AGREEMENT AND PLAN OF REORGANIZATION

Exhibit 2.1

 

AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

ALTERNATIVE ASSET MANAGEMENT ACQUISITION CORP.,

GREAT AMERICAN GROUP, INC.,

AAMAC MERGER SUB, INC.,

GREAT AMERICAN GROUP, LLC,

THE MEMBERS OF GREAT AMERICAN GROUP, LLC,

AND

THE MEMBER REPRESENTATIVE

Dated as of May 14, 2009

 

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AGREEMENT AND PLAN OF REORGANIZATION

This Agreement and Plan of Reorganization (this “ Agreement ”) is made and entered into as of May 14, 2009 by and among Alternative Asset Management Acquisition Corp., a Delaware corporation (“ Parent ”), Great American Group, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“ Holdco ”), AAMAC Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Holdco (“ Merger Sub ”), Great American Group, LLC, a California limited liability company (the “ Company ”), Andrew Gumaer and Harvey Yellen (each a “ Member ” and, collectively, the “ Members ”), and the representative of the Company and each Contribution Consideration Recipient (as hereafter defined) (the “ Member Representative ”). Parent, Holdco, Merger Sub, the Company, the Members and the Member Representative are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

WITNESSETH:

A. The Parties intend to effect the contribution by the Members of all of the issued and outstanding membership interests of the Company (collectively, the “ Membership Interests ”) to Holdco in exchange for the Contribution Consideration (as hereafter defined), upon the terms and subject to the conditions set forth in this Agreement (the “ Contribution ”).

B. Simultaneously with the Contribution, the Parties intend to effect the merger of Merger Sub with and into Parent (the “ Merger ”), with Parent continuing as the surviving entity in the Merger, as a result of which the entire issued and outstanding common stock, warrants, and units, respectively, of Parent will be deemed for all purposes to represent shares of common stock, warrants, and units, respectively of Holdco upon the terms and subject to the conditions set forth in this Agreement and in accordance with the Delaware General Corporation Law, as amended (the “ DGCL ”) (the Contribution and Merger, collectively, the “ Reorganization ”).

C. Each of the individuals constituting the Board of Directors of the Company (collectively, “ Company Management ”) and each of the members of the Board of Directors of each of Parent (the “ Parent Board ”), Holdco (the “ Holdco Board ”) and Merger Sub (the “ Merger Sub Board ”), respectively, have unanimously approved this Agreement and each of them has determined that this Agreement, the Reorganization and the other transactions contemplated hereby are advisable and in the respective best interests of each of the Company, Parent, Holdco and Merger Sub, respectively, and their respective stockholders, equityholders and/or members.

D. The Parent Board has unanimously resolved to recommend that its stockholders adopt this Agreement.

NOW, THEREFORE, in consideration of the premises set forth above, which are incorporated in this Agreement as if fully set forth below, and the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the Parties hereto agree as follows:

 

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ARTICLE I

TERMS OF THE REORGANIZATION

1.1 The Reorganization .

(a) The Contribution .

(i) Upon the terms and subject to the conditions of this Agreement, on the Closing Date, the Members shall contribute to Holdco, and Holdco shall accept from the Members, the Membership Interests.

(ii) On the Closing Date, Parent and Holdco shall cause the following amounts to be paid (or issued) to those Persons set forth on Exhibit 1.1(a)(ii)-1 (the “ Phantom Equity Holders ”) and the Members (collectively, the “ Contribution Consideration Recipients ”), in accordance with their respective stock percentages (the “ Stock Contribution Consideration Percentages ”) and cash percentages (the “ Cash Contribution Consideration Percentages ”), each as set forth in, and in accordance with, the flow of funds memorandum attached as Exhibit 1.1(a)(ii)-2 (the “ Flow of Funds Memo ”): (A) One Hundred Twenty Million Dollars ($120,000,000) in cash (the “ Closing Cash Consideration ”), and (B) Twelve Million Two Hundred Seventy-Two Thousand Seven Hundred Twenty-Seven (12,272,727) shares of common stock, par value $0.0001 per share, of Holdco (the “ Holdco Common Stock ”) (the “ Closing Stock Consideration ” and collectively with the Closing Cash Consideration, the “ Closing Consideration ”). The Closing Consideration shall be subject to adjustment in accordance with Section 1.2(d) (Escrow), Section 1.3 (Working Capital Adjustment) and Section 1.5 (Inventory Adjustment). The receipt of the Closing Consideration is further subject to the execution of Lock Up Agreements (as defined in Section 1.6 ) by the Contribution Consideration Recipients pursuant to Section 1.6 . The Closing Stock Consideration to be issued to the Members shall be issued at the Closing. The Closing Stock Consideration to be issued to the Phantom Equity Holders shall be issued upon distribution when vested in accordance with Section 1.1(a)(iii) . In addition, in consideration for the Membership Interests, the Members shall be entitled to receive the Available Cash Payment (as hereafter defined) and, to the extent it becomes due and payable in accordance with the terms hereof, the Contingency Cash Payment, and the Contribution Consideration Recipients shall be entitled to receive the Contingency Stock Payments (as defined hereinafter), to the extent they become due and payable in accordance with the terms hereof.

(iii) In the event that any Phantom Equity Holder is not employed by the Company or any affiliate of the Company on a Distribution Date (other than by reason of such Phantom Equity Holder having, prior to such time, [A] terminated such employment for Good Reason, [B] been terminated by such employer without Cause, or [C] died), such Phantom Equity Holder’s portion of the Closing Stock Consideration shall be forfeited by such Phantom Equity Holder and allocated among the other Phantom Equity Holders pro rata in accordance with their relative Stock Contribution Consideration Percentages and such Phantom Equity Holder shall not be entitled thereafter to any Closing Stock Consideration; provided , however , that (x) to the extent that any of the events described in clauses [A] or [B] of this Section 1.1(a)(iii) shall have occurred with respect to any Phantom Equity Holder prior to the applicable

 

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Distribution Date, such Phantom Equity Holder shall be entitled to his or her portion of the Closing Stock Consideration as if he or she had remained employed by the Company or any affiliate of the Company through such date, and (y) to the extent that the event described in clause [C] of this Section 1.1(a)(iii) shall have occurred with respect to any Phantom Equity Holder, the vesting requirements under this Section 1.1(a)(iii) shall accelerate and such Phantom Equity Holder’s heirs shall be entitled to all of his or her entire portion of the Closing Stock Consideration. For purposes of this Section 1.1(a)(iii) , a Phantom Equity Holder will be considered to have been continuously employed during the period in which he or she is Disabled. For purposes of this Agreement, “ Cause ,” with respect to any Phantom Equity Holder in the context of such Phantom Equity Holder’s employment, means such Phantom Equity Holder (i) engaged in gross misconduct or gross negligence in the performance of such Phantom Equity Holder’s duties or willfully and continuously failed or refused to perform any duties reasonably requested in the course of such Phantom Equity Holder’s employment consistent with such Phantom Equity Holder’s position with his or her employer; (ii) engaged in fraud, dishonesty, or any other improper conduct that causes material harm to such Phantom Equity Holder’s employer or such Phantom Equity Holder’s employer’s business or reputation; or (iii) was convicted of, or pled guilty or no contest to, a felony or crime involving dishonesty or moral turpitude (excluding traffic offenses). For purposes of this Agreement, “ Good Reason ,” with respect to any Phantom Equity Holder in the context of such Phantom Equity Holder’s employment, means that without such Phantom Equity Holder’s written agreement, there is (i) a material diminution in such Phantom Equity Holder’s base salary, authority, duties, or responsibilities; (ii) a material diminution in the budget over which such Phantom Equity Holder retains authority; (iii) a material change in the geographic location at which such Phantom Equity Holder must perform services; or (iv) a material breach of the obligations of Parent, the Company or the Surviving Company to such Phantom Equity Holder in connection with making or issuing, as applicable, such Phantom Equity Holder’s Cash Contribution Consideration Percentage of the Closing Cash Consideration, such Phantom Equity Holder’s Stock Contribution Consideration Percentage of the Closing Stock Consideration, and, to the extent applicable, such Phantom Equity Holder’s Stock Contribution Consideration Percentage of the Contingency Stock Payment, in accordance with the terms hereof, and registering such Phantom Equity Holder’s Stock Contribution Consideration Percentage of each of the Closing Stock Consideration and Contingency Stock Payment in accordance with the registration rights agreement set forth as Exhibit 6.3(m) . For purposes of this Agreement, “ Disabled ” or “ Disability ” with respect to any Phantom Equity Holder in the context of such Phantom Equity Holder’s employment, means (i) such Phantom Equity Holder is unable to engage in the duties of his position by reason of any medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than Twelve (12) months as determined by a physician selected by the Company, or (ii) by reason of any medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than twelve months, such Phantom Equity Holder is receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. For purposes of this Section 1.1(a)(iii), “ Distribution Date ”, with respect to any Phantom Equity Holder, shall mean an anniversary of the Closing Date, commencing with the first anniversary of the Closing Date and ending on the fourth anniversary of the Closing Date, and “ portion of the Closing Stock Consideration ”, with respect to any Phantom Equity Holder, shall mean, for each Distribution Date, twenty-five

 

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percent (25%) of such Phantom Equity Holder’s Stock Contribution Consideration Percentage of the Closing Stock Consideration (subject to reduction in accordance with Section 1.2(d) (Escrow) and Section 1.3 (Working Capital Adjustment)).

(b) The Merger .

(i) Simultaneously with the Contribution on the Closing Date, and upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time (as hereafter defined), Merger Sub shall be merged with and into Parent. Upon the consummation of the Merger, the separate existence of Merger Sub shall thereupon cease, and Parent, as the surviving company in the Merger (hereafter sometimes referred to as the “ Surviving Company ”), shall continue its corporate existence under the laws of the State of Delaware as a wholly-owned subsidiary of Holdco.

(ii) Simultaneously with the Contribution on the Closing Date, and upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL (subject, in the case of the Parent Warrants and Parent Units, to Section 1.1(b)(vii)), at the Effective Time, all of the issued and outstanding [A] shares of common stock, par value $.0001 per share, of Parent (the “ Parent Common Stock ”), [B] warrants of Parent to purchase Parent Common Stock (the “ Parent Warrants ”) and [C] units, comprised of Parent Common Stock and Parent Warrants (the “ Parent Units ”) respectively, shall be exchanged into the same number of [x] shares of Holdco Common Stock, [y] warrants to purchase Holdco Common Stock (the “ Holdco Warrants ”) and [z] units, comprised of Holdco Common Stock and Holdco Warrants (the “ Holdco Units ”), respectively. As a result of the Merger, all of the common stock of Merger Sub shall be converted into common stock of the Surviving Company with the same rights, powers and privileges as the shares so converted, and such shares shall constitute the only outstanding common stock of the Surviving Company following the Effective Time. From and after the Effective Time, any certificate representing the Parent Common Stock, Parent Warrants, or Parent Units, respectively, shall be deemed for all purposes to represent Holdco Common Stock, Holdco Warrants, and Holdco Units, respectively, into which such shares of Parent Common Stock, Parent Warrants, or Parent Units, respectively, represented thereby were exchanged in accordance with the immediately preceding sentence without surrender or exchange of such certificate.

(iii) Simultaneously with the Contribution on the Closing Date, and upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time, Parent (or the Surviving Corporation) shall cause the Trustee (as hereafter defined) to distribute the proceeds of the Trust Account in accordance with Section 3.17 , which shall include payment of the Closing Cash Consideration to the Contribution Consideration Recipients.

(iv) By virtue of the Merger, [A] the certificate of incorporation of Parent as in effect immediately prior to the Effective Time, shall be amended and restated in its entirety to read as set forth on Exhibit 1.1(b)(iv)-1 and shall be at and after the Effective Time the certificate of incorporation of the Surviving Company and [B] the by-laws of Parent as in effect immediately prior to the Effective Time, shall be amended and restated in its entirety to read as set forth on Exhibit 1.1(b)(iv)-2 and shall be at and after the Effective Time the by-laws of the Surviving Company.

 

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(v) At and after the Effective Time, except as otherwise expressly set forth herein, the Surviving Company shall possess all properties, rights, privileges, powers and franchises of Parent and Merger Sub and all of the claims, obligations, liabilities, debts and duties of Parent and Merger Sub shall become the claims, obligations, liabilities, debts and duties of the Surviving Company.

(vi) All Parent Common Stock, Parent Warrants, and Parent Units, respectively, shall (subject, in the case of the Parent Warrants and Parent Units, to Section 1.1(b)(vii)), by virtue of the Merger and without any action on the part of the stockholders, warrantholders or unitholders of Parent (other than as described herein), be deemed for all purposes to represent the right to receive Holdco Common Stock, Holdco Warrants and Holdco Units, and each of such stockholders, warrantholders, and/or unitholders, as applicable, shall cease to have any rights with respect thereto.

(vii) In the event that the Warrant Redemption is approved by the requisite vote of the holders of the Parent Warrants, and the Warrant Agreement is amended to provide for redemption by Parent, all in accordance with Section 5.6, each of the Parent Warrants (including any Parent Warrants included within any Parent Units) shall represent the right to receive $0.50 per Parent Warrant in accordance with the terms of the Warrant Redemption, and notwithstanding Sections 1.1(b)(ii) and 1.1(b)(vi), shall not represent any right to receive Holdco Warrants (including any Holdco Warrants included within any Holdco Units). In the event the holders of the Parent Warrants do not approve the Warrant Redemption, such Parent Warrants shall become Holdco Warrants in accordance with the terms of this Agreement which shall, subject to Section 5.9, trade on the NYSEA (as defined hereafter) after the Effective Date.

1.2 The Closing; Effective Time; Effect.

(a) Unless this Agreement shall have been terminated in accordance with Section 7.1 and subject to the satisfaction or waiver of the conditions set forth in Article VI , the closing of the Reorganization (the “ Closing ”) shall take place by the exchange of original or facsimile or electronic copies of this Agreement and each ancillary agreement hereto at 10:00 a.m. (PDT) no later than the third Business Day after the date that all of the closing conditions set forth in Article VI have been satisfied or waived, unless another time, date or place is agreed upon in writing by the Parties hereto; provided , however , that the Closing shall occur no later than August 1, 2009 (the “ Drop Dead Date ”). The date on which the Closing occurs is herein referred to as the “ Closing Date .”

(b) Subject to the terms and conditions hereof, concurrently with the Closing, the Parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware (the “ Secretary of State ”) a certificate of merger for the Merger in accordance with the DGCL (referred to herein as the “ Certificate of Merger ”) executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL in order to effect the Merger. The Merger shall become effective upon the filing of the Certificate of Merger or at such other time (on or before the Drop Dead Date) as is agreed in writing by the Parties hereto and specified in the Certificate of Merger. The time when the Merger shall become effective is herein referred to as the “ Effective Time .”

 

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(c) It is intended that the Reorganization, with respect to the Closing Stock Consideration and the exchange of Parent Common Stock for Holdco Common Stock, shall be a Tax free reorganization under Section 351 of the Internal Revenue Code of 1986, as amended (the “ Code ”).

(d) Escrow . Pursuant to the Escrow Agreement by and among Parent, Holdco, the Company, the Member Representative and Continental Stock Transfer & Trust Company (the “ Escrow Agent ”), in the form set forth in Exhibit 1.2(d)(i) (the “ Escrow Agreement ”), as the sole remedy for (i) the indemnification obligations set forth in Section 5.3 , (ii) the Working Capital Shortfall, if any, pursuant to Section 1.3 , and (iii) the Inventory Amount Shortfall, if any, pursuant to Section 1. 5, Two Million Five Hundred Thousand (2,500,000) shares of Holdco Common Stock (the “ Escrowed Indemnification Stock ”) will be withheld from the Closing Stock Consideration, which shall be allocated among the Contribution Consideration Recipients in accordance with their respective Stock Contribution Consideration Percentages and deposited at Closing to the account specified in the Escrow Agreement. The Escrow Agreement shall provide that, (i) on the thirtieth (30th) day after the date Holdco has filed with the Securities and Exchange Commission (the “ SEC ”) its Annual Report on Form 10-K for the year ending December 31, 2009 (the “ First Escrow Release Date ”), the Escrow Agent shall release One Million (1,000,000) shares of the Escrowed Indemnification Stock, less that portion thereof applied in satisfaction of, or reserved with respect to, (A) indemnification obligations of the Contribution Consideration Recipients to the Parent Indemnified Parties in connection with claims made pursuant to Section 5.3 of this Agreement, (B) obligations of the Contribution Consideration Recipients in connection with any Working Capital Shortfall pursuant to Section 1.3 , and (C) obligations of the Members in connection with any Inventory Amount Shortfall pursuant to Section 1.5 (collectively, clauses (A), (B), and (C) “ Escrow Claims ”), and (ii) on the thirtieth (30th) day after the date Holdco has filed with the SEC its Annual Report on Form 10-K for the year ending December 31, 2010 (the “ Final Escrow Release Date ”), the Escrow Agent shall release all of the shares then comprising the Escrowed Indemnification Stock remaining in escrow, less that portion thereof applied in satisfaction of, or reserved with respect to, Escrow Claims; provided , however , that with respect to any Escrow Claim made with respect to clause (C) herein, the Parties agree that the sole remedy for such Escrow Claim shall be the return of the Member Inventory Stock in accordance with Section 1.5 and further that no such Escrow Claim as it relates to clause (C) herein shall be made, if ever, prior to the date that all of the Inventory Assets (as hereafter defined) are sold; provided , further , that with respect to any Escrow Claim that remains unresolved at the time of the First Escrow Release Date or the Final Escrow Release Date, as applicable, and notice of which was properly and timely delivered pursuant to this Section 1.2(d)  and Section 5.3 , a portion of the Escrowed Indemnification Stock reasonably necessary to satisfy such Escrow Claim shall remain in escrow until such Escrow Claim shall have been disposed pursuant to Section 5.3 . For purposes of this Section 1.2(d)  and Section 5.3 , and with respect to any Escrow Claims (and any satisfaction thereof), the Escrowed Indemnification Stock shall be deemed to be valued at Eleven Dollars ($11.00) per share. Any shares comprising the Escrowed Indemnification Stock due to be released on the First Escrow Release Date or Final Escrow Release Date that continue to be held

 

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with respect to any unresolved Escrow Claim shall be delivered to the Contribution Consideration Recipients in accordance with their Stock Contribution Consideration Percentages, promptly upon such resolution, subject to reduction, if any, for the indemnification obligation associated with such resolved Escrow Claim; provided , however , that except as specifically provided in Section 1.5 with respect to the Member Inventory Stock, no Escrowed Indemnification Stock, once released and delivered to any Contribution Consideration Recipient in accordance with this Agreement, shall be subject to any Escrow Claim, whether or not resolved. For purposes of this Agreement, “ Inventory Assets ” means, collectively, (i) Bombardier, (ii) the IS Equipment, (iii) Red River and (iv) Furniture Division Inventory, each as reflected on the Company’s balance sheet dated as of the Closing Date.

1.3 Working Capital Adjustment; Available Cash Payment.

(a) Estimated Closing Working Capital . As soon as practicable after the Closing Date, but no later than the thirtieth (30th) day after the Closing Date, Holdco (or its audit committee or accountants) shall prepare and deliver to the Member Representative Holdco’s calculation of the Net Working Capital (the “ Estimated Net Working Capital ”) as at the close of business on the Closing Date. For purposes of this Section 1.3 , “ Net Working Capital ” means (a) Current Assets of the Company as of the Closing Date minus (b) Current Liabilities of Company as of the Closing Date. For purposes of this Section 1.3 , “ Current Assets of the Company ” means the following current asset line items from the Company’s balance sheet: (i) Cash and Cash Equivalents, (ii) Restricted Cash, (iii) Accounts Receivable (including Accounts Receivable — Officers, Accounts Receivable – Employees and Interest Receivable), (iv) Unbilled Receivables and Advances against Customer Contracts, (v) Inventory (including Short Term Inventory, Long Term Inventory and Inventory of Discontinued Operations), (vi) Deposits, (vii) Prepaid Expenses , (viii) Prepaid Insurance, (ix) Cash Surrender Value of Life Insurance Policies, (x) Prepaid Taxes and (x) Other Current Assets. For purposes of this Section 1.3 , the Inventory Assets shall be included in “Current Assets of the Company.” For purposes of this Section 1.3 , “ Current Liabilities of the Company ” means the following current liability line items from the Company’s balance sheet: (i) Accounts Payable, (ii) Payables to Partners – Profit Participation, (iii) Accrued Expenses and Other Current Liabilities (including Accrued Interest Expense, Accrued Payroll Taxes, Accrued Vacation Payable, Accrued Pension, Accrued MEDFSA Payable and Accrued Sales Taxes Payable), (iv) Auction and Liquidation Proceeds Payable, (v) Current Portion of Capital Lease Obligations, (vi) Bank Line of Credit (short term financing with deal financing partners) and (vii) Notes Payable booked in the Current Liabilities section of the Company’s Balance Sheet. For Purposes of this Agreement, “ Current Liabilities of the Company ” shall not include any of the following current liability line items from the Company’s Balance Sheet at Closing: (i) Accrued Compensation Plan – Phantom Stock, (ii) Accrued Compensation Plan – Members’ Employment Agreement Obligations, (iii) Any Expenses Accrued or Reserved related to matters associated with the Reorganization or related to future Phantom Stock Payments or current or future stock-based compensation or Reorganization -related Contingency Cash Payments or Contingency Stock Payments and (iv) any amounts accrued or payable related to the fair market value of Minority LLC interests.

(b) Objection Period; Dispute Resolution . The Member Representative shall have thirty (30) days following its receipt of the Estimated Net Working Capital calculation (the “ WC Objection Period ”) to accept or dispute its accuracy. During the WC Objection Period,

 

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the Member Representative and his accountant shall be permitted to review the pertinent accounting books and records and work papers of Holdco used in the preparation of the Estimated Net Working Capital and Holdco shall, and shall cause its independent accountants to, cooperate and assist in the conduct of such audit and review and make available, to the extent reasonably necessary, its personnel. Unless the Member Representative delivers a written objection to Holdco on or prior to the expiration of the WC Objection Period, the Estimated Net Working Capital shall be deemed to be the final amount of Net Working Capital (the “ Final Net Working Capital ”) and will become final and binding on the Parties. If the Member Representative does object, the written objection shall specify the items or calculations with which he takes issue. If the Member Representative objects in accordance with the previous sentence to the Estimated Net Working Capital delivered in accordance with this Section 1.3 , Holdco and the Member Representative shall, during the 30-day period following such objection, negotiate in good faith to reach agreement on the disputed items or amounts. If Holdco and the Member Representative resolve their disagreements in accordance with the foregoing sentence, the Estimated Net Working Capital with those modifications, if any, to which Holdco and the Member Representative shall have agreed shall be deemed to be the Final Net Working Capital. If, upon completion of such 30-day period, Holdco and the Member Representative are unable to reach agreement on all the disputed items, they shall promptly thereafter cause BDO Seidman, LLP (the “ Independent Accountant ”) to review this Agreement and the disputed items or calculations and all records related thereto for the purpose of calculating the Final Net Working Capital; provided that the Independent Accountant may consider only those items or amounts in the calculation of Estimated Net Working Capital as to which Holdco and the Member Representative have disagreed and shall be limited to deciding each such disagreement in an amount which shall be equal to or between the amounts proposed by Holdco, on the one hand, and the Member Representative, on the other hand, and no more and no less; provided , further , that the Independent Accountant shall act as an expert and not as an arbitrator. Holdco and the Member Representative shall require the Independent Accountant to deliver to them, as promptly as practicable, a report setting forth its calculations. Such report will be final and binding upon the Parties hereto and shall be deemed to be the Final Net Working Capital. Holdco, on the one hand, and the Member Representative, on the other hand, shall bear the costs of the Independent Accountant proportionately in relation to the amount by which the amounts in dispute differ from the Independent Accountant’s determination thereof.

(c) Post-Closing Adjustment . If the Final Net Working Capital (as determined in accordance with this Section 1.3 ) is greater than the Net Working Capital Benchmark, the Members shall be entitled to receive (in accordance with their respective, relative Cash Contribution Consideration Percentage) from Holdco, in cash and without interest thereon, an amount equal to the amount by which the Final Net Working Capital exceeds the Net Working Capital Benchmark on a dollar-for-dollar basis. If the Final Net Working Capital is less than the Net Working Capital Benchmark (such amount, the “ Working Capital Shortfall ”), Holdco shall be entitled to receive an amount equal to the Working Capital Shortfall in the form of shares initially issued from the Closing Stock Consideration, such shares for purposes of this Section 1.3(c) to be deemed to be valued at Eleven Dollars ($11.00) per share and without interest thereon. Holdco acknowledges and agrees that it shall only seek recovery for any Working Capital Shortfall from the Escrowed Indemnification Stock, and only from the Contribution Consideration Recipients in accordance with their respective Stock Contribution Consideration Percentages. For purposes of this Section 1.3 , “ Net Working Capital

 

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Benchmark ” shall mean Twelve Million Five Hundred Thousand Dollars ($12,500,000). Any payment required by this  Section 1.3(c) to be paid to the Members shall be paid by wire transfer to the account designated by the Member Representative, and with respect to any payment in shares to be received by Holdco, be transferred by the Escrow Agent to Holdco for cancellation, within ten (10) days after final determination of the Final Net Working Capital in accordance with this Section 1.3 . Any adjustments to the Closing Stock Consideration under this Section 1.3 shall be deemed an adjustment to the Contribution Consideration.

(d) Available Cash Payment . On or before the Closing Date, the Members shall be entitled to receive an amount (the “ Available Cash Payment ”) equal to the unrestricted cash and cash equivalents held by the Company as of the Closing Date after the satisfaction of loans made by former equity holders of the Company in the principal amount of up to Two Million Nine Hundred Eighty Five Thousand Dollars ($2,985,000), plus interest. The Company shall provide Parent with a calculation of the foregoing unrestricted cash and cash equivalents held by the Company and the Company Subsidiaries within seven (7) days prior to the Closing Date.

1.4 Contingency Cash Payment and Contingency Stock Payment.

(a) Contingency Cash Payment to the Members . In addition to the Contribution Consideration payable pursuant to Section 1.1(a) above for the sale of the Membership Interests, Holdco shall make a contingency payment in cash in the aggregate amount of Twenty Five Million Dollars ($25,000,000) (the “ Contingency Cash Payment ”) to the Members upon the Company achieving any one of (i) Forty Five Million Dollars ($45,000,000) in Adjusted EBITDA for the twelve (12) months ending December 31, 2009, (ii) Forty Seven Million Five Hundred Thousand Dollars ($47,500,000) in Adjusted EBITDA for the twelve (12) months ending March 31, 2010, or (iii) Fifty Million Dollars ($50,000,000) in Adjusted EBITDA for the twelve (12) months ending June 30, 2010. For the avoidance of doubt, the Parties hereby agree the Contingency Cash Payment under this Section 1.4(a)  will only be payable to the Members once and shall not exceed Twenty Five Million Dollars ($25,000,000) in the aggregate. In the event the Company does not achieve any of the targets set forth in this Section 1.4(a) , the Members shall not be entitled to any Contingency Cash Payment. For purposes of this Section 1.4 , “ Adjusted EBITDA ” shall mean consolidated net earnings of the Company before interest expense, income taxes, depreciation, amortization, extraordinary or non-recurring loss and all other extraordinary non-cash items for the applicable period and as calculated in accordance with Section 1.4 of the Company Disclosure Schedule applied on a consistent basis. For purposes of the calculation of Adjusted EBITDA, net earnings shall (a) exclude any Expenses, including without limitation, expenses incurred in connection with the road show and investor presentation, and any other transaction expenses hereafter incurred, and any other expenses incurred by Parent or any Parent Subsidiary, whether incurred prior to or following the Closing Date, including, without limitation, any payment of fees to any advisors of Parent, any payments to Halcyon Management Group LLC (“ Halcyon ”), any Parent organization costs and commissions, any Parent Board fees, any fees or expenses with respect to Parent’s operating expenses, NYSEA fees, expenses associated with the auditing of the Closing Company Financials, expenses associated with the Proxy Statement, Registration Statement and the Proxy Statement/Prospectus, costs associated with issuing options in the future from any Company Benefit Plan or the Incentive Plan, (b) exclude any Expenses of the Company in

 

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connection with its engaging in the transaction, including without limitation, fees and expenses paid to advisors, all costs associated with due diligence activities, Antitrust Laws filing costs and related expenses, all KPMG tax study costs, all consultant costs, all legal counsel fees and expenses and all investment banking fees and expenses, (c) exclude any payments or accruals related to any of the Phantom Equity Holders made pursuant to this Agreement both retrospectively and in the future whether in cash, shares or contingent shares form, (d) exclude any Contingency Cash Payment to Members, (e) exclude any past, present or future share based compensation expense, (f) exclude any expense, accrual or income related to any increases or decreases in the fair market value of Minority LLC interest or payment obligations for the Minority LLC interests and (g) include any income or loss from discontinued operations.

(b) Contingency Stock Payment to the Contribution Consideration Recipients . In addition to the Contribution Consideration and Contingency Cash Payment payable pursuant to Section 1.1(a) and Section 1.4(a) , respectively, Holdco shall issue to the Contribution Consideration Recipients up to an aggregate of Ten Million (10,000,000) shares of Holdco Common Stock (the “ Contingency Stock Payment ”) in accordance with Section 1.4(e) and Section 1.4(f) upon the Company meeting certain performance targets set forth in this Section 1.4(b) . In the event the Company achieves any one of the targets set forth in Section 1.4(a)(i) , Section 1.4(a)(ii) , or Section 1.4(a)(iii) , then Holdco shall issue to the Contribution Consideration Recipients in the aggregate Two Million (2,000,000) shares of Holdco Common Stock. In the event the Company achieves Fifty Five Million Dollars ($55,000,000) in Adjusted EBITDA for the fiscal year ending December 31, 2010 (the “ 2010 EBITDA Target ”), then Holdco shall issue (in accordance with Section 1.4(e) and Section 1.4(f) ) to the Contribution Consideration Recipients in the aggregate Four Million (4,000,000) shares of Holdco Common Stock. In the event the Company achieves Sixty Five Million Dollars ($65,000,000) in Adjusted EBITDA for the fiscal year ending December 31, 2011 (the “ 2011 EBITDA Target ”), then Holdco shall issue (in accordance with Section 1.4(e) and Section 1.4(f) ) to the Contribution Consideration Recipients in the aggregate Four Million (4,000,000) shares of Holdco Common Stock; provided , however , that if the Company does not achieve the 2010 EBITDA Target, but does achieve the 2011 EBITDA Target, then Holdco shall also issue (in accordance with Section 1.4(e) and Section 1.4(f) ) to the Contribution Consideration Recipients in the aggregate Eight Million (8,000,000) shares of Holdco Common Stock. For the avoidance of doubt, the Parties hereby agree the Contingency Stock Payment under this Section 1.4(b) will not exceed Ten Million (10,000,000) shares of Holdco Common Stock in the aggregate. In the event the Company does not achieve any of the targets set forth in this Section 1.4(b) , the Contribution Consideration Recipients shall not be entitled to receive any Contingency Stock Payment. The Contingency Stock Payment, if any, will be allocated among the Contribution Consideration Recipients in accordance with their respective Stock Contribution Consideration Percentages.

(c) Audit . As soon as practicable after the applicable target period for the Contingency Cash Payment or Contingency Stock Payment, as the case may be, but no later than the thirtieth (30th) day after such target period, Holdco (or its audit committee or accountants) shall prepare and deliver to the Member Representative a statement setting forth in reasonable detail the Adjusted EBITDA achieved by the Company for the applicable target period together with the calculation used to determine the Adjusted EBITDA for the applicable period (the “ EBITDA Statement ”). The EBITDA Statement will be prepared in accordance with

 

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Section 1.4 of the Company Disclosure Schedule applied on a consistent basis. The Member Representative shall have thirty (30) days following its receipt of the EBITDA Statement (the “ EBITDA Objection Period ”) to accept or dispute its accuracy. During the EBITDA Objection Period, the Member Representative and his accountant shall be permitted to review the pertinent accounting books and records and work papers of the Company used in the preparation of the EBITDA Statement and the Company shall, and shall cause its independent accountants to, cooperate and assist in the conduct of such audit and review and make available, to the extent reasonably necessary, its personnel. Unless the Member Representative delivers a written objection to Holdco on or prior to the expiration of the EBITDA Objection Period, the Adjusted EBITDA set forth in the EBITDA Statement shall be deemed to be the final amount of Adjusted EBITDA for such target period (the “ Final EBITDA ”) and will become final and binding on the Parties. If the Member Representative does object, the written objection must specify the items or calculations with which he takes issue. If the Member Representative objects in accordance with the previous sentence to the Adjusted EBITDA Statement delivered in accordance with this Section 1.4(c) , Holdco and the Member Representative shall, during the 30-day period following such objection, negotiate in good faith to reach agreement on the disputed items or amounts. If Holdco and the Member Representative resolve their disagreements in accordance with the foregoing sentence, the Adjusted EBITDA set forth in the EBITDA Statement with those modifications, if any, to which Holdco and the Member Representative shall have agreed shall be deemed to be the Final EBITDA. If, upon completion of such 30-day period, Holdco and the Member Representative are unable to reach agreement on all the disputed items, they shall promptly thereafter cause the Independent Accountant to review this Agreement and the disputed items or calculations and all records related thereto for the purpose of preparing the EBITDA Statement; provided that the Independent Accountant may consider only those items or amounts in the EBITDA Statement as to which Holdco and the Member Representative have disagreed and shall be limited to deciding each such disagreement in an amount which shall be equal to or between the amounts proposed by Holdco, on the one hand, and the Member Representative, on the other hand, and no more and no less; provided , further , that the Independent Accountant shall act as an expert and not as an arbitrator. Holdco and the Member Representative shall require the Independent Accountant to deliver to them, as promptly as practicable, a report setting forth its calculations. Such report will be final and binding upon the Parties hereto and shall be deemed to be the Final EBITDA. Holdco, on the one hand, and the Member Representative, on the other hand, shall bear the costs of the Independent Accountant proportionately in relation to the amount by which the amounts in dispute differ from the Independent Accountant’s determination of the Final EBITDA.

(d) Payment of Contingency Cash Payment . Holdco shall pay the Contingency Cash Payment, if any, within thirty (30) days after the relevant determination of the Final EBITDA for the applicable target period in accordance with Section 1.4(c), by wire transfer of immediately available funds to the accounts specified in writing by the Member Representative to Holdco. No interest shall be paid or accrued for the Contingency Cash Payment payable hereunder.

(e) Issuance of Contingency Stock Payment to Members . Holdco shall issue the relevant Contingency Stock Payment, if any, to the Members in such amounts as set forth in, and in accordance with, their respective, relative Stock Contribution Consideration Percentages, after the relevant determination of the Final EBITDA for the applicable target period in

 

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accordance with Section 1.4(c) . The Contingency Stock Payment shall be issued by Holdco to the Members, to the extent earned and with respect to the applicable target period, in three (3) equal installments, beginning on the first anniversary of the Closing Date and on each anniversary of the Closing Date thereafter through the third (3rd) anniversary of the Closing Date (in each case, to the extent that an anniversary of the Closing Date is not a Business Day, then the applicable shares shall be issued on the first Business Day following such anniversary).

(f) Issuance of Contingency Stock Payment to Phantom Equity Holders . Up to 1,200,000 shares of Holdco Common Stock to be issued pursuant to the Contingency Stock Payment (assuming the Company satisfies all of the performance targets set forth in Section 1.4(b) hereinabove) (the “ Phantom Equity Holder Contingency Stock ”) shall be allocated among the Phantom Equity Holders in accordance with their respective, relative Stock Contribution Consideration Percentages. The Phantom Equity Holder Contingency Stock shall be issued by Holdco to the Phantom Equity Holders, to the extent earned and with respect to the applicable target period, in three (3) equal installments, beginning on the first anniversary of the Closing Date and issuable on each anniversary of the Closing Date thereafter through the third (3rd) anniversary of the Closing Date (in each case, to the extent that an anniversary of the Closing Date is not a Business Day, then the applicable shares shall be issued on the first Business Day following such anniversary). In the event that any Phantom Equity Holder is not employed by Holdco or any affiliate of Holdco on any anniversary of the Closing Date (other than by reason of such Phantom Equity Holder having, prior to such time, [A] terminated such employment for Good Reason, [B] been terminated by such employer without Cause, or [C] died), such Phantom Equity Holder’s portion of the Phantom Equity Holder Contingency Stock (and any dividends accrued thereon) shall be forfeited by such Phantom Equity Holder and allocated among the other Phantom Equity Holders pro rata in accordance with their relative Stock Contribution Consideration Percentages and such Phantom Equity Holder shall not be entitled thereafter to any further portion of his or her Phantom Equity Holder Contingency Stock; provided , however , that (x) to the extent that any of the events described in clauses [A] or [B] of this Section 1.4(f) shall have occurred with respect to any Phantom Equity Holder, such Phantom Equity Holder shall be entitled to his or her portion of the Phantom Equity Holder Contingency Stock as it is issued on each anniversary of the Closing Date as if he or she had remained employed by Holdco or any affiliate of Holdco through such date, and (y) to the extent that the event described in clause [C] of this Section 1.4(f) shall have occurred with respect to any Phantom Equity Holder, the vesting requirements under this Section 1.4(f) shall accelerate and such Phantom Equity Holder’s heirs shall be entitled to all of his or her entire portion of the Phantom Equity Holder Contingency Stock. For purposes of this Section 1.4(f) , a Phantom Equity Holder will be considered to have been continuously employed during the period in which he or she is Disabled.

1.5 Inventory Adjustment . As the sole remedy for any Inventory Amount Shortfall, if any, pursuant to this Section 1.5 , 2,200,000 shares of Holdco Common Stock (the “ Member Inventory Stock ”) that comprise the Escrowed Indemnification Stock, which shall be allocated among the Members in accordance with their respective, relative Stock Contribution Consideration Percentages, shall be held in escrow pursuant to the Escrow Agreement and shall be distributed to the Members in accordance with Section 1.3 . To the extent that the Gross Proceeds (as hereafter defined) are less than the Book Value (as hereafter defined) (such amount, the “ Inventory Amount Shortfall ”), Holdco shall be entitled to receive from the Members an

 

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amount equal to the Inventory Amount Shortfall in the form of shares of Holdco Common Stock initially issued as the Member Inventory Stock, such shares for purposes of this Section 1.5 to be deemed to be valued at Eleven Dollars ($11.00) per share and without interest thereon. For purposes of this Agreement, “ Gross Proceeds ” means the cumulative gross proceeds received by the Company or any affiliate of the Company from the sale, transfer or other disposition of all of the Inventory Assets to another Person less any third Person commissions with respect thereto. For purposes of this Agreement, “ Book Value ” means the value of the Inventory Assets as stated in the Company’s unaudited consolidated balance sheet as of the Closing Date. Holdco acknowledges and agrees that it shall only seek recovery for any Inventory Amount Shortfall from the Members and only from the Member Inventory Stock (in accordance with their respective, relative Stock Contribution Consideration Percentages). Any payment required by this Section 1.5 to be received by Holdco shall to the extent that the Inventory Amount Shortfall is determined prior to the Final Escrow Release Date, be transferred by the Escrow Agent to Holdco for cancellation within ten (10) days after final determination of the Inventory Amount Shortfall in accordance with this Section 1.5 . To the extent that the Inventory Amount Shortfall is not determined by the Final Escrow Release Date, any remaining Member Inventory Stock comprising the Escrowed Indemnification Stock shall be returned to the Members and, immediately thereafter, the Members shall re-contribute such remaining Member Inventory Stock back into Escrow in accordance with the Escrow Agreement; provided , however , subject to Holdco’s consent (at its sole discretion), that the Members may contribute into escrow assets in lieu of such remaining Member Inventory Stock of equal or greater value than such remaining Member Inventory Stock (valued at Eleven Dollars ($11.00) per share without interest thereon). After the last item of the Inventory Assets is sold, transferred or disposed of after the Final Escrow Release Date, and after any Inventory Amount Shortfalls are resolved but no later than five (5) days after such sale, transfer or disposition, any remaining Member Inventory Stock shall be returned to the Members (in accordance with their respective, relative Stock Contribution Consideration Percentages). The Parties hereto agree that the Members shall maintain sole discretion with respect to the time and manner of sale, transfer or other disposition with respect to the Inventory Assets. Furthermore, the Parties hereto agree that the Company may repay that certain promissory note issued by Great American Group Energy Equipment, LLC in favor of Garrison Special Opportunities Fund LP and Gage Investment Group LLC in an original principal amount of $12,000,000, dated as of May 29, 2008, even if all or some of the inventory collateralizing such note have not yet been sold, transferred or otherwise disposed. To the extent that the Gross Proceeds are equal to or greater than the Book Value, then there shall be no forfeiture (or return) of any of the Member Inventory Stock. Any adjustments to the Closing Stock Consideration under this Section 1.5 shall be deemed an adjustment to the Contribution Consideration.

1.6 Restrictions on Transfer . Each Contribution Consideration Recipient, with respect to any Closing Stock Consideration that it receives pursuant to this Agreement, shall enter into a “lock-up” agreement substantially in the form set forth in Exhibit 1.6-1 . Each Parent Founder receiving Holdco Common Stock shall remain subject to the “lock-up” agreements set forth in the Escrow Agreement dated on or about August 1, 2007 (the “ Founders Escrow Agreement ”), to the same extent with respect to the Holdco Common Stock as with respect to the Parent Common Stock described in the Founders Escrow Agreement. The agreements discussed in this Section 1.6 collectively shall be referred to as the “ Lock Up Agreements ”. For purposes of this Agreement, “ Parent Founders ” means Hanover Overseas Limited, STC Investment Holdings LLC, Solar Capital, LLC, Jakal Investments LLC, Mark Klein, David Hawkins, Steven Shenfeld, Bradford Peck and Frederick Kraegel.

 

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1.7 Governing Documents .

(a) The Company . At and after the Effective Time, the Amended and Restated Operating Agreement of the Company dated as of July 16, 2007 (“ Operating Agreement ”) shall be amended and restated in its entirety (the “ Amended Operating Agreement ”), and such Amended Operating Agreement shall be the governing document of the Company.

(b) Holdco . At and after the date the Registration Statement (as hereafter defined) is declared effective by the SEC and the filing of a registration statement on Form 8-A to register the Holdco Common Stock, Holdco shall become subject to the reporting requirements of the Exchange Act (as hereafter defined) and shall thereafter conduct its business in accordance with [A] the certificate of incorporation of Holdco as in effect immediately prior to the date hereof, such certificate of incorporation attached hereto as Exhibit 1.7(b)-1 (the “ Holdco Certificate of Incorporation ”) and [B] the by-laws of Holdco as in effect immediately prior to the date hereof, such bylaws attached hereto as Exhibit 1.7(b)-2 (the “ Holdco Bylaws ”).

1.8 Directors and Officers . Each of the Parties hereto shall take all necessary action to effectuate the following in this Section 1.8 .

(a) The Surviving Company . The Persons listed on Exhibit 1.8(a)-1 , constituting all of the directors and officers of Parent and Merger Sub as of immediately prior to the Closing shall resign from all of their positions and offices effective as of the Effective Time, and at and after the Effective Time, those Persons listed on Exhibit 1.8(a)-2 shall initially serve in those positions and offices of the Surviving Corporation and in such capacities as set forth next to their respective names.

(b) The Company . The Persons listed on Exhibit 1.8(b) , constituting all of the managers and directors and officers of the Company as of immediately prior to the Closing shall and at and after the Effective Time continue in such positions and offices of the Company and in such capacities as set forth next to their respective names.

(c) Holdco . The Persons listed on Exhibit 1.8(c)-1 , constituting all of the directors and officers of Holdco as of immediately prior to the Closing shall resign from all of their positions and offices effective as of the Effective Time, and at and after the Effective Time, (i) the Holdco Board shall consist of seven (7) members consisting of (i) three (3) members appointed by Parent (who initially will be Mark Klein, Michael Levitt and one additional director), and four (4) members appointed by the Members (who initially will be Andrew Gumaer, Harvey Yellen and two (2) independent directors, one of whom shall initially be Hugh Hilton), and such directors of Holdco shall initially serve on those Holdco Board committees and in such capacities as indicated in Exhibit 1.8(c)-2 , and (i) the officers of Holdco shall initially serve in those positions and offices of Holdco and in such capacities as set forth next to their respective names as indicated in Exhibit 1.8(c)-2 .

 

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1.9 Other Effects of the Merger . The Merger shall have all further effects as specified in the applicable provisions of the DGCL.

1.10 Employment Agreements . The Employment Agreements (as defined hereinafter) shall commence at the Effective Time and shall continue thereafter in accordance with their respective terms.

1.11 Additional Actions . If, at any time after the Effective Time, the Surviving Company shall consider or be advised that any deeds, bills of sale, 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 Parent or Merger Sub, or otherwise carry out this Agreement, the officers and directors of the Surviving Company shall be authorized to execute and deliver, in the name and on behalf of Parent and Merger Sub, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of Parent or Merger Sub, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Company or otherwise to carry out this Agreement.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MEMBERS

The following representations and warranties by the Company and the Members to Parent and Holdco are qualified by those disclosures and exceptions set forth in the Company disclosure schedule (the “ Company Disclosure Schedule ”). The Company and each of the Members hereby severally represents and warrants to Parent and Holdco as follows ( provided , however , that with respect to any representation or warranty concerning or relating to the Members (or any Member) or the Membership Interests, each Member is hereby only representing and warranting, on a several basis, as to such Member and/or with respect to such Member’s Membership Interests):

2.1 Due Organization and Good Standing . Each of the Company and each subsidiary of the Company listed on Section 2.1 of the Company Disclosure Schedule (each a “ Company Subsidiary ” and collectively, the “ Company Subsidiaries ”) is a corporation, limited liability company or other entity, duly incorporated, formed, or organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation, formation, or organization and has all requisite corporate, limited liability, or other organizational power and authority to own, lease and operate its respective properties and to carry on its respective business as now being conducted. Each of the Company and each Company Subsidiary is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not reasonably be expected to result in a Company Material Adverse Effect. The Company has heretofore made available to Parent accurate and complete copies of the Company’s articles of organization and Operating Agreement, as amended to date and as currently in effect (the “ Company Organization

 

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Documents ”) and the equivalent organizational documents of each of the Company Subsidiaries, each as amended to date and as currently in effect (the “ Company Subsidiary Organization Documents ”). None of the Company or any Company Subsidiary is in violation of any Company Organization Document or Company Subsidiary Organization Document, as the case may be.

For purposes of this Agreement, the term “ Company Material Adverse Effect ” shall mean any change or effect that, individually or in the aggregate, has, or would reasonably be expected to have, a material adverse effect upon the assets, liabilities, business, financial condition or operating results of the Company and the Company Subsidiaries, taken as a whole, except any changes or effects after the date hereof directly or indirectly attributable to (i) general political, economic, financial, capital market or industry-wide conditions (except to the extent that the Company is affected in a disproportionate manner relative to other companies in the industries in which the Company and the Company Subsidiaries conduct business), (ii) the announcement of the execution of this Agreement, or the pendency of the consummation of the Reorganization, (iii) any condition described in the Company Disclosure Schedule, (iv) any change in GAAP or interpretation thereof after the date hereof, (v) the execution by the Company and performance of or compliance by the Company with this Agreement, (vi) any failure to meet any financial or other projections, or (vii) any breach by Parent or any Parent Subsidiary of this Agreement.

2.2 Title to Securities; Capitalization .

(a) Each Member holds a Fifty percent (50%) membership interest in the Company. The Members collectively hold of record and own all of the Membership Interests, and such Membership Interests are held free and clear of any restrictions on transfer, Encumbrances (other than as disclosed on Section 2.2(a) of the Company Disclosure Schedule , any restriction under the Securities Act of 1933, as amended (the “ Securities Act ”), or any state “blue sky” securities Laws), Taxes, warrants, purchase rights, contracts, assignments, commitments, equities, claims and demands. No Member is a party to any option, warrant, purchase right, or other contract or commitment that could require such Member to sell, transfer, or otherwise dispose of his Membership Interest, other than this Agreement. No Member is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of his Membership Interest, other than this Agreement. The Membership Interests held by the Members are not subject to preemptive rights, conversion price adjustment rights or rights of first refusal created by any agreement to which any Member is a party.

(b) Except as disclosed on Section 2.2(b) of the Company Disclosure Schedule , and except for the Membership Interests held by the Members, no membership or other equity or voting interest of the Company, or options, warrants or other rights to acquire any such membership or other equity or voting interest, of the Company is issued and outstanding. The Membership Interests are duly authorized, validly issued, fully paid and non-assessable and were not issued in material violation of any applicable foreign, federal or state securities Laws or the Company Organization Documents. The Company has not entered into any other agreements or commitments to issue any membership interests and has not split, combined or reclassified the Membership Interests.

 

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(c) Except as otherwise described on Section 2.2(c) of the Company Disclosure Schedule , the Company directly or indirectly owns all of the capital stock of, or other equity interests in, the Company Subsidiaries. There are no (i) outstanding options, warrants, puts, calls, convertible securities, preemptive or similar rights, (ii) bonds, debentures, notes or other Indebtedness having general voting rights or that are convertible or exchangeable into securities having such rights, or (iii) subscriptions or other rights, agreements, arrangements, contracts or commitments of any character, relating to the issued or unissued membership interests of, or other equity interests in, the Company or any of the Company Subsidiaries or obligating the Company or any of the Company Subsidiaries to issue, transfer, deliver or sell or cause to be issued, transferred, delivered, sold or repurchased any options or membership interests of, or other equity interest in, the Company or any of the Company Subsidiaries or securities convertible into or exchangeable for such shares or equity interests, or obligating any of the Company Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment for such equity interest. There are no outstanding obligations of the Company or any Company Subsidiaries to repurchase, redeem or otherwise acquire any membership interests, capital stock of, or other equity interests in, the Company or any of the Company Subsidiaries or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any other entity.

(d) There are no stockholders or members agreements, voting trusts or other agreements or understandings to which the Company or any Company Subsidiary is a party with respect to the voting of the Membership Interests or the capital stock or equity interests of any Company Subsidiary.

(e) Except as disclosed on Section 2.2(e) of the Company Disclosure Schedule , no Indebtedness of the Company or any of the Company Subsidiaries contains any restriction upon (i) the prepayment of any of such Indebtedness, (ii) the incurrence of Indebtedness by the Company or any of the Company Subsidiaries, or (iii) the ability of the Company or any of the Company Subsidiaries to grant any Encumbrance on its properties or assets. As used in this Agreement, “ Indebtedness ” means (A) all indebtedness for borrowed money or for the deferred purchase price of property or services (other than Expenses and current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (B) any other indebtedness that is evidenced by a note, bond, debenture, credit agreement or similar instrument, (C) all obligations under financing leases, (D) all obligations in respect of acceptances issued or created, (E) all liabilities secured by an Encumbrance on any property and (F) all guarantee obligations.

(f) From December 31, 2008 through the date hereof, except as otherwise described on Section 2.2(f) of the Company Disclosure Schedule , the Company has not declared or paid any distribution or dividend in respect of the Membership Interest and has not repurchased, redeemed or otherwise acquired any membership interest of the Company, and the Company Management has not authorized any of the foregoing.

(g) The Members are sophisticated sellers with respect to the Membership Interests, have adequate information concerning the business and financial condition of Parent and the Parent Subsidiaries and their respective assets, have been given the information necessary to make an informed decision regarding this Agreement and the transactions

 

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contemplated hereby and have independently made their analysis and decision to enter into and consummate this Agreement based upon such information the Members deem appropriate. Notwithstanding the foregoing, no information or knowledge obtained by the Members as described herein will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the Reorganization.

(h) The Members are each an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act. The financial condition of each Member is such that he is able to bear the risk of holding the Closing Stock Consideration for an indefinite period of time and the risk of loss of his entire investment. The Members have had the opportunity to ask questions of and receive answers from the management of Parent and the Parent Subsidiaries concerning the investment in the Closing Stock Consideration and have sufficient knowledge and experience in investing in companies similar to Holdco in terms of its stage of development so as to be able to evaluate the risks and merits of its investment in Holdco. The Members are acquiring the Closing Stock Consideration for investment, for their own account, and not for resale or with a view to distribution thereof in violation of the Securities Act, and the rules and regulations promulgated thereunder. Except as otherwise described on Section 2.2(h) of the Company Disclosure Schedule , the Members have not entered into an agreement or understanding with any other Person to resell or distribute the Closing Stock Consideration.

2.3 Subsidiaries .

(a) Section 2.3(a) of the Company Disclosure Schedule sets forth a true, complete and correct list of each of the Company Subsidiaries and their respective jurisdictions of incorporation, formation or organization. Except as otherwise set forth on  Section 2.3(a) of the Company Disclosure Schedule , all of the capital stock and other equity interests of the Company Subsidiaries are owned, directly or indirectly, by the Company free and clear of any Encumbrance (other than any restriction under the Securities Act, or any state “blue sky” securities Laws) with respect thereto. All of the outstanding shares of capital stock or other equity interests in each of the Company Subsidiaries that is a corporation are duly authorized, validly issued, fully paid and non-assessable, and with respect to the Company Subsidiaries that are limited liability companies, are duly authorized, validly issued, fully paid and non-assessable and were issued free of preemptive rights and were not issued in material violation of any applicable foreign, federal or state securities Laws. Neither the Company nor any Company Subsidiary owns, directly or indirectly, any shares of capital stock or other equity or voting interests in (including any securities exercisable or exchangeable for or convertible into capital stock or other equity or voting interests in) any other Person other than publicly traded securities constituting less than five percent of the outstanding equity of the issuing entity, other than capital stock or other equity interest of the Company Subsidiaries owned by the Company or another Company Subsidiary.

(b) Section 2.3(b) of the Company Disclosure Schedule lists all jurisdictions in which each of the Company and each Company Subsidiary is qualified to conduct its respective business.

 

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(c) Other than as set forth on Section 2.3(c) of the Company Disclosure Schedule , The Pride Capital Group, LLC, a California limited liability company has not conducted any business operations or activities since the date of its formation on June 23, 2006.

2.4 Authorization; Binding Agreement .

(a) The Company has all requisite limited liability company power and authority to execute and deliver this Agreement and each other ancillary agreement related hereto to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each other ancillary agreement related hereto to which it is a party and the consummation of the transactions contemplated hereby and thereby (i) have been duly and validly authorized by the Company Management, and (ii) no other limited liability company proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement and each other ancillary agreement related hereto to which it is a party or to consummate the transactions contemplated hereby and thereby. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by Parent and each Parent Subsidiary, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws of general application affecting the enforcement of creditors’ rights generally, and the fact that equitable remedies or relief (including, but not limited to, the remedy of specific performance) are subject to the discretion of the court from which such relief may be sought (collectively, the “ Enforceability Exceptions ”).

(b) Each Member has the legal capacity to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Member and, assuming the due authorization, execution and delivery of this Agreement by Parent and each Parent Subsidiary, constitutes the legal, valid and binding obligation of each Member, enforceable against each Member in accordance with its terms, except for the Enforceability Exceptions.

2.5 Governmental Approvals .

(a) Except as otherwise described in Section 2.5(a) of the Company Disclosure Schedule , no consent, approval, waiver, authorization or permit of, or notice to or declaration or filing with (each, a “ Consent ”), any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental or regulatory authority, agency, department, board, commission, administration or instrumentality, any court, tribunal or arbitrator or any self-regulatory organization (each, a “ Governmental Authority ”), on the part of the Company or any of the Company Subsidiaries is required to be obtained or made in connection with the execution, delivery or performance by the Company of this Agreement and each other ancillary agreement related hereto to which it is a party or the consummation by the Company of the transactions contemplated hereby and thereby, other than (i) such filings as may be required in any jurisdiction where the Company or any

 

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Company Subsidiary is qualified or authorized to do business as a foreign corporation in order to maintain such qualification or authorization, (ii) pursuant to Antitrust Laws, (iii) such filings as contemplated by this Agreement pursuant to the Reorganization, (iv) for applicable requirements, if any, of the Securities Act, the Exchange Act of 1934, as amended (the “ Exchange Act ”), or any state “blue sky” securities Laws, and the rules and regulations thereunder, and (v) where the failure to obtain or make such Consents or to make such filings or notifications, would not reasonably be expected to result in a Company Material Adverse Effect or prevent consummation of the transactions contemplated by this Agreement.

(b) No Consent from any Governmental Authority on the part of each Member is required to be obtained or made in connection with the execution, delivery or performance by such Member of this Agreement or the consummation by such Member of the transactions contemplated hereby.

2.6 No Violations .

(a) Except as otherwise described in Section 2.6(a) of the Company Disclosure Schedule , the execution and delivery by the Company of this Agreement and each other ancillary agreement related hereto to which it is a party, the consummation by the Company of the transactions contemplated hereby and thereby, and compliance by the Company with any of the provisions hereof and thereof, will not, (i) conflict with or violate any provision of any Company Organization Document or Company Subsidiary Organization Document, (ii) require any Consent under or result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, amendment or acceleration) under, any Company Material Contract, (iii) result (immediately or with the passage of time or otherwise) in the creation or imposition of any Encumbrances (as hereafter defined) (other than any Permitted Encumbrances) upon any of the properties, rights or assets of the Company or any of the Company Subsidiaries, or (iv) subject to obtaining the Consents from Governmental Authorities referred to in Section 2.5 , conflict with or violate any foreign, federal, state or local Order, statute, law, rule, regulation, ordinance, principle of common law, constitution, treaty enacted, or any writ, arbitration award, injunction, directive, judgment, or decree, promulgated, issued, enforced or entered by any Governmental Authority (each, a “ Law ” and collectively, the “ Laws ”) to which the Company or any of the Company Subsidiaries or any of their respective assets or properties is subject, except, in the case of clauses (ii), (iii) and (iv) above, for any deviations from any of the foregoing that would not reasonably be expected to result in a Company Material Adverse Effect. For purposes of this Agreement, “ Encumbrance ” means any mortgage, pledge, security interest, attachment, right of first refusal, option, proxy, voting trust, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof), restrictions (whether on voting, sale, transfer, disposition or otherwise), any subordination arrangement in favor of another Person, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute.

(b) The execution and delivery by the Members of this Agreement, the consummation by the Members of the transactions contemplated hereby, and compliance by the Members with any of the provisions hereof, will not (i) result (immediately or with the passage of time or otherwise) in the creation or imposition of any Encumbrance (other than as set forth in

 

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Section 2.6(b) of the Company Disclosure Schedule , any restriction under the Securities Act, or any state “blue sky” securities Laws) on the Membership Interest owned by the Members, or (ii) conflict with, contravene or violate in any Law applicable to the Members, except, with respect to clause (ii), for any deviations from any of the foregoing that would not reasonably be expected to result in a Company Material Adverse Effect.

2.7 Company Financial Statements .

(a) As used herein, the term “ Signing Company Financials ” means the Company’s unaudited consolidated financial statements, consisting of the Company’s balance sheets, statements of income and statements of cash flow, as of December 31, 2008, and March 31, 2009. As used herein, the term “ Closing Company Financials ” means the Company’s audited consolidated financial statements (including, in each case, any related notes thereto), consisting of the Company’s balance sheets, statements of income and statements of cash flow, as of December 31, 2006, December 31, 2007 and December 31, 2008 and the unaudited consolidated financial statements as of March 31, 2009 and any subsequent quarter. True and correct copies of the Signing Company Financials are attached hereto on Section 2.7(a) of the Company Disclosure Schedule . The Signing Company Financials (i) in all material respects accurately reflect the Company’s books and records as of the times and for the periods referred to therein, and (ii) were prepared in accordance with GAAP methodologies applied on a consistent basis throughout the periods involved (except as set forth on Section 2.7(a) of the Company Disclosure Schedule and except for the absence of footnotes and audit adjustments in the case of unaudited Signing Company Financials). The Closing Company Financials will, as of the Closing Date, (i) in all material respects accurately reflect the Company’s books and records as of the times and for the periods referred to therein, and (ii) be prepared in accordance with GAAP methodologies applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and except for the absence of footnotes and audit adjustments in the case of unaudited Closing Company Financials), (iii) fairly present in all material respects the consolidated financial position of the Company as of the respective dates thereof and the consolidated results of the Company’s operations and cash flows for the periods indicated and (iv) to the extent required for inclusion in the Proxy Statement/Prospectus, will comply as of the Closing Date, [A] in all material respects with the Securities Act, Regulation S-X and the published general rules and regulations of the SEC and [B] will be prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and except for the absence of footnotes and audit adjustments in the case of unaudited Closing Company Financials). For purposes of this Agreement, “ GAAP ” means United States generally accepted accounting principles consistently applied, as in effect from time to time.

(b) The Company has disclosed to Parent, the Company’s outside auditors and Company Management any material fraud that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

(c) None of the Company, any Company Subsidiary, or any manager, director, officer, or to the Company’s knowledge, any auditor or accountant of the Company or any Company Subsidiary or any employee of the Company or any Company Subsidiary has received any written complaint, allegation, assertion or claim from any Governmental Authority

 

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regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any Company Subsidiary or their respective internal accounting controls, including any complaint, allegation, assertion or claim that the Company or any Company Subsidiary has engaged in questionable accounting or auditing practices. No Key Employee and no member of Company Management has received written notice from any Governmental Authority or any Person of any material violation of consumer protection, insurance or securities Laws by the Company, any Company Subsidiary or any of their respective officers, managers, directors, employees or agents.

2.8 Absence of Certain Changes .

(a) From December 31, 2006 through the date hereof, to the knowledge of the Company and except as described in Section 2.8 of the Company Disclosure Schedule , the Company and the Company Subsidiaries have conducted their respective businesses in the ordinary course of business consistent with past practice and since such time, there has not occurred any action that would constitute a breach of Section 4.1 .

(b) From December 31, 2006 through the date hereof, to the knowledge of the Company, there has not been any fact, change, effect, occurrence, event, development or state of circumstances that has had or would reasonably be expected to result in a Company Material Adverse Effect.

2.9 Absence of Undisclosed Liabilities . Except as and to the extent reflected or reserved against in both the Signing Company Financials (as of the date hereof) and the Closing Company Financials (as of the Closing Date), to the knowledge of the Company, from December 31, 2006 through the date hereof, neither the Company nor any Company Subsidiary has incurred any liabilities or obligations of the type required to be reflected on a balance sheet that is not adequately reflected or reserved on or provided for in the Company Financials, other than liabilities of the type that have been incurred in the ordinary course of business consistent with past practice.

2.10 Compliance with Laws . Except as set forth in Section 2.10 of the Company Disclosure Schedule and to the knowledge of the Company, neither the Company nor any of the Company Subsidiaries is in conflict with, or in default or violation of, nor has it received, from December 31, 2006 through the date hereof, any written notice of any conflict with, or default or violation of, (A) any applicable Law by which it or any property or asset of the Company or any Company Subsidiary is bound or affected, or (B) any Company Material Contract, except, in each case, for any deviations from any of the foregoing that would not reasonably be expected to result in a Company Material Adverse Effect.

2.11 Regulatory Agreements; Permits .

(a) There are no written agreements, memoranda of understanding, commitment letters, or cease and desist orders, to which the Company or any Company Subsidiary is a party, on the one hand, and any Governmental Authority is a party or addressee, on the other hand.

 

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(b) Except as disclosed in Section 2.11(b) of the Company Disclosure Schedule , each of the Company, the Company Subsidiaries, and each employee of the Company or any Company Subsidiary who is legally required to be licensed by a Governmental Authority in order to perform his or her duties with respect to his or her employment with the Company or such Company Subsidiary, hold all material permits, licenses, franchises, grants, authorizations, consents, exceptions, variances, exemptions, orders and other authorizations of Governmental Authorities, certificates, consents and approvals necessary to lawfully conduct the Company’s or the Company Subsidiaries’ respective business as presently conducted, and to own, lease and operate the Company’s or the Company Subsidiaries’ respective assets and properties (collectively, the “ Company Permits ”). All of the Company Permits have been made available to Parent and all are in full force and effect, and no suspension or cancellation of any of the Company Permits is pending or, to the knowledge of the Company, threatened, except where the failure of any Company Permits to have been in full force and effect, or the suspension or cancellation of any of the Company Permits, would not reasonably be expected to result in a Company Material Adverse Effect. The Company and the Company Subsidiaries are not in violation in any material respect of the terms of any Company Permit.

(c) No investigation, review or market conduct examination by any Governmental Authority with respect to the Company or any Company Subsidiary is pending or, to the knowledge of the Company, threatened.

2.12 Litigation .

(a) Except as disclosed in Section 2.12(a) of the Company Disclosure Schedule , there is no private, regulatory or governmental inquiry, action, suit, proceeding, litigation, claim, arbitration or investigation pending before any Governmental Authority of competent jurisdiction (each, an “ Action ”), or, to the knowledge of the Company, threatened against the Company, any of the Company Subsidiaries or any of their respective properties, rights or assets or any of their respective managers, officers or directors (in their capacities as such) that would reasonably be expected to result in a Company Material Adverse Effect. There is no decree, directive, order, writ, judgment, stipulation, determination, decision, award, injunction, temporary restraining order, cease and desist order or other order by, or any supervisory agreement or memorandum of understanding with any Governmental Authority (each, an “ Order ”) binding against the Company, any of the Company Subsidiaries or any of their respective properties, rights or assets or any of their respective managers, officers or directors (in their capacities as such) that would prohibit, prevent, enjoin, restrict or alter or delay any of the transactions contemplated by this Agreement, or that would reasonably be expected to result in a Company Material Adverse Effect. The Company and the Company Subsidiaries are in material compliance with all Orders. There is no material Action that the Company or any of the Company Subsidiaries has pending against other parties. There is no Action pending or, to the knowledge of the Company, threatened against the Company involving a claim against the Company for false advertising with respect to any of the Company’s products or services.

(b) There is no Action pending or, to the knowledge of the Member, threatened against such Member that would reasonably be expected to, individually or in the aggregate, prevent or delay the consummation of the transactions contemplated by this Agreement. There is no Order binding against such Member or his Membership Interest that would prohibit, prevent, enjoin, restrict or materially alter or delay any of the transactions contemplated by this Agreement.

 

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2.13 Restrictions on Business Activities . There is no Order binding upon the Company or any of the Company Subsidiaries that has or could reasonably be expected to have the effect of prohibiting, preventing, restricting or impairing in any respect, any business practice of the Company or any of the Company Subsidiaries as their businesses are currently conducted, any acquisition of property by the Company or any of the Company Subsidiaries, the conduct of business by the Company or any of the Company Subsidiaries as currently conducted, or the ability of the Company or any of the Company Subsidiaries from engaging in business as currently conducted or from competing with other parties, except for such Orders that would not reasonably be expected to result in a Company Material Adverse Effect.

2.14 Material Contracts .

(a) Section 2.14 of the Company Disclosure Schedule sets forth a list of, and the Company has made available to Parent, true, correct and complete copies of, each material written contract, agreement, commitment, arrangement, lease, license, permit or plan and each other instrument (other than this Agreement or any ancillary agreement contemplated hereby) currently in effect to which the Company or any Company Subsidiary is a party or by which the Company, any Company Subsidiary, or any of their respective properties or assets are bound or affected as of the date hereof (each, a “ Company Material Contract ”) that:

(i) contains covenants that materially limit the ability of the Company or any Company Subsidiary (or which, following the consummation of the Reorganization, could materially restrict the ability of Holdco or any of its affiliates) (A) to compete in any line of business or with any Person or in any geographic area or to sell, or provide any service or product, including any non-competition covenants, exclusivity restrictions, rights of first refusal or most-favored pricing clauses or (B) to purchase or acquire an interest in any other entity, except, in each case, for any such contract that may be canceled without any penalty or other liability to the Company or any Company Subsidiary upon notice of 60 days or less;

(ii) involves any joint venture, partnership, limited liability company or other similar agreement or arrangement relating to the formation, creation, operation, management or control of any partnership or joint venture that is material to the business of the Company and the Company Subsidiaries, taken as a whole;

(iii) involves any exchange traded, over the counter or other swap, cap, floor, collar, futures, contract, forward contract, option or other derivative financial instrument or contract, based on any commodity, security, instrument, asset, rate or index of any kind or nature whatsoever, whether tangible o