, the “ Financial Statements ”) are included in the Disclosure Schedules. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially from those presented in the Unaudited Annual Financial Statements).  The Financial Statements are based on the books and records of the Company, and fairly present the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated. The balance sheet of the Company as of December 31, 2013 is referred to herein as the “ Balance Sheet ” and the date thereof as the “ Balance Sheet Date ” and the balance sheet of the Company as of June 30, 2014 is referred to herein as the “ Interim Balance Sheet ” and the date thereof as the “ Interim Balance Sheet Date. ”  The Company maintains books and records that sufficient to permit the preparation of accurate and complete financial statements

 

 

 

Section 3.07   Undisclosed Liabilities. The Company has no liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise (“ Liabilities ”), except (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which will be taken  into account in the calculation of Closing Net Working Capital.

 

Section 3.08   Absence of Certain Changes, Events and Conditions. Since the Balance Sheet Date, and other than in the ordinary course of business consistent with past practice, there has not been, with respect to the Company, any:

 

(a)   event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

(b)   amendment of the charter, by-laws or other organizational documents of the Company;

 

(c)   split, combination or reclassification of any shares of its capital stock;

 

(d)   issuance, sale or other disposition of any of its capital stock (other than in connection with the exercise of Options outstanding on the date of this Agreement as required by the terms of such Options), or grant of any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its capital stock;

 

(e)   declaration or payment of any dividends or distributions on or in respect of any of its capital stock or redemption, purchase or acquisition of its capital stock;

 

(f)   material change in any method of accounting or accounting practice of the Company, except as required by GAAP or as disclosed in the notes to the Financial Statements;

 

(g)   material change in the Company’s cash management practices and its policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts, recognition of revenue and accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

 

(h)   entry into any Contract that would constitute a Material Contract;

 

(i)   incurrence, assumption or guarantee of any indebtedness for borrowed money except unsecured current obligations and Liabilities incurred in the ordinary course of business consistent with past practice;

 

(j)   transfer, assignment, sale or other disposition of any of the assets shown or reflected in the Balance Sheet or cancellation of any debts or entitlements;

 

 

(k)   transfer, assignment or grant of any license or sublicense of any material rights under or with respect to any Company Intellectual Property or Company IP Agreements;

 

(l)   material damage, destruction or loss (whether or not covered by insurance) to its property;

 

(m)   any capital investment in, or any loan to, any other Person;

 

(n)   acceleration, termination, material modification to or cancellation of any material Contract (including, but not limited to, any Material Contract) to which the Company is a party or by which it is bound;

 

(o)   any material capital expenditures;

 

(p)   imposition of any Encumbrance upon any of the Company properties, capital stock or assets, tangible or intangible;

 

(q)   (i) grant of any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of its current or former employees, officers, directors, independent contractors or consultants, other than as provided for in any written agreements or required by applicable Law, (ii) change in the terms of employment for any employee or any termination of any employees for which the aggregate costs and expenses exceed $10,000.00, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, director, independent contractor or consultant except as may be required by Section 2.09 ;

 

(r)   hiring or promoting any person as or to (as the case may be) an officer or hiring or promoting any employee below officer except to fill a vacancy in the ordinary course of business;

 

(s)   adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant, (ii) Benefit Plan or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;

 

(t)   any loan to (or forgiveness of any loan to), or entry into any other transaction with, any of its stockholders or current or former directors, officers and employees;

 

(u)   entry into a new line of business or abandonment or discontinuance of existing lines of business;

 

(v)   except for the Merger, adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;

 

 

(w)   purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $10,000.00, individually (in the case of a lease, per annum) or $25,000.00 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of supplies in the ordinary course of business consistent with past practice;

 

(x)   acquisition by merger or consolidation with, or by purchase of a substantial portion of the assets or stock of, or by any other manner, any business or any Person or any division thereof;

 

(y)   action by the Company to make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Parent in respect of any Post-Closing Tax Period; or

 

(z)   any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.

 

Section 3.09   Material Contracts.

 

(a)   Schedule 3.09(a) of the Disclosure Schedules lists each of the following Contracts of the Company (such Contracts, together with all Contracts concerning the occupancy, management or operation of any Real Property (including without limitation, brokerage contracts) listed or otherwise disclosed in Section 3.10(b) of the Disclosure Schedules and all Company IP Agreements set forth in Section 3.12(b) of the Disclosure Schedules, being “ Material Contracts ”):

 

(i)   the 20 largest  customer Contracts of the Company for calendar year 2014 based on the amount of revenue expected to be realized by each such customer Contract;

 

(ii)   all employment agreements between the Company and any employee;

 

(iii)   any instrument creating an indebtedness of the Company to any third party (including guarantees of an obligation, notes or similar instruments);

 

(iv)   each Contract of the Company, other than customer Contracts, involving aggregate consideration in excess of $25,000.00 and which, in each case, cannot be cancelled by the Company without penalty or without more than ninety (90) days’ notice;

 

(v)   all Contracts that require the Company to purchase its total requirements of any product or service from a third party or that contain “take or pay” provisions;

 

(vi)   all Contracts that provide for the indemnification by the Company of any Person or the assumption of any Tax, environmental or other Liability of any Person;

 

 

(vii)   all Contracts that relate to the acquisition or disposition of any real property (whether by merger, sale of stock, sale of assets or otherwise);

 

(viii)   all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which the Company is a party;

 

(ix)   all Contracts with independent contractors or consultants (or similar arrangements) to which the Company is a party and which are not cancellable without material penalty or without more than ninety (90) days’ notice;

 

(x)   except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including, without limitation, guarantees) of the Company;

 

(xi)   all Contracts with any Governmental Authority to which the Company is a party (“ Government Contracts ”);

 

(xii)   all Contracts that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time or that restrict the ability of the Company to solicit customers and/or employees of other Person’s;

 

(xiii)   any Contracts to which the Company is a party that provide for any joint venture, partnership or similar arrangement by the Company;

 

(xiv)   all collective bargaining agreements or Contracts with any Union to which the Company is a party;

 

(xv)   any Contracts that limit or restrict the ability of the Company to pay dividends or make distributions to stockholders.

 

(b)   Each Material Contract is valid and binding on the Company in accordance with its terms and is in full force and effect. None of the Company or, to the Company’s Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Parent.

 

 

Section 3.10   Title to Assets; Real Property.

 

(a)   The Company does not own any real property.  The Company has a valid leasehold interest in all Real Property and personal property and other assets reflected in the Unaudited Annual Financial Statements or acquired after the Balance Sheet Date, other than properties and assets sold or otherwise disposed of in the ordinary course of business consistent with past practice since the Balance Sheet Date. All such properties and assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively referred to as “ Permitted Encumbrances ”):

 

(i)   those items set forth in Section 3.10(a) of the Disclosure Schedules;

 

(ii)   liens for Taxes not yet due and payable;

 

(iii)   mechanics, carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the ordinary course of business consistent with past practice or amounts that are not delinquent and which are not, individually or in the aggregate, material to the business of the Company;

 

(iv)   easements, rights of way, zoning ordinances and other similar encumbrances affecting Real Property which are not, individually or in the aggregate, material to the business of the Company; or

 

(v)   other than with respect to owned Real Property, liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business consistent with past practice which are not, individually or in the aggregate, material to the business of the Company.

 

(b)   Section 3.10(b) of the Disclosure Schedules lists (i) the street address of each parcel of Real Property leased or subleased by the Company; (ii) the landlord under the lease, the rental amount currently being paid, and the expiration of the term of such lease or sublease for each leased or subleased property; and (iii) the current use of such property.  With respect to leased or subleased Real Property, the Company has delivered or made available to Parent true, complete and correct copies of any leases/subleases affecting the Real Property. The use and operation of the Real Property in the conduct of the Company’s business do not violate in any material respect any Law, covenant, condition, restriction, easement, license, permit or agreement. No material improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company. There are no Actions pending nor, to the Company’s Knowledge, threatened against or affecting the Real Property or any portion thereof or interest therein in the nature or in lieu of condemnation or eminent domain proceedings.

 

Section 3.11   Condition and Sufficiency of Assets. Except as set forth in Section 3.11 of the Disclosure Schedules, the buildings,  structures, furniture, fixtures, equipment, vehicles and other items of tangible personal property of the Company are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings,  structures, furniture, fixtures, equipment, vehicles and other items of tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The buildings, structures, furniture, fixtures, equipment, vehicles and other items of tangible personal property currently owned or leased by the Company, together with all other properties and assets of the Company, are sufficient for the continued conduct of the Company’s business after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the rights, property and assets necessary to conduct the business of the Company as currently conducted.

 

 

Section 3.12   Intellectual Property.

 

(a)   Section 3.12(a) of the Disclosure Schedules lists all (i) Company IP Registrations and (ii) Company Intellectual Property, including software, that are not registered but that are material to the Company’s business or operations. All required filings and fees related to the Company IP Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Company IP Registrations are otherwise in good standing. The Company has provided Parent with true and complete copies of file histories, documents, certificates, office actions, correspondence and other materials related to all Company IP Registrations.

 

(b)   Section 3.12(b) of the Disclosure Schedules lists all Company IP Agreements. The Company has provided Parent with true and complete copies of all such Company IP Agreements, including all modifications, amendments and supplements thereto and waivers thereunder. Each Company IP Agreement is valid and binding on the Company in accordance with its terms and is in full force and effect. Neither the Company nor any other party thereto is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of breach or default of or any intention to terminate, any Company IP Agreement.

 

(c)   Except as set forth in Section 3.12(c) of the Disclosure Schedules, the Company is the sole and exclusive legal and beneficial, and with respect to the Company IP Registrations, record, owner of all right, title and interest in and to the Company Intellectual Property, and has the valid right to use all other Intellectual Property used in or necessary for the conduct of the Company’s current business or operations, in each case, free and clear of Encumbrances other than Permitted Encumbrances. Without limiting the generality of the foregoing, the Company has entered into binding, written agreements with every current and former employee, and with every current and former independent contractor, whereby such employees and independent contractors (i) assign to the Company any ownership interest and right they may have in the Company Intellectual Property; and (ii) acknowledge the Company’s exclusive ownership of all Company Intellectual Property. The Company has provided Parent with true and complete copies of all such agreements.

 

(d)   The consummation of the transactions contemplated hereunder will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, the Company’s right to own, use or hold for use any Intellectual Property as owned, used or held for use in the conduct of the Company’s business or operations as currently conducted.

 

(e)   The Company’s rights in the Company Intellectual Property are valid, subsisting and enforceable. The Company has taken all reasonable steps to maintain the Company Intellectual Property and to protect and preserve the confidentiality of all trade secrets included in the Company Intellectual Property, including requiring all Persons having access thereto to execute written non-disclosure agreements.

 

(f)   The conduct of the Company’s business as currently and formerly conducted, and the processes and services of the Company, have not infringed, misappropriated, diluted or otherwise violated, and do not and will not infringe, dilute, misappropriate or otherwise violate the Intellectual Property or other rights of any Person. No Person has infringed, misappropriated, diluted or otherwise violated, or is currently infringing, misappropriating, diluting or otherwise violating, any Company Intellectual Property.

 

 

(g)   There are no Actions (including any oppositions, interferences or re-examinations) settled, pending or threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, dilution or violation of the Intellectual Property of any Person by the Company; (ii) challenging the validity, enforceability, registrability or ownership of any Company Intellectual Property or the Company’s rights with respect to any Company Intellectual Property; or (iii) by the Company or any other Person alleging any infringement, misappropriation, dilution or violation by any Person of the Company Intellectual Property. The Company is not subject to any outstanding or prospective Governmental Order (including any motion or petition therefor) that does or would restrict or impair the use of any Company Intellectual Property.

 

Section 3.13   [Intentionally Omitted]

 

Section 3.14   Accounts and Notes Receivable. The accounts and notes receivable reflected on the Interim Balance Sheet and the accounts and notes receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by the Company involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; (b) constitute only valid, undisputed claims of the Company not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice; and (c) subject to a reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts and/or notes receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company, are collectible in full within ninety (90) days after billing. The reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts and notes receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company have been determined in accordance with GAAP, consistently applied.

 

Section 3.15   Customers and Suppliers.

 

(a)   Section 3.15(a) of the Disclosure Schedules sets forth (i) the top twenty  customers of the Company based on aggregate consideration paid to the Company for each of the two (2) most recent fiscal years (collectively, the “ Material Customers ”); and (ii) the amount of consideration paid by each Material Customer during such periods. Except as set forth in Section 3.15(a) of the Disclosure Schedules, the Company has not received any notice (either orally or in writing), that any of its Material Customers has ceased, or intends to cease after the Closing, to use its goods or services or to otherwise terminate or materially reduce its relationship with the Company.

 

(b)   Section 3.15(b) of the Disclosure Schedules sets forth (i) each supplier to whom the Company has paid consideration for goods or services rendered in an amount greater than or equal to $25,000 for each of the two (2) most recent fiscal years (collectively, the “ Material Suppliers ”); and (ii) the amount of purchases from each Material Supplier during such periods. Except as set forth in Section 3.15(b) of the Disclosure Schedules, the Company has not received any notice (either verbal or in writing), that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to the Company or to otherwise terminate or materially reduce its relationship with the Company.

 

 

Section 3.16   Insurance. Section 3.16 of the Disclosure Schedules sets forth a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, directors’ and officers’ liability, fiduciary liability and other casualty and property insurance maintained by Company and relating to the assets, business, operations, employees, officers and directors of the Company (collectively, the “ Insurance Policies ”) and true and complete copies of such Insurance Policies have been made available to Parent. Such Insurance Policies are in full force and effect and shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement. The Company has not received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. The Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company. All such Insurance Policies (a) are valid and binding in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. Except as set forth on Section 3.16 of the Disclosure Schedules, there are no claims related to the business of the Company pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. The Company is not in default under, and has not otherwise failed to comply with, in any material respect, any provision contained in any such Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Company and are sufficient for compliance with all applicable Laws and Contracts to which the Company is a party or by which it is bound.

 

Section 3.17   Legal Proceedings; Governmental Orders.

 

(a)   There are no Actions pending or, to the Company’s Knowledge, threatened (a) against or by the Company affecting any of its properties or assets;  (b) against or by the Company that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement; (c) against or by the Company seeking an injunction.

 

(b)   There are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting the Company or any of its properties or assets.

 

 

Section 3.18   Compliance with Laws; Permits.

 

(a)   Except as set forth in Section 3.18(a) of the Disclosure Schedules or except where such noncompliance would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company, the Company has complied, and is now complying, with all Laws applicable to it or its business, properties or assets.  Within the past three (3) years, the Company has not received any written notice or, to the Company’s Knowledge, other communication from any Governmental Authority regarding any actual or possible violation of, or failure to comply with, any Law, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company.

 

(b)   All Permits required for the Company to conduct its business have been obtained by it and are valid and in full force and effect. All fees and charges with respect to such Permits as of the date hereof have been paid in full. Section 3.18(b) of the Disclosure Schedules lists all current Permits issued to the Company, including the names of the Permits and their respective dates of issuance and expiration. No event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Section 3.18(b) of the Disclosure Schedules.

 

Section 3.19   Environmental Matters.

 

(a)   The Company is currently and has been in compliance with all Environmental Laws and has not received from any Person any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing obligations or requirements as of the Closing Date.

 

(b)   The Company has obtained and is in material compliance with all Environmental Permits (each of which is disclosed in Section 3.19(b) of the Disclosure Schedules) necessary for the ownership, lease, operation or use of the business or assets of the Company and all such Environmental Permits are in full force and effect and shall be maintained in full force and effect by the Company through the Closing Date in accordance with Environmental Law, and the Company is not aware of any condition, event or circumstance that might prevent or impede, after the Closing Date, the ownership, lease, operation or use of the business or assets of the Company as currently carried out.

 

(c)   No real property currently or formerly owned, operated or leased by the Company is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or any similar state list.

 

(d)   There has been no Release of Hazardous Materials in contravention of Environmental Law with respect to the business or assets of the Company or any real property currently or formerly owned, operated or leased by the Company, and the Company has not received an Environmental Notice that any real property currently or formerly owned, operated or leased in connection with the business of the Company (including soils, groundwater, surface water, buildings and other structure located on any such real property) has been contaminated with any Hazardous Material which could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, the Company.

 

 

(e)   Section 3.19(e) of the Disclosure Schedules contains a complete and accurate list of all active or abandoned aboveground or underground storage tanks owned or operated by the Company.

 

(f)   Section 3.19(f) of the Disclosure Schedules contains a complete and accurate list of all off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by the Company and any predecessors as to which the Company may retain liability, and none of these facilities or locations has been placed or proposed for placement on the National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and the Company has not received any Environmental Notice regarding potential liabilities with respect to such off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by the Company.

 

(g)   The Company has not retained or assumed, by contract or operation of Law, any liabilities or obligations of third parties under Environmental Law.

 

(h)   The Company has provided or otherwise made available to Parent and listed in Section 3.19(h) of the Disclosure Schedules: (i) any and all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar documents with respect to the business or assets of the Company or any currently or formerly owned, operated or leased real property which are in the possession or control of the Company related to compliance with Environmental Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) any and all material documents concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or emissions, manage waste or otherwise ensure compliance with current or future Environmental Laws (including, without limitation, costs of remediation, pollution control equipment and operational changes).

 

(i)   The Company is not aware of or reasonably anticipates, as of the Closing Date, any condition, event or circumstance concerning the Release or regulation of Hazardous Materials that might, after the Closing Date, prevent, impede or materially increase the costs associated with the ownership, lease, operation, performance or use of the business or assets of the Company as currently carried out.

 

Section 3.20   Employee Benefit Matters.

 

(a)   Section 3.20(a) of the Disclosure Schedules contains a true and complete list of each pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off, welfare, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by the Company for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Company or any spouse or dependent of such individual, or under which the Company or any of its ERISA Affiliates has or may have any Liability, or with respect to which Parent or any of its Affiliates would reasonably be expected to have any Liability, contingent or otherwise (as listed on Section 3.20(a) of the Disclosure Schedules, each, a “ Benefit Plan ”). The Company has separately identified in Section 3.20(a) of the Disclosure Schedules each Benefit Plan that contains a change in control provision.

 

 

(b)   With respect to each Benefit Plan, the Company has made available to Parent accurate, current and complete copies of each of the following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of any summary plan descriptions, summaries of material modifications, employee handbooks and any other written communications (or a description of any oral communications) relating to any Benefit Plan; (v) in the case of any Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service; (vi) in the case of any Benefit Plan for which a Form 5500 is required to be filed, a copy of the two most recently filed Form 5500, with schedules and financial statements attached; (vii) actuarial valuations and reports related to any Benefit Plans with respect to the two most recently completed plan years; (viii) the most recent nondiscrimination tests performed under the Code; and (ix) copies of material notices, letters or other correspondence from the Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation or other Governmental Authority relating to the Benefit Plan.

 

(c)   Except as set forth in Section 3.20(c) of the Disclosure Schedules, each Benefit Plan and any related trust (other than any multiemployer plan within the meaning of Section 3(37) of ERISA (each a “ Multiemployer Plan ”)) has been established, administered and maintained in accordance with its terms and in compliance with all applicable Laws (including ERISA and the Code). Each Benefit Plan that is intended to be qualified within the meaning of Section 401(a) of the Code (a “ Qualified Benefit Plan ”) is so qualified and has received a favorable and current determination letter from the Internal Revenue Service, or with respect to a prototype plan, can rely on an opinion letter from the Internal Revenue Service to the prototype plan sponsor, to the effect that such Qualified Benefit Plan is so qualified and that the plan and the trust related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that could reasonably be expected to adversely affect the qualified status of any Qualified Benefit Plan. Nothing has occurred with respect to any Benefit Plan that has subjected or could reasonably be expected to subject the Company or any of its ERISA Affiliates or, with respect to any period on or after the Closing Date, Parent or any of its Affiliates, to a penalty under Section 502 of ERISA or to tax or penalty under Section 4975 of the Code.  All benefits, contributions and premiums relating to each Benefit Plan have been timely paid in accordance with the terms of such Benefit Plan and all applicable Laws and accounting principles, and all benefits accrued under any unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP.

 

(d)   Neither the Company nor any of its ERISA Affiliates has (i) incurred or reasonably expects to incur, either directly or indirectly, any material Liability under Title I or Title IV of ERISA or related provisions of the Code or applicable local Law relating to employee benefit plans; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; (iii) withdrawn from any Benefit Plan; or (iv) engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA.

 

 

 

(e)   With respect to each Benefit Plan (i) no such plan is a Multiemployer Plan, and (A) all contributions required to be paid by the Company or its ERISA Affiliates have been timely paid to the applicable Multiemployer Plan, (B) neither the Company nor any ERISA Affiliate has incurred any withdrawal liability under Title IV of ERISA which remains unsatisfied, and (C) a complete withdrawal from all such Multiemployer Plans at the Effective Time would not result in any material liability to the Company; (ii) no such plan is a “multiple employer plan” within the meaning of Section 413(c) of the Code or a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA); (iii) no Action has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a trustee for any such plan; (iv) no such plan is subject to the minimum funding standards of Section 412 of the Code or Title IV of ERISA, and none of the assets of the Company or any ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under Section 302 of ERISA or Section 412(a) of the Code and no plan listed in Section 3.20(e) of the Disclosure Schedules has failed to satisfy the minimum funding standards of Section 302 of ERISA or Section 412 of the Code; and (v) no “reportable event,” as defined in Section 4043 of ERISA, has occurred with respect to any such plan.

 

(f)   Each Benefit Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without material liabilities to Parent, the Company or any of their Affiliates other than ordinary administrative expenses typically incurred in a termination event. The Company has no commitment or obligation and has not made any representations to any employee, officer, director, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement, in connection with the consummation of the transactions contemplated by this Agreement or otherwise.

 

(g)   Except as set forth in Section 3.20(g) of the Disclosure Schedules and other than as required under Section 601 et. seq. of ERISA or other applicable Law, no Benefit Plan provides post-termination or retiree welfare benefits to any individual for any reason, and neither the Company nor any of its ERISA Affiliates has any Liability to provide post-termination or retiree welfare benefits to any individual or ever represented, promised or contracted to any individual that such individual would be provided with post-termination or retiree welfare benefits.

 

(h)   Except as set forth in Section 3.20(h) of the Disclosure Schedules, there is no pending or, to the Company’s Knowledge, threatened Action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the three (3) years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.

 

(i)   There has been no amendment to, announcement by the Company or any of its Affiliates relating to, or change in employee participation or coverage under, any Benefit Plan or collective bargaining agreement that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year with respect to any director, officer, employee, independent contractor or consultant, as applicable. Neither the Company nor any of its Affiliates has any commitment or obligation or has made any representations to any director, officer, employee, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement.

 

(j)   Each Benefit Plan that is subject to Section 409A of the Code has been administered in compliance with its terms and the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including notices, rulings and proposed and final regulations) thereunder. The Company does not have any obligation to gross up, indemnify or otherwise reimburse any individual for any excise taxes, interest or penalties incurred pursuant to Section 409A of the Code.

 

(k)   Each individual who is classified by the Company as an independent contractor has been properly classified for purposes of participation and benefit accrual under each Benefit Plan.

 

(l)   Except as set forth in Section 3.20(l) of the Disclosure Schedules, neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor or consultant of the Company to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation due to any such individual; (iii) limit or restrict the right of the Company to merge, amend or terminate any Benefit Plan; (iv) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (v) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code; or (vi) require a “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code.  The Company has made available to Parent true and complete copies of any Section 280G calculations prepared (whether or not final) with respect to any disqualified individual in connection with the transactions.

 

 

Section 3.21   Employment Matters.

 

(a)   Section 3.21(a) of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants of the Company as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full or part time); (iii) hire date; (iv) current annual base compensation rate; (v) commission, bonus or other incentive-based compensation; and (vi) a description of the fringe benefits provided to each such individual as of the date hereof. As of the date hereof, all compensation, including wages, commissions and bonuses, payable to all employees, independent contractors or consultants of the Company for services performed on or prior to the date hereof have been paid in full (or accrued in full on the audited balance sheet contained in the Closing Net Working Capital Statement) and there are no outstanding agreements, understandings or commitments of the Company with respect to any compensation, commissions or bonuses.

 

(b)   The Company is not, and has not been for the past five (5) years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “ Union ”), and there is not, and has not been for the past five (5) years, any Union representing or purporting to represent any employee of the Company, and, to the Company’s Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. There has never been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting the Company or any of its employees. The Company has no duty to bargain with any Union.

 

(c)   The Company is and has been in compliance in all material respects with all applicable Laws pertaining to employment and employment practices to the extent they relate to employees of the Company, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence and unemployment insurance. All individuals characterized and treated by the Company as independent contractors or consultants are properly treated as independent contractors under all applicable Laws. All employees of the Company classified as exempt under the Fair Labor Standards Act and state and local wage and hour laws are properly classified. Except as set forth in Section 3.21(c) , there are no Actions against the Company pending, or to the Company’s Knowledge, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Company, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wage and hours or any other employment-related matter arising under applicable Laws.

 

(d)   The Company has complied in all material respects with the WARN Act, and it has no plans to undertake any action before the closing contemplated hereby that would trigger the WARN Act.

 

(e)   The Company has not Contracts with any Governmental Entity that would cause it to be subject to Executive Order No. 11246 of 1965 (“ E.O. 11246 ”), Section 503 of the Rehabilitation Act of 1973 (“ Section 503 ”) or the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“ VEVRAA ”), including all implementing regulations.

 

(f)   Except as set forth in Section 3.21(f) of the Disclosure Schedules, the Company has not entered into employment contracts with any employee.

 

Section 3.22   Taxes. Except as set forth in Section 3.22 of the Disclosure Schedules:

 

(a)   All Tax Returns required to be filed on or before the Closing Date by the Company have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all respects. All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been, or will be, timely paid.

 

(b)   The Company has withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder or other party, and complied with all information reporting and backup withholding provisions of applicable Law.

 

(c)   No claim has been made by any taxing authority in any jurisdiction where the Company does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction.

 

(d)   No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of the Company.

 

(e)   The amount of the Company’s Liability for unpaid Taxes for all periods ending on or before June 30, 2014 does not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) reflected on the Financial Statements. The amount of the Company’s Liability for unpaid Taxes for all periods following the end of the recent period covered by the Financial Statements shall not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) as adjusted for the passage of time in accordance with the past custom and practice of the Company (and which accruals shall not exceed comparable amounts incurred in similar periods in prior years).

 

(f)   Section 3.22(f) of the Disclosure Schedules sets forth:

 

(i)   the taxable years of the Company as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired;

 

(ii)   those years for which examinations by the taxing authorities have been completed; and

 

(iii)   those taxable years for which examinations by taxing authorities are presently being conducted.

 

(g)   All deficiencies asserted, or assessments made, against the Company as a result of any examinations by any taxing authority have been fully paid.

 

(h)   The Company is not a party to any Action by any taxing authority. There are no pending or threatened Actions by any taxing authority.

 

                 (i)   The Company has delivered to Parent copies of all federal, state, and local income, franchise and similar Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by, the Company for all Tax periods ending after December 31, 2009.

 

                (j)   There are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company.

 

(k)   The Company is not a party to, or bound by, any Tax indemnity, Tax sharing or Tax allocation agreement.

 

(l)   No private letter rulings, technical advice memoranda or similar agreement or rulings have been requested, entered into or issued by any taxing authority with respect to the Company.

 

(m)   The Company has not been a member of an affiliated, combined, consolidated or unitary Tax group for Tax purposes. The Company has no Liability for Taxes of any Person (other than the Company) under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), as transferee or successor, by contract or otherwise.

 

(n)   The Company will not be required to include any item of income in, or exclude any item or deduction from, taxable income for taxable period or portion thereof ending after the Closing Date as a result of:

 

(i)   any change in a method of accounting under Section 481 of the Code (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or prior to the Closing Date;

 

(ii)   an installment sale or open transaction occurring on or prior to the Closing Date;

 

(iii)   a prepaid amount received on or before the Closing Date;

 

(iv)   any closing agreement under Section 7121 of the Code, or similar provision of state, local or foreign Law; or

 

(v)   any election under Section 108(i) of the Code.

 

 

 

(o)   The Company is not, nor has it been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(a) of the Code.

 

(p)   The Company has not been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the Code.

 

(q)   The Company is not, and has not been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011 4(b).

 

(r)    The Company has not entered into a gain recognition agreement pursuant to Treasury Regulations Section 1.367(a)-8. The Company has not transferred an intangible the transfer of which would be subject to the rules of Section 367(d) of the Code.

 

Section 3.23   Books and Records. The minute books and stock record books of the Company, all of which have been made available to Parent, are complete and correct and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings, and actions taken by written consent of, the Stockholders, the Company Board and any committees of the Company Board, and no meeting, or action taken by written consent, of any such Stockholders, Company Board or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.

 

Section 3.24   Related Party Transactions. No executive officer or director of the Company or any person owning 5% or of the Shares (or any of such person’s immediate family members or Affiliates or associates) is a party to any Contract with or binding upon the Company or any of its assets, rights or properties or has any interest in any property owned by the Company or has engaged in any transaction with any of the foregoing within the last twelve (12) months.

 

Section 3.25   Private Offering . No form of general solicitation or general advertising was used by the Company, any Stockholder or any Affiliate of the Company or any Stockholder, or their respective representatives in connection with the offer or sale of the Shares.   No registration of the Shares pursuant to the provisions of the Securities Act of 1933, as amended (the “ Securities Act ”) or any state securities or “blue sky” laws will be required for the offer, sale or issuance of the Shares by the Company pursuant to this Agreement.

 

Section 3.26   Investment Intent .  The Stockholders and the Optionholders are acquiring the shares of Parent Common Stock allocated to them for their own accounts and not with a view to the distribution of those shares of Parent Common Stock within the meaning of Section 2(11) of the Securities Act.

 

Section 3.27   Brokers. Except for Q Advisors, no broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of the Company.

 

 

 

                            ARTICLE IV                                

Representations and Warranties of Parent and Merger Sub

 

 

 Parent and Merger Sub represent and warrant to the Company that the statements contained in this Article IV are true and correct as of the date hereof.

 

Section 4.01   Organization and Authority of Parent and Merger Sub. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation. Each of Parent and Merger Sub has full corporate power and authority to enter into and perform its obligations under this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Parent and Merger Sub of this Agreement and any Ancillary Document to which they are a party and the consummation by Parent and Merger Sub of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Parent and Merger Sub and no other corporate proceedings on the part of Parent and Merger Sub are necessary to authorize the execution, delivery and performance of this Agreement or to consummate the Merger and the other transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by Parent and Merger Sub, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid and binding obligation of Parent and Merger Sub enforceable against Parent and Merger Sub in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general applicability relating to or affecting the enforcement of creditor’s rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained herein may be limited by applicable federal and state securities laws. When each Ancillary Document to which Parent or Merger Sub is or will be a party has been duly executed and delivered by Parent or Merger Sub (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Parent or Merger Sub enforceable against it in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general applicability relating to or affecting the enforcement of creditor’s rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained herein may be limited by applicable federal and state securities laws.

 

Section 4.02   No Conflicts; Consents. The execution, delivery and performance by Parent and Merger Sub of this Agreement and the Ancillary Documents to which they are a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of Parent or Merger Sub; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Parent or Merger Sub; or (c) except for the approval of Parent’s senior lenders which will be obtained prior to closing, require the consent, notice or other action by any Person under any Contract to which Parent or Merger Sub is a party. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Parent or Merger Sub in connection with the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for the filing of the Certificate of Merger with the Secretary of State of Delaware,, the receipt of the approval of any state regulatory commissions and the FCC, and such filings, if any, as may be required under the HSR Act.

 

 

Section 4.03   No Prior Merger Sub Operations. Merger Sub was formed solely for the purpose of effecting the Merger and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby.

 

Section 4.04   Brokers. No broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of Parent or Merger Sub.

 

Section 4.05   Legal Proceedings. There are no Actions pending or, to Parent’s or Merger Sub’s knowledge, threatened against or by Parent, Merger Sub or any of their respective Affiliates that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise or serve as a basis for any such Action.

 

Section 4.06   Parent Common Stock.   The shares of Parent Common Stock to be issued to the Shareholders and the Optionholders pursuant to the terms of this Agreement have been duly authorized, and when issued in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable, and will not be issued in violation of the preemptive or similar rights of any stockholder.

 

Section 4.07   Investment Intent .                                The Parent is acquiring all of the shares of the Company for its own accounts and not with a view to the distribution of those shares of those shares within the meaning of Section 2(11) of the Securities Act.

 

Section 4.08   SEC Filings .   Parent has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and accordingly, files quarterly, annual and current reports and other information with the SEC under the Exchange Act (such reports and information filed by Parent with the SEC for the preceding 12 months being hereinafter referred to as the “ SEC Reports ”). Fusion has filed all reports required to be filed by it under the Exchange Act and the SEC Reports do not contain a misstatement of a material fact, omit to state a material fact or omit to state any fact necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading.

 

 

Section 4 .09                        Financial Capability.   Parent has sufficient cash on hand to be able to fund the cash portion of the Purchase Price at Closing without having to consummate any form of third party financing.

 

 

                              ARTICLE V                                

Covenants

 

Section 5.01   Conduct of Business Prior to the Closing. From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by Parent (which consent shall not be unreasonably withheld or delayed), the Company shall (x) conduct the business of the Company in the ordinary course of business consistent with past practice; and (y) use all commercially reasonable  efforts to maintain and preserve intact the current organization, business and franchise of the Company and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with the Company. Without limiting the foregoing, from the date hereof until the Closing Date, the Company shall:

 

(a)   preserve and maintain all of its Permits;

 

(b)   issue, redeem or repurchase any equity or debt securities;

 

(c)   pay its debts, Taxes and other obligations when due;

 

(d)   maintain the properties and assets owned, operated or used by it in the same condition as they were on the date of this Agreement, subject to reasonable wear and tear;

 

(e)   continue in full force and effect without modification all Insurance Policies, except as required by applicable Law;

 

(f)   defend and protect its properties and assets from infringement or usurpation;

 

(g)   perform all of its obligations in good faith under all Contracts relating to or affecting its properties, assets or business;

 

(h)   maintain its books and records in accordance with past practice;

 

(i)   comply in all material respects with all applicable Laws; and

 

(j)   not take or permit any action that would cause any of the changes, events or conditions described in Section 3.08 to occur.

 

Section 5.02   Access to Information.

 

(a)   From the date hereof until the Closing, the Company shall (a) afford Parent and its Representatives full and free access to and the right to inspect all of the Real Property, properties, assets, premises, books and records, Contracts and other documents and data related to the Company; (b) furnish Parent and its Representatives with such financial, operating and other data and information related to the Company as Parent or any of its Representatives may reasonably request; and (c) instruct the Representatives of the Company to cooperate with Parent in its investigation of the Company.  Any investigation pursuant to this Section 5.02 shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the Company.  No investigation by Parent or other information received by Parent shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by the Company in this Agreement.

 

(b)   Parent and the Company shall comply with, and shall cause their respective Representatives to comply with, all of their respective obligations under the confidentiality provisions of Section 5 of the Letter of Intent dated as of June 20, 2014 among Parent, the Company and the Majority Stockholders  (the “ Confidentiality Agreement ”), which provisions are incorporated herein and that shall survive the termination of this Agreement.

 

Section 5.03   No Solicitation of Other Bids.

 

(a)   The Company shall not, and shall not authorize or permit any of its Affiliates or any of its or their Representatives to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. The Company shall immediately cease and cause to be terminated, and shall cause its Affiliates and all of its and their Representatives to immediately cease and cause to be terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could lead to, an Acquisition Proposal. For purposes hereof, “ Acquisition Proposal ” shall mean any inquiry, proposal or offer from any Person (other than Parent or any of its Affiliates) concerning (i) a merger, consolidation, liquidation, recapitalization, share exchange or other business combination transaction involving the Company; (ii) the issuance or acquisition of shares of capital stock or other equity securities of the Company; or (iii) the sale, lease, exchange or other disposition of any significant portion of the Company’s properties or assets.

 

(b)   In addition to the other obligations under this Section 5.03 , the Company shall promptly (and in any event within three (3) Business Days after receipt thereof by the Company or its Representatives) advise Parent orally and in writing of any Acquisition Proposal, any request for information with respect to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an Acquisition Proposal, the material terms and conditions of such request, Acquisition Proposal or inquiry, and the identity of the Person making the same.

 

(c)   The Company agrees that the rights and remedies for noncompliance with this Section 5.03 shall include having such provision specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Parent and that money damages would not provide an adequate remedy to Parent.

 

 

Section 5.04   Stockholders Consent.

 

(a)   Taking into account the covenants of the Majority Shareholders set forth in Section 10.15, the Company shall use its reasonable best efforts to obtain, within five (5) calendar days following the execution and delivery of this Agreement, the necessary consent of holders of Company Series A Convertible Preferred Stock to convert all such stock into Company Common Stock.  The Company shall also use its reasonable best efforts to obtain, within five (5) days following the execution and delivery of this Agreement, the Requisite Company Vote pursuant to written consents of the Stockholders listed on Section 5.04 of the Disclosure Schedules in the form attached hereto as Exhibit E (the “ Written Consent ”). The materials submitted to such Stockholders in connection with the Written Consent shall include the Company Board Recommendation. Promptly following receipt of the Written Consent, the Company shall deliver a copy of such Written Consent to Parent.

 

(b)   The Letter of Transmittal shall contain a notice  (the “ Stockholder Notice ”) to every Stockholder that shall (i) include a statement to the effect that the Company Board determined that the Merger is advisable in accordance with Section 251(b) of the DGCL and in the best interests of the Stockholders and  approved and adopted this Agreement, the Merger and the other transactions contemplated hereby, (ii) provide the Stockholders to whom it is sent with notice of the actions taken in the Written Consent, including the approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby in accordance with Section 228(e) of the DGCL and the bylaws of the Company and (iii) notify such Stockholders of their dissent and appraisal rights pursuant to Section 262 of the DGCL. The Stockholder Notice shall include therewith a copy of Section 262 of Delaware Law and all such other information as Parent shall reasonably request, and shall be sufficient in form and substance to start the twenty (20) day period during which a Stockholder must demand appraisal of such Stockholder’s Common Stock as contemplated by Section 262(d)(2) of the DGCL. All materials submitted to the Stockholders in accordance with this Section 5.04(b) shall be subject to Parent’s advance review and reasonable approval.

 

Section 5.05   Notice of Certain Events; Discussion of Material Operational Decisions.

 

(a)   From the date hereof until the Closing, the Company shall promptly notify Parent in writing of:

 

(i)   any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by the Company hereunder not being true and correct or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 7.02 to be satisfied;

 

(ii)   any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

 

 

(iii)   any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

 

(iv)   any Actions commenced or, to the Company’s Knowledge, threatened against, relating to or involving or otherwise affecting the Company that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.17 or that relates to the consummation of the transactions contemplated by this Agreement.

 

(b)   Parent’s receipt of information pursuant to this Section 5.05 shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by the Company in this Agreement (including Section 8.02 and Section 9.01(b) ) and shall not be deemed to amend or supplement the Disclosure Schedules.

 

(c)   From the date hereof until the Closing, the Company agrees to (x) discuss with Parent all material operational decisions relating to the operation of the Company’s business, and (ii) consider the advice and recommendations of Parent with respect to all such decisions.

 

Section 5.06   Resignations. The Company shall deliver to Parent written resignations, effective as of the Closing Date, of the officers and directors of the Company set forth on Section 5.06 of the Disclosure Schedules at least three (3) Business Days prior to the Closing.

 

Section 5.07   Governmental Approvals and Consents

 

(a)   Each party hereto shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions (including those under the HSR Ac, if applicable and required by the FCC and any state regulatory authority) required under any Law applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant to this Agreement and the Ancillary Documents. Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals.

 

(b)   The Company and Parent shall use all commercially reasonable efforts to give all notices to, and obtain all consents from, all third parties that are described in Section 3.02 and Section 4.02 of the Disclosure Schedules.

 

(c)   Without limiting the generality of the parties’ undertakings pursuant to subsections (a) and (b) above, each of the parties hereto shall use all commercially reasonable efforts to:

 

(i)   respond to any inquiries by any Governmental Authority  with respect to the transactions contemplated by this Agreement or any Ancillary Document;

 

(ii)   avoid the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by this Agreement or any Ancillary Document; and

 

 

(iii)   in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement or any Ancillary Document has been issued, to have such Governmental Order vacated or lifted.

 

(d)   All analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals made by or on behalf of either party before any Governmental Authority or the staff or regulators of any Governmental Authority, in connection with the transactions contemplated hereunder (but, for the avoidance of doubt, not including any interactions between the Company and Governmental Authorities in the ordinary course of business, any disclosure which is not permitted by Law or any disclosure containing confidential information) shall be disclosed to the other party hereunder in advance of any filing, submission or attendance, it being the intent that the parties will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals. Each party shall give notice to the other party with respect to any meeting, discussion, appearance or contact with any Governmental Authority or the staff or regulators of any Governmental Authority, with such notice being sufficient to provide the other party with the opportunity to attend and participate in such meeting, discussion, appearance or contact.

 

(e)   Notwithstanding the foregoing, nothing in this Section 5.07 shall require, or be construed to require, Parent or any of its Affiliates to agree to (i) sell, hold, divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of Parent, the Company or any of their respective Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets, businesses or interests which, in either case, could reasonably be expected to result in a Material Adverse Effect or materially and adversely impact the economic or business benefits to Parent of the transactions contemplated by this Agreement; or (iii) any material modification or waiver of the terms and conditions of this Agreement

 

Section 5.08   Organizational Integration .  From the date of this Agreement and until the Closing, the parties shall work together in good faith to develop effective plans for the integration of the Company with the operations of Parent and its subsidiary (the “ Integration Plan ”), which Integration Plan shall not be implemented until Closing, unless otherwise agreed to by the parties.  Furthermore, the Integration Plan shall be considered Confidential Information within the meaning of Section 5.2(b) above. Parent shall advise the Company at least fifteen (15) days prior to Closing of any employee(s) of the Business who are not included in the Integration Plan and who, therefore, will not be retained following Closing. Nothing in the foregoing shall guarantee any employee of the Company continued employment following the Closing, and Parent reserve the right to make all decisions affecting personnel of the Company form and after the Closing.

 

Section 5.09   Closing Conditions . From the date hereof until the Closing, each party hereto shall use all commercially reasonable efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in Article VII hereof.

 

Section 5.10   Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements (based upon the reasonable advice of counsel), no party to this Agreement shall make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed), and the parties shall cooperate as to the timing and contents of any such announcement.

 

Section 5.11   Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and behalf of the Company or Merger Sub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Merger Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of the Company acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger.

 

 

 

                                ARTICLE VI                                

Tax Matters

 

Section 6.01   Tax Covenants.

 

(a)   Without the prior written consent of Parent, prior to the Closing the Company, its Representatives and the Stockholders shall not make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Parent or the Surviving Corporation in respect of any Post-Closing Tax Period. The Company agrees that Parent is to have no liability for any Tax resulting from any action of the Company, any of its Representatives or the Stockholders. The Stockholders and the Optionholders shall, severally and not jointly (in accordance with their Pro Rata Shares), indemnify and hold harmless Parent against any such Tax or reduction of any Tax asset.

 

(b)   All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the Ancillary Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid by the Stockholders and the Optionholders when due. The Stockholder Representative shall timely file any Tax Return or other document with respect to such Taxes or fees (and Parent shall cooperate with respect thereto as necessary).

 

Section 6.02   Termination of Existing Tax Sharing Agreements. Any and all existing Tax sharing agreements (whether written or not) binding upon the Company shall be terminated as of the Closing Date. After such date neither the Company nor any of its Representatives shall have any further rights or liabilities thereunder.

 

Section 6.03   Tax Indemnification. Except to the extent treated as a liability in the calculation of Closing Net Working Capital, the Stockholders and the Optionholders shall, severally and not jointly (in accordance with their Pro Rata Shares), indemnify the Company, Parent, and each Parent Indemnitee and hold them harmless from and against (a) any Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 3.22 ; (b) any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in Article VI ; (c) all Taxes of the Company or relating to the business of the Company for all Pre-Closing Tax Periods; (d) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of  state or local Law; and (e) any and all Taxes of any person imposed on the Company arising under the principles of transferee or successor liability or by contract, relating to an event or transaction occurring before the Closing Date. In each of the above cases, together with any out-of-pocket fees and expenses (including reasonable attorneys’ and accountants’ fees) incurred in connection therewith, the Stockholders and the Optionholders shall, severally and not jointly (in accordance with their Pro Rata Shares), reimburse Parent for any Taxes of the Company that are the responsibility of the Stockholders and the Optionholders pursuant to this Section 6.03 within ten Business Days after payment of such Taxes by Parent or the Company.

 

Section 6.04   Tax Returns.

 

(a)   The Company shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns required to be filed by it that are due on or before the Closing Date (taking into account any extensions), and shall timely pay all Taxes that are due and payable on or before the Closing Date (taking into account any extensions). Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law).

 

(b)   Parent shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns required to be filed by the Company after the Closing Date with respect to a Pre-Closing Tax Period and for any Straddle Period. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and, if it is an income or other material Tax Return, shall be submitted by Parent to the Stockholder Representative (together with schedules, statements and, to the extent requested by the Stockholder Representative, supporting documentation) at least fifteen (15) Business Days prior to the due date (including extensions) of such Tax Return. If the Stockholder Representative objects to any item on any such Tax Return that relates to a Pre-Closing Tax Period, it shall, within five (5)  days after delivery of such Tax Return, notify Parent in writing that it so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If a notice of objection shall be duly delivered, Parent and the Stockholder Representative shall negotiate in good faith and use all commercially reasonable efforts to resolve such items. If Parent and the Stockholder Representative are unable to reach such agreement within ten (10) days after receipt by Parent of such notice, the disputed items shall be resolved by the Independent Accountant and any determination by the Independent Accountant shall be final. The Independent Accountant shall resolve any disputed items within thirty (30) days of having the item referred to it pursuant to such procedures as it may require. If the Independent Accountant is unable to resolve any disputed items before the due date for such Tax Return, the Tax Return shall be filed as prepared by Parent and then amended to reflect the Independent Accountant’s resolution. The costs, fees and expenses of the Independent Accountant shall be borne equally by Parent and the Stockholder Representative. The preparation and filing of any Tax Return of the Company that does not relate to a Pre-Closing Tax Period or Straddle Period shall be exclusively within the control of Parent. Parent shall be entitled to deduct from the Indemnification Escrow Funds (i) Taxes due with respect to any such Tax Return that relate to Pre-Closing Tax Periods, and (ii) Taxes due with respect to any such Tax Return that relate to Straddle Periods that are attributable under Section 6.05 to the portion of such Straddle Period ending on the Closing Date, but only to the extent such Taxes due were not taken into account as liabilities in computing the Closing Net Working Capital.

 

 

Section 6.05   Straddle Period. In the case of Taxes that are payable with respect to a taxable period that begins before and ends after the Closing Date (each such period, a “ Straddle Period ”), the portion of any such Taxes that are treated as Pre-Closing Taxes for purposes of this Agreement shall be:

 

(a)   in the case of Taxes (i) based upon, or related to, income, receipts, profits, wages, capital or net worth, (ii) imposed in connection with the sale, transfer or assignment of property, or (iii) required to be withheld, deemed equal to the amount which would be payable if the taxable year ended with the Closing Date; and

 

(b)   in the case of other Taxes, deemed to be the amount of such Taxes for the entire period multiplied by a fraction the numerator of which is the number of days in the period ending on the Closing Date and the denominator of which is the number of days in the entire period.

 

Section 6.06   Contests. Parent agrees to give written notice to the Stockholder Representative of the receipt of any written notice by the Company, Parent or any of Parent’s Affiliates which involves the assertion of any claim, or the commencement of any Action, in respect of which an indemnity may be sought by Parent pursuant to this Article VI (a “ Tax Claim ”); provided, that failure to comply with this provision shall not affect Parent’s right to indemnification hereunder. Parent shall control the contest or resolution of any Tax Claim; provided, however , that Parent shall obtain the prior written consent of the Stockholder Representative (which consent shall not be unreasonably withheld, conditioned or delayed) before entering into any settlement of a claim or ceasing to defend such claim; and, provided further , that the Stockholder Representative shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose, the fees and expenses of which separate counsel shall be borne solely by the Stockholder Representative.

 

Section 6.07   Cooperation and Exchange of Information. The Stockholder Representative, the Company and Parent shall provide each other with such cooperation and information as either of them reasonably may request of the others in filing any Tax Return pursuant to this Article VI or in connection with any audit or other proceeding in respect of Taxes of the Company. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by tax authorities. Each of the Stockholder Representative, the Company and Parent shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by any of the other parties in writing of such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for any taxable period beginning before the Closing Date, the Stockholder Representative, the Company or Parent (as the case may be) shall provide the other parties with reasonable written notice and offer the other parties the opportunity to take custody of such materials.

 

 

Section 6.08   Tax Treatment of Indemnification Payments. Any indemnification payments pursuant to this Article VI shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.

 

Section 6.09   Payments to Parent . Any amounts payable to Parent pursuant to this Article VI shall be satisfied:  (i) from the Indemnification Escrow Fund; and (ii) to the extent such amounts exceed the amount available to Parent in the Indemnification Escrow Fund, from the Stockholders and Optionholders, severally and not jointly (in accordance with their Pro Rata Shares).

 

Section 6.10   FIRPTA Statement. On the Closing Date, the Company shall deliver to Parent a certificate, dated as of the Closing Date, certifying to the effect that no interest in the Company is a U.S. real property interest (such certificate in the form required by Treasury Regulation Section 1.897-2(h) and 1.1445-3(c)) (the “ FIPRTA Statement ”).

 

Section 6.11   Survival. Notwithstanding anything in this Agreement to the contrary, the provisions of Section 3.22 and this Article VI shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 60 days.

 

Section 6.12   Overlap. To the extent that any obligation or responsibility pursuant to Article VIII may overlap with an obligation or responsibility pursuant to this Article VI , the provisions of this Article VI shall govern.

 

 

 

                         Section 7.01   Conditions to Obligations of All Parties. The obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

 

(a)   This Agreement shall have been duly adopted by the Requisite Company Vote.

 

(b)   No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect and has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.

 

(c)   The Company shall have received all consents, authorizations, orders and approvals from the Governmental Authorities, if any,  referred to in Section 3.02 and Parent shall have received all consents, authorizations, orders and approvals from the Governmental Authorities, if any, referred to in Section 4.02 , in each case, in form and substance reasonably satisfactory to Parent and the Company, and no such consent, authorization, order and approval shall have been revoked.

 

Section 7.02   Conditions to Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Parent’s waiver, at or prior to the Closing, of each of the following conditions:

 

(a)   Other than the representations and warranties of the Company contained in Section 3.01 , Section 3.02(a) , Section 3.04 , Section 3.06 and Section 3.25 , the representations and warranties of the Company contained in this Agreement, the Ancillary Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects). The representations and warranties of the Company contained in Section 3.01 , Section 3.02(a) , Section 3.04 , Section 3.06 and Section 3.25 shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

 

(b)   The Company shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date.

 

(c)   No Action shall have been commenced against Parent, Merger Sub or the Company, which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.

 

(d)   All approvals, consents and waivers that are listed on Section 3.02 of the Disclosure Schedules shall have been received, and executed counterparts thereof shall have been delivered to Parent at or prior to the Closing.

 

(e)   The Company shall have delivered each of the closing deliverables set forth in Section 2.03(a) .

 

(f)   All outstanding shares of Company Class B Common Stock and Company Series A Convertible Preferred Stock shall have been converted into Company Common Stock..

 

Section 7.03   Conditions to Obligations of the Company. The obligations of the Company and the Stockholders to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or the Company’s waiver, at or prior to the Closing, of each of the following conditions:

 

(a)   Other than the representations and warranties of Parent and Merger Sub contained in Section 4.01 and Section 4.04 , the representations and warranties of Parent and Merger Sub contained in this Agreement, the Ancillary Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects). The representations and warranties of Parent and Merger Sub contained in Section 4.01 and Section 4.04 shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date.

 

(b)   Parent and Merger Sub shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by them prior to or on the Closing Date.

 

(c)   No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any material transaction contemplated hereby.

 

(d)   All approvals, consents and waivers that are listed on Section 4.02 of the Disclosure Schedules shall have been received, and executed counterparts thereof shall have been delivered to the Company at or prior to the Closing.

 

(e)   Parent shall have delivered each of the closing deliverables set forth in Section 2.03(b) .

 

 

 

                             ARTICLE VIII                                

Indemnification

 

Section 8.01   Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein (other than any representations or warranties contained in Section 3.22 which are subject to Article VI ) shall survive the Closing and shall remain in full force and effect until the date that is one year from the Closing Date; provided, that the representations and warranties in (a) Section 3.01 , Section 3.02(a) , Section 3.04 , Section 3.25 , Section 4.01 and Section 4.04 shall survive indefinitely, (b) Section 3.19 shall survive for a period of five (5) years after the Closing, and (c) Section 3.20 shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 60 days. All covenants and agreements of the parties contained herein (other than any covenants or agreements contained in Article VI which are subject to Article VI ) shall survive the Closing for the applicable statute of limitations or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the Indemnified Party to the Indemnifying Party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

 

Section 8.02   Indemnification By Stockholders And Optionholders. Subject to the other terms and conditions of this Article VIII , each of the Stockholders and Optionholders by virtue of executing the Letter of Transmittal or Option Termination Agreement, as the case may be, shall agree, severally and not jointly (in accordance with their Pro Rata Shares), to indemnify and defend each of Parent and its Affiliates (including the Company) and their respective Representatives (collectively, the “ Parent Indemnitees ”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Parent Indemnitees based upon, arising out of, with respect to or by reason of:

 

(a)   any inaccuracy in or breach of any of the representations or warranties of the Company contained in this Agreement or in any certificate or instrument delivered by or on behalf of the Company pursuant to this Agreement (other than in respect of Section 3.22 , it being understood that the sole remedy for any such inaccuracy in or breach thereof shall be pursuant to Article VI ), as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date); and

 

(b)   any breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Company pursuant to this Agreement (other than any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in Article VI , it being understood that the sole remedy for any such breach, violation or failure shall be pursuant to Article VI ).

 

Section 8.03   Indemnification By Parent. Subject to the other terms and conditions of this Article VIII , Parent shall indemnify and defend each of the Stockholders and Optionholders and their Affiliates and their respective Representatives (collectively, the “ Stockholder Indemnitees ”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Stockholder Indemnitees based upon, arising out of, with respect to or by reason of:

 

(a)   any inaccuracy in or breach of any of the representations or warranties of Parent and Merger Sub contained in this Agreement or in any certificate or instrument delivered by or on behalf of Parent or Merger Sub pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date); or

 

(b)   any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Parent or Merger Sub pursuant to this Agreement (other than Article VI , it being understood that the sole remedy for any such breach thereof shall be pursuant to Article VI ).

 

 

Section 8.04   Certain Limitations. The indemnification provided for in Section 8.02 and Section 8.03 shall be subject to the following limitations:

 

(a)   Stockholders and Optionholders shall not be liable to the Parent Indemnitees for indemnification under Section 8.02(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.02(a) exceeds $150,000.00  (the “ Basket ”), in which event Stockholders and Optionholders shall be required to pay or be liable for all such Losses from the first dollar.  The aggregate amount of all Losses for which any Stockholder or Optionholder shall be liable pursuant to Section 8.02 (a) shall not exceed twenty five percent (25%) of the overall consideration received by such Stockholder or Optionholder except in the case of a Loss resulting from the Company’s failure to pay any Taxes in which case it is not subject to the foregoing cap.

 

(b)   Parent shall not be liable to the Stockholder Indemnitees for indemnification under Section 8.03(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.03(a) exceeds the Basket, in which event Parent shall be required to pay or be liable for all such Losses from the first dollar. The aggregate amount of all Losses for which Parent shall be liable pursuant to Section 8.03(a) shall not exceed $5.0 million.

 

(c)   Notwithstanding the foregoing, the limitations set forth in Section 8.04(a) and Section 8.04(b) shall not apply to Losses based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any representation or warranty in Section 3.01 , Section 3.02(a) , Section 3.04 , Section 3.19 , Section 3.20 , Section 3.25 , Section 4.01, Section 4.04 and Section 4.06 . Notwithstanding anything to the contrary in this Article VIII or Article VI , in no event shall any Stockholder or Optionholder have a liability for Losses in excess of the consideration received by such Stockholder or Optionholder.

 

(d)   For purposes of this Article VIII , any inaccuracy in or breach of any representation or warranty shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty.

 

 

Section 8.05   Indemnification Procedures. The party making a claim under this Article VIII is referred to as the “ Indemnified Party ”, and the party against whom such claims are asserted under this Article VIII is referred to as the “ Indemnifying Party ”. For purposes of this Article VIII , (i) if Parent (or any other Parent Indemnitee) comprises the Indemnified Party, any references to Indemnifying Party (except provisions relating to an obligation to make payments) shall be deemed to refer to Stockholder Representative, and (ii) if Parent comprises the Indemnifying Party, any references to the Indemnified Party shall be deemed to refer to Stockholder Representative. Any payment received by Stockholder Representative as the Indemnified Party shall be distributed to the Stockholders and Optionholders in accordance with this Agreement.

 

(a)   Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “ Third Party Claim ”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, that if the Indemnifying Party is a Stockholder or Optionholder, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that (x) is asserted directly by or on behalf of a Person that is a supplier or customer of the Company, or (y) seeks an injunction or other equitable relief against the Indemnified Parties. In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 8.05(b) , it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 8.05(b) , pay, compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. Stockholder Representative and Parent shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.

 

 

(b)   Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8.05(b) . If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten (10) days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 8.05(a) , it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).

 

(c)   Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “ Direct Claim ”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Company’s premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

 

(d)   Tax Claims. Notwithstanding any other provision of this Agreement, the control of any claim, assertion, event or proceeding in respect of Taxes of the Company (including, but not limited to, any such claim in respect of a breach of the representations and warranties in Section 3.22 hereof or any breach or violation of or failure to fully perform any covenant, agreement, undertaking or obligation in Article VI ) shall be governed exclusively by Article VI hereof but subject to the limitation set forth in the last sentence of Section 8.04(c) and the provisions of Sections 8.06 .

 

Section 8.06   Payments; Indemnification Escrow Fund.

 

(a)   Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Article VIII , the Indemnifying Party shall satisfy its obligations within ten (10) Business Days of such final, non-appealable adjudication by wire transfer of immediately available funds. The parties hereto agree that should an Indemnifying Party not make full payment of any such obligations within such ten (10) Business Day period, any amount payable shall accrue interest from and including the date of agreement of the Indemnifying Party or final, non-appealable adjudication to and including the date such payment has been made at a rate per annum equal to one and one half percent (1.5%) per month. Such interest shall be calculated daily on the basis of a 365 day year and the actual number of days elapsed.

 

(b)   Any Losses payable to a Parent Indemnitee pursuant to Article VIII shall be satisfied: (i) from the Indemnification Escrow Fund; and (ii) to the extent the amount of Losses exceeds the amounts available to the Parent Indemnitee in the Indemnification Escrow Fund, from the Stockholders and Optionholders, severally and not jointly (in accordance with their Pro Rata Shares).  In connection with any Loss being satisfied from the Indemnification Escrow Fund, such Loss (other than a Loss arising under Articles VI with respect to Taxes which shall be satisfied first from the cash portion of the Escrow Fund and then from the escrowed Parent Common Stock) shall be satisfied proportionately in cash and Parent Common Stock held in such Indemnification Escrow Fund.  For purposes of determining the number of shares of Parent Common Stock to satisfy any obligation for a Loss, the price per share of Parent Common Stock used to determine the number of shares of Parent Common Stock issued at the time of Closing shall be deemed the price per share of Parent Common Stock for purposes of any claim made to the Indemnification Escrow Fund.

 

(c)   With respect to any Taxes that are subject to indemnification under Section 8.02 (a) , Parent, after the Closing, shall provide the Stockholder Representative with periodic reports (no less frequent than quarterly) of the status of any negotiations, settlements, voluntary filings, assessments or similar actions with any taxing authority (including copies of correspondence with such taxing authorities) that would result in any indemnification for Taxes under Section 8.02(a) and shall use diligent and reasonable efforts to minimize any such Taxe obligations.  The Stockholder Representative shall have the right, at any time, to retain a third party consultant (whose expenses must be preapproved by Parent and shall be paid out of the Indemnification Escrow Amount), to provide advice to the Stockholder Representative regarding the foregoing.

 

(d)   Upon the termination of the Indemnification Escrow Fund on the date that is twelve (12) months after the Closing (which date  will be extended for an additional six (6) months by the Stockholder Representative if Parent is engaged in good faith settlement discussions with state and local taxing authorities to resolve the Company’s historical Tax liabilities), the Escrow Agent shall pay any amounts of cash remaining in the Indemnification Escrow Fund to the Stockholders and Optionholders and any remaining shares of Parent Common Stock to the Stockholders as set forth in the Consideration Spreadsheet set forth in Section 2.18 .  If the Indemnification Escrow Fund is extended for an additional six (6) months as referenced above, it shall be extended solely for the purpose of any Losses relating to the non-payment of Taxes under Article VI and Parent shall not be entitled to make claims to such Indemnification Escrow Fund during the extension period for any other type of Loss.

 

Section 8.07   Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.

 

Section 8.08   Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate or by reason of the Indemnified Party’s waiver of any condition set forth in Section 7.02 or Section 7.03 , as the case may be.

 

Section 8.09   Exclusive Remedies. Subject to Section 10.12 , the parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in Article VI and this Article VIII . In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in Article VI and this Article VIII . Nothing in this Section 8.09 shall limit any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s fraudulent, criminal or intentional misconduct.

 

 

 

                          ARTICLE IX                           

  Termination

 

Section 9.01   Termination. This Agreement may be terminated at any time prior to the Closing:

 

(a)   by the mutual written consent of the Company and Parent;

 

(b)   by Parent by written notice to the Company if:

 

(i)   neither Parent nor Merger Sub is then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by the Company pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VII and such breach, inaccuracy or failure has not been cured by the Company within ten (10) days of the Company’s receipt of written notice of such breach from Parent; or

 

(ii)   if Closing has not occurred on or before October 31, 2014 (due to any of the conditions set forth in Section 7.01 or Section 7.02 not having been satisfied or otherwise), unless such failure to close or satisfy any condition shall be due to the failure of Parent to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

 

(c)   by the Company by written notice to Parent if:

 

(i)   the Company is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Parent or Merger Sub pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VII and such breach, inaccuracy or failure has not been cured by Parent or Merger Sub within ten (10)  days of Parent’s or Merger Sub’s receipt of written notice of such breach from the Company; or

 

(ii)   if Closing has not occurred on or before October 31, 2014 (whether due to any of the conditions set forth in Section 7.01 or Section 7.03 not having been satisfied or otherwise), unless such failure to close or satisfy any condition shall be due to the failure of the Company to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing in which case the date will automatically be extended for an additional ten (10) days; or

 

(d)   by Parent or the Company if:

 

(i)   there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable; or

 

(ii)   if within sixty (60) days following the execution and delivery of this Agreement by all of the parties hereto, the Company shall not have delivered to Parent a copy of the executed Written Consent evidencing receipt of the Requisite Company Vote.

 

Section 9.02   Effect of Termination. In the event of the termination of this Agreement in accordance with this Article, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except:

 

(a)   as set forth in this Article IX , Section 5.02(b) and Article X hereof; and

 

(b)   that nothing herein shall relieve any party hereto from liability for any willful breach of any provision hereof.

 

 

 

                             ARTICLE X                               

Miscellaneous

 

Section 10.01   Stockholder Representative.

 

(a)   By approving this Agreement and the transactions contemplated hereby or by executing and delivering a Letter of Transmittal or an Option Termination Agreement, each Stockholder or Optionholder, as the case may be, shall have irrevocably authorized and appointed Stockholder Representative as such Person’s representative and attorney-in-fact to act on behalf of such Person with respect to this Agreement and the Escrow Agreement and to take any and all actions and make any decisions required or permitted to be taken by the Stockholder Representative pursuant to this Agreement or the Escrow Agreement, including the exercise of the power to:

 

(i)   give and receive notices and communications;

 

(ii)   authorize delivery to Parent of cash from the Indemnification Escrow Fund in satisfaction of claims for indemnification made by Parent pursuant to Article VI and Article VIII ;

 

(iii)   agree to, negotiate, enter into settlements and compromises of, and comply with orders or otherwise handle any other matters described in Section 2.17 ;

 

(iv)   agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to claims for indemnification made by Parent pursuant to Article VI and Article VIII ;

 

(v)   litigate, arbitrate, resolve, settle or compromise any claim for indemnification pursuant to Article VI and Article VIII ;

 

(vi)   execute and deliver all documents necessary or desirable to carry out the intent of this Agreement and any Ancillary Document (including the Escrow Agreement);

 

(vii)   make all elections or decisions contemplated by this Agreement and any Ancillary Document (including the Escrow Agreement);

 

 

(viii)   engage, employ or appoint any agents or representatives (including attorneys, accountants and consultants) to assist the Stockholder Representative in complying with its duties and obligations; and

 

(ix)   take all actions necessary or appropriate in the good faith judgment of the Stockholder Representative for the accomplishment of the foregoing.

 

Parent shall be entitled to deal exclusively with the Stockholder Representative on all matters relating to this Agreement (including Article VIII ) and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Stockholder or Optionholder by the Stockholder Representative, and on any other action taken or purported to be taken on behalf of any Stockholder or Optionholder by the Stockholder Representative, as being fully binding upon such Person. Notices or communications to or from the Stockholder Representative shall constitute notice to or from each of the Stockholders and Optionholders. Any decision or action by Stockholder Representative hereunder, including any agreement between Stockholder Representative and Parent relating to the defense, payment or settlement of any claims for indemnification hereunder, shall constitute a decision or action of all Stockholders and Optionholders and shall be final, binding and conclusive upon each such Person. No Stockholder or Optionholder shall have the right to object to, dissent from, protest or otherwise contest the same. The provisions of this Section, including the power of attorney granted hereby, are independent and severable, are irrevocable and coupled with an interest and shall not be terminated by any act of any one or Stockholders or Optionholders, or by operation of Law, whether by death or other event.

 

(b)   The Stockholder Representative may resign at any time, and may be removed for any reason or no reason by the vote or written consent of a majority in interest of the Stockholders and Optionholders according to each Stockholder’s and Optionholder’s Pro Rata Share (the “ Majority Holders ”); provided, however , in no event shall the Stockholder Representative resign or be removed without the Majority Holders having first appointed a new Stockholder Representative who shall assume such duties immediately upon the resignation or removal of the Stockholder Representative. In the event of the death, incapacity, resignation or removal of the Stockholder Representative, a new Stockholder Representative shall be appointed by the vote or written consent of the Majority Holders. Notice of such vote or a copy of the written consent appointing such new Stockholder Representative shall be sent to Parent, such appointment to be effective upon the later of the date indicated in such consent or the date such notice is received by Parent;  provided, that until such notice is received, Parent, Merger Sub and the Surviving Corporation shall be entitled to rely on the decisions and actions of the prior Stockholder Representative as described in Section 10.01(a) above.

 

(c)   The Stockholder Representative shall not be liable to the Stockholders and Optionholders for actions taken pursuant to this Agreement or the Escrow Agreement, except to the extent such actions shall have been determined by a court of competent jurisdiction to have constituted gross negligence or involved fraud, intentional misconduct or bad faith (it being understood that any act done or omitted pursuant to the advice of counsel, accountants and other professionals and experts retained by the Stockholder Representative shall be conclusive evidence of good faith). The Stockholders and Optionholders shall severally and not jointly (in accordance with their Pro Rata Shares), indemnify and hold harmless the Stockholder Representative from and against, compensate it for, reimburse it for and pay any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorneys’ fees and disbursements, arising out of and in connection with its activities as the Stockholder Representative under this Agreement and the Escrow Agreement (the “ Representative Losses ”), in each case as such Representative Loss is suffered or incurred; provided , that in the event it is finally adjudicated that a Representative Loss or any portion thereof was primarily caused by the gross negligence, fraud, intentional misconduct or bad faith of the Stockholder Representative, the Stockholder Representative shall reimburse the Stockholders and Optionholders the amount of such indemnified Representative Loss attributable to such gross negligence, fraud, intentional misconduct or bad faith.

 

 

Section 10.02   Expenses. Parent, on the one hand, and the Stockholders, on the other hand, shall be separately responsible for their respective costs and expenses in connection with the negotiation, preparation, execution, delivery and performance of the transactions contemplated by the Agreement, and Company shall not incur any liability, directly or indirectly, with respect to such costs and expenses, including, without limitation, financial advisory and legal costs.  Notwithstanding the foregoing, (i) all costs incurred in connection with the financial review to be undertaken by the Company of its unaudited financials (the “ Financial Review ”)shall be borne equally by Parent and Company (the “ Financial Review Costs ”), and (ii) the costs associated with all regulatory filings shall be borne by Parent.

 

Section 10.03   Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d) on the third (3 rd ) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.03 ):

 

 

 

Section 10.04   Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

 

Section 10.05   Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

 

Section 10.06   Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

 

Section 10.07   Entire Agreement. This Agreement and the Ancillary Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the Ancillary Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.

 

Section 10.08   Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder.

 

Section 10.09   No Third-party Beneficiaries. Except as provided in Section 5.08 , Section 6.03 and Article VIII , this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

Section 10.10   Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by Parent, Merger Sub and the Company at any time prior to the Effective Time; provided, however , that after the Requisite Company Vote is obtained, there shall be no amendment or waiver that, pursuant to applicable Law, requires further approval of the Stockholders, without the receipt of such further approvals. Any failure of Parent or Merger Sub, on the one hand, or the Company, on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by the Company (with respect to any failure by Parent or Merger Sub) or by Parent or Merger Sub (with respect to any failure by the Company), respectively, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

 

 

Section 10.11   Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

 

(a)   This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction).

 

(b)   ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF NEW YORK IN EACH CASE LOCATED IN THE CITY OF NEW YORK AND COUNTY OF NEW YORK, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(c)   EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE ANCILLARY DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.10(c).

 

Section 10.12   Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.

 

Section 10.13   Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

Section 10.14   Non-competition; Non-solicitation.

 

(a)   For a period of three years commencing on the Closing Date (the “ Restricted Period ”), each of the Majority Stockholders shall not, and shall not permit any of its Affiliates to, directly or indirectly, (i) engage in or assist others in engaging in the Restricted Business in the Territory; (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, including as a partner, shareholder, member, employee, principal, agent, trustee or consultant; or (iii) intentionally interfere in any material respect with the business relationships (whether formed prior to or after the date of this Agreement) between the Company, Parent or any other subsidiary of Parent and their respective customers and suppliers.

 

(b)   During the Restricted Period, each of the Majority Stockholders shall not, and shall not permit any of its Affiliates to, directly or indirectly, hire or solicit any employee of the Company, Parent or any other subsidiary of Parent or encourage any such employee to leave such employment or hire any such employee who has left such employment.

 

(c)   During the Restricted Period, each of the Majority Stockholders shall not, and shall not permit any of its Affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any clients, potential clients, customers or potential customers of the Company, Parent or any other subsidiary of Parent for purposes of diverting their business or services from the Company.

 

(d)   Each of the Majority Stockholders acknowledges that a breach or threatened breach of this Section 10.14 would give rise to irreparable harm to Parent, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by Majority Stockholder, of any such obligations, Parent shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).

 

(e)   Each of the Majority Stockholders acknowledges that the restriction contained in this Section 10.14 are reasonable and necessary to protect the legitimate interests of Parent and constitute a material inducement to Parent to enter into this Agreement and consummate the transactions contemplated by this Agreement.  In the event that any covenant contained in this Section 10.14 should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law.  The covenants contained in this Section 10.14 and each provision hereof are severable and distinct covenants and provisions.  The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provision hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.

 

Section 10.15   Certain Voting Covenants .      Each of the Majority Shareholders agrees that: (a) with regard to any shares of Company Series A Convertible Preferred Stock held by such Majority Shareholder, such Majority Shareholder will vote affirmatively or provide a written consent with regard to the conversion of all of the outstanding shares of the Company Series A Convertible Preferred Stock owned by them into Company Common Stock; and (b) with regard to such Majority Shareholder’s shares of Company Common Stock, each such Majority Shareholder will execute a written consent or give an affirmative vote, as required, to consummate the transactions set forth herein as referenced in Section 3.02 (a).   In the event one or more of the Majority Stockholders breaches their obligations under this Agreement, Parent and/or Merger Sub shall have the right to seek specific performance against the Majority Shareholders in order to force them to comply with the terms of this provision.

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

	PINGTONE COMMUNICATIONS, INC.
	By:   /s/ W.R. Smedberg Name: William R. Smedberg Title: President
	FUSION TELECOMMUNICATIONS INTERNATIONAL, INC .
	By:   /s/ Gordon Hutchins, Jr. Name:  Gordon Hutchins, Jr. Title: President and Chief Operating Officer
	FUSION PTC ACQUISITION, INC.
	By:   /s/ Gordon Hutchins, Jr. Name:  Gordon Hutchins, Jr. Title:  President and Chief Operating Officer
	J. SHELBY BRYAN, solely in his capacity as Stockholder Representative
	By:   /s/ J Shelby Bryan Name: J Shelby Bryan Tile:
	MAJORITY STOCKHOLDERS OF PINGTONE COMMUNICATIONS, INC.
	By:   /s/ J Shelby Bryan Name:  J. Shelby Bryan
	By:   /s/ StevenWheeler Name: Steven Wheeler
	JANAL LLLP By:   /s/ Al Ghelf Name: Al Ghelf Title: Manager

 

Schedule 3.01 - Jurisdictions

Schedule 3.02 - No Conflicts/Consents

Schedule 3.04(b)- Capitalization

Schedule 3.06 - Financial Statements

Schedule 3.09 - Material Contracts
Schedule 3.10 - Permitted Encumbances
Schedule 3.10(b) - Real Property
Schedule 3.11 - Condition and Sufficiency of Assets
Schedule 3.12 - Company IP
Schedule 3.12(b) - Company IP Agreements
Schedule 3.12(c) - IP Ownership
Schedule 3.15(b) - Material Suppliers
Schedule 3.15(a) - Material Customers
Schedule 3.16 - Insurance
Schedule 3.18(a) - Compliance with Laws
Schedule 3.15(b) - Permits
Schedule 3.19(e) - Storage Tanks
Schedule 3.19(f) - Hazardous Materials
Schedule 3.19(h) - Enviromental Reports
Schedule 3.20(a) - Benifit Plans
Schedule 3.20(c) - Multi Employer Plan
Schedule 3.20(g) - Post Termination of Retiree Welfare Benifits
Schedule 3.20(h) - Benifit Plan Actions
Schedule 3.21(a) - Employees

Schedule 3.21(f) - Employment Contracts

Schedule 3.22 - Taxes

Schedule 3.22(f) - Taxes

Schedule 5.01 - Conduct of Business Prior to the Closing

 

EXHIBIT 10.2

 

EXECUTION VERSION

 

___________________________________________________________________

 

SECOND AMENDED AND RESTATED

SECURITIES PURCHASE AGREEMENT AND SECURITY AGREEMENT

by and among

FUSION NBS ACQUISITION CORP.

as Borrower

 

and

 

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

 

and

 

NETWORK BILLING SYSTEMS, L.L.C.,

FUSION BVX LLC,

FUSION PTC ACQUISITION, INC.

 

and

 

EACH OTHER SUBSIDIARY

FROM TIME TO TIME PARTY HERETO

as Guarantors

 

and

 

PRAESIDIAN CAPITAL OPPORTUNITY FUND III, LP,

PRAESIDIAN CAPITAL OPPORTUNITY FUND III-A, LP,

PLEXUS FUND II, L.P.,

PLEXUS FUND III, L.P.,

PLEXUS FUND QP III, L.P.

 

 

and

 

UNITED INSURANCE COMPANY OF AMERICA,

as Lenders

and

PRAESIDIAN CAPITAL OPPORTUNITY FUND III, LP,

as Agent

Dated as of October 31, 2014

(amending and restating the Amended and Restated Securities Purchase Agreement and Security Agreement dated as of December 31, 2013)

___________________________________________________________________