UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 30, 2021

 

AMMO, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   001-13101   83-1950534

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

7681 E. Gray Rd.

Scottsdale, Arizona 85260

(Address of principal executive offices)

 

(480) 947-0001

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.001 par value   POWW   The Nasdaq Stock Market LLC (Nasdaq Capital Market)

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

 

 

 
 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Agreement and Plan of Merger

 

On April 30, 2021 (the “Effective Date”), Ammo, Inc. (the “Company”), entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), and Steven F. Urvan, an individual (the “Seller”), whereby Sub merged with and into Gemini, with Sub surviving the merger as a wholly owned subsidiary of the Company (the “Merger”). Capitalized terms not defined in this Current Report on Form 8-K (this “8-K”) have the meaning assigned to them in the Merger Agreement. At the time of the Merger, Gemini had nine (9) subsidiaries, all of which are related to Gemini’s ownership of the gunbroker.com business. Gunbroker.com is a large on-line auction marketplace dedicated to firearms, hunting, shooting, and related products. The Merger was completed on the Effective Date.

 

In consideration of the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, on the Effective Date, (i) the Company assumed an aggregate amount of indebtedness of Gemini and its subsidiaries equal to $50,000,000 (the “Assumed Indebtedness”); and, (ii) the issued and outstanding membership interests in Gemini (the “Membership Interests”), held by the Seller, automatically converted into the right to receive (A) $50,000,000 (the “Cash Consideration”), and (B) 20,000,000 shares of common stock of the Company, $0.001 par value per share (the “Stock Consideration”).

 

In connection with the Merger Agreement, the Company and the Seller agreed that the Stock Consideration consisted of: (a) 14,500,000 shares issued without being held in escrow or requiring prior stockholder approval; (b) 4,000,000 shares issued subject to the Pledge and Escrow Agreement (as defined and described below); and (c) 1,500,000 shares that will not be issued prior to the Company obtaining stockholder approval for the issuance (the “Additional Securities”).

 

Pledge and Escrow Agreement

 

On the Effective Date, in connection with the Merger Agreement, the Company and the Seller entered into a Pledge and Escrow Agreement (the “Pledge and Escrow Agreement”). In order to secure the fulfilment of the obligations of the Seller set forth in the Merger Agreement relating to certain indemnification obligations provided by him to the Company, the Seller has agreed to irrevocably pledge and grant to the Company a continuing lien and security interest in and to 4,000,000 shares of the Stock Consideration (the “Pledged Securities”). The Seller will retain his voting rights with regard to the Pledged Securities.

 

Lock-Up Agreement

 

On the Effective Date, in connection with the Merger Agreement, the Company and the Seller entered into a Lock-Up Agreement (the “Lock-Up Agreement”), pursuant to which the Pledged Securities shall not be sold or transferred by the Seller without the prior written consent of the Company.

 

Voting Rights Agreement

 

On the Effective Date, in connection with the Merger Agreement, the Company and the Seller entered into a Voting Rights Agreement (the “Voting Rights Agreement”), whereby for a period of six months following the Effective Date, the Seller: (i) agreed to vote in favor of approving the implementation of a staggered board of directors at the next annual meeting of the Company; (ii) will not vote any securities in favor of, or consent to, and will vote his 18.5 million shares of the Company’s common stock to which he has voting rights, to vote against and not consent to, the approval of a proxy fight either individually or as part of a group for Schedule 13D or 13G purposes that would result in one-third of the current officers and one-third of the current directors being replaced; and (iii) appointed the Company as his attorney-in-fact and proxy with full power of substitution, for and in his name, to vote in the manner contemplated by the Voting Rights Agreement.

 

 
 

 

Standstill Agreement

 

On the Effective Date, in connection with the Merger Agreement, the Company and the Seller entered into a Standstill Agreement (the “Standstill Agreement”), whereby during the period beginning on the Effective Date and ending on the one (1) year anniversary of the Effective Date (the “Standstill Period”), the Seller will not, among other things, make, effect, initiate, cause or participate in (i) any acquisition of any securities of the Company or any securities of any subsidiary or other affiliate or associate of the Company if such acquisition would result in the Seller and his affiliates and associates collectively beneficially owning twenty-five percent (25%) or more of the then issued and outstanding shares of common stock of the Company, (ii) any Company Acquisition Transaction (as this term is defined in the Standstill Agreement), or (iii) any “solicitation” of “proxies” (as those terms are defined in Rule 14a-1 of the General Rules and Regulations under the Exchange Act) or consents with respect to any securities of the Company.

 

Investor Rights Agreement

 

On the Effective Date, in connection with the Merger Agreement, the Company and the Seller entered into an Investor Rights Agreement (the “Investor Rights Agreement”). The Investor Rights Agreement requires the Company to use its commercially reasonable efforts to register 10 million shares of the Stock Consideration for resale on a registration statement to be filed with the Securities and Exchange Commission (the “SEC”), under the Securities Act of 1933, as amended (the “Securities Act”), within ninety (90) days following the Effective Date. The Company also agreed in the Investor Rights Agreement to provide the Seller with demand registration rights in connection with the other shares received by the Seller as part of the Stock Consideration, including the Pledged Securities (to the extent released and delivered to the Seller in accordance with the terms of the Merger Agreement) and the Additional Securities (if issued in accordance with the terms of the Merger Agreement).

 

The foregoing provides only brief descriptions of the material terms of the Merger Agreement, Lock-Up Agreement, Voting Rights Agreement, Standstill Agreement, and the Investor Rights Agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder, and such descriptions are qualified in their entirety by reference to the full text of the Merger Agreement, Lock-Up Agreement, Voting Rights Agreement, Standstill Agreement and the Investor Rights Agreement filed as exhibits to this 8-K, and are incorporated herein by reference. The foregoing provides only a brief description of the material terms of the Pledge and Escrow Agreement and does not purport to be a complete description of the rights and obligations of the parties thereunder, and such description is qualified in its entirety by reference to the full text of the Pledge and Escrow Agreement which will be filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 2021.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

The applicable information set forth in Item 1.01 of this 8-K is incorporated by reference in this Item 2.01.

 

Item 3.02 Unregistered Sales of Equity Securities.

 

The applicable information set forth in Item 1.01 of this 8-K is incorporated by reference in this Item 3.02. The Stock Consideration was not registered under the Securities Act but qualified for exemption under Section 4(a)(2) of the Securities Act.

 

 
 

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Director Appointment

 

On April 30, 2021, in connection with the Merger, the Board of Directors (the “Board”) of the Company appointed Mr. Urvan as a member of the Board, effective immediately. Mr. Urvan also became an employee of the Company upon the closing of the Merger.

 

Related Party Transactions

 

There were no related party transactions with regard to Mr. Urvan reportable under Item 404(a) of Regulation S-K prior to the Merger. There are a number of entities that Mr. Urvan continues to own that, as of the closing of the Merger, still had contractual arrangements with one or more of the nine (9) subsidiaries of Gemini. The Company has the right to terminate these contractual arrangements within ninety (90) days of the Effective Date. The Company is assessing whether, Post-Merger, these contractual arrangements will be reportable under Item 404(a) of Regulation S-K and, if so, the Company will disclose such contractual arrangements on a going forward basis in the quarterly reports it files with the SEC.

 

Compensatory Arrangements

 

Solely as compensation for Mr. Urvan’s service on the Board, he will receive, consistent with the compensation the other members of the Board receive, ten thousand (10,000) shares of the Company’s common stock each quarter, pursuant to the Company’s Ammo, Inc. 2017 Equity Incentive Plan. The Company will report Mr. Urvan’s compensation as an employee of the Company on its Annual Report on Form 10-K and annual meeting proxy statement to the extent required by Item 402 of Regulation S-K.

 

Item 8.01 Other Events.

 

On May 3, 2021, the Company issued a press release announcing the completion of the Merger. A copy of the press release is provided as Exhibit 99.1 to this 8-K.

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial statements of businesses or funds acquired.

 

The financial statements required by this Item 9.01(a) will be filed by amendment to this 8-K no later than 71 days after the date that this initial 8-K is being filed.

 

(b) Pro Forma Financial Information.

 

The pro forma financial information required by this Item 9.01(b) will be filed by amendment to this 8-K no later than 71 days after the date that this initial 8-K is being filed.

 

(d) Exhibits

 

Exhibit No.   Exhibit
     

2.1#

 

Agreement and Plan of Merger, dated April 30, 2021, by and among Ammo, Inc., SpeedLight Group I, LLC, Gemini Direct Investments, LLC and Steven F. Urvan

10.1   Lock-Up Agreement, dated April 30, 2021, by and between Ammo, Inc. and Steven F. Urvan
10.2   Voting Rights Agreement, dated April 30, 2021, by and between Ammo, Inc. and Steven F. Urvan
10.3   Standstill Agreement, dated April 30, 2021, by and between Ammo, Inc. and Steven F. Urvan
10.4   Investor Rights Agreement, dated April 30, 2021, by and between Ammo, Inc. and Steven F. Urvan
99.1   Press Release, dated May 3, 2021

 

# Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted schedules and exhibits to the Securities and Exchange Commission or its staff upon its request.

 

 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  AMMO, INC.
     
Dated: May 6, 2021 By: /s/ Robert D. Wiley
    Robert D. Wiley
    Chief Financial Officer

 

 

 

EXHIBIT 2.1

 

EXECUTION VERSION

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

AMMO, INC.,

 

SPEEDLIGHT GROUP I, LLC,

 

GEMINI DIRECT INVESTMENTS, LLC

 

AND

 

STEVEN F. URVAN

 

Dated as of April 30, 2021

 

 

 

 

TABLE OF CONTENTS

 

        Page
         
SECTION 1.   Certain Definitions 1
         
SECTION 2.   The Merger 7
         
  2.1 The Merger 7
  2.2 Closing 7
  2.3 Closing Deliverables 8
  2.4 Effective Time 9
  2.5 Effects of the Merger 9
  2.6 Certificate of Formation; Limited Liability Company Agreement 10
  2.7 Managers and Officers 10
  2.8 Corporate Records 10
       
SECTION 3. Effect of the Merger on the Company Membership Interests 10
         
  3.1 Effect on of the Merger on the Company Membership Interests 10
  3.2 Merger Consideration 10
  3.3 Investor Rights Agreement 12
  3.4 Working Capital Adjustment 12
       
SECTION 4.   Representations and Warranties of the Company 14
         
  4.1 Organization and Qualification of the Company 14
  4.2 Authority; Approval 14
  4.3 Consents 15
  4.4 Securityholder Lists and Agreements 15
  4.5 Capitalization and Ownership 15
  4.6 Subsidiaries 16
  4.7 Litigation 17
  4.8 Intellectual Property 17
  4.9 Compliance with Legal Requirements 18
  4.10 Material Agreement 20
  4.11 Certain Transactions 21
  4.12 Property 21
  4.13 Financial Statements 22
  4.14 Changes 22
  4.15 Inventory 23
  4.16 Accounts Receivable. 23
  4.17 Material Suppliers 23
  4.18 Employee Matters 24
  4.19 Employee Agreements 25
  4.20 Tax Returns and Payments 25
  4.21 Insurance 25
  4.22 Permits 26
  4.23 Reserved 26
  4.24 Real Property Holding Corporation 26
  4.25 Environmental and Safety Laws 26
  4.26 Foreign Corrupt Practices Act 26
  4.27 Brokers 27
  4.28 ITAR 27
  4.29 No Other Representaitons or Warranties 27

 

AMMO Acquisition Merger Agreement i  
 

 

SECTION 5. Representations and Warranties by Parent and Sub 27
       
  5.1 Organization and Standing 27
  5.2 Authority for Agreement 28
  5.3 Consents 28
  5.4 Ownership and Activities of Sub 28
  5.5 Capitalization and Ownership 29
  5.6 Subsidiaries 29
  5.7 Litigation 30
  5.8 Intellectual Property 30
  5.9 Compliance with Legal Requirements and Other Instruments 31
  5.10 Actions 31
  5.11 Certain Transactions 31
  5.12 Property 32
  5.13 Financial Statements 32
  5.14 Changes 32
  5.15 Employee Matters 33
  5.16 Employee Agreements 34
  5.17 Tax Returns and Payments 35
  5.18 Insurance 35
  5.19 Permits 35
  5.20 Corporate Documents 35
  5.21 Real Property Holding Corporation 35
  5.22 Environmental and Safety Laws 35
  5.23 Foreign Corrupt Practices Act 36
  5.24 Brokers 36
  5.25 Merger Consideration 36
  5.26 SEC Filings; NASDAQ Compliance 36
  5.27 Independent Investigation 38
         
SECTION 6. Covenants 38
       
  6.1 Conduct of Business Prior to the Closing 38
  6.2 Access to Information 39
  6.3 No Solicitation of Other Bids 40
  6.4 Notice of Certain Events 40
  6.5 Resignations 41
  6.6 Governmental Approvals and Consents 41
  6.7 Directors’ and Officers’ Indemnification 42
  6.8 Post-Closing Audit 43
  6.9 Public Announcements 44
  6.10 Further Assurances 44
  6.11 Closing Conditions 44
  6.12 Conflict Waiver; Attorney-Client Privilege 44
  6.13 Employees; Benefits Plans 45
  6.14 Proxy Statement 45
         
SECTION 7. Tax Matters 45
         
  7.1 Tax Covenants 45

 

AMMO Merger Agreement ii  
 

 

  7.2 Termination of Existing Tax Sharing Agreements 46
  7.3 Tax Indemnification 46
  7.4 Tax Returns 47
  7.5 Straddle Period 47
  7.6 Contests 48
  7.7 Cooperation and Exchange of Information 48
  7.8 Tax Treatment of Indemnification Payments 48
  7.9 Payments to Parent 48
  7.10 Survival 48
  7.11 Overlap 48
  7.12 Prohibited Post-Closing Actions 49
  7.13 Tax Refunds 49
  7.14 Transaction Tax Deductions 49
  7.15 Intended Tax Treatment 49
       
SECTION 8. Conditions to Closing 49
         
  8.1 Conditions to Obligations of All Parties 49
  8.2 Conditions to Obligations of Parent and Sub 50
  8.3 Conditions to Obligations of the Company 50
       
SECTION 9. Indemnification 51
       
  9.1 Survival 51
  9.2 Indemnification by Company Member 51
  9.3 Indemnification by Parent 52
  9.4 Certain Limitations 52
  9.5 Indemnification Procedures 55
  9.6 Payments; Indemnification Set Off 57
  9.7 Tax Treatment of Indemnification Payments 57
  9.8 Effect of Investigation 57
  9.9 Exclusive Remedies 57
       
SECTION 10. Termination 58
       
  10.1 Termination 58
  10.2 Effect of Termination 58
       
SECTION 11. Expenses 59
         
SECTION 12. Reserved 59
         
SECTION 13. Miscellaneous 59
       
  13.1 Notices 59
  13.2 Successors and Assigns 60
  13.3 Interpretation 60
  13.4 Counterparts 61
  13.5 Electronic Transmission 61
  13.6 Severability 61
  13.7 Third Parties 61
  13.8 Reserved 61
  13.9 Governing Law; Submission to Jurisdiction 61
  13.10 Entire Agreement, Not Binding Until Executed 62
  13.11 Amendments; No Waiver 62
  13.12 Pre-Closing Restructuring 62
  13.13 Closing Date 62

 

EXHIBIT

 

Exhibit A Key Employee Agreements

 

SCHEDULES

 

Schedule B Company Disclosure Schedules
Schedule C Parent Disclosure Schedule
Schedule 3.4(a)(i) Estimated Closing Working Capital Statement

 

AMMO Merger Agreement iii  
 

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made as of April 30, 2021, by and among AMMO, Inc., a Delaware corporation (“Parent”), SpeedLight Group I, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Sub”), Gemini Direct Investments, LLC, a Nevada limited liability company (the “Company”), and Steven F. Urvan, an individual (the “Company Member”) (each a “Party” and collectively the “Parties”).

 

WHEREAS, immediately prior to the consummation of the transactions described herein, the Company has consummated the Pre-Closing Restructuring;

 

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

 

WHEREAS, the Company Member and the managers of the Company have unanimously determined that the Merger is advisable and in the best interests of the Company and the Company Member, and have approved, in accordance with the applicable provisions of the Nevada Revised Statutes (the “NRS”), this Agreement and each of the transactions contemplated hereby, including the Merger;

 

WHEREAS, each of the board of directors of Parent and Parent, in its capacity as the sole member of Sub, has determined that the Merger is advisable and in the best interests of Parent and Sub, and in furtherance of such combination, the board of directors of the Parent and Parent, in its capacity as the sole member of Sub, have approved this Agreement and the Merger upon the terms and subject to the conditions set forth herein, in accordance with applicable law;

 

WHEREAS, the Parties intend for the Merger to qualify as a tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the “Code”); and

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Parties agree as follows:

 

Section 1. Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

 

1.1 “Acquisition Proposal” shall mean any inquiry, proposal or offer from any Person (other than Parent or any of its Affiliates) concerning (A) a merger, consolidation, liquidation, recapitalization, share exchange or other business combination transaction involving the Company; (B) the issuance or acquisition of shares of capital stock or other equity securities of the Company; or (C) the sale, lease, exchange or other disposition of any significant portion of the Company’s properties or assets.

 

1.2 “Action” means any claim, charge, action, hearing, grievance, cause of action, complaint, 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.

 

1.3 “Additional Parent Stock Consideration” shall mean 1,500,000 shares of Parent Common Stock.

 

AMMO Merger Agreement 1  
 

 

1.4 “Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or registered investment company now or hereafter existing that is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such Person. For purposes hereof, the term “control” (including the correlative meanings, “controlling,” 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 that Person, whether through the ownership of capital stock or other equity ownership, by contract or otherwise.

 

1.5 Ancillary Documents” means, collectively, the Key Employee Agreements, the Investor Rights Agreement, the Closing Transaction Expenses Certificate, the Closing Indebtedness Certificate, the Stock Pledge Agreement, and each other certificate or writing contemplated hereby or thereby.

 

1.6 “Assumed Indebtedness” means an aggregate amount of the Indebtedness of the Company and the Company Subsidiaries equal to $50,000,000.

 

1.7 “Cash Purchase Price” shall mean $50,000,000.00.

 

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

 

1.9 “Closing Parent Stock Consideration” shall mean 14,500,000 shares of Parent Common Stock.

 

1.10 Reserved.

 

1.11 “Closing Cash Consideration” shall mean an amount in cash equal to (a) the Cash Purchase Price, plus (b) the Estimated Closing Adjustment minus (i) the portion of the outstanding Indebtedness of the Company as reflected on the Closing Indebtedness Certificate that exceeds $50,000,000, and (ii) the amount of unpaid Transaction Expenses of the Company as reflected on the Closing Transaction Expenses Certificate.

 

1.12 “Closing Transaction Expenses Certificate” shall mean a certificate executed by an officer of the Company, certifying the amount of Transaction Expenses remaining unpaid as of the Closing Date (including an itemized list of each such unpaid Transaction Expense with a description of the nature of such expense and the Person to whom such expense is owed).

 

1.13 “Closing Working Capital” means: (a) the Current Assets of the Company and Company Subsidiaries, less (b) the Current Liabilities of the Company and Company Subsidiaries, determined as of 11:59 p.m. Eastern Time on the Closing Date.

 

1.14 “Company Fundamental Representations” shall mean the representations and warranties in Section 4.1(a), Section 4.2(a), Section 4.4, Section 4.5 (excluding Section 4.5(e)), Section 4.6 (excluding Section 4.6(e)) and Section 4.27.

 

1.15 “Company’s knowledge” means the actual knowledge of Steven F. Urvan, Susan Lokey and Steve Verska.

 

1.16 “Company Membership Interests” has the meaning set forth in Section 3(a) of this Agreement.

 

AMMO Merger Agreement 2  
 

 

1.17 “Company Organizational Documents” shall mean (a) the Company’s Certificate of Formation, filed with the Secretary of State of the State of Nevada on May 29, 2019, and (b) the Company’s Operating Agreement, each as in effect on the date of this Agreement.

 

1.18 “Company Member” has the meaning set forth in the preamble of this Agreement.

 

1.19 “Company Subsidiary” or “Company Subsidiaries” shall have the meaning defined in Section 4.6.

 

1.20 “Current Assets” means cash and cash equivalents, accounts receivable, inventory, prepaid expenses and those items set forth in Section 1.20 of the Company Disclosure Schedule, but excluding deferred Tax assets, determined 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 Estimated Closing Working Capital Statement.

 

1.21 “Current Liabilities” means accounts payable, accrued Taxes and accrued expenses, but excluding deferred Tax liabilities, Transaction Expenses and the Indebtedness, determined 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 Estimated Closing Working Capital Statement.

 

1.22 “Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended from time to time (or any corresponding provision of succeeding law).

 

1.23 “Encumbrance” means any mortgage, security interest, pledge, license, interest, encumbrance, claim, charge, option, restriction on the right to sell or dispose (and in the case of securities, vote), lien or other adverse claim of any kind (whether arising by contract or by operation of law and whether voluntary or involuntary).

 

1.24 “Environmental Laws” means any law, regulation, or other applicable requirement relating to (i) releases or threatened release of Hazardous Substance; (ii) pollution or protection of employee health or safety, public health or the environment; or (iii) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.

 

1.25 Reserved.

 

1.26 Reserved.

 

1.27 “Escrowed Parent Stock Consideration” shall mean 4,000,000 shares of Parent Common Stock pledged by Company Member to the Parent pursuant to the terms of the Stock Pledge Agreement and held by Parent pursuant to the terms of the Stock Pledge Agreement and this Agreement.

 

1.28 “Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, whether administrative, executive judicial, legislative or other combination 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, including any central bank or comparable agency or entity, commission, corporation, court, tribunal, department, instrumentality, master, mediator, panel, referee, system or unit or subdivision of any of the foregoing.

 

AMMO Merger Agreement 3  
 

 

1.29 “Indebtedness” shall mean, without duplication and with respect to the Company and the Company Subsidiaries, all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services; (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 or a Company Subsidiary 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). Indebtedness shall be calculated as of 11:59 p.m. Eastern Time on the Closing Date.

 

1.30 “Independent Accountant” shall mean Bennett Thrasher LLP. The Company Member and the Company, on the one hand, and Parent and Sub, on the other hand, represent and warrant to the other that the Independent Accountant has not provided tax, accounting, or other services to such party or any Affiliate thereof within the twenty-four (24) month period preceding the date hereof, and each covenants and agrees that each will not hire or engage such Independent Accountant for any purpose, other than to perform those duties set forth herein, until after the Closing Working Capital has been finally determined in accordance with this Agreement.

 

1.31 “Intellectual Property” shall mean all patents, patent applications, registered and unregistered trademarks, trademark applications, registered and unregistered service marks, service mark applications, tradenames, copyrights, trade secrets, domain names, mask works, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in, to and under any of the foregoing, and any and all such cases as are necessary for, or otherwise used by a Party in the conduct of, such Party’s business as now conducted and as presently proposed to be conducted.

 

1.32 “ITAR” means the International Traffic in Arms Regulations, 22 Code of Federal Regulations § 120 et seq.

 

1.33 “Key Employees” shall mean (a) when used with respect to the Company, Steven F. Urvan, Susan Lokey, and Steve Verska, and (b) when used with respect to Parent, Fred W. Wagenhals, John P. Flynn, Chris Larson and Robert D. Wiley.

 

1.34 “Legal Requirement” shall mean a United States federal, state, municipal or local or foreign order, judgment, writ, injunction, decree, law, statute, standard ordinance, code, resolution, promulgation, rule, regulation, charge or any similar provision followed or applied by any Governmental Authority and having the force or effect of law.

 

1.35 “Losses” shall mean losses, damages, liabilities, deficiencies, actions, judgments, interest, awards, penalties, fines, costs, 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 or exemplary damages.

 

1.36 “Material Adverse Effect” shall mean any event, change in or effect on a Party (in each case, an “Effect”) that, when taken individually or in the aggregate with all other Effects, (a) is or are materially adverse in relation to the Party’s financial condition, properties, assets, liabilities or business operations, taken as a whole, or (b) is reasonably likely to materially impair the ability of the Party to consummate the transactions contemplated hereby, except to the extent that such Effect or Effects results from (i) changes in general economic conditions and changes affecting the industry in which the Party operates generally that do not adversely affect the Party to a materially disproportionate degree, (ii) adverse conditions or events expressly disclosed to the other Party in the Company Disclosure Schedule or Parent Disclosure Schedule, as applicable, (iii) changes or effects caused by the execution and delivery of this Agreement, by actions required under this Agreement, or by actions requested by one Party in writing to be taken by the other Party, (iv) changes or effects caused by the outbreak of hostilities or war (whether or not declared) or any act of terrorism, sabotage or earthquakes, tornadoes, epidemics, pandemics or disease outbreaks (including the COVID-19 pandemic) or other natural disasters or any escalation or material worsening thereof, or (v) any changes in applicable Legal Requirements or accounting rules, including GAAP.

 

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1.37 “Organizational Documents” shall mean, with respect to a Person that is an entity, the articles or certificate of incorporation or formation, bylaws, operating agreement, certificate of partnership or other governing or constituent documents of such Person.

 

1.38 “Other Litigation” shall mean, collectively, (i) GunBroker.com, LLC v. Tenor Capital Partners, 1:20-CV-00613 U.S. District Court for the Northern District of Georgia (February 10, 2020); (ii) John Caschetto and JMC Arms & Ammo v. GunBroker.com, LLC, Fulton County Superior Court, Case No. 2018CV306767 (June 20, 2018) and Gwinnett County Superior Court, 19-A-1166610 (November 20, 2019); (iii) NTS Motorsports v. Steve Urvan and GunBroker, Forsyth County Superior Court File No. 18 CVS 2466 and GB Racing, LLC v. NTS Motorsports, LLC, et al., Forsyth County Superior Court File No. 16-CVS 861 [2016]; and (iv) Brittney Mejico v Outdoors Online LLC and DOES I-10, LLC, Superior Ct. of California, Los Angeles County, Case No. 21STCV09549 (filed March 10, 2021).

 

1.39 “Parent Common Stock” shall mean the Common Stock, par value $0.001 per share, of Parent.

 

1.40 “Parent Fundamental Representations” shall mean the representations and warranties in Sections 5.1, 5.2, 5.4, 5.5, 5.6, 5.24 and 5.25.

 

1.41 “Parent’s knowledge” shall mean the actual knowledge of Fred W. Wagenhals, John P. Flynn, Chris Larson and Robert D. Wiley, after reasonable inquiry.

 

1.42 “Parent Organizational Documents” shall mean (a) Parent’s Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on October 24, 2018, and (b) Parent’s Bylaws, each as in effect on the date of this Agreement.

 

1.43 “Parent Stock Consideration” shall mean 20,000,000 shares of Parent Common Stock.

 

1.44 “Permitted Encumbrance” means (i) any Encumbrance for Taxes and assessments not yet due or payable or being contested in good faith, (ii) any Encumbrances arising out of deposits made to secure contracts of a like nature arising in the ordinary course of business, (iii) liens of carriers, warehousemen, mechanics, vendors, workmen, repairmen, laborers, or materialmen or similar Encumbrances incurred in the ordinary course of business for sums not yet due or being contested in good faith, (iv) purchase money security interests incurred in the ordinary course of business, (v) encumbrances that arise in the ordinary course of business and do not materially impair the Company’s (or Company Subsidiary’s) or Parent’s, as applicable, ownership or use of such property or assets, and (vi) liens or security interests that will be released in connection with the payment of the Indebtedness at Closing.

 

1.45 “Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

 

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1.46 “Personal Information” means any information that identifies or, alone or in combination with any other information, could reasonably be used to identify, locate, or contact a natural Person, including name, street address, telephone number, email address, identification number issued by a Governmental Authority, credit card number, bank information, customer or account number, online identifier, device identifier, IP address, browsing history, search history, or other website, application, or online activity or usage data, location data, biometric data, medical or health information, or any other information that is considered “personally identifiable information,” “personal information,” or “personal data” under applicable Law.

 

1.47 “Pre-Closing Restructuring” means that certain reorganization and restructuring memorialized in that certain Separation and Distribution Agreement, dated April 27, 2021, by and between the Company and Gemini Direct, LLC, a Nevada limited liability company (the “Distribution Agreement”), and the documents and instruments executed in connection therewith.

 

1.48 “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.

 

1.49 “Representatives” shall mean a Party’s officers, directors, managers, employees, agents, advisors and representatives (including financial advisors, attorneys and accountants).

 

1.50 “Subsidiary” shall mean any corporation or other organization, whether incorporated or unincorporated, of which (a) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of the Subsidiaries, or (b) such party or any other Subsidiary of such party is a general partner (excluding any such partnership where such party or any Subsidiary of such party does not have a majority of the voting interest in such partnership).

 

1.50A “Stock Pledge Agreement” shall mean that certain Stock Pledge Agreement executed by Company Member and Parent regarding the Escrowed Parent Stock Consideration.

 

1.51 “Tax” or “Taxes” (and with correlative meaning, “Taxable” and “Taxing”) means (a) all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments imposed by any Taxing Authority, including without limitation all income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, net worth, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, and (b) all interest, penalties, fines, additions to Tax or additional amounts imposed by any Taxing Authority in connection with any item described in clause (a).

 

1.52 “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.

 

1.53 “Taxing Authority” shall mean the Internal Revenue Service (the “IRS”) or any other governmental body (whether state, local or foreign) responsible for the administration of any Tax.

 

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1.54 “Transaction Expenses” means all fees and expenses incurred by the Company and any Affiliate at or prior to the Closing in connection with the preparation, negotiation and execution of this Agreement and the Ancillary Documents, and the performance and consummation of the Merger and the other transactions contemplated hereby and thereby, in each case to the extent such amounts are incurred prior to the Closing but are unpaid prior to 11:59 p.m. Eastern Time on the Closing Date. In no event shall “Transaction Expenses” be deemed to include (i) any fees and expenses to the extent incurred in connection with Parent’s or its Affiliates’ financing for the transactions contemplated hereby or any other liabilities or obligations incurred or arranged by or on behalf of Parent or its Affiliates in connection with the transactions contemplated hereby, or (ii) fifty percent (50%) of the premium, Taxes, commissions and other fees and expenses incurred in connection with obtaining the Rep and Warranty Policy.

 

1.55 “Transaction Tax Deductions” means any income Tax deductions permitted for U.S. federal, state or local income Tax purposes arising from (i) any and all stay bonuses, sale bonuses, change in control payments, retention payments, synthetic equity payments, or similar payments made or to be made by the Company in connection with or resulting from the transactions contemplated by this Agreement, (ii) all fees, expenses and interest (including amounts treated as interest for U.S. federal income tax purposes), prepaid administrative or other bank fees, original issue discount, unamortized debt financing costs, breakage fees, tender premiums, consent fees, redemption, retirement or make-whole payments, defeasance in excess of par or similar payments incurred with respect to the payment of indebtedness in connection with the transactions contemplated by this Agreement, (iii) any payments with respect to the Transaction Expenses, and (iv) any employment Taxes with respect to the amounts set forth in the foregoing clause (i). The Parties shall apply the safe harbor election set forth in Internal Revenue Service Revenue Procedure 2011-29 to determine the amount of any success based fees for purposes of clause (iii) above.

 

1.56 “Triton Matter” means, collectively, (i) Triton Value Partners LLC, et al v. The Company, IA Tech, TVP Investments, LLC and Steve Urvan, Superior Court, Fulton County, Georgia. Case number 2017CV298994, (December 13, 2017), and (ii) Steve Urvan and TVP Investments, LLC v. TVP Ventured, LLC, Triton Value Partners Opportunity Fund I, L.P. et al, U.S. District Court, Northern District of Georgia (Atlanta). Case number 1:20-CV-00153, (January 10, 2020) (collectively, the “Triton Litigation”) and all other past, current or future claim, action, suit, proceeding, arbitration, complaint, or charge (a “Claim”) asserted against Parent and any Affiliate thereto or their respective officers and directors, in any court or jurisdiction, but only to the extent such Claim is directly related to or arises or derived from the Triton Litigation.

 

Section 2. The Merger.

 

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

 

2.2 Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the “Closing”) shall take place at 11:59 p.m., Eastern Standard Time, within thirty (30) days after the last of the conditions to Closing set forth in Section 8 have been satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), remotely by exchange of documents and signatures (or their electronic counterparts), 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”).

 

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2.3 Closing Deliverables.

 

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

 

(i) resignations of the managers and officers of the Company;

 

(ii) a certificate, dated the Closing Date and signed by a duly authorized officer of the Company, stating that each of the conditions set forth in Section 8.2(a) and Section 8.2(b) have been satisfied;

 

(iii) 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 managers of the Company authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby and (2) resolutions of the Company Member 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;

 

(iv) 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;

 

(v) a good standing certificate (or its equivalent) from the secretary of state or similar Governmental Authority of the jurisdiction under the Legal Requirements in which the Company is organized;

 

(vi) a duly completed and executed certification to the IRS from the Company, in form and substance reasonably acceptable to Parent, to the effect that the Company is not a U.S. real property holding corporation for purposes of Section 1445 of the Code;

 

(vii) the Closing Transaction Expenses Certificate;

 

(viii) the Closing Indebtedness Certificate;

 

(ix) Employment Agreements in the form attached hereto as Exhibit A (the “Key Employee Agreements”), duly executed by each of the respective Key Employees of the Company to be effective immediately upon the Effective Time; and

 

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

 

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

 

(i) payment to the Company Member by wire transfer of immediately available funds an amount equal to the Closing Cash Consideration, issuance of the Closing Parent Stock Consideration to the Company Member, and delivery of the Escrowed Parent Stock Consideration to the Company Member;

 

(ii) evidence of payment to third parties by wire transfer of immediately available funds that amount of money due and owing from the Company to such third parties as Transaction Expenses as set forth on the Closing Transaction Expenses Certificate;

 

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(iii) evidence of payment to holders of outstanding Indebtedness (other than the Assumed Indebtedness), if any, by wire transfer of immediately available funds that amount of money due and owing from the Company to such holder of outstanding Indebtedness (other than the Assumed Indebtedness) as set forth on the Closing Indebtedness Certificate;

 

(iv) a certificate, dated the Closing Date and signed by a duly authorized officer of Company, stating that each of the conditions set forth in Section 8.3(a) and Section 8.3(b) have been satisfied;

 

(v) a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Parent and Sub certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Parent and the sole member of 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;

 

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

 

(vii) the Key Employee Agreements duly executed by Parent or the Surviving Company to be effective immediately upon the Effective Time;

 

(viii) evidence that Parent has obtained a representation and warranty insurance policy (the “Rep and Warranty Policy”) from Tokio Marine Houston Casualty Company (the “R&W Insurance Provider”) for which coverage is bound as of, and at, Closing; and

 

(ix) the Ancillary Documents to which Parent or Sub is party or bound and such other documents or instruments as the Company reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

 

2.4 Effective Time. Subject to the provisions of this Agreement, at the Closing, the Company, Parent and Sub shall cause (i) articles of merger in form and substance acceptable to Parent and the Company (the “Articles of Merger”) to be executed, acknowledged and filed with the Secretary of State of the State of Nevada in accordance with the relevant provisions of the NRS and shall make all other filings or recordings required under the NRS and (ii) a certificate of merger in form and substance acceptable to Parent and the Company to be executed, acknowledged and filed with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the Delaware Act and shall make all other filings or recordings required under the Delaware Act. The Merger shall become effective at such time as the Articles of Merger have been duly filed with the Secretary of State of the State of Nevada or at such later date or time as may be agreed by the Company and Parent in writing and specified in the Articles of Merger in accordance with the NRS (the effective time of the Merger being hereinafter referred to as the “Effective Time”).

 

2.5 Effects of the Merger. The Merger shall have the effects set forth herein and in the applicable provisions of the NRS and the Delaware Act. 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 Sub shall vest in the Surviving Company, and all debts, liabilities, obligations, restrictions and duties of each of the Company and Sub shall become the debts, liabilities, obligations, restrictions and duties of the Surviving Company.

 

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2.6 Certificate of Formation; Limited Liability Company Agreement. At the Effective Time, (a) the certificate of formation of Sub as in effect immediately prior to the Effective Time shall be the certificate of formation of the Surviving Company until thereafter amended in accordance with the terms thereof or as provided by applicable Legal Requirements, and (b) the limited liability company agreement of Sub as in effect immediately prior to the Effective Time shall be the limited liability company agreement of the Surviving Company until thereafter amended in accordance with the terms thereof, the certificate of formation of the Surviving Company or as provided by applicable Legal Requirements.

 

2.7 Managers and Officers. The managers and officers of Sub, in each case, immediately prior to the Effective Time shall, from and after the Effective Time, be the managers and officers, respectively, of the Surviving Company until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the articles of organization and operating agreement of the Surviving Company.

 

2.8 Corporate Records. At or promptly following the Closing, the Company shall deliver or cause to be delivered to Parent the minute books, and, to the extent reasonably requested by Parent, all other documents, books, records, agreements and financial data of the Company.

 

Section 3. Effect of the Merger on the Company Membership Interests. At the Effective Time and upon the terms and subject to the conditions of this Agreement, by virtue of the Merger and without any action on the part of Parent, Sub, the Company or the Company Member:

 

(a) Conversion of Company Membership Interests. The issued and outstanding membership interests in the Company (the “Company Membership Interests”) shall be automatically converted into the right to receive (A) the Closing Cash Consideration and (B) the Parent Stock Consideration (items (A) and (B), together, the “Merger Consideration”). The Company Membership Interests shall, by virtue of the Merger and without any action on the part of the Company Member, be automatically canceled and shall cease to exist, and the Company Member shall cease to have any rights with respect to such Company Membership Interests other than the right to receive the Merger Consideration, without interest thereon for the Company Membership Interests.

 

(b) Reserved.

 

(c) Membership Interests of Sub. Each unit of membership interest of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become, and shall represent, one fully paid and non-assessable unit of membership interests of the Surviving Company with the same rights, powers and privileges as the units so converted and shall constitute the only authorized, issued and outstanding units of membership interests of the Surviving Company.

 

3.2 Merger Consideration.

 

(a) Merger Consideration. On the Closing Date, Parent shall pay the Closing Cash Consideration to the Company Member and Parent shall issue the Closing Parent Stock Consideration to the Company Member.

 

(b) Issuance of Parent Common Stock. On the Closing Date, the shares of Parent Common Stock to be issued as the Closing Parent Stock Consideration shall be unconditionally delivered and duly authorized and duly issued to the Company Member and shall be represented by a physical stock certificate and delivered by Federal Express at Closing to the Company Member).

 

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(c) Escrowed Parent Stock Consideration. On the Closing Date, Parent shall also issue the Escrowed Parent Stock Consideration, which shall be represented by one or more physical stock certificates, each of which shall be in the name of the Company Member. On the Closing Date, Parent hold such stock certificates (on behalf of the Company Member) pursuant to the terms of the Stock Pledge Agreement. Subject to the terms of the Stock Pledge Agreement, the Company Member shall have and retain all rights associated with the Escrowed Parent Stock Consideration, including, without limitation, the right to vote the Escrowed Parent Stock Consideration and the right to receive all dividends payable with respect to such Escrowed Parent Stock Consideration, but shall not have the right to transfer, sell, encumber, hypothecate or pledge such Escrowed Parent Stock Consideration prior to its release pursuant to the Stock Pledge Agreement. On the second (2nd) anniversary of the Closing Date, Parent shall deliver an amount of the Escrowed Parent Stock Consideration equal to (a) 1,142,857 shares of Parent Common Stock, less (b) the number of shares of Parent Stock Common Stock that have been transferred to satisfy the Company Member’s indemnification obligations, as contemplated by Sections 7.3 and 9.6(b). The remaining portion of the Escrowed Parent Stock Consideration (after satisfaction of the Company Member’s indemnification obligations with respect to the Triton Matter) shall be promptly released and delivered (but no later than twenty (20) business days thereafter) to the Company Member upon the issuance of a final, non-appealable order with respect to all of the Triton Matter or a final settlement with respect to all of the Triton Matter. At any time prior to the release of all of the Escrowed Parent Stock Consideration, the Company Member shall have the right to provide substitute collateral (e.g., cash or a letter of credit) in an amount equal to up to Eight Million Dollars, minus the amount of Losses pursuant to Section 7.3 that have been previously satisfied by Company Member, and upon the Company Member’s delivery of such substitute collateral, all of the remaining shares of Parent Common Stock constituting the Escrowed Parent Stock Consideration, which are related to the Potential Sales Tax Liability, shall be promptly released and delivered (but no later than twenty (20) business days thereafter) to the Company Member.

 

(d) Additional Parent Stock Consideration. Promptly following the Parent Stockholder Approval (as defined herein) (but no later than twenty (20) business days thereafter), Parent shall issue the Additional Parent Stock Consideration to the Company Member, and the shares of Parent Common Stock to be issued as Additional Parent Stock Consideration shall be represented by a physical stock certificate and delivered by Federal Express to the Company Member. If Parent fails to obtain the Parent Stockholder Approval within 180 days after the Closing Date, then, in lieu of the Additional Parent Stock Consideration, Parent shall promptly (but no later than twenty (20) business days after the date that 180 days after the Closing Date (the “Outside Approval Date”)), pay to the Company Member, by wire transfer of immediately available funds, an amount equal to (i) One Million Five Hundred Thousand, multiplied by (ii) the greater of (A) $7.00 or (B) the volume weighted average price of the Parent Common Stock for the thirty (30) day period immediately preceding the Outside Approval Date.

 

(e) Transfer Books; No Further Ownership Rights in the Membership Interests or Shares. The Company agrees, and shall cause the Company Subsidiaries, to close its membership interest transfer books at the close of the business day immediately preceding the Effective Time, and thereafter there shall be no further registration of transfers of Company Membership Interests on the records of the Company or of any Company Subsidiary. From and after the Effective Time, the Company Member shall cease to have any rights with respect to the Company Membership Interests, except as otherwise provided for herein or by applicable Legal Requirements.

 

(f) Withholding Rights. Each of Parent and the Surviving Company shall be entitled to deduct and withhold from payment of any amounts (or any portion thereof) payable pursuant to this Agreement to, or on behalf of, the Company Member, such amounts as are to be deducted and withheld with respect to the making of such payment under the Code, or any other Legal Requirement. To the extent that amounts are so withheld by Parent or the Surviving Company, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Company Member.

 

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(g) Fractional Shares. No fractional shares of Parent Common Stock will be issued to the Company Member.

 

3.3 Investor Rights Agreement. Any shares of Parent Common Stock issued as Parent Stock Consideration shall be deemed “restricted securities” as such term is defined under Rule 144 promulgated pursuant to the Securities Act and shall be subject to the legend requirements thereof; provided, however, Parent shall grant certain registration rights to the Company Member as described in the Investor Rights Agreement in form and substance acceptable to Parent and the Company Member (the “Investor Rights Agreement”).

 

3.4 Working Capital Adjustment.

 

(a) Closing Adjustment.

 

(i) Attached hereto as Schedule 3.4(a)(i) is a statement setting forth the Company’s good faith estimate of Closing Working Capital (the “Estimated Closing Working Capital”), which statement contains a calculation of Estimated Closing Working Capital (the “Estimated Closing Working Capital Statement”). The Closing Working Capital will be determined in accordance with the definitions in this Agreement.

 

(ii) The “Estimated Closing Adjustment” shall be an amount equal to the Estimated Closing Working Capital minus $5,000,000 (the “Target Working Capital”).

 

(b) Post-Closing Adjustment.

 

(i) Within sixty (60) days after the Closing Date, Parent shall prepare and deliver to the Company Member a statement setting forth its calculation of Closing Working Capital, which statement shall contain a balance sheet of the Company and Company Subsidiaries as of the Closing Date (without giving effect to the transactions contemplated herein), and a calculation of Closing Working Capital (the “Closing Working Capital Statement”) 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 Estimated Closing Working Capital Statement.

 

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

 

(c) Examination and Review.

 

(i) Examination. After receipt of the Closing Working Capital Statement, the Company Member shall have 45 days (the “Review Period”) to review the Closing Working Capital Statement. During the Review Period, the Company Member and its accountants shall have full access to the books and records of the Surviving Company, the personnel of, and work papers prepared by, Parent and/or its accountants to the extent that they relate to the Closing Working Capital Statement and to such historical financial information (to the extent in Parent’s possession or control) relating to the Closing Working Capital Statement as the Company Member may reasonably request for the purpose of reviewing the Closing Working Capital Statement and to prepare an Objection Statement (defined below).

 

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(ii) Objection. On or prior to the last day of the Review Period, the Company Member may object to the Closing Working Capital Statement by delivering to Parent a written statement setting forth its objections in reasonable detail (the “Objection Statement”). If the Company Member fails to deliver the Objection Statement before the expiration of the Review Period, the Closing Working Capital Statement and the Post-Closing Adjustment, as the case may be, reflected in the Closing Working Capital Statement shall be deemed to have been accepted by the Company Member. If the Company Member delivers the Objection Statement before the expiration of the Review Period, Parent and Company Member shall negotiate in good faith to resolve such objections within thirty (30) days after the delivery of the Objection Statement (the “Resolution Period”), and, if the same are so resolved within the Resolution Period, the Post-Closing Adjustment and the Closing Working Capital Statement with such changes as may have been previously agreed in writing by Parent and the Company Member, shall be final and binding.

 

(iii) Resolution of Disputes. If the Company Member and Parent fail to reach an agreement with respect to all of the matters set forth in the Objection Statement before expiration of the Resolution Period, then any amounts remaining in dispute (“Disputed Amounts”) shall be submitted for resolution to 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 and the Closing 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 either the value assigned to the applicable item by Parent or the value assigned to the applicable item by the Company Member (and no other value).

 

(iv) Fees of the Independent Accountant. The fees and expenses of the Independent Accountant shall be paid one-half by the Company Member and one-half by Parent.

 

(v) Determination by Independent Accountant. The Independent Accountant shall make a determination as soon as practicable within thirty (30) 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 Working Capital Statement and/or the Post-Closing Adjustment shall be conclusive and binding upon the parties hereto, absent manifest error.

 

(d) Payment of Post-Closing Adjustment.

 

(i) If the Post-Closing Adjustment is a negative number, the Company Member shall, within five (5) Business Days after the final determination of the Post-Closing Adjustment, pay to Parent, by wire transfer of immediately available funds, an amount equal to the Post-Closing Adjustment.

 

(ii) If the Post-Closing Adjustment is a positive number, Parent shall, within five (5) Business Days after the final determination of the Post-Closing Adjustment, pay the Company Member, by wire transfer of immediately available funds, an amount equal to the Post-Closing Adjustment.

 

(e) Adjustments for Tax Purposes. Any payments made pursuant to Section 3.4 shall be treated as an adjustment to the purchase price by the parties for Tax purposes, unless otherwise required by law.

 

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Section 4. Representations and Warranties of the Company. The Company represents and warrants to Parent and Sub that the statements in this Section 4 are true, complete and correct as of the date hereof (unless the particular statement speaks expressly as of another date, in which case it is true, complete and correct as of such other date), subject, in any case, to the exceptions provided in the Company Disclosure Schedule attached as Schedule B to this Agreement (the “Company Disclosure Schedule”), with specific reference to the sections hereof to which such exception relates, provided that the inclusion of an item as an exception or qualification to one section of this Agreement shall cause that item to be an exception or qualification only to another section of this Agreement if it is reasonably clear on its face, upon reading of the disclosure without any independent knowledge on the part of the reader regarding the matter disclosed, that such disclosure is responsive to such section:

 

4.1 Organization and Qualification of the Company.

 

(a) Each of the Company and each Subsidiary of the Company (each “Company Subsidiary”) is a corporation or a limited liability company that is duly organized, validly existing and in good standing under the Legal Requirements of the state of Nevada or Delaware, as applicable, and has full corporate or limited liability company 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 4.1 of the Company Disclosure Schedule sets forth each jurisdiction in which each of the Company and Company Subsidiary is licensed or qualified to do business, and each of the Company and each Company Subsidiary 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 reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) Prior to the date of this Agreement, each of the Company and each Company Subsidiary has made available to Parent complete and correct copies of the Company Organizational Documents as currently in effect. The Company Organizational Documents are in full force and effect and each of the Company and each Company Subsidiary is in compliance in all material respects with each provision of its Company Organizational Documents.

 

4.2 Authority; Approval.

 

(a) The Company has full limited liability company 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 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 limited liability company action on the part of the Company and no other limited liability company 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. The approval of the Company Member is the only vote or consent of the holders of any of the Company’s membership interests 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 and assuming this Agreement is not terminated in accordance with the terms hereof) this Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws now or hereinafter in effect relating to creditors’ rights generally, or general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). 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 to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws now or hereinafter in effect relating to creditors’ rights generally, or general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

 

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(b) The execution and delivery of this Agreement by the Company and each instrument required hereby to be executed and delivered by the Company at the Closing, the compliance by the Company with the provisions of this Agreement and each instrument required hereby to be executed and delivered by the Company at the Closing and the consummation of the transactions contemplated hereby or thereby, will not (i) conflict with or violate the Company Organizational Documents, each as currently in effect, (ii) result in the creation or imposition of any Encumbrance upon any assets of the Company or any of the Company’s membership interests, or (iii) violate in any material respect any Legal Requirement applicable to the Company or any of its properties or assets.

 

(c) The Company Member and the managers of the Company have approved this Agreement and the transactions contemplated by this Agreement, including the Merger, in accordance with the NRS.

 

4.3 Consents. No consent, approval, order, permit or authorization of, or registration, declaration or filing with, or notification to (collectively, the “Consents”), any Governmental Authority, or any Person pursuant to any agreement to which the Company or the Company Subsidiaries are party or otherwise, is required to be obtained by the Company in connection with the execution and delivery of this Agreement or the Merger or the other transactions to be consummated at the Closing as contemplated by this Agreement, except for (a) the approval of the managers of the Company and the Company Member, (b) the filing and recordation of the Articles of Merger with the Secretary of State of the State of Nevada, and (c) those matters set forth on Section 4.3 of the Company Disclosure Schedule.

 

4.4 Securityholder Lists and Agreements. Except as provided in this Agreement or the Company Disclosure Schedule, there are no agreements, written or oral, between the Company or the Company Subsidiaries and any holder of its securities, membership interests, or others, or among any holders of its securities or membership interests relating to the acquisition (including, without limitation, rights of first refusal, anti-dilution or pre-emptive rights), disposition, registration under the Securities Act of 1933, as amended (the “Securities Act”), or voting of the capital stock or membership interests of the Company or the Company Subsidiaries.

 

4.5 Capitalization and Ownership.

 

(a) The Company Member owns one hundred percent (100%) of the Company Membership Interests.

 

(b) Except as set forth on Section 4.5(b) of the Company Disclosure Schedule, (i) no subscription, warrant, option, convertible or exchangeable security, or other right (contingent or otherwise) to purchase or otherwise acquire equity securities or membership interests 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, units, interests, stand-by equity lines, preferred equity, warrants, derivatives or any other convertible security 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 of the Company Membership Interests.

 

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(c) All issued and outstanding Company Membership Interests are (i) duly authorized, validly issued, fully paid and non-assessable; (ii) not subject to any preemptive rights created by statute, the Company Organizational Documents or any agreement to which the Company is a party; and (iii) free of any Encumbrances, other than restrictions on transfer under applicable state and federal securities laws and Encumbrances created by or imposed by this Agreement or the applicable Organizational Documents. All issued and outstanding Company Membership Interests were issued in compliance with all applicable Legal Requirements.

 

(d) No outstanding Company Membership Interests are 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, profit interests, incentive plans, or other similar rights with respect to the Company or any of its securities.

 

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

 

4.6 Subsidiaries.

 

(a) Section 4.6(a) of the Company Disclosure Schedule sets forth, with respect each Company Subsidiary, its name, type of entity, jurisdiction, the number and type of its outstanding equity securities, the current ownership of such equity interests and the names of its directors, managers and officers.

 

(b) Each Company Subsidiary is owned (directly or indirectly) by the Company and all of the limited liability company interests, capital stock or other equity securities of each Company Subsidiary are owned free and clear of all Encumbrances, other than restrictions on transfer under applicable state and federal securities laws and Encumbrances created by or imposed by this Agreement or the Organizational Documents of such Company Subsidiary. All issued and outstanding limited liability company interests, capital stock or other equity securities of each Company Subsidiary were duly authorized and validly issued and, to the extent applicable, are fully paid and non-assessable, and were not issued in violation of any applicable law or preemptive rights. There are no outstanding obligations of the Company or any Company Subsidiary to repurchase, redeem, issue, grant or otherwise acquire any limited liability company interests, capital stock or similar equity securities of any Company Subsidiary or any other securities of any Company Subsidiary. No Company Subsidiary is party to any outstanding offer, option, warrant, call, put, purchase, exchange, equity appreciation, phantom stock, profit participation, subscription or similar commitment that obligates it to issue, sell, convert, register, vote, transfer, repurchase or redeem any capital stock, limited liability company interests or similar equity securities. No Company Subsidiary has issued and outstanding any securities convertible into the equity of such Company Subsidiary.

 

(c) Other than the Company Subsidiaries, the Company does not, directly or indirectly (including through one or more Company Subsidiaries), own any equity in any other Person.

 

(d) The Company is not a participant in any joint venture, partnership or similar arrangement.

 

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(e) The Company has made available to Parent complete and correct copies of the Organizational Documents of the Company Subsidiaries as currently in effect. The Organizational Documents of the Company Subsidiaries are in full force and effect and no Company Subsidiary is in material violation of any provision of its Organizational Documents.

 

4.7 Litigation. Except as set forth on Section 4.7 of the Company Disclosure Schedule, there is no claim, action, suit, proceeding, arbitration, complaint or charge pending or to the Company’s knowledge, currently threatened (a) against the Company or any Company Subsidiary or any officer, director or employee of the Company or any Company Subsidiary arising out of their employment or board relationship with the Company; (b) that questions the validity of this Agreement or the right of the Company to enter into it, or to consummate the transactions contemplated by this Agreement; or (c) to the Company’s knowledge, that reasonably would be expected to have, either individually or in the aggregate, a Material Adverse Effect. Neither the Company nor a Company Subsidiary nor, to the Company’s knowledge, any of its officers, directors or employees is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality (in the case of officers, directors or employees, such as would affect the Company or any Company Subsidiary). There is no action, suit, proceeding or investigation by the Company or any Company Subsidiary pending or which the Company intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened (or any basis therefor known to the Company or any Company Subsidiary) involving the prior employment of any of the Company’s or any Company Subsidiary’s employees, their services provided in connection with the Company’s or any Company Subsidiary’s business, any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers.

 

4.8 Intellectual Property. Except as set forth on Section 4.8 of the Company Disclosure Schedule:

 

The Company and/or a Company Subsidiary own or possess or believe it can acquire on commercially reasonable terms sufficient legal rights to all Intellectual Property without any known conflict with, or infringement of, the rights of others, including prior employees or consultants with which any of them may be affiliated now or may have been affiliated in the past. To the Company’s knowledge, neither the Company nor any Company Subsidiary is in violation of any intellectual property rights of any other party. Other than with respect to commercially available software products under standard end-user object code license agreements and other than agreements disclosed on Section 4.10(a) of Company Disclosure Schedule, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the Company’s or any Company Subsidiary’s Intellectual Property, nor is the Company or any Company Subsidiary bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person (other than with respect to commercially available software products under standard end-user object code license agreements and other than agreements disclosed on Section 4.10(a) of Company Disclosure Schedule). The Company or any Company Subsidiary has not received any communications since January 1, 2017 alleging that the Company or any Company Subsidiary has violated, or by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other proprietary rights or processes of any other Person. The Company and any Company Subsidiary has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with the Company’s and any Company Subsidiary’s business. To the Company’s knowledge, it will not be necessary to use any inventions of any of its employees or consultants (or Persons it currently intends to hire) made prior to their employment by the Company or any Company Subsidiary, including prior employees or consultants with which any of them may be affiliated now or may have been affiliated in the past. Each current employee has assigned to the Company or any Company Subsidiary all intellectual property rights he or she owns that are related to the Company’s or any Company Subsidiary’s business as now conducted and as presently proposed to be conducted and all intellectual property rights that he, she or it solely or jointly conceived, reduced to practice, developed or made during the period of his, her or its employment relationship with the Company or any Company Subsidiary that (a) relate, at the time of conception, reduction to practice, development, or making of such intellectual property right, to the Company’s or any Company Subsidiary’s business as then conducted or as then proposed to be conducted, (b) were developed on any amount of the Company’s or any Company Subsidiary’s time or with the use of any of the Company’s or any Company Subsidiary’s equipment, supplies, facilities or information or (c) resulted from the performance of services for the Company or any Company Subsidiary. The Company Disclosure Schedule lists all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, tradenames, copyrights, and licenses to and under any of the foregoing, in each case owned by the Company or any Company Subsidiary. For purposes of this section, the Company shall be deemed to have knowledge of a patent right if the Company or any Company Subsidiary has actual knowledge of the patent right. No government funding, facilities of a university, college, other educational institution or research center, or funding from third parties was used in the development of any Intellectual Property of the Company or any Company Subsidiary. No Person who was involved in, or who contributed to, the creation or development of any Intellectual Property of the Company or any Company Subsidiary, has performed services for the government, university, college, or other educational institution or research center in a manner that would adversely affect the Company’s rights in any Intellectual Property of the Company or any Company Subsidiary.

 

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4.9 Compliance with Legal Requirements.

 

(a) Except as disclosed in Section 4.9 of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary is in material violation or default (a) of any provision of the Company Organizational Documents or the Organizational Documents of the Company Subsidiaries, (b) of any judgment, order, writ or decree, (c) under any note, indenture or mortgage, (d) under any Material Agreement, or (e) of any provision of any Legal Requirement (including ITAR) applicable to the Company or any Company Subsidiary or the operation of their respective businesses. Since January 1, 2017, the Company has complied, and is now complying, in all material respects with all applicable Legal Requirements, including ITAR and other applicable regulations related to an online matching service of buyers and sellers of firearms and related products and services and all Legal Requirements applicable to matching services for buyers and sellers of firearms and related products and services, and since January 1, 2017, has not received any written communication from any Governmental Authority relating to any examination, audit, inquiry or alleged violation of any Legal Requirement or deficiency in the Company’s related policies or procedures. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any provision, instrument, judgment, order, writ, decree, contract or agreement; or (ii) an event which results in the creation of any Encumbrance upon any assets of the Company or any Company Subsidiary or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to the Company or any Company Subsidiary, except for such defaults, Encumbrances, suspensions, revocations, forfeitures, or non-renewals which would not, individually or in the aggregate, result in a Material Adverse Effect.

 

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(b) Except as disclosed in Section 4.9 of the Company Disclosure Schedule, the Company and each Company Subsidiary is and, since January 1, 2017, has been, in compliance in all material respects with (i) with all applicable federal, state and local laws governing or otherwise regulating the importation, transportation, purchase or other acquisition, possession or sale or other transfer of firearms, ammunition or explosives, including without limitation the Gun Control Act of 1968, as amended (Chapter 44 of Title 18, United States Code), the National Firearms Act of 1934, as amended (Chapter 53 of Title 26, United States Code), the Arms Export Control Act (22 U.S.C. § 2778), and International Traffic in Arms Regulations (22 C.F.R. § 120-130), the United States Federal Trade Commission, any applicable state requirements, any similar Governmental Authority requirement, as well as all applicable rules and regulations of the Bureau of Alcohol, Tobacco, Firearms and Explosives (the “ATF”), as amended, and accompanying regulations, and all other applicable Legal Requirements; and (ii) possesses, and is in material compliance with the terms of, all licenses, registrations and permits required in order for the Company and the Company Subsidiaries to conduct their respective businesses (as currently conducted and as proposed to be conducted) with respect to the sale of firearms, ammunition and explosives, except, in the case of clause (i) or (ii), where the failure to so comply or be in possession would not, individually or in the aggregate, be material to the Company and its subsidiaries taken as a whole.

 

(c) Except as disclosed in Section 4.9 of the Company Disclosure Schedule, since January 1, 2017, neither the Company nor any Company Subsidiary has received any notification from any Governmental Authority indicating that the Company or any Company Subsidiary is not in compliance with the laws of ATF or applicable Legal Requirements.

 

(d) Except as disclosed in Section 4.9 of the Company Disclosure Schedule, since January 1, 2017, neither the Company nor any Company Subsidiary has received, or been subject to, any written ATF warning Letter, any notice of adverse findings, or any other similar written correspondence or documents from any Governmental Authority, adverse inspection, finding of deficiency, finding of noncompliance, compelled or voluntary recall, investigation, penalty, fine, request for corrective or remedial action, or other compliance or enforcement-related action or written communication from any Governmental Authority that has not been resolved to the satisfaction of the issuing Governmental Authority, and there is no pending or, to Company’s knowledge, threatened regulatory action, investigation or inquiry of any Governmental Authority against Company or any Company Subsidiary.

 

(e) To Company’s knowledge, no member, director, officer, employee, agent, or other representative of Company or any Company Subsidiary has made any statement of material fact to the ATF or any other Governmental Authority that was untrue or fraudulent or that Company or any Company Subsidiary or any of their members, directors, officers, employees, agents, or other representatives knew or should have known was untrue or fraudulent; or failed to disclose a material fact required to be disclosed to the ATF or any other Governmental Authority.

 

(f) Since January 1, 2017: (A) to Company’s knowledge, no Personal Information in the possession or control of the Company or any Company Subsidiary, or held or processed by any vendor, processor, or other third party for or on behalf of the Company or any Company Subsidiary, has been subject to any data breach that resulted in, or that the Company reasonably believed may have resulted in, the unauthorized acquisition of or access, disclosure, use, denial of use, alteration, corruption, destruction, compromise, or loss of to, such Personal Information requiring notification under applicable data breach notification laws or that has caused a material disruption to the conduct of the Company’s or any Company Subsidiary’s business (a “Security Incident”), and (B) the Company or any Company Subsidiary has not notified and, to the Company’s knowledge there have been no facts or circumstances that would require the Company or any Company Subsidiary to notify, any Governmental Authority or other Person of any Security Incident.

 

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4.10 Material Agreement.

 

(a) Except as set forth on Section 4.10(a) of the Company Disclosure Schedule, there are no current agreements, instruments or contracts to which the Company or any Company Subsidiary is a party or by which it or its assets or properties is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $25,000.00 individually, per annum in 2021 or $100,000.00 in the aggregate per annum in 2021 (excluding agreements that can be terminated by the Company or a Company Subsidiary on ninety (90) days or less notice, without cause and without penalty); (ii) the license of any patent, copyright, trademark, trade secret or other proprietary right to or from the Company or any Company Subsidiary (excluding commercially available software products), (iii) the grant of rights to license, market, or sell its products to any other Person that limit the Company’s or any Company Subsidiary’s exclusive right to market or sell its products or services, (iv) indemnification by the Company or any Company Subsidiary with respect to infringements of proprietary rights (other than indemnification provisions in contracts that are entered into in the ordinary course of business), (v) employment, restrictive covenant, severance, consulting, independent contractor, retention, change in control, bonus, incentive compensation, deferred compensation or other similar agreements with any former or current employee or independent contractor, (vi) the lease of personal property involving annual payments in excess of $25,000 or the lease of any real property, (vii) Indebtedness of the Company or any Company Subsidiary (other than Indebtedness that is being repaid at the Closing), (viii) limiting or purporting to limit the ability of the Company or any Company Subsidiary to compete in any line of business or with any Person or in any geographic area or during any period of time, (ix) requirements of the Company or any Company Subsidiary to purchase its total requirements of any product or service from a third party or that contain any exclusivity or “take or pay” provisions, (x) any joint venture, partnership or similar arrangement by the Company or any Company Subsidiary, or (xi) the acquisition or disposition of any business, a material amount of stock or assets of any other Person (whether by merger, sale of stock, sale of assets or otherwise) (the foregoing, collectively, the “Material Agreements”).

 

(b) Each Material Agreement 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 material breach of or material default under (or is alleged to be in material breach of or material default under), or has provided or received any written notice of any intention to terminate, any Material Agreement. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute a material event of default under any Material Agreement or result in a termination thereof or would cause or permit the acceleration or other material changes of any right or obligation or the loss of any benefit thereunder, except for such events or defaults as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect. Complete and correct copies of each written Material Agreement (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Parent.

 

(c) Except as set forth on Section 4.10(c) of the Company Disclosure Schedule and except for the Pre-Closing Restructuring, neither the Company nor any Company Subsidiary has (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock or membership interests, which remain undistributed as of the date hereof (ii) incurred any Indebtedness for money borrowed or incurred any other liabilities individually in excess of $100,000, which remain outstanding as of the date hereof (iii) made any loans or advances to any Person, other than ordinary advances for travel expenses, which remain outstanding as of the date hereof, or (iv) sold, exchanged or otherwise disposed of any of its material assets or material rights, other than the sale of its inventory in the ordinary course of business and other than in connection with corporate reorganizations.

 

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(d) Except as set forth on Section 4.10(d) of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary is a guarantor or indemnitor of any Indebtedness of any other Person.

 

4.11 Certain Transactions.

 

(a) Other than (i) standard employee benefits generally made available to all employees, (ii) standard director and officer indemnification agreements approved by the Company’s managers, (iii) the purchase of the Company’s membership interests approved by the Company’s managers (iv) employment compensation, as disclosed in Section 4.11(a)(i) of the Company Disclosure Schedule, that is provided in the ordinary course of business and those agreements and transactions set forth in Section 4.11(a)(ii) of the Company Disclosure Schedule, there are no agreements, understandings or proposed transactions between the Company and any Company Subsidiary and any of its officers, directors, Key Employees or any Affiliate thereof.

 

(b) Neither the Company nor any Company Subsidiary is indebted, directly or indirectly, to any of its directors, officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than as disclosed in Section 4.11(a)(ii) of the Company Disclosure Schedule and other than in connection with expenses or advances of expenses incurred in the ordinary course of business or employee relocation expenses and for other customary employee benefits made generally available to all employees. Except as set forth in Section 4.11(a)(ii) of the Company Disclosure Schedule, none of the Company’s or any Company Subsidiary’s directors, officers or employees, or any members of their immediate families, or any Affiliate of the foregoing are, directly or indirectly, indebted to the Company or any Company Subsidiary, or to the Company’s knowledge, have any (i) material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any of the Company’s or any Company Subsidiary’s material suppliers, service providers, joint venture partners, licensees and competitors, (ii) direct or indirect ownership interest in any firm or corporation with which the Company or any Company Subsidiary is affiliated or with which the Company or any Company Subsidiary has a material business relationship, or any firm or corporation which competes with the Company or any Company Subsidiary except that directors, officers, employees or stockholders of the Company may own stock in (but not exceeding two percent (2%) of the outstanding capital stock of) publicly traded companies that may compete with the Company; or (iii) financial interest in any material contract with the Company or any Company Subsidiary.

 

4.12 Property.

 

(a) Each of the Company and the Company Subsidiaries has good and valid title to, or a valid leasehold interest in, all real and personal property and other assets reflected in the Company Financial Statements as of March 31, 2021, or acquired after such date, other than properties and assets sold or otherwise disposed of in the ordinary course of business since such date and other than properties and assets that were or will be assigned or transferred in connection with the Pre-Closing Restructuring, as set forth in Section 4.12(a) of the Company Disclosure Schedule. The property and assets that the Company owns are free and clear of all Encumbrances, except for Permitted Encumbrances. With respect to the property and assets it leases, the Company is in compliance in all material respects with such leases and holds a valid leasehold interest free of any Encumbrances other than those of the lessors of such property or assets. The Company and Company Subsidiaries do not own and never have owned any real property.

 

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(b) The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property of each of the Company and the Company Subsidiaries are structurally sound, are in good operating condition and repair (ordinary wear and tear excepted) and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, furniture, fixtures, machinery, 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.

 

4.13 Financial Statements. The Company has delivered to Parent the audited financial statements for the Company and its Subsidiaries for the fiscal years ended December 31, 2020 and December 31, 2019 and their unaudited financial statements (including balance sheet, income statement and statement of cash flows) for the three-month period ended March 31, 2021 (collectively, the “Company Financial Statements”). Except as otherwise set forth in the auditor’s opinion related to such Company Financial Statements, the Company Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods indicated, except that the unaudited Company Financial Statements may not contain all footnotes required by GAAP. The Company Financial Statements fairly present in all material respects the financial condition and operating results of the Company and its Subsidiaries as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Company Financial Statements to normal year-end audit adjustments. Except as set forth in the Company Financial Statements, the Company has no material liabilities or obligations, contingent or otherwise, other than (i) obligations under contracts and commitments incurred in the ordinary course of business; (ii) liabilities and obligations of a type or nature not required under GAAP to be reflected in the Company Financial Statements; (iii) Transaction Expenses, and (iv) liabilities to the extent included in the computation of Closing Working Capital or Indebtedness as of the Closing.

 

4.14 Changes. Except as set forth on Section 4.14 of the Company Disclosure Schedule and except for the Pre-Closing Restructuring, since March 31, 2021, there has not been:

 

(a) any material change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Company Financial Statements, except changes in the ordinary course of business that have not caused, in the aggregate, a Material Adverse Effect;

 

(b) any material damage, destruction or loss, whether or not covered by insurance;

 

(c) any waiver or compromise by the Company of a material right or of a material debt owed to it;

 

(d) any material change to any Material Agreement or a termination of any agreement that would have been a Material Agreement in the absence of such termination;

 

(e) any material change in any compensation arrangement or other agreement with any employee, officer, stockholder, or director of the Company;

 

(f) any resignation or termination of employment of any officer or Key Employee of the Company;

 

(g) any Encumbrance created by the Company, with respect to any of its material properties or assets, except Encumbrances for taxes not yet due or payable and Encumbrances that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets;

 

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(h) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

 

(i) any declaration, setting aside or payment or other distribution in respect of any of the Company’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company;

 

(j) any sale, assignment or transfer of any material Intellectual Property of the Company;

 

(k) any arrangement or commitment by the Company to do any of the things described in this Section 4.14.

 

4.15 Inventory. All inventory of the Company and any Company Subsidiary, whether or not reflected in the Company Financial Statements as of March 31, 2021, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. All such inventory is owned by the Company or a Company Subsidiary free and clear of all Encumbrances (other than Permitted Encumbrances). Immediately after the Pre-Closing Restructuring, the property owned, licensed or leased by the Company and the Company Subsidiaries, together with all other properties and assets of the Company and the Company Subsidiaries, are or will be sufficient for the continued conduct of the Company’s (and the Company Subsidiaries’) business immediately after the Closing in substantially the same manner as conducted immediately prior to the Closing.

 

4.16 Accounts Receivable. The accounts receivable reflected in the Company Financial Statements as of March 31, 2021, and the accounts receivable through the date hereof (a) have arisen from bona fide transactions entered into by the Company or a Company Subsidiary involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; and (b) constitute valid, undisputed claims of the Company or a Company Subsidiary 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. Except as otherwise set forth in the auditor’s opinion with respect to the Company Financial Statements, the reserve for bad debts shown in the Company Financial Statements as of March 31, 2021 or, with respect to accounts receivable arising after such date, on the accounting records of the Company have been determined in accordance with GAAP, consistently applied, subject to normal year-end adjustments and the absence of disclosures normally made in footnotes.

 

4.17 Material Suppliers. Section 4.17 of the Company Disclosure Schedule sets forth (i) the top ten (10) suppliers (based on amounts paid to such supplier) of the Company for the fiscal years ended December 31, 2019 and December 31, 2020 (collectively, the “Material Suppliers”); and (ii) the amount of purchases from each Material Supplier during each such period. The Company has not received any notice, and has no reason to believe, 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.

 

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4.18 Employee Matters.

 

(a) To the Company’s knowledge, none of the Company’s or any Company Subsidiary’s employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Company or a Company Subsidiary or that would conflict with the Company’s or any Company Subsidiary’s business. Neither the execution or delivery of this Agreement, nor the carrying on of the Company business by the employees of the Company or a Company Subsidiary, nor the conduct of the Company’s or any Company Subsidiary’s business as now conducted and as presently proposed to be conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.

 

(b) Neither the Company nor any Company Subsidiary is delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants or independent contractors prior to the Closing Date. Since January 1, 2017, the Company and each Company Subsidiary has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other applicable laws related to employment, including those related to wages, hours, worker classification and collective bargaining. The Company or the applicable Company Subsidiary has withheld and paid to the appropriate governmental entity or is holding for payment not yet due to such governmental entity all amounts required to be withheld from employees of the Company or the applicable Company Subsidiary and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing.

 

(c) To the Company’s knowledge, no Key Employee intends to terminate employment with the Company or a Company Subsidiary. Neither the Company nor any Company Subsidiary has a present intention to terminate the employment of any Key Employee. Except as set forth on Section 4.18(c) of the Company Disclosure Schedule, the employment of each employee of the Company and any Company Subsidiary is terminable at the will of the Company. Except as set forth on Section 4.18(c) of the Company Disclosure Schedule or as required by applicable law, upon termination of the employment of any such employees, no severance or other payments will become due. Except as set forth on Section 4.18(c) of the Company Disclosure Schedule, the Company or any Company Subsidiary has no written policy or plan of paying severance pay or any form of severance compensation in connection with the termination of employment services.

 

(d) None of the Company and Company Subsidiaries has made any representations regarding equity incentives to any officer, employee, or consultant that are inconsistent with the share amounts and terms provided to Parent.

 

(e) Reserved.

 

(f) Except as set forth in Section 4.18(f) of the Company Disclosure Schedule, there are no employee benefit plans maintained, established or sponsored by the Company or any Company Subsidiary, or which the Company participates in or contributes to, which is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

 

(g) None of the Company and Company Subsidiaries is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company or any Company Subsidiary. There is no strike or other labor dispute involving the Company or Company Subsidiary pending, or to the Company’s knowledge, threatened, nor is the Company aware of any labor organization activity involving its employees.

 

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(h) To the Company’s knowledge, none of the officers or directors of the Company or Company Subsidiary has been (i) subject to voluntary or involuntary petition under the federal bankruptcy laws or any state insolvency law or the appointment of a receiver, fiscal agent or similar officer by a court for his or her business or property; (ii) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) subject to any order, judgment or decree (not subsequently reversed, suspended, or vacated) of any court of competent jurisdiction permanently or temporarily enjoining him or her from engaging, or otherwise imposing limits or conditions on his or her engagement in any securities, investment advisory, banking, insurance, or other type of business or acting as an officer or director of a public company; or (iv) found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated any federal or state securities, commodities, or unfair trade practices law, which such judgment or finding has not been subsequently reversed, suspended, or vacated.

 

4.19 Employee Agreements. Each current employee and officer of the Company and Company Subsidiaries, who either alone or in concert with others has developed, invented, programmed or designed any Intellectual Property of the Company and Company Subsidiaries has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms made available to Parent (the “Company Confidential Information Agreements”). No current employee or officer of the Company and Company Subsidiaries has excluded works or inventions from his or her assignment of inventions pursuant to such Person’s Company Confidential Information Agreement. To the Company’s knowledge, no Person who is party to a Company Confidential Information Agreement is in violation of the terms thereof.

 

4.20 Tax Returns and Payments. Except as set forth on Section 4.20 of the Company Disclosure Schedule, (1) there are no material federal, state, county, local or foreign Taxes due and payable by the Company and Company Subsidiaries which have not been timely paid; (2) there are no accrued and unpaid federal, state, county, local or foreign Taxes of the Company and Company Subsidiaries which are due, whether or not assessed or disputed; (3) there are no current examinations or audits of any Tax Returns by any applicable Taxing Authority; and (4) the Company has duly and timely filed all federal, state, county, local and foreign Tax Returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to Taxes for any year. Except for certain representations related to Taxes in Sections 4.18 and 4.24, the representations and warranties set forth in this Section are the Company’s sole and exclusive representations and warranties regarding Tax matters.

 

4.21 Insurance. Section 4.21 of the of the Company Disclosure Schedule 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 the 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 except as set forth in Section 4.21 of the Company Disclosure Schedule, shall remain in force and effect immediately following the Closing without any further action of the Surviving Company. Neither the Company nor any Company Subsidiary has received any written notice of cancellation or material alteration of coverage under, any of the Insurance Policies. All premiums due under the Insurance Policies have been paid in accordance with the payment terms of each Insurance Policy. All of the Insurance Policies (a) are valid and binding in accordance with their terms; (b) are provided by carriers who are, to the Company’s knowledge, financially solvent; and (c) have not been subject to any lapse in coverage. There are no claims related to the business of the Company or any Company Subsidiary pending under any of the 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 or any Company Subsidiary is not in material default under, or otherwise failed to comply with, in any material respect, any provision contained in any of the Insurance Policies.

 

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4.22 Permits. The Company and all Company Subsidiaries have all franchises, permits, licenses and any similar authority necessary for the conduct of its business, each of which is set forth on Section 4.22 of the Company Disclosure Schedule with their respective dates of issuance and expiration, except where the failure to have any such permits would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Neither the Company nor any Company Subsidiary is in default in any material respect under any of such franchises, permits, licenses or other similar authority, and all such franchises, permits, licenses and other similar authority are valid and in full force and effect. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to the Company or any Company Subsidiary, except for suspensions, revocations, forfeitures, or non-renewals which would not, individually or in the aggregate, result in a Material Adverse Effect.

 

4.23 Reserved.

 

4.24 Real Property Holding Corporation. The Company and any Company Subsidiary is not now and has never been a “United States real property holding corporation” as defined in the Code and any applicable regulations promulgated thereunder. The Company has filed with the Internal Revenue Service all statements, if any, with its United States Tax Returns which are required under such regulations.

 

4.25 Environmental and Safety Laws. (a) The Company and all Company Subsidiaries are and, since January 1, 2017, have been in compliance with all Environmental Laws in all material respects; (b) since January 1, 2017, there has been no material release or to the Company’s knowledge threatened release of any pollutant, contaminant or toxic or hazardous material, substance or waste or petroleum or any fraction thereof (each a “Hazardous Substance”), on, upon, into or from any site currently or heretofore owned, leased or otherwise used by the Company; (c) there have been no Hazardous Substances generated by the Company that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States; and (d) there are no underground storage tanks located on, no polychlorinated biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored on, any site owned or operated by the Company, except for the storage of hazardous waste in compliance with Environmental Laws. The Company has made available to Parent true and complete copies of all material environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies and environmental studies or assessments.

 

4.26 Foreign Corrupt Practices Act. Neither the Company nor any of its Company Subsidiaries, directors, officers, employees or agents have, directly or indirectly, made, offered, promised or authorized any payment or gift of any money or anything of value to or for the benefit of any “foreign official” (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), foreign political party or official thereof or candidate for foreign political office for the purpose of (a) influencing any official act or decision of such official, party or candidate, (b) inducing such official, party or candidate to use his, her or its influence to affect any act or decision of a foreign governmental authority, or (c) securing any improper advantage, in the case of (a), (b) and (c) above in order to assist the Company or any of its Affiliates in obtaining or retaining business for or with, or directing business to, any Person. Neither the Company nor any of its directors, officers, employees or agents have made or authorized any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of funds or received or retained any funds in violation of any law, rule or regulation. The Company further represents that it has maintained, and has caused each of its subsidiaries and Affiliates to maintain, systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) and written policies to comply with the FCPA or any other applicable anti-bribery or anti-corruption law, and to ensure that all books and records of the Company accurately and fairly reflect, in reasonable detail, all transactions and dispositions of funds and assets. Neither the Company nor any of its officers, directors or employees are the subject of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to the FCPA or any other anti-corruption law (collectively, “Enforcement Action”).

 

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4.27 Brokers. Except for Maxim Group LLC, no broker, finder or investment banker is entitled to any brokerage, finder’s 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.

 

4.28 ITAR. The Company and Company Subsidiaries are and since January 1, 2017 have been in compliance in all material respects with the ITAR. To Company’s knowledge, the Company and Company Subsidiaries are not currently and have not been, at any time since January 1, 2017, denied export privileges involving items subject to the export administration regulations, or debarred or suspended from participating directly or indirectly in the export of defense articles, including technical data, or in the furnishing of defense services, for which a license or approval is required under the ITAR.

 

4.29 No Other Representations or Warranties. Except for the representations and warranties contained in this Section 4 (including the related portions of the Company Disclosure Schedule), neither the Company nor any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of the Company or any Company Subsidiary. Without limiting the generality of the foregoing, neither the Company nor any other Person has made or makes any representation or warranty with respect to any projections, estimates or budgets of future revenues, future results of operations, future cash flows or future financial condition (or any component of any of the foregoing) of the Company or any Company Subsidiary.

 

Section 5. Representations and Warranties by Parent and Sub. Parent and Sub represent and warrant to the Company that the statements in this Section 5 are true, complete and correct as of the date hereof (unless the particular statement speaks expressly as of another date, in which case it is true, complete and correct as of such other date), subject, in any case, to the exceptions provided in the Parent Disclosure Schedule attached as Schedule C to this Agreement (the “Parent Disclosure Schedule”), with specific reference to the sections hereof to which such exception relates, provided that the inclusion of an item as an exception or qualification to one section of this Agreement shall cause that item to be an exception or qualification only to another section of this Agreement if it is reasonably clear on its face, upon reading of the disclosure without any independent knowledge on the part of the reader regarding the matter disclosed, that such disclosure is responsive to such section:

 

5.1 Organization and Standing.

 

(a) Parent is a corporation duly organized, validly existing and in good standing under the Legal Requirements of the jurisdiction of its incorporation. Sub is a limited liability company duly organized, validly existing and in good standing under the Legal Requirements of the jurisdiction of its formation. Parent is duly qualified to do business as a foreign corporation and in good standing in every jurisdiction where its properties, owned, leased or operated, or the business conducted by it requires such qualification, except where the failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. At all times since its formation and through the end of the Closing Date, Sub has been an entity whose existence is disregarded as separate from Parent for U.S. federal and all relevant local income tax purposes and has not taken any action inconsistent therewith.

 

AMMO Merger Agreement 27  
 

 

(b) Parent has made available to the Company complete and correct copies of the Parent Organizational Documents as currently in effect. The Parent Organizational Documents are in full force and effect and Parent is not in violation of any provision of the Parent Organizational Documents.

 

5.2 Authority for Agreement.

 

(a) Each of Parent and Sub has all necessary corporate or limited liability company power and authority to execute and deliver this Agreement and each instrument required hereby to be executed and delivered at the Closing and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Parent and Sub of this Agreement and each instrument required hereby to be executed and delivered by them at the Closing and the consummation by Parent and Sub of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate or limited liability company action, and no other corporate or limited liability company proceedings on the part of Parent or Sub are necessary to authorize this Agreement or any instrument required hereby to be executed and delivered by Parent or Sub at the Closing or to consummate the transactions so contemplated. This Agreement has been, and each instrument required hereby to be executed and delivered by Parent and Sub at the Closing will be, duly and validly executed and delivered by Parent and Sub and, assuming the due authorization, execution and delivery by the Company and assuming this Agreement is not terminated in accordance with the terms hereof, constitutes a legal, valid and binding obligation of Parent and Sub, enforceable against Parent and Sub in accordance with its terms, subject to bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors, and to general equity principles.

 

(b) The execution and delivery of this Agreement by Parent and Sub and each instrument required hereby to be executed and delivered by Parent and Sub at the Closing, the compliance by Parent and Sub with the provisions of this Agreement and each instrument required hereby to be executed and delivered by Parent and Sub at the Closing, and the consummation by Parent or Sub, as applicable, of the transactions contemplated hereby or thereby, will not (i) conflict with or violate the Organizational Documents of Parent, each as amended to date and currently in effect, or the Organizational Documents of Sub, each as amended to date and currently in effect, or (ii) violate in any material respect any Legal Requirement applicable to Parent or Sub or any of their respective properties or assets.

 

5.3 Consents. No Consent of any Governmental Authorities or any Person is required to be obtained by Parent or Sub in connection with the execution and delivery of this Agreement or the Merger or the other transactions to be consummated at the Closing as contemplated by this Agreement, except for (a) any required shareholder approval by the shareholders of Parent or any required member approval by the member of Sub and (b) the filing and recordation of the Articles of Merger with the Secretary of State of the State of Nevada.

 

5.4 Ownership and Activities of Sub. Sub is a direct, wholly owned subsidiary of Parent, and Parent owns all of the issued and outstanding membership interests of Sub. As of the date hereof and as of the Effective Time, except for obligations or liabilities incurred in connection with its organization and the transactions contemplated by this Agreement and except for this Agreement and any other agreements or arrangements contemplated hereby or thereby, Sub (a) was formed solely for the purpose of engaging in the transactions contemplated hereby and (b) has not and at the Effective Time will not have incurred, directly or indirectly, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person.

 

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5.5 Capitalization and Ownership. The authorized capital stock of the Parent consists of 200,000,000 shares of Parent Common Stock, of which as of immediately prior to the Closing, 93,260,607 shares are issued and outstanding. Parent has reserved 5,000,000 shares of Parent Common Stock for issuance to employees, directors, consultants and contractors of Parent pursuant to its 2017 Equity Incentive Plan duly adopted by the Board of Directors (the “Stock Plan”). Of such reserved shares of Parent Common Stock, Parent has granted 1,425,830 shares of Parent Common Stock under the Stock Plan to officers, directors, employees and consultants of Parent, and 3,574,170 shares of Parent Common Stock remain available for issuance to employees, directors, consultants and contractors pursuant to the Stock Plan. Parent has furnished to the Company complete and accurate copies of the Stock Plan and forms of agreements used thereunder. Parent owns one hundred percent (100%) of the issued and outstanding membership interests in Sub, which constitute all of the authorized membership interests therein. All of the issued and outstanding shares of Parent Common Stock and the issued and outstanding membership interests of Sub have been, and all of the shares of Parent Common Stock that may be issued pursuant to the exercise of any option will be, when issued in accordance with the respective terms thereof, duly authorized and validly issued, fully paid and non-assessable. No subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Parent or any membership interests of Sub is authorized or outstanding. The Parent and the Sub do not have any obligation (whether written, oral, contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right or to issue or distribute to holders of any shares of its capital stock (or membership interests) any evidences of indebtedness or assets of the Parent and the Sub. The Parent and the Sub do not have any obligation (whether written, oral, contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or membership interests or any interest therein or to pay any dividend or make any other distribution in respect thereof. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the Parent or the Sub. All of the issued and outstanding shares of Parent and all of the issued and outstanding membership interests of the Sub have been offered, issued and sold by the Parent and the Sub in compliance with all Legal Requirements applicable to the Parent and the Sub.

 

5.6 Subsidiaries.

 

(a) Section 5.6(a) of the Parent Disclosure Schedule sets forth, with respect to each Subsidiary of Parent (each a “Parent Subsidiary”), its name, type of entity, and jurisdiction.

 

(b) Each Parent Subsidiary is directly and wholly owned by the Parent and all of the capital stock or other equity securities of each Parent Subsidiary are owned free and clear of all Encumbrances, other than restrictions on transfer under applicable state and federal securities laws and Encumbrances created by or imposed by this Agreement. All issued and outstanding capital stock or other equity securities of each Parent Subsidiary were duly authorized and validly issued and, to the extent applicable, are fully paid and non-assessable, and were not issued in violation of any applicable law or preemptive rights. There are no outstanding obligations of the Parent or any Parent Subsidiary to repurchase, redeem, issue, grant or otherwise acquire any capital stock or similar equity securities of any Parent Subsidiary or any other securities of any Parent Subsidiary. No Parent Subsidiary is party to any outstanding offer, option, warrant, call, put, purchase, exchange, equity appreciation, phantom stock, profit participation, subscription or similar commitment that obligates it to issue, sell, convert, register, vote, transfer, repurchase or redeem any capital stock, or similar equity securities. No Parent Subsidiary has issued and outstanding any securities convertible into the equity of such Parent Subsidiary.

 

(c) Other than the Parent Subsidiaries, Parent does not, directly or indirectly (including through one or more Parent Subsidiaries), own any equity in any other Person.

 

(d) The Parent is not a participant in any joint venture, partnership or similar arrangement.

 

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(e) Parent has made available to the Company complete and correct copies of the Organizational Documents of the Parent Subsidiaries as currently in effect. The Organizational Documents of the Parent Subsidiaries are in full force and effect and no Parent Subsidiary is in violation of any provision of its Organizational Documents.

 

5.7 Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to Parent’s knowledge, currently threatened in writing (a) against Parent or any officer, director or employee of Parent arising out of their employment or board relationship with Parent; (b) that questions the validity of this Agreement or the right of Parent to enter into it, or to consummate the transactions contemplated by this Agreement; or (c) to Parent’s knowledge, that reasonably would be expected to have, either individually or in the aggregate, a Material Adverse Effect. Neither Parent nor, to Parent’s knowledge, any of its officers, directors or employees is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality (in the case of officers, directors or employees, such as would affect Parent). There is no action, suit, proceeding or investigation by Parent pending or which Parent intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to Parent) involving the prior employment of any of Parent’s employees, their services provided in connection with Parent’s business, any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers.

 

5.8 Intellectual Property. Parent owns or possesses or believes it can acquire on commercially reasonable terms sufficient legal rights to all Intellectual Property without any known conflict with, or infringement of, the rights of others, including prior employees or consultants, or academic or medical institutions with which any of them may be affiliated now or may have been affiliated in the past. To Parent’s knowledge, no product or service marketed or sold (or proposed to be marketed or sold) by Parent violates or will violate any license or infringes or will infringe any intellectual property rights of any other Person. Other than with respect to commercially available software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the Parent’s Intellectual Property, nor is Parent bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person. Parent has not received any communications alleging that Parent has violated, or by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other proprietary rights or processes of any other Person. Parent has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with Parent’s business. To Parent’s knowledge, it will not be necessary to use any inventions of any of its employees or consultants (or Persons it currently intends to hire) made prior to their employment by Parent, including prior employees or consultants, or academic or medical institutions with which any of them may be affiliated now or may have been affiliated in the past. Each employee and consultant has assigned to Parent all intellectual property rights he or she owns that are related to Parent’s business as now conducted and as presently proposed to be conducted and all intellectual property rights that he, she or it solely or jointly conceived, reduced to practice, developed or made during the period of his, her or its employment or consulting relationship with Parent that (a) relate, at the time of conception, reduction to practice, development, or making of such intellectual property right, to Parent’s business as then conducted or as then proposed to be conducted, (b) were developed on any amount of the Parent’s time or with the use of any of Parent’s equipment, supplies, facilities or information or (c) resulted from the performance of services for Parent. For purposes of this section, Parent shall be deemed to have knowledge of a patent right if Parent has actual knowledge of the patent right. No government funding, facilities of a university, college, other educational institution or research center, or funding from third parties was used in the development of any Intellectual Property of Parent. No Person who was involved in, or who contributed to, the creation or development of any Intellectual Property of Parent has performed services for the government, university, college, or other educational institution or research center in a manner that would affect Parent’s rights in any Intellectual Property of Parent.

 

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5.9 Compliance with Legal Requirements and Other Instruments. Neither Parent nor any Parent Subsidiary is in violation or default (a) of any provisions of their respective Organizational Documents, (b) of any instrument, judgment, order, writ or decree, (c) under any note, indenture or mortgage, or (d) under any lease, agreement, contract or purchase order to which it is a party or by which it is bound, or (e) of any provision of federal or state statute, rule or regulation applicable to Parent or any Parent Subsidiary or the operation of their respective businesses. Parent has complied, and is now complying, with all applicable Legal Requirements, including, where firearms and an online matching service of buyers and sellers of firearms and related products and services is a component of any of Parent’s or any Parent Subsidiary’s products or services, and has not received any written communication from any Governmental Authority relating to any examination, audit, inquiry or alleged violation of any Legal Requirement or deficiency in Parent’s related policies or procedures. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any provision, instrument, judgment, order, writ, decree, contract or agreement; or (ii) an event which results in the creation of any Encumbrance upon any assets of Parent or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to Parent.

 

5.10 Actions. Except as set forth on Section 5.10 of the Parent Disclosure Schedule, Parent has not incurred any Indebtedness for money borrowed or incurred any other liabilities individually in excess of $500,000.00 in the aggregate and not in the ordinary course.

 

5.11 Certain Transactions.

 

(a) Other than (i) standard employee benefits generally made available to all employees, (ii) standard director and officer indemnification agreements approved by Parent’s Board of Directors, and (iii) the purchase of shares of Parent Common Stock and the issuance of options to purchase shares of Parent Common Stock, in each instance, approved in the written minutes of Parent’s Board of Directors, there are no agreements, understandings or proposed transactions between Parent or any Parent Subsidiary and any of their respective officers, directors, consultants or Key Employees, or any Affiliate thereof.

 

(b) Parent is not indebted, directly or indirectly, to any of its directors, officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or employee relocation expenses and for other customary employee benefits made generally available to all employees. None of Parent’s directors, officers or employees, or any members of their immediate families, or any Affiliate of the foregoing are, directly or indirectly, indebted to Parent or, to Parent’s knowledge, have any (i) material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any of Parent’s customers, suppliers, service providers, joint venture partners, licensees and competitors, (ii) direct or indirect ownership interest in any firm or corporation with which Parent is affiliated or with which Parent has a business relationship, or any firm or corporation which competes with Parent except that directors, officers, employees or stockholders of Parent may own stock in (but not exceeding two percent (2%) of the outstanding capital stock of) publicly traded companies that may compete with Parent or (iii) financial interest in any material contract with Parent.

 

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5.12 Property.

 

(a) Parent has good and valid title to, or a valid leasehold interest in, all real and personal property and other assets reflected in the Parent Financial Statements as of March 31, 2021, or acquired after such date, other than properties and assets sold or otherwise disposed of in the ordinary course of business since such date. The property and assets that Parent owns are free and clear of all Encumbrances, except for Permitted Encumbrances. With respect to the property and assets it leases, Parent is in compliance with such leases and holds a valid leasehold interest free of any Encumbrances other than those of the lessors of such property or assets. The Company does not own and has never owned any real property.

 

(b) The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property of Parent are structurally sound, are in good operating condition and repair (ordinary wear and tear excepted) and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, furniture, fixtures, machinery, 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.

 

5.13 Financial Statements

 

5.14 Except as disclosed on Section 5.15 of the Parent Disclosure Schedule, Parent has delivered to the Company its unaudited consolidated financial statements as of December 31, 2020 and its audited consolidated financial statements (including balance sheet, income statement and statement of cash flows) for the fiscal year ended March 31, 2020 (collectively, the “Parent Financial Statements”). The Parent Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated, except that the unaudited Parent Financial Statements may not contain all footnotes required by GAAP. The Parent Financial Statements fairly present in all material respects the financial condition and operating results of Parent and the Parent Subsidiaries as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Parent Financial Statements to normal year-end audit adjustments. Except as set forth in the Parent Financial Statements, neither Parent nor any of the Parent Subsidiaries have any material liabilities or obligations, contingent or otherwise, other than (a) obligations under contracts and commitments incurred in the ordinary course of business; and (b) liabilities and obligations of a type or nature not required under GAAP to be reflected in the Parent Financial Statements. Parent maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.

 

5.14 Changes. Since March 31, 2021, there has not been:

 

(a) any change in the assets, liabilities, financial condition or operating results of Parent from that reflected in the Parent Financial Statements, except changes in the ordinary course of business that have not caused, in the aggregate, a Material Adverse Effect;

 

(b) any material damage, destruction or loss, whether or not covered by insurance;

 

(c) any waiver or compromise by Parent or any Parent Subsidiary of a valuable right or of a material debt owed to it;

 

(d) any satisfaction or discharge of any Encumbrance or payment of any obligation by Parent, except in the ordinary course of business and the satisfaction or discharge of which would not have a Material Adverse Effect;

 

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(e) any material change to a material contract or agreement by which Parent or any of its assets are bound or subject or a termination of any such contract or agreement;

 

(f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder of Parent;

 

(g) any resignation or termination of employment of any officer or Key Employee of Parent;

 

(h) any Encumbrance created by Parent, with respect to any of its material properties or assets, except Encumbrances for taxes not yet due or payable and Encumbrances that arise in the ordinary course of business and do not materially impair Parent’s ownership or use of such property or assets;

 

(i) any loans or guarantees made by Parent to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

 

(j) any declaration, setting aside or payment or other distribution in respect of any of Parent’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by Parent;

 

(k) any sale, assignment or transfer of any material Intellectual Property of Parent;

 

(l) any loss of, or material order cancellation by, any major customer of Parent;

 

(m) to Parent’s knowledge, any other event or condition of any character, other than events affecting the economy or Parent’s industry generally, that could reasonably be expected to have a materially adverse impact on the assets, liabilities, financial condition or operating results of Parent; or

 

(n) any arrangement or commitment by Parent or any Parent Subsidiary to do any of the acts described in this Section 5.14.

 

5.15 Employee Matters.

 

(a) To Parent’s knowledge, none of Parent’s employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of Parent that would conflict with Parent’s business. Neither the execution or delivery of this Agreement, nor the carrying on of Parent’s business by the employees of Parent, nor the conduct of Parent’s business as now conducted and as presently proposed to be conducted, will, to Parent’s knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.

 

(b) Parent is not delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants or independent contractors. Parent has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment, including those related to wages, hours, worker classification and collective bargaining. Parent has withheld and paid to the appropriate governmental entity or is holding for payment not yet due to such governmental entity all amounts required to be withheld from employees of Parent and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing.

 

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(c) To Parent’s knowledge, no Key Employee of Parent intends to terminate employment with Parent or is otherwise likely to become unavailable to continue as a Key Employee. Parent does not have a present intention to terminate the employment of any of the foregoing. The employment of each employee of Parent is terminable at the will of Parent. Except as required by law, upon termination of the employment of any such employees, no severance or other payments will become due. Parent has no policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.

 

(d) Parent has not made any representations regarding equity incentives to any officer, employee, director or consultant that are inconsistent with the share amounts and terms set forth in the minutes of meetings of the Board of Directors of Parent.

 

(e) Each former Key Employee of Parent whose employment was terminated by Parent, if applicable, has entered into an agreement with the Parent providing for the full release of any claims against Parent or any related party arising out of such employment.

 

(f) There are no employee benefit plans maintained, established or sponsored by Parent, or which Parent participates in or contributes to, which is subject to ERISA.

 

(g) Parent is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to Parent’s knowledge, has sought to represent any of the employees, representatives or agents of Parent. There is no strike or other labor dispute involving Parent pending, or to Parent’s knowledge, threatened, nor is Parent aware of any labor organization activity involving its employees.

 

(h) To Parent’s knowledge, none of the Key Employees or directors of Parent has been (i) subject to voluntary or involuntary petition under the federal bankruptcy laws or any state insolvency law or the appointment of a receiver, fiscal agent or similar officer by a court for his or her business or property; (ii) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) subject to any order, judgment or decree (not subsequently reversed, suspended, or vacated) of any court of competent jurisdiction permanently or temporarily enjoining him or her from engaging, or otherwise imposing limits or conditions on his or her engagement in any securities, investment advisory, banking, insurance, or other type of business or acting as an officer or director of a public company; or (iv) found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated any federal or state securities, commodities, or unfair trade practices law, which such judgment or finding has not been subsequently reversed, suspended, or vacated.

 

5.16 Employee Agreements. Each current and former employee and officer of Parent, and each current and former consultant of Parent, who either alone or in concert with others has developed, invented, programmed or designed any Intellectual Property of Parent has executed an agreement with Parent regarding confidentiality and proprietary information substantially in the form or forms made available to the Company (the “Parent Confidential Information Agreements”), and each such Parent Confidential Information Agreement contains a non-solicitation agreement. No current or former employee, officer or consultant of Parent has excluded works or inventions from his or her assignment of inventions pursuant to such Person’s Parent Confidential Information Agreement. To Parent’s knowledge, no Person who is party to a Parent Confidential Information Agreement is in violation of the terms thereof.

 

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5.17 Tax Returns and Payments. There are no federal, state, county, local or foreign Taxes due and payable by Parent which have not been timely paid. There are no accrued and unpaid federal, state, country, local or foreign Taxes of Parent which are due, whether or not assessed or disputed. There have been no examinations or audits of any Tax Returns by any applicable Taxing Authority. Parent has duly and timely filed all federal, state, county, local and foreign Tax Returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to Taxes for any year.

 

5.18 Insurance. Parent has in full force and effect insurance policies concerning such casualties as would be reasonable and customary for companies like Parent, with extended coverage, sufficient in amount (subject to reasonable deductions) to allow it to replace any of its properties that might be damaged or destroyed.

 

5.19 Permits. Parent has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business. Parent is not in default in any material respect under any of such franchises, permits, licenses or other similar authority, and all such franchises, permits, licenses and other similar authority are valid and in full force and effect.

 

5.20 Corporate Documents. The Parent Organizational Documents are in the form provided to the Company. The copy of the minute books of Parent made available to the Company contains minutes of all meetings of directors and stockholders of Parent and all actions by written consent without a meeting by the directors and stockholders of Parent since their respective dates of incorporation and accurately reflects in all material respects all actions by the directors (and any committee of directors) and stockholders of Parent with respect to all transactions referred to in such minutes.

 

5.21 Real Property Holding Corporation. Parent is not now and has never been a “United States real property holding corporation” as defined in the Code and any applicable regulations promulgated thereunder. Parent has filed with the Internal Revenue Service all statements, if any, with its United States income Tax Returns which are required under such regulations.

 

5.22 Environmental and Safety Laws. (a) Parent is and has been in compliance with all Environmental Laws in all material respects; (b) there has been no material release or to Parent’s knowledge threatened release of any Hazardous Substance, on, upon, into or from any site currently or heretofore owned, leased or otherwise used by Parent; (c) there have been no Hazardous Substances generated by Parent that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States; and (d) there are no underground storage tanks located on, no PCB’s or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored on, any site owned or operated by Parent, except for the storage of hazardous waste in compliance with Environmental Laws.

 

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5.23 Foreign Corrupt Practices Act. Neither Parent nor any of its directors, officers, employees or agents have, directly or indirectly, made, offered, promised or authorized any payment or gift of any money or anything of value to or for the benefit of any “foreign official” (as such term is defined in the FCPA), foreign political party or official thereof or candidate for foreign political office for the purpose of (a) influencing any official act or decision of such official, party or candidate, (b) inducing such official, party or candidate to use his, her or its influence to affect any act or decision of a foreign governmental authority, or (c) securing any improper advantage, in the case of (a), (b) and (c) above in order to assist Parent or any of its Affiliates in obtaining or retaining business for or with, or directing business to, any Person. Neither Parent nor any of its directors, officers, employees or agents have made or authorized any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of funds or received or retained any funds in violation of any law, rule or regulation. Parent further represents that it has maintained, and has caused each of its Affiliates to maintain, systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) and written policies to ensure compliance with the FCPA or any other applicable anti-bribery or anti-corruption law, and to ensure that all books and records of Parent accurately and fairly reflect, in reasonable detail, all transactions and dispositions of funds and assets. Neither Parent nor any of its officers, directors or employees are the subject of any allegation, voluntary disclosure, investigation, prosecution or other Enforcement Action related to the FCPA or any other anti-corruption law.

 

5.24 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s 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 Sub.

 

5.25 Merger Consideration. Parent has reserved a sufficient number of authorized but unissued shares of Parent Common Stock for issuance in connection with the Merger. All shares of Parent Common Stock constituting the Closing Parent Stock Consideration, the Escrowed Parent Stock Consideration and the Additional Parent Stock Consideration will be duly authorized and validly issued, fully paid and non-assessable, will not be subject to any right of rescission, right of first refusal or preemptive right, and will be offered, issued, sold and delivered by Parent in compliance with all Legal Requirements and its Organizational Documents. Parent has submitted to NASDAQ notice covering the shares of Parent Common Stock issuable on the Closing Date in connection with the Merger. The issuance of the Parent Common Stock in connection with the Merger will not violate any NASDAQ listing rules or regulations (collectively, “NASDAQ Requirements”).

 

5.26 SEC Filings; NASDAQ Compliance.

 

(a) Parent has timely filed with or furnished to, as applicable, the Securities Exchange Commission (the “SEC”) all registration statements, prospectuses, reports, schedules, forms, statements, and other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it with the SEC (the “Parent SEC Documents”). True, correct, and complete copies of all the Parent SEC Documents are publicly available on EDGAR. As of their respective filing dates or, if amended or superseded by a subsequent filing prior to the Closing Date, as of the date of the last such amendment or superseding filing (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), each of the Parent SEC Documents complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the Sarbanes-Oxley Act, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Documents. None of the Parent SEC Documents, including any financial statements, schedules, or exhibits included or incorporated by reference therein at the time they were filed (or, if amended or superseded by a subsequent filing prior to the Closing Date, as of the date of the last such amendment or superseding filing), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. To Parent’s knowledge, none of the Parent SEC Documents is the subject of ongoing SEC review or outstanding SEC investigation and there are no outstanding or unresolved comments received from the SEC with respect to any of the Parent SEC Documents. None of the Parent Subsidiaries is required to file or furnish any forms, reports, or other documents with the SEC.

 

(b) Parent is in compliance in all material respects with all NASDAQ Requirements.

 

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(c) The certifications and statements required by (i) Rule 13a-14 under the Exchange Act and (ii) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the Parent SEC Documents (collectively, the “Certifications”) are accurate in all material respects and complete in all material respects and comply in all material respects as to form and content with all applicable Legal Requirements.

 

(d) The financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents: (i) complied as to form in all material respects with the Securities Act and the Exchange Act, as applicable, and the published rules and regulations of the SEC applicable thereto, (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated and (iii) fairly present, in all material respects, the financial position of Parent as of the respective dates thereof and the results of operations and cash flows of Parent for the periods covered thereby. Other than as expressly disclosed in the Parent SEC Documents filed prior to the date hereof, there has been no material change in Parent’s accounting methods or principles that would be required to be disclosed in Parent’s financial statements in accordance with GAAP. The books of account and other financial records of Parent and each of its Subsidiaries are true and complete in all material respects. Except as set forth in the Parent Financial Statements, neither Parent nor any of the Parent Subsidiaries have any material liabilities or obligations, contingent or otherwise, other than (a) obligations under contracts and commitments incurred in the ordinary course of business; and (b) liabilities and obligations of a type or nature not required under GAAP to be reflected in the Parent Financial Statements. Parent maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.

 

(e) Parent’s auditor has at all times since the date of enactment of the Sarbanes-Oxley Act been: (i) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act), (ii) “independent” with respect to Parent within the meaning of Regulation S-X under the Exchange Act and (iii) in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder.

 

(f) Parent has not received any comment letter from the SEC or the staff thereof or any correspondence from NASDAQ or the staff thereof relating to the delisting or maintenance of listing of the Parent Common Stock on NASDAQ. Parent has not disclosed any unresolved comments in the Parent SEC Documents.

 

(g) There have been no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer, or general counsel of Parent, the Parent Board of Directors or any committee thereof, other than ordinary course audits or reviews of accounting policies and practices or internal controls required by the Sarbanes-Oxley Act.

 

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(h) Parent maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including policies and procedures sufficient to provide reasonable assurance (i) that Parent maintains records that in reasonable detail accurately and fairly reflect Parent’s transactions and dispositions of assets, (ii) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (iii) that receipts and expenditures are made only in accordance with authorizations of management and the Parent Board and (iv) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of Parent’s assets that could have a material effect on Parent’s financial statements. Parent has evaluated the effectiveness of Parent’s internal control over financial reporting and, to the extent required by applicable Legal Requirements, presented in any applicable Parent SEC Document that is a report on Form 10-K or Form 10-Q (or any amendment thereto) its conclusions about the effectiveness of the internal control over financial reporting as of the end of the period covered by such report or amendment based on such evaluation. Parent has disclosed to Parent’s auditors and the Audit Committee of the Parent Board (and made available to the Company a summary of the significant aspects of such disclosure) (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect Parent’s ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in Parent’s or its Subsidiaries’ internal control over financial reporting. Except as disclosed in the Parent SEC Documents filed prior to the date hereof, Parent’s internal control over financial reporting is effective and Parent has not identified any material weaknesses in the design or operation of Parent’s internal control over financial reporting.

 

(i) Parent’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are designed to ensure that all information (both financial and nonfinancial) required to be disclosed by Parent in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such information is accumulated and communicated to Parent’s principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosure and to make the Certifications. Except as disclosed in the Parent SEC Documents, such disclosure controls and procedures are effective. Parent has carried out evaluation of the effectiveness of its disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act.

 

5.27 Independent Investigation. Parent and Sub have conducted their own independent investigation, review and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Company and the Company Subsidiaries, and each acknowledges that it has been provided adequate access to the personnel, properties, assets, premises, books and records, and other documents and data of the Company for such purpose. Each of Parent and Sub acknowledges and agrees that: (a) in making its decision to enter into this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby, each of Parent and Sub has relied solely upon its own investigation and the express representations and warranties of the Company set forth in Section 4 of this Agreement (including the related portions of the Company Disclosure Schedule); and (b) neither the Company nor any other Person has made any representation or warranty as to the Company (or any of the Company Subsidiaries), this Agreement or any of the Ancillary Documents, except as expressly set forth in Section 4 of this Agreement (including the related portions of the Company Disclosure Schedule).

 

Section 6. Covenants.

 

6.1 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, conditioned or delayed), the Company and all Company Subsidiaries shall (a) conduct the business of the Company in the ordinary course of business consistent with past practice; and (b) use reasonable best efforts to maintain and preserve intact the current organization, business and franchise of the Company and the Company Subsidiaries and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with the Company. From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by the Company (which consent shall not be unreasonably withheld, conditioned or delayed), Parent and the Parent Subsidiaries (including Sub) shall (a) conduct the business of Parent in the ordinary course of business consistent with past practice; and (b) use reasonable best efforts to maintain and preserve intact the current organization, business and franchise of Parent and the Parent Subsidiaries and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with Parent or any Parent Subsidiary. Without limiting the foregoing, from the date hereof until the Closing Date, each of the Company, the Company Subsidiaries, Parent and the Parent Subsidiaries (including Sub) shall:

 

(a) preserve and maintain all of its permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from any applicable Governmental Authorities;

 

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

 

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

 

(d) continue in full force and effect without modification all insurance policies, except as required by applicable Legal Requirements;

 

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

 

(f) perform all of its obligations under all contracts relating to or affecting its properties, assets or business;

 

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

 

(h) comply in all material respects with all applicable Legal Requirements; and

 

(i) not take or permit any action that would cause any of the changes, events or conditions described in Section 4.14 or Section 5.14 to occur.

 

6.2 Access to Information.

 

(a) From the date hereof until the Closing, the Company and all Company Subsidiaries shall (i) afford Parent and its Representatives full and free access to and the right to inspect all of the properties, assets, premises, books and records, contracts and other documents and data related to the Company; (ii) 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 (iii) instruct its Representatives to cooperate with Parent in its investigation of the Company. Any investigation pursuant to this Section 6.2(a) shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the Company or any of the Company Subsidiaries. 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.

 

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(b) From the date hereof until the Closing, Parent and Sub shall (i) afford the Company and its Representatives full and free access to and the right to inspect all of the properties, assets, premises, books and records, contracts and other documents and data related to Parent and/or the Parent Subsidiaries; (ii) furnish the Company and its Representatives with such financial, operating and other data and information related to Parent and/or the Parent Subsidiaries as the Company or any of its Representatives may reasonably request; and (iii) instruct its Representatives to cooperate with the Company in its investigation of Parent and the Parent Subsidiaries. Any investigation pursuant to this Section 6.2(b) shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of Parent. No investigation by the Company or other information received by the Company shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Parent or Sub in this Agreement.

 

(c) Parent and the Company (or its applicable Company Subsidiary) shall comply with, and shall cause their respective Representatives to comply with, all of their respective obligations under the Non-Disclosure and Confidentiality Agreement, dated January 25, 2021, between Parent and IA Tech, LLC (the “Confidentiality Agreement”), which shall survive the termination of this Agreement in accordance with the terms set forth therein.

 

6.3 No Solicitation of Other Bids.

 

(a) From and after the date hereof and continuing until the earlier of the Closing Date or the termination of this Agreement, 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.

 

(b) In addition to the other obligations under this Section 6.3, 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 or 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 6.3 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.

 

6.4 Notice of Certain Events. From the date hereof until the Closing, the Company shall promptly notify Parent, and Parent shall promptly notify the Company, 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 such Person hereunder not being true and correct in any material respect or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 8.2 or Section 8.3 to be satisfied;

 

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(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 such Party’s knowledge, threatened against, relating to or involving or otherwise affecting the Party that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.7 or Section 5.7 or that relates to the consummation of the transactions contemplated by this Agreement.

 

(b) Parent’s or the Company’s receipt of information pursuant to this Section 6.4 shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by the Company or Parent or Sub in this Agreement and shall not be deemed to amend or supplement the Company Disclosure Schedule or the Parent Disclosure Schedule; provided, however, that if Parent or the Company has the right to, but does not elect to, terminate this Agreement within ten (10) Business Days of its receipt of such information from the other, then such Party shall be deemed to have irrevocably waived any right to terminate this Agreement with respect to such matter and, further, shall have irrevocably waived its right to indemnification with respect to such matter.

 

6.5 Resignations. The Company shall deliver to Parent written resignations, effective as of the Closing Date, of the officers and directors of the Company.

 

6.6 Governmental Approvals and Consents.

 

(a) Each Party shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions required under any Legal Requirement 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 with the other party and its Affiliates in promptly seeking to obtain all such Consents, authorizations, orders and approvals.

 

(b) The Company and Parent shall use reasonable best efforts to give all notices to, and obtain all Consents from, all third parties that are described in Section 4.3 and Section 5.3 of the Company Disclosure Schedule and Parent Disclosure Schedule, respectively.

 

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

 

(i) respond to any inquiries by any Governmental Authority regarding matters 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

 

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(iii) in the event any order of any Governmental Authority 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 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 Legal Requirement 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 6.6 shall require, or be construed to require, the Company, Company Member, Parent or any of their 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 or the Company or Company Member of the transactions contemplated by this Agreement; or (iii) any material modification or waiver of the terms and conditions of this Agreement.

 

6.7 Directors’ and Officers’ Indemnification.

 

(a) Parent and Sub agree that all rights to indemnification, advancement of expenses and exculpation by the Company or Company Subsidiary now existing in favor of each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time an officer, director, manager, member or shareholder of the Company or applicable Company Subsidiary (each an “D&O Indemnified Party”) as provided in the Company Organizational Documents or the Organizational Documents of the applicable Company Subsidiary, in each case as in effect on the date of this Agreement, or pursuant to any other contracts in effect on the date hereof and disclosed in Section 6.7 of the Company Disclosure Schedule, shall be assumed by the Surviving Company in the Merger, without further action, at the Effective Time and shall survive the Merger and shall remain in full force and effect in accordance with their terms, and, in the event that any proceeding is pending or asserted or any claim made during such period, until the final disposition of such proceeding or claim.

 

(b) For three (3) years after the Effective Time, to the fullest extent permitted under applicable Legal Requirements, Parent and the Surviving Company (the “D&O Indemnifying Parties”) shall indemnify, defend and hold harmless each D&O Indemnified Party against all Losses arising in whole or in part out of actions or omissions in their capacity as such occurring at or prior to the Effective Time (including in connection with the transactions contemplated by this Agreement), and shall reimburse each D&O Indemnified Party for any legal or other expenses reasonably incurred by such D&O Indemnified Party in connection with investigating or defending any such Losses as such expenses are incurred, subject to the Surviving Company’s receipt of an undertaking by such D&O Indemnified Party to repay such legal and other fees and expenses paid in advance if it is ultimately determined in a final and non-appealable judgment of a court of competent jurisdiction that such D&O Indemnified Party is not entitled to be indemnified under applicable Legal Requirements; provided, however, that the Surviving Company will not be liable for any settlement effected without the Surviving Company’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed).

 

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(c) Prior to or at the Closing, the Company shall obtain and fully pay for a “tail” insurance policy with a claims period of at least six (6) years from the Effective Time with at least the same coverage and amount and containing terms and conditions that are not less advantageous to the officers and managers of the Company as the Company’s existing policy with respect to claims arising out of or relating to events which occurred before or at the Effective Time (including in connection with the transactions contemplated by this Agreement) (the “D&O Tail Policy”). Parent shall bear the cost of the D&O Tail Policy, and such costs, to the extent not paid prior to the Closing, shall not be included in the determination of Transaction Expenses. During the term of the D&O Tail Policy, Parent shall not (and shall cause the Surviving Company not to) take any action following the Closing to cause the D&O Tail Policy to be cancelled or any provision therein to be amended or waived without the prior written consent of the Company Member, such consent to be granted or withheld in the Company Member’s sole discretion.

 

(d) The obligations of Parent and the Surviving Company under this Section 6.7 shall survive the consummation of the Merger and shall not be terminated or modified in such a manner as to adversely affect any D&O Indemnified Party to whom this Section 6.7 applies without the consent of such affected D&O Indemnified Party (it being expressly agreed that the D&O Indemnified Parties to whom this Section 6.7 applies shall be third-party beneficiaries of this Section 6.7, each of whom may enforce the provisions of this Section 6.7).

 

(e) In the event Parent, the Surviving Company or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in either such case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Company, as the case may be, shall assume all of the obligations set forth in this Section 6.7. The agreements and covenants contained herein shall not be deemed to be exclusive of any other rights to which any D&O Indemnified Party is entitled, whether pursuant to law, contract or otherwise. Nothing in this Agreement is intended to, shall be construed to or shall release, waive or impair any rights to directors’ and officers’ insurance claims under any policy that is or has been in existence with respect to the Company or its officers, managers and employees, it being understood and agreed that the indemnification provided for in this Section 6.7 is not prior to, or in substitution for, any such claims under any such policies.

 

6.8 Post-Closing Audit. The Company Member acknowledges and agrees to assist the Parent, at Parent’s sole cost and expense, in conducting, no later than seventy-five (75) days following the Closing Date, an audit of financial statements for the Company and as specified by Rule 3-05 of Regulation S-X of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, provided such audit shall be at the sole cost and expense of Parent. The Company Member and the Company agree that the Parent’s year-end financial reporting period will be determined by the Parent and it is expected to be December 31. In connection therewith, Company Member agrees to obtain and provide to the auditors any and all data and financial information in the possession of Company Member which are reasonably necessary or required by the auditors in connection with their timely preparation and conducting of the foregoing audit. The rights and obligations of Parent and Company Member under this Section 6.8 shall survive Closing.

 

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6.9 Public Announcements. Unless otherwise required by applicable Legal Requirements (based upon the reasonable advice of counsel), no Party 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, conditioned or delayed), and the Parties shall cooperate as to the timing and contents of any such announcement(s).

 

6.10 Further Assurances. At and after the Effective Time, the officers and managers of the Surviving Company shall be authorized to execute and deliver, in the name and behalf of the Company or Sub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Company 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 Company as a result of, or in connection with, the Merger. In addition, from and after the Effective Date, Parent shall, and shall cause the Surviving Company to, comply with its obligations (including the Company’s obligations) under the Distribution Agreement and related documents.

 

6.11 Closing Conditions. From the date hereof until the Closing, each Party shall use reasonable best efforts to take such actions as are necessary to expeditiously satisfy the Closing conditions set forth in Section 8 hereof.

 

6.12 Conflict Waiver; Attorney-Client Privilege.

 

(a) Each of the parties hereto acknowledges and agrees that:

 

(i) Arnall Golden Gregory LLP (“AGG”) has acted as counsel to Company Member, the Company and the Company Subsidiaries in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. Parent and Sub agree, and shall cause the Surviving Company to agree, that, following consummation of the transactions contemplated hereby, such representation and any prior representation of the Company or any Company Subsidiary by AGG shall not preclude AGG from serving as counsel to the Company Member or any of his Affiliates (except for the Company and any Company Subsidiary), in connection with any litigation, claim, dispute or obligation arising out of or relating to this Agreement or the transactions contemplated hereby.

 

(ii) Each of Parent and Sub shall not, and shall cause the Surviving Company not to, seek or have AGG disqualified from any such representation based upon the prior representation of the Company or a Company Subsidiary by AGG solely with respect to representing the Company Member. Each of the parties hereto hereby consents thereto and waives any conflict of interest arising from such prior representation, and each of such parties shall cause any of its Affiliates to consent to waive any conflict of interest arising from such representation of the Company Member. Each of the parties acknowledges that such consent and waiver is voluntary, that it has been carefully considered, and that the parties have consulted with counsel or have been advised they should do so in connection herewith.

 

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(b) All communications between the Company Member (or any of his Affiliates) or the Company, on the one hand, and AGG, on the other hand, relating to the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (the “Privileged Communications”) shall be deemed to be attorney-client privileged and the expectation of client confidence relating thereto shall belong solely to the Company Member and shall not pass to or be claimed by Parent, Sub or the Surviving Company. Accordingly, Parent and the Surviving Company shall not have access to any Privileged Communications or to the files of AGG relating to such engagement from and after Closing. Without limiting the generality of the foregoing, from and after the Closing, (i) the Company Member (and not Parent or the Surviving Company) shall be the sole holders of the attorney-client privilege with respect to such engagement, and none of Parent or the Surviving Company shall be a holder thereof, (ii) to the extent that files of AGG in respect of such engagement constitute property of the client, only the Company Member (and not Parent nor the Company) shall hold such property rights and (iii) AGG shall have no duty whatsoever to reveal or disclose any such attorney-client communications or files to Parent or the Surviving Company by reason of any attorney-client relationship between Seller Group Law Firm and the Company or otherwise. Notwithstanding the foregoing, in the event that a dispute arises between Parent or its Affiliates (including the Surviving Company), on the one hand, and a third party other than any of the Company Member or any of his Affiliates, on the other hand, Parent and its Affiliates (including the Surviving Company) may assert the attorney-client privilege to prevent disclosure of confidential communications to such third party; provided, however, that its Affiliates (including the Surviving Company) may waive such privilege without the prior written consent of the Company Member, which consent shall not be unreasonably withheld, conditioned or delayed.

 

6.13 Employees; Benefit Plans. Except as may be otherwise set forth in the Key Employee Employment Agreements, during the period commencing at the Closing and ending on the date which is twelve (12) months from the Closing (or if earlier, the date of the employee’s termination of employment with the Company), Parent currently intends to cause the Surviving Company to provide each employee who remains employed immediately after the Closing with compensation arrangements comparable what they currently have.

 

6.14 Proxy Statement. Parent shall take all reasonable actions to duly call, give notice of, convene, and hold a meeting of its stockholders (the “Parent Stockholders Meeting”) as soon as reasonably practicable but no later than one hundred eighty (180) calendar days after the Closing Date. In connection therewith, Parent shall prepare and mail a proxy statement (the “Proxy Statement”) to the holders of Parent Common Stock in advance of the Parent Stockholders Meeting. Parent covenants and agrees that none of the information supplied or to be supplied by or on behalf of Parent or Sub for inclusion or incorporation by reference in the Proxy Statement will, at the date it is first distributed to Parent’s stockholders or at the time of the Parent Stockholders Meeting or at the time of any amendment or supplement thereof, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Parent agrees that the Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act. Parent shall pay the Company Member by advancement for all reasonable and customary costs and expenses incurred by the Company Member or any of its Affiliates in connection with the Proxy Statement or the Parent Stockholders Meeting. Parent shall use reasonable best efforts to: (i) recommend and solicit from the holders of Parent Common Stock proxies in favor of the approval of the issuance of the Additional Parent Stock Consideration; and (ii) take all other actions necessary or advisable to secure the vote or consent of the holders of Parent Common Stock required by applicable Legal Requirements and NASDAQ Requirements to obtain such approval (the “Parent Stockholder Approval”). For the avoidance of doubt, the Company Member’s shares of Parent Common Stock shall not be included in the determination of whether the requisite Parent Stockholder Approval has been secured. Parent shall keep the Company Member updated with respect to proxy solicitation results as requested by the Company Member.

 

Section 7. Tax Matters.

 

7.1 Tax Covenants.

 

(a) Without the prior written consent of Parent, prior to the Closing, the Company, its Representatives and the Company Member 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 Company in respect of any Post-Closing Tax Period.

 

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(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 Company Member when due. The Company Member 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). Anything in this Agreement to the contrary, any income tax liabilities, including interest and penalties, of the Company for Pre-Closing Tax Periods is the sole responsibility of the Company Member.

 

(c) Through the end of the Closing Date, Parent and Sub shall maintain Sub’s status as an entity whose existence is disregarded as separate from Parent for U.S. federal and all relevant local income tax purposes and shall not take any action inconsistent therewith.

 

7.2 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 (other than agreements entered into in the ordinary course of business the primary purpose of which is not the sharing of Taxes). After such date neither the Company nor any of its Representatives shall have any further rights or liabilities thereunder.

 

7.3 Tax Indemnification.

 

(a) Subject to the limitations set forth in Sections 7.3(b) and 7.9, the Company Member shall indemnify the Company, Parent, and each Parent Indemnitee and hold them harmless from and against (i) any Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 4.20; (ii) any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in this Section 7; (iii) income tax, penalties and interest of the Company with respect to Pre-Closing Tax Periods; (iv) any Potential Sales Tax Liability (subject to Section 7.3(b)); (v) all Taxes of the Company or relating to the business of the Company for all Pre-Closing Tax Periods (but only to the extent such Taxes are covered by the Rep and Warranty Policy, which shall be the sole and exclusive remedy for any such claims); (vi) 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 foreign, state or local law; and (vii) 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 reasonable out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) incurred in connection therewith, the Company Member shall reimburse Parent for any Taxes of the Company that are the responsibility of the Company Member pursuant to this Section 7.3 within ten (10) business days after payment of such Taxes by Parent or the Company (subject to Sections 7.3 and 7.9).

 

(b) Notwithstanding Section 7.3(a) above or any other provision of this Agreement, (i) in no event shall the Company Member be required to indemnify any Person under this Section 7.3, or any other provision of this Agreement for any potential sales Taxes set forth in Section 4.20 of the Company Disclosure Schedule (“Potential Sales Tax Liability”) to the extent the aggregate monetary amount of any such indemnification claims exceed Eight Million Dollars ($8,000,000); and this Section 7.3 shall provide the sole and exclusive remedy with respect to any Potential Sales Tax Liability. For the avoidance of doubt, the Company Member’s aggregate liability for any Potential Sales Tax Liability shall not exceed Eight Million Dollars ($8,000,000). Any indemnification claim(s) with respect to Potential Sales Tax Liability must be brought against the Company Member prior to the second (2nd) anniversary of the Closing Date

 

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7.4 Tax Returns.

 

(a) The Company Member shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns required to be filed by the Company that are due on or before the Closing Date (taking into account any extensions) and all Tax Returns required to be filed by the Company after the Closing Date (taking into account any extension) with respect to a Pre-Closing Tax Period, 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 applicable Legal Requirements).

 

(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 any Straddle Period. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by applicable Legal Requirements) and, if it is an income or other material Tax Return, shall be submitted by Parent to the Company Member (together with schedules, statements and, to the extent requested by the Company Member, supporting documentation) at least thirty (30) days prior to the due date (including extensions) of such Tax Return. If the Company Member objects to any item on any such Tax Return that relates to a Pre-Closing Tax Period, it shall, within ten (10) 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 Company Member shall negotiate in good faith and use their reasonable best efforts to resolve such items. If Parent and the Company Member 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 twenty (20) 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 Company Member. 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 offset against the Merger Consideration (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 7.5 to the portion of such Straddle Period ending on the Closing Date.

 

7.5 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 arising in a Pre-Closing Tax Period 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.

 

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7.6 Contests. Parent agrees to give written notice to the Company Member 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 Section 7 (a “Tax Claim”); provided that failure to comply with this provision shall not affect Parent’s right to indemnification hereunder except to the extent the Company Member is adversely prejudiced by such failure. Company Member shall control the contest or resolution of any Tax Claim; provided, however, that Company Member shall obtain the prior written consent of the Parent (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 Parent 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 Parent.

 

7.7 Cooperation and Exchange of Information. The Company Member, 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 Section 7 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 Company Member, 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 Company Member, 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.

 

7.8 Tax Treatment of Indemnification Payments. Any indemnification payments pursuant to this Section 7 shall be treated as an adjustment to the Merger Consideration by the Parties for Tax purposes, unless otherwise required by applicable Legal Requirements.

 

7.9 Payments to Parent. Except for Losses with respect to any Potential Sales Tax Liability in accordance with Section 7.3(b), each of Parent and Sub (on behalf of itself and each of the Parent Indemnitees) acknowledges and agrees that any payments to the Parent Indemnitees pursuant to Section 7.3 shall be first satisfied pursuant to claims asserted under the Rep and Warranty Policy. With respect to amounts that are payable by Company Member to Parent pursuant to Section 7.3 with respect to Potential Sales Tax Liabilities, Parent’s sole recourse and remedy for the payment of any such amounts shall be to collect such amount against the Escrowed Parent Stock Consideration at Fair Market Value (as defined below). The term “Fair Market Value” for purposes of this Section 7.9 shall mean Seven Dollars ($7.00) per share of Parent Common Stock.

 

7.10 Survival. Notwithstanding anything in this Agreement to the contrary but subject to the limitations in Section 7.3, the provisions of Section 4.20 and this Section 7 shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus sixty (60) days.

 

7.11 Overlap. To the extent that any obligation or responsibility pursuant to Section 8 may overlap with an obligation or responsibility pursuant to this Section 7, the provisions of this Section 7 shall govern.

 

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7.12 Prohibited Post-Closing Actions. After the Closing Date, without the prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed) of the Company Member, Parent shall not and shall not permit any of its Affiliates to, (1) file or amend or otherwise modify any Tax Return relating to a Pre-Closing Tax Period, (2) extend or waive, or cause to be extended or waived, any statute of limitations or other period for the assessment of any Tax or deficiency related to a Pre-Closing Tax Period, (3) except as otherwise provided herein, make or change any Tax election or accounting method or practice with respect to, or that has retroactive effect to, any Pre-Closing Tax Period, or (4) make or initiate any voluntary disclosure or similar process with a Governmental Authority regarding any Pre-Closing Tax Period. The Company Member and the Parent shall reasonably cooperate with each other to address and resolve the Potential Sales Tax Liability.

 

7.13 Tax Refunds. After the Closing Date, Company Member shall be entitled to all Tax refunds (and overpayment credits) relating to the Company received by Parent or any of its Affiliates for any Pre-Closing Tax Period. Parent will pay over to Company Member any such Tax refund promptly (but in all cases within five (5) business days) after actual receipt of such Tax refund (or, in the case of any overpayment credits, promptly (but in all cases within five (5) business days) upon filing the applicable Tax Return where such overpayment credit is used to reduce Taxes otherwise payable).

 

7.14 Transaction Tax Deductions. For the avoidance of doubt, all Transaction Tax Deductions arising in connection with the transactions contemplated by this Agreement that are properly deductible by the Company prior to the Closing Date shall be allocated to the Pre-Closing Tax Period, to the maximum extent permitted by Law.

 

7.15 Intended Tax Treatment. For U.S. federal and applicable state and local income tax purposes, the Parties intend for the Merger to qualify as a tax-free reorganization under Section 368(a)(1)(A) of the Code. The Parties shall report the transactions contemplated by this Agreement consistent therewith for U.S. federal income tax purposes and shall not take any position inconsistent with this Section 7.15 in the course of any tax audit, tax review or tax litigation matter relating hereto, except to the extent otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code. The Parties hereby adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.

 

Section 8. Conditions to Closing.

 

8.1 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) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any order, writ, judgment, injunction, decree, stipulation, determination or award 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.

 

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8.2 Conditions to Obligations of Parent and Sub. The obligations of Parent and 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 Company Fundamental Representations, the representations and warranties of the Company contained in this Agreement 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 Company Fundamental Representations 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; provided that, with respect to agreements, covenants and conditions that are qualified by materiality, the Company shall have performed such agreements, covenants and conditions, as so qualified, in all respects.

 

(c) No 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, shall have been commenced against Parent, 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 8.2(d) of the Company Disclosure Schedule shall have been received and executed counterparts thereof shall have been delivered to Parent at or prior to the Closing in a form reasonably acceptable to Parent.

 

(e) The Company shall have delivered each of the Closing deliverables set forth in Section 2.3(a).

 

8.3 Conditions to Obligations of the Company. The obligations of the Company 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 Parent Fundamental Representations, the representations and warranties of Parent and Sub contained in this Agreement 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 Parent Fundamental Representations 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 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; provided that, with respect to agreements, covenants and conditions that are qualified by materiality, Parent and Sub shall have performed such agreements, covenants and conditions, as so qualified, in all respects.

 

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(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 5.3 of the Parent Disclosure Schedule shall have been received and executed counterparts thereof shall have been delivered to the Company at or prior to the Closing in a form reasonably acceptable to the Company.

 

(e) Parent shall have delivered each of the Closing deliverables set forth in Section 2.3(b).

 

(f) The approval of the listing of the additional shares of Parent Common Stock on NASDAQ shall have been obtained and the Parent Stock Consideration to be issued pursuant to this Agreement shall have been approved for listing on NASDAQ.

 

Section 9. Indemnification.

 

9.1 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 4.20 which are subject to Section 7) shall survive the Closing and shall remain in full force and effect until the expiration of ninety (90) days after the Closing Date; provided that the Company Fundamental Representations and the Parent Fundamental Representations shall survive until the sixth (6th) anniversary of the Closing Date. All covenants and agreements of the Parties contained herein (other than any covenants or agreements contained in Section 7 which are subject to Section 7) shall survive the Closing indefinitely 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.

 

9.2 Indemnification by Company Member. Subject to the other terms and conditions of this Section 9, from and after the Closing, the Company Member shall indemnify and defend each of Parent and its Affiliates (including the Surviving 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 or arising out of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of the Company contained in this Agreement (other than in respect of Section 4.20, it being understood that the sole remedy for any such inaccuracy in or breach thereof shall be pursuant to Section 7) 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);

 

(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 Section 7, it being understood that the sole remedy for any such breach, violation or failure shall be pursuant to and as specified elsewhere in this Agreement, including Section 7);

 

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(c) any Transaction Expenses or Indebtedness of the Company outstanding as of the Closing to the extent not paid or satisfied by the Company or Parent or Merger Sub (on behalf of the Company) at or prior to the Closing (excluding the Assumed Indebtedness);

 

(d) the Triton Matter, including legal fees as set forth in Section 9.4(i) and subject to Section 9.4(i);

 

(e) the Other Litigation;

 

(f) the Company’s or a Company Subsidiary’s failure to comply with ITAR prior to the Closing Date, subject to Section 9.4(j); or

 

(g) Potential Sales Tax Liability, as exclusively governed by Section 7, including without limitation, Section 7.3.

 

9.3 Indemnification by Parent. Subject to the other terms and conditions of this Section 9, from and after the Closing, Parent shall indemnify and defend the Company Member, his Affiliates and their respective Representatives (collectively, the “Member 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 Member Indemnitees based upon or arising out of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of Parent and Sub contained in this Agreement 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 Sub pursuant to this Agreement (other than Section 7, it being understood that the sole remedy for any such breach thereof shall be pursuant to Section 7).

 

9.4 Certain Limitations. The indemnification provided for in Section 9.2 and Section 9.3 shall be subject to the following limitations:

 

(a) Company Member shall not be liable to the Parent Indemnitees for indemnification under Section 9.2(a) until the aggregate amount of all Losses in respect of indemnification under Section 9.2(a) exceeds $1,205,000 (the “Threshold Amount”), at which point the Parent Indemnitees shall proceed against the Company Member for the next $1,205,000 of Losses (the “Retention Cap”) incurred by the Parent Indemnitees with respect thereto in excess of the Threshold Amount up to the Retention Cap. Each of the Threshold Amount and the Retention Cap shall be reduced by fifty percent (50%) on the Retention Dropdown Date (as defined in the Rep and Warranty Policy). The Threshold Amount shall not apply to indemnification claims pursuant to Sections 9.2(d) (Triton Matter), (e) (Other Litigation) or (f) (ITAR) and those indemnification claims and any attorney fees and expenses as specified in this Agreement are payable directly by the Company Member. For the avoidance of doubt, except with respect to claims arising from the breach of Company Fundamental Representations (subject to Section 9.4(h)), the sole and exclusive remedy of the Parent Indemnitees against the Company Member with respect to indemnity claims under Section 9.2(a) is to recover from the Company Member for an aggregate amount not to exceed the Retention Cap and the Rep and Warranty Policy.

 

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(b) Parent shall not be liable to the Member Indemnitees for indemnification under Section 9.3(a) until the aggregate amount of all Losses in respect of indemnification under Section 9.3(a) exceeds the Threshold Amount, in which event Parent shall be required to pay or be liable for all Losses in excess of the Threshold Amount. The aggregate amount of all Losses for which Parent shall be liable pursuant to Section 9.3 shall not exceed One Hundred Forty Million Dollars ($140,000,000), excluding Triton Matter, Other Litigation, Potential Sales Tax Liability, and any losses incurred or sustained in connection with ITAR for which Company Member shall be liable pursuant to this Agreement.

 

(c) Notwithstanding the foregoing, but subject to Section 9.4(h), the limitations set forth in Section 9.4(a) and Section 9.4(b) shall not apply to Losses based upon or arising out of any inaccuracy in or breach of any Company Fundamental Representation or any Parent Fundamental Representation, as applicable. The aggregate liability of the Company Member for Losses (i) based upon or arising out of any inaccuracy in or breach of any Company Fundamental Representation and/or (ii) pursuant to Section 9.4(b) shall not exceed Fifty Million Dollars ($50,000,000) in the aggregate (the “Company Cap”). Notwithstanding anything contrary in this Section 9.4(c), the Company Cap shall not apply to indemnification claims pursuant to Sections 9.2(d), 9.2(e), 9.2(f) and 9.2(g).

 

(d) For purposes of this Section 9, any inaccuracy in or breach of any representation or warranty, and the calculation of Losses resulting therefrom shall, in each case, be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty; provided, however, that (1) such qualifications shall not be disregarded in the representations and warranties set forth in Section 4.1(a), Section 4.13 and Section 4.14(a), and (2) the term “Material” as used in the terms “Material Agreements” and “Material Suppliers” shall not be disregarded.

 

(e) Payments by an Indemnifying Party pursuant to Section 9.2 or Section 9.3 in respect of any Loss shall be limited to the amount of any liability or damage that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment actually received by the Indemnified Party in respect of any such claim, less any related out-of-pocket costs and expenses, including the aggregate out-of-pocket cost of pursuing any related insurance claims (it being agreed that neither party shall have any obligation to seek to recover any insurance proceeds prior to making a claim under this Section 9 and that, promptly after the realization of any insurance proceeds, indemnity, contribution or other similar payment, the Indemnified Party shall reimburse the Indemnifying Party for such reduction in Losses for which the Indemnified Party was indemnified prior to the realization of reduction of such Losses).

 

(f) Each Indemnified Party shall take, and cause its Affiliates to take, all commercially reasonable steps to mitigate any Loss upon becoming aware of any event or circumstance that would be reasonably expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the breach that gives rise to such Loss.

 

(g) No Losses may be claimed under Section 9.2 or Section 9.3 by any Indemnified Party to the extent such Losses are included in the calculation of any adjustment or the Closing Working Capital pursuant to this Agreement.

 

(h) Notwithstanding anything to the contrary herein, but subject to the other limitations in this Section 9.4 with respect to Triton Matter, Potential Sales Tax Liability, Other Litigation and ITAR where the Losses will not be treated as breaches of representations and warranties, but will be treated as specific in this Agreement, each of Parent and Sub (on behalf of itself and each of the Parent Indemnitees) acknowledges and agrees that any payments to the Parent Indemnitees pursuant to Section 9.2(a) shall be satisfied solely and exclusively as follows:

 

(i) with respect to Losses under Section 9.2(a) (other than with respect to breaches of or inaccuracies in the Company Fundamental Representations, which are exclusively addressed in subsection (ii) immediately below), first, after the Parent Indemnitees shall have incurred on a cumulative basis Losses exceeding the Threshold Amount, from the Company Member for the Losses in excess of the Threshold Amount up to the Retention Cap, and thereafter, solely pursuant to claims asserted under the Rep and Warranty Policy for such Losses; and

 

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(ii) with respect to Losses under Section 9.2(a) arising from breaches of or inaccuracies in the Company Fundamental Representations, first, after the Parent Indemnitees shall have incurred on a cumulative basis Losses exceeding the Threshold Amount, from the Company Member for the Losses in excess of the Threshold Amount up to the Retention Cap, and thereafter, pursuant to claims asserted under the Rep and Warranty Policy for such Losses, up to the full amount of coverage under the Rep and Warranty Policy with respect to such claims, and thereafter against the Company Member directly (subject to Section 9.4(c)).

 

The Rep and Warranty Policy shall expressly provide that the R&W Insurance Provider shall unconditionally and irrevocably waive and release any subrogation rights against the Company and the Company Member (or otherwise recover from the Company or the Company Member) in connection with any claim made by any Parent Indemnitee thereunder (except in connection with a claim of intentional fraud), and Parent shall not permit the Rep and Warranty Policy to be amended, waived and/or modified in a manner adverse to the Company Member.

 

(i) The aggregate amount of all Losses (excluding Parent Legal Fees (as defined below)) for which Company Member shall be liable to the Parent Indemnitees pursuant to Section 9.2(d) shall not under any circumstances whatsoever exceed Twenty Million Dollars ($20,000,000). The Company Member’s liability pursuant to Section 9.2(d) for Parent Indemnitees’ out-of-pocket legal fees, costs and expenses related directly to the Triton Matter (collectively, “Parent Legal Fees”) shall not exceed Four Million Dollars ($4,000,000) in the aggregate, which the Company Member will pay to the Parent, its directors and officers and affiliates (excluding the Company Member, which the companies that are not being acquired by the Parent and their officers and directors) as Parent Legal Fees are incurred.

 

(j) The aggregate amount of all Losses for which Company Member shall be liable to the Parent Indemnitees pursuant to Section 9.2(f) shall not exceed One Million Dollars ($1,000,000) plus the amount of the Parent Indemnitees’ out-of-pocket legal fees, costs and expenses related directly to the relevant ITAR matter. Any indemnification claim(s) pursuant to Section 9.2(f) must be brought against the Company Member prior to the earlier of (i) the fifth (5th) anniversary of the Closing Date and (ii) the fifth (5th) anniversary of the action that constituted or caused a violation of ITAR.

 

(k) Notwithstanding the definition of “Losses,” with respect to indemnification claims pursuant to Section 7.3 or pursuant to Section 9.2(b), (c), (d), (e) and (f), the term “Losses” shall mean only direct, out-of-pocket losses, damages, liabilities, deficiencies, actions, judgments, interest, awards, penalties, fines, costs, 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, and the term “Losses” shall not include punitive, incidental, consequential, special, exemplary or indirect damages or losses based on diminution in value or similar theories.

 

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9.5 Indemnification Procedures. The Party making a claim under this Section 9 is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this Section 9 is referred to as the “Indemnifying Party”. For purposes of this Section 9, (i) if Parent (or any other Parent Indemnitee) comprises the Indemnified Party, any references to Indemnifying Party shall be deemed to refer to the Company Member, and (ii) if Parent comprises the Indemnifying Party, any references to the Indemnified Party shall be deemed to refer to the Company Member.

 

(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 fifteen (15) 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 the Company Member, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third-Party Claim that solely 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 9.5(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 material 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, or fails to notify the Indemnified Party in writing of its election to defend as provided in this Agreement within thirty (30) days after receipt of the notice from the Indemnified Party of the applicable Third-Party Claim, the Indemnified Party may, subject to Section 9.5(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. The Company Member 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 9.5(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 9.5(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

 

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(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 Surviving 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 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 any breach or violation of or failure to fully perform any covenant, agreement, undertaking or obligation in Section 7) shall be governed exclusively by Section 7 hereof, Definitions, Article 4, and Articles 9 through 13.

 

(e) R&W Policy. This Section 9.5 is subject to the applicable rights of the R&W Insurance Provider under the Rep and Warranty Policy.

 

(f) Notwithstanding anything to the contrary in this Section 9.5, the Company Member shall have initial sole and exclusive control of the prosecution, defense and settlement of the Triton Matter and the Other Litigation in consultation with Parent, including, without limitation, the selection and termination of counsel with respect to such matter and all decisions related to the Triton Matter and/or the Other Litigation in good faith consultation with Parent; provided, however, notwithstanding the foregoing, the Company Member shall not settle the Triton Matter or any of the Other Litigation to the extent such settlement would result in liability to Parent unless Parent has consented to such settlement (such consent not be unreasonably withheld, conditioned or delayed); provided further, however, if Parent refuses to approve a settlement that is acceptable to the Company Member, then the Company Member’s liability pursuant to Section 9.2(d) or Section 9.2(e), as applicable, with respect to such matter shall not exceed the proposed settlement amount. For the avoidance of doubt, neither Parent nor any of its Affiliates shall have the right to terminate any of the legal counsel currently handling the Triton Matter or any of the Other Litigation. Notwithstanding anything in this Agreement to the contrary, the parties agree legal counsel and strategy will be reviewed periodically and in good faith after six months from the Closing Date, and Company Member shall consult in good faith and work cooperatively together related to this matter.

 

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9.6 Payments; Indemnification Set Off.

 

(a) Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Section 9 (the date of such agreement or adjudication is referred to herein as the “Determination Date”), the Indemnifying Party shall satisfy its obligations within fifteen (15) business days of such final, non-appealable adjudication by wire transfer of immediately available funds. The Parties agree that should an Indemnifying Party not make full payment of any such obligations within such fifteen (15) 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 simple interest rate per annum equal to 10%. Such interest shall be calculated daily on the basis of a 365-day year and the actual number of days elapsed, without compounding.

 

(b) Triton Matter. Notwithstanding anything to the contrary herein, at the Company Member’s election, Parent’s (or any Parent’s Indemnitee’s) sole recourse and remedy for the payment of any Losses that are payable to a Parent Indemnitee pursuant to Section 9.2(d) shall be to set off the amount of such Losses against the Parent Stock Consideration at Fair Market Value (as defined below). For purposes of this Section 9.6(b), the term “Fair Market Value” shall mean the closing price of the Parent Common Stock on the Determination Date.

 

(c) If any Parent Indemnitee recovers or is awarded any amounts with respect to the Triton Litigation and/or the Other Litigation (whether in the form of damages arising from counter-claims associated with such litigation, the awarding of legal fees and costs by the applicable court or otherwise) (the “Parent Award Amounts”), then any and all such Parent Award Amount shall be promptly (but no later than five (5) business days after receipt) paid to the Company Member.

 

9.7 Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the Parties as an adjustment to the Merger Consideration for Tax purposes, unless otherwise required by applicable Legal Requirements.

 

9.8 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 8.2 or Section 8.3, as the case may be.

 

9.9 Exclusive Remedies. The Parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from intentional fraud or criminal activity on the part of a Party 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 Section 7 and this Section 9. In furtherance of the foregoing, each Party hereby waives, to the fullest extent permitted under applicable Legal Requirements, 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 and their Affiliates and each of their respective Representatives arising under or based upon any Legal Requirement, except pursuant to the indemnification provisions set forth in Section 7 and this Section 9. Nothing in this Section 9.9 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 intentional fraud or criminal misconduct.

 

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Section 10. Termination.

 

10.1 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 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 Section 8 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) any of the conditions set forth in Section 8.1 or Section 8.2 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by June 30, 2021, unless such failure 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 Sub pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Section 8 and such breach, inaccuracy or failure has not been cured by Parent or Sub within ten (10) days of Parent’s or Sub’s receipt of written notice of such breach from the Company; or

 

(ii) any of the conditions set forth in Section 8.1 or Section 8.3 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by June 30, 2021, unless such failure 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; or

 

(d) by Parent or the Company if there shall be any Legal Requirement 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.

 

10.2 Effect of Termination. In the event of the termination of this Agreement in accordance with this Section 10, 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 Section 10 and Section 6.2(c) hereof; and

 

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

 

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Section 11. Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred; provided that Parent shall pay the Transaction Expenses as provided in Section 2.3(b)(ii) on behalf of the Company.

 

Section 12. Reserved.

 

Section 13. Miscellaneous.

 

13.1 Notices. All notices, requests, demands, consents and communications necessary or required under this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt, or (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth below, or to such other e-mail address or address as subsequently modified by written notice given in accordance with this Section 13.1:

 

if to Parent or Sub:

 

AMMO, INC.

7681 East Gray Road

Scottsdale, Arizona 85260

Attention: Fred W. Wagenhals

Email:

 

with a copy to (which shall not constitute notice):

 

Lucosky Brookman LLP

101 Wood Avenue South

5th Floor

Woodbridge, New Jersey 08830

Attention: Joseph M. Lucosky, Esq.

Email:

 

if to the Company:

 

Steven F. Urvan

 

Email:

 

with a copy to (which shall not constitute notice):

 

Arnall Golden Gregory LLP

171 17th Street, NW, Suite 2100

Atlanta, Georgia 30363

Attn: Michael D. Golden, Esq.

Email:

 

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13.2 Successors and Assigns. All covenants and agreements and other provisions set forth in this Agreement and made by or on behalf of any of the Parties hereto shall bind and inure to the benefit of the successors, heirs and permitted assigns of such Party, whether or not so expressed. None of the Parties may assign, transfer or delegate any of their respective rights or obligations under this Agreement, by operation of law or otherwise, without the consent in writing of Parent and the Company Member; provided that Parent and Sub (including the Surviving Company) may, without obtaining the prior written consent of the Company, assign any of its rights, or delegate any of its obligations under this Agreement to (a) any Affiliate of Parent, (b) any successor of Parent by merger or otherwise, or (c) the purchaser of all or substantially all of the assets or shares of Parent. The Company Member shall execute such acknowledgements of such assignments in such forms as Parent or Sub (including the Surviving Company) may from time to time reasonably request. Any purported assignment or delegation of rights or obligations in violation of this Section 13.2 is void and of no force or effect.

 

13.3 Interpretation. For purposes of this Agreement, the following rules of interpretation apply:

 

(a) General. (i) The words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation” whether or not such words are present; (ii) the word “or” is not exclusive; (iii) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole; (iv) reference herein to any document or other information being “made available,” “provided” or “delivered” to Parent prior to the Closing Date shall be deemed satisfied, without limitation, by the posting, at least two (2) business days prior to the Closing Date, of any such document or information in the virtual data room maintained by the Company for purposes of the transactions contemplated hereunder; (v) reference to a statute or other applicable law means such statute or other applicable law as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder; (vi) the definitions given for terms in Section 1 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined; (vii) “business day” means any day of the year on which national banking institutions in the State of Delaware are open to the public for conducting business and are not required or authorized to close and shall not include Saturday; and (viii) whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.

 

(b) Descriptive Headings. The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

 

(c) Calculation of Time Period. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period is excluded. If the last day of such period is a non-business day, the period in question ends on the next succeeding business day.

 

(d) Currency. Any reference in this Agreement to $ means U.S. dollars.

 

(e) Section and Similar References. Unless the context otherwise requires, all references in this Agreement to any “Section,” “Schedule” or “Exhibit” are to the corresponding Section, Schedule or Exhibit of this Agreement.

 

(f) No Presumption Against Drafter. This Agreement, ancillary agreements, exhibits, and disclosure schedules 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.

 

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13.4 Counterparts. This Agreement may be executed in counterparts.

 

13.5 Electronic Transmission. The exchange of signature pages to this Agreement (in counterparts or otherwise) by electronic transmission shall be sufficient to bind the Parties to the terms and conditions of this Agreement.

 

13.6 Severability. In the event that any one or more of the provisions contained herein is held invalid, illegal or unenforceable in any respect for any reason in any jurisdiction, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected (so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party), it being intended that each of the Parties’ rights and privileges shall be enforceable to the fullest extent permitted by applicable Legal Requirements, and any such invalidity, illegality and unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction (so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party). If any court of competent jurisdiction determines that any provision of this Agreement is invalid, illegal or unenforceable, such court has the power to fashion and enforce another provision (instead of the provision held to be invalid, illegal or unenforceable) that is valid, legal and enforceable and carries out the intentions of the Parties hereto under this Agreement and, in the event that such court does not exercise such power, the Parties hereto shall negotiate in good faith in an attempt to agree to another provision (instead of the provision held to be invalid, illegal or unenforceable) that is valid, legal and enforceable and carries out the Parties’ intentions to the greatest lawful extent under this Agreement.

 

13.7 Third Parties. Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the Parties hereto and their permitted successors and assigns, any rights or remedies under or by reason of this Agreement or any other certificate, document, instrument or agreement executed in connection herewith nor be relied upon other than the Parties hereto and their permitted successors or assigns.

 

13.8 Reserved.

 

13.9 Governing Law; Submission to Jurisdiction. This Agreement, and all matters arising out of or relating to this Agreement and any of the transactions contemplated hereby, including, without limitation, the validity hereof and the rights and obligations of the Parties hereunder, shall be construed in accordance with and governed by the laws of Delaware applicable to contracts made and to be performed entirely in such state (without giving effect to the conflicts of laws provisions thereof) except as to matters pertaining to the Company as a Nevada limited liability company, and to the Company Member as a member of a Nevada limited liability company, which are governed by the NRS, and solely as to such matters, this Agreement shall be governed by the NRS. The Parties hereto hereby irrevocably submit to the exclusive jurisdiction of any court of competent civil jurisdiction sitting in State of Delaware over any Action arising out of or relating to this Agreement or any of the transactions contemplated hereby and each Party hereto hereby irrevocably agrees that all claims in respect of such Action may be heard and determined in such courts. The Parties hereto hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of such Action brought in such court or any claim that such Action brought in such court has been brought in an inconvenient forum. Each of the Parties hereto agrees that a judgment in such Action may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by any applicable Legal Requirement. Each of the Parties hereto hereby irrevocably consents to process being served by any Party to this Agreement in any Action by delivery of a copy thereof in accordance with the provisions of Section 13.1 and consents to the exercise of jurisdiction of the courts of the State of Delaware over it and its properties with respect to any action, suit or proceeding arising out of or in connection with this Agreement or the transactions contemplated hereby or the enforcement of any rights under this Agreement.

 

AMMO Merger Agreement 61  
 

 

13.10 Entire Agreement, Not Binding Until Executed. This Agreement, including the Company Disclosure Schedule, Parent Disclosure Schedule, Schedules, Exhibits and the other agreements referred to herein, is complete, and all promises, representations, understandings, warranties and agreements with reference to the subject matter hereof, and all inducements to the making of this Agreement relied upon by all the Parties hereto, have been expressed herein or in such Company Disclosure Schedule, Parent Disclosure Schedule, Schedules, Exhibits or such other agreements and this Agreement, including such Company Disclosure Schedule, Parent Disclosure Schedule, Schedules, Exhibits and such other agreements, supersede any prior understandings, negotiations, agreements or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof or thereof. Neither this Agreement nor any of the terms or provisions hereof are binding upon or enforceable against any Party hereto unless and until the same is executed and delivered by all of the Parties hereto.

 

13.11 Amendments; No Waiver.

 

(a) This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Parties hereto.

 

(b) No course of dealing and no failure or delay on the part of any Party hereto in exercising any right, power or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such Party’s rights, powers and remedies. The failure of any of the part by any of the Parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement to this Agreement to require the performance of a term or obligation under this Agreement or the waiver of such term or obligation or be deemed a waiver of any subsequent breach hereunder. No single or partial exercise of any right, power or remedy conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

 

13.12 Pre-Closing Restructuring. The consummation of the Pre-Closing Restructuring shall not constitute a breach of any representation, warrant or covenant by the Company or the Company Member.

 

13.13 Closing Date. The Parties acknowledge and agree that (i) this Agreement was signed and the Merger occurred simultaneously therewith, and (ii) the Closing Date is the date of this Agreement.

 

[Remainder of page left blank intentionally]

 

AMMO Merger Agreement 62  
 

 

IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement under seal as of the day and year first above written.

 

    AMMO, INC.
       
    By:  
    Name: Fred W. Wagenhals
    Title: Chief Executive Officer
       
    SpeedLight Group I, LLC
       
    By:  
    Name:  
    Title:  
       
    GEMINI DIRECT INVESTMENTS, LLC
       
    By:  
    Name: Steven F. Urvan
    Title: Sole Member
       
    COMPANY MEMBER:
       
    By:  
      Steven F. Urvan

 

[Signature Page To Agreement And Plan Of Merger]

 

 
 

 

EXHIBIT A

 

KEY EMPLOYEE AGREEMENTS

 

 
 

 

SCHEDULE B

 

COMPANY DISCLOSURE SCHEDULE

 

 
 

 

Section 1.20

Current Assets

 

 
 

 

Section 4.1

Organization and Qualification of the Company

 

 
 

 

Section 4.3

Consents

 

 
 

 

Section 4.4

Securityholder Lists and Agreements

 

 
 

 

Section 4.5(b)

Capitalization and Ownership

 

 
 

 

Section 4.6(a)

Subsidiaries

 

 
 

 

Section 4.7

Litigation

 

 
 

 

Section 4.8

Intellectual Property

 

 
 

 

Section 4.9

Compliance with Legal Requirements

 

 
 

 

Section 4.10(a)

Material Agreements

 

 
 

 

Section 4.10(c)

Actions

 

 
 

 

Section 4.10(d)

Third Party Guarantees

 

 
 

 

Section 4.11(a)

Certain Transactions

 

 
 

 

Section 4.12(a)

Property

 

 
 

 

Section 4.14

Changes

 

 
 

 

Section 4.17

Material Suppliers

 

 
 

 

Section 4.18

Employee Matters

 

 
 

 

Section 4.20

Tax Returns and Payments

 

 
 

 

Section 4.21

Insurance

 

 
 

 

Section 4.22

Permits

 

 
 

 

Section 6.7

Directors’ and Officers’ Indemnification

 

 
 

 

Section 8.2(d)

Consents

 

 
 

 

SCHEDULE C

 

PARENT DISCLOSURE SCHEDULE

 

 
 

 

Section 5.6

Parent Subsidiary

 

 
 

 

Section 5.10

Actions

 

 
 

 

Section 5.14

Financial Statements

 

 
 

 

SCHEDULE 3.4(a)(i)

 

Estimated Closing Working Capital Statement

 

 

 

 

EXHIBIT 10.1

 

LOCK-UP AGREEMENT

 

April 30, 2021

 

AMMO, INC.

7681 East Gray Road

Scottsdale, Arizona 85260

 

  Re: Escrow Agreement, dated April 30, 2021, by and between Ammo, Inc., and Steven Urvan, (the “Escrow Agreement”).

 

Ladies and Gentlemen:

 

The undersigned, Steven Urvan, acknowledges that he pledged to Ammo, Inc., a Delaware Corporation (the “Company”) 4,000,000 shares of the common stock, par value $0.001 per share, of the Company, evidenced by share certificates numbers __ and __ (each such share, a “Pledged Share” and together, the “Pledged Shares”) in accordance with the terms of the Escrow Agreement. The undersigned irrevocably agrees with the Company, in respect of any Pledged Share, from the date hereof until the date as such Pledged Share is released pursuant to the terms of the Escrow Agreement (such period, the “Restriction Period”), the undersigned will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any affiliate of the undersigned or any person in privity with the undersigned or any affiliate of the undersigned), directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to, such Pledged Share or securities convertible, exchangeable or exercisable into such Pledged Share, beneficially owned, held or hereafter acquired by the undersigned (the “Securities”). Beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. In order to enforce this covenant, the Company shall impose irrevocable stop-transfer instructions preventing the transfer agent of the Company from effecting any actions in violation of this letter agreement.

 

The undersigned acknowledges that the execution, delivery and performance of this letter agreement is a material inducement to the Company to perform under that certain Agreement and Plan of Merger, dated as of the date hereof (the “Merger Agreement”), among the Company, the undersigned, Speedlight Group, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, and Gemini Direct Investments LLC, a Nevada limited company, and the Company shall be entitled to specific performance of the undersigned’s obligations hereunder. The undersigned hereby represents that the undersigned has the power and authority to execute, deliver and perform this letter agreement, that the undersigned has received adequate consideration therefor and that the undersigned will benefit from the closing of the transactions contemplated by the Merger Agreement.

 

 

 

 

This letter agreement may not be amended or otherwise modified in any respect without the written consent of each of the Company and the undersigned. This letter agreement shall be construed and enforced in accordance with the laws of the State of Delaware without regard to the principles of conflict of laws. The undersigned hereby irrevocably submits to the exclusive jurisdiction of the United States District Court sitting in Delaware and the courts of State of Delaware, for the purposes of any suit, action or proceeding arising out of or relating to this letter agreement, and hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that (i) it is not personally subject to the jurisdiction of such court, (ii) the suit, action or proceeding is brought in an inconvenient forum, or (iii) the venue of the suit, action or proceeding is improper. The undersigned hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under the Merger Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. The undersigned hereby waives any right to a trial by jury. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

 

By its signature below, the transfer agent of the Company hereby acknowledges and agrees that, reflecting this letter agreement, it has placed an irrevocable stop transfer instruction in respect of each Pledged Share owned by the undersigned until the end of the Restriction Period with respect to such Pledged Share. This letter agreement shall be binding on successors and assigns of the undersigned with respect to the Pledged Shares and any such successor or assign shall enter into a similar agreement for the benefit of the Company.

 

*** SIGNATURE PAGE FOLLOWS***

 

2

 

 

This letter agreement may be executed in two or more counterparts, all of which when taken together may be considered one and the same agreement.

 

     

STEVEN URVAN

 

Address for Notice:

 

     
     
     
     
     

Number of shares of Common Stock

 

By signing below, the Company agrees to enforce the restrictions on transfer set forth in this letter agreement.

 

AMMO, INC.  
     
By:    
Name:    
Title:    

 

Acknowledged and agreed to

as of the date set forth above:

 

Action Stock Transfer Corporation

 

By:    
Name:    
Title:    

 

3

 

EXHIBIT 10.2

 

VOTING AGREEMENT

 

This VOTING AGREEMENT (this “Agreement”), dated as of April 30, 2021 (the “Effective Date”), is entered into between Ammo, Inc., a Delaware corporation (the “Company”), and Steven F. Urvan (the “Securityholder”).

 

WHEREAS, concurrently with execution of this Agreement, on the date hereof, the Company, SpeedLight Group I, LLC (“Merger Sub”), Gemini Direct Investments, LLC (“Gemini”) and the Stockholder, are entering into that certain Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions thereof, Gemini will be merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of the Company;

 

WHEREAS, subsequent to the Merger, the Stockholder will be the beneficial owner of 18,500,000 shares of common stock of the Company, par value $0.001 per share (the “Common Stock”), representing approximately 19.86% of the total outstanding Common Stock as of the date hereof (the “Securities”);

 

NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein, the Parties hereto hereby agree as follows:

 

ARTICLE 1

GRANT OF PROXY; VOTING AGREEMENT

 

Section 1.01. Voting Agreement. For so long as this Agreement is in effect, the Securityholder hereby agrees to vote or exercise its right to consent with respect to all Securities that the Securityholder is entitled to vote at the time of any vote in favor of approving the implementation of a staggered board of directors at the next annual meeting of the Company and at any adjournment or postponement thereof (the “Annual Meeting”) and shall not vote to change that at any meeting at which such arrangements are submitted for the consideration and vote of the securityholders of the Company. The Securityholder hereby agrees that, for so long as this Agreement is in effect, it will not vote any Securities in favor of, or consent to, and will vote the Securities it is entitled to vote against and not consent to, the approval of a proxy fight either individually or as part of a group for 13D or 13G purposes that would result in one-third of the current officers and one-third of the current directors being replaced.

 

Section 1.02. Irrevocable Proxy. The Securityholder hereby revokes any and all previous proxies granted with respect to the Securities. By entering into this Agreement, the Securityholder hereby grants a proxy appointing the Company as the Securityholder’s attorney-in-fact and proxy, with full power of substitution, for and in the Securityholder’s name, to vote, or otherwise to utilize such voting power in the manner contemplated by Section 1.01. The proxy granted by the Securityholder pursuant to this Article 1 is irrevocable and is granted in consideration of the Company entering into this Agreement and the Merger Agreement and incurring certain related fees and expenses; provided, however, the proxy granted by the Securityholder shall be revoked upon termination of this Agreement in accordance with its terms.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF THE SECURITYHOLDER

 

The Securityholder represents and warrants to the Company:

 

Section 2.01. Authorization. The Securityholder has duly executed and delivered this Agreement, and the execution, delivery and performance by the Securityholder of this Agreement and the consummation by the Securityholder of the transactions contemplated hereby are within the powers and legal capacity of the Securityholder and have been duly authorized by all necessary action. Assuming accuracy of the representation set forth in Section 3.01, this Agreement is a valid and binding agreement of the Securityholder, enforceable against the Securityholder in accordance with its terms, except to the extent enforceability may be subject to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws affecting or relating to creditors’ rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law).

 

 

 

 

Section 2.02. Non-Contravention. The execution, delivery and performance by the Securityholder of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) violate any law, rule, regulation, judgment, injunction, order or decree applicable to the Securityholder, (ii) require any consent or other action by any Person under, constitute a default under, or give rise to any right of termination, cancellation or acceleration or to a loss of any benefit to which the Securityholder is entitled in respect of the Securities under any provision of any agreement or other instrument binding on the Securityholder or (iii) result in the imposition of any Lien on any of the Securities (other than the Lien created hereunder).

 

Section 2.03. Total Securities. Except for the Securities, the Securityholder does not beneficially own any (i) shares of capital stock or voting securities of the Company, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company or (iii) options or other rights to acquire from the Company any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Securityholder:

 

Section 3.01. Authorization. The Company has duly executed and delivered the Merger Agreement and this Agreement, and the execution, delivery and performance by the Company of the Merger Agreement and this Agreement and the consummation by the Company of the transactions contemplated thereby and hereby are within the corporate powers of the Company and have been duly authorized by all necessary corporate action. Each of the Merger Agreement and this Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent enforceability may be subject to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws affecting or relating to creditors’ rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law).

 

ARTICLE 4

COVENANTS OF THE SECURITYHOLDER

 

The Securityholder hereby covenants and agrees that so long as this Agreement is in effect:

 

Section 4.01. No Proxies for or Encumbrances on Securities. Except pursuant to the terms of this Agreement and the Merger Agreement, the Securityholder shall not, without the prior written consent of the Company, directly or indirectly, (i) grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any of the Securities or (ii) sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect sale, assignment, transfer, encumbrance or other disposition of, any Securities during the term of this Agreement (other than in open market transactions on the NASDAQ Stock Market or on such principal stock exchange as the Common Stock is then listed for trading or in private transactions or sales effected pursuant to the registration rights provisions of the Investor Rights Agreement dated as of the date hereof entered into between the Company and the Securityholder).The Securityholder shall not seek or solicit any such sale, assignment, transfer, encumbrance or other disposition or any such contract, option or other arrangement or understanding and agrees to notify the Company promptly, and to provide all details requested by the Company, if the Securityholder shall be approached or solicited, directly or indirectly, by any Person with respect to any of the foregoing.

 

ARTICLE 5

MISCELLANEOUS

 

Section 5.01. Further Assurances. The Company and the Securityholder will each execute and deliver, or cause to be executed and delivered, all further documents and instruments and use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, to consummate and make effective the transactions contemplated by this Agreement.

 

 

 

 

Section 5.02. Amendments; Termination. Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or in the case of a waiver, by the party against whom the waiver is to be effective. This Agreement shall continue in full force and effect until such date that is six months following the Effective Date upon which date all rights and obligations of the parties under this Agreement shall immediately terminate, except as provided in Section 5.12 hereof.

 

Section 5.03. Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense.

 

Section 5.04. Successors and Assigns; Obligations of Securityholder. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto.

 

Section 5.05. Governing Law; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to the principles of conflicts of laws. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Delaware and the federal courts located in the State of Delaware in respect of the interpretation and enforcement of the provisions of this Agreement.

 

Section 5.06. Entire Agreement. This Agreement, together with the Merger Agreement and other documents incorporated therein, appended thereto or contemplated thereby, constitutes the complete, final and exclusive statement of the agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties.

 

Section 5.07. Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective as between the Company, on the one hand, and the Securityholder, on the other hand, when each such party shall have received counterparts hereof signed by each such other party.

 

Section 5.08. Severability. If any term, provision or covenant of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions and covenants of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

 

Section 5.09. Specific Performance. The parties hereto agree that the Company would suffer irreparable damage in the event any provision of this Agreement is 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 5.10. Capitalized Terms. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Merger Agreement.

 

 

 

 

Section 5.11. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) when personally delivered or transmitted by electronic means, such as electronic mail, on a business day during normal business hours where such notice is to be received at the address or number designated below, (b) on the business day when verification of delivery is obtained when sent by fully paid overnight courier, or (c) on the business day that is three (3) days following the date of mailing by courier, fully prepaid, addressed to such address, whichever shall first occur. The addresses for such communications shall be:

 

If to the Company:   Ammo, Inc.
    7681 East Gray Road
    Scottsdale, Arizona 85260
    Email:
    Attention:
     
With a copy to:   Lucosky Brookman LLP
    101 Wood Avenue South, Floor 5
    Woodbridge, NJ 08830
    Email:
    Attention: Joseph Lucosky
     
If to the Stockholder:    
    Steven F. Urvan
     
    Email:
     
With a copy to:   Arnall Golden Gregory LLP
    171 17th Street, NW, Suite 2100
    Atlanta, Georgia 30363
    Email:
    Attention: Michael D. Golden, Esq.

 

Any Party hereto may from time to time change its address for notices under this Section 5.11 by giving at least five (5) days’ notice of such changed address to the other Party hereto.

 

Section 5.12. Securityholder Capacity. The Securityholder signs solely in the Securityholder’s capacity as the record holder or beneficial owner of the Securities and nothing in this Agreement shall limit or affect any actions taken by the Securityholder in the Securityholder’s capacity as an officer or director of the Company. This Section 5.12 shall survive termination of this Agreement.

 

[Remainder of this page is intentionally blank]

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 

  AMMO, INC.
     
  By  
  Name: Fred Wagenhals
  Title: Chief Executive Officer
     
     
    Steven F. Urvan

 

 

  

EXHIBIT 10.3

 

STANDSTILL AGREEMENT

 

This Standstill Agreement (this “Agreement”) is made and entered into as of April 30, 2021 (the “Effective Date”), between Ammo, Inc., a Delaware corporation (the “Company”), and Steven F. Urvan (the “Stockholder”). The Company and the Stockholder are referred to herein as the “Parties.”

 

WITNESSETH

 

WHEREAS, concurrently with execution of this Agreement, on the date hereof, the Company, SpeedLight Group I, LLC (“Merger Sub”), Gemini Direct Investments, LLC (“Gemini”) and the Stockholder, are entering into that certain Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions thereof, Gemini will be merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly owned subsidiary of Parent;

 

WHEREAS, subsequent to the Merger, the Stockholder will be the Beneficial Owner (as defined below) of 18,500,000 shares of common stock of the Company, par value $0.001 per share (the “Common Stock”), representing approximately 19.86% of the total outstanding Common Shares (as defined below) as of the date hereof;

 

WHEREAS, this Agreement shall become effective as of the Effective Date; provided that the consummation of the Merger shall be a condition precedent to the effectiveness of this Agreement, and, in the event the Merger Agreement is terminated prior to the consummation of the Merger, this Agreement shall be null and void, ab initio, and of no force or effect; and

 

NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein, the Parties hereto hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

 

(a) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); provided, however, that the limited partners of a limited partnership shall not be deemed to be Associates of such limited partnership solely by virtue of their limited partnership interests.

 

(b) “Agreement” shall mean this Agreement as in effect on the date hereof and as hereafter from time to time amended, modified or supplemented in writing in accordance with the terms hereof.

 

(c) A Person shall be deemed the “Beneficial Owner” or to have “Beneficial Ownership” of and shall be deemed to “beneficially own” any securities:

 

(i) which such Person or any of such Person’s Affiliates or Associates is deemed to beneficially own, within the meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement;

 

(ii) which such Person or any of such Person’s Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) other than agreements between the Company and any Person pursuant to which the right to purchase securities is conditioned upon the achievement of milestones which have not yet been achieved or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act, and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or

 

 
 

 

(iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1.1(c)(ii)(B) hereof) or disposing of any securities of the Company; provided, however, that an agreement, arrangement or understanding for purposes of this Section 1.1(c)(iii) shall not be deemed to include actions, including any agreement, arrangement or understanding, or statements by (i) any member of the Board of Directors, as comprised on the Effective Date (the “Existing Directors”), (ii) any subsequent directors of the Company who have been nominated by a majority of the Existing Directors (the “Successor Directors”), or (iii) any subsequent member of the Board of Directors who is elected by a majority of the Existing Directors and/or Successor Directors, nominating as a group.

 

Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase, “then outstanding,” when used with reference to a Person’s Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed the Beneficial Owner hereunder.

 

(d) “Common Shares” shall mean the shares of the Common Stock; provided, however, that, “Common Shares,” when used in this Agreement in connection with a specific reference to any Person other than the Company, shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person.

 

(e) “Company Acquisition Transaction” shall mean (i) the commencement (within the meaning of Rule 14d-2 of the General Rules and Regulations under the Exchange Act) of a tender or exchange offer by a third party for at least fifteen percent (15%) of the then outstanding capital stock of the Company or any direct or indirect Subsidiary of the Company, (ii) the commencement by a third party of a proxy contest with respect to the election of any directors of the Company, (iii) any sale, license, lease, exchange, transfer, disposition or acquisition of any portion of the business or assets of the Company or any direct or indirect Subsidiary of the Company (other than in the ordinary course of business), or (iv) any merger, consolidation, business combination, share exchange, reorganization, recapitalization, restructuring, liquidation, dissolution or similar transaction or series of related transactions involving the Company or any direct or indirect Subsidiary of the Company.

 

(f) “Governmental Authority” shall mean any United States (federal, state, local) or foreign court or tribunal, or administrative, governmental or regulatory body, agency or authority.

 

(g) “Group” shall have the meaning set forth in Section 13(d)(3) of the Exchange Act and Rule 13d-5 of the General Rules and Regulations under the Exchange Act.

 

(h) “Person” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, trust, association, unincorporated organization, group or other entity, and shall include any successor (by merger or otherwise) of such entity.

 

(i) “Subsidiary” of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person.

 

1.2 Capitalized Terms. All other capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Merger Agreement.

 

 
 

 

ARTICLE 2

STANDSTILL

 

2.1 Standstill Provisions. During the period beginning on the Effective Date and ending on the one (1) year anniversary of the Effective Date (the “Standstill Period”), except pursuant to a negotiated transaction with the Stockholder approved by the board of directors of the Company (the “Board”) or as otherwise permitted by or contemplated in the Investor Rights Agreement dated as of the date hereof between the Company and Stockholder (the “Investor Rights Agreement”), none of the Persons comprising the Stockholder will, in any manner, directly or indirectly:

 

(a) make, effect, initiate, cause or participate in (i) any acquisition of Beneficial Ownership of any securities of the Company or any securities of any Subsidiary or other Affiliate or Associate of the Company if such acquisition would result in the Stockholder and its Affiliates and Associates collectively Beneficially Owning twenty-five percent (25%) or more of the then outstanding Common Shares, (ii) any Company Acquisition Transaction, or (iii) any “solicitation” of “proxies” (as those terms are defined in Rule 14a-1 of the General Rules and Regulations under the Exchange Act) or consents with respect to any securities of the Company;

 

(b) nominate or seek to nominate any person to the Board or otherwise act, alone or in concert with others, to seek to control or influence the management, Board or policies of the Company;

 

(c) take any action which might force the Company to make a public announcement regarding any of the types of matters set forth in subsection (a) of this Section 2.1;

 

(d) request or propose that the Company (or its directors, officers, employees or agents), directly or indirectly, amend or waive any provision of this Section 2.1, including this subsection (d);

 

(e) agree or offer to take, or encourage or propose (publicly or otherwise) the taking of, any action referred to in subsections (a), (b), (c) or (d) of this Section 2.1;

 

(f) assist, induce or encourage any other Person to take any action referred to in subsections (a), (b), (c) or (d) of this Section 2.1; or

 

(g) enter into any discussions or arrangements with any third party with respect to the taking of any action referred to in subsections (a), (b), (c) or (d) of this Section 2.1.

 

2.2 Termination of Standstill Provisions. The provisions of Section 2.1 shall terminate and be of no further force and effect in the event (i) any Person or Group shall have commenced a Company Acquisition Transaction independent of any action of the Stockholder and none of the Persons comprising the Stockholder nor the Stockholder is at such time in breach of this Agreement, or (ii) the Board shall have endorsed, approved, recommended, or resolved to endorse, approve or recommend a Company Acquisition Transaction. All of the provisions of Section 2.1 shall be reinstated and shall apply in full force according to their terms in the event that: (A) if the provisions of Section 2.1 shall have terminated as the result of a tender offer, such tender offer (as originally made or as amended or modified) shall have terminated (without closing) prior to the commencement of a tender offer by the Stockholder or any of its Affiliates or Associates that would have been permitted to be made pursuant to the first sentence of this Section 2.2 as a result of such third-party tender offer, (B) any tender offer by the Stockholder or any of its Affiliates or Associates (as originally made or as extended or modified) that was permitted to be made pursuant to this Section 2.2 shall have terminated (without closing); or (C) if the provisions of Section 2.1 shall have terminated as a result of any action by the Board referred to in clause (ii) of the first sentence of this Section 2.2, the Board shall have determined not to take any of such actions (and no such transaction considered by the Board shall have closed) prior to the commencement of a tender offer by the Stockholder that would have been permitted to be made pursuant to this Section 2.2 as a result of the initial determination of the Board referred to in clause (ii) of the first sentence of this Section 2.2, unless prior to such determination by the Board not to take any such actions, any event referred to in clause (i) of the first sentence of this Section 2.2 shall have occurred. Upon reinstatement of the provisions of Section 2.2, the provisions of this Section 2.2 shall continue to govern in the event that any of the events described in clauses (i) and (ii) of the first sentence of this Section 2.2 shall occur. Upon the closing of any tender offer for or acquisition of any securities of the Company or rights or options to acquire any such securities by the Stockholder or any of its Affiliates or Associates that would have been prohibited by the provisions of Section 2.1 but for the provisions of this Section 2.2, all provisions of Section 2.1 and 2.2 shall terminate.

 

2.3 [Reserved].

 

2.4 Sales of Shares of Common Stock. During the Standstill Period, other than any sales of Common Shares effected pursuant to the registration rights provisions of the Investor Rights Agreement, each person comprising the Stockholder will only sell shares of Common Stock in open market transactions on the NASDAQ Stock Market or on such principal stock exchange as the Common Stock is then listed for trading or in private transactions so long as any sale in a private transaction is not to any Person or Group who the Stockholder reasonably believes after due inquiry Beneficially Owns or as a result of such transaction would Beneficially Own more than five percent (5%) of the then outstanding Common Shares.

 

 
 

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

 

3.1 Each Party hereto represents and warrants to the other as follows:

 

(a) Authorization. Such Party has the requisite power, authority and legal capacity to execute, deliver and perform and to consummate the transactions contemplated by this Agreement. This Agreement constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as such enforcement may be limited by any applicable bankruptcy, insolvency, moratorium or similar law affecting creditors’ rights generally.

 

(b) No Consents. No consent of any Governmental Authority or other person is required to be obtained by such Party in connection with the execution and delivery by such Party of this Agreement.

 

3.2 The Stockholder represents and warrants to the Company as follows: As of the date hereof, and pursuant to the consummation of the Merger, the Stockholder and its Affiliates and Associates will collectively Beneficially Own 18,500,000 shares of Common Stock and have no other interest in the capital stock of the Company.

 

ARTICLE 4

MISCELLANEOUS

 

4.1 Severability. If any term, provision, covenant or restriction of this Agreement is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect.

 

4.2 Specific Enforcement. The Parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement (without the necessity of posting any bond), this being in addition to any other remedy to which they may be entitled by law or equity.

 

4.3 Further Assurances. The Stockholder shall use its reasonable best efforts to cause its Affiliates and Associates to comply in all respects with the provisions of this Agreement applicable to the Stockholder to the same extent as if such Affiliates and Associates were original parties hereto.

 

4.4 Entire Agreement; Amendments. This Agreement contains the entire understanding of the Parties with respect to the matters covered hereby and thereby. This Agreement may be amended only by an agreement in writing executed by the Parties hereto. The Parties hereto may amend this Agreement without notice to or the consent of any third party, including any Affiliate or Associate of the Stockholder.

 

4.5 Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) when personally delivered or transmitted by electronic means, such as electronic mail, on a business day during normal business hours where such notice is to be received at the address or number designated below, (b) on the business day when verification of delivery is obtained when sent by fully paid overnight courier, or (c) on the business day that is three (3) days following the date of mailing by courier, fully prepaid, addressed to such address, whichever shall first occur. The addresses for such communications shall be:

 

  If to the Company:   Ammo, Inc.
      7681 East Gray Road
      Scottsdale, Arizona 85260
      Email:
      Attention:
     
  With a copy to:   Lucosky Brookman LLP
      101 Wood Avenue South, Floor 5
      Woodbridge, NJ 08830
      Email:
      Attention: Joseph Lucosky

 

 
 

 

  If to the Stockholder:  

Steven F. Urvan

       
     

Email:

     
  With a copy to:   Arnall Golden Gregory LLP
      171 17th Street, NW, Suite 2100
      Atlanta, Georgia 30363
      Email:
      Attention: Michael D. Golden, Esq.

 

Any Party hereto may from time to time change its address for notices under this Section 4.5 by giving at least five (5) days’ notice of such changed address to the other Party hereto.

 

4.6 Waivers. No waiver by either Party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future thereof or a waiver of any other provision, condition or requirement of this Agreement; nor shall any delay or omission of either Party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.

 

4.7 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions of this Agreement.

 

4.8 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and legal representatives. No Party shall assign this Agreement or any rights hereunder without the prior written consent of the other Party (which consent may be withheld for any reason in the sole discretion of the Party from whom consent is sought) except to a successor of all or substantially all of the business or assets of such Party and in the case of the Stockholder to such Person as part of such transaction to whom all of the shares of Common Stock are transferred so long as such Person agrees in advance in writing to be subject to this Agreement.

 

4.9 No Third Party Beneficiaries. This Agreement is intended for the benefit of the Parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision of this Agreement be enforced by, any other person.

 

4.10 Governing Law; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to the principles of conflicts of laws. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Delaware and the federal courts located in the State of Delaware in respect of the interpretation and enforcement of the provisions of this Agreement.

 

4.11 Counterparts. This Agreement may be executed in separate counterparts (including by facsimile), each of which when so executed and delivered shall be deemed an original, but both such counterparts shall together constitute one and the same instrument.

 

[Remainder of this page is intentionally blank]

 

     
 

 

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

 

  AMMO, INC.
     
  By
  Name: Fred Wagenhals
  Title: Chief Executive Officer

 

   
  Steven F. Urvan

 

 

 

 

EXHIBIT 10.4

 

INVESTOR RIGHTS AGREEMENT

 

This Investor Rights Agreement (this “Agreement”) is made and entered into as of April 30, 2021 (the “Effective Date”) by and among Ammo, Inc. a Delaware corporation (the “Company”), Gemini Direct Investments, LLC, a Nevada limited liability company (“Gemini”), SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Sub”), and Steven F. Urvan, an individual (the “Investor”).

 

RECITALS

 

WHEREAS, the Company, Gemini, Sub, and Investor, have entered into that certain Agreement and Plan of Merger dated as of April 30, 2021 (the “Merger Agreement”), pursuant to which Sub will be merged with and into Gemini, and Sub shall continue as the surviving entity and wholly owned subsidiary of the Company (the “Merger”);

 

WHEREAS, in connection with the Merger and pursuant to the Merger Agreement, the Company will issue to the Investor up to an aggregate of 20,000,000 shares of the Company’s common stock, par value $0.001 per share, (the “Shares”), including 14,500,000 Shares issued at the Closing (as defined below);

 

WHEREAS, the Company has agreed to file a resale registration statement within ninety (90) days of the closing of the Merger (the “Closing”) with respect to 10,000,000 of the Shares issued at the Closing (the “First Tranche Resale Securities”); and

 

WHEREAS, the Company has agreed to provide the Investor with demand registration rights in connection with the additional shares received by the Investor in connection with the Merger which will include 4,000,000 Shares issued at the Closing, the Additional Parent Stock Consideration (when and if issued in accordance with the terms of the Merger Agreement) and the Escrowed Parent Stock Consideration (to the extent released and delivered to the Investor in accordance with the terms of the Merger Agreement) (collectively, the “Second Tranche Resale Securities”).

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1 Definitions. For purposes of this Agreement, the following terms and variations thereof have the meanings set forth below:

 

Affiliate” means, with respect to any specified Person, any Person that, directly or indirectly, controls, is controlled by, or is under common control with, such specified Person, through one or more intermediaries or otherwise. The term “control” 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, and the terms “controlled” and “controlling” have meanings correlative thereto.

 

 
 

 

Agreement” has the meaning set forth in the preamble.

 

Board” means the board of directors of the Company.

 

Business Day” means any day, other than a Saturday, Sunday or one on which banks are authorized by law to be closed in New York, New York.

 

Common Stock” means the Company’s common stock, par value $0.001 per share.

 

Effective Date” has the meaning set forth in the preamble.

 

Effectiveness Period” has the meaning set forth in Section 3.4(a)(iii).

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

First Tranche Registrable Securities” means the First Tranche Resale Securities and any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to such securities; provided, however, that First Tranche Registrable Securities shall cease to be First Tranche Registrable Securities when (i) such securities have been disposed of in accordance with a Registration Statement or pursuant to Rule 144; (ii) such securities may be sold pursuant to Rule 144 without any limitation as to manner-of-sale restrictions or volume limitations; or (iii) such securities cease to be outstanding.

 

Form S-1” means a Registration Statement on Form S-1 or any similar long-form registration statement that may be available at such time.

 

Form S-3” means a Registration Statement on Form S-3 or any similar short-form registration statement that may be available at such time.

 

Grace Period” has the meaning set forth in Section 3.4(f).”

 

Indemnified Party” has the meaning set forth in Section 4.3.

 

Indemnifying Party” has the meaning set forth in Section 4.3.

 

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

 

Person” shall mean any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.

 

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Registrable Securities” means the First Tranche Registrable Securities and the Second Tranche Registrable Securities.

 

Registration” means a registration effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective.

 

“Registration Statement” means a registration statement filed by the Company or its successor with the SEC in compliance with the Securities Act and the rules and regulations promulgated thereunder for a public offering and sale of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities (other than a registration statement on Form S-4 or Form S-8, or their successors, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity).

 

Second Tranche Registrable Securities” means the Second Tranche Resale Securities and any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to such securities; provided, however, that Second Tranche Registrable Securities shall cease to be Second Tranche Registrable Securities when (i) such securities have been disposed of in accordance with a Registration Statement or pursuant to Rule 144; (ii) such securities may be sold pursuant to Rule 144 without any limitation as to manner-of-sale restrictions or volume limitations; or (iii) such securities cease to be outstanding.

 

Rule 144” means Rule 144 under the Securities Act or any successor or other similar rule, regulation or interpretation of the SEC that may at any time permit the sale of Registrable Securities to the public without registration.

 

Rule 415” means Rule 415 under the Securities Act or any successor or other similar rule providing for offering securities on a continuous or delayed basis.

 

SEC” means the Securities and Exchange Commission.

 

Shares” has the meaning set forth in the recitals.

 

Securities Act” means the Securities Act of 1933, as amended.

 

Transfer” means, directly or indirectly, to sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of (by merger, testamentary disposition, operation of law or otherwise), either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of (by merger, testamentary disposition, operation of law or otherwise) any Shares.

 

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Underwriter” means a securities dealer who purchases any Registrable Securities as principal in an underwritten offering and not as part of such dealer’s market-making activities.

 

Underwritten Demand Registration” shall mean an underwritten public offering of Registrable Securities pursuant to a Demand Registration, as amended or supplemented, that is a fully marketed underwritten offering that requires Company management to participate in “road show” presentations to potential investors requiring substantial marketing effort from management over multiple days, the issuance of a “comfort letter” by the Company’s auditors, and the issuance of legal opinions by the Company’s legal counsel.

 

Underwritten Takedown” shall mean an underwritten public offering of Registrable Securities pursuant to the Resale Shelf Registration Statement, as amended or supplemented, that requires the issuance of a “comfort letter” by the Company’s auditors and the issuance of legal opinions by the Company’s legal counsel.

 

ARTICLE II

TRANSFER RESTRICTIONS

 

Section 2.1 General Transfer Restrictions. The right of the Investor to Transfer any Shares held by him is subject to the restrictions set forth below.

 

(a) The Investor acknowledges that the Shares have not been registered under the Securities Act and may not be Transferred except pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from registration under the Securities Act. The Investor covenants that the Shares will only be disposed of pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, and in compliance with any applicable state and foreign securities laws. In connection with any Transfer of the Shares other than a Transfer (i) pursuant to an effective registration statement, (ii) to the Company, (iii) pursuant to Rule 144, or (iv) to an Affiliate of Investor, the Company may require the Investor to provide to the Company an opinion of legal counsel selected by the Investor and the legal opinion of counsel shall be satisfactory to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such Transfer does not require registration under the Securities Act; provided, however, that prior to any transfer pursuant to clause (iv), each transferee shall agree with the Company in writing to be bound by this Agreement (it being understood that the rights of the transferor under this Agreement shall likewise be deemed assigned to such transferee upon such transfer).

 

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(b) Each Shareholder agrees to the affixing of the following legend on any certificate or book-entry position evidencing any of the Shares substantially in the following form:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE SECURITIES LAWS.

 

Certificates or book-entry positions evidencing the Shares shall not be required to contain such legend or any other legend (i) following any sale of such Shares pursuant to an effective registration statement (including a Registration Statement filed pursuant to this Agreement) covering the resale of the Shares, (ii) following any sale of such Shares pursuant to Rule 144 or if the Shares are transferrable by a person who is not an Affiliate of the Company or the applicable Shareholder pursuant to Rule 144 without any volume or manner of sale restrictions thereunder, (iii) if Investor is not an Affiliate of the Company, one (1) year following the Closing, provided, however, that in the case of (ii) and (iii), above, the Investor provides the Company with customary legal representation letters reasonably satisfactory to the Company and the transfer agent of the Company or (iv) if the Investor provides the Company with a legal opinion reasonably satisfactory to the Company to the effect that the legend is not required under applicable requirements of the Securities Act. Whenever such restrictions shall cease and terminate as to any Shares, the Investor shall be entitled to receive from the Company upon a written request in writing, without expense, new securities of like tenor not bearing the legend set forth herein, and such new securities shall be issued promptly, but in no event less than five (5) Business Days after a written request to remove such legends.

 

Section 2.2 Rule 144. The Company covenants that it shall file any reports required to be filed by it under the Securities Act and the Exchange Act to satisfy continued Exchange Act reporting obligations, to enable Investor to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. Investor acknowledges that, as of the Effective Date, he is an “affiliate” of the Company as defined in Rule 144.

 

ARTICLE III

REGISTRATION AND PROCEDURES

 

Section 3.1 Resale Shelf Registration Rights.

 

(a) Subject to compliance by Investor with Section 3.4(d), the Company shall prepare and file or cause to be prepared and filed with the SEC, no later than ninety (90) days following the Effective Date, with respect to the First Tranche Registrable Securities, a Registration Statement on Form S-3 or its successor form, or, if the Company is ineligible to use Form S-3, a Registration Statement on Form S-1, for an offering to be made on a continuous basis pursuant to Rule 415 of the Securities Act registering the resale from time to time by Investor of all of the First Tranche Registrable Securities (the “Resale Shelf Registration Statement”). The Company shall use commercially reasonable efforts to cause the Resale Shelf Registration Statement to be declared effective as soon as possible after filing, and once effective, to keep the Resale Shelf Registration Statement continuously effective under the Securities Act at all times until the expiration of the Effectiveness Period. In the event that the Company files a Form S-1 pursuant to this Section 3.1(a), the Company shall use its commercially reasonable efforts to convert the Form S-1 to a Form S-3 as soon as practicable after the Company is eligible to use Form S-3. No filing of such Registration Statement shall be required during any period in which the Company’s insider trading policy would prohibit executive officers of the Company from trading in the Company’s securities.

 

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(b) The Company shall notify the Investor in writing of the effectiveness of the Resale Shelf Registration Statement and shall furnish to him, without charge, such number of copies of the Resale Shelf Registration Statement (including any amendments, supplements and exhibits), the prospectus contained therein (including each preliminary prospectus and all related amendments and supplements) and any documents incorporated by reference in the Resale Shelf Registration Statement or such other documents as the Investor may reasonably request in order to facilitate the sale of the First Tranche Registrable Securities in the manner described in the Resale Shelf Registration Statement.

 

(c) Subject to the provisions of Section 3.1(a), the Company shall promptly prepare and file with the SEC from time to time such amendments and supplements to the Resale Shelf Registration Statement and prospectus used in connection therewith as may be necessary to keep the Resale Shelf Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all the First Tranche Registrable Securities during the Effectiveness Period.

 

(d) Notwithstanding the registration obligations set forth in this Section 3.1, in the event the SEC informs the Company that all of the First Tranche Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly (i) inform the Investor and use its commercially reasonable efforts to file amendments to the Resale Shelf Registration Statement as required by the SEC and/or (ii) withdraw the Resale Shelf Registration Statement and file a new registration statement (a “New Registration Statement”), in either case covering the maximum number of Registrable Securities permitted to be registered by the SEC, on Form S-1, Form S-3 or such other form available to register for resale the First Tranche Registrable Securities as a secondary offering; provided, however, that prior to filing such amendment or New Registration Statement, the Company shall be obligated to use its commercially reasonable efforts to advocate with the SEC for the registration of all of the First Tranche Registrable Securities in accordance with any publicly-available written or oral guidance, comments, requirements or requests of the SEC staff (the “SEC Guidance”). In the event the Company amends the Resale Shelf Registration Statement or files a New Registration Statement, as the case may be, under clauses (i) or (ii) above, the Company will use its commercially reasonable efforts to file with the SEC, as promptly as allowed by SEC or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-1, Form S-3 or such other form available to register for resale those First Tranche Registrable Securities that were not registered for resale on the Resale Shelf Registration Statement, as amended, or the New Registration Statement.

 

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(g) If, at any time and from time to time beginning on such date that is ninety (90) days following the Effective Date, the Company shall receive a request from the Investor for an Underwritten Takedown of all or any portion of the Investor’s First Tranche Registrable Securities, then the Company shall use its commercially reasonable efforts to effect, as expeditiously as possible, the offering in such Underwritten Takedown of (i) all Registrable Securities for which the Investor has requested such offering under this Section 3.1(g), all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be offered.

 

(i) The Company shall be required to effectuate only one Underwritten Takedown by the Investor within any six-month period.

 

(ii) If the managing underwriter in an Underwritten Takedown advises the Company and the Investor that, in its view, the number of shares of Registrable Securities requested to be included in such underwritten offering exceeds the largest number of shares that can be sold without having an adverse effect on such offering, including the price at which such shares can be sold, the shares included in such Underwritten Takedown will be reduced in accordance with such determination by the managing underwriter.

 

(h) The Company shall have the right to select an Underwriter or Underwriters in connection with an Underwritten Takedown, which Underwriter or Underwriters shall be reasonably acceptable to the Investor. In connection with an Underwritten Takedown, the Company shall enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities in such Underwritten Takedown, including, if necessary, the engagement of a “qualified independent underwriter” in connection with the qualification of the underwriting arrangements with the Financial Industry Regulatory Authority, Inc.

 

Section 3.2 Demand Registration.

 

(a) At any time and from time to time beginning on the date that is six (6) months following the Effective Date, and subject to compliance by such Investor with Section 3.4(d) (other than as to any portion of the Registrable Securities for which there is an effective Resale Registration Statement available for the resale of such Registrable Securities pursuant to Section 3.1), the Investor may make a written demand for Registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any similar long-form Registration or, if then available, on Form S-3. Each registration requested pursuant to this Section 3.2 is referred to herein as a “Demand Registration”. Any demand for a Demand Registration shall specify the number of shares of Registrable Securities proposed to be sold and the intended method(s) of distribution thereof. The Company shall not be obligated to effect more than one Demand Registration during any three-month period. The Company shall be obligated to offer an unlimited number of Demand Registrations in respect of the Registrable Securities.

 

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(b) A Registration will not count as a Demand Registration until the Registration Statement filed with the SEC with respect to such Demand Registration has been declared effective and the Company has complied with all of its obligations under this Agreement with respect thereto; provided, however, that if, after such Registration Statement has been declared effective, the offering of Registrable Securities pursuant to a Demand Registration is interfered with by any stop order or injunction of the SEC or any other governmental agency or court, the Registration Statement with respect to such Demand Registration will be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded or otherwise terminated, and (ii) the Investor elects to continue the offering; provided, further, that the Company shall not be obligated to file a second Registration Statement until a Registration Statement that has been filed is counted as a Demand Registration or is terminated.

 

(c) If the Investor so elects and the Investor so advises the Company as part of their written demand for a Demand Registration, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an Underwritten Demand Registration. The Investor shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such underwriting by the Investor, and subject to the approval of the Company. The parties agree that, in order to be effected, any Underwritten Demand Registration must result in (i) aggregate proceeds to the selling holders of $4,000,000 or (ii) the Investor no longer holding any Registrable Securities.

 

(d) If the managing Underwriter or Underwriters for an Underwritten Demand Registration that is to be an underwritten offering advises the Company and the Demanding Holders in writing that, in such Underwriter’s or Underwriters’ opinion, the dollar amount or number of Registrable Securities which the Investor desires to sell, taken together with all Common Stock or other securities which the Company desires to sell and the Common Stock, if any, exceeds the maximum dollar amount or maximum number of shares that can be sold in such offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of shares, as applicable, the “Maximum Number of Shares”), then the Company shall include in such registration: (i) first, the Registrable Securities as to which Demand Registration has been requested by the Investor that can be sold without exceeding the Maximum Number of Shares; (ii) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (i), the Common Stock or other securities that the Company desires to sell and (iii) to the extent that the Maximum Number of Shares have not been reached under the foregoing clauses (i) and (ii), any Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons.

 

(e) If the Investor disapproves of the terms of any underwritten offering or is not entitled to include all of his Registrable Securities requested for inclusion in any underwritten offering, the Investor may elect to withdraw from any Demand Registration by giving written notice to the Company and the Underwriter or Underwriters of their request to withdraw prior to the effectiveness of the Registration Statement filed with the SEC with respect to such Demand Registration. If the Investor withdraws from a proposed Demand Registration, then either the Investor shall reimburse the Company for the costs associated with the withdrawn registration (in which case such registration shall not count as a Demand Registration provided for in Section 3.2(a)) or the withdrawn registration shall count as a Demand Registration provided for in Section 3.2(a).

 

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Section 3.3 Reserved.

 

Section 3.4 Registration Procedures.

 

(a) Whenever the Company is required to effect the registration of any Registrable Securities pursuant to Section 3.1 or 3.2, the Company shall use its commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method(s) of distribution thereof as expeditiously as practicable, and in connection with any such request:

 

(i) The Company shall use its commercially reasonable efforts to, as expeditiously as possible after receipt of a request for a Demand Registration pursuant to Section 3.2, prepare and file with the SEC a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of all Registrable Securities to be registered thereunder in accordance with the intended method(s) of distribution thereof, and shall use its commercially reasonable efforts to cause such Registration Statement to become effective and use its commercially reasonable efforts to keep it effective for the Effectiveness Period; provided, however, that the Company shall have the right to defer any Demand Registration for up to 180 days, if the Company shall furnish to the holders a certificate signed by the Chief Executive Officer or Chairman of the Company stating that, in the good faith judgment of the Board, it would be materially detrimental to the Company and its shareholders for such Registration Statement to be effected at such time; provided, further, that the Company shall not invoke such right on more than three occasions or for more than sixty (60) consecutive calendar days, or more than one hundred and twenty (120) total calendar days, in each case during any twelve-month period.

 

(ii) The Company shall, prior to filing a Registration Statement or prospectus, or any amendment or supplement thereto, furnish without charge to the Investor, and Investor’s legal counsel, copies of such Registration Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such Registration Statement (including each preliminary prospectus), and such other documents as the Investor or its legal counsel may request in order to facilitate the disposition of the Registrable Securities owned by such holders.

 

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(iii) The Company shall prepare and file with the SEC such amendments, including post-effective amendments, and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and in compliance with the provisions of the Securities Act until the earliest of the following: (i) the date on which all Registrable Securities and other securities covered by such Registration Statement have been disposed of in accordance with the intended method(s) of distribution set forth in such Registration Statement or such securities have been withdrawn and (ii) the date on which all Registrable Securities and other securities covered by such Registration Statement have ceased to be Registrable Securities (the “Effectiveness Period”).

 

(iv) The Company shall permit the Investor, the Underwriters, if any, and any attorney and accountant selected by the Investor or Underwriter to participate, at each such person’s own expense, in the preparation of the Registration Statement, and shall cause the Company’s officers, directors and employees to supply all information reasonably requested by the Investor, Underwriter, attorney or accountant in connection with the Registration; provided, however, that such representatives or Underwriters agree to confidentiality arrangements reasonably satisfactory to the Company, prior to the release or disclosure of any such information.

 

(v) After the filing of a Registration Statement, the Company shall promptly, and in no event more than one Business Days after such filing, notify the Investor of such filing, and shall further notify the Investor promptly and confirm such advice in writing in all events within two Business Days of the occurrence of any of the following: (A) when such Registration Statement becomes effective; (B) when any post-effective amendment to such Registration Statement becomes effective; (C) the issuance or threatened issuance by the SEC of any stop order (and the Company shall take all actions required to prevent the entry of such stop order or to remove it if entered); and (D) any request by the SEC for any amendment or supplement to such Registration Statement or any prospectus relating thereto or for additional information or of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the securities covered by such Registration Statement, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly make available to the Investor any such supplement or amendment; except that before filing with the SEC a Registration Statement or prospectus or any amendment or supplement thereto, including documents incorporated by reference, the Company shall furnish to the Investor and to the legal counsel for the Investor, copies of all such documents proposed to be filed sufficiently in advance of filing to provide such holders and legal counsel with a reasonable opportunity to review such documents and comment thereon.

 

(vi) The Company shall use its commercially reasonable efforts to (i) register or qualify the Registrable Securities covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United States as the Investor (in light of the intended plan of distribution) may reasonably request and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be necessary or advisable to enable the Investor to consummate the disposition of such Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph or subject itself to taxation in any such jurisdiction.

 

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(vii) The Company shall enter into customary agreements (including, if applicable, an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities. The representations, warranties and covenants of the Company in any underwriting agreement which are made to or for the benefit of any Underwriters, to the extent applicable, shall also be made to and for the benefit of the Investor, and the representations, warranties and covenants of the Investor in any underwriting agreement which are made to or for the benefit of any Underwriters, to the extent applicable, shall also be made to and for the benefit of the Company.

 

(viii) In the event of an Underwritten Takedown or an Underwritten Demand Registration, the Company shall obtain a “cold comfort” letter from the Company’s independent registered public accountants in the event of an underwritten offering, and a customary “bring-down” thereof, in customary form and covering such matters of the type customarily covered by “cold comfort” letters as the managing Underwriter may reasonably request, and reasonably satisfactory to the Investor.

 

(ix) In the event of an Underwritten Takedown or an Underwritten Demand Registration, on the date the Registrable Securities are delivered for sale pursuant to any Registration, the Company shall obtain an opinion and negative assurances letter, each dated as of such date, of one counsel representing the Company for the purposes of such Registration, including an opinion of local counsel if applicable, addressed to the holders, the placement agent or sales agent, if any, and the Underwriters, if any, covering such legal matters with respect to such Registration in respect of which such opinion is being given as the holders, placement agent, sales agent, or Underwriter may reasonably request and as are customarily included in such opinions, and reasonably satisfactory to the Investor.

 

(x) The principal executive officer of the Company, the principal financial officer of the Company, the principal accounting officer of the Company and all other officers and members of the management of the Company shall cooperate fully in any offering of Registrable Securities hereunder, which cooperation shall include, without limitation, the preparation of the Registration Statement with respect to such offering and all other offering materials and related documents, and participation in meetings with Underwriters, attorneys, accountants and potential investors.

 

(xi) The Company shall provide and maintain a transfer agent and registrar for the Registrable Securities.

 

(xii) Upon execution of confidentiality agreements, the Company shall make available for inspection by the Investor, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by the Investor or any Underwriter, all financial and other records, pertinent corporate documents and properties of the Company, as shall be necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any of them in connection with such Registration Statement.

 

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(xiii) The Company shall comply with all applicable rules and regulations of the SEC and the Securities Act, and make available to its shareholders, as soon as practicable, an earnings statement covering a period of twelve months, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.

 

(xiv) If an offering pursuant to this Agreement is conducted as an Underwritten Takedown or an Underwritten Demand Registration and involves Registrable Securities with an aggregate offering price (before deduction of underwriting discounts) that exceeds $25,000,000, the Company shall use commercially reasonable efforts to make available senior executives of the Company to participate in customary “road show” presentations that may be reasonably requested by the Underwriter in such offering.

 

(xv) The Company shall use its commercially reasonable efforts to cause all Registrable Securities included in any Registration Statement to be listed on such exchanges or otherwise designated for trading in the same manner as similar securities issued by the Company are then listed or designated.

 

(b) Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.4(a)(v)(D), or, upon any suspension by the Company, pursuant to a written insider trading compliance program adopted by the Board, of the ability of all “insiders” covered by such program to transact in the Company’s securities because of the existence of material non-public information, the Investor shall immediately discontinue disposition of such Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until the Investor receives the supplemented or amended prospectus contemplated by 3.4(a)(v)(D) or the restriction on the ability of “insiders” to transact in the Company’s securities is removed, as applicable, and, if so directed by the Company, the Investor will deliver to the Company all copies, other than permanent file copies then in Investor’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. The foregoing right to delay or suspend may be exercised by the Company for no longer than 180 days in any 12-month period.

 

(c) The Company shall bear all costs and expenses incurred in connection with the Resale Shelf Registration Statement pursuant to Section 3.1, any Demand Registration pursuant to Section 3.2(a), any underwritten Takedown pursuant to Section 3.1(f), and all expenses incurred in performing or complying with its other obligations under this Agreement, whether or not the Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees; (ii) fees and expenses of compliance with securities or “blue sky” laws (including fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (iii) printing expenses; (iv) the Company’s internal expenses (including, without limitation, all salaries and expenses of its officers and employees); (v) the fees and expenses incurred in connection with the listing of the Registrable Securities as required by Section 3.4(a)(xv); (vi) Financial Industry Regulatory Authority fees; (vii) fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company; (viii) the fees and expenses of any special experts retained by the Company in connection with such registration and (ix) the reasonable fees and expenses of one legal counsel selected by the Investor not to exceed $75,000. The Company shall have no obligation to pay any underwriting discounts or selling commissions attributable to the Registrable Securities being sold by the Investor, which underwriting discounts or selling commissions shall be borne by the Investor, but the Company shall pay any underwriting discounts or selling commissions attributable to the securities it sells for its own account.

 

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(d) The Investor shall promptly provide such information as may reasonably be requested by the Company, or the managing Underwriter, if any, in connection with the preparation of any Registration Statement, including amendments and supplements thereto, in order to effect the registration of any Registrable Securities under the Securities Act and in connection with the Company’s obligation to comply with Federal and applicable state securities laws.

 

(e) At any time and from time to time, in connection with a sale or transfer of Registrable Securities exempt from registration under the Securities Act or through any broker-dealer transactions described in the plan of distribution set forth within any prospectus and pursuant to the Registration Statement of which such prospectus forms a part, the Company shall, subject to the receipt of customary documentation required from the applicable holders in connection therewith, (i) promptly instruct its transfer agent to remove any restrictive legends applicable to the Registrable Securities being sold or transferred and (ii) cause its legal counsel to deliver the necessary legal opinions, if any, to the transfer agent in connection with the instruction under subclause (i). In addition, the Company shall cooperate reasonably with, and take such customary actions as may reasonably be requested by Investor in connection with the aforementioned sales or transfers; provided, however, that the Company shall have no obligation to participate in any “road shows” or assist with the preparation of any offering memoranda or related documentation with respect to any sale or transfer of Registrable Securities in any transaction that does not constitute an Underwritten Takedown or an Underwritten Demand Registration.

 

(f) Notwithstanding anything in this Agreement to the contrary, at any time after the Registration Statement becomes effective the Company may delay the disclosure of material, non-public information concerning the Company or any of its subsidiaries if the Board has a valid business reason for determining that disclosure of such information is not in the best interests of the Company and such disclosure is not otherwise required (a “Grace Period”); provided, however, that the Company shall promptly (i) provide written notice to the Investor of the Grace Period (provided that in no event shall such notice contain any material, non-public information) and the date on which the Grace Period will begin, and (ii) provide written notice to the Investor of the date on which the Grace Period ends; provided, further, that no Grace Period shall exceed thirty (30) consecutive days and during the Effectiveness Period such Grace Periods shall not exceed an aggregate of sixty (60) days provided, further, the Company shall not register any securities for its own account or that of any other stockholder during such Grace Period. The provisions of Section 3.4(e) shall not be applicable during any Grace Period. Upon expiration of a Grace Period, the Company shall again be bound by the provisions of Section 3.4(e) with respect to the information giving rights thereto unless such material, non-public information is no longer applicable.

 

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ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION

 

Section 4.1 Company Indemnification. The Company agrees to indemnify and hold harmless Investor, and each of its respective officers, employees, affiliates, directors, partners, members, attorneys and agents, and each person, if any, who controls the Investor (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each, an “Investor Indemnified Party”), from and against any expenses, losses, judgments, claims, damages or liabilities, whether joint or several, arising out of or based upon any untrue statement (or allegedly untrue statement) of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arising out of or based upon any omission (or alleged omission) to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration; and the Company shall promptly reimburse the Investor Indemnified Party for any legal and any other expenses reasonably incurred by such Investor Indemnified Party in connection with investigating and defending any such expense, loss, judgment, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue statement or allegedly untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by the Investor expressly for use therein, or is based on the Investor’s violation of the federal securities laws (including Regulation M) or failure to sell the Registrable Securities in accordance with the plan of distribution contained in the prospectus.

 

4.2 Indemnification by Investor. The Investor will indemnify and hold harmless the Company, each of its directors and officers, attorneys and each other selling holder and each other person, if any, who controls another selling holder within the meaning of the Securities Act, against any losses, claims, judgments, damages or liabilities, whether joint or several, insofar as such losses, claims, judgments, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or allegedly untrue statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or the alleged omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by the Investor expressly for use therein, or is based on Investor’s violation of the federal securities laws (including Regulation M) or failure to sell the Registrable Securities in accordance with the plan of distribution contained in the prospectus, and shall reimburse the Company, its directors and officers, and each other selling holder or controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigation or defending any such loss, claim, damage, liability or action. The indemnification obligations hereunder shall be limited to the amount of any net proceeds actually received by the Investor.

 

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4.3 Conduct of Indemnification Proceedings. Promptly after receipt by a person of notice of any loss, claim, damage or liability or any action in respect of which indemnity may be sought pursuant to Sections 4.1 or 4.2, such person (the “Indemnified Party”) shall, if a claim in respect thereof is to be made against any other person for indemnification hereunder, notify such other person (the “Indemnifying Party”) in writing of the loss, claim, judgment, damage, liability or action; provided, however, that the failure by the Indemnified Party to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which the Indemnifying Party may have to such Indemnified Party hereunder, except and solely to the extent the Indemnifying Party is actually prejudiced by such failure. If the Indemnified Party is seeking indemnification with respect to any claim or action brought against the Indemnified Party, then the Indemnifying Party shall be entitled to participate in such claim or action, and, to the extent that it wishes, jointly with all other Indemnifying Parties, to assume control of the defense thereof with counsel satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume control of the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that in any action in which both the Indemnified Party and the Indemnifying Party are named as defendants, the Indemnified Party shall have the right to employ separate counsel (but no more than one such separate counsel, which counsel is reasonably acceptable to the Indemnifying Party) to represent the Indemnified Party and its controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, with the fees and expenses of such counsel to be paid by such Indemnifying Party if, based upon the written opinion of counsel of such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, consent to entry of judgment or effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such judgment or settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding.

 

4.4 Contribution.

 

(a) If the indemnification provided for in the foregoing Sections 4.1, 4.2 and 4.3 is unavailable to any Indemnified Party in respect of any loss, claim, damage, liability or action referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the Indemnified Parties and the Indemnifying Parties in connection with the actions or omissions which resulted in such loss, claim, damage, liability or action, as well as any other relevant equitable considerations. The relative fault of any Indemnified Party and any Indemnifying Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such Indemnified Party or such Indemnifying Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(b) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in Section 4.4(a).

 

(c) The amount paid or payable by an Indemnified Party as a result of any loss, claim, damage, liability or action referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, the Investor shall not be required to contribute any amount in excess of the dollar amount of the net proceeds (after payment of any underwriting fees, discounts, commissions or taxes) actually received by the Investor from the sale of Registrable Securities which gave rise to such contribution obligation. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

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ARTICLE V

BOARD NOMINATION RIGHTS

 

5.1 Nomination. Following the Effective Date, the Company and the Board shall use commercially reasonable efforts to nominate Investor to serve on the Board for a minimum of three (3) years from the Closing (the “Board Service Period”). Promptly following Closing, the Company shall take such steps, if any, as are reasonably necessary to increase the size of the Board to accommodate the Investor, and the directors then in office will elect Investor to fill the resulting vacancy, subject to Investor’s acceptance of such nomination and election. Investor shall not be obligated to accept the nomination or election to the Board as contemplated by this Section 5.1 but the failure to do so shall not constitute a waiver of Investor’s rights hereunder.

 

5.2 Election at Shareholder Meeting. Regardless of whether Investor is then serving on the Board, the Nominations and Corporate Governance Committee of the Board shall recommend to the Board that Investor be nominated and recommended by the Board to shareholders for election as a director at each meeting of shareholders at which directors are elected during the Board Service Period and the Board shall recommend the Investor to the shareholders for election as a director at each meeting of shareholders at which directors are to elected during the Board Service Period. The Company shall use its commercially reasonable efforts to cause the election of the Investor, including by including the Investor in the proxy statement prepared by management of the Company in connection with soliciting proxies for every meeting of shareholders called for the election of directors, and at every postponement or adjournment thereof, and on every action or approval by written consent of the shareholders of the Company or the Board with respect to the election of Investor. Investor shall not be obligated to accept any nomination for election to the Board as contemplated by this Section 5.2, but the failure to accept any such nomination shall not constitute a waiver of the Investor’s rights with respect to any subsequent meetings of shareholders at which directors are to be elected during the Board Service Period.

 

ARTICLE VI
GENERAL PROVISIONS

 

Section 6.1 No Conflict. The Company is not currently party to, nor shall the Company hereafter enter into, any agreement with respect to its equity securities that is inconsistent with or violates the rights granted to the Investor set forth in this Agreement and in the event of any conflict between any such agreement or agreements and this Agreement, the terms of this Agreement shall prevail.

 

Section 6.2 Transfer of Registration Rights. The registration rights contained in this Agreement to cause the Company to register the Registrable Securities, and the other rights set forth in this Article VI, may be assigned or otherwise conveyed by the Investor to any transferee of the Registrable Securities if the Transfer was permitted under Article II and the transferee agrees with the Company in writing to be bound by this Agreement.

 

Section 6.3 Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties as to the matters covered herein and supersedes and replaces any prior understanding, agreement or statement of intent, in each case, written or oral, of any and every nature with respect thereto.

 

Section 6.4 Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received (a) upon receipt when delivered by hand, (b) upon transmission, if sent by electronic transmission (in each case with receipt verified by electronic confirmation), or (c) one (1) Business Day after being sent by courier or express delivery service. The addresses, and email addresses for such notices and communications are those set forth on the signature pages hereof, or such other address, email address or facsimile number as may be designated in writing hereafter, in the same manner, by any such person.

 

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Section 6.5 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart and such counterparts may be delivered by the parties hereto via facsimile or electronic transmission.

 

Section 6.6 Amendment; Waiver. This Agreement may be amended or modified, and any provision hereof may be waived, in whole or in part, at any time pursuant to an agreement in writing executed by the Company and the Investor. Any failure by any party at any time to enforce any of the provisions of this Agreement shall not be construed a waiver of such provision or any other provisions hereof.

 

Section 6.7 Severability. In the event that any provision of this Agreement or the application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto.

 

Section 6.8 Governing Law; Venue. This Agreement and all claims or causes of action (whether sounding in contract or tort) arising under or related to this Agreement, shall be governed by and construed in accordance with, the laws of the State of Delaware, without regard to any rule or principle that might refer the governance or construction of this Agreement to the Laws of another jurisdiction. In any action or proceeding between any of the parties arising under or related to this Agreement, each of the parties (a) knowingly, voluntarily, irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of any court of competent civil jurisdiction sitting in the State of Delaware, (b) agrees that all claims in respect of any such action or proceeding shall be heard and determined exclusively in accordance with clause (a) of this Section 6.8, (c) waives any objection to the laying of venue of any such action or proceeding in such courts, including any objection that any such action or proceeding has been brought in an inconvenient forum or that the court does not have jurisdiction over any party, and (d) agrees that service of process upon such party in any such action or proceeding shall be effective if such process is given as a notice in accordance with Section 5.2. The parties agree that any party may commence a proceeding in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.

 

Section 6.9 Specific Performance. Each party acknowledges and agrees that the other parties hereto would be irreparably harmed and would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed by such first party in accordance with their specific terms or were otherwise breached by such first party. Accordingly, each party agrees that the other parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which such parties are entitled at law or in equity.

 

(Next Page is Signature Page)

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first written above.

 

  COMPANY:
     
  AMMO, INC.
     
  By:  
  Name:  Fred W. Wagenhals
  Title: Chief Executive Officer

 

  Address for Notice:
   
  7681 E. Gray Rd.
  Scottsdale, Arizona 85260
  Attn: Fred W. Wagenhals
  Email:

 

  INVESTOR:
   
   
  Steven F. Urvan
   
  Address for Notice:
   
  Email:

 

[Signature Page Investor Rights Agreement]

 

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Exhibit 99.1

 

AMMO, INC. ANNOUNCES CLOSING OF ACQUISITION OF GUNBROKER.COM

 

SCOTTSDALE, Ariz., May 3, 2021 — AMMO, Inc. (Nasdaq: POWW ) (“AMMO” or the “Company”), a premier American ammunition and munition components manufacturer and technology leader, is pleased to announce today the successful closing of the previously announced acquisition of the GunBroker.com business (GunBroker.com), the world’s largest on-line auction marketplace dedicated to firearms, hunting, shooting and related products. The Transaction involved an approximate $240 million merger of reorganized entities resulting in GunBroker.com and certain affiliates becoming a wholly owned subsidiary of AMMO (the “Transaction”).

 

“We couldn’t be more excited about bringing the GunBroker.com team into the AMMO family. Everyone worked hard to make this happen – and we will now set about to further expand the GunBroker.com brand as we leverage the amazing IT platform Steve Urvan and his team developed to bring AMMO products and a host of other products and merchandise to the vibrant GunBroker.com marketplace,” said Fred Wagenhals, AMMO’s Chairman and CEO. Fred further noted that “the AMMO management team viewed the Transaction as accretive to our shareholders when we announced the letter of intent. With the Transaction successfully closed, our team has reached another vertical integration milestone for the Company, representing an opportunity to diversify our revenue base with high profit-margin business offered through a premier brand deploying best-in-class secure transactional technology.”

 

Steve Urvan commented: “I am excited we have closed the Transaction so I can take my seat on the Board of this dynamic and growing company. I am confident our newly expanded AMMO team will bring innovative products and solutions for our expanding and loyal customer base. The GunBroker.com marketplace is going to enjoy the new shopping opportunities that serve the firearms, ammunition and accessory outdoor and shooting sports markets as we roll them onto the platform.”

 

The Company anticipates issuing post-Transaction updated guidance on Tuesday, May 11, 2021.

 

Lucosky Brookman LLP acted as legal counsel and Riveron Consulting LLC acted as financial and technology advisors to the Company. Arnall Golden Gregory LLP served as legal counsel and Maxim Group LLC served as the financial advisor to IA Tech LLC for the GunBrokers.com business.

 

About AMMO, Inc.

 

With its corporate offices headquartered in Scottsdale, Arizona. AMMO designs and manufactures products for a variety of aptitudes, including law enforcement, military, sport shooting and self-defense. The Company was founded in 2016 with a vision to change, innovate and invigorate the complacent munitions industry. AMMO promotes branded munitions as well as its patented STREAK™ Visual Ammunition, /stelTH/™ subsonic munitions, and armor piercing rounds for military use. For more information, please visit: www.ammo-inc.com.

 

About GunBroker.com

 

GunBroker.com is the largest online marketplace dedicated to firearms, hunting, shooting and related products. Aside from merchandise bearing its logo, GunBroker.com currently sells none of the items listed on its website. Third-party sellers list items on the site and Federal and state laws govern the sale of firearms and other restricted items. Ownership policies and regulations are followed using licensed firearms dealers as transfer agents. Launched in 1999, GunBroker.com is an informative, secure and safe way to buy and sell firearms, ammunition, air guns, archery equipment, knives and swords, firearms accessories and hunting/shooting gear online. GunBroker.com promotes responsible ownership of guns and firearms. For more information, please visit: www.gunbroker.com.

 

 
 

 

Forward Looking Statements

 

This document contains certain “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we include in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Reports filed on Form 8-K.

 

Investor Contact:

 

Rob Wiley, CFO

AMMO, Inc.

Phone: (480) 947-0001

IR@ammo-inc.com