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Corporate Holdings, LLC | Initial Surviving Corporation | Rentech, Inc | RTK Acquisition Sub, Inc | RTK ACQUISITION SUB, LLC | SILVAGAS HOLDINGS CORPORATION | Surviving Company. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here. |
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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
RENTECH, INC.,
“Parent”,
RTK ACQUISITION SUB, INC.,
“Merger Sub”,
RTK ACQUISITION SUB, LLC,
“Second Merger Sub”,
SILVAGAS HOLDINGS CORPORATION,
“Company”,
JOHN A. WILLIAMS
“Principal Stockholder”,
MILTON FARRIS
“Farris”
individually and in his capacity as
“Stockholder Representative”
and
THE STOCKHOLDERS OF COMPANY
Dated: June 23, 2009
TABLE OF CONTENTS
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Exhibits
Exhibit A Stockholder List Exhibit B Escrow Agreement Exhibit C Certificate of Merger Exhibit D Stockholder Transmittal Letter Exhibit E Performance Criteria Exhibit F Investor Certification Exhibit G Purchaser Questionnaire Exhibit H Farris Employment Agreement Exhibit I Weeks Employment Agreement Exhibit J Written Consent
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of June 23, 2009, is by and among Rentech, Inc., a Colorado corporation (“ Parent ”), RTK Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), RTK Acquisition Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“ Second Merger Sub ”), SilvaGas Holdings Corporation, a Delaware corporation (“ Company ”), Milton Farris, as Stockholder Representative (“ Stockholder Representative ”), John A. Williams (the “ Principal Stockholder ”) and each of the stockholders of Company set forth on Exhibit A hereto (including the Stockholder Representative and the Principal Stockholder, each a “ Stockholder ” and collectively the “ Stockholders ”) who becomes a signatory to this Agreement pursuant to Section 8.11 .
RECITALS
A. Each of Parent’s, Merger Sub’s and Company’s board of directors believes it is in its and its stockholders’ best interests that Parent acquire Company through the merger of Merger Sub with and into Company (the “ First Step Merger ” or “ Merger ”).
B. The parties intend that immediately following the Effective Time (as defined below), Company shall be the Initial Surviving Corporation of the Merger, all pursuant to the terms and subject to the conditions hereinafter set forth and in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”).
C. The boards of directors of Parent, Merger Sub and Company have determined that the Merger is advisable and in the best interests of their respective companies and stockholders, have approved this Agreement and, accordingly, have agreed to effect the Merger provided for herein upon the terms and subject to the conditions hereinafter set forth.
D. Immediately following the Effective Time, Parent shall cause the Initial Surviving Corporation to merge with and into the Second Merger Sub (the “ Second Step Merger ”). Immediately following the Second Step Merger, the Second Merger Sub shall be the surviving entity of the Second Step Merger, all pursuant to the terms and subject to the conditions hereinafter set forth and in accordance with the DGCL and the Delaware Limited Liability Company Act (the “ DLLCA ”).
E. For U.S. federal income tax purposes, the parties intend that the First Step Merger and the Second Step Merger shall be treated as a single integrated transaction (together, the “ Transaction ”) and shall qualify as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code and the regulations promulgated thereunder.
F. Parent, Merger Sub, Second Merger Sub, Company and the Stockholders desire to make certain representations, warranties, covenants and agreements in connection with the Transaction and to prescribe various conditions to the Transaction.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms . As used in this Agreement, the terms below shall have the following meanings. Any such term, unless the context otherwise requires, may be used in the singular or plural, depending upon the reference.
“ Accounting Principles ” means the accounting principles, methods, practices, estimates, judgments and assumptions applied in the preparation of the Financial Statements, consistently applied.
“ Affiliate ” has the meaning set forth in the Exchange Act.
“ Ancillary Agreements ” means the Escrow Agreement, the Farris Agreement, the Weeks Agreement, the Confidentiality Agreement and the Stockholder Transmittal Letters.
“ Balance Sheet Date ” means May 31, 2009.
“ Big Stakes LLC ” means Big Stakes Match Play, LLC, a Georgia limited liability company.
“ Big Stakes Match Play Notes ” means those promissory notes listed on Schedule 1.1(a) .
“ Bloomberg ” means Bloomberg Financial Markets or a comparable reporting service of national reputation selected by Parent if Bloomberg Financial Markets is not then reporting sales prices of the Parent Common Stock.
“ Books and Records ” means (a) all records and lists of Company and each of its Subsidiaries, (b) all records and lists pertaining to the Business or the customers, suppliers or personnel of, in each case, Company and each of its Subsidiaries, (c) all product, business and marketing plans of Company and each of its Subsidiaries and (d) all books, ledgers, files, reports, plans, drawings and operating records of every kind maintained by Company and each of its Subsidiaries.
“ Business ” means any historical, current or planned business or business activities of Company and its Subsidiaries.
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“ Business Day ” means any day of the year on which national banking institutions in Los Angeles, California are open to the public for conducting business and are not required or authorized to close.
“ Cap ” means $4,500,000.
“ Closing Date ” means the third (3 rd ) Business Day following the satisfaction of all conditions to the consummation of the transactions contemplated by this Agreement, or such other date as Parent and Company shall mutually agree upon in writing.
“ Closing Price ” means VWAP of the Common Stock determined as of May 16, 2009.
“ Code ” means the Internal Revenue Code of 1986, as it may be amended from time to time, and the rules and regulations promulgated thereunder.
“ Company Capital Stock ” means the Company Common Stock and the Company Preferred Stock.
“ Company Common Stock ” means the common stock, $0.01 par value, of Company.
“ Company Preferred Stock ” means the 5% Series A Preferred Stock, $0.01 par value, of Company.
“ Confidential Information ” shall mean any and all trade secrets, confidential business or technical information, and proprietary information and materials, whether or not stored in any medium, relating to Company, its Subsidiaries or the Business, including, but not limited to, business information, technology, technical documentation, product or service specifications or strategies, marketing plans, research and development, designs, formulae, computer programs, pricing information, financial information, information relating to existing, previous and potential suppliers, customers, contracts and other know-how.
“ Confidentiality Agreement ” means that certain confidentiality agreement, dated January 12, 2009, entered into by Parent and Company.
“ Consent ” means any approval, consent, ratification, waiver or other authorization (including any Permit).
“ Contract ” means any agreement, contract, obligation, promise or undertaking (whether written or oral and whether express or implied).
“ Contract Rights ” means all of the rights and obligations of Company and its Subsidiaries under the Company Contracts.
“ Corporate Holdings Note ” means that certain promissory note, dated as of July 26, 2005, executed by Company in favor of Corporate Holdings, LLC.
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“ Disclosure Schedule ” means the schedule executed and delivered by Company to Parent on the date hereof, as such schedule may be amended pursuant to Section 14.7 or supplemented pursuant to Section 8.2 , setting forth the exceptions to the representations and warranties contained in Article V and certain other information called for by this Agreement. Unless otherwise specified, each reference in this Agreement to any numbered schedule is a reference to the corresponding numbered schedule which is included in the Disclosure Schedule.
“ Employee Benefit Plan ” means each “employee benefit plan” as defined in Section 3(3) of ERISA and each other plan, policy, program, agreement, understanding and arrangement (whether written or oral) providing compensation or other benefits to any current or former director, officer, employee or consultant (or to any dependent or beneficiary thereof) of Company or any of its Subsidiaries which is now or has been maintained, sponsored, entered into or contributed to by Company or any of its Subsidiaries or under the terms of which Company or any of its Subsidiaries has or is reasonably likely to have any obligation or liability, whether actual or contingent, including, without limitation, all employment, consulting, severance, termination, incentive, bonus, deferred compensation, retention, retirement, pension, savings, profit sharing, retention, change in control, vacation, holiday, cafeteria, medical, health, dependent care, disability, life, accident, fringe benefit, welfare and stock-based or stock-linked compensation plans, policies, programs, agreements, understandings or arrangements.
“ Environmental Law ” means any applicable Law relating to the protection of human health and safety, pollution or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §9601 et seq. ), the Hazardous Materials Transportation Act (49 U.S.C. App. §1801 et seq. ), the Resource Conservation and Recovery Act (42 U.S.C. §6901 et seq. ), the Clean Water Act (33 U.S.C. § 1251 et seq. ), the Clean Air Act (42 U.S.C. §7401 et seq. ) the Toxic Substances Control Act (15 U.S.C. §2601 et seq. ), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §136 et seq. ), and the Occupational Safety and Health Act (29 U.S.C. §651 et seq. ), in each case as amended and including the rules and regulations promulgated thereunder.
“ ERISA Affiliate ” means any entity (whether or not incorporated) that is required to be treated as a single employer with Company or any of its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code.
“ Escrow Agent ” means SunTrust Bank, a Georgia banking corporation.
“ Escrow Agreement ” means that certain escrow agreement, substantially in the form attached hereto as Exhibit B , to be entered into at Closing by Parent, Stockholder Representative (on behalf of the Stockholders) and the Escrow Agent.
“ Escrow Participants ” shall mean each Stockholder other than any Unqualified Stockholder or Dissenting Stockholder.
“ Estimated Stockholder Transfer Tax Amount ” means one-half the amount of Transfer Taxes estimated by Parent and Stockholder Representative in good faith to be incurred in connection with this Agreement and the transactions contemplated hereby.
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“ Exchange Act ” means the Securities Exchange Act of 1934, as it may be amended from time to time, and the rules and regulations promulgated thereunder.
“ Facilities ” shall mean any real property, leaseholds or other interest currently owned, held, occupied or operated by Company or its Subsidiaries and any buildings, structures or equipment (including motor vehicles) currently owned or operated by Company or its Subsidiaries.
“ Feasibility Study ” means a project development study performed in order to determine the technical and economic feasibility of the Rentech Project.
“ Future Innovations ” means any improvement or modification (including any and all new innovations, improvements, discoveries, inventions, processes, techniques, products and/or devices) to the Licensed SGC Technology. Future Innovations do not include processes, techniques, products and devices which are not directly related to the use and practice of the Licensed SGC Technology.
“ GAAP ” means generally accepted accounting principles in the United States as of the date hereof, consistently applied.
“ Governmental Body ” means any government or governmental or regulatory body thereof, whether federal, state, local or foreign, or any governmental department, commission, board, agency, or similar authority, or any court of competent jurisdiction.
“ Hazardous Material ” means any substance, material or waste which is regulated by the United States, the foreign jurisdictions in which Company or any of its Subsidiaries conducts the Business, or any state or local Governmental Body including, without limitation, petroleum and its by-products, asbestos, and any material or substance which is defined as a “hazardous waste”, “hazardous substance”, “hazardous material”, “restricted hazardous waste”, “industrial waste”, “solid waste”, “contaminant”, “pollutant”, “toxic waste” or “toxic substance” under any provision of any Environmental Law.
“ Indebtedness ” means, at any specified time, any of the following indebtedness of any Person (whether or not contingent and including, without limitation, any and all principal, accrued and unpaid interest, prepayment premiums or penalties, related expenses, commitment and other fees, sale or liquidity participation amounts, reimbursements, indemnities and other amounts which would be payable in connection therewith): (a) any obligations of such Person for borrowed money or in respect of loans or advances (whether or not evidenced by bonds, debentures, notes, or other similar instruments or debt securities); (b) any obligations of such Person as lessee under any lease or similar arrangement required to be recorded as a capital lease in accordance with GAAP; (c) all liabilities of such Person under or in connection with letters of credit or bankers’ acceptances, performance bonds, sureties or similar obligations that have been drawn down, in each case, to the extent of such draw; (d) any obligations of such Person to pay the deferred purchase price of property, goods or services; (e) all liabilities of such Person arising from cash/book overdrafts; (f) all liabilities of such Person under conditional sale or other title retention agreements; (g) all obligations of such Person with respect to vendor advances or any other advances made to such person; (h) all liabilities of such Person arising out of interest rate and currency swap arrangements and any other arrangements designed to provide protection against fluctuations in interest or currency rates; (i) any liability or obligation of others guaranteed by, or secured by any Lien on the assets of, such Person; and (j) with respect to Company or any of its Subsidiaries, the net amount of any obligation or liability of Company or any of their respective Subsidiaries to any Stockholder or Affiliate of any Stockholder (except for compensation payable to any such Stockholder in the ordinary course of business for such Stockholder’s services as an employee of Company or any of their respective Subsidiaries).
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“ IRS ” means the Internal Revenue Service.
“ Key Employees ” means Milton Farris and Sim Weeks.
“ Knowledge of Company ” or words of similar import means, with respect to a particular fact or other matter, the knowledge of each of Key Employees, the Principal Stockholder, Kim Weeks, Leonard Silverstein and of each other current officer or director of Company or any of its Subsidiaries, in each case after the making by such Person of a reasonable investigation of the circumstances related thereto in light of the facts known to such Person, including by such Person making due inquiry of other Persons who should be aware of such facts or matters.
“ Law ” means any federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute or treaty.
“ Leased Real Property ” shall mean all leased property described in the Real Property Leases.
“ Legal Proceeding ” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative or investigative) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator.
“ Liabilities ” means any liability, indebtedness, obligation, commitment, responsibility, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, whether known or unknown, accrued, absolute, contingent, matured, unmatured or other.
“ Licensed SGC Technology ” shall have the meaning ascribed to such term in the Rialto License Agreement.
“ Lien ” means any charge, claim, community property interest, condition, equitable interest, lien, license, option, pledge, security interest, charge, right of first refusal, easement, restriction, reservation, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement, or encumbrance or adverse claims or rights of any nature whatsoever.
“ Lock-up Period ” means the period of 180 days following the Closing Date.
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“ Loss ” means any loss, liability, action, cause of action, cost, damages or expenses, whether or not arising from or in connection with any Third-Party Claims (including, without limitation, interest, penalties, reasonable attorneys’, consultants’ and experts’ fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing).
“ Material Adverse Effect ” or “ Material Adverse Change ” means any event or circumstance having or causing a significant and substantial adverse effect or change in the condition (financial or other), results of operations, business, Liabilities or properties of Company and its Subsidiaries (taken as a whole) or on the ability of Company or any Stockholder to consummate the transactions contemplated hereby.
“ Most Recent Balance Sheet ” means the unaudited consolidated balance sheet of Company and its Subsidiaries at May 31, 2009.
“ Net Working Capital ” means the result of (i) all cash of Company and its Subsidiaries minus (ii) all current liabilities (excluding the Payoff Amount) of Company and its Subsidiaries, in each case determined in accordance with the Accounting Principles.
“ Net Working Capital Amount ” means the Net Working Capital of Company and its Subsidiaries as of 11:59 p.m. (New York City time) on the day immediately preceding the Closing Date.
“ NYSE ” means the New York Stock Exchange.
“ Order ” means any award, decision, injunction, judgment, order, ruling, subpoena or verdict entered, issued, made or rendered by any court, administrative agency or other Governmental Body or by any arbitrator.
“ Organizational Documents ” means (a) the articles or certificate of incorporation, all certificates of determination and designation, and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate or articles of limited partnership of a limited partnership; (d) the operating agreement, limited liability company agreement and the certificate or articles of organization or formation of a limited liability company; (e) any charter or similar document adopted or filed in connection with the creation, formation or organization of any other Person; and (f) any amendment to any of the foregoing.
“ Parent Common Stock ” means the common stock, $0.01 par value, of Parent.
“ Payee Pro Rata Portion ” means, with respect to each Payee, a percentage equal to the quotient of (A) the number of shares of Parent Common Stock receivable by such Payee pursuant to Section 4.2(c) in respect of aggregate portion of the Payoff Amount payable to such Payee divided by (B) the total number of shares of Parent Common Stock receivable by all Payees pursuant to Section 4.2(c) hereof in respect of the Payoff Amount.
“ Payees ” or “ Payee ” means each of John A. Williams (on behalf of himself and Corporate Holdings, LLC), Leonard Silverstein and Troutman Sanders LLP.
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“ Payoff Amount ” means the amount set forth on the Closing Payment Certificate required to pay and satisfy in full all liabilities, obligations and indebtedness owing by Company and its Subsidiaries under the Williams Note, the Corporate Holdings Note, the Silverstein Notes and the fees due for services provided by Troutman Sanders LLP to Company and its Subsidiaries as set forth on the Closing Payment Certificate.
“ Permit ” means any approval, consent, license, permit, waiver or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or any other Person or pursuant to any Law necessary or desirable for the present conduct of, or relating to, the operation of the Business.
“ Person ” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or Governmental Body.
“ Pre-Closing Tax Period ” means (a) any Tax period ending on or before the Closing Date and (b) with respect to any Straddle Period, the portion of such period ending on the Closing Date.
“ Proprietary Rights ” means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications and patent disclosures, together with all provisionals, reissuances, continuations, continuations-in-part, divisions, revisions, extensions and reexaminations thereof; (b) all trademarks, service marks, trade dress, logos, brand names, trade names, domain names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith; (c) all copyrightable works, all copyrights, any and all website content, and all applications, registrations and renewals in connection therewith; (d) all trade secrets and confidential business information (including ideas, research and development, know-how, formulae, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, research records, records of inventions, test information, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (e) all source code and object versions of computer software (including data and related documentation); (f) all other proprietary rights; and (g) all copies and tangible embodiments thereof (in whatever form or medium), and any claims or causes of actions (pending or filed) arising out of or related to any infringement or misappropriation of any of the foregoing.
“ Pro Rata Portion ” means, with respect to each Stockholder, a percentage equal to the quotient of (A) the aggregate number of shares of Parent Common Stock receivable by such Stockholder pursuant to Section 2.5(a) in respect of the shares of Company Common Stock owned by such Stockholder as of the Effective Time divided by (B) the total number of shares of Parent Common Stock receivable by all Stockholders pursuant to Section 2.5(a) hereof in respect of the shares of Company Common Stock owned by all Stockholders as of the Effective Time; provided however , that in the event that any Dissenting Shares are not deposited in the Escrow Account, such shares shall be excluded from clause (B) of the foregoing calculation with respect to any calculation of “Pro Rata Portion” of the Escrow Account.
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“ Purchaser Representative ” means Carey G. Grainger.
“ Qualified Stockholder ” means each Stockholder that (a) has delivered a Stockholder Transmittal Letter in accordance with Section 2.7 , (b) has delivered an Investor Certification in accordance with Section 4.2(a)(xi) , and (c) is not a Dissenting Stockholder.
“ Release ” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal or leaching into the environment.
“ Remedial Action ” means all actions to (a) clean up, remove, treat or in any other way address any Hazardous Material; (b) prevent the Release of any Hazardous Material so it does not endanger or threaten to endanger public health or the environment; or (c) perform post-remedial monitoring and care.
“ Rentech Project ” means Parent’s project in Rialto, California or another facility other than Parent’s project at Rialto, California, designated by Parent in its sole discretion.
“ Representative ” means any managing member, general partner, officer, director, principal, attorney, agent, employee or other representative.
“ Requisite Stockholders ” means the approval (by vote or written consent, as permitted by law) of (a) the holders of at least a majority of the outstanding shares of Company Common Stock (on an as converted to Company Common Stock basis) and (b) the holders of at least 66 2/3% of the outstanding shares of Company Preferred Stock.
“ Restricted Stockholder ” means each Qualified Stockholder other than Troutman Sanders LLP.
“ Rialto License Agreement ” means that certain Technology License Agreement, dated as of March 29, 2009, by and between Parent and Company.
“ SAGE LLC ” means SilvaGas Allied Green Energy LLC, a Georgia limited liability company.
“ SEC ” means the U.S. Securities and Exchange Commission.
“ Securities Act ” means the Securities Act of 1933, as it may be amended from time to time, and the rules and regulations promulgated thereunder.
“ SilvaGas Design ” means the design of the SilvaGas Gasifier at the Vermont Project.
“ Silverstein Notes ” means those promissory notes set forth on Schedule 1.1(b) .
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“ Straddle Period ” shall mean any Tax period beginning before or on the Closing Date and ending after the Closing Date.
“ Subsidiaries ” shall mean (a) any corporation in an unbroken chain of corporations beginning with Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, (b) any partnership in which Company is a general partner, or (c) any partnership in which Company possesses a 50% or greater interest in the total capital or total income of such partnership. For purposes of this Agreement, each of Big Stakes LLC and SAGE LLC shall not be deemed to be a Subsidiary of Company.
“ Tangible Personal Property ” means all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property of every kind owned or leased by Company or any of its Subsidiaries (wherever located and whether or not carried on its books), together with any express or implied warranty by the manufacturers or sellers or lessors of any item or component part thereof and all maintenance records and documents related thereto.
“ Target Net Working Capital Amount ” means $0.
“ Tax Authority ” means any Governmental Body having or purporting to exercise jurisdiction with respect to any Tax.
“ Tax Return ” means all returns, declarations, reports, estimates, information returns and statements required to be filed in respect of any Taxes, and any amendments to any of the foregoing.
“ Tax ” or “ Taxes ” means any income, gross receipts, branch profits, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, escheat, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, ad valorem, value added, alternative or add-on minimum or estimated tax or other tax of any kind whatsoever, including any interest, penalty or addition thereto, imposed by or on behalf of any Governmental Body, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person by Law, by Contract or otherwise.
“ Total Consideration ” means the sum of the Adjusted Initial Stock Consideration, the Cash Consideration, the Earn-Out Payment, if any, and the portion of the Excess Licensing Fees payable to the Stockholders in accordance with Section 2.14 , if any.
“ Unqualified Stockholder ” means each Stockholder that is not a Qualified Stockholder.
“ Unrestricted Stockholder ” means each Stockholder that is not a Restricted Stockholder.
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“ Vermont Project ” means the project conducted by SilvaGas Corporation (as successor in interest to FERCO Enterprises, Inc.) and the U.S. Department of Energy that resulted in the engineering, procurement, construction, and operation of a greater than 100 Tons Per Day SilvaGas Gasifier in Burlington, VT and that ceased operation in 2002.
“ VWAP ” means (a) the volume-weighted average sales price for the Parent Common Stock on the NYSE or other trading market where such security is listed or traded as reported by Bloomberg for the ten (10) consecutive trading days immediately preceding (but not including) the applicable determination date, or (b) if the foregoing does not apply, the volume-weighted average sales price of the Parent Common Stock during the same period in the over-the-counter market on the pink sheets or bulletin board for such security as reported by Bloomberg, or if no sales price is so reported for the Parent Common Stock, the last bid price of the Parent Common Stock as reported by Bloomberg or (c) if none of the foregoing applies, the fair market value shall be determined by the Board of Directors of Parent in the exercise of its good faith judgment.
“ Williams Note ” means that certain Master Promissory Note, dated as of January 1, 2007, executed by Company in favor of John A. Williams.
1.2 Other Defined Terms . The following terms shall have the meanings defined for such terms in the Sections set forth below:
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ARTICLE II
THE MERGER
2.1 The Merger . Pursuant to the terms and subject to the conditions of this Agreement, at the Effective Time, Company and Merger Sub shall consummate the Merger in accordance with the DGCL pursuant to which (a) Merger Sub shall be merged with and into Company and the separate corporate existence of Merger Sub shall thereupon cease; (b) Company shall be the successor or surviving corporation in the Merger and shall continue to be governed by the laws of the State of Delaware; (c) the separate corporate existence of Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger; and (d) Company shall succeed to and assume all the rights and obligations of Merger Sub. The corporation surviving the Merger is sometimes hereinafter referred to as the “ Initial Surviving Corporation .” The Merger shall have the effects set forth in the applicable provisions of the DGCL.
2.2 Effective Time . Concurrently with the Closing, the parties shall file a Certificate of Merger in the form attached hereto as Exhibit C (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL. The Merger shall become effective upon the filing of the Certificate of Merger or at such later time as is agreed to by the parties hereto and specified in the Certificate of Merger (the time at which the Merger becomes effective is herein referred to as the “ Effective Time ”).
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2.3 Effects of the Merger . At the Effective Time, and without any further action on the part of Company or Merger Sub:
(a) the certificate of incorporation of Company, as in effect immediately prior to the Effective Time, shall be amended and restated in the Merger so as to be identical in all respects to the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time, except that the name of the Initial Surviving Corporation shall be the name of Company as of immediately prior to the Effective Time, and, as so amended and restated, such certificate of incorporation shall be the certificate of incorporation of the Initial Surviving Corporation until thereafter amended as provided therein or by applicable law;
(b) the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Initial Surviving Corporation until thereafter amended as provided therein or by applicable law except that the name of the Initial Surviving Corporation shall be the name of Company as of immediately prior to the Effective Time;
(c) the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Initial Surviving Corporation, from and after the Effective Time until their respective successors shall have been duly elected, designated or qualified, or until their earlier death, resignation or removal in accordance with the Initial Surviving Corporation’s certificate of incorporation and bylaws; and
(d) the Merger shall, from and after the Effective Time, have all of the effects provided by the DGCL and applicable law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, without any further action on the part of Company or the Stockholders, all the properties, rights, privileges and powers of Company and Merger Sub shall vest in the Initial Surviving Corporation, and all debts, liabilities and duties of Company and Merger Sub shall become the debts, liabilities and duties of the Initial Surviving Corporation.
2.4 Subsequent Actions . If at any time after the Effective Time the Initial Surviving Corporation shall determine, in its sole discretion, or shall be advised, that any deeds, bills of sale, instruments of conveyance, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Initial Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of Company vested in the Initial Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, then the officers and directors of the Initial Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of Company, all such deeds, bills of sale, instruments of conveyance, assignments and assurances and to take and do, in the name and on behalf of Company or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title or interest in, to and under such rights, properties or assets in the Initial Surviving Corporation or otherwise to carry out this Agreement.
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2.5 Conversion of Securities .
(a) Effect on Capital Stock . Prior to the Effective Time, all shares of Company Preferred Stock shall be converted into Company Common Stock pursuant to Section 8.12 . At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, Company or the holders of shares of Company Common Stock, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time will be canceled and extinguished and will be converted automatically into the right to receive upon surrender of the certificates representing shares of Company Common Stock in a manner provided in Section 2.7 hereof, upon the terms and subject to the conditions set forth in this Section 2.5 and throughout this Agreement, including the escrow provisions set forth in Sections 2.5(a) and 2.9 and Article XII hereof, the consideration set forth below without interest (and, in the case of the Initial Stock Consideration, rounded up to the nearest whole share of Parent Common Stock after aggregating all shares of Company Common Stock held by a Stockholder):
(i) (A) each outstanding share of Company Common Stock (other than any Dissenting Shares) held by a Qualified Stockholder will be converted automatically into the right to receive a number of shares of Parent Common Stock equal to (1) the Closing Per Share Stock Consideration, plus (2) on the applicable dates set forth in Section 2.13 , the portion of the Earn-Out Payments to which a holder of each such share of Company Common Stock would be entitled as set forth in, and calculated in accordance with, Section 2.13 , plus (3) on the applicable dates set forth in Section 2.14 , the portion of the Excess Licensing Fees to which a holder of each such share of Company Common Stock would be entitled as set forth in, and calculated in accordance with, Section 2.14 ; and (B) and each outstanding share of Company Common Stock (other than any Dissenting Shares) held by an Unqualified Stockholder will be converted automatically in the right to receive the Cash Consideration; and
(ii) notwithstanding the foregoing, a portion of the consideration payable to each Stockholder pursuant to Section 2.5(a)(i)(A) with respect to the shares of Company Common Stock owned by such Stockholder as of the Effective Time shall be deposited into escrow in accordance with the escrow provisions of Section 2.9 and Article XII hereof and shall be subject to adjustment as provided herein.
(b) For purposes of this Section 2.5 :
(i) “ Cash Consideration ” means an amount in cash equal to $81.54 per share of Company Common Stock.
(ii) “ Initial Stock Consideration ” means that number of shares of Parent Common Stock (the “ Shares ”) having a value (calculated on the basis of the Closing Price) equal to (A) $9,735,000 minus (B) the Estimated Stockholder Transfer Tax Amount minus (C) the Payoff Amount, plus (D) the amount, if any, by which the Estimated Net Working Capital Amount exceeds the Target Net Working Capital Amount, minus (E) the amount, if any, by which the Target Net Working Capital Amount exceeds the Estimated Net Working Capital Amount, minus (F) the aggregate Cash Consideration, if any; provided that in no event shall the number of Shares exceed 19,470,000 (subject to adjustment from time to time for any stock dividend, stock split, combination of shares, reorganization, reclassification or other similar event of Parent that occurs prior to the Effective Time).
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(iii) “ Closing Per Share Stock Consideration ” means a number of shares of Parent Common Stock equal to the quotient of the Initial Stock Consideration divided by the Outstanding Common Stock Number.
(iv) “ Outstanding Common Stock Number ” means the number of shares of Company Common Stock held by Qualified Stockholders outstanding immediately prior to the Effective Time.
(c) Cancellation of Certain Shares . Each issued and outstanding share of Company Capital Stock that is held in treasury of Company or owned by Company, Parent or Merger Sub shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.
(d) Merger Sub Common Stock . Each issued and outstanding share of the common stock, par value $0.001 per share, of Merger Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Initial Surviving Corporation.
2.6 Appraisal Rights .
(a) Notwithstanding anything in this Agreement to the contrary, any shares of Company Common Stock held by a holder who is entitled to demand and has properly demanded and not effectively withdrawn or lost such holder’s appraisal rights for such shares under Section 262 of the DGCL (collectively, the “ Dissenting Shares ”), shall not be converted into or represent a right to receive a portion of the consideration as set forth in Section 2.5 hereof, but the holder thereof shall only be entitled to such rights as are provided by Section 262 of the DGCL. At the Effective Time, the Dissenting Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of Dissenting Shares shall cease to have any rights with respect thereto, except the right to receive the fair value of such shares in accordance with the provisions of DGCL Section 262.
(b) Notwithstanding the provisions of Section 2.6(a) hereof, if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal rights with respect to such shares under the DGCL, if applicable, then, as of the later of the Effective Time and the occurrence of such event, such shares shall automatically be converted into and represent only the right to receive the consideration set forth in and subject to the provisions of this Agreement, upon surrender of the certificate(s) formerly representing such shares.
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(c) Company shall give Parent (A) prompt notice of any written demand for appraisal received by Company pursuant to the applicable provisions of the DGCL and (B) the opportunity to participate in all negotiations and proceedings with respect to such demands. Company shall not, except with the prior written consent of Parent (which consent shall not be unreasonably withheld or delayed), voluntarily make any payment with respect to any such demands or offer to settle or settle any such demands. Any communication to be made by Company to any Stockholder with respect to such demands shall be submitted to Parent in advance and shall not be presented to any Stockholder prior to Company receiving Parent’s consent (which consent shall not be unreasonably withheld or delayed). Notwithstanding the foregoing, to the extent that Parent, the Initial Surviving Corporation or Company (i) makes any payment or payments in respect of any Dissenting Shares in excess of the consideration that otherwise would have been payable in respect of such shares in accordance with this Agreement or (ii) incurs any Losses (including reasonable attorneys’ and consultants’ fees, costs and expenses and including any such reasonable fees, costs and expenses incurred in connection with investigating, defending against or settling any action or proceeding) in respect of any Dissenting Shares (excluding payments for such shares) ((i) and (ii) together “ Excess Dissenting Share Payments ”), Parent shall be entitled to recover the amount of such Excess Dissenting Share Payments in accordance with the terms, and subject to the limitations, of Article XII hereof.
(d) Notwithstanding any provision of Article II or Article XII hereof to the contrary, in the event that there are any Dissenting Shares and the holder of such Dissenting Shares is paid for such Dissenting Shares pursuant to Section 262 of the DGCL appraisal rights other than the consideration called for in Section 2.5 , then (i)(A) any payment by Parent pursuant to Sections 2.5 , 2.10 , 2.13 and 2.14 that would have been required to have been paid to such holder of Dissenting Shares (each a “ Dissenting Stockholder ”) (assuming, for this purpose, that such Dissenting Stockholder had not exercised appraisal rights) shall be retained by Parent and no Stockholder shall have any rights thereto and (B) such Dissenting Stockholder shall not be considered an Escrow Participant hereunder.
2.7 Surrender and Payment of Company Common Stock .
(a) Surrender Procedures for Company Common Stock . At the Closing, Company shall deliver to Parent a letter of transmittal, substantially in the form of Exhibit D hereto (the “ Stockholder Transmittal Letter ”), duly executed by each Stockholder of Company other than any Unqualified Stockholder and any Dissenting Stockholder, together with accompanying share certificates representing Company Common Stock (the “ Stock Certificates ”).
(b) Payments for Company Common Stock .
(i) At or as promptly as practicable after the Closing Date (but in no event later than five (5) Business Days following the Closing Date), Parent shall deliver to each Stockholder who surrendered, pursuant to Section 2.7(a) , Stock Certificate(s) evidencing shares of Company Common Stock owned by such Stockholder, together with a duly completed and executed Stockholder Transmittal Letter and such other documents and information as may reasonably be required by Parent, the applicable consideration payable in respect of such shares of Company Common Stock pursuant to Section 2.5(a) hereof and as set forth on the Closing Consideration Schedule (less the amount of stock to be deposited into the Escrow Account with respect to such Stockholder pursuant to Section 2.5(a)(ii) and Section 2.9 ; provided that a statement of such escrowed stock and the number of Escrow Shares attributable to such Stockholder shall be delivered with such certificates). As promptly as practicable following the delivery to Parent after the Closing Date by any Unqualified Stockholder of share certificates representing such Unqualified Stockholder’s shares of Company Common Stock and a letter of transmittal with respect to such shares, in form and substance reasonably satisfactory to Parent, Parent shall deliver to such Unqualified Stockholder the applicable consideration payable in respect of such shares of Company Common Stock pursuant to Section 2.5(a) hereof.
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(ii) If the consideration payable to holders of Company Common Stock is to be paid to a Person other than the Person in whose name the relevant Stock Certificate surrendered in exchange therefor is registered, it shall be a condition to the payment of such amounts that the Stock Certificate so surrendered shall be properly endorsed or accompanied by appropriate stock powers and otherwise be in proper form for transfer, that such transfer otherwise be proper, that the Person requesting such transfer pay to the Initial Surviving Corporation, any transfer or other Taxes payable by reason of the foregoing or establish to the satisfaction of the Initial Surviving Corporation that such Taxes have been paid or are not required to be paid and that the transferee execute and deliver to Parent a duly executed Investor Certification if such transferee is receiving shares of Parent Common Stock.
(c) No Further Ownership Rights in Company Common Stock . At and after the Effective Time, each holder of a Stock Certificate that represented issued and outstanding Company Common Stock immediately prior to the date hereof shall cease to have any rights as a holder of securities of Company, except for the right to surrender its, his or her Stock Certificate(s) in exchange for the consideration payable in respect of such Company Common Stock hereunder and such holder’s share of any distributions from the Escrow Account pursuant to Section 2.9 hereof, as applicable, or in the case of a Dissenting Stockholder, to perfect its, his or her right to receive payment for Dissenting Shares pursuant to the DGCL, if applicable. After the Closing Date, there shall be no further registration of transfers on the stock transfer books of the Initial Surviving Corporation of Company Common Stock which were outstanding immediately prior to the Closing Date. If, after the date hereof, Stock Certificates are presented to the Initial Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article II , except as otherwise provided by law.
(d) No Fractional Shares . No certificates representing fractional shares of Parent Common Stock shall be issued in connection with the Merger, no dividend or distribution with respect to Parent Common Stock shall be payable on or with respect to any fractional share and such fractional share interests will not entitle the owner thereof to any rights of a shareholder of Parent. Any consideration in the form of Parent Common Stock payable to a Stockholder pursuant to Section 2.5(a) shall be rounded up to the nearest whole share of Parent Common Stock after aggregating all shares of Company Common Stock held by such Stockholder.
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(e) Lost, Stolen or Damaged Stock Certificates . In the event that any Stock Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Stock Certificate to be lost, stolen or destroyed and, if reasonably required by Parent, the delivery by such Person of an indemnification agreement and post a bond in form and substance acceptable to Parent, in Parent’s reasonable discretion, Parent will pay in exchange for such lost, stolen or destroyed Stock Certificate the consideration to be paid with respect thereto, subject to the terms and conditions in this Article II .
(f) Withholding Taxes . Parent, Merger Sub and Second Merger Sub shall be entitled to deduct and withhold (or cause to be deducted and withheld) from the consideration otherwise payable pursuant to this Agreement (including consideration payable from the Escrow Account and any Earn-Out Payments) to any Stockholder or other Person such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code or under any provision of state, local or foreign Tax law. To the extent that amounts are so withheld and remitted over to the appropriate Taxing Authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made. For the avoidance of doubt, to the extent any amounts are required to be so withheld from any distributions from the Escrow Account or from any Earn-Out Payments, such amounts required to be withheld shall be distributed to Parent (or an entity designated by Parent) to enable Parent (or any such designated entity) to comply with its withholding obligations (including without limitation, any obligations of Company or the Initial Surviving Corporation).
2.8 Delivery of Closing Payment Certificate . At least three (3) Business Days prior to the Closing Date, Company shall deliver to Parent a certificate (the “ Closing Payment Certificate ”), including a consolidated balance sheet of Company and its Subsidiaries as of the Closing Date, prepared in accordance with the Accounting Principles which shall include (a) Company’s good faith estimate of the Net Working Capital Amount (such estimate is referred to as the “ Estimated Net Working Capital Amount ”) and (b) the Payoff Amount, including the delivery instructions for each of the Payees with respect to the Payoff Amount.
2.9 Escrow of Consideration . In order to at least partially satisfy and to establish a procedure for the satisfaction of claims by Parent for payment by the Stockholders of any post-Closing purchase price adjustments as set forth in Section 2.10 hereof and claims by the Parent Indemnified Parties for indemnification pursuant to Article XII hereof, Parent, Stockholder Representative and the Escrow Agent shall enter into the Escrow Agreement on the Closing Date, pursuant to which Parent shall deposit with the Escrow Agent at the Closing, a portion of the Initial Stock Consideration in the form of shares of Parent Common Stock (the “ Escrow Shares ”) having a value, calculated on the basis of the Closing Price, equal to an aggregate amount of Four Million Five Hundred Thousand Dollars ($4,500,000). Parent shall be deemed to have contributed (on behalf of each Escrow Participant) each Escrow Participant’s Pro Rata Portion of the Escrow Amount to the Escrow Account at such time, rounded to the nearest share (and the consideration payable to each Escrow Participant pursuant to Section 2.5(a) shall be reduced by such amount). As used in this Agreement, the term “ Escrow Amount ” means, as of any moment in time, the amount then in the Escrow Account. Pursuant to the terms and subject to the conditions of the Escrow Agreement, the Escrow Agent shall establish an escrow account into which the Escrow Agent shall deposit the Escrow Amount (the “ Escrow Account ”). The timing and methodology for the release of the Escrow Amount shall be governed by the terms and subject to the conditions set forth in this Agreement and the Escrow Agreement. Subject to Section 2.6(d) and Section 12.2(c) hereof and the terms of the Escrow Agreement, in the event of a distribution of any amounts from the Escrow Account to the Escrow Participants, each Escrow Participant shall be entitled to receive a portion of such distribution equal to such Escrow Participant’s Pro Rata Portion of such distribution.
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2.10 Net Working Capital Adjustment .
(a) Delivery of Closing Statement . No later than ninety (90) days following the Closing Date, Parent shall prepare and deliver to Stockholder Representative (i) a consolidated balance sheet of Company and its Subsidiaries dated at the Closing Date, which shall be prepared in accordance with the Accounting Principles and (ii) a reasonably detailed statement (the “ Closing Statement ”) setting forth Parent’s calculations of the Adjustment Amount and the Net Working Capital Amount.
(b) Determination . If Stockholder Representative has any objections to the Closing Statement or Parent’s calculations of the Adjustment Amount and the Net Working Capital Amount, Stockholder Representative shall deliver to Parent a statement setting forth its objections thereto (an “ Objections Statement ”), provided that the only bases for objections shall be (i) non-compliance with the standards set forth in Section 2.10(a) for preparation of the Closing Statement or as set forth in the definition of Net Working Capital and (ii) mathematical errors. If an Objections Statement is not delivered to Parent within thirty (30) days after delivery of the Closing Statement, the Closing Statement shall be final, binding and non-appealable by the parties hereto. Stockholder Representative and Parent shall negotiate in good faith to resolve any objections set forth in the Objections Statement (and all such discussions related thereto shall, unless otherwise agreed by Parent and Stockholder Representative, be governed by Rule 408 of the Federal Rules of Evidence (and any applicable similar state rule)), but if they do not reach a final resolution within thirty (30) days after the delivery of the Objections Statement, Stockholder Representative and Parent may submit such dispute to one of the “Big Four” accounting firms other than Ernst & Young LLP or PricewaterhouseCoopers LLP, or, in the event that any such auditor is unable to accept such appointment, to any other nationally recognized independent accounting firm mutually acceptable to Parent and Stockholder Representative (the “ Independent Auditor ”). Each party shall be afforded an opportunity to present to the Independent Auditor material relating to the disputed issues and to discuss the determination with the Independent Auditor. The Independent Auditor shall act as an auditor and not as an arbitrator and shall resolve matters in dispute and adjust and establish any disputed adjustment of the Initial Stock Consideration amount to reflect such resolution, provided that the Independent Auditor shall not assign a value to any item or amount in dispute greater than the greatest value for such item or amount assigned by Stockholder Representative, on the one hand, or Parent, on the other hand, or less than the smallest value for such item or amount assigned by Stockholder Representative, on the one hand, or Parent, on the other hand. It is the intent of Parent and Stockholder Representative that the process set forth in this Section 2.10 and the activities of the Independent Auditor in connection herewith are not intended to be and, in fact, are not arbitration and that no formal arbitration rules shall be followed (including rules with respect to procedures and discovery). Stockholder Representative and Parent shall use their commercially reasonable efforts to cause the Independent Auditor to resolve all such disagreements as promptly as practicable. The resolution of the dispute by the Independent Auditor shall be final, binding and non-appealable on the parties hereto. The Closing Statement shall be modified if necessary to reflect such determination. The fees and expenses of the Independent Auditor shall be allocated for payment by Parent on the one hand, and/or Stockholder Representative, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each party bears to the amount actually contested by such party, as determined by the Independent Auditor.
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(c) Calculation of Net Working Capital Adjustment; Distribution .
(i) Subject to Section 2.6(d) , if the Net Working Capital Amount as finally determined pursuant to Section 2.10(b) above is greater than the Estimated Net Working Capital Amount, then Parent shall promptly distribute to each Stockholder its Pro Rata Portion of the number of Shares (rounded to the nearest whole Share and calculated based on the Closing Price) equal to the amount by which the Net Working Capital Amount exceeds the Estimated Net Working Capital Amount.
(ii) Subject to Section 2.6 , if the Net Working Capital Amount as finally determined pursuant to Section 2.10(b) above is less than the Estimated Net Working Capital Amount, then Parent and Stockholder Representative shall promptly execute and deliver joint written instructions to the Escrow Agent, instructing the Escrow Agent to distribute to Parent the number of Escrow Shares (rounded to the nearest whole Share and calculated based on the Closing Price) equal to the amount by which the Estimated Net Working Capital Amount exceeds the Net Working Capital Amount.
(iii) The net amount (if any) owed by Parent to the Stockholders, on the one hand, or Stockholders to Parent, on the other hand, pursuant to this Section 2.10(c) is referred to as the “ Adjustment Amount .” The Adjustment Amount shall be calculated as an adjustment to the Initial Stock Consideration and the Initial Stock Consideration, as so adjusted, is referred to herein as the “ Adjusted Initial Stock Consideration .”
2.11 Registration of Shares; Facilitation of Sales Pursuant to Rule 144 .
(a) Parent shall as promptly as practicable after the Closing Date (but in no event later than thirty (30) days thereafter), use its commercially reasonable efforts to file with the SEC a completed registration statement on Form S-3 or any comparable or successor form or
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forms (the “ Parent Registration Statement ”) for (i) all of the Shares that constitute the Initial Stock Consideration (the “ Registrable Stock Consideration ”) and (ii) a number of Shares issued pursuant to Section 4.2(c)(ii) (the “ Registrable Payoff Amount Shares ”) equal to (x) Two Million One Hundred Twenty Five Thousand Dollars ($2,125,000), divided by (y) the Closing Price. In addition, Parent shall use its commercially reasonable efforts to cause such Parent Registration Statement to become effective as promptly as practicable after such filing. After Parent Registration Statement is declared effective and subject to the procedures set forth in Section 2.11(b) , each Payee shall have the right to sell its Payee Pro Rata Portion of the Registrable Payoff Amount Shares, and such Registrable Payoff Amount Shares shall not be subject to the Lock-Up Period; provided that, on any day the Payees shall be permitted to sell no more than an aggregate number of shares equal to 15% of the average daily trading volume of the Parent Common Stock over the preceding thirty (30) trading days. Parent shall use its commercially reasonable efforts to keep the Parent Registration Statement effective for a period of one (1) year following the date the Parent Registration Statement becomes effective. All expenses incurred by Parent in effecting the registration of the Registrable Stock Consideration and Registrable Payoff Amount Shares shall be borne by Parent. All expenses of selling the Registrable Stock Consideration and Registrable Payoff Amount Shares shall be borne by each applicable Stockholder or Payee.
(b) Prior to selling any Registrable Payoff Amount Shares, each Payee shall provide written notice to Stockholder Representative setting forth the number of Registrable Payoff Amount Shares such Payee proposes to sell and the date upon which the Payee intends to sell such Registrable Payoff Amount Shares. As soon as practicable following receipt of such notice, Stockholder Representative shall provide written instructions to such Payee, with a written copy to Company, indicating the number of Registrable Payoff Amount Shares that such Payee may sell and the dates upon which such Payee may sell them. Each Payee agrees on behalf of itself and any of its Affiliates, that neither it nor any of its Affiliates shall sell any Registrable Payoff Amount Shares without the prior written consent of Stockholder Representative. In the event that any Payee attempts to sell Registrable Payoff Amount Shares in contravention of Stockholder Representative’s instructions or without providing written notice to Stockholder Representative pursuant to this Section 2.11(b) , the Parent shall have the right to issue stop-transfer instructions to its transfer agent with respect to any such sale and shall have the right not to recognize any such attempted transfer.
(c) Notwithstanding the foregoing, Parent shall take such action as any Stockholder may reasonably request, including, without limitation, removing or causing to be removed any restrictive legend described in Section 8.8 and issuing or causing to be issued share certificates without a restrictive legend to a Stockholder or its designee, all to the extent required from time to time to enable such Stockholder to sell Parent Common Stock without registration under the Securities Act within the limitations of the exemption provided by Rule 144 of the Exchange Act and subject to any applicable limitations otherwise expressly provided in this Agreement, provided however, that Parent shall not be deemed to have breached this clause (c) solely because the condition set forth in Rule 144(c) of the Exchange Act has not been satisfied. Upon the request of any Stockholder in connection with such Stockholder’s sale pursuant to Rule 144 of the Exchange Act, Parent shall deliver to such Stockholder a written statement confirming its compliance with such requirements.
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2.12 The Second Step Merger .
(a) The Second Step Merger . Immediately following the Merger, the Initial Surviving Corporation and Second Merger Sub shall consummate the Second Step Merger in accordance with the DGCL and the DLLCA pursuant to which (i) the Initial Surviving Corporation shall be merged with and into Second Merger Sub and the separate corporate existence of the Initial Surviving Corporation shall thereupon cease; (ii) Second Merger Sub shall be the successor or surviving entity in the Second Step Merger and shall continue to be governed by the laws of the State of Delaware; (iii) the separate corporate existence of Second Merger Sub with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Second Step Merger; and (iv) Second Merger Sub shall succeed to and assume all the rights and obligations of the Initial Surviving Corporation. The corporation surviving the Second Step Merger is sometimes hereinafter referred to as the “ Surviving Company .” The Second Step Merger shall have the effects set forth in the applicable provisions of the DGCL and the DLLCA.
(b) Conditions . There shall be no conditions to the completion of the Second Step Merger other than the completion of the Merger.
(c) Second Step Effective Time . Immediately following the Merger, Parent shall file a certificate of merger (the “ Second Step Certificate of Merger ”) with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and the DLLCA. The Second Step Merger shall become effective upon the filing of the Second Step Certificate of Merger (the “ Second Step Effective Time ”)
(d) Effects of Second Step Merger . At the Second Step Effective Time, and without any further action on the part of Second Merger Sub or the Initial Surviving Corporation:
(i) the certificate of formation of Second Merger Sub, as in effect immediately prior to the Second Step Effective Time, shall be the certificate of the Surviving Company until thereafter amended or as provided therein or by applicable law except that the name of the Surviving Company shall be the name of the Initial Surviving Corporation as of immediately prior to the Second Step Effective Time;
(ii) the operating agreement of Second Step Merger Sub, as in effect immediately prior to the Second Step Effective Time, shall be the operating agreement of the Surviving Company until thereafter amended as provided therein or by applicable law except that the name of the Surviving Company shall be “Rentech SilvaGas LLC” as of immediately prior to the Second Step Effective Time;
(iii) the sole member of Second Step Merger Sub immediately prior to the Second Step Effective Time shall, from and after the Second Step Effective Time, be the sole member of the Surviving Company; and
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(iv) the Second Step Merger shall, from and after the Second Step Effective Time, have all of the effects provided by the DGCL, DLLCA and applicable law. Without limiting the generality of the foregoing, and subject thereto, at the Second Step Effective Time, without further action on the part of any Person, all the properties, rights, privileges and powers of the Initial Surviving Corporation and Second Merger Sub shall vest in the Surviving Company, and all debts, liabilities and duties of the Initial Surviving Corporation and Second Merger Sub shall become the debts, liabilities and duties of the Surviving Company.
(e) Subsequent Actions . If at any time after the Second Step Effective Time the Surviving Company shall determine, in its sole discretion, or shall be advised, that any deeds, bills of sale, instruments of conveyance, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Company its right, title or interest in, to or under any of the rights, properties or assets of Initial Surviving Corporation vested in the Surviving Company as a result of, or in connection with, the Second Step Merger or otherwise to carry out this Agreement, then the officers and directors of the Surviving Company shall be authorized to execute and deliver, in the name and on behalf of the Initial Surviving Corporation, all such deeds, bills of sale, instruments of conveyance, assignments and assurances and to take and do, in the name and on behalf of the Initial Surviving Corporation or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title or interest in, to and under such rights, properties or assets in the Surviving Company or otherwise to carry out this Agreement.
(f) Effect on Capital Stock . Each issued and outstanding share of the common stock, par value $0.001 per share, of Initial Surviving Corporation shall be cancelled and exchanged for an equivalent percentage of the membership interests of the Surviving Company, and all of the membership interests of the Second Merger Sub shall become all of the membership interests of the Surviving Company.
2.13 Calculation of Earn-Out Amounts .
(a) Subject to the terms of this Section 2.13 , the Stockholders (other than Dissenting Stockholders) shall be entitled to receive a payment (the “ Earn-Out Payment ”) based upon the Performance Criteria Percentage achievement by the biomass gasification unit implementing the Licensed SGC Technology (the “ SilvaGas Gasifier ”) at the Rentech Project relative to the performance criteria set forth on Exhibit E attached hereto (the “ Performance Criteria ”) as shall be finalized following the Closing Date pursuant to Section 2.13(c) . All determinations regarding the Performance Criteria Percentage relative to the Performance Criteria shall be made by the mutual consent of Parent and the Company Review Representative. Company Review Representative and Parent shall negotiate in good faith to resolve any disputes regarding the Performance Criteria Percentage achieved relative to the Performance Criteria, but if they do not reach a final resolution within forty five (45) days following the commencement of the commercial operation of the SilvaGas Gasifier at the Rentech Project, Company Review Representative and Parent may submit such dispute to an independent engineer mutually acceptable to Parent and Company Review Representative (any such mutually agreed upon independent engineer, the “ Independent Engineer ”) for resolution pursuant to this Section 2.13
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and which resolution shall be binding upon all parties. Each party shall be afforded an opportunity to present to the Independent Engineer material relating to the disputed issues and to discuss the determination with the Independent Engineer. The Independent Engineer shall act as an auditor and not as an arbitrator and shall resolve only those matters in dispute and adjust and establish any disputed adjustment of the Performance Criteria Percentage to reflect such resolution. In the event that the Independent Engineer is to resolve any disputes regarding the Performance Criteria Percentage pursuant to the foregoing sentence, no later than one hundred and eighty (180) days following the commencement of the commercial operation of the SilvaGas Gasifier at the Rentech Project, the Independent Engineer shall notify the Company Review Representative and Parent of such resolutions. In determining the Performance Criteria Percentage, Parent and the Company Review Representative, or the Independent Engineer, as applicable, shall apply the percentage weights assigned to each item of the Performance Criteria to construct the Performance Criteria Percentage, which shall be used to evaluate the overall performance of the SilvaGas Gasifier against the Performance Criteria and shall take into consideration any Parent Proposed Changes that were incorporated into the final design of the SilvaGas Gasifier against a Company Change Objection with respect to that Parent Proposed Change. To the extent that Parent and the Company Review Representative, or Independent Engineer, as applicable, determine in writing that any failure in the performance of the SilvaGas Gasifier relative to the Performance Criteria can reasonably be attributed to any Parent Proposed Changes that were incorporated into the final design of the SilvaGas Gasifier against a related Company Change Objection, then any such failure shall be disregarded for purposes of calculating the Performance Criteria Percentage and the Earn-Out Payment.
(b) In the event that, prior to the commencement of the commercial operation of the SilvaGas Gasifier at the Rentech Project, Parent proposes any material change to the SilvaGas Design (“ Parent Proposed Change ”), prior to effecting any such Parent Proposed Change, Parent shall submit to Milton Farris or another person designated to Parent by Company in writing (the “ Company Review Representative ”), with a copy to Sim Weeks, a written statement (the “ Parent Proposed Change Statement ”) describing in reasonable detail such Parent Proposed Change and the reasons for such change, as well as any documentation reasonably necessary to support the implementation of such Parent Proposed Change. After delivery of the Parent Proposed Change Statement, Company Review Representative may make inquiries of Parent and its employees regarding questions concerning or disagreements with the Parent Proposed Change Statement arising in the course of its review thereof, and Parent shall use its commercially reasonable efforts to cause any such employees to cooperate with and respond to such inquiries. If Company Review Representative has any substantive, reasonable and good faith objections to the Parent Proposed Change Statement, Company Review Representative shall deliver to Parent a written statement (a “ Company Change Objection Statement ”) setting forth its objections thereto in reasonable detail (the “ Company Change Objection ”), as well as any documentation reasonably necessary to support such Company Change Objection no later than ten (10) Business Days following the receipt of the Parent Proposed Change Statement. If a Company Change Objection Statement is not delivered to Parent within ten (10) Business Days after delivery of the Parent Proposed Change Statement, the Parent Proposed Change shall be deemed approved by the Stockholders, no Company Change Objection may be asserted and Parent shall have the right to make such Parent Proposed Change incorporated into the SilvaGas
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Design. If any Company Change Objections Statement is delivered to Parent within ten (10) Business Days after delivery of the Parent Proposed Change Statement, regardless of whether, at that time, Parent considers the objection(s) set forth therein to be substantive, reasonable and in good faith, Parent shall, within fifteen (15) Business Days after the delivery of Company Change Objections Statement, convene a review committee (the “ Technical Review Committee ”), consisting of Parent’s Chief Technology Officer and Parent’s Executive Vice President for Renewable Businesses, or another designee of Parent’s Chief Technology Officer and the Company Review Representative, to review the Parent Proposed Change and Company Change Objection. Parent may not refuse the Technical Review Committee’s review of (or refuse to submit for review) any timely Company Change Objection provided in accordance with this Section 2.13(b) . If any Parent Proposed Change or Company Change Objection is submitted to the Technical Review Committee, each party will furnish to the Technical Review Committee such work papers and other documents and information relating to the Parent Proposed Change and Company Change Objection, as applicable, as the Technical Review Committee may reasonably request and are available to that party. The Technical Review Committee may make inquiries of the Company Review Representative, Parent, and their respective employees or consultants, if any, regarding questions concerning or disagreements with the Parent Proposed Change or Company Change Objection arising in the course of their review thereof and Parent and the Company Review Representative shall use its commercially reasonable efforts to cause any such employees or consultants to cooperate with and respond to such inquiries. Company Review Representative and Parent shall use their commercially reasonable efforts to cause the Technical Review Committee to resolve all such disagreements as promptly as practicable. The approval of the Parent Proposed Change or the Company Change Objection by a majority vote of the Technical Review Committee, with any such changes, modifications or amendments as the Technical Review Committee shall deem necessary, in its sole discretion, shall be final, binding and non-appealable on the parties hereto.
(c) The parties hereto agree that the Performance Criteria are not able to be finalized until the date of completion of a Feasibility Study on the Rentech Project (“ Feasibility Completion Date ”) and may be updated, changed, amended, modified or supplemented after the Closing Date by the Technical Review Committee without any further approval of Parent or the Stockholders, or the Company Review Representative pursuant to this Agreement. Within thirty (30) days following the Feasibility Completion Date and delivery of the results of such study to Parent and Company Review Representative, the Technical Review Committee shall convene to establish final Performance Criteria (“ Final Performance Criteria ”). In the event that the Technical Review Committee is not able to unanimously agree on the Final Performance Criteria within sixty (60) days following the Feasibility Completion Date, then the Technical Review Committee shall promptly submit to an Independent Engineer a written statement (the “ Proposed Final Performance Criteria Statement ”) describing in reasonable detail the proposed Final Performance Criteria (the “ Proposed Final Performance Criteria ”), the disagreements with respect to such Proposed Final Performance Criteria and any documentation reasonably necessary to review such Proposed Final Performance Criteria and the disagreements related thereto. If the Proposed Final Performance Criteria is submitted to the Independent Engineer, the Technical Review Committee will furnish to the Independent Engineer such work papers, feasibility studies and other documents and information relating to the Proposed Final
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Performance Criteria and the disagreements related thereto, as the Independent Engineer may reasonably request and are available to that party. After delivery of the Proposed Final Performance Criteria Statement, the Independent Engineer may make inquiries of the Technical Review Committee, Parent, the Company Review Representative and each of their respective employees and consultants regarding questions concerning or disagreements with the Proposed Final Performance Criteria arising in the course of its review thereof, and each such party shall use its commercially reasonable efforts to cause any such employees or consultants to cooperate with and respond to such inquiries. The Technical Review Committee shall use its commercially reasonable efforts to cause the Independent Engineer to resolve all such disagreements as promptly as practicable. The Independent Engineer shall resolve only those matters in dispute and shall modify the Proposed Final Performance Criteria only to reflect such resolution. The determination of the Independent Engineer with respect to the approval or disapproval of the Proposed Final Performance Criteria shall be final, binding and non-appealable on the parties hereto.
(d) The fees, costs and expenses incurred by the parties pursuant to this Section 2.13 shall be allocated as follows:
(i) the fees, costs and expenses of, and incurred by, the Technical Review Committee shall be borne by Parent;
(ii) the fees, costs and expenses of, and incurred by, the Independent Engineer shall be allocated equally between Parent and the Stockholders; provided that the liability of Troutman Sanders LLP and Mark Paisley (to the extent that Mark Paisley delivers a Stockholder Letter of Transmittal to the Parent pursuant to the terms of this Agreement) for such Independent Engineer’s costs and expenses shall be limited to the portion of the Escrow Amount then attributed to such Stockholder. Parent shall have the right to deduct from the Escrow Amount any fees and expenses allocated to the Stockholders pursuant to this Section 2.13(d) ; and
(iii) each of Parent and the Company Review Representative shall pay their own respective legal, accounting, advisory and other fees, and other out-of-pocket expenses incurred by it or on its behalf in connection with any actions taken by the Independent Engineer or Technical Review Committee pursuant to this Section 2.13 and will not look to the other party for any contribution toward such fees and expenses.
(e) The Company Review Representative shall have the authority and power to act on behalf of each Stockholder with respect to the actions and decisions described in Section 2.13 . A decision, act, consent or instruction of the Company Review Representative with respect to the actions and decisions described in Section 2.13 shall constitute a decision of each Stockholder, and shall be final, binding and conclusive upon each Stockholder, and Parent may rely upon any decision, act, consent or instruction of the Company Review Representative as being the decision, act, consent or instruction of each Stockholder. Notices or communications to or from the Company Review Representative with respect to this Section 2.13 shall constitute notice to or from each Stockholder. The Company Review Representative agrees promptly to provide written notice to each Stockholder of all notices and communications
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given or received in its capacity as the Company Review Representative under this Agreement. In the event that the Company Review Representative dies, resigns, or becomes legally incapacitated, then Sim Weeks shall be the replacement Company Review Representative. If Sim Weeks shall at that point be unable to serve or refuse the appointment as Company Review Representative or shall later die, resign, or become legally incapacitated, then such Person as is appointed by the Stockholders who held a majority of the outstanding shares of the Company Common Stock immediately prior to the Effective Time shall be the Company Review Representative; provided , however , that no change in the Company Review Representative shall be effective prior to the delivery to Parent of written notice thereof from the Stockholders who held a majority of the outstanding shares of Company immediately prior the Effective Time. The Company Review Representative may resign at any time; provided however, that it must provide the Stockholders who held a majority of the outstanding shares of Company immediately prior the Effective Time thirty (30) days’ prior written notice of such decision to resign. In the event that no Person is serving as the Company Review Representative, the Principal Stockholder shall be the Company Review Representative.
(f) Subject to Section 2.13(i) and (j) , within thirty (30) days of the final determination of performance of the SilvaGas Gasifier at the Rentech Project relative to the Final Performance Criteria, Parent shall pay to the Stockholders the Earn-Out Payment to be calculated as follows:
(i) in the event that Performance Criteria Percentage is equal to or greater than 100%, then the Earn-Out Payment shall be an amount equal to (x) the Maximum Earn-Out Payment minus (y) the Incremental Startup Investment.
(ii) in the event that Performance Criteria Percentage is less than 100% but greater than 80%, then the Earn-Out Payment shall equal (x) an amount equal to (A) the Maximum Earn-Out Payment multiplied by (B) a fraction, the numerator of which is the Performance Criteria Percentage less 80%, and the denominator of which is 20%, minus (y) the Incremental Startup Investment.
(iii) in the event that Performance Criteria Percentage is less than 80%, then the Earn-Out Payment shall be equal to zero.
(g) In the event that the SilvaGas Gasifier fails to achieve commercial operation at the Rentech Project on or prior to March 29, 2018 through no fault of the Licensed SGC Technology, as determined by Parent in its reasonable discretion, then Parent shall promptly pay to the Stockholders 25% of the Maximum Earn-Out Payment. In the event Stockholder Representative disputes such determination by Parent, Parent and Stockholder Representative shall use their commercially reasonable efforts to resolve any such disputes within thirty (30) days after Parent delivers written notice to Stockholder Representative of such determination. If Parent and Stockholder Representative are unable to resolve such dispute, then such dispute shall be submitted to an Independent Engineer for resolution. The Independent Engineer shall have thirty (30) days to resolve such dispute and such resolution shall be final and binding on all of the parties hereto. In the event that the SilvaGas Gasifier achieves commercial operation at the Rentech Project after March 29, 2018 but on or prior to March 29, 2022 (the “ Earn-Out Expiration Date ”), then any amounts paid pursuant to this Section 2.13(g) shall be deducted from any Earn-Out Payments payable to the Stockholders pursuant to Section 2.13(f) .
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(h) In the event that no Earn-Out Payment has been made to the Stockholders by the Earn-Out Expiration Date (including no payments pursuant to Section 2.13(g)) , and the SilvaGas Gasifier has failed to achieve commercial operation at the Rentech Project by such time, then Parent shall promptly pay to Stockholders 25% of the Maximum Earn-Out Payment, provided , however , that in the event that Parent determines that the failure to achieve commercial operation of the SilvaGas Gasifier at the Rentech Project is due to the failure of the Licensed SGC Technology or any inadequacies or flaws in the SilvaGas Design, then no Earn-Out Payment shall be made to the Stockholders. In the event Stockholder Representative disputes such determination by Parent, Parent and Stockholder Representative shall use their commercially reasonable efforts to resolve any such disputes within thirty (30) days after Parent makes such determination. If Parent and Stockholder Representative are unable to resolve such dispute, then such dispute shall be submitted to the Independent Engineer for resolution. The Independent Engineer shall have thirty (30) days to resolve such dispute and such resolution shall be final and binding on all of the parties hereto.
(i) In the event that the SilvaGas Gasifier achieves commercial operation at the Rentech Project at any time after the Earn-Out Expiration Date, then Parent shall be under no obligation to make the Earn-Out Payment to the Stockholders.
(j) Promptly following the final determination of any Earn-Out Payment pursuant to this Section 2.13 , Parent shall deliver to each Stockholder (other than Dissenting Stockholders) a portion of such Earn-Out Payment equal to its Pro Rata Portion of such Earn-Out Payment, as may be adjusted pursuant to Section 12.9 .
(k) For purposes of this Section 2.13 :
(i) “ Incremental Startup Investment ” means the lesser of (A) $8,500,000 and (B) an amount equal to (1) Parent’s total direct costs and expenses (including a reasonable attribution of internal costs and expenses, including employee time, etc.) in connection with the design, discovery and/or development of any Future Innovation made solely or primarily by or on behalf of Parent in an effort to achieve the Performance Criteria after the first unsuccessful Performance Criteria test of the SilvaGas Gasifier at the Rentech Project and (2) Parent’s indirect costs and expenses incurred as the result of delays in achieving the Performance Criteria; provided that only those indirect costs and expenses incurred after the 90th day following the date of the first unsuccessful Performance Criteria test of the SilvaGas Gasifier at the Rentech Project, as determined by the mutual consent of Parent and the Company Review Representative, or, if they cannot agree, the Independent Engineer in its sole discretion, shall be deemed part of the “Incremental Startup Investment”, provided further that such unsuccessful Performance Criteria test or delay was caused by the failure of the SilvaGas Design, in each case, as determined by the mutual consent of Parent and the Company Review Representative, or, if they cannot agree, the Independent Engineer in its sole discretion. Notwithstanding the foregoing, Incremental Startup Investment shall not include any indirect costs set forth in clause (2) above that (x) occur on or before the 90th day following the date of the first unsuccessful Performance Criteria test of the SilvaGas Gasifier at the Rentech Project or (y) are in excess of $1,250,000. To the extent that Parent and the Company Review Representative, or Independent Engineer, as applicable, determine in writing that any such failure or inadequacy can reasonably be attributed to any Parent Proposed Changes to which the Company Review Representative timely delivered a Company Change Objection Statement, then any such failure or inadequacy shall be disregarded for purposes of calculating Incremental Startup Investment.
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(ii) “ Maximum Earn-Out Payment ” means (i) 6,250,000 shares of Parent Common Stock (subject to adjustment from time to time for any stock dividend, stock split, combination of shares, reorganization, reclassification or other similar event of Parent following the date hereof), plus (ii) that number of shares of Parent Common Stock equal to $5,500,000 divided by the VWAP of the Parent Common Stock as of the date immediately preceding that date the Performance Criteria Percentage is determined pursuant to Section 2.13(a) (not to exceed 11,000,000 shares of Parent Common Stock (subject to adjustment from time to time for any stock dividend, stock split, combination of shares, reorganization, reclassification or other similar event with respect to the Parent Common Stock following the date hereof)).
(iii) “ Performance Criteria Percentage ” means the weighted average of the ratings (between 0% and 100%) assigned by Parent and the Company Review Representative (or the Independent Engineer, as applicable) to the Rentech Project with respect to each of the Performance Criteria based upon the degree of achievement of such Performance Criteria, all as determined in accordance with Exhibit E attached hereto.
(l) In no event may Parent issue more than 33,470,000 shares (subject to adjustment from time to time for any stock dividend, stock split, combination of shares, reorganization, reclassification or other similar event of Parent following the date hereof) to the Stockholders pursuant to this Agreement without obtaining shareholder approval in compliance with NYSE rules. Parent shall have no obligation to obtain such approval.
(m) By executing this Agreement, Company and the Principal Stockholder (and, upon execution of the Written Consent and/or the applicable Stockholder Transmittal Letter, each other Stockholder) acknowledges and agrees that from and after the Effective Time, control of all key business decisions of the Surviving Company (including, without limitation, any and all decisions relating to the Rentech Project) shall be conducted in accordance with the directions of Parent, as its sole member, and Parent may direct the operation of the business of the Surviving Company in the manner it deems appropriate, regardless of the impact on the Earn-Out Payment.
2.14 Participation in Excess Licensing Fees .
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(a) In the event that Parent and the Company Review Representative (or the Independent Engineer, as applicable) finally determine that the Performance Criteria Percentage for the SilvaGas Gasifier is less than 80% and that the Stockholders are not entitled to any payments under Section 2.13 , the Stockholders shall be permitted to receive the difference between (i) twenty five percent (25%) of any Excess Licensing Fees earned by Parent from license of the Licensed SilvaGas Technology and Future Innovations pursuant to Qualified License Agreements less (ii) twenty five percent (25%) of any Indemnity Payouts in accordance with the following provisions; provided , however , the total amount of Excess Licensing Fees payable to the Stockholders hereunder shall be payable solely in Parent Common Stock and shall not exceed the Cap Amount. Notwithstanding the foregoing, in no event shall the Stockholders be entitled to receive any payments under this Section 2.14 , unless Parent has actually received Excess Licensing Fees prior to the Earn-Out Expiration Date.
(b) Subject to the foregoing, no later than sixty (60) days after the end of each fiscal year ending after the Earn-Out Determination Date during which Parent has received Excess Licensing Fees, Parent shall prepare and deliver to Stockholder Representative an unaudited statement (the “ Excess Licensing Fees Statement ”), setting forth the amount of Excess Licensing Fees for such year, the amount of Indemnity Payouts for such year and the amount payable to the Stockholders in accordance with Section 2.14(a) . If Stockholder Representative has any objections to the Excess Licensing Fees Statement, he shall deliver to Parent a statement setting forth his objections thereto (a “ Dispute Notice ”); provided that the only bases for objections shall be (i) non-compliance with the standards set forth in Section 2.14 for preparation of the Excess Licensing Fees Statement or as set forth in the definition of Excess Licensing Fees and (ii) mathematical errors (each a “ Permitted Objection ”). If a Dispute Notice is not delivered to Parent within thirty (30) days after delivery of the Excess Licensing Fees Statement, such statement shall be final, binding and non-appealable by the parties hereto. Stockholder Representative and Parent shall negotiate in good faith to resolve any Permitted Objections set forth in the Dispute Notice (and all such discussions related thereto shall, unless otherwise agreed by Parent and Stockholder Representative, be governed by Rule 408 of the Federal Rules of Evidence (and any applicable similar state rule)), but if they do not reach a final resolution within thirty (30) days after the delivery of the Dispute Notice, Stockholder Representative or Parent may submit such dispute to an Independent Auditor. Each party shall be afforded an opportunity to present to the Independent Auditor material relating to the disputed issues and to discuss the determination with the Independent Auditor. The Independent Auditor shall act as an auditor and not as an arbitrator and shall resolve Permitted Objections in dispute and adjust and establish any disputed adjustment of the Excess Licensing Fees to reflect such resolution, provided that the Independent Auditor shall not assign a value to any item or amount in dispute greater than the greatest value for such item or amount assigned by Stockholder Representative, on the one hand, or Parent, on the other hand, or less than the smallest value for such item or amount assigned by Stockholder Representative, on the one hand, or Parent, on the other hand. It is the intent of Parent and Stockholder Representative that the process set forth in this Section 2.14 and the activities of the Independent Auditor in connection herewith are not intended to be and, in fact, are not arbitration and that no formal arbitration rules shall be followed (including rules with respect to procedures and discovery). Stockholder Representative and Parent shall use their commercially reasonable efforts to cause the Independent Auditor to resolve all such disagreements as promptly as practicable. The resolution of the dispute by the Independent Auditor shall be final, binding and non-appealable on the parties hereto. The Excess Licensing Fees Statement shall be modified if necessary to reflect such determination. The fees and expenses of the Independent Auditor shall be allocated for payment by Parent on the one hand, and/or Stockholder Representative, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each party bears to the amount actually contested by such party, as determined by the Independent Auditor.
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(c) Within five (5) Business Days following the finalization of the Excess Licensing Fees Statement relating to each third (3 rd ) fiscal year following the Earn-Out Determination Date, Parent shall pay to Stockholder Representative (for distribution to the Stockholders) that number of shares of Parent Common Stock equal to the quotient of (i) twenty-five percent (25%) of the Excess Licensing Fees, if any, received by Parent during such three-year period as reflected on the relevant final Excess Licensing Fees Statements during such period, divided by (ii) the VWAP as of the date of the issuance of such shares.
(d) For purposes of this Section 2.14 :
(i) “ Cap Amount ” means an amount that is the sum of $5,500,000 plus the product of (A) the Closing Price times (B) 6,250,000.
(ii) “ Earn-Out Determination Date ” means the date on which Parent and the Company Review Representative (or the Independent Engineer, as applicable) finally determines that the Performance Criteria Percentage is less than 80%.
(iii) “ Excess Licensing Fees ” means, as of any date, the aggregate amount of all Qualified Licensing Fees actually received by Parent as of such date, in excess of the sum of (A) $9,735,000 and (B) the amount of the Incremental Startup Investment made by Parent as of such date.
(iv) “ Indemnity Payouts ” means, as of any date, the aggregate amount of all amounts Parent has actually paid to a third party pursuant to an indemnity claim under a Qualified License Agreement.
(v) “ Licensing Fees ” means any fixed fee payments, whether or not paid in installments, and any royalties provided however that Licensing Fees shall not include any payments for equipment, services or hardware or other amounts payable not related to fixed fee or royalty payments.
(vi) “ Qualified License Agreement ” means a license agreement between Parent and a non-affiliated third party, pursuant to which Parent has licensed the Licensed SGC Technology and Future Innovations to such third party in exchange for Licensing Fees.
(vii) “ Qualified Licensing Fees ” means all Licensing Fees actually received by Parent for the license of the Licensed SGC Technology and Future Innovations pursuant to a Qualified License Agreement. If a Qualified License Agreement provides for the payment of Licensing Fees to Parent for the license of both the Licensed SGC Technology, Future Innovations and any other intellectual property but does not allocate such Licensing Fees between the licenses, such allocation shall be made by Parent in good faith.
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2.15 Securities Law Compliance . Notwithstanding anything to the contrary in this Agreement, Parent shall not be required to issue shares of Parent Common Stock to a Stockholder unless the issuance is made in compliance with an applicable exemption from the registration requirements of the Securities Act and all other applicable federal and state securities laws. In furtherance of the foregoing, as reasonably requested by Parent, each Stockholder receiving shares of Parent Common Stock under this Agreement agrees to execute and deliver to Parent of one or more documents representing as to certain matters in support of the exemption and acknowledging the restricted nature of such shares.
2.16 Tax Consequences . It is intended that the Merger and the Second Step Merger, taken together, shall constitute an integrated transaction qualifying as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code and the regulations promulgated thereunder and as contemplated by IRS Revenue Ruling 2001-46, and that this Agreement constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code.
2.17 Mergers, Consolidations, etc . If (a) Parent effects any merger or consolidation of Parent with or into another entity, (b) Parent effects any sale of all or substantially all of its assets in one or a series of related transactions, (c) any tender offer or exchange offer (whether by Parent or another person or entity) is completed pursuant to which holders of Parent Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (d) Parent effects any reclassification of the Parent Common Stock or any compulsory share exchange pursuant to which the Parent Common Stock is effectively converted into or exchanged for other securities, cash or property (each, a “ Fundamental Transaction ”), then in lieu of any shares of Parent Common Stock each Stockholder may be entitled to receive hereunder following the Fundamental Transaction, such Stockholder shall have the right to receive (subject to the conditions to the issuance of such Parent Common Stock hereunder) the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been the holder of such shares of Parent Common Stock immediately prior to the Fundamental Transaction. Notwithstanding the foregoing, if the holders of Parent Common Stock in any such Fundamental Transaction are afforded an election or are otherwise permitted or required to exchange such shares for two or more alternate forms of consideration, then after such Fundamental Transaction such Stockholder shall have the right to receive the same amount and kind of securities, cash or property for which a holder of such shares Parent Common Stock would have been entitled to receive if it failed to exercise such rights of election (provided that if the amount and kind of securities, cash or property receivable upon such Fundamental Transaction is not the same for each share of Parent Common Stock in respect of which such rights of election shall not have been exercised (a “non-electing share”), then for the purpose of this Section 2.17 , the amount and kind of securities, cash or property receivable by such Stockholder after such Fundamental Transaction shall be deemed to be the amount and kind so receivable per share by a plurality of the holders of non-electing shares).
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ARTICLE III
STOCKHOLDER REPRESENTATIVE
3.1 Designation.
(a) By executing this Agreement, Company and the Principal Stockholder (and, upon execution of the Written Consent and/or the applicable Stockholder Transmittal Letter, each other Stockholder) shall be deemed to have constituted and appointed, effective from and after the date of such execution of this Agreement, Milton Farris as Stockholder Representative and as its attorney-in-fact and agent with respect to claims for indemnification under Article XII , and for taking any and all actions and making any and all decisions required or permitted to be taken by any Stockholder, in its capacity as and with respect to its status as a Stockholder, under this Agreement or the Ancillary Agreements, including, without limitation, the power to: (i) take all actions required by, and exercise all rights granted to, Stockholder Representative in this Agreement, (ii) receive all notices or other documents given or to be given to the Stockholders by Parent, Merger Sub or Second Merger Sub pursuant to this Agreement, (iii) receive and accept service of legal process in connection with any claim or other proceeding against the Stockholders arising under this Agreement, (iv) authorize or object to the release or delivery to Parent of property from the Escrow Account or otherwise in satisfaction of claims for indemnification by any Parent Indemnified Party pursuant to Article XII , (v) agree to, negotiate, enter into settlements and compromises of, demand arbitration of, and comply with orders of courts and awards of arbitrators with respect to, such claims for indemnification, (vi) litigate, resolve, settle or compromise any claims for indemnification made pursuant to Article XII , and (vii) take any other actions and make and deliver any certificate, notice, consent, instruction or instrument required or permitted to be taken, made or delivered by the Stockholders under this Agreement or the Ancillary Agreements, or as Stockholder Representative may deem appropriate to carry out the intents and purposes of this Agreement. Each Stockholder agrees that any amendment of this Agreement or any Ancillary Agreement, or the waiver of any right granted under, or breach of, this Agreement or any Ancillary Agreement, signed or approved by Stockholder Representative shall be binding upon and effective against the Stockholders whether or not they have signed or agreed to such amendment or waiver; provided, however, that no such amendment or waiver shall be binding upon or effective against an Unrestricted Stockholder without his or its written approval if and to the extent such amendment or waiver would result in any liability to such party not otherwise contemplated by this Agreement. Notwithstanding the previous sentence, nothing in this Section 3.1 or otherwise in this Agreement shall be construed or deemed to vest any authority in Stockholder Representative to act as attorney-in-fact or otherwise for any Stockholder that is also a creditor of Company with respect to such Stockholder’s claims due from, or obligations owed by, Company not stemming solely from its Stockholder status.
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(b) In the event that Stockholder Representative dies, resigns or becomes legally incapacitated, then Kim Weeks shall be the replacement Stockholder Representative. If Kim Weeks shall at that point be unable to serve or refuse the appointment as Stockholder Representative or shall later die, resign, or become legally incapacitated, then such Person as is appointed by the Stockholders who held a majority of the outstanding shares of the Company Common Stock immediately prior to the Effective Time shall be Stockholder Representative; provided , however , that no change in Stockholder Representative shall be effective prior to the delivery to Parent of written notice thereof from the Stockholders who held a majority of the outstanding shares of Company immediately prior the Effective Time. The Stockholder Representative may resign at any time; provided however, that it must provide the Stockholders who held a majority of the outstanding shares of Company immediately prior the Effective Time thirty (30) days’ prior written notice of such decision to resign. In the event that no Person is serving as Stockholder Representative, the Principal Stockholder shall be Stockholder Representative.
(c) Parent agrees that any claim for indemnification made by any of the Parent Indemnified Parties pursuant to this Agreement shall be made exclusively through Stockholder Representative acting on behalf of the Stockholders (and the Stockholders agree that any such claim against the Stockholders by a Parent Indemnified Party may be made by providing notice of such claim to Stockholder Representative), and the Stockholders agree that any claim for indemnification made by any of the Stockholder Indemnified Parties will be made exclusively through Stockholder Representative; provided , that if there is no Person serving as Stockholder Representative at the time a claim for indemnification is made, such claim may be delivered to the Principal Stockholder and shall be considered effective as if it had been delivered to Stockholder Representative.
3.2 Authority . The Stockholder Representative shall have the authority and power to act on behalf of each Stockholder with respect to the actions and decisions described in Section 3.1 . A decision, act, consent or instruction of Stockholder Representative shall constitute a decision of each Stockholder, and shall be final, binding and conclusive upon each Stockholder, and Parent and the Escrow Agent may rely upon any decision, act, consent or instruction of Stockholder Representative as being the decision, act, consent or instruction of each Stockholder with respect to such matter. Notices or communications to or from Stockholder Representative with respect to this Agreement and the Ancillary Agreements shall constitute notice to or from each Stockholder. The Stockholder Representative agrees promptly to provide written notice to each Stockholder of all notices and communications given or received in its capacity as Stockholder Representative under this Agreement.
3.3 Costs . Any out-of-pocket costs and expenses reasonably incurred by Stockholder Representative in connection with actions taken by Stockholder Representative pursuant hereto (including the hiring of legal counsel and the incurring of legal fees and costs) shall be paid by, and be a joint and several obligation of, each Stockholder.
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ARTICLE IV
CLOSING
4.1 Closing Date . Subject to the satisfaction of the conditions set forth in Articles IX and X (or the waiver thereof by the party entitled to waive that condition), the closing of the Transaction (the “ Closing ”) shall take place at 10:00 a.m. local time on the Closing Date at the offices of Latham & Watkins LLP located at 355 S. Grand Ave., Los Angeles, California, 90071, or at such other place and on such other date as Company and Parent may mutually agree.
4.2 Conveyances at Closing .
(a) Deliveries to Parent . At the Closing, Company and the Stockholders, as applicable, shall deliver, or cause to be delivered, to Parent, the following:
(i) a certificate executed by the Secretary or an Assistant Secretary of Company including (A) a true and complete copy of the Certificate of Incorporation of Company, as amended through the Closing Date, certified as of a recent date by the Secretary of State of the State of Delaware, (B) a true and complete copy of the Bylaws of Company, (C) a true and complete cop | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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