CollectorSolutions, Inc. (“CSI”)
provides electronic payment processing services primarily to government agencies, tax collectors, municipalities, and utilities
throughout the United States of America. CSI specializes in the processing, management and reconciliation of credit card, debit
card and electronic check (“e-check”) payments executed via web, integrated voice response (“IVR”), point-of-sale
or mobile devices. CSI is incorporated under the laws of the State of Florida, with its headquarters located in Pensacola, Florida.
In June 2014, CSI Health, LLC
(“CSI Health”) was organized under the laws of the State of Florida. CSI Health is owned 51% by CSI and 49% by certain
employees of CSI. CSI Health is engaged in the business of providing patient engagement and data analysis services and products
for counties and municipalities administering Medicaid programs. No revenues have been generated by CSI Health. Selling, general
and administrative expenses incurred by CSI Health during 2015 and 2014 were $242,135 and $151,135, respectively. On February 22,
2016, CSI entered into an agreement to sell its entire ownership interest in CSI Health to a minority interest holder for $1.
The consolidated financial
statements include the accounts of CSI and its majority-owned subsidiary, CSI Health (collectively, the “Company”).
All intercompany balances and transactions have been eliminated.
The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CSI’s revenue is derived
from processing credit card, debit card and e-check transactions, including authorization, capture, clearing, settlement and information
reporting of the electronic transactions. The fees charged consist of either a percentage of the dollar volume of the transaction
or a fixed fee, or both, and are recognized at the time of the transaction. Amounts charged include interchange fees of $7,325,350
and $6,220,153 for the years ended December 31, 2015 and 2014, respectively. Other fees assessed to certain customers and remitted
to partner entities for web and IVR supporting services provided by CSI’s partner entities are presented on a net basis.
CSI’s costs of revenue
consist of processing and interchange fees paid to processors and payment networks.
The Company considers all highly
liquid investments readily convertible to cash with an initial maturity of three months or less to be cash equivalents.
Accounts receivable represent
processing revenues earned but not collected. These amounts are billed to certain customers on a monthly basis apart from the settlement
process. Accounts receivable are reported at the amount management expects to collect from balances outstanding. Management analyzes
historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customers’
payment tendencies when evaluating the adequacy of the allowance for doubtful accounts. Uncollectible receivables are written off
when all collection procedures have been exhausted. There was no allowance for doubtful accounts as of December 31, 2015 and 2014.
Settlement assets and obligations
result from CSI’s processing services and associated settlement activities. Settlement receivables are due from credit card
associations and debit networks. Certain cash accounts included in settlement assets are accounts to which CSI does not have legal
ownership but has the right to use to satisfy the related settlement obligations. CSI records corresponding settlement obligations
for amounts payable to customers, net of processing fees earned by CSI. Settlement receivables and payables for credit and debit
card transactions are recorded at the gross transaction amounts. The gross amounts are then processed through CSI’s settlement
accounts, and CSI retains its fees for the transactions upon settlement. In processing e-check transactions, CSI provides instructions
to originating depository financial institutions to transfer funds to its customers’ designated bank accounts from their
customers’ designated bank accounts, pursuant to their customers’ authorization and instruction in a given payment
transaction. Settlement receivables for e-check transactions consist of only CSI’s fees for the transactions. Settlement
receivables are generally collected within four business days. Settlement obligations are generally paid within three business
days, regardless of when the related settlement receivables are collected.
Property and equipment are
stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, ranging from
three to seven years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is recognized in operations for the period. The cost of maintenance and repairs
is expensed as incurred. Significant renewals and betterments are capitalized.
Intangible assets consist of
acquired customer relationships that are being amortized on a straight-line basis over a period of 15 years. CSI acquired the customer
relationships in December 2006 for $500,000. CSI reviews the acquired customer relationships for possible impairment whenever events
or changes in circumstances indicate that carrying amounts may not be recoverable. There was no impairment indicated at December
31, 2015. Accumulated amortization was $300,000 and $266,667 at December 31, 2015 and 2014, respectively. Amortization expense
was $33,333 for each of the years ended December 31, 2015 and 2014. Amortization expense will be $33,333 for each of the next five
years.
CSI’s current income taxes
are based on the taxable income for the year. Deferred income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
For federal income tax purposes,
CSI Health has elected to be taxed as a partnership. In accordance with the terms of the Operating Agreement, all of CSI Health’s
losses were allocated to CSI.
Management has evaluated subsequent
events through March 22, 2016, which is the date the consolidated financial statements were available to be issued.
Depreciation expense for the years
ended December 31, 2015 and 2014, was $221,792 and $145,772, respectively.
CSI has unsecured loans receivable
due from one executive officer and stockholder of $90,581 and $47,317 as of December 31, 2015 and 2014, respectively. Additionally,
CSI has an unsecured loan receivable due from a second executive officer and stockholder of $14,014 and $16,020 as of December 31,
2015 and 2014, respectively. The loans bear interest from 1.6% to 1.8%. In December 2015, the Board of Directors agreed to
forgive the remaining balances due on these loans at any time after January 1, 2016. In February 2016, the remaining balances due
on these loans were forgiven.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2015 AND 2014
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
|
|
2015
|
|
|
2014
|
|
$250,000 revolving line of credit, interest at the greater of 4.75% or prime plus 1.35% (4.85% at December 31, 2015)
|
|
$
|
185,268
|
|
|
$
|
207,292
|
|
|
|
|
|
|
|
|
|
|
$500,000 revolving line of credit, interest at one-month LIBOR plus 2%
(2.44% at December 31, 2015)
|
|
|
20,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Notes payable, maturities through November 2018,
interest at fixed rates ranging from 4.3% to 4.55%
|
|
|
963,479
|
|
|
|
1,238,265
|
|
|
|
|
|
|
|
|
|
|
Note payable to former stockholder, unsecured, interest at 3%
|
|
|
262,707
|
|
|
|
272,663
|
|
|
|
|
1,431,454
|
|
|
|
1,718,220
|
|
Less current maturities
|
|
|
669,900
|
|
|
|
284,896
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
761,554
|
|
|
$
|
1,433,324
|
|
Scheduled maturities of long-term
debt are as follows:
2016
|
|
$
|
669,900
|
|
2017
|
|
|
482,706
|
|
2018
|
|
|
278,848
|
|
|
|
|
|
|
|
|
$
|
1,431,454
|
|
CSI has a $250,000 revolving
line of credit that is due on demand and matures in June 2017. Interest-only payments on outstanding borrowings are due monthly.
Substantially all of CSI’s assets collateralize the borrowings under the revolving loan and notes payable. The revolving
loan and notes payable are personally guaranteed by an executive officer and stockholder. In addition, each of these loans is subject
to cross-collateral and cross-default provisions with each of the other loans with the bank. Covenants include requirements for
minimum debt service coverage ratios.
CSI also has an unsecured $500,000
revolving line of credit that matures in October 2016 from another bank. Interest-only payments on outstanding borrowings are due
monthly.
The note payable to a former
stockholder, originally scheduled to mature in 2035, is subject to accelerated repayment if the Company is sold. As discussed in
Note 9, management expects to sell the Company and repay the loan in 2016. Accordingly, the balance is classified as a current
liability at December 31, 2015.
COLLECTORSOLUTIONS,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2015 AND 2014
NOTE 5 - INCOME TAXES
The provision for income taxes
consists of the following:
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
163,700
|
|
|
$
|
248,100
|
|
State
|
|
|
31,200
|
|
|
|
34,100
|
|
|
|
|
194,900
|
|
|
|
282,200
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
135,500
|
|
|
|
565,500
|
|
State
|
|
|
15,500
|
|
|
|
64,500
|
|
|
|
|
151,000
|
|
|
|
630,000
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
345,900
|
|
|
$
|
912,200
|
|
The effective income tax rate
for the years ended December 31, 2015 and 2014 differs from the statutory federal tax rate due to the effects of state taxes and
expenses deductible for financial reporting purposes that are not deductible for tax purposes.
CSI’s deferred tax liability
of $266,000 and $115,000 as of December 31, 2015 and 2014, respectively, relates to depreciation of property and equipment.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Operating Lease:
The Company leases its office
facilities under an operating lease that commenced in June 2010 and expires in May 2016. The Company is also obligated to pay its
proportionate share of the lessor’s operating expenses, including taxes, insurance, common area maintenance charges, and
various other expenses related to property.
Rent expense (excluding taxes
and other charges) was $95,334 and $92,558 for the years ended December 31, 2015 and 2014, respectively. The future minimum lease
payments of $39,723 (excluding taxes and other charges) are payable through May 2016.
COLLECTORSOLUTIONS,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2015 AND 2014
NOTE 6 - COMMITMENTS AND CONTINGENCIES
(Continued)
Concentration
- Major Customers:
CSI derived 42% and 44% of its
revenue for the years ended December 31, 2015 and 2014, respectively, from contracts with various state agencies, county governments,
and municipal utilities in one state.
Concentration of
Credit Risk:
CSI’s cash balances held
at financial institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits.
At December 31, 2015, CSI had cash balances of approximately $3,814,000 held by financial institutions in excess of insured limits.
NOTE 7 - CONTRACTUAL SEPARATION OBLIGATION
In June 2012, CSI entered into
a Separation and General Release Agreement with the former president of CSI. The agreement stated that in the event of his separation,
whether voluntarily or involuntarily, he would receive a severance payment equaling four times his annual last 12 months’
salary, payable in equal installments over the 60-month period following the separation date. In addition, he was to receive 18
months of health, dental, and life insurance coverage, to be paid by CSI. As the contract provided for a guaranteed payment upon
separation, and the amount was estimable, CSI recognized the liability at the inception of the contract, and the entire estimated
amount payable for the contractual separation obligation of $1,744,660 was expensed in 2012. In September 2013, the president voluntarily
resigned and, in accordance with the terms of the agreement, the payments commenced in October 2013. In December 2014, the
parties entered into a Redemption and Settlement Agreement, pursuant to which CSI repurchased his 21,559 shares of common stock
for total consideration of $1,389,197, and CSI was released from all future obligations under the Separation and General Release
Agreement. CSI recognized a gain on the release of the contractual separation obligation of $1,312,669 in 2014.
NOTE 8 - EMPLOYEE BENEFIT PLAN
CSI sponsors a defined contribution
401(k) plan that covers substantially all employees. CSI makes matching contributions of 100% of applicable pre-tax contributions
up to the first 3% of included compensation, plus 50% of applicable contributions up to the next 2% of included compensation. CSI’s
matching contributions were $96,499 and $82,816 for the years ended December 31, 2015 and 2014, respectively. Profit sharing contributions
are made at the discretion of the Board of Directors. Profit sharing contributions, if any, are included in accrued expenses at
year-end and paid to the plan the following year. There were no profit sharing contributions for the years ended December 31, 2015
and 2014.
COLLECTORSOLUTIONS,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2015 AND 2014
NOTE 9 - MERGER AGREEMENT
On February 22, 2016, CSI entered
into an agreement to be acquired by JetPay Corporation (“JetPay”), a leading provider of ecommerce debit and credit
card processing, payroll and human capital management, and prepaid card services. The Board of Directors of both companies have
approved the transaction. The merger will be funded primarily through the issuance of shares of JetPay common stock and the assumption
of CSI’s debt. The transaction is expected to close in 2016 and is subject to customary regulatory and other closing conditions
being satisfied, including approval by JetPay’s stockholders of the issuance of the JetPay shares in connection with the
merger.
SUPPLEMENTARY INFORMATION
COLLECTORSOLUTIONS, INC. AND
SUBSIDIARY
CONSOLIDATING STATEMENTS OF
INCOME
YEAR ENDED DECEMBER 31, 2015
|
|
Collector
|
|
|
CSI
|
|
|
|
|
|
|
|
|
|
Solutions, Inc.
|
|
|
Health, Inc.
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
16,261,227
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,261,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Revenue
|
|
|
9,587,459
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,587,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
6,673,768
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,673,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses
|
|
|
5,206,436
|
|
|
|
242,135
|
|
|
|
-
|
|
|
|
5,448,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
255,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
255,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations
|
|
|
1,212,207
|
|
|
|
(242,135
|
)
|
|
|
-
|
|
|
|
970,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from subsidiary
|
|
|
(242,135
|
)
|
|
|
-
|
|
|
|
242,135
|
|
|
|
-
|
|
Interest income
|
|
|
2,564
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,564
|
|
Interest expense
|
|
|
(67,738
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(67,738
|
)
|
Total other expense, net
|
|
|
(307,309
|
)
|
|
|
-
|
|
|
|
242,135
|
|
|
|
(65,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
904,898
|
|
|
|
(242,135
|
)
|
|
|
242,135
|
|
|
|
904,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
345,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
345,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
558,998
|
|
|
$
|
(242,135
|
)
|
|
$
|
242,135
|
|
|
$
|
558,998
|
|
COLLECTORSOLUTIONS, INC. AND
SUBSIDIARY
CONSOLIDATING STATEMENTS OF
INCOME
YEAR ENDED DECEMBER 31, 2014
|
|
Collector
|
|
|
CSI
|
|
|
|
|
|
|
|
|
|
Solutions, Inc.
|
|
|
Health, Inc.
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,334,282
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,334,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Revenue
|
|
|
8,257,728
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,257,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
6,076,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,076,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses
|
|
|
4,557,811
|
|
|
|
151,135
|
|
|
|
-
|
|
|
|
4,708,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
179,105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
179,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations
|
|
|
1,339,638
|
|
|
|
(151,135
|
)
|
|
|
-
|
|
|
|
1,188,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release from contractual separation obligation
|
|
|
1,312,669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,312,669
|
|
Loss from subsidiary
|
|
|
(151,135
|
)
|
|
|
-
|
|
|
|
151,135
|
|
|
|
-
|
|
Interest income
|
|
|
3,091
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,091
|
|
Interest expense
|
|
|
(35,116
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(35,116
|
)
|
Other income
|
|
|
117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
117
|
|
Total other income, net
|
|
|
1,129,626
|
|
|
|
-
|
|
|
|
151,135
|
|
|
|
1,280,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
2,469,264
|
|
|
|
(151,135
|
)
|
|
|
151,135
|
|
|
|
2,469,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
912,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
912,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
1,557,064
|
|
|
$
|
(151,135
|
)
|
|
$
|
151,135
|
|
|
$
|
1,557,064
|
|
Appendix A
AGREEMENT AND PLAN OF MERGER
by and among
JETPAY CORPORATION,
CSI ACQUISITION SUB ONE, LLC,
CSI ACQUISITION SUB TWO, LLC,
COLLECTORSOLUTIONS, INC.,
and
THE REPRESENTATIVE NAMED HEREIN
Dated as of February 22, 2016
TABLE OF CONTENTS
|
|
Page
|
|
|
|
ARTICLE I CERTAIN DEFINITIONS
|
2
|
|
|
|
Section 1.1.
|
Certain Definitions
|
2
|
|
|
|
Section 1.2.
|
Interpretation
|
16
|
|
|
|
ARTICLE II THE MERGER
|
17
|
|
|
|
Section 2.1.
|
The Merger
|
17
|
|
|
|
Section 2.2.
|
Certificates of Merger
|
17
|
|
|
|
Section 2.3.
|
Organizational Documents
|
18
|
|
|
|
Section 2.4.
|
Officers
|
18
|
|
|
|
Section 2.5.
|
Board of Managers
|
19
|
|
|
|
Section 2.6.
|
Effect of Merger on Capital Stock
|
19
|
|
|
|
Section 2.7.
|
Merger Consideration; Closing Statements; Final Closing Statement
|
20
|
|
|
|
Section 2.8.
|
Exchange of Letters of Transmittal and Certificates; Dissenting Shares.
|
23
|
|
|
|
Section 2.9.
|
Earn-Out Merger Consideration
|
25
|
|
|
|
Section 2.10.
|
Buyback
|
28
|
|
|
|
Section 2.11.
|
Representative
|
29
|
|
|
|
Section 2.12.
|
Taking of Necessary Action; Further Action
|
30
|
|
|
|
Section 2.13.
|
Withholding
|
30
|
|
|
|
ARTICLE III CLOSING
|
30
|
|
|
|
Section 3.1.
|
Closing
|
30
|
|
|
|
Section 3.2.
|
Deliveries and Proceedings at Closing
|
31
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
31
|
|
|
|
Section 4.1.
|
Organization and Qualification; Subsidiaries
|
31
|
|
|
|
Section 4.2.
|
Authorization
|
32
|
|
|
|
Section 4.3.
|
No Conflict
|
32
|
|
|
|
Section 4.4.
|
Capitalization
|
33
|
|
|
|
Section 4.5.
|
Financial Statements.
|
33
|
|
|
|
Section 4.6.
|
Absence of Certain Changes or Events
|
34
|
|
|
|
Section 4.7.
|
Title
|
35
|
|
|
|
Section 4.8.
|
Owned Real Property
|
35
|
|
|
|
Section 4.9.
|
Leases
|
35
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
|
|
Section 4.10.
|
Working Capital Assets
|
36
|
|
|
|
Section 4.11.
|
Intellectual Property.
|
36
|
|
|
|
Section 4.12.
|
Contracts
|
39
|
|
|
|
Section 4.13.
|
Litigation
|
41
|
|
|
|
Section 4.14.
|
Compliance with Laws; Permits
|
42
|
|
|
|
Section 4.15.
|
Environmental Matters
|
42
|
|
|
|
Section 4.16.
|
Employee Benefit Matters
|
43
|
|
|
|
Section 4.17.
|
Taxes
|
45
|
|
|
|
Section 4.18.
|
Consents and Approvals
|
48
|
|
|
|
Section 4.19.
|
Employee Relations
|
48
|
|
|
|
Section 4.20.
|
Transactions with Related Parties
|
50
|
|
|
|
Section 4.21.
|
Insurance
|
50
|
|
|
|
Section 4.22.
|
Brokers
|
50
|
|
|
|
Section 4.23.
|
Employment Contracts; Compensation Arrangements; Officers and Directors
|
51
|
|
|
|
Section 4.24.
|
Regulatory Compliance
|
51
|
|
|
|
Section 4.25.
|
Power of Attorney.
|
51
|
|
|
|
Section 4.26.
|
Parent Common Stock.
|
51
|
|
|
|
Section 4.27.
|
Customers and Suppliers.
|
52
|
|
|
|
Section 4.28.
|
Independent Investigation.
|
53
|
|
|
|
Section 4.29.
|
No Other Representations or Warranties
|
53
|
|
|
|
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUBSIDIARIES
|
53
|
|
|
|
Section 5.1.
|
Organization
|
53
|
|
|
|
Section 5.2.
|
Authorization
|
54
|
|
|
|
Section 5.3.
|
No Conflict
|
54
|
|
|
|
Section 5.4.
|
Consents
|
54
|
|
|
|
Section 5.5.
|
Brokers
|
55
|
|
|
|
Section 5.6.
|
SEC Filings
|
55
|
|
|
|
Section 5.7.
|
Capitalization.
|
55
|
|
|
|
Section 5.8.
|
Litigation
|
56
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
|
|
Section 5.9.
|
Compliance with Laws
|
56
|
|
|
|
Section 5.10.
|
NASDAQ Listing
|
56
|
|
|
|
Section 5.11.
|
No Prior Merger Subsidiary Operations
|
57
|
|
|
|
Section 5.12.
|
No Other Representations or Warranties
|
57
|
|
|
|
Section 5.13.
|
Independent Investigation
|
57
|
|
|
|
ARTICLE VI COVENANTS AND AGREEMENTS
|
58
|
|
|
|
Section 6.1.
|
Access and Information; Confidentiality.
|
58
|
|
|
|
Section 6.2.
|
Conduct of Business by the Company
|
59
|
|
|
|
Section 6.3.
|
Further Assurances.
|
61
|
|
|
|
Section 6.4.
|
Public Announcements
|
62
|
|
|
|
Section 6.5.
|
Consents and Waivers
|
62
|
|
|
|
Section 6.6.
|
Post-Closing Obligations of Parent and the Surviving Entity to Certain Employees
|
62
|
|
|
|
Section 6.7.
|
Insurance
|
63
|
|
|
|
Section 6.8.
|
Proxy Statement; Stockholder Approval.
|
63
|
|
|
|
Section 6.9.
|
Form 8-K Filings
|
65
|
|
|
|
Section 6.10.
|
Exclusivity
|
65
|
|
|
|
Section 6.11.
|
Assumption of Company Indebtedness/Delivery of Payoff Letters
|
65
|
|
|
|
Section 6.12.
|
Subsequent Actions
|
66
|
|
|
|
Section 6.13.
|
Tax Matters
|
67
|
|
|
|
Section 6.14.
|
Transaction with Related Parties; Rental Agreement
|
69
|
|
|
|
Section 6.15.
|
CSI Health
|
69
|
|
|
|
Section 6.16.
|
Certificates of Merger
|
69
|
|
|
|
Section 6.17.
|
Key Employee Agreements and Support Agreements
|
69
|
|
|
|
Section 6.18.
|
Adjustments to Merger Consideration
|
69
|
|
|
|
Section 6.19.
|
Post-Closing Conduct
|
70
|
|
|
|
Section 6.20.
|
Resale Form S-3.
|
70
|
|
|
|
Section 6.21.
|
Stock Purchase
|
70
|
|
|
|
Section 6.22.
|
Updated Financial Statements
|
70
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
|
|
ARTICLE VII CONDITIONS TO CLOSING AND THE MERGER
|
71
|
|
|
|
Section 7.1.
|
Mutual Conditions
|
71
|
|
|
|
Section 7.2.
|
Conditions to the Obligations of Parent and the Merger Subsidiaries
|
71
|
|
|
|
Section 7.3.
|
Conditions to the Obligations of the Company
|
73
|
|
|
|
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
|
74
|
|
|
|
Section 8.1.
|
Termination
|
74
|
|
|
|
Section 8.2.
|
Manner of Exercise
|
76
|
|
|
|
Section 8.3.
|
Effect of Termination
|
76
|
|
|
|
Section 8.4.
|
Waiver
|
76
|
|
|
|
ARTICLE IX SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
|
76
|
|
|
|
Section 9.1.
|
Survival
|
76
|
|
|
|
Section 9.2.
|
Indemnification.
|
77
|
|
|
|
Section 9.3.
|
Method of Asserting Claims, etc
|
78
|
|
|
|
Section 9.4.
|
Mitigation
|
79
|
|
|
|
Section 9.5.
|
Limitations on Indemnification.
|
79
|
|
|
|
Section 9.6.
|
Losses Net of Insurance, etc
|
80
|
|
|
|
Section 9.7.
|
Source of Payment of Losses
|
81
|
|
|
|
Section 9.8.
|
Sole Remedy
|
81
|
|
|
|
ARTICLE X MISCELLANEOUS
|
82
|
|
|
|
Section 10.1.
|
Notices
|
82
|
|
|
|
Section 10.2.
|
Exhibits and Schedules
|
83
|
|
|
|
Section 10.3.
|
Time of the Essence; Computation of Time
|
83
|
|
|
|
Section 10.4.
|
Expenses
|
83
|
|
|
|
Section 10.5.
|
Governing Law
|
83
|
|
|
|
Section 10.6.
|
Assignment; Successors and Assigns; No Third Party Rights
|
84
|
|
|
|
Section 10.7.
|
Counterparts
|
84
|
|
|
|
Section 10.8.
|
Titles and Headings
|
84
|
|
|
|
Section 10.9.
|
Entire Agreement
|
84
|
|
|
|
Section 10.10.
|
Severability
|
85
|
|
|
|
Section 10.11.
|
Specific Performance
|
85
|
|
|
|
Section 10.12.
|
Waiver of Jury Trial
|
85
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
|
|
Section 10.13.
|
Failure or Indulgence not Waiver
|
85
|
|
|
|
Section 10.14.
|
Amendments
|
85
|
Annexes
|
|
|
|
|
|
Annex A
|
List of Stockholders
|
|
Annex B
|
Stockholder Allocation
|
|
|
|
|
Exhibits
|
|
|
|
|
|
Exhibit A
|
Form Employment Agreement
|
|
Exhibit B
|
Form Earn-Out Warrant
|
|
Exhibit C
|
Form Non-Competition Agreement
|
|
Exhibit D-1
|
First Certificates of Merger
|
|
Exhibit D-2
|
Second Certificates of Merger
|
|
Exhibit E
|
Escrow Agreement
|
|
Exhibit F
|
Letter of Transmittal
|
|
Exhibit G
|
Support Agreement
|
|
Exhibit H
|
Working Capital Determination
|
|
AGREEMENT
AND PLAN OF MERGER
This AGREEMENT AND
PLAN OF MERGER (this “
Agreement
”), dated as of February 22, 2016, is entered into among JetPay Corporation,
a Delaware corporation (“
Parent
”), CSI Acquisition Sub One, LLC, a Delaware limited liability company and wholly-owned
subsidiary of Parent (“
Merger Sub One
”), CSI Acquisition Sub Two, LLC, a Delaware limited liability company
treated as a corporation for Tax purposes and wholly-owned subsidiary of Merger Sub One (“
Merger Sub Two
” and,
together with Merger Sub One, the “
Merger Subsidiaries
”), CollectorSolutions, Inc., a Florida corporation (the
“
Company
”), and Gene M. Valentino, an individual, in his capacity as representative of the Stockholders (the
“
Representative
”).
WHEREAS, the Company
is engaged in, among other things, the business of providing payment processing services and related products and services to not-for-profit
businesses, government agencies (including tax collectors and municipalities) and utilities that serve a public purpose (collectively,
the “
Business
”);
WHEREAS, the parties
intend for Parent to acquire the Company through the statutory merger of Merger Sub Two with and into the Company, with the Company
continuing as the surviving entity (the “
First Step Merger
”) and, as part of the same overall transaction, the
surviving entity of the First Step Merger would merge with and into Merger Sub One, with Merger Sub One continuing as the surviving
entity (the “
Second Step Merger
” and, together with the First Step Merger, the “
Mergers
”),
all upon the terms of and subject to the conditions set forth herein and in accordance with Delaware Law and the FBCA;
WHEREAS, pursuant to
the Mergers, among other things, and subject to the terms and conditions set forth herein, all of the issued and outstanding capital
stock of the Company shall be converted into the right to receive the consideration set forth herein;
WHEREAS, the respective
boards of directors or other governing bodies of Parent and the Company, and the members of the Merger Subsidiaries, have approved
the form, terms, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, upon the
terms of and subject to the conditions set forth herein;
WHEREAS, as a condition
and inducement to Parent’s willingness to enter into this Agreement, as of the date hereof (i) the Key Employees are each
entering into an employment agreement with the Company substantially in the form attached hereto as
Exhibit A
(the “
Key
Employee Agreements
”) and (ii) Stockholders owning at least ninety percent (90%) of the outstanding capital stock of
the Company (the “
Supporting Stockholders
”) are entering into a Support Agreement; and
WHEREAS, the parties
intend that the Mergers will collectively constitute a reorganization within the meaning of Section 368(a) of the Code, and by
executing this Agreement, the parties intend to adopt a plan of reorganization within the meaning of Treasury Regulations Section
1.368-2(g) and 1.368-3.
NOW, THEREFORE, in
consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE
I
CERTAIN DEFINITIONS
Section 1.1.
Certain
Definitions
. As used in this Agreement, the following terms have the respective meanings set forth below.
“
2016 Shares
”
has the meaning set forth in
Section 2.9(a)(i)
.
“
2016 Target
”
has the meaning set forth in
Section 2.9(a)(i)
.
“
2017 Shares
”
has the meaning set forth in
Section 2.9(a)(ii)
.
“
2017 Target
”
has the meaning set forth in
Section 2.9(a)(ii)
.
“
2018 Target
”
has the meaning set forth in
Section 2.9(b)(i)
.
“
2018 Warrants
”
has the meaning set forth in
Section 2.9(b)(i)
.
“
2019 Target
”
has the meaning set forth in
Section 2.9(b)(ii)
.
“
2019 Warrants
”
has the meaning set forth in
Section 2.9(b)(ii)
.
“
Accounting
Firm
” has the meaning set forth in
Section 2.7(d)(ii)
.
“
Accounting
Principles Consistently Applied
” means GAAP (i) subject to the same exceptions and using the same accounting methods,
policies, practices, and procedures, with consistent classification, judgments, and estimation methodology, as were used in preparing
the Year-End Financial Statements and (ii) not taking into account any changes in circumstances or events occurring after the Closing.
In the event of a conflict between GAAP and the accounting methods, policies, practices, procedures and methodologies used in preparing
the Year-End Financial Statements, Accounting Principles Consistently Applied shall be interpreted to require the application of
GAAP.
“
Affiliate
”
means, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with,
such other Person at any time during the period for which the determination of affiliation is being made;
provided
,
however
,
that for purposes of this Agreement, Parent and its Subsidiaries, on the one hand, and the Company and its Subsidiaries, on the
other hand, shall not be considered Affiliates of one another. For purposes of this definition, the term “control”
(including the correlative meanings of the terms “controlled by” and “under common control with”), as used
with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of
management policies of such Person, whether through the ownership of voting securities or other ownership interests, by contract
or otherwise.
“
Agreement
”
has the meaning set forth in the preamble.
“
Allocation
Percentage
” has the meaning set forth in
Section 2.7(b)
.
“
Ancillary
Agreements
” means the Key Employee Agreements, Divestment Agreement, Letter of Transmittal, Support Agreements, Non-competition
Agreements, Earn-Out Warrants (if applicable), Escrow Agreement and Registration Rights Agreement, and each other agreement, document,
instrument or certificate contemplated by this Agreement or to be executed by Parent, Merger Sub, the Company, the Stockholders
or the Representative in connection with the transactions contemplated by this Agreement.
“
Assets
”
has the meaning set forth in
Section 4.7
.
“
Balance Sheet
Date
” has the meaning set forth in
Section 4.5(d)
.
“
Balance Sheets
”
has the meaning set forth in
Section 4.5(a)
.
“
Benefit Plan
”
means each (i) “employee benefit plan,” as defined in Section 3(3) of ERISA and (ii) all other pension, retirement,
supplemental retirement, deferred compensation, excess benefit, profit sharing, bonus, incentive, stock purchase, stock ownership,
stock option, stock appreciation right, employment, consulting, severance, salary continuation, termination, change-of-control,
health, life, disability, group insurance, vacation, holiday and fringe benefit plan, program, contract, or arrangement (whether
written or unwritten) maintained, contributed to, or required to be contributed to, by the Company or any ERISA Affiliate for the
benefit of any current or former employee, director, officer or independent contractor of the Company or under which the Company
or any ERISA Affiliate have any liability.
“
Business
Day
” means any day that is not a Saturday or Sunday, or other day on which commercial banks in the City of New York,
New York are required or authorized by Law to be closed.
“
Business
Material Adverse Effect
” means any event, occurrence, fact, condition or change that is, or could reasonably be expected
to become, individually or in the aggregate, materially adverse to the Business, properties, assets and liabilities, condition
(financial or otherwise) or results of operations of the Company, taken as a whole, or the ability of the Company to consummate
the transactions contemplated by this Agreement;
provided
,
however
, that “Business Material Adverse Effect”
shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to:
(i) general economic or political conditions; (ii) changes in the national or world economy or financial markets as a whole or
changes in general economic conditions that affect the industries or markets in which the Company conducts its business; (iii)
any act of terrorism, military action or the escalation thereof; (iv) changes in applicable Law after the date hereof; (v) changes
in GAAP after the date hereof; (vi) actions required to be taken pursuant to this Agreement or taken with Parent’s consent;
and (vii) the public announcement of the transactions contemplated by this Agreement;
provided
further
,
however
,
that any event, occurrence, fact, condition or change referred to in clauses (i) through (v) of this definition shall be taken
into account in determining whether a Business Material Adverse Effect has occurred or could reasonably be expected to occur to
the extent that such event, occurrence, fact, condition or change has a disproportionate adverse effect on the Company compared
to other participants in the industries in which the Company conducts its business.
“
Business
”
has the meaning set forth in the recitals.
“
Business
Registered Intellectual Property
” has the meaning set forth in
Section 4.11(a)
.
“
Buyback Shares
”
has the meaning as set forth in
Section 2.10
.
“
Cap
”
has the meaning set forth in
Section 9.5(a)
.
“
Card Processing
Costs
” means credit card processing costs either charged by a third party or charged by Parent to the Company as of the
date of this Agreement. For purposes of this Agreement, the Card Processing Costs with respect to transactions processed by Parent
shall be those detailed in the Processing Agreement Schedule A, dated September 3, 2014, between Parent and the Company.
“
Cash and
Cash Equivalents
” means the sum of the fair market value (expressed in United States dollars) of all cash and cash equivalents,
excluding Restricted Cash, of any kind (including bank account balances, marketable securities, short term investments and checks
and drafts received as of the close of business on the applicable date but not yet deposited) calculated in accordance with GAAP.
“
Certificate
”
means a stock certificate which immediately prior to the Effective Time represented any shares of Existing Company Equity.
“
Certificates
of Merger
” has the meaning set forth in
Section 2.2(b)
.
“
Change of
Control
” means (i) the sale, lease, license, distribution, dividend or transfer, in one or a series of related transactions,
of 50% or more of the assets of a Person and its Subsidiaries taken as a whole, to another Person; (ii) a merger, consolidation,
statutory share exchange or other business combination or similar form of corporate transaction of or with respect to a Person
(or any Subsidiary or Subsidiaries that alone or together represent all or substantially all of such Person’s consolidated
business at that time) or any successor or other entity holding all or substantially all of the assets of such Person and its Subsidiaries
that results in the stockholders of such Person (or such Subsidiary or Subsidiaries) or any successor or other entity holding all
or substantially all of the assets of such Person and its Subsidiaries or the surviving entity thereof, as applicable, immediately
before the consummation of such transaction or a series of related transactions holding, directly or indirectly, less than 50%
of the voting power of such Person (or such Subsidiary or Subsidiaries) or any successor, other entity or surviving entity thereof,
as applicable, immediately following the consummation of such transaction or series of related transactions; (iii) one Person (or
more than one Person acting together as a group) acquires ownership of stock of another Person that, together with the stock held
by such Person or group, constitutes more than 50% of the total voting power of the stock of such other Person;
provided
,
that a Change in Control shall not occur if any Person (or more than one Person acting together as a group) owns more than
50% of the total voting power of such other Person and acquires additional stock; or (iv) a majority of the members of the
board of directors of a Person are replaced during any twelve-month period by directors whose appointment or election is not endorsed
by a majority of such board of directors before the date of such appointment or election.
“
Claim Notice
”
has the meaning set forth in
Section 9.3(a)
.
“
Closing
”
has the meaning set forth in
Section 3.1
.
“
Closing Date
”
has the meaning set forth in
Section 3.1
.
“
Closing Date
Holdings Statement
” has the meaning set forth in
Section 2.7(b)
.
“
Code
”
means the Internal Revenue Code of 1986, as amended.
“
Common Stock
Escrow Account
” has the meaning set forth in
Section 2.7(c)(i)
.
“
Common Stock
Merger Consideration
” means an aggregate of 2,162,500 shares of Parent Common Stock.
“
Company Fundamental
Representations
” means the representations and warranties set forth in
Section 4.1(a)
(Organization; Subsidiaries),
Section 4.2
(Authorization),
Section 4.4
(Capitalization) and
Section 4.22
(Brokers).
“
Company Indebtedness
”
has the meaning set forth in
Section 6.11(a)
.
“
Company Indemnified
Parties
” has the meaning set forth in
Section 9.2(b)
.
“
Company IPR
”
means all Intellectual Property Rights, or purported to be owned, in whole or part, by the Company.
“
Company’s
Knowledge
” means the actual knowledge of the individuals set forth in
Section 1.1(a)
of the Disclosure
Schedule, and the knowledge which such individuals would have had after reasonable inquiry.
“
Company Stockholders
Meeting
” means the meeting of the Stockholders held to approve and adopt this Agreement and the Mergers.
“
Confidentiality
Agreement
” has the meaning set forth in
Section 6.1(e)
.
“
Contract
”
means, with respect to any Person, any agreement, indenture, debt instrument, contract, guarantee, loan, note, bond, mortgage,
indenture, license, sublicense, warranty, lease, purchase order, delivery order, obligation, undertaking, commitment or other arrangement,
understanding or undertaking, in each case, whether written or oral, including all amendments, modifications and options thereunder
or relating thereto, to which such Person is a party, by which it is bound, or to which any of its assets or properties is subject.
Without limiting the foregoing, with respect to the Company, “Contract” shall also include the contracts enumerated
in
Section 4.12
.
“
CSI Health
”
means CSI Health, LLC.
“
Deductible
Amount
” has the meaning set forth in
Section 9.5(a)
.
“
Delaware
Law
” means the applicable provisions of the laws of the State of Delaware.
“
Disclosure
Schedule
” means the disclosure schedule delivered by the Company in connection with, and constituting a part of, this
Agreement.
“
Dispute Notice
”
has the meaning set forth in
Section 2.7(d)(ii)
.
“
Disputed
Items
” has the meaning set forth in
Section 2.7(d)(ii)
.
“
Dissenting
Shares
” has the meaning set forth in
Section 2.8(f)
.
“
Dissenting
Stockholder
” has the meaning set forth in
Section 2.8(f)
.
“
Divestment
Agreement
” has the meaning set forth in
Section 6.16
.
“
Earn-Out
Common Stock
” means up to 500,000 shares of Parent Common Stock.
“
Earn-Out
Escrow Account
” has the meaning set forth in
Section 2.7(c)(i)
.
“
Earn-Out
Merger Consideration
” means, collectively, the Earn-Out Common Stock and the Earn-Out Warrants.
“
Earn-Out
Statement
” has the meaning set forth in
Section 2.9(c)
.
“
Earn-Out
Warrants
” means up to 500,000 warrants to purchase shares of Parent Common Stock, each with a strike price of four dollars
($4.00) per share and a ten (10)-year term from its date of issuance, in the form attached hereto as
Exhibit B
.
“
Effective
Time
” has the meaning set forth in
Section 2.2(a)
.
“
Employment
Contracts
” has the meaning set forth in
Section 4.23
.
“
Encumbrances
”
means any lien, pledge, mortgage, deed of trust, security interest, charge, claim, easement, encroachment, limitation, right
of first refusal, restriction, option, title defect, adverse claim or restriction or other similar encumbrance of any kind and
however evidenced, including (i) any agreement to give any of the foregoing, (ii) any conditional sale or other title retention
agreement, (iii) any lease having a similar effect or result, (iv) the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction and (v) any lien or charge arising by statute or other laws, which secures the
payment of debt (including any Tax) or the performance of an obligation.
“
Environmental
Laws
” mean any Laws relating to the protection of the environment, natural resources, pollution, or the treatment, storage,
recycling, transportation, disposal, arrangement for treatment, storage, recycling, transportation, or disposal, handling or Release
of or exposure to any Hazardous Substances (and including worker health or safety Laws as they relate to occupational exposure
to Hazardous Substances).
“
Environmental
Permits
” has the meaning set forth in
Section 4.15(a)
.
“
ERISA
”
means the Employee Retirement Income Security Act of 1974, as amended.
“
ERISA Affiliate
”
means any corporation or trade or business (whether or not incorporated) which is treated with the Company as a single employer
within the meaning of Section 414 of the Code.
“
Escrow Agreement
”
has the meaning set forth in
Section 2.7(c)
.
“
Escrowed
Common Stock
” means an aggregate of 587,500 shares of Parent Common Stock.
“
Estimated
Closing Indebtedness Statement
” has the meaning set forth in
Section 2.7(b)
.
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended.
“
Existing
Company Equity
” has the meaning set forth in
Section 4.4(a)
.
“
FBCA
”
means the Florida Business Corporation Act.
“
FCPA Laws
”
means the Foreign Corrupt Practices Act of 1977 and any other comparable Law governing corruption of foreign officials, including
laws enacted through or under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
“
Final Closing
Statement
” has the meaning set forth in
Section 2.7(d)(i)
.
“
Final Determination
”
has the meaning set forth in
Section 2.7(d)(iii)
.
“
Financial
Information
” has the meaning set forth in
Section 4.5(b)
.
“
First Certificates
of Merger
” has the meaning set forth in
Section 2.2(a)
.
“
First Step
Merger
” has the meaning set forth in the recitals.
“
Flexpoint
Fund
” means Flexpoint Fund II, L.P.
“
GAAP
”
means generally accepted accounting principles, consistently applied, as in effect in the United States at the time of the preparation
of the relevant financial statement.
“
Governmental
Action/Filing
” means any franchise, approval, permit, authorization, license, order, registration, certificate, variance,
and other similar permit or right obtained from any Government Authority and all pending applications therefor.
“
Governmental
Authority
” means any national, federal, state, provincial, county, municipal, local or similar government, foreign or
domestic, or the government of any political subdivision of any of the foregoing, or any entity, governmental authority, regulatory
authority, administrative authority, taxing authority, branch, agency, commission, ministry or other similar body (including self-regulatory
organizations) exercising executive, legislative, judicial (including any court, tribunal or arbitrator (public or private)), regulatory
or administrative authority or functions of or pertaining to government, including any authority or other quasi-governmental entity
established to perform any of such functions.
“
Gross Profit
”
has the meaning set forth in
Section 1.1(b)
of the Disclosure Schedule.
“
Hazardous
Substances
” means (i) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid,
mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, a pollutant,
a contaminant or words of similar import or regulatory effect under Environmental Laws and (ii) any petroleum, petroleum constituents
or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials,
urea formaldehyde foam insulation, and polychlorinated biphenyls.
“
Healthcare
Reform Law
” has the meaning set forth in
Section 4.16(d)
.
“
HIPAA
”
has the meaning set forth in
Section 4.16(b)
.
“
Indebtedness
”
without duplication, means all principal, interest, premiums or other obligations (including if payable as a result of a Change
of Control of the Company or the Mergers) related to (i) all indebtedness for borrowed money, (ii) all obligations for the deferred
purchase price of property or services (other than trade accounts payable in the ordinary course of business), including any earn-out,
and deferred rent, (iii) all obligations evidenced by notes, bonds, debentures or other similar instruments, (iv) all indebtedness
created or arising under any conditional sale or other title retention agreement with respect to property acquired, (v) all obligations
as lessee or lessees under leases (excluding leases of office equipment) that are required to be recorded as capital leases under
GAAP, (vi) all obligations, contingent or otherwise, under acceptance, letter of credit, performance bonds or similar facilities,
(vii) all obligations owing pursuant to factoring agreements for accounts receivable, (viii) all customer deposits, advance payments
or unearned or deferred revenue, (ix) all Contracts relating to interest rate protection, swap agreements and collar agreements,
(x) all Indebtedness of the type referred to in the immediately preceding clauses (i) through (ix) guaranteed directly or indirectly
in any manner, or in effect guaranteed directly or indirectly through an agreement (a) to pay or purchase such Indebtedness or
to advance or supply funds for the payment or purchase of such Indebtedness, (b) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness
or to assure the holder of such Indebtedness against loss, (c) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such property is received or such services are rendered)
or (d) otherwise to assure a creditor against loss, (xi) all Indebtedness of the type referred to in the immediately preceding
clauses (i) through (x) secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Encumbrance on property owned (including accounts and contract rights), even though such Person has not assumed
or become liable for the payment of such Indebtedness, (xii) all accrued but unpaid interest (or interest equivalent) to the date
of determination, any fees and expenses due and all prepayment premiums as if the indebtedness had been prepaid at Closing, breakage
costs or penalties related to any items of Indebtedness of the type referred to in the immediately preceding clauses (i) through
(xi), and (xiii) any Transaction Expenses.
“
Indebtedness
Cap
” has the meaning set forth in
Section 2.7(c)(iii)
.
“
Indemnifiable
Taxes
” means, without duplication, any and all (i) Taxes (or liabilities for Taxes) of or with respect to the Company,
its assets or operations that are attributable to any Pre-Closing Tax Period (including, for the avoidance of doubt, the portion
of any Straddle Period ending at the end of the day on the Closing Date), (ii) Taxes (or liabilities for Taxes) of or with respect
to CSI Health that are attributable to any Pre-Closing Tax Period (including, for the avoidance of doubt, the portion of any Straddle
Period ending at the end of the day on the Closing Date), and (iii) Transfer Taxes.
“
Indemnified
Party
” means the party entitled to indemnification pursuant to
ARTICLE IX
.
“
Indemnifying
Party
” means the party required to indemnify the other party pursuant to
ARTICLE IX
.
“
Indemnity
Claim
” has the meaning set forth in
Section 9.3(a)
.
“
Initial Buyback
Right
” has the meaning set forth in
Section 2.10
.
“
Insurance
Policies
” has the meaning set forth in
Section 4.21
.
“
Intellectual
Property
” means any and all intellectual and industrial property rights and other similar proprietary rights, in any
jurisdiction, whether registered or unregistered, including all rights pertaining to or deriving from: (i) patents and patent applications,
reexaminations, extensions reissues, and counterparts claiming priority therefrom (collectively, “
Patents
”);
(ii) inventions, invention disclosures, discoveries and improvements, whether or not patentable; (iii) works of authorship (“
Copyrights
”);
(iv) computer software and firmware, including data files, source code, object code and software-related specifications and documentation
(collectively “
Software
”); (v) trademarks, trade names, service marks, certification marks, service names, brands,
trade dress and logos, applications therefor, and the goodwill associated therewith (collectively, “
Trademarks
”);
(vi) trade secrets (including those trade secrets defined in the Uniform Trade Secrets Act and under corresponding foreign statutory
Law and common law), non-public information, and confidential information, business, technical and know-how information, and rights
to limit the use or disclosure thereof by any Person (collectively “
Trade Secrets
”); (vii) domain names; and
(viii) proprietary databases and data compilations and all documentation relating to the foregoing; and including in each case
any and all registrations of, applications to register, and renewals and extensions of, any of the foregoing with or by any Governmental
Authority in any jurisdiction.
“
Interim Balance
Sheet
” has the meaning set forth in
Section 4.5(b)
.
“
Interim Financials
”
has the meaning set forth in
Section 4.5(b)
.
“
Interim Organizational
Documents
” has the meaning set forth in
Section 2.3(a)
.
“
Interim Surviving
Entity
” has the meaning set forth in
Section 2.1(a)
.
“
IRS
”
means the Internal Revenue Service.
“
Key Employee
Agreements
” has the meaning set forth in the recitals.
“
Key Employees
”
means each of Gene M. Valentino, Maureen B. Valentino, Christopher F. Battel, Richard A. Carroll, Heath A. Gardner, Carol A. Talamo
and Jerome A. Wingate.
“
Key Person
Termination
” means (i) the termination by Parent or the Surviving Entity other than for Cause (as defined in the Key
Employee Agreements) of the employment of, or (ii) the voluntary resignation for Good Reason (as defined in the Key Employee Agreements)
by, in either case, Gene M. Valentino or Christopher Battel;
provided
,
however
, that “Key Person Termination”
shall not include a termination of the employment of Christopher Battel by Gene M. Valentino.
“
Law
”
means any law, statute, directive, ordinance, regulation, code, rule, writ, judgment, injunction, order, decree, treaty, convention
or other regulation or similar requirement (including common law) of any Governmental Authority.
“
Leased Real
Property
” has the meaning set forth in
Section 4.9(a)
.
“
Leases
”
has the meaning set forth in
Section 4.9(a)
.
“
Legal Proceeding
”
means any actual or threatened judicial, administrative or arbitral action, complaint, suit, charge, mediation, investigation,
audit, proceeding or claim (including counterclaim) by or before any Governmental Authority.
“
Losses
”
means losses, claims, damages, settlements, judgments, awards, fines, fees (including reasonable attorneys’ fees), charges,
liabilities, Taxes, obligations, penalties, deficiencies, interest and costs and expenses (including costs of defense, settlement,
investigation, remediation, enforcing any right to indemnification hereunder or other response actions and the cost of pursuing
any insurance providers) of any nature.
“
Material
Contract
” has the meaning set forth in
Section 4.12
.
“
Mergers
”
has the meaning set forth in the recitals.
“
Merger Consideration
”
has the meaning set forth in
Section 2.7(a)
.
“
Merger Sub
One
” has the meaning set forth in the preamble.
“
Merger Sub
Two
” has the meaning set forth in the preamble.
“
Merger Subsidiaries
”
has the meaning set forth in the preamble.
“
Multiemployer
Plan
” has the meaning set forth in Section 3(37) of ERISA.
“
NASDAQ
”
means the NASDAQ Capital Market.
“
Net Cash
Amount
” means, as of any date, the aggregate amount of the Company’s Cash and Cash Equivalents on hand or in bank
accounts as of such date, net of issued but uncleared checks and drafts issued by the Company as of such date.
“
Non-competition
Agreements
” means the non-competition and non-solicitation agreements in the form attached hereto as
Exhibit C
,
to be entered into by and between Parent and each of Gene M. Valentino and Maureen Valentino.
“
Notice Period
”
has the meaning set forth in
Section 9.3(b)
.
“
OFAC
”
has the meaning set forth in
Section 4.24(b)
.
“
Organizational
Documents
” has the meaning set forth in
Section 2.3(b)
.
“
Other Filings
”
has the meaning set forth in
Section 6.8(a)
.
“
Outside Date
”
has the meaning set forth in
Section 8.1(c)
.
“
Parent
”
has the meaning set forth in the preamble.
“
Parent Common
Stock
” means the common stock, par value $0.001 per share, of Parent.
“
Parent Disclosure
Schedule
” means the disclosure schedule delivered by Parent in connection with, and constituting a part of, this Agreement.
“
Parent Indemnified
Parties
” has the meaning set forth in
Section 9.2(a)
.
“
Parent Material
Adverse Effect
” shall mean (a) an effect that would prevent or materially delay the ability of Parent to consummate the
transactions contemplated by this Agreement or (b) a material adverse effect on the financial condition, properties, assets,
liabilities, business or results of operations of Parent and its Subsidiaries, taken as a whole, excluding any such effect to the
extent resulting from: (i) general economic or political conditions; (ii) changes in the national or world economy or financial
markets as a whole or changes in general economic conditions that affect the industries or markets in which the Parent conducts
its business; (iii) any act of terrorism, military action or the escalation thereof; (iv) changes in applicable Law after the date
hereof; (v) changes in GAAP after the date hereof; (vi) actions required to be taken pursuant to this Agreement or taken with the
Representative’s or Stockholders’ consent; and (vii) the public announcement of the transactions contemplated by this
Agreement;
provided
further
,
however
, that any event, occurrence, fact, condition or change referred to in
clauses (i) through (v) of this definition shall be taken into account in determining whether a Parent Material Adverse Effect
has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has
a disproportionate adverse effect on the Parent compared to other participants in the industries in which the Parent conducts its
business.
“
Parent Preferred
Stock
” has the meaning set forth in
Section 5.7(a)
.
“
Parent SEC
Documents
” has the meaning set forth in
Section 5.6(a)
.
“
Parent Stock
Issuance
” has the meaning set forth in
Section 6.8(a)
.
“
Parent Stockholder
Approval
” has the meaning set forth in
Section 6.8(a)
.
“
Parent Stockholder
Meeting
” means the meeting of the stockholders of Parent held to obtain the Parent Stockholder Approval.
“
Parent’s
Knowledge
” means the actual knowledge of the individuals set forth in
Section 1.1(c)
of the Parent Disclosure
Schedule, and the knowledge which such individuals would have had after reasonable inquiry.
“
Payoff Letters
”
has the meaning set forth in
Section 6.11
.
“
Permits
”
means any franchise, approval, permit, authorization, license, order, registration, certificate, variance and other similar permit
or rights obtained, or required or advisable to be obtained, from any Governmental Authority in connection with the operations
of the Business and all pending applications therefor.
“
Permitted
Encumbrances
” means (i) easements, rights-of-way, restrictions and other similar defects or imperfections of title, charges
and Encumbrances of record not in the aggregate detracting materially from the use or value of the assets subject thereto, (ii)
Encumbrances for Taxes not yet due and payable, (iii) mechanics’, carriers’, workmen’s, repairmen’s, statutorily
imposed or other like Encumbrances arising or incurred in the ordinary course of business for amounts not yet due and payable,
(iv) Encumbrances arising under original purchase price conditional sales contracts and equipment leases with third parties entered
into in the ordinary course of business which are not, individually or in the aggregate, material to the Business; (v) Encumbrances
and other similar restrictions of record with respect to the Leased Real Property, zoning, building codes and other land use Laws
regulating the use or occupancy of such Leased Real Property or the activities conducted thereon that are imposed by any Governmental
Authority having jurisdiction over such Leased Real Property and do not, individually or in the aggregate, materially interfere
with the present use of the Leased Real Property or the Business, (vi) Encumbrances securing Indebtedness up to the Indebtedness
Cap to be repaid and released in connection with the Closing, if any, (vii) deposits or pledges to secure the payment of workers’
compensation, unemployment insurance, social security benefits or obligations arising under similar laws, or to secure the performance
of public or statutory obligations, surety or appeal bonds, and other obligations of a like nature, (viii) Encumbrances resulting
from fee splitting or residual payment agreements entered into with independent agents in the ordinary course of business and (ix)
restrictions placed on deposits held by third parties relating to bank card processing.
“
Person
”
means an individual, partnership, limited partnership, corporation, limited liability company, joint stock company, unincorporated
organization or association, trust, firm, joint venture, association or other organization, whether or not a legal entity, or a
Governmental Authority, in each case, whether acting in an individual, fiduciary or other capacity.
“
Pre-Closing
Tax Period
” means (i) any Tax period ending on or before the Closing Date and (ii) the portion of any Straddle Period
ending at the end of the day on the Closing Date.
“
Press Release
”
has the meaning set forth in
Section 6.9
.
“
Proxy Statement
”
has the meaning set forth in
Section 6.8(a)
.
“
Registration
Rights Agreement
” has the meaning set forth in
Section 6.21
.
“
Release
”
means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including ambient air
(indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility
or fixture).
“
Rental Agreement
”
means that certain Rental Agreement, dated November 18, 2013, by and between Maureen B. Valentino and Noah’s Ark Pensacola,
in respect of a storage unit located at 451 E. Cervantes St., Pensacola, Florida 32501.
“
Representative
”
has the meaning set forth in the recitals.
“
Required
Company Vote
” has the meaning set forth in
Section 4.2(b)
.
“
Restricted
Cash
” means cash or cash equivalents held in escrow or as a security or other deposit, held for or on behalf of a customer,
deposited with a customer or if usage of, or access to, such cash or cash equivalents is restricted by law, contract or otherwise.
“
Sanctioned
Entity
” means (i) a country or a government of a country, (ii) an agency of the government of a country, (iii) an organization
directly or indirectly controlled by a country or its government or (iv) a Person resident in or determined to be resident in a
country, in each case that is subject to a country sanctions program administered and enforced by OFAC.
“
Sanctioned
Person
” means a Person named on the list of Specially Designated Nationals maintained by OFAC.
“
SEC
”
means the Securities and Exchange Commission.
“
Secondary
Buyback Right
” has the meaning set forth in
Section 2.10(d)
.
“
Second Certificates
of Merger
” has the meaning set forth in
Section 2.2(b)
.
“
Second Effective
Time
” has the meaning set forth in
Section 2.2(b)
.
“
Second Step
Merger
” has the meaning set forth in the recitals.
“
Securities
Act
” means the Securities Act of 1933, as amended.
“
Series A
Preferred
” means the Series A preferred stock of Parent.
“
Series A-1
Preferred
” means the Series A-1 preferred stock of Parent.
“
Stockholder
Allocation
” means the allocation of the Merger Consideration among the Stockholders as set forth in
Annex B
hereto.
“
Stockholders
”
means the individuals listed on
Annex A
hereto comprising the owners of all of the issued and outstanding shares of common
stock, no par value per share, of the Company.
“
Straddle
Period
” means any Tax period that includes, but does not end on, the Closing Date.
“
Subsidiary
”
means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a partnership, association or
other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes of clause
(ii) hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business
entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses
or shall be or control the managing director, managing member, general partner or other managing Person of such partnership, association
or other business entity.
“
Support Agreement
”
means the Support Agreement attached hereto as
Exhibit G
entered into between Parent and each Supporting Stockholder that
contemplates such Supporting Stockholders’ approval of the transactions and agreements contemplated by this Agreement, and
confirms that each Supporting Stockholder is bound by the terms of this Agreement, including all indemnification provisions.
“
Supporting
Stockholders
” has the meaning set forth in the Recitals.
“
Surviving
Entity
” has the meaning set forth in
Section 2.1(b)
.
“
Target Working
Capital
” means $300,000.
“
Tax
”
or “
Taxes
” means (i) all federal, state, local and non-U.S. taxes duties, fees, assessments or governmental
charges (or deficiencies thereof) of any nature, including any alternative or add-on minimum tax, goods and services tax, escheat
or unclaimed property (or similar tax or assessment), profits or excess profits tax, capital tax, franchise tax, net income, gross
income, adjusted gross income or gross receipts tax, employment related tax, real and personal property tax or ad valorem tax,
sale or use tax, transfer tax, excise tax, stamp tax or duty, any withholding or back up withholding tax, value added tax, severance
tax, prohibited transaction tax, premiums tax, occupation tax, customs duties, together with any interest or any penalty in addition
to any tax or additional amount imposed by any Governmental Authority responsible for the imposition of such tax and (ii) any liability
of the Company for the payment of amounts with respect to payments of a type described in clause (i) as a result of being a member
of an affiliated, consolidated, combined or unitary group (including under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or non-U.S. Law)), or as a transferee or successor, by Contract or otherwise.
“
Tax Contest
”
shall mean any action, audit, examination, claim, administrative proceeding or other court proceeding or litigation with respect
to Taxes.
“
Tax Return
”
means any return, report, information return, claim for refund or other document relating to Taxes (including any related or supporting
information), including any schedule or attachment thereto, including any amended Tax Return or declaration of estimated Tax, filed
or required to be filed with any Governmental Authority or other authority in connection with the determination, assessment, or
collection of any Tax paid or payable or the administration of any laws, regulations, or administrative requirements relating to
any such Tax.
“
Terminating
Agreements
” means the Contracts required to be listed on
Section 4.20
(Transactions with Related Parties) of the
Disclosure Schedule.
“
Third Party
Claim
” has the meaning set forth in
Section 9.3(b)
.
“
Top Customers
”
has the meaning set forth in
Section 4.27(a)
.
“
Top Suppliers
”
has the meaning set forth in
Section 4.27(a)
.
“
Transaction
Expenses
” means the aggregate amount of all fees and expenses incurred on or before the Closing and payable by the Company
to third parties and incurred in connection with the preparation, execution and consummation of the transactions contemplated by
this Agreement, including, but not limited to: (i) fees and disbursements of attorneys, accountants financial advisors and other
advisors and service providers (including any broker, finder or similar fee due or payable to any Person); and (ii) any sale bonus,
stay bonus, retention bonus, change in control bonus or similar bonus, in each case, which becomes payable in connection with the
consummation of the transactions contemplated by this Agreement, together with the employer portion of any FICA and other payroll
Taxes payable in respect of the payments described in this clause (ii).
“
Transaction
Form 8-K
” has the meaning set forth in
Section 6.9
.
“
Transfer
Agent
” means Continental Stock Transfer and Trust Company.
“
Transfer
Taxes
” means any transfer, real property transfer, transfer gains, documentary, sales, use, stamp, registration or similar
Taxes, fees or charges (including any penalties and interest) required to be paid in connection with the transactions contemplated
by this Agreement.
“
Transferred
Employees
” means the employees of the Company as of the Effective Time.
“
Treasury
Regulation
” means any regulation promulgated under the Code by the Department of the Treasury (whether in proposed, final
or temporary form), as amended.
“
Unresolved
Items
” has the meaning set forth in
Section 2.7(d)(iii)
.
“Undersubscription
Notice
” has the meaning set forth in
Section 2.10(d).
“
Volume-Weighted
Average Closing Price
” means the volume-weighted (based on the number of shares of the Parent Common Stock traded on
each day that the closing price is used in this calculation) average of the closing sale prices per share of the Parent Common
Stock on the securities exchange or automated quotation system where the Parent Common Stock is listed for the twenty (20) consecutive
trading days ending three (3) trading days prior to the Closing Date.
“
Wellington
”
means Ithan Creek Master Investors (Cayman) L.P.
“
Working Capital
”
means the amount (which may be a negative or positive number), as of 12:01 A.M. on the Closing Date, of the difference between
all “current assets” and all “current liabilities” of the Company (excluding the current portion of Indebtedness),
in each case determined in accordance with GAAP. For purposes of this definition, (a) “current assets” shall include
the dollar amounts of the Net Cash Amount but shall exclude any deferred Tax assets and any current income Tax assets, and (b)
“current liabilities” shall exclude any deferred income Tax liabilities and any current income Tax liabilities. An
illustrative determination of Working Capital, prepared in accordance with the terms and conditions of this Agreement, is attached
hereto as
Exhibit H
.
“
Year-End
Financial Statements
” has the meaning set forth in
Section 4.5(a)
.
Section 1.2.
Interpretation
.
(a) References
to the terms “Article,” “Section,” “Schedule,” “Exhibit,” and “Annex”
refer to the specified Article, Section, Schedule, Exhibit or Annex of or to this Agreement unless otherwise specified.
(b) A
“month” or a “quarter” means a calendar month or quarter (as the case may be).
(c) References
to “$” or “dollars” refer to lawful currency of the United States.
(d) Writing
includes typewriting, printing, lithography, photography, email and other modes of representing or reproducing words in a legible
and non-transitory form.
(e) The
terms “include” and “including” and words of similar import are to be construed as non-exclusive (so that,
by way of example, “including” means “including without limitation”).
(f) Unless
the context of this Agreement otherwise requires (i) words using a singular or plural number also include the plural or singular
number, respectively, (ii) the terms “hereof,” “herein,” “hereby,” “hereto” and
any derivative thereof or similar words refer to this entire Agreement, (iii) the masculine gender includes the feminine and neuter
genders, (iv) the word “or” shall be disjunctive but not inclusive, (v) the phrase “in the ordinary course of
business” means in the ordinary, usual and normal course of business consistent with past custom and practice, (vi) any reference
to a Law, an agreement or a document will be deemed also to refer to any amendment, supplement or replacement thereof and (vii)
whenever this Agreement refers to a number of days, such number refers to calendar days unless such reference specifies Business
Days.
(g) Terms
defined in this Agreement by reference to any other agreement, document or instrument have the meanings assigned to them in such
agreement, document or instrument whether or not such agreement, document or instrument is then in effect.
(h) The
term “foreign” means non-United States.
(i) All
accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.
ARTICLE
II
THE MERGER
Section 2.1.
The
Merger
.
(a)
First
Step Merger
. Upon the terms and subject to the conditions of this Agreement, at the Effective Time, Merger Sub Two shall, pursuant
to the provisions of Delaware Law and the FBCA, be merged with and into the Company and the separate existence of Merger Sub Two
shall thereupon cease in accordance with the provisions of Delaware Law and the FBCA. The Company shall be the surviving entity
in the First Step Merger and shall continue to exist as a wholly-owned Subsidiary of Parent (the “
Interim Surviving Entity
”)
and the separate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected
by the First Step Merger as the Interim Surviving Entity. The First Step Merger shall have the effects specified by Delaware Law
and in the FBCA.
(b)
Second
Step Merger
. Upon the terms and subject to the conditions of this Agreement, at the Second Effective Time, Parent shall cause
the Interim Surviving Entity, pursuant to the provisions of Delaware Law and the FBCA, to merge with and into Merger Sub One and
the separate existence of the Interim Surviving Entity shall thereupon cease in accordance with the provisions of Delaware Law
and the FBCA. Merger Sub One shall be the surviving entity in the Second Step Merger and shall continue to exist as a wholly-owned
Subsidiary of Parent (the “
Surviving Entity
”). The Second Step Merger shall have the effects specified by Delaware
Law and in the FBCA.
Section 2.2.
Certificates
of Merger
.
(a)
First
Certificates of Merger
. On the Closing Date, the parties hereto shall cause certificates of merger substantially in the form
attached hereto as
Exhibit D-1
(the “
First Certificates of Merger
”) to be properly executed and filed
in accordance with the relevant provisions of Delaware Law and the FBCA, and shall make or cause to be made all other filings or
recordings required under Delaware Law and the FBCA. The First Step Merger shall be effective at the time and on the date set forth
in the First Certificate of Merger filed with respect thereto in accordance with Delaware Law and the FBCA (the “
Effective
Time
”). At the Effective Time, the effect of the First Step Merger shall be as provided in this Agreement and the applicable
provisions of Delaware Law and the FBCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all rights, powers, privileges and property of the Company and Merger Sub Two shall vest in the Interim Surviving Entity,
and all debts, obligations, restrictions and liabilities of the Company and Merger Sub Two shall become debts, obligations, restrictions
and liabilities of the Interim Surviving Entity.
(b)
Second
Certificate of Merger
. Promptly after the Effective Time, Parent shall cause certificates of merger substantially in the form
attached hereto as
Exhibit D-2
(the “
Second Certificates of Merger
” and, together with the First Certificate
of Merger, the “
Certificates of Merger
”) to be properly executed and filed in accordance with the relevant provisions
of Delaware Law and the FBCA, and shall make or cause to be made all other filings or recordings required under Delaware Law and
the FBCA. The Second Step Merger shall be effective at the time and on the date set forth in the Second Certificate of Merger filed
with respect thereto in accordance with Delaware Law and the FBCA (the “
Second Effective Time
”). At the Second
Effective Time, the effect of the Second Step Merger shall be as provided in this Agreement and the applicable provisions of Delaware
Law and the FBCA. Without limiting the generality of the foregoing, and subject thereto, at the Second Effective Time, all rights,
powers, privileges and property of the Interim Surviving Entity and Merger Sub One shall vest in the Surviving Entity, and all
debts, obligations, restrictions and liabilities of the Interim Surviving Entity and Merger Sub One shall become debts, obligations,
restrictions and liabilities of the Surviving Entity.
Section 2.3.
Organizational
Documents
.
(a)
Interim
Surviving Entity
. Except to the extent amended pursuant to the First Certificate of Merger, the articles of incorporation and
bylaws of the Company in effect immediately prior to the Effective Time (collectively, the “
Interim Organizational Documents
”)
shall be the articles of incorporation and bylaws of the Interim Surviving Entity and shall continue in full force and effect until
further amended in the manner prescribed by the provisions of the FBCA.
(b)
Surviving
Entity
. Except to the extent amended pursuant to the Second Certificate of Merger, the certificate of formation and operating
agreement of Merger Sub One in effect immediately prior to the Second Effective Time (collectively, the “
Organizational
Documents
”) shall be the certificate of formation and operating agreement of the Surviving Entity and shall continue
in full force and effect until further amended in the manner prescribed by the provisions of Delaware Law.
Section 2.4.
Officers
.
(a)
Interim
Surviving Entity
. At the Effective Time, the officers of the Company immediately prior to the Effective Time shall be the officers
of the Interim Surviving Entity and will hold office in accordance with the Interim Organizational Documents until the earlier
of their death, resignation or removal or until their respective successors are duly elected and qualified in the manner provided
in the Interim Organizational Documents and otherwise in accordance with applicable Law.
(b)
Surviving
Entity
. At the Second Effective Time, the officers of the Interim Surviving Entity immediately prior to the Second Effective
Time shall be the officers of the Surviving Entity and will hold office in accordance with the Organizational Documents until the
earlier of their death, resignation or removal or until their respective successors are duly elected and qualified in the manner
provided in the Organizational Documents and otherwise in accordance with applicable Law.
Section 2.5.
Board
of Managers
.
(a)
Interim
Surviving Entity
. At the Effective Time, the board of directors or other similar governing body of Merger Sub Two immediately
prior to the Effective Time shall be the board of directors of the Interim Surviving Entity and will hold office in accordance
with the Interim Organizational Documents until the earlier of their death, resignation or removal or until their respective successors
are duly elected and qualified in the manner provided in the Interim Organizational Documents and otherwise in accordance with
applicable Law.
(b)
Surviving
Entity
. At the Second Effective Time, the board of directors or other similar governing body of Merger Sub One immediately
prior to the Second Effective Time shall be the board of directors or other similar governing body of the Surviving Entity and
will hold office in accordance with the Organizational Documents until the earlier of their death, resignation or removal or until
their respective successors are duly elected and qualified in the manner provided in the Organizational Documents and otherwise
in accordance with applicable Law.
Section 2.6.
Effect
of Merger on Capital Stock
.
(a) As
of the Effective Time, by virtue of the First Step Merger and without any action on the part of the Stockholders or any holders
of capital stock of Merger Sub Two:
(i)
each membership interest of Merger Sub Two issued and outstanding immediately prior to the Effective Time shall be converted into
one (1) fully paid and non-assessable share of common stock, no par value per share, of the Interim Surviving Entity, and such
shares shall continue unchanged as a result of the First Step Merger and will constitute the only outstanding shares of capital
stock of the Interim Surviving Entity.
(ii) the
Existing Company Equity issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) will
be converted into the right to receive the Merger Consideration payable to the Stockholders in accordance with each Stockholder’s
Allocation Percentage as set forth in the Closing Date Holdings Statement and in accordance with the terms of this Agreement when
such disbursements, if any, are required to be made;
provided
, that no fractional shares of Parent Common Stock shall be
issued in connection with the First Step Merger and any fractional interests of Existing Company Equity held by a Stockholder as
of the Effective Time shall be rounded up or down to the nearest whole number for purposes of calculating such Stockholder’s
portion of the Merger Consideration.
(b) As
of the Second Effective Time, by virtue of the Second Step Merger and without any action on the part of the Stockholders or any
holders of capital stock of Merger Sub One, each share of common stock, no par value per share, of the Interim Surviving Entity
issued and outstanding immediately prior to the Second Effective Time shall be converted into one (1) fully paid and non-assessable
membership interest of the Surviving Entity, and such membership interests shall constitute the only outstanding membership interests
of the Surviving Entity. At the Second Effective Time, each share of common stock of the Interim Surviving Entity issued and outstanding
immediately prior to the Second Effective Time shall be cancelled and retired and shall cease to exist without any conversion thereof,
and no consideration will be delivered in exchange therefor
(c)
Treasury
Shares
. Each share of capital stock of the Company held or owned in treasury or otherwise by the Company immediately prior
to the Effective Time shall be canceled, retired and cease to exist as of the Effective Time and no payment shall be made with
respect thereto.
Section 2.7.
Merger
Consideration; Closing Statements; Final Closing Statement
.
(a)
Merger
Consideration
. For purposes of this Agreement, the “
Merger Consideration
” shall mean, collectively, the
Common Stock Merger Consideration (as adjusted under this
Section 2.7
), the Escrowed Common Stock and the Earn-Out Merger
Consideration.
(b)
Closing
Statements
. No later than five (5) Business Days prior to the Closing Date, the Company shall deliver to Parent a statement
(the “
Closing Date Holdings Statement
”), together with reasonable supporting documentation used in the preparation
of the Closing Date Holdings Statement, which sets forth in reasonable detail (x) the name and address of each Stockholder immediately
prior to the Effective Time and the aggregate amount of Existing Company Equity held by each such Stockholder, (y) the Existing
Company Equity ownership percentage next to the name of each Stockholder (the “
Allocation Percentage
”) and (z)
the Stockholder Allocation. Notwithstanding anything to the contrary herein, the parties hereto acknowledge and agree that each
of Parent, the Merger Subsidiaries and the Surviving Entity shall be entitled to rely on the Closing Date Holdings Statement as
setting forth a true, complete and accurate listing of all items set forth in the Closing Date Holdings Statement.
(c)
Closing
Date Payments
. At the Closing, after the filing of the Certificates of Merger and contemporaneously with receipt of proof of
acceptance (reasonably acceptable to Parent) of the Certificates of Merger by the Secretary of State (or any applicable division
thereof) of the State of Delaware or Florida, as applicable, and subject to the other terms and conditions set forth herein, Parent
shall, or shall cause the Merger Subsidiaries or the Surviving Entity to, make the following payments or deliveries, and assume
the following obligations, as the case may be:
(i) to
Continental Stock Transfer and Trust Company, as escrow agent (the “
Escrow Agent
”), the (A) Earn-Out Common
Stock, to be deposited into an escrow account (the “
Earn-Out Escrow Account
”) and (B) Escrowed Common Stock,
to be deposited into an escrow account (the “
Common Stock Escrow Account
”), in each case, which shall be established
pursuant to an escrow agreement, substantially in the form of
Exhibit E
attached hereto and subject to the reasonable comment
thereto by the Escrow Agent (the “
Escrow Agreement
”), by and among Parent, the Representative and the Escrow
Agent;
(ii) subject
to any withholding obligation as required by applicable Law and subject to the terms of
Section 2.13
, to the Transfer Agent,
the Common Stock Merger Consideration, which shall be payable by the Transfer Agent to the Stockholders (other than with respect
to Dissenting Shares) upon surrender and delivery of the documents provided in
Section 2.8(a)
and in accordance with their
respective Allocation Percentages as set forth in the Closing Date Holdings Statement and this Agreement; and
(iii) subject
to
Sections 2.7(d)(iv)
,
Section 6.11
,
Section 7.2(h)
and
Section 7.2(l)
, at the Second Effective Time
the Surviving Entity shall assume or payoff in full, on behalf of the Company, up to One Million Five Hundred Thousand Dollars
($1,500,000) (the “
Indebtedness Cap
”) of the Indebtedness set forth in the statement setting forth the Company’s
calculation of the estimated Indebtedness of the Company as of the close of business on the Closing Date (the “
Estimated
Closing Indebtedness Statement
”), together with reasonable supporting documentation used in such calculation, with all
components thereof prepared in accordance with Accounting Principles Consistently Applied and delivered to Parent no later than
three (3) Business Days before Closing.
(d)
Preparation
of the Final Closing Statement
.
(i) As
soon as practicable, but no later than forty-five (45) days after the Closing Date, the Surviving Entity shall prepare or cause
to be prepared, at its own expense, and deliver to the Representative, together with all work papers and back-up materials relating
thereto, a written statement setting forth the Surviving Entity’s final calculations of the (i) Working Capital as of
the Closing, and (ii) Indebtedness as of the Closing, together with reasonable supporting documentation used in such calculations
(the “
Final Closing Statement
”).
(ii) During
the thirty (30)-day period immediately following the Representative’s receipt of the Final Closing Statement, the Representative
will be permitted to review, during normal business hours and upon reasonable notice, the Surviving Entity’s books and records
and the working papers related to the preparation of the Final Closing Statement. The Final Closing Statement (including the determinations
included therein) will become final, binding and conclusive upon the Surviving Entity and the Representative (i) on the thirtieth
(30
th
)
day following the Representative’s receipt thereof, unless the Surviving Entity receives from the
Representative prior to such thirtieth (30
th
) day written notice of the Representative’s disagreement (a “
Dispute
Notice
”) with any account or determination set forth in the Final Closing Statement or (ii) on such earlier date as the
Representative notifies the Surviving Entity that it does not dispute the Final Closing Statement. Any Dispute Notice will specify
in reasonable detail the nature and dollar amount of any disagreement so asserted (collectively, the “
Disputed Items
”).
The Dispute Notice shall be limited to disputes or objections based on mathematical errors or based on the final calculations contained
in the Final Closing Statement not being calculated in accordance with the terms hereof. If the Representative timely delivers
a Dispute Notice, then the determination of the Common Stock Merger Consideration (in accordance with the resolution described
in clause (i) or (ii) below, as applicable) will become final, binding and conclusive upon the Surviving Entity and the Representative
on the first to occur of (i) the date on which the Surviving Entity and the Representative resolve in writing all differences they
have with respect to the Disputed Items or (ii) the date on which all of the Disputed Items that are not resolved by the Surviving
Entity and the Representative in writing are finally resolved in writing by the independent registered public accounting firm mutually
acceptable to the Representative and Parent (the “
Accounting Firm
”) in accordance with
Section 2.7(d)(iii)
.
The Representative shall be deemed to have agreed with all amounts and items contained in the Final Closing Statement to the extent
such amounts and items are not disputed in the Dispute Notice.
(iii) During
the thirty (30) days following delivery of a Dispute Notice, the Surviving Entity and the Representative will seek in good faith
to resolve in writing any differences that they have with respect to all of the Disputed Items. Any Disputed Item resolved in writing
by the Surviving Entity and the Representative will be deemed final, binding and conclusive on Parent, the Surviving Entity and
the Representative. If the Surviving Entity and the Representative do not reach agreement on all of the Disputed Items during such
thirty (30)-day period (or such longer period as they shall mutually agree), then at the end of such thirty (30)-day (or longer)
period, the Surviving Entity and the Representative will submit all unresolved Disputed Items (collectively, the “
Unresolved
Items
”) to the Accounting Firm to review and resolve such matters. The parties shall instruct the Accounting Firm (i)
not to assign a value to any item in dispute greater than the greatest value or lower than the lowest value assigned by the Surviving
Entity or the Representative, (ii) to make a final determination (the “
Final Determination
”) not later than
thirty (30) calendar days following submission of the Unresolved Items to the Independent Accounting Firm and (iii) to otherwise
make its determination consistent with the terms of this Agreement. The Accounting Firm will act as an expert and not an arbitrator
in conducting its services and may consider only those items which the Representative and the Surviving Entity are unable to resolve.
The Accounting Firm’s determination shall be based solely on written submissions of the Representative and the Surviving
Entity (i.e., not on an independent review). The Final Determination will be final, binding and conclusive on Parent, the Surviving
Entity and the Representative, effective as of the date the Accounting Firm’s written determination is received by the Surviving
Entity and the Representative. Each party will bear its own legal, accounting and other fees and expenses of participating in such
dispute resolution procedure. The fees and expenses of the Accounting Firm shall be allocated between the Representative (on behalf
of the Stockholders), on the one hand, and the Surviving Entity, on the other hand, based upon the percentage that the portion
of the contested amount not awarded to each party bears to the amount actually contested by such party. For illustrative purposes
only, if the Surviving Entity contests $500 of the Working Capital claimed by the Representative, and if the Accounting Firm ultimately
resolves the dispute by awarding the Representative $300 of the $500 contested, then the costs and expenses of the Accounting Firm
will be allocated 60% (i.e., 300 ÷ 500) to the Surviving Entity and 40% (i.e., 200 ÷ 500) to the Representative (on
behalf of the Stockholders).
(iv) Upon
the determination, in accordance with
Section 2.7(d)(i)
,
(ii)
and
(iii)
above, of the Final Closing Statement
and any Final Determination, using the amounts so determined pursuant to
Section 2.7(d)(i)
,
(ii)
and
(iii)
,
(A) (x) if the final calculation of Indebtedness exceeds the Indebtedness Cap, then Working Capital in the Final Closing Statement
will be reduced on a dollar for dollar basis through a reduction in the Net Cash Amount (which may be a negative number) or (y)
if the Indebtedness Cap exceeds the final calculation of Indebtedness, then the Common Stock Merger Consideration shall be increased
by Parent issuing, within three (3) Business Days after the determination of the Final Closing Statement, to the Stockholders on
a pro rata basis in accordance with the Stockholders’ Allocation Percentages as set forth on the Closing Date Holdings Statement
additional shares of Parent Common Stock with an aggregate value (based upon a price of four dollars ($4.00) per share) equal to
the amount by which the Indebtedness Cap exceeds the final calculation of Indebtedness and (B) giving effect to any adjustment
made pursuant to the immediately preceding clause (A), (x) if Working Capital exceeds Target Working Capital, then the Common Stock
Merger Consideration shall be increased by Parent issuing, within three (3) Business Days after the determination of the Final
Closing Statement, to the Stockholders on a pro rata basis in accordance with the Stockholders’ Allocation Percentages as
set forth on the Closing Date Holdings Statement additional shares of Parent Common Stock with an aggregate value (based upon a
price of four dollars ($4.00) per share) equal to the amount by which Working Capital exceeds Target Working Capital or (y) if
Target Working Capital exceeds Working Capital, then the Representative (on behalf of the Stockholders) shall remit, within three
(3) Business Days after the determination of the Final Closing Statement, to the Surviving Entity an amount in cash by wire transfer
of immediately available funds to an account designated in writing by the Surviving Entity equal to the amount by which Target
Working Capital exceeds Working Capital.
Section 2.8.
Exchange
of Letters of Transmittal and Certificates; Dissenting Shares
.
(a) Within
thirty (30) days following the date hereof, Parent shall mail or otherwise deliver a letter of transmittal in the form attached
as
Exhibit F
hereto (the “
Letter of Transmittal
”) to each Stockholder for return to Parent and instructions
for use in effecting the surrender of the Certificates and payment therefor.
(b) Upon
surrender of any Certificates (other than Certificates representing Dissenting Shares), together with a duly executed Letter of
Transmittal, at least two (2) Business Days prior to the Closing Date, to Parent, the holder of each Certificate shall receive
from Parent on the Closing Date (or, in the case of a Certificate surrendered with a duly executed Letter of Transmittal surrendered
less than two (2) Business Days prior to the Closing Date or after the Closing Date, as promptly as practicable following such
surrender) in exchange for the shares of Existing Company Equity formerly evidenced thereby (other than Certificates representing
Dissenting Shares), such Stockholder’s Allocation Percentage of the Merger Consideration as set forth in the Closing Date
Holdings Statement. The shares of Existing Company Equity evidenced by such Certificate so surrendered shall be cancelled;
provided
,
that notwithstanding the cancellation of such shares of Existing Company Equity, the former holder thereof (other than Certificates
representing Dissenting Shares) shall also remain entitled to receive, for such shares of Existing Company Equity so cancelled
(which, for the avoidance of doubt, does not include shares representing Dissenting Shares (which shall be entitled to the rights
set forth in
Section 2.8(f)
), its Allocation Percentage of the Earn-Out Merger Consideration, as set forth in the Closing
Date Holdings Statement.
(c) To
the extent that any Certificates are not surrendered pursuant to this
Section 2.8
, following the Effective Time, each share
of Existing Company Equity evidenced by a Certificate (other than Dissenting Shares) shall be cancelled, retired and shall cease
to exist and shall represent for all purposes only the right to receive the applicable consideration as provided for, and in accordance
with, the provisions, of this Agreement.
(d) In
the event that any Certificate (other than any Certificate representing Dissenting Shares) shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the registered holder of such lost, stolen or destroyed Certificate in form and
substance reasonably acceptable to Parent and the Merger Subsidiaries (if such affidavit is accepted before the Effective
Time) or the Surviving Entity (if such affidavit is accepted after the Effective Time), Parent or the Surviving Entity, as the
case may be, will issue in exchange for such lost, stolen or destroyed Certificate the applicable consideration in respect thereof
in the manner set forth in
Section 2.7
and
Section 2.8
.
(e) After
the Effective Time, there shall be no transfers on the stock transfer books of the Interim Surviving Entity of the shares of Existing
Company Equity that were outstanding immediately prior to the Effective Time. If, after the Second Effective Time, Certificates
(other than any Certificate representing Dissenting Shares) are presented to the Surviving Entity for transfer, they shall be canceled
and exchanged for the applicable consideration as provided for, and in accordance with, the provisions, of this Agreement.
(f) Notwithstanding
anything to the contrary set forth in this Agreement, no Existing Company Equity issued and outstanding immediately prior to the
Effective Time and in respect of which appraisal rights shall have been perfected in accordance with Section 607.1323 of the FBCA
in connection with the Mergers (collectively, “
Dissenting Shares
”) shall be converted into a right to receive
that portion of the Merger Consideration otherwise payable to the holder of such Dissenting Shares (a “
Dissenting Stockholder
”),
but shall instead be entitled to receive such consideration as may be determined to be due with respect to such Dissenting Shares
pursuant to the FBCA. Each Dissenting Stockholder who, in accordance with Section 607.1323 of the FBCA, becomes entitled to payment
of the “fair value” for such Dissenting Shares shall receive payment therefor from the Surviving Entity in accordance
with such Laws (but only after the value thereof shall have been agreed upon or finally determined pursuant to the FBCA);
provided
,
however
, that if any such Dissenting Stockholder shall have effectively withdrawn its demand for appraisal of such Dissenting
Shares or failed to perfect or lost its right to appraisal and payment of such Dissenting Shares under Section 607.1323 of the
FBCA, such Dissenting Stockholder shall forfeit the right to appraisal of such Dissenting Shares and each such Dissenting Share
shall thereupon be deemed to have been cancelled, extinguished and exchanged, as of the Effective Time, into and represent the
right to receive the applicable portion of the Merger Consideration otherwise payable to such Dissenting Stockholder. From and
after the Effective Time, subject to the other provisions of this
Section 2.8(f)
, all Dissenting Shares shall no longer
be outstanding and shall be deemed to be cancelled and retired and shall cease to exist, and each Dissenting Stockholder shall
cease to have any rights with respect to such Dissenting Shares, except any right that such holder may have to receive payment
therefor pursuant to Section 607.1323 of the FBCA. The Representative shall be responsible for administering matters pertaining
to Dissenting Shares and provide Parent with (i) prompt written notice of any demands received by the Company for appraisal of
shares of Existing Company Equity, any withdrawal of any such demand and any other demand, notice or instrument delivered to the
Company prior to the Effective Time pursuant to the FBCA that relates to such demand, and (ii) the opportunity to participate in
all negotiations and proceedings with respect to such demands. Except with the prior written consent of Parent, the Company shall
not make any payment with respect to, or settle or offer to settle, any such demands.
Section 2.9.
Earn-Out
Merger Consideration
.
(a) Following
the Closing Date, the Earn-Out Merger Consideration shall be determined and issued in accordance with this
Section 2.9
.
All issuances of Earn-Out Merger Consideration to the Stockholders or their respective designees shall be made no later than thirty
(30) days after the satisfaction of the conditions set forth in this
Section 2.9
and in accordance with each Stockholder’s
Allocation Percentage of the Earn-Out Merger Consideration, as set forth in the Closing Date Holdings Statement. Subject to distributions
made pursuant to
Section 2.7(d)(iv)
and
ARTICLE IX
, the Earn-Out Common Stock will be held in the Earn-Out Escrow
Account pursuant to
Section 2.7(c)(i)
and in accordance with the Escrow Agreement. Subject to any withholding obligation
as required by applicable Law and subject to the terms of
Section 2.13
, the Earn-Out Common Stock will be released from
the Earn-Out Escrow Account based upon the financial results of the Surviving Entity as follows (and any failure to meet such financial
results shall result in the cancellation of such Earn-Out Common Stock):
(i)
2016
Shares
.
(1) Two
Hundred and Fifty Thousand (250,000) shares of Earn-Out Common Stock (the “
2016 Shares
”) will be released from
the Earn-Out Escrow Account to the Transfer Agent, for the benefit of the Stockholders or their respective designees, in the event
that the Surviving Entity’s Gross Profit for calendar year 2016 exceeds $6,161,000 (the “
2016 Target
”)
but is less than the 2017 Target.
(2) In
the event that the Surviving Entity’s Gross Profit for calendar year 2016 exceeds the 2017 Target, then the 2017 Shares will
also be released from the Earn-Out Escrow Account to the Transfer Agent, for the benefit of the Stockholders or their respective
designees, and the Stockholders will not be entitled to any further Earn-Out Common Stock.
(3) In
the event that the Surviving Entity fails to achieve the 2016 Target, but its Gross Profit for calendar year 2016 is greater than
seventy-five percent (75%) of the 2016 Target, then a percentage of the 2016 Shares equal to the percentage of the 2016 Target
that is met will be released from the Earn-Out Escrow Account to the Transfer Agent, for the benefit of the Stockholders or their
respective designees.
(4) None
of the 2016 Shares will be released from the Earn-Out Escrow Account if the Surviving Entity fails to achieve at least seventy-five
percent (75%) of the 2016 Target after giving effect to
sub-clause (ii)(2)
below.
(ii)
2017
Shares
.
(1) Two
Hundred and Fifty Thousand (250,000) shares of Earn-Out Common Stock (the “
2017 Shares
”) will be released from
the Earn-Out Escrow Account to the Transfer Agent, for the benefit of the Stockholders or their respective designees, in the event
that the Surviving Entity’s Gross Profit for calendar year 2017 exceeds $7,102,600 (the “
2017 Target
”).
(2) If
the 2017 Target is met, any Gross Profit for 2017 that exceeds the 2017 Target may be applied by the Representative to any shortfall
in the 2016 Target to allow the Stockholders or their respective designees to obtain any portion of the 2016 Shares which were
not previously released.
(3) In
the event that the Surviving Entity fails to achieve the 2017 Target but its Gross Profit for calendar year 2017 is greater than
seventy-five percent (75%) of the 2017 Target, then a percentage of the 2017 Shares equal to the percentage of the 2017 Target
that is met will be released from the Earn-Out Escrow Account to the Transfer Agent, for the benefit of the Stockholders or their
respective designees.
(4) None
of the 2017 Shares will be released from the Earn-Out Escrow Account if the Surviving Entity fails to achieve at least seventy-five
percent (75%) of the 2017 Target.
(b) Subject
to any withholding obligation as required by applicable Law and subject to the terms of
Section 2.13
, the Earn-Out Warrants
will be issued based upon the financial results of the Surviving Entity as follows (and any failure to meet such financial results
shall result in the forfeiture and non-issuance of such Earn-Out Warrants):
(i)
2018
Warrants
.
(1) Two
Hundred and Fifty Thousand (250,000) of the Earn-Out Warrants (the “
2018 Warrants
”) will be issued by Parent
to the Stockholders or their respective designees in the event that the Surviving Entity’s Gross Profit for calendar year
2018 exceeds $8,407,830 (the “
2018 Target
”) but is less than the 2019 Target.
(2) In
the event that the Surviving Entity’s Gross Profit for calendar year 2018 exceeds the 2019 Target, then the 2019 Warrants
will also be issued by Parent to the Stockholders or their respective designees and the Stockholders will not be entitled to any
further Earn-Out Warrants.
(3) In
the event that the Surviving Entity fails to achieve the 2018 Target but its Gross profit for calendar year 2018 is greater than
seventy-five percent (75%) of the 2018 Target, then a percentage of the 2018 Warrants equal to the percentage of the 2018 Target
that is met shall be issued by Parent to the Stockholders or their respective designees.
(4) None
of the 2018 Warrants will be issued to the Stockholders or their respective designees if the Surviving Entity fails to achieve
at least seventy-five percent (75%) of the 2018 Target after giving effect to
sub-clause (ii)(2)
below.
(ii)
2019
Warrants
.
(1) Two
Hundred and Fifty Thousand (250,000) of the Earn-Out Warrants (the “
2019 Warrants
”) will be issued by Parent
to the Stockholders or their respective designees in the event that the Surviving Entity’s Gross Profit for calendar year
2019 exceeds $10,123,963 (the “
2019 Target
”).
(2) If
the 2019 Target is met, any Gross Profit for 2019 that exceeds the 2018 Target may be applied by the Representative to any shortfall
in the 2018 Target to allow the Stockholders or their respective designees to obtain any portion of the 2018 Warrants which were
not previously issued.
(3) In
the event that the Surviving Entity fails to achieve the 2019 Target but its Gross Profit for calendar year 2019 is greater than
seventy-five percent (75%) of the 2019 Target, then a percentage of the 2019 Warrants equal to the percentage of the 2019 Target
that is met shall be issued by Parent to the Stockholders or their respective designees.
(4) None
of the 2019 Warrants will be issued to the Stockholders or their respective designees if the Surviving Entity fails to achieve
at least seventy-five percent (75%) of the 2019 Target.
(c) Beginning
with the 2016 calendar year and ending after the 2019 calendar year, the Surviving Entity shall prepare, or cause to be prepared,
and shall deliver to the Representative no later than sixty (60) days after Parent and its Affiliates shall have finalized their
annual audited financial statements for the applicable calendar year, a statement of the Gross Profit of the Surviving Entity for
the applicable calendar year, and the Surviving Entity’s calculation of the Earn-Out Merger Consideration, if any, payable
for such period (the “
Earn-Out Statement
”). During the thirty (30)-day period immediately following the Representative’s
receipt of the Earn-Out Statement, the Representative will be permitted to review, during normal business hours and upon reasonable
notice, the Surviving Entity’s books and records and the working papers related to the preparation of the Earn-Out Statement.
The Earn-Out Statement (including the determinations included therein) will become final, binding and conclusive upon the Surviving
Entity and the Representative (i) on the thirtieth (30
th
)
day following the Representative’s receipt
thereof, unless the Surviving Entity receives from the Representative prior to such thirtieth (30
th
) day a Dispute Notice
with respect to any account or determination set forth in the Earn-Out Statement or (ii) on such earlier date as the Representative
notifies the Surviving Entity that it does not dispute the Earn-Out Statement. If the Representative delivers a Dispute Notice
with respect to any account or determination set forth in the Earn-Out Statement within thirty (30) days of its receipt of the
Earn-Out Statement, then all disputes of the parties with respect to any of the calculations contained in the Earn-Out Statement,
including the resolution of such disputes, shall be handled and administered in accordance with the procedures set forth in
Section
2.7(d)(ii)
,
Section 2.7(d)(iii)
and
Section 2.7(d)(iv)
.
(d) At
any time prior to the end of calendar year 2017: (i) if a Change of Control of Parent occurs, then (A) fifty percent (50%) of the
2016 Shares and fifty percent (50%) of the 2017 Shares, in each case, remaining in the Earn-Out Escrow Account shall be released
to the Stockholders and (B) fifty percent (50%) of the 2018 Warrants and fifty percent (50%) of the 2019 Warrants, in each case,
that have not been previously forfeited under this Agreement shall be issued to the Stockholders; or (ii) if a Key Person Termination
occurs, then (A) seventy-five percent (75%) of the 2016 Shares and seventy-five percent (75%) of the 2017 Shares, in each case,
remaining in the Earn-Out Escrow Account shall be released to the Stockholders and (B) seventy-five percent (75%) of the 2018 Warrants
and seventy-five percent (75%) of the 2019 Warrants, in each case, that have not been previously forfeited under this Agreement
shall be issued to the Stockholders. At any time after the end of calendar year 2017 but prior to the end of calendar year 2019:
(i) if a Change of Control of Parent occurs, then fifty percent (50%) of the 2018 Warrants and fifty percent (50%) of the 2019
Warrants, in each case, that have not been awarded or not been previously forfeited under this Agreement shall be issued to the
Stockholders; and (ii) if a Key Person Termination occurs, then seventy-five percent (75%) of the 2018 Warrants and seventy-five
percent (75%) of the 2019 Warrants, in each case, that have not been awarded or not been previously forfeited under this Agreement
shall be issued to the Stockholders. Notwithstanding anything contained herein to the contrary, in no event shall more than an
aggregate of seventy-five percent (75%) of the 2016 Shares or 2017 Shares be released from the Earn-Out Escrow Account or seventy-five
percent (75%) of the 2018 Warrants or 2019 Warrants be issued, in either case, pursuant to this
Section 2.9(d)
.
Section 2.10.
Buyback
.
Parent hereby unconditionally and irrevocably grants to each Stockholder a right, exercisable if Flexpoint Fund (the holder of
the Series A Preferred Stock of Parent) exercises in full its right to have its entire Series A Preferred Stock investment redeemed
by Parent (pursuant to Section 6(a) of Parent’s Certificate of Designation of Series A Convertible Preferred Stock, effective
October 11, 2013), to require Parent to repurchase (the “
Initial Buyback Right
”) a number of such Parent Common
Stock held by such Stockholder (the “
Buyback Shares
”) as follows:
(a) Parent
shall provide prompt written notice to the Representative (and the Representative shall promptly further notify each Stockholder
in writing) informing the Representative of the right of the Stockholders to exercise their Initial Buyback Right and thereby require
Parent to purchase Buyback Shares from the Stockholders;
(b) Within
twenty (20) days of the date of the notice by Representative to each Stockholder, each Stockholder desiring to exercise the Initial
Buyback Right shall provide written notice to the Representative of its intent to participate with the sale of Buyback Shares;
(c) Representative
must then provide Parent with written notice of each Stockholder’s intent to exercise the right to buy back the shares within
forty (40) days of Parent’s notice to the Representative of the right to require Parent to repurchase each Stockholder’s
Buyback Shares. Failure to provide such notice within this time frame will result in the termination of the Representative’s
and Stockholders’ rights under this
Section 2.10
.
(d) The
maximum number of Buyback Shares eligible for repurchase shall equal fifty percent (50%) of the shares of Parent Common Stock issued
in connection with the Mergers to the applicable Stockholder;
provided
,
however
, that if exercising Stockholders,
in the aggregate, have given notice to require Parent to repurchase less than all of the Buyback Shares (calculated for this purpose
as the total Buyback Shares available if all Stockholders were to participate in the Initial Buyback Right to the maximum extent),
then Parent shall provide written notice to the Representative within five (5) Business Days after the notice provided under
Section
2.10(c)
and the Representative shall within two (2) Business Days thereafter send written notice (the “
Undersubscription
Notice
”) to those Stockholders who fully exercised their Initial Buyback Right, of their further right (the “
Secondary
Buyback Right
”) to require Parent to repurchase all or any part of the balance of any such remaining unsubscribed Buyback
Shares from such Stockholders. To exercise such Secondary Buyback Right, an exercising Stockholder must deliver a notice to the
Representative within ten (10) days after the date of the Undersubscription Notice indicating such Stockholder’s intent to
exercise the Secondary Buyback Right and the Representative must then provide Parent with any such notices received by it within
fifteen (15) days after the date of the Undersubscription Notice. In the event there are two (2) or more such exercising Stockholders
that choose to exercise the Secondary Buyback Right for a total number of remaining shares in excess of the number available, the
remaining shares available for purchase under this
Section 2.1(d)
shall be allocated to such exercising Stockholders pro
rata based on the number of shares of Buyback Shares such exercising Stockholders have elected to purchase pursuant to the Secondary
Buyback Right.
(e) The
price per Buyback Share will be $4.00 per share.
(f) The
Buyback Shares must have been continuously held by the applicable Stockholder at all times following the Closing Date.
(g) In
connection with Parent’s repurchase obligation, Parent shall be permitted to repurchase the Buyback Shares over a reasonable
period of time in order to, among other things, provide Parent the opportunity to pursue financing, if applicable, on commercially
reasonable terms.
(h) The
claim by the Stockholders to cause Parent to repurchase the Buyback Shares will be subordinate to the rights of the Series A and
Series A-1 Preferred issued to Flexpoint Fund and Wellington, respectively, but shall be superior to the rights of other holders
of Parent Common Stock.
Section 2.11.
Representative
.
The Company hereby agrees that Gene M. Valentino shall be appointed as the Representative and as the attorney-in-fact for and
on behalf of each Stockholder, and is hereby authorized to take any and all actions and make any and all decisions required or
permitted to be taken by him under this Agreement or any Ancillary Agreement to which any Stockholder is a party, including the
exercise of the power to (i) resolve any Dispute Notices with respect to the Final Closing Statement or any Earn-Out Statement,
(ii) agree to, negotiate, enter into settlements and compromises of and comply with orders of courts with respect to any indemnification
claims, (iii) resolve any indemnification claims and (iv) take all actions necessary in the judgment of the Representative for
the accomplishment of the other terms, conditions and limitations of this Agreement, the Ancillary Agreements and any transactions
contemplated herein and therein. Accordingly, the Representative has the authority and power to act on behalf of each Stockholder
with respect to this Agreement or any Ancillary Agreement to which any Stockholder is a party. Each Stockholder will be bound
by all actions taken by the Representative in connection with this Agreement and Parent shall only be required to acknowledge
or act upon a written communication signed by the Representative. Such agency may be changed with respect to the Representative
by the majority of the Stockholders represented thereby;
provided
,
however
, that the Representative may not be removed
unless any such majority agrees to such removal and to the identity of a substituted agent reasonably acceptable to Parent. Notwithstanding
the foregoing, the Representative may resign at any time by providing written notice of his intent to resign to each Stockholder,
which resignation shall be effective upon the earlier of (i) thirty (30) calendar days following delivery of such written notice
or (ii) the appointment of a successor representative, reasonably acceptable to Parent, by the relevant majority. No bond shall
be required of the Representative and the Representative shall not receive any compensation for its services. The Representative
shall not be liable to the Stockholders for any act done or omitted hereunder as the Representative while acting in good faith
and in the exercise of reasonable judgment, even if such act or omission constitutes negligence on the part of the Representative.
The Representative shall only have the duties expressly stated in this Agreement and shall have no other duty, express or implied.
The Representative may engage attorneys, accountants and other professionals and experts and pay for such services by seeking
reimbursement from the Stockholders. The Representative may in good faith rely conclusively upon information, reports, statements
and opinions prepared or presented by such professionals, and any action taken by the Representative based on such reliance shall
be deemed conclusively to have been taken in good faith and in the exercise of reasonable judgment. The Stockholders shall jointly
and severally indemnify the Representative and hold the Representative harmless against any loss, liability or expense incurred
on the part of the Representative (so long as the Representative was acting in good faith in connection therewith) and arising
out of or in connection with the acceptance or administration of the Representative’s duties hereunder, including the reasonable
fees and expenses of any legal counsel retained by the Representative.
Section 2.12.
Taking
of Necessary Action; Further Action
. If at any time after the Second Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving Entity with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company or the Merger Subsidiaries, the officers and board of directors
of the Surviving Entity will be fully authorized in the name of the Company or the Merger Subsidiaries, as the case may be, to
take and shall take any and all such lawful and necessary action.
Section 2.13.
Withholding
.
Parent, the Surviving Entity, the Escrow Agent and any other Person making payment in accordance with the terms of this Agreement
will be entitled to deduct and withhold from any amount payable pursuant to this Agreement (including payments of Merger Consideration
and any payments of Earn-Out Merger Consideration) such amounts as such Person is required to deduct and withhold with respect
to the making of such payment under the Code or any other provision of any applicable Law. To the extent that any amounts hereunder
are so withheld, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the Person in
respect of whom such deduction and withholding were made.
ARTICLE
III
CLOSING
Section 3.1.
Closing
.
The closing of the transactions contemplated hereby (the “
Closing
”) shall take place at the offices of Dechert
LLP, Cira Centre, 2929 Arch Street, Philadelphia, PA 19104, at 10:00 A.M. on the fifth (5
th
) Business Day following
the satisfaction or waiver of the conditions set forth in
ARTICLE VII
(other than those conditions that by their terms
cannot be satisfied until the Closing, but subject to the satisfaction or waiver thereof), or on such other date and time and
at such other place as Parent and the Company shall mutually agree. The date of the Closing is herein called the “
Closing
Date
.” For financial accounting and Tax purposes, to the extent permitted by Law, the Closing shall be deemed to have
become effective as of 12:01 A.M. on the Closing Date.
Section 3.2.
Deliveries
and Proceedings at Closing
. Subject to the terms and conditions of this Agreement, at the Closing:
(a) the
Company or the Representative, as applicable, shall deliver or cause to be delivered to Parent and the Merger Subsidiaries the
certificates and other documents required to be delivered pursuant to
Section 7.2
.
(b) Parent
and the Merger Subsidiaries shall:
(i) deliver
or cause to be delivered, to the Escrow Agent (in accordance with
Section 2.7(c)(i)
), the Earn-Out Common Stock and the
Escrowed Common Stock;
(ii) in
accordance with
Section 2.7(c)(ii)
, deliver or cause to be delivered, to the Transfer Agent the Common Stock Merger Consideration
(subject to adjustment as provided herein);
(iii) deliver
or cause to be delivered the certificates and other documents required to be delivered pursuant to
Section 7.3
; and
(iv) assume
or pay (in accordance with the Payoff Letters delivered in accordance with the terms of
Section 6.11
hereof), or a combination
thereof in their sole discretion, on behalf of the Company, all Indebtedness (subject to the applicable adjustments provided in
Section 2.7(d)(iv)
) set forth in the Estimated Closing Indebtedness Statement.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed
in the Disclosure Schedule, the Company hereby represents and warrants to Parent and the Merger Subsidiaries as of the date of
this Agreement and as of the Closing Date as follows:
Section 4.1.
Organization
and Qualification; Subsidiaries
.
(a) The
Company is an entity duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its formation
or incorporation, and has all requisite entity power and authority to carry on its business as it now is being conducted, and to
execute, deliver and perform this Agreement and the Ancillary Agreements to which it is a party, and to consummate the transactions
contemplated hereby and thereby. Other than CSI Health, the Company does not own, directly or indirectly, any stock of or any other
equity interest in any other Person.
(b) The
Company is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions listed in
Section
4.1
of the Disclosure Schedule, which are the only jurisdictions where the nature of the property owned or leased by it or
the nature of the business conducted by it makes such qualification necessary, except such jurisdictions where the failure to be
so qualified or in good standing would not reasonably be expected to have, individually or in the aggregate, a Business Material
Adverse Effect. True and complete copies of the certificate of incorporation or bylaws of the Company, including all amendments
thereto, have been delivered to Parent and the Merger Subsidiaries prior to the Closing Date and, other than as expressly contemplated
by this Agreement, no amendment or other modification has been filed, recorded or is pending thereto. The Company is not currently
in default under or in violation of any provision of its certificate of incorporation or bylaws.
Section
4.1 of the Disclosure
Schedule sets forth a list of all of the officers and directors (or equivalent) of the Company as of the date hereof.
Section 4.2.
Authorization
.
(a) The
execution, delivery and performance by the Company of this Agreement and the Ancillary Agreements to which the Company is a party
and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and the Stockholders, subject to receipt of the Required Company Vote. This Agreement has been,
and each Ancillary Agreement to which the Company is a party will be, duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by the other parties hereto and thereto, this Agreement constitutes, and
each Ancillary Agreement will when executed and delivered will constitute, the valid and binding obligation of the Company enforceable
against the Company in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and similar Laws relating to or affecting creditors’ rights and remedies
generally, or by general equity principles.
(b) The
affirmative vote or written consent of the holders of at least a majority of the outstanding shares of capital stock of the Company
entitled to vote thereon (the “
Required Company Vote
”) is the only vote of the Stockholders required to approve
and adopt this Agreement and the transactions contemplated hereby, including the Mergers.
(c) The
information contained in the Closing Date Holdings Statement is true, complete and accurate.
Section 4.3.
No
Conflict
. Except as set forth in
Section 4.3
of the Disclosure Schedule, the execution, delivery and performance by
the Company of this Agreement and any Ancillary Agreement to which the Company is a party, and the consummation by the Company
of the transactions contemplated hereby and thereby, do not and will not, with or without the giving of notice or the lapse of
time, or both, (i) violate any provision of Law to which the Company is subject, (ii) violate any provision of the certificate
of incorporation or bylaws of the Company, (iii) violate any order, judgment or decree applicable to the Company, (iv) (A) violate,
(B) result in a breach of or constitute a default under (or an event which would, with the passage of time or the giving of notice,
or both, constitute a default), (C) result in the acceleration of, create in any party the right to accelerate, terminate, modify
or cancel or require any notice under or (D) require the consent of any third party that has not been obtained, in each case,
under any Material Contract to which the Company is a party or by which it may be bound or (v) result in the creation or imposition
of any Encumbrance of any nature whatsoever upon any assets or property of the Company.
Section 4.4.
Capitalization
.
(a)
Section
4.4(a)
of the Disclosure Schedule sets forth the amount of the Company’s authorized capital stock, the amount of its
issued and outstanding capital stock and the owners of such outstanding capital stock (such outstanding capital stock collectively,
the “
Existing Company Equity
”). All of the Existing Company Equity is duly authorized, validly issued, fully
paid, and non-assessable, was not issued in violation of any preemptive rights, the terms of the Company’s organizational
documents, or any agreement or other understanding binding upon the Company, and was issued in compliance with all Law. There are
no outstanding securities convertible into, exchangeable for or carrying the right to acquire equity securities of the Company,
or subscriptions, warrants, options, rights (including preemptive rights), stock appreciation rights, phantom stock interests,
or other arrangements or commitments obligating the Company to issue or dispose of any of its respective equity securities or any
ownership interest therein. The consummation of the transactions contemplated hereby will not cause any Encumbrances to be created
or suffered on the capital stock of the Company. There are no existing agreements, subscriptions, options, warrants, calls, commitments,
trusts (voting or otherwise), or rights of any kind whatsoever between the Company on the one hand and any Person on the other
hand with respect to the Existing Company Equity.
(b) Each
Stockholder has good and valid title to the number of securities of the Company set forth beside such Stockholder’s name
in
Section 4.4(a)
of the Disclosure Schedule, free and clear of all Encumbrances. Except for the securities of the Company
set forth in
Section 4.4(a)
of the Disclosure Schedule, no Stockholder owns any equity interests in the Company or any subscriptions,
warrants, options, or rights (including preemptive rights) to purchase any such equity interests or shares of capital stock or
any securities convertible into or exchangeable for such equity interests or shares of capital stock.
Section 4.5.
Financial
Statements
.
(a)
Section
4.5(a)
of the Disclosure Schedule sets forth the audited consolidated balance sheet of the Company and its Subsidiaries as
of December 31, 2014 and 2013 (the “
Balance Sheets
”), and the related audited consolidated statements of income,
stockholders’ equity (deficit) and cash flows of the Company for the fiscal years ended December 31, 2014 and 2013 (collectively,
the “
Year-End Financial Statements
”).
(b)
Section
4.5(b)
of the Disclosure Schedule sets forth the reviewed consolidated balance sheet of the Company and its Subsidiaries as
of September 30, 2015 (the “
Interim Balance Sheet
”), and the related unaudited consolidated statements of income,
stockholders’ equity (deficit) and cash flows of the Company for the nine (9)-month period ended September 30, 2015 (the
“
Interim Financials
” and, together with the Year-End Financial Statements, the “
Financial Information
”).
(c) The
Financial Information has been derived from the books and records of the Company. The Financial Information presents fairly in
all material respects the consolidated financial position and consolidated results of operations of the Company and its Subsidiaries
for the year or the period then ended in accordance with GAAP, except as otherwise noted therein, and subject, in the case of the
unaudited financial statements, to the absence of footnote disclosures and other presentation items and normal year-end reclassifications
and adjustments.
(d) The
Company maintains and complies with a system of accounting controls sufficient to provide reasonable assurances that its business
is operated, in all material respects, in accordance with management’s general or specific authorization and with applicable
Law and that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to
maintain accountability for items therein. The statutory books, records and accounts of the Company are in the possession (or under
the control) of the Company.
(e) There
exist no liabilities of the Company that are of a type required to be disclosed, reflected or reserved against pursuant to GAAP
in the Interim Balance Sheet except (i) as disclosed, reflected or reserved against in the Interim Financials, (ii) for items specifically
disclosed on
Section 4.5(a)
of the Disclosure Schedule, (iii) for liabilities and obligations incurred in the ordinary course
of business since September 30, 2015 (the “
Balance Sheet Date
”), and (iv) for liabilities that would not, individually
or in the aggregate, be material to the Business.
(f) The
Company’s auditors did not note any material weaknesses in internal controls for the year ended December 31, 2014.
Section 4.6.
Absence
of Certain Changes or Events
. Except in connection with the transactions contemplated hereby, since September 30, 2015, (i)
the Company has conducted the Business in the ordinary course, (ii) the Company has used its reasonable efforts to preserve for
the Business the goodwill of the customers, suppliers and others having business relations with it, (iii) there has been no Business
Material Adverse Effect, nor has any event or circumstance or series of related events or circumstances, occurred that would,
individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect and (iv) without limiting
the foregoing, and except as set forth in
Section 4.6
of the Disclosure Schedule, there has not occurred any action, event,
development, occurrence or failure to act that, if it had occurred after the date hereof, would have required the consent of Parent
pursuant to
Section 6.2
.
Section 4.7.
Title
.
The Company has good and marketable title to, or otherwise has the right to use pursuant to a valid and enforceable lease, license
or similar contractual arrangement, all of the assets and properties that it purports to own, lease or license (including those
reflected on the Interim Balance Sheet or acquired thereafter, but excluding any such assets and properties sold, consumed, or
otherwise disposed of in the ordinary course of business since the Balance Sheet Date) free and clear of all Encumbrances, except
for Permitted Encumbrances (collectively, the “
Assets
”). All Assets owned or leased by the Company are in the
possession of or under the control of the Company. The Assets are adequate for the purposes for which they are presently used
in the conduct of the Business. Except (i) as set forth in
Section 4.7
of the Disclosure Schedule, on the Closing Date,
the Assets will constitute substantially all of the assets and rights (including employees’ rights) necessary to conduct
the Business in substantially the same manner as the Business is presently and proposed to be conducted. Except as set forth in
Section 4.7
of the Disclosure Schedule, all items of personal property included in the Assets owned or leased by the Company,
including, without limitation, those that are reflected on the Interim Balance Sheet, which are necessary for the operation of
the Business as currently conducted, are in good operating condition and repair (except for ordinary wear and tear and routine
maintenance in the ordinary course of business), and usable in a manner consistent with their respective current use, and comply
with all applicable Laws.
Section 4.8.
Owned
Real Property
. The Company does not own, nor has owned at any time prior hereto, any real property.
Section 4.9.
Leases
.
(a)
Section
4.9(a)
of the Disclosure Schedule sets forth a true, correct and complete list of all leases, subleases, licenses or other
agreements (the “
Leases
”) for the use and occupancy of real property to which the Company is a party (the “
Leased
Real Property
”). True, correct and complete copies of all Leases and all amendments, modifications and supplemental agreements
thereto have previously been delivered to Parent. The term and rentals of each Lease are accurately set forth therein. The Leases
are in full force and effect, and are valid, binding and enforceable against the Company and, to the Company’s Knowledge,
each of the other parties thereto, in accordance with their respective terms and have not been modified or amended. The Company
has accepted possession of the Leased Real Property demised pursuant to the Leases and is in actual possession thereof and has
not sublet, assigned, encumbered or hypothecated its leasehold interest or granted any right of occupancy, possession or enjoyment
of any of the Leased Real Property to any other Person. The Company is not obligated to pay any leasing or brokerage commission
relating to any Lease that has not already been paid and will not have any obligation to pay any leasing or brokerage commission
upon the renewal of any Lease. No construction, alteration or other leasehold improvement work required by any of the Leases remains
to be paid for or to be performed by the Company. The Company has no obligation to provide any deposits, letters of credit or other
credit enhancements to retain its rights under any Lease (except as otherwise provided in such Lease) or otherwise operate its
business at the applicable Leased Real Property.
(b) The
Company enjoys peaceful and undisturbed possession of the Leased Real Property sufficient for current use and operations. The Company
and, to the Company’s Knowledge, each of the other parties to the Leases have performed all obligations required to be performed
by them thereunder, and have not received or delivered any notice of a default under, any of such Leases which has not been cured,
and, to the Company’s Knowledge, no event has occurred which, with notice or lapse of time, or both, would constitute a default.
To the Company’s Knowledge, (i) there are no material eminent domain, condemnation or other similar proceedings pending or
threatened against the Company or otherwise affecting any portion of the Leased Real Property, and the Company has not received
any notice of the same, (ii) the current use of the Leased Real Property in the conduct of the Business does not violate any instrument
of record or agreement affecting the Leased Real Property, and there is no violation of any covenant, condition, restriction, easement
or order of any Governmental Authority having jurisdiction over the Leased Real Property, or the use or occupancy thereof, except
for such violations as would not materially interfere with the continued use and operations of the Leased Real Property to which
they relate or materially adversely affect the value thereof for its current use, (iii) the Leased Real Property is in material
compliance with all applicable building, zoning, subdivision, health and safety and other land use and similar applicable laws,
rules and regulations affecting the Leased Real Property, and the Company has not received any notice of any material violation
or claimed material violation by any of them of any such laws, rules and regulations with respect to the Leased Real Property which
have not been resolved, (iv) there are no proposed special assessments, or proposed material changes in property tax or land use
or other Laws affecting the Leased Real Property, (v) there is no pending or threatened litigation, investigation or other proceeding
that would interfere with the use or quiet enjoyment of the Leased Real Property by the Company prior to or after the Closing,
(vi) all Permits required in connection with the operation of the Leased Real Property and all improvements thereon and the conduct
of the Business thereon have been duly obtained, are in full force and effect and no proceedings are pending or threatened which
could lead to a revocation or other impairment of any thereof, (vii) the water, gas, electricity and other utilities serving the
Leased Real Property are adequate to service the normal operations of the Company at the Leased Real Property and (viii) the building
and other improvements at the Leased Real Property are structurally sound and the systems located therein are in good working order
and condition in all material respects.
Section 4.10.
Working
Capital Assets
. All of the outstanding accounts and notes receivable of the Company reflected on the Interim Financials and
the accounts and notes receivable of the Company arising after the Balance Sheet Date (i) have arisen in the ordinary course of
business in connection with bona fide business transactions and (ii) constitute only valid, undisputed claims of the Company not
subject to claims of set off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course
of business. The reserve for bad debts shown on the Interim Financials or, with respect to accounts receivable arising after the
Balance Sheet Date, on the accounting records of the Company have been determined in accordance with GAAP.
Section 4.11.
Intellectual
Property
.
(a)
Section
4.11(a)
of the Disclosure Schedule lists, as of the date hereof, all issued Patents, registered Trademarks, registered Copyrights,
registered domain names and all applications for the registration or issuance of any of the foregoing, and material software owned
or licensed by the Company except for off-the-shelf software licensed under shrink wrap agreements having per annum license fees
of less than $25,000 per software title (collectively, the “
Business Registered Intellectual Property
”), indicating
as to each item as applicable: (i) the owner; (ii) the jurisdictions in which such item is issued or registered or in which any
application for issuance or registration has been filed; (iii) the respective issuance, registration, or application number of
the item; and (iv) the dates of application, issuance or registration of the item.
(b) Each
item of the Business Registered Intellectual Property is (i) subsisting in good standing, and not the subject of any pending or
threatened proceeding before any Governmental Authority challenging its extent, validity, enforceability or the Company’s
ownership thereof, and (ii) to the Company’s Knowledge, valid and enforceable. The Company has taken or will take prior to
the Closing Date, steps reasonably necessary to cause all necessary registration, maintenance and renewal fees due for payment
no later than the Closing Date in connection with such Business Registered Intellectual Property to be paid in a timely manner.
All registration, maintenance and renewal documents, declarations, affidavits and other filings due no later than the Closing Date
and necessary to maintain such Business Registered Intellectual Property against cancellation or abandonment have been or will
be filed, paid or taken in a timely manner with the relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be.
(c)
Section
4.11(c)
of the Disclosure Schedule lists, as of the date hereof, all written licenses, sublicenses, consents and other agreements:
(i) by
which the Company is authorized to use Intellectual Property that is used by the Company in its business, excluding license agreements
for off-the-shelf software licensed under shrink wrap agreements having per annum license fees of less than $25,000 per software
title;
(ii) by
which the Company authorizes a third party to use any Intellectual Property owned by the Company (other than non-exclusive licenses
granted in the ordinary course of business in connection with the sale or delivery of the products or services of the Company);
and
(iii) by
which any Intellectual Property is or has been developed for the Company, assigned to the Company or assigned by the Company to
a third party.
Except as set forth
in
Section 4.11(c)
of the Disclosure Schedule, the Company has delivered or made available to Parent copies of all of the
licenses, sublicenses, consents and other agreements described in the preceding clauses (i), (ii) and (iii) that are true, correct
and complete in all material respects, together with all material amendments thereto.
(d) Each
employee and third party contractor, subcontractor, consultant and agent engaged by the Company in the development of any Intellectual
Property used in the Business (including, for the avoidance of doubt, any computer software developed for use in the Business)
has executed and delivered to the Company valid and enforceable assignments of Intellectual Property rights sufficient to vest
irrevocably in the Company all right, title and interest in, including all Intellectual Property rights arising under, any such
development.
(e) The
Company has taken commercially reasonable steps to protect the material confidential information and trade secrets of the Business,
including to preserve the confidentiality of any Trade Secrets. Any disclosure by the Company of Trade Secrets to any third party
has been pursuant to the terms of a written agreement with such Person or is otherwise lawful. The Company has in place appropriate
written internal information security policies, which are published to employees and enforced, and which include guidelines for
the use, processing, confidentiality and security of the Company, customer, employee and other confidential data consistent with
applicable Law, contractual commitments of the Company and data privacy promises and other data policies published to customers.
(f) The
Company owns all right, title and interest in and to, or has a valid and enforceable license, sublicense, or right to use, all
of the Intellectual Property used in the Business, free and clear of all Encumbrances. The Company IPR is owned exclusively by
the Company, free and clear of all Encumbrances. The Company IPR, together with the Intellectual Property Rights licensed to the
Company under the licenses listed in
Section 4.11(c)(i)
of the Disclosure Schedule, constitutes all of the material Intellectual
Property used in the Business as currently conducted
.
Except for the license agreements listed in
Section 4.11(c)(ii)
of the Disclosure Schedule, the Company has not granted any options with respect to, or has otherwise encumbered or placed limitations
on any Company IPR or the Company’s use thereof.
(g) No
Software owned or co-owned by Company, or any other Company IPR, has been placed in escrow. Except as set forth in
Section 4.11(g)
of the Disclosure Schedule, no Software owned, purported to be owned, or developed for use in the Business includes, comprises
or was developed using any Software subject to open source, “copyleft” or similar licensing terms, including the GNU
General Public License, where such use or incorporation would (i) dedicate to the public domain such Software, (ii) otherwise require
the free licensure of such software or public disclosure of the source code of such Software to other Persons, or (iii) prevent
the Company from claiming ownership of or otherwise enforcing Intellectual Property rights in such Software.
(h) The
Company has not received any pending, unresolved notice, claim, demand or other assertion from any other Person, including for
the avoidance of doubt, any cease and desist letter or offer of license, (i) alleging any infringement, dilution or misappropriation
by the Company of any other Person’s Intellectual Property, (ii) challenging or questioning the right of the Company to use
any of the Intellectual Property used in connection with the operation and conduct of the Business or (iii) challenging the ownership,
use, validity or enforceability of any Intellectual Property owned by the Company. Except as set forth in
Section 4.11(h)
of the Disclosure Schedule, to the Company’s Knowledge (i) the operation of the Business as currently conducted does not
infringe upon, violate or constitute misappropriation of the Intellectual Property of any other Person, and (ii) to the Company’s
Knowledge, the Intellectual Property owned or licensed by the Company or used in the operation of the Business has not been infringed,
diluted or misappropriated by any other Person. Except as set forth in
Section 4.11(h)
of the Disclosure Schedule, the Company
is not a party to, and no Intellectual Property owned by the Company is the subject of, any pending, or to the Company’s
Knowledge, threatened proceedings or actions before any Governmental Authority (including the United States Patent and Trademark
Office or equivalent authority anywhere in the world) which involves a claim of infringement, unauthorized use, or violation of
any Intellectual Property of any third party or a challenge by a third party to the ownership, use, validity or enforceability
of any of any such Intellectual Property. Except as set forth in
Section 4.11(h)
of the Disclosure Schedule, there are no
unsatisfied judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a court, an administrative
agency or by an arbitrator) against the Company with respect to Intellectual Property owned by or licensed to the Company, and
the Company is not in breach or violation of any such orders, injunctions, decrees, stipulations or awards (whether rendered by
a court, an administrative agency or by an arbitrator).
(i) The
Company has at all times in the conduct of the Business complied in all material respects with the Telephone Consumer Protection
Act, Pub. L. No. 102-243 (1991), the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, Pub. L. 108-187,
privacy Laws, and other applicable Laws, governmental orders and industry self-regulation. Except as set forth in
Section 4.11(i)
of the Disclosure Schedule, (i) there are no proceedings pending or, to the Company’s Knowledge, threatened against the Company
alleging a violation of any person’s privacy, personal information, telemarketing, anti-spam, or data rights, and the consummation
of the transactions contemplated by this Agreement will not result in any such violation and (ii) since January 1, 2011, Company
has not received any written complaint regarding the Company’s collection, use or disclosure of personally identifiable information
or compliance with anti-spam, privacy or telemarketing Laws or governmental orders.
(j) All
material Software owned by the Company or used by the Company under license is in good working order and condition and is sufficient
in all material respects for the purposes for which it is used in the Business. The Company has not experienced any material defects
in design, workmanship or material in connection with the use of such Software that have not been corrected. To the Company’s
Knowledge, no such Software contains any computer code or any other procedures, routines or mechanisms which may: (A) disrupt,
disable, harm or impair in any material way such Software’s operation; (B) cause such Software to damage or corrupt any data,
storage media, programs, equipment or communications of the Company or its clients, or otherwise interfere with the Company’s
operations; or (C) permit any third party to access any such Software to cause disruption, disablement, harm, impairment, damage
or corruption (sometimes referred to as “traps”, “access codes” or “trap door” devices).
(k) The
material information technology system owned, licensed, leased and operated on behalf of, or otherwise held for use in the Business,
including all material computer hardware, software, firmware and telecommunications systems used in the Business, has performed
adequately since January 1, 2013 (subject to temporary problems arising in the ordinary course of business that did not materially
disrupt the operations of the Company). The Company has taken commercially reasonable steps to provide for the archival, back-up,
recovery and restoration of the critical business data of Company.
Section 4.12.
Contracts
.
Section 4.12
of the Disclosure Schedule sets forth a complete and accurate list of all of the following Contracts (each
a “
Material Contract
”) to which the Company is a party or by which it is bound:
(a) Contracts
for the sale of any material assets of the Company other than in the ordinary course of business or for the grant to any Person
of any preferential rights to purchase any of such assets other than in the ordinary course of business;
(b) Contracts
for joint ventures, partnerships or sharing of profits or proprietary information (except for fee splitting or residual payment
agreements entered into with independent agents in the ordinary course of business);
(c) Contracts
containing covenants of the Company not to compete with any Person in any geographical area or not to solicit or hire any Person
with respect to employment (or otherwise materially restricting the Company from freely engaging in any material business) or Contracts
containing covenants of any other Person not to compete with the Company in any line of business or in any geographical area or
not to solicit or hire any Person with respect to employment except, with respect to covenants not to solicit or hire, for any
such Contracts in the ordinary course with customers and suppliers;
(d) Contracts
entered into since January 1, 2011 relating to the acquisition (by merger, purchase of stock or assets or otherwise) of any operating
business or material assets or the capital stock of any other Persons but solely to the extent that the purchase price exceeds
$100,000;
(e) all
mortgages, indenture, notes, bonds or other Contracts evidencing or relating to Indebtedness (whether incurred, assumed, guaranteed
or secured by any Asset);
(f) any
Contract, other than customer Contracts, under which the Company is required to provide continuing indemnification or a guarantee
of obligations of any Person in excess of $100,000;
(g) any
Contract under which the Company has advanced or loaned any amount to any of its managers, directors, employees or executive officers;
(h) any
Contract between the Company, on the one hand, and any of its respective managers, directors or executive officers, on the other
hand, other than the Employment Contracts;
(i) Contracts
required to be listed in
Section 4.11(c)
of the Disclosure Schedule;
(j) all
Contracts with any labor union, trade union, works council or other employee representative body, including collective bargaining
Contracts;
(k) Contracts
with (i) suppliers of the Company that involve payments in excess of $100,000 per year or (ii) customers of the Company that involve
credit card revenue in excess of $250,000 during the twelve (12)-month period ending November 30, 2015;
(l) any
Contract with a Governmental Authority that is not a customer of the Company and which is not otherwise required to be disclosed
on
Section 4.12(k)
of the Disclosure Schedule;
(m) any
Contract under which the Company is obligated to make any capital commitment or expenditure in excess of $100,000;
(n) Contracts
for the storage, treatment, disposal, recycling, transportation, investigation, removal or remediation of Hazardous Substances;
(o) Contracts
providing for indemnification of any officer or director of the Company, other than any existing directors’ and officers’
insurance policy and as provided in the organizational documents of the Company, as currently in effect;
(p) all
agreements with any agent, sales person or independent contractor where either the 2015 taxable compensation paid to such party
exceeds or will exceed $100,000;
(q) all
(A) Contracts under which the Company is lessee of, or holds or uses, any machinery, equipment or vehicle or other tangible personal
property owned by a third party or (B) continuing Contracts for the future purchase of machinery or equipment (other than machinery
or equipment constituting inventory), in each case, that has an aggregate continuing liability in excess of $25,000 and that is
not terminable by the Company on no more than sixty (60) days’ notice without penalty or premium;
(r) each
of the Company’s customer contracts that include the following language: (i) “[the Company] is permitted to move funds
from the Settlement Account to the DDA(s) of the Client”; (ii) “[the Company] is expressly permitted to move funds
from the Payer’s specified Account to the DDA(s) of the Client”; (iii) “the Client authorizes [the Company]…to
initiate an ACH debit entry to the Client’s account… for the amount of any ACH Debit Entry representing a payment
previously made to the Client that is returned by the Payer’s RDFI for any reason”; or (iv) any similar language granting
the Company the authority to transfer funds on behalf of any customer; and
(s) other
Contracts (other than those listed in clauses (a) through (r) of this
Section 4.12
and other than the Employment Contracts)
(A) with a term longer than ninety (90) days from the date hereof that involve payments by the Company in excess of $100,000 per
year; or (B) with a term of less than one (1) year from the date hereof that involve payments by the Company in excess of $100,000,
that are not terminable without liability, premium or penalty on less than 30 days’ notice.
Except as set forth
in
Section 4.12
of the Disclosure Schedule, each Material Contract listed in
Section 4.12
of the Disclosure Schedule,
each Employment Contract and each Lease listed in
Section 4.9
of the Disclosure Schedule is valid and is binding on the
Company and, to the Company’s Knowledge, each other party thereto, and is in full force and effect. Except as set forth in
Section 4.12
of the Disclosure Schedule, the Company is not, nor, to the Company’s Knowledge, any other party thereto
is in default or breach in any material respect under the terms of, nor has the Company received any notice of any material default
or breach under, any such Material Contract or Lease, and no event or circumstance has occurred that, with the passage of time
or the giving of notice or both, would constitute a material default thereunder or would permit material modification, acceleration,
or termination of any such Material Contract or Lease or the loss of any material benefit thereunder. The Company has delivered
or made available to Parent true, correct and complete copies of all Material Contracts listed in
Section 4.12
of the Disclosure
Schedule and of all Employment Contracts, together with all amendments thereto.
Section 4.13.
Litigation
.
Except as set forth in
Section 4.13
of the Disclosure Schedule, as of the date hereof, there is, and during the past five
(5) years there has been, no Legal Proceeding pending or, to the Company’s Knowledge, threatened, against the Company or
any of its assets (or, to the Company’s Knowledge, against any of the officers or directors of the Company related to their
business duties, which interfere with their business duties, or as to which the Company has any indemnification obligations) at
law, in equity or otherwise, in, before, or by, any Governmental Authority. Except as set forth in
Section 4.13
of the
Disclosure Schedule, there are no material judgments or outstanding orders, writs, investigations, injunctions, decrees, stipulations
or awards against the Company or any of its assets, or with respect to the Business.
Section 4.14.
Compliance
with Laws; Permits
. During the past five (5) years, the Company has been in compliance in all material respects with all applicable
Laws. Except as set forth in
Section 4.14
of the Disclosure Schedule, during the past five (5) years, there has been no
Proceeding pending or, to the Company’s Knowledge, threatened by any Governmental Authority, nor has any Governmental Authority
notified the Company of its intention to conduct the same, with respect to (i) any alleged violation by the Company of any
Law or Permit or (ii) any alleged failure by the Company to have any Permit required in connection with the operation of
the Business. Except as set forth in
Section 4.14
of the Disclosure Schedule, the Company has all Permits that are material
to the Company’s business, and has made all notifications, registrations, certifications and filings with all Governmental
Authorities necessary for the operation of its business as currently conducted. Each Permit is in full force and effect and the
Company is in compliance with each such Permit in all material respects.
Section 4.15.
Environmental
Matters
.
(a) Except
as set forth in
Section 4.15
of the Disclosure Schedule:
(i) the
Company is and has been for the past five (5) years in compliance in all material respects with all Environmental Laws, which compliance
includes obtaining, maintaining in good standing, applying for timely renewal of and complying in all material respects with all
Permits required by applicable Environmental Laws (“
Environmental Permits
”);
(ii) the
Company has not received any, and to the Company’s Knowledge, there are no unresolved written or otherwise unambiguous, notices,
citations, summonses, orders, complaints, penalties, claims, investigations, requests for information, demands or reviews by any
Governmental Authority or any other Person in connection with the Business (i) with respect to any material violation or alleged
material violation of or material liability under any applicable Environmental Law, (ii) with respect to any alleged failure to
have or comply with any material Environmental Permit or (iii) with respect to the exposure to, presence, Release, treatment, storage,
disposal, recycling, transportation, or the making of arrangements for the treatment, storage, disposal, recycling or transportation,
of any Hazardous Substance, in each case that would individually or in the aggregate reasonably be expected to give rise to any
material liability of the Company under any Environmental Laws and, to the Company’s Knowledge, no such notice, citation,
summons, order, complaint, penalty, claim, investigation, request for information, demand or review against or involving the Company
or the Business has been threatened by any Governmental Authority or other Person;
(iii) no
Releases of, or exposure of any Person to, Hazardous Substances by the Company or, to the Company’s Knowledge, by any other
Person, have occurred at or from any Leased Real Property or any property formerly owned, operated or leased by the Company (while
owned, operated or leased by the Company), in each case that would individually or in the aggregate reasonably be expected to result
in any material liability of the Company;
(iv) the
Company has not assumed by Contract (including any indemnity agreement) or operation of Law the liability or obligation of any
other Person pursuant to Environmental Law.
(v) the
execution, delivery and performance by the Company of this Agreement and the Ancillary Agreements to which it is a party and the
validity and effectiveness immediately following the Closing of any Environmental Permit of the Company, do not and will not require
any consent, approval, authorization or other action by, or filing with or notification to, any Governmental Authority or any other
Person pursuant to Environmental Law; and
(vi) to
the Company’s Knowledge, no facts, events, circumstances or conditions exist, or existed, with respect to the Company, the
Business, any Leased Real Property or any real property formerly owned, operated or leased by the Company or in connection with
the Business that would reasonably be expected to result (with or without notice or lapse of time or both) in the Company incurring
a material liability pursuant to Environmental Law or in connection with any Hazardous Substance.
(b) The
parties acknowledge and agree that the Company makes no representation or warranty as to environmental matters, Environmental Laws
or Hazardous Substances except as set forth in this
Section 4.15
and in
Section 4.12(n)
, and notwithstanding anything
to the contrary contained in this Agreement, no other section of this Agreement will be deemed to constitute a representation or
warranty as to environmental matters, Environmental Laws or Hazardous Substances.
Section 4.16.
Employee
Benefit Matters
.
(a)
Section
4.16(a)
of the Disclosure Schedule sets forth a list of each Benefit Plan. None of the Benefit Plans are maintained, sponsored,
contributed to or required to be contributed to, for the benefit of employees who reside outside the United States.
(b) As
applicable with respect to the Benefit Plans, the Company has made available to Parent, true and complete copies of (i) each Benefit
Plan, including all amendments thereto (and in the case of an unwritten Benefit Plan, a written description thereof), (ii) all
current trust documents, investment management contracts, custodial agreements and insurance contracts relating thereto, (iii)
the current summary plan description and each summary of material modifications thereto, (iv) the most recent IRS determination
or opinion letter, (v) the three most recently filed annual reports (Form 5500 and all schedules thereto), (vi) the three most
recent summary annual reports, actuarial reports, financial statements and trustee reports, (vii) all records, notices and filings
made, or received, by the Company or any ERISA Affiliate during the last three years concerning IRS or Department of Labor audits
or investigations and “prohibited transactions” within the meaning of Section 406 of ERISA or Section 4975 of the Code
and (viii) all policies and procedures established to comply with the privacy and security rules of the Health Insurance Portability
and Accountability Act of 1996, as amended (“
HIPAA
”).
(c) The
Company is in compliance in all material respects with the provisions of ERISA, the Code and other Laws applicable to the Benefit
Plans. Each Benefit Plan has been maintained, operated and administered in compliance in all material respects with its terms and
all applicable Laws, including ERISA and the Code. Each Benefit Plan, which is an “employee pension benefit plan” within
the meaning of Section 3(2) of ERISA, and which is intended to meet the qualification requirements of Section 401(a) of the Code,
has received a determination letter from the IRS (or is comprised of a master, prototype, or volume submitter plan which has received
an opinion or advisory letter from the IRS) to the effect that such plan is qualified and exempt from federal income taxes under
Sections 401(a) and 501(a) of the Code, respectively, and nothing has occurred that would reasonably be expected to affect the
qualification of such Benefit Plan.
(d) The
Company and each ERISA Affiliate have complied in all material respects with the notice and continuation coverage requirements
of Section 4980B of the Code and the regulations thereunder with respect to each Benefit Plan that is a group health plan within
the meaning of Section 5000(b)(1) of the Code. Each Benefit Plan is in compliance in all material respects with HIPAA and the regulations
issued thereunder. Each Benefit Plan is in material compliance with the Patient Protection and Affordable Care Act and the Health
Care and Education Reconciliation Act (collectively, the “
Healthcare Reform Law
”), to the extent applicable.
The operation of each Benefit Plan will not result in the incurrence of a material penalty to the Company, any ERISA Affiliate
or Parent pursuant to the Healthcare Reform Law.
(e) All
contributions to, and payments from, any Benefit Plan which may have been required in accordance with the terms of such Benefit
Plan or any related document have been timely made.
(f) Neither
the Company, any ERISA Affiliate nor, to the Company’s Knowledge, any fiduciary, trustee or administrator of any Benefit
Plan, has engaged in or, in connection with the transactions contemplated by this Agreement, will engage in, any transaction with
respect to any Benefit Plan which would subject any such Benefit Plan, the Company, any ERISA Affiliate, the Merger Subsidiaries,
the Surviving Entity or Parent or any of their Affiliates to a tax, penalty or liability for a “prohibited transaction”
under Section 406 of ERISA or Section 4975 of the Code.
(g) No
Benefit Plan is now or at any time has been subject to Part 3, Subtitle B of Title I of ERISA or Title IV of ERISA. No asset of
the Company which is to be acquired by Parent or any of its Subsidiaries pursuant to this Agreement, is subject to any Encumbrance
under Code Section 401(a)(29), ERISA Section 302, Code Section 412 or ERISA Section 4068 or arising out of any action filed under
ERISA Section 4301(b).
(h) Neither
the Company nor any ERISA Affiliate has ever contributed to or been required to contribute to, or incurred any withdrawal liability,
within the meaning of Section 4201 of ERISA, to any Multiemployer Plan, nor does the Company or any ERISA Affiliate have any potential
withdrawal liability with respect to any Multiemployer Plan.
(i) No
Benefit Plan provides benefits, including death or medical benefits, beyond termination of service or retirement other than (i)
coverage mandated by law or (ii) death or retirement benefits under a Benefit Plan qualified under Section 401(a) of the Code and
neither the Company nor any of its Subsidiaries nor any ERISA Affiliate has made a written or oral representation promising the
same.
(j) The
Company’s execution of, and performance of the transactions contemplated by this Agreement will not either alone or in connection
with any other event(s) (i) result in any payment becoming due to any employee, former employee, director, or independent contractor
of the Company or any of its Subsidiaries, (ii) increase any amount of compensation or benefits otherwise payable under any Benefit
Plan, (iii) result in the acceleration of the time of payment, funding or vesting of any benefits under any Benefit Plan, (iv)
require any contributions or payments to fund any obligations under any Benefit Plan or (v) limit the right to merge, amend or
terminate any Benefit Plan. No payment which is or may be made by, from or with respect to any Benefit Plan, to any employee, former
employee, director, or independent contractor of the Company or any of its Subsidiaries, either alone or in conjunction with any
other payment, event or occurrence, will or could reasonably be characterized as an “excess parachute payment” under
Section 280G of the Code. No such employee, former employee, director, or independent contractor of the Company or its Subsidiaries
has any right to any “gross up” or other reimbursement for any Taxes resulting from any such “excess parachute
payments.”
(k) There
are no pending audits or investigations by any Governmental Authority involving any Benefit Plan and no pending or, to the Company’s
Knowledge, threatened, material claims (except for individual claims for benefits payable in the normal operation of the Benefit
Plans), suits or proceedings involving any Benefit Plan, any fiduciary thereof or service provider thereto, nor to the Company’s
Knowledge is there any reasonable basis for any such claim, suit or proceeding.
(l) Each
Benefit Plan that constitutes a “non-qualified deferred compensation plan” within the meaning of Section 409A of the
Code, complies in both form and operation with the requirements of Section 409A of the Code so that no amount paid pursuant to
any such Benefit Plan is subject to a tax under Section 409A of the Code.
(m) Neither
the Company nor any ERISA Affiliate has any commitment to modify or amend any Benefit Plan (except as required by Law, in the ordinary
course of business, or to retain the tax qualified status of any Benefit Plan). Neither the Company nor any ERISA Affiliate has
any commitment to establish any new benefit plan, program or arrangement.
(n) The
Company and each ERISA Affiliate has, for purposes of each Benefit Plan and for all other purposes, correctly classified all individuals
performing services for the Company as common law employees, leased employees or independent contractors, as applicable.
Section 4.17.
Taxes
.
Except as set forth in
Section 4.17
of the Disclosure Schedule:
(a) The
Company has been a “C corporation” as such term is defined in Section 1361(a)(2) of the Code at all times since its
date of formation.
(b) All
Tax Returns of the Company required to be filed on or before the Closing Date have been duly and timely filed. All such Tax Returns
are true, correct and complete and have been prepared in compliance with all applicable Laws, in each case in all material respects.
All Taxes due and owing by the Company (whether or not shown on any Tax Return) have been timely paid.
(c)
Section
4.17(c)
of the Disclosure Schedule sets forth an accurate and complete listing of (i) all types of Taxes paid, and all types
of Tax Returns filed by or on behalf of, the Company and (ii) all of the jurisdictions that impose such Taxes or with respect to
which the Company has a duty to file such Tax Returns (identifying each of the jurisdictions for which the Company is filing Tax
Returns and the types of Taxes paid in such jurisdiction).
(d) The
Company has withheld and paid to the appropriate Governmental Authority (or other Person) all Taxes required to have been withheld
and paid in connection with any amounts paid or owing to any Person. The Company has (i) at all times correctly classified those
Persons performing services as common law employees, leased employees, independent contractors, partners or agents for Tax purposes
and (ii) complied in all material respects with applicable reporting and record keeping requirements related thereto, including
filing of IRS Forms W-2 and 1099 (or other applicable forms).
(e) No
claim has been made in writing by any Governmental Authority in a jurisdiction where the Company does not pay Taxes or file Tax
Returns that the Company is or may be subject to Tax by that jurisdiction, and the Company is not aware of a reasonable factual
basis for any such claim or assertion.
(f) The
Company has not requested, offered to enter into or entered into any agreement or other arrangement, or executed any waiver, providing
for any extension of time within: (i) which to file any Tax Return for which the Company is or may be liable for Taxes; (ii) which
to file any elections, designations or similar filings relating to Taxes of the Company; (iii) which to pay or remit any Taxes
for which the Company is or may be liable; or (iv) pursuant to which any Governmental Authority may assess or collect Taxes for
which the Company is or may be liable. The Company has not waived, or has been asked to waive, any statute of limitations in respect
of Taxes which waiver is currently in effect.
(g) No
Tax Contest with regard to Taxes or Tax Returns of the Company is currently pending or has been threatened by any Governmental
Authority, and all deficiencies asserted or assessments made against the Company, if any, as a result of any Tax Contest have been
duly and timely paid in full. The Company has not received from any Governmental Authority any (i) written notice (or, to the knowledge
of the Company, unwritten notice or threat) indicating an intent to open a review of any Tax Return or initiate any Tax Contest,
(ii) written request for additional information related to Tax matters of the Company or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any Governmental Authority against the Company.
(h) There
are no Encumbrances for Taxes (other than Permitted Encumbrances) upon any of the assets of the Company, and no Governmental Authority
has threatened in writing that it is in the process of imposing any Encumbrance for Taxes on any assets of the Company.
(i) The
Company is not a party to, or is bound by, any Tax indemnity, Tax-sharing, Tax allocation or similar agreement or arrangement (in
each case, whether written or oral), and does not have any liability under any such agreement or arrangement that has been terminated.
(j) Other
than with respect to CSI Health, the Company does not hold or own any debt or equity interest in any other Person (in each case,
under either Tax or non-Tax principles).
(k) The
Company (i) has not agreed to and is not required to make any adjustments pursuant to Section 481(a) of the Code (or any similar
provision of state, local or non-U.S. Law) by reason of a change in accounting method, and no Governmental Authority has proposed
in writing any such adjustment or change in accounting method and (ii) does not have an application pending with any Governmental
Authority requesting permission for any changes in accounting methods.
(l) The
Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any Tax
period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for Tax purposes;
(ii) use of an improper method of accounting for a Tax period ending on or prior to the Closing Date; (iii) “closing agreement”
as described in Section 7121 of the Code (or any similar provision of state, local or non-U.S. Law) executed on or prior to the
Closing Date; (iv) intercompany transaction or excess loss account described in Treasury Regulations promulgated under Section
1502 of the Code (or any similar provision of state, local or non-U.S. Law); (v) installment sale or open transaction disposition
made on or prior to the Closing Date; (vi) prepaid amount received or deferred revenue accrued on or prior to the Closing Date;
or (vii) election under Section 108(i) of the Code (or any similar provision of state, local or non-U.S. Law).
(m) The
Company has timely filed with the appropriate Governmental Authority all abandoned or unclaimed property reports required to be
filed by or with respect to it, and such reports are true, accurate and complete in all material respects. The Company has properly
paid over (or escheated) to such Governmental Authority all sums constituting “abandoned property” as defined pursuant
to any state, local or non-U.S. Law. With respect to property for which the dormancy period may be running, the Company has reserved
sufficient sums to pay over (or escheat) to the appropriate Governmental Authority all amounts that reasonably may become due in
the future.
(n) The
Company has (i) not engaged in any “reportable transaction” as defined in Section 6707A(c)(i) of the Code or a “listed
transaction” as defined in Treasury Regulation Section 1.6011-4(b) or (ii) disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section
6662 of the Code.
(o) The
Company is not a party to any agreement, Contract, arrangement or plan that has resulted or could result, separately or in the
aggregate, in the payment of any “excess parachute payment” within the meaning of Section 280G of the Code (or any
similar provision of state, local or non-U.S. Law);
(p) The
Company (i) is not a party to any “closing agreement” as defined in Section 7121 of the Code (or any similar provision
of state, local or non-U.S. Law) or (ii) has not requested or received any Tax ruling from a Governmental Authority, in either
case that would have continuing effect after the Closing Date .
(q) The
Company (i) has not been a member of an affiliated group filing a combined, affiliated, consolidated, unitary or similar group
Tax Return (other than a group the common parent of which is the Company) and (ii) has no liability for the Taxes of any Person
under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or non-U.S. Law), or as a transferee or successor,
by Contract or otherwise .
(r) The
Company has not been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(s) The
Company has not distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that
was purported or intended to be governed in whole or in part by Section 355 or 361 of the Code (or any similar provision of state,
local or non-U.S. Law).
For purposes of this
Section 4.17
, each reference to the Company shall be deemed to include (i) any Person that was liquidated into, merged with
or is otherwise a predecessor to, the Company and (ii) other than for purposes of
Section 4.17(c)
, CSI Health.
Section 4.18.
Consents
and Approvals
. The execution, delivery and performance by the Company of this Agreement and the Ancillary Agreements to which
it is a party and the validity and effectiveness immediately following the Closing of any Permit of the Company, do not and will
not require any consent, approval, authorization or other action by, or filing with or notification to, any Governmental Authority
or any other Person in connection therewith, except (i) as set forth in
Section 4.18
of the Disclosure Schedule, and (ii)
for filings, consents, approvals or clearances where the failure to make any such filing or obtain any such consent, approval
or clearance would not prevent or materially delay the consummation by the Company of the transactions contemplated by this Agreement
and the Ancillary Agreements.
Section 4.19.
Employee
Relations
.
(a) Except
as set forth in
Section 4.19(a)
of the Disclosure Schedule, the Company is not: (i) a party to or otherwise bound by any
collective bargaining or other Contract with any labor union, trade union, works council or other employee representative body;
(ii) a party to, involved in, or to the Company’s Knowledge, threatened by, any labor dispute, unfair labor practice charge
or complaint, grievance or labor arbitration; or (iii) currently negotiating any Contract with any labor union, trade union, works
council or other employee representative body. The Company is not experiencing and within the past five (5) years, has not experienced
any strike, lockout, slowdown, work stoppage, or other labor dispute. There is not pending, nor has there been within the past
five (5) years, any union election petition, demand for recognition, or, to the Company’s Knowledge, union organizing activity
by or for the benefit of the employees of the Company.
(b) The
Company has been and is in compliance in all material respects with all applicable Laws respecting labor, employment and employment
practices, including but not limited to all applicable Laws respecting terms and conditions of employment and wages and hours,
unemployment insurance, workers’ compensation, equal employment opportunity, discrimination or harassment based on age, race,
sex, disability, religion, color, national origin or any other legally protected characteristic, immigration control, misclassification,
retaliation, plant closure and mass layoff issues, leaves of absence, occupational safety and health, and the payment and withholding
of Taxes. The Company has not been nor is it engaged in any unfair labor practice. Except as set forth in
Section 4.19(b)
of the Disclosure Schedule, there are no pending or to the Company’s Knowledge, threatened, Legal Proceedings against the
Company (whether under regulation, contract, policy or otherwise) asserted by or on behalf of any present or former employee or
job applicant of the Company (including by any Governmental Authority), including on account of or for (i) overtime pay, (ii) wages
or salary, (iii) any amount of vacation pay or pay in lieu of vacation time off, (iv) any amount of severance pay or similar benefits,
(v) unemployment insurance benefits, (vi) workers’ compensation or disability benefits, (vii) any violation of any Law relating
to employment terminations or layoffs, including but not limited to the Worker Adjustment and Retraining Notification (WARN) Act
and any similar state or local Law, (viii) any violation of any Law relating to employee “whistleblower” or “right-to-know”
rights and protections, (ix) any violation of any Law relating to the employment obligations of federal contractors or subcontractors,
(x) any violation of any Law relating to minimum wages or maximum hours of work, (xi) discrimination, retaliation or any other
violation of any Law relating to fair employment practices or equal employment opportunities, or (xii) any violation of any other
Law relating to labor, employment or employment practices, and the Company is not aware of any such claims which have not been
asserted.
(c) The
Company has properly classified for all purposes (including for all Tax purposes and for purposes of determining eligibility to
participate in any Benefit Plan) all employees, leased employees, consultants and independent contractors (including nurses and
recruiters), and has withheld and paid all required Taxes and made all appropriate filings in connection with services provided
by such persons to the Company. The Company has properly classified for all purposes all employees as exempt or nonexempt under
all applicable Laws. Except as set forth in
Section 4.19(c)
of the Disclosure Schedule, the employment of each employee
of the Company is terminable at will and no employee is entitled to severance pay or other benefits following termination or resignation,
except as otherwise provided by applicable Law.
(d)
Section
4.19(d)
of the Disclosure Schedule lists each employee of the Company who was terminated or laid off for any reason other than
for cause, or whose hours were reduced by more than fifty percent (50%), during the ninety (90) days preceding the date of this
Agreement, and for each such employee, sets forth: (i) the date of such termination, layoff or reduction in hours; and (ii) the
location to which the employee was assigned. No later than the Closing Date, the Company shall update
Section 4.19(d)
of
the Disclosure Schedule to reflect any such employment terminations, layoffs, or reductions in hours effective by the Company between
the date hereof and the Closing Date. The Company has not ordered or implemented a plant closing or mass layoff within the meaning
of the WARN Act or any similar state or local Law in the past three (3) years.
Section 4.20.
Transactions
with Related Parties
. Except for agreements related to employment with the Company, and except as set forth in
Section
4.20
of the Disclosure Schedule, there are no transactions, Contracts, arrangements or understandings between the Company,
on the one hand, and any director, officer or stockholder (or Affiliate thereof) of the Company or any Person that controls the
Company, on the other hand and the Company has not engaged in any such transaction within the last three (3) years.
Section 4.21.
Insurance
.
Except for insurance policies obtained by a merchant insuring equipment leased by the Company to such merchant and insurance
policies underlying Benefit Plans,
Section 4.21
of the Disclosure Schedule contains a complete and correct list of all policies
and contracts for insurance (including coverage amounts and expiration dates) of which the Company is the owner, insured or beneficiary
or covering any of the assets of the Company, together with descriptions of any “self-insurance” programs (collectively,
the “
Insurance Policies
”), copies of which have been made available or previously delivered to Parent. All premiums
due and payable have been timely paid. All Insurance Policies are in full force and effect and will continue in effect until Closing
(or if such policies are canceled or lapse prior to the Closing, renewals or replacements thereof will be entered into in the ordinary
course of business to the extent available on commercially reasonable terms) and the Company has not received any notice of cancellation
or non-renewal thereunder. There is no default with respect to any provision contained in any such policy, nor has there been any
failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by
the policy. Except as set forth in
Section 4.21
of the Disclosure Schedule: (i) there are no outstanding claims under the
Insurance Policies; (ii) there are no premiums or claims due under the Insurance Policies which remain unpaid beyond applicable
grace periods and no such policy is subject to any retroactive, retrospective or other similar type of premium adjustment other
than in the ordinary course of business (i.e., workers compensation audits); (iii) in the past two years, no notice of cancellation
or non-renewal with respect to, or disallowance (other than reservation of rights by the insurer) of any claim under, any Insurance
Policy has been received; and (iv) the Company has not been refused any insurance, nor have any of its coverages been limited by
any insurance carrier to which it has applied for insurance or with which has carried insurance during the last two (2) years.
Section 4.22.
Brokers
.
Neither the Company nor any of its Affiliates has retained a broker, finder, investment banking firm or financial advisor
to act on its behalf in connection with the transactions contemplated by this Agreement, and no other Person is or will be entitled
to receive any broker’s, finder’s, investment banker’s, financial adviser’s or similar fee in connection
with this Agreement or any of the transactions contemplated hereby based upon arrangements made by or on behalf of the Company
or its Affiliates.
Section 4.23.
Employment
Contracts; Compensation Arrangements; Officers and Directors
. Attached as
Section 4.23
of the Disclosure Schedule
is a true, correct and complete list setting forth (i) all written Contracts to which the Company is a party or by which it is
bound providing for the employment of any individual on a full-time, part-time or consulting or other basis and any such written
Contracts providing for severance, retention, change in control, transaction bonus or other similar payments to such individuals
(the “
Employment Contracts
”), and (ii) the names, titles, date of hire, exempt/nonexempt classification (for
employees) and current annual salary or other base compensation, including any bonus opportunity, if applicable, of all present
directors, officers, employees and consultants of the Company, whose rate of annual compensation, including any promised, expected
or customary bonus, equals or exceeds $100,000, together with a statement of the full amount of all remuneration paid by the Company
to each such Person during the twelve (12)-month period ended December 31, 2015.
Section 4.24.
Regulatory
Compliance
.
(a) The
Company has not made any voluntary disclosures under any FCPA Laws, or received written notice of any enforcement actions or threats
of enforcement actions against it under any FCPA Laws, and no Governmental Authority has notified the Company in writing of any
actual or alleged violation or breach by it. The Company is not undergoing any internal audit, review, inspection, investigation,
survey or examination of records (including any internal audit, review, inspection, investigation, survey or examination of records
conducted by independent counsel) specifically relating to, and initiated in order to audit, review, inspect, investigate, survey
or examine, the Company’s compliance with any FCPA Law. The Company is not party to any Legal Proceedings involving alleged
false statements, false claims or other improprieties relating to the Company’s compliance with applicable FCPA Laws.
(b) The
Company is not, and since its formation has not been, in violation of any of the country or list based economic and trade sanctions
administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control (“
OFAC
”)
that are described or referenced at http://www.ustreas.gov/offices/enforcement/ofac/ or as otherwise published from time to time.
Without limiting the foregoing, the Company has not provided, sold to, or otherwise transferred, without any required approval
from the U.S. Government, products, software, technology or services, directly or, to the Company’s Knowledge, indirectly,
to (i) Cuba, Burma, Iran, North Korea, Sudan or Syria, or any other country against which the United States maintains economic
sanctions or embargoes, (ii) any instrumentality, agent, entity or individual that is acting on behalf of any Governmental Authority
of such countries, (iii) nationals of such countries or (iv) any Sanctioned Person.
(c) The
Company (i) is not a Sanctioned Person or a Sanctioned Entity, (ii) does not have more than 10% of its assets located in Sanctioned
Entities and (iii) does not derive more than 10% of its operating income from investments in, or transactions with, Sanctioned
Persons or Sanctioned Entities.
Section 4.25.
Power
of Attorney
. Except as set forth in Section
4.25
of the Disclosure Schedule, no Person holds a power of attorney
to act on behalf of the Company
Section 4.26.
Parent
Common Stock
. Neither the Company nor any of its Affiliates owns beneficially or of record any shares of Parent Common
Stock or any securities convertible into, exchangeable for or carrying the right to acquire, any shares of Parent Common Stock.
Section 4.27.
Customers
and Suppliers
.
(a)
Section
4.27(a)
of the Disclosure Schedule lists the names of: (i) the ten (10) customers (including distributors) of the Company by
dollar volume (the “
Top Customers
”) during each of the fiscal years ended 2013, 2014 and 2015, and the aggregate
revenues attributable to each such customer in each such period; and (ii) the ten (10) suppliers/vendors from whom the most supplies
or services have been purchased for the Company (the “
Top Suppliers
”) during each of the fiscal years ended
2013, 2014 and 2015, and the aggregate expenditures attributable to each such supplier/vendor in each such period.
(b) None
of the Top Customers (i) has ceased or reduced, or has threatened in writing to cease or reduce, use of the Company’s
products, (ii) has sought, or is seeking, to reduce the price it will pay for the Company’s products or (iii) has indicated
that it will (A) otherwise adversely modify its business relationship with respect to the Company or (B) discontinue the purchase
of the Company’s products from the Surviving Entity at any time after the Closing on terms and conditions substantially the
same as those used in its current purchases from the Company. The Company does not provide any rebate, discount or similar program
(whether or not in writing) to any of the Top Customers.
(c) None
of the Top Suppliers (i) has ceased or reduced or has threatened to cease or reduce, the offer or sale of its supplies or
services used in connection with the Business, (ii) has sought, or is seeking, to increase the prices it will charge for its
supplies or services, (iii) has breached its obligations to the Company since January 1, 2015 that was not cured after a reasonable
period after notice from the Company, (iv) to the Company’s Knowledge, has at any time since January 1, 2015 failed to comply
with the quality, quantity or delivery standards of the Company or (v) has indicated that it will (A) otherwise adversely modify
its business relationship with the Company or (B) discontinue the offer or sale of supplies or services to the Surviving Entity
at any time after the Closing Date on terms and conditions substantially the same as those used in its current sales to the Company.
Alternative sources of supply, on similar terms and conditions, exist as of the date of this Agreement for all material goods or
services purchased by or supplied to the Company by the Top Suppliers. To the Company’s Knowledge, after the Closing, the
Top Suppliers will be able to deliver goods and services to the Surviving Entity in sufficient quantities to meet the Surviving
Entity’s requirements to continue the Business as presently conducted. The Company has not experienced and there does not
currently exist, any material quality control or similar problems with the supplies or services currently being supplied by any
of the Top Suppliers that remain unresolved on the date hereof.
(d) To
the Company’s Knowledge, none of the Top Customers or Top Suppliers has threatened to take any action described in this
Section
4.27
as a result of the consummation of the transactions contemplated by this Agreement.
Section 4.28.
Independent
Investigation
. In entering into this Agreement and each of the Ancillary Agreements, the Company has relied solely upon
its own investigation and analysis and the specific representations and warranties of Parent contained in
ARTICLE V
of this Agreement (including any that are subject to the Parent Disclosure Schedule) and in any Ancillary Agreement. The Company
acknowledges and agrees that, except for the specific representations and warranties of Parent contained in
ARTICLE V
of
this Agreement (including any that are subject to the Parent Disclosure Schedule) and in any Ancillary Agreement, none of Parent
or any representative of Parent makes or has made any representation or warranty, either express or implied to the Company or any
Stockholder, as to the accuracy or completeness of any of the information (including any projections, estimates or other forward-looking
information) provided or otherwise made available to the Company, the Stockholders or any of their respective Affiliates, stockholders,
members or representatives. The Company acknowledges and agrees that it has been furnished with, or given adequate access to, with
respect to Parent, all information and materials relating to Parent that it has requested and the representatives of Parent have
answered all inquiries that the Company has made of them concerning Parent and the Mergers.
Section 4.29.
No
Other Representations or Warranties
. EXCEPT AS AND TO THE EXTENT OF THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET
FORTH IN THIS ARTICLE IV AND ANY ANCILLARY AGREEMENT, NEITHER THE COMPANY NOR ANY STOCKHOLDER, NOR ANY REPRESENTATIVE OF THE COMPANY
OR ANY STOCKHOLDER MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED (INCLUDING WITH RESPECT TO VALUE, CONDITION, MERCHANTABILITY
OR SUITABILITY), WITH RESPECT TO THE COMPANY OR CSI HEALTH, OR ANY OF THEIR BUSINESSES, ASSETS OR LIABILITIES, THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER RIGHTS OR OBLIGATIONS TO BE TRANSFERRED DIRECTLY OR INDIRECTLY HEREUNDER OR PURSUANT
HERETO, TO PARENT, MERGER SUBSIDIARIES OR ANY OTHER PERSON.
ARTICLE
V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER
SUBSIDIARIES
Except as otherwise
disclosed in the Parent Disclosure Schedule, Parent and the Merger Subsidiaries hereby represent and warrant to the Company and
Stockholders as of the date of this Agreement and as of the Closing Date as follows:
Section 5.1.
Organization
.
Parent is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware,
and has all requisite corporate power and authority to carry on its business as it is now being conducted, and to execute, deliver,
and perform this Agreement and the Ancillary Agreements to which it is a party, and to consummate the transactions contemplated
hereby and thereby. Merger Sub One is a limited liability company wholly owned by Parent that is duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and has all requisite limited liability company power and authority
to carry on its business as it is now being conducted, and to execute, deliver, and perform this Agreement and the Ancillary Agreements
to which it is a party, and to consummate the transactions contemplated hereby and thereby. Merger Sub Two is a limited liability
company wholly owned by Merger Sub One that is duly organized, validly existing, and in good standing under the laws of the State
of Delaware, and has all requisite limited liability company power and authority to carry on its business as it is now being conducted,
and to execute, deliver, and perform this Agreement and the Ancillary Agreements to which it is a party, and to consummate the
transactions contemplated hereby and thereby.
Section 5.2.
Authorization
.
The execution, delivery and performance by Parent and the Merger Subsidiaries of this Agreement, and each Ancillary Agreement
to which Parent or a Merger Subsidiary is a party, and the consummation by Parent and the Merger Subsidiaries of the transactions
contemplated hereby and thereby have been duly authorized by all necessary corporate and/or limited liability company (as applicable)
action on the part of Parent and the Merger Subsidiaries, subject to receipt of the Parent Stockholder Approval. This Agreement
has been, and each Ancillary Agreement to which Parent or a Merger Subsidiary is a party will be, duly and validly executed and
delivered by Parent or the applicable Merger Subsidiary and, assuming due authorization, execution and delivery by the other parties
hereto and thereto, constitute, or will constitute, the valid and binding obligation of Parent or such Merger Subsidiary, enforceable
against Parent or such Merger Subsidiary in accordance with their respective terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar Laws relating to or affecting creditors’
rights and remedies generally.
Section 5.3.
No
Conflict
. Except as set forth in
Section 5.3
of the Parent Disclosure Schedule, the execution, delivery, and
performance by Parent and the Merger Subsidiaries of this Agreement, and any Ancillary Agreement to which Parent or a Merger Subsidiary
is a party, and the consummation by Parent and the Merger Subsidiaries of the transactions contemplated hereby and thereby do not
and will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of Law to which Parent
or a Merger Subsidiary is subject, (ii) violate any provision of the charter, the regulations or other organizational documents
of Parent or the Merger Subsidiaries, (iii) violate any order, judgment or decree applicable to Parent or a Merger Subsidiary,
(iv) (A) violate, (B) result in a breach of or constitute a default under (or an event which would, with the passage of time or
the giving of notice, or both, constitute a default), (C) result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel or require any notice under or (D) require the consent of any third party that has not been obtained,
in each case, under any Contract to which Parent or a Merger Subsidiary is a party or by which they may be bound or (v) result
in the creation or imposition of any Encumbrance of any nature whatsoever upon any assets or property of Parent or the Merger Subsidiaries.
Section 5.4.
Consents
.
The execution, delivery and performance by Parent and the Merger Subsidiaries of this Agreement and the Ancillary Agreements
to which each is a party, do not and will not require any consent, approval, authorization or other action by, or filing with or
notification to, any Governmental Authority or any other Person in connection therewith, except (i) as set forth in
Section
5.4
of the Parent Disclosure Schedule, (ii) for receipt of the Parent Stockholder Approval and (iii) for filings, consents,
approvals or clearances where the failure to make any such filing or obtain any such consent, approval or clearance would not prevent
or materially delay the consummation by Parent or the Merger Subsidiaries of the transactions contemplated by this Agreement and
the Ancillary Agreements.
Section 5.5.
Brokers
.
Neither Parent nor either Merger Subsidiary has retained a broker, finder, investment banking firm or financial advisor
to act on its behalf in connection with the transactions contemplated by this Agreement, and no other Person is or will be entitled
to receive any broker’s, finder’s, investment banker’s, financial adviser’s or similar fee in connection
with this Agreement or any of the transactions contemplated hereby based upon arrangements made by or on behalf of Parent or a
Merger Subsidiary.
Section 5.6.
SEC
Filings
.
(a) Parent
has filed and furnished in a timely manner all filings, reports, schedules, forms, prospectuses and registration, proxy and other
statements, in each case, required to be filed or furnished by it with or to the SEC (collectively, and in each case including
all schedules thereto and documents incorporated by reference therein, the “
Parent SEC Documents
”). As of their
respective effective dates (in the case of Parent SEC Documents that are registration statements filed pursuant to the requirements
of the Securities Act) and as of the respective dates of the last amendment filed with the SEC (in the case of all other Parent
SEC Documents), the Parent SEC Documents complied in all material respects with the requirements of the Exchange Act and the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder, each as in effect on the applicable date
referred to above, applicable to such Parent SEC Documents, and none of the Parent SEC Documents as of such respective dates contained
any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they were made, not misleading.
(b) Each
of the audited consolidated statements of income, changes in stockholders’ equity and cash flows of Parent and its consolidated
Subsidiaries included in or incorporated by reference into the Parent SEC Documents (including any related notes and schedules):
(i) have been prepared in accordance with GAAP applied on a consistent basis during the periods involved; and (ii) present fairly,
in all material respects, the consolidated financial position of Parent and its consolidated Subsidiaries as at the dates thereof
and the consolidated results of income, changes in stockholders’ equity and cash flows of Parent and its consolidated Subsidiaries
for the periods then ended.
(c) Parent
does not have any liabilities of a type required under GAAP to be reflected or reserved against except for liabilities reflected
or reserved against on Parent’s consolidated audited balance sheet as of September 30, 2015 (or the notes thereto) and not
heretofore paid or discharged or liabilities that would not, individually or in the aggregate, reasonably be likely to have a Parent
Material Adverse Effect.
Section 5.7.
Capitalization
.
(a) As
of the date of this Agreement, the authorized capital stock of Parent consists of 100,000,000 shares of Parent Common Stock and
1,000,000 shares of preferred stock, par value $0.001 per share (the “
Parent Preferred Stock
”), of which 14,410,027
shares of Parent Common Stock and 97,498 shares of Parent Preferred Stock, are issued and outstanding, all of which are validly
issued, fully paid and nonassessable.
(b) Parent
owns, either directly or indirectly, all of the issued and outstanding shares of capital stock (or other equity securities) in
the Merger Subsidiaries. Except as described in the Parent SEC Documents, there are no outstanding securities convertible into,
exchangeable for or carrying the right to acquire equity securities of Parent or either Merger Subsidiary, or subscriptions, warrants,
options, rights (including preemptive rights), stock appreciation rights, phantom stock interests, or other arrangements or commitments
obligating either Parent or a Merger Subsidiary to issue or dispose of any of its respective equity securities or any ownership
interest therein. The consummation of the transactions contemplated hereby will not cause any Encumbrances to be created or suffered
on the capital stock of Parent or the Merger Subsidiaries, other than Encumbrances created by the Company. There are no existing
agreements, subscriptions, options, warrants, calls, commitments, trusts (voting or otherwise), or rights of any kind whatsoever
between Parent or a Merger Subsidiary on the one hand and any Person on the other hand with respect to the capital stock of any
Subsidiary of Parent or a Merger Subsidiary. Other than as listed in
Section 5.7(b)
of the Parent Disclosure Schedule, neither
Parent nor either Merger Subsidiary owns, directly or indirectly, any stock of or any other equity interest in any other Person.
All shares of Parent Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the
instrument pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable.
(c) The
shares of Parent Common Stock to be issued pursuant to this Agreement will, upon issuance, be duly authorized, validly issued,
fully paid and non-assessable.
(d) Except
as set forth in
Section 5.7(d)
of the Parent Disclosure Schedule, there are no outstanding contractual obligations of Parent
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any capital stock of or other equity interests in Parent
and/or any of its Subsidiaries.
Section 5.8.
Litigation
.
Except as set forth in the Parent SEC Documents, as of the date hereof, there is, and during the past two (2) years there
has been, no Legal Proceeding pending or, to Parent’s Knowledge, threatened, against Parent or the Merger Subsidiaries or
any of their assets (or, to Parent’s Knowledge, against any of the officers or directors of Parent or the Merger Subsidiaries
related to their business duties, which interfere with their business duties, or as to which Parent or the Merger Subsidiaries
have any indemnification obligations) at law, in equity or otherwise, in, before, or by, any Governmental Authority. There are
no material judgments or outstanding orders, writs, investigations, injunctions, decrees, stipulations or awards against Parent
or the Merger Subsidiaries or any of their assets.
Section 5.9.
Compliance
with Laws
. Except as set forth in the Parent SEC Documents, since January 1, 2014, the business of Parent and the Merger
Subsidiaries has been conducted in all material respects in accordance with all applicable Laws. Since January 1, 2014, neither
Parent nor either Merger Subsidiary has received any written notice of any violation of Law. All Governmental Actions/Filings required
by Parent and the Merger Subsidiaries for the operation of its businesses as currently conducted have been obtained and are in
full force and effect and are being complied with in all material respects.
Section 5.10.
NASDAQ
Listing
. The Parent Common Stock is listed on the NASDAQ. Parent is in compliance in all material respects with the
requirements of the NASDAQ for continued listing of the Parent Common Stock thereon and there is no action or proceeding pending
or, to Parent’s Knowledge, threatened against Parent by the NASDAQ or the Financial Industry Regulatory Authority with respect
to any intention by such entities to prohibit or terminate the listing of the Parent Common Stock on the NASDAQ.
Section 5.11.
No
Prior Merger Subsidiary Operations
. The Merger Subsidiaries were formed solely for the purpose of effecting the Mergers
and have not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated
hereby.
Section 5.12.
No
Other Representations or Warranties
. EXCEPT AS AND TO THE EXTENT OF THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET
FORTH IN THIS
ARTICLE V
AND ANY ANCILLARY AGREEMENT, NEITHER PARENT NOR EITHER MERGER SUBSIDIARY MAKES ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED (INCLUDING WITH RESPECT TO VALUE, CONDITION, MERCHANTABILITY OR SUITABILITY), WITH RESPECT TO PARENT,
MERGER SUB ONE, MERGER SUB TWO OR ANY OF THEIR BUSINESSES, ASSETS OR LIABILITIES, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
OR ANY OTHER RIGHTS OR OBLIGATIONS TO BE TRANSFERRED DIRECTLY OR INDIRECTLY HEREUNDER OR PURSUANT HERETO TO THE COMPANY, THE STOCKHOLDERS
OR ANY OTHER PERSON.
Section 5.13.
Independent
Investigation
. In entering into this Agreement and each of the Ancillary Agreements, Parent and the Merger Subsidiaries
have relied solely upon their own investigation and analysis and the specific representations and warranties of the Company contained
in
ARTICLE IV
of this Agreement (including any that are subject to the Disclosure Schedule) and in any Ancillary Agreement.
Parent acknowledges and agrees that, except for the specific representations and warranties of the Company contained in
ARTICLE
IV
of this Agreement (including any that are subject to the Disclosure Schedule) and in any Ancillary Agreement, none of the
Company or any Stockholder, or any representative of the Company or any Stockholder makes or has made any representation or warranty,
either express or implied to Parent or the Merger Subsidiaries, as to the accuracy or completeness of any of the information (including
any projections, estimates or other forward-looking information) provided (including in any management presentations, information
or descriptive memorandum, certain “data rooms” maintained by the Company, Stockholders or any of their respective
representatives, supplemental information or other materials or information with respect to any of the above) or otherwise made
available to Parent or any of its Affiliates, stockholders, members or representatives. Parent acknowledges and agrees that it
has been furnished with, or given adequate access to, with respect to the Company, all information and materials relating to the
Company and the Stockholders that it has requested and representatives of the Company have answered all inquiries that Parent has
made of them concerning the Company.
ARTICLE
VI
COVENANTS AND AGREEMENTS
Section 6.1.
Access
and Information; Confidentiality
.
(a) From
the date hereof until the earlier of the Closing or the termination of this Agreement, the Company shall permit Parent and the
Merger Subsidiaries and their respective advisers and other representatives to have access to the Company’s properties, facilities,
books, records and employees and provide Parent and the Merger Subsidiaries and their respective advisers and other representatives
with such information as Parent from time to time reasonably may request with respect to the Company and its Subsidiaries. The
Company shall furnish, or cause to be furnished, to Parent and the Merger Subsidiaries any financial and operating data and other
information (including, without limitation, Tax information and the financial information required to be provided by the Company
pursuant to
Section 6.23
) that is available with respect to the Company as Parent shall from time to time reasonably request,
subject to any applicable Law, attorney-client privilege, or contractual restriction.
(b) From
and after the Closing, Parent and the Surviving Entity (and each Subsidiary thereof), on the one hand, and the Representative,
on the other hand, shall promptly afford to the other party and such other party’s designees and representatives reasonable
access to the books, records (including accountants’ work papers) and employees of the Surviving Entity and its Subsidiaries
to the extent necessary to permit, on the one hand, the Representative to determine any matter relating to the Representative’s
or the Stockholders’ rights and obligations, or, on the other hand, Parent’s or the Surviving Entity’s rights
and obligations, in each case, hereunder or relating to any period ending before the Closing.
(c) Notwithstanding
anything to the contrary in
Section 6.1(a)
or
(b)
, any such access by the parties (i) shall be during normal business
hours on reasonable notice, (ii) shall not be required where such access would be prohibited by applicable Law and (iii) shall
not otherwise unreasonably interfere with the conduct of the business of the party granting access. Unless otherwise consented
to in writing by Parent or the Representative, as applicable, neither the Surviving Entity, any Subsidiary thereof, the Representative
nor any Stockholder shall, for a period of seven (7) years after the Closing, destroy, alter or otherwise dispose of any of the
material corporate, financial, Tax and accounting books and records (which shall not include e-mails) of the Surviving Entity or
any Subsidiary, without first offering to surrender to the other party such books and records.
(d)
Confidentiality
of the Stockholders
. Each Stockholder acknowledges that the success of the Company after the Closing depends upon the continued
preservation of the confidentiality of certain information possessed by such Stockholder, that the preservation of the confidentiality
of such information by such Stockholder is an essential premise of the bargain between the Stockholders and Parent, and that Parent
would be unwilling to enter into this Agreement in the absence of this
Section 6.1(d)
. Accordingly, each Stockholder hereby
severally agrees with Parent that such Stockholder, its Affiliates and its and its Affiliate’s representatives shall not,
and that such Stockholder shall cause its Affiliates and such representatives not to, at any time on or after the Closing Date,
directly or indirectly, without the prior written consent of Parent, disclose or use, any information involving or relating to
the Business or the Company (other than in the case of a Stockholder that is a director, officer or employee of the Company, in
the course of fulfilling his or her duties to the Company in such capacity);
provided
, that the information subject to this
Section 6.1(d)
will not include any information generally available to, or known by, the public (other than as a result
of disclosure in violation hereof);
provided
,
further
, that the provisions of this
Section 6.1(d)
will not
prohibit any retention of copies of records or disclosure (A) required by any applicable Law so long as reasonable prior notice
is given to Parent and the Surviving Entity of such disclosure and a reasonable opportunity is afforded Parent and the Surviving
Entity to contest the same or (B) made in connection with the enforcement of any right or remedy relating to this Agreement
or the transactions contemplated hereby. Each Stockholder agrees that it shall be responsible for any breach or violation of the
provisions of this
Section 6.1(d)
by any of its Affiliates or its or its Affiliates’ representatives.
(e)
Confidentiality
of Parent
. Prior to the Closing, all information concerning the Company provided to or obtained by Parent in connection with
this Agreement and the transactions contemplated hereby shall be held and maintained by Parent in accordance with and subject to
the terms of the Non-Disclosure Agreement, dated September 13, 2013, between Parent and Legacy Securities Corp. (the “
Confidentiality
Agreement
”).
Section 6.2.
Conduct
of Business by the Company
. Prior to the Closing or the earlier termination of this Agreement, and except as otherwise contemplated
by this Agreement, set forth in
Section 6.2
of the Disclosure Schedule or consented to or approved by Parent in writing,
the Company covenants and agrees that it shall carry on the Business in the ordinary course and use commercially reasonable efforts
to preserve the properties, business, operations (including officers and employees), goodwill and relationships with suppliers
and customers of the Business and shall not undertake any of the following:
(a) amend
the organizational documents of the Company;
(b) adopt
a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a merger, consolidation,
restructuring, recapitalization or other reorganization;
(c) sell,
transfer, lease or otherwise dispose of any of its material assets, except in the ordinary course of business, or create any Encumbrance
on any of its material assets, except for Permitted Encumbrances;
(d) permit
any change in the assets, liabilities, sales, income or Business of the Company or in the Company’s relationships with suppliers,
customers or lessors, other than changes arising in the ordinary course of business, which assets have a value in excess of $100,000;
(e) (i)
permit any change in the policies or practices of the Company with regard to pricing, the extension of discounts or credits to
customers or collection of receivables from customers, (ii) fail to pay any creditor any material amount owed to such creditor
when due or (iii) grant any extensions of credit other than in the ordinary course of business;
(f) acquire
or agree to acquire (i) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other
manner, any Person or business or division thereof or (ii) any material assets, except, with respect to this clause (ii), (A) purchases
of inventory or supplies in the ordinary course of business or (B) other purchases of assets in the ordinary course of business
and not in excess of $100,000 for any purchase or series of related purchases;
(g) create,
incur, assume, modify, guarantee, endorse or otherwise become liable or responsible with respect to (whether directly, contingently
or otherwise) any Indebtedness other than Indebtedness not in excess of $25,000 and incurred in the ordinary course of business;
(h) place
any Encumbrance on any of the properties of the Company, other than Permitted Encumbrances;
(i) issue,
sell or create any Encumbrance on (i) the Existing Company Equity, any membership interests or other equity securities of the Company
or (ii) any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe for, any membership
interests or other equity securities;
(j) split,
combine, recapitalize or reclassify any Existing Company Equity or pay or set aside any distribution or other dividend (whether
in cash, equity or property, or any combination thereof) in respect of the capital stock of the Company;
(k) make
any loans, advances or capital contributions to, or investments in, any other Person, except in the ordinary course of business;
(l) except
(A) as required pursuant to Contracts existing and in force prior to the date of this Agreement described in
Section 4.12
or
Section 4.23
of the Disclosure Schedule or (B) as otherwise required by applicable Law, (i) grant or agree to grant any
material increase in the wages, salaries, bonus, benefits or other compensation payable or to become payable to, or any advance
or loan to, any of the Company’s current or former officers, directors, employees or independent contractors (other than
increases in salary in the ordinary course of business consistent with past practice to employees other than executive officers,
provided that such increases are not material in the aggregate), (ii) hire any new employee or enter into, terminate, adopt or
amend any employment agreement, restrictive covenant agreement, Benefit Plan or collective bargaining agreement, (iii) make any
award or grant under any Benefit Plan or (iv) fail to make contributions to Benefit Plans in accordance with past practice, the
terms of such Benefit Plans and applicable Law;
(m) waive,
release, assign, settle or compromise any Legal Proceeding;
(n) (i)
make any capital expenditures that are in the aggregate in excess of $100,000 or are or were not contemplated in the Company’s
annual budget, business plan or other similar projections or forecasts or (ii) fail to make any capital expenditures or conduct
research and development contemplated in the Company’s annual budget, business plan or other similar projections or forecasts;
(o) enter
into or materially modify any Contracts, arrangements or understandings between the Company, on the one hand, and any director,
officer or stockholder (or Affiliate thereof) of the Company or any Person that controls the Company, on the other hand;
(p) enter
into any material transaction, Contract or commitment outside the ordinary course of business, waive or permit the loss of any
Permit or right of substantial value or cancel any material debt or claim;
(q) amend,
modify, assign or terminate any of the Key Employee Agreements or the Support Agreements;
(r) sell,
assign, transfer, license or convey any rights under, or abandon, permit to be cancelled or otherwise dedicate to the public any
material Intellectual Property owned by the Company;
(s) change
or modify its credit, collection or payment policies or procedures as in effect on the date hereof in a manner materially adverse
to it or the Business;
(t) fail
to maintain its books of account and records consistent with its past practices and except as required by Law or applicable accounting
principles (including GAAP), make any material change in its accounting principles, methods, policies and procedures;
(u) (i)
change any Tax or accounting election, method, practice or policy, (ii) fail to pay any Tax as such Tax becomes due and payable,
(iii) file any amended Tax Return, or prepare or file any Tax Return in a manner inconsistent with past practice or applicable
Law, (iv) enter into any closing agreement, settlement or compromise of any claim or assessment, in each case in respect of Taxes
or (v) consent to any extension or waiver of any limitation period with respect to any claim or assessment for Taxes;
provided
,
that for purposes of this
clause (u)
, all references to the Company shall be deemed to include CSI Health; or
(v) enter
into any Contract with respect to, or otherwise agree or commit to, any of the foregoing.
Section 6.3.
Further
Assurances
.
(a) Subject
to the terms and conditions of this Agreement and
Section 6.3(b)
below, each of the parties hereto shall cooperate with
the other parties and use (and shall cause their respective Affiliates to use) their respective reasonable best efforts to promptly
(i) take, or cause to be taken, all actions, and do, or cause to be done, and assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to cause the conditions to Closing to be satisfied as promptly as reasonably practicable
and to consummate and make effective, in the most expeditious manner reasonably practicable, the transactions described herein,
including preparing and filing promptly and fully all documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents, (ii) obtain all approvals, consents, registrations,
waivers, permits, authorizations, orders and other confirmations from any Governmental Authority or third party necessary, proper
or advisable to consummate the transactions described herein, (iii) execute and deliver any additional instruments necessary to
consummate the transactions described herein and (iv) defend or contest any claim, suit, action or other proceeding brought by
a third party that would otherwise prevent or materially impede, interfere with, hinder or delay the consummation of the Mergers.
(b) The
Company and Parent shall cooperate and use commercially reasonable efforts to make, on a timely basis, all registrations, filings
and applications with, give all notices to, and obtain any approvals, orders, qualifications and waivers from a Governmental Authority
necessary for the consummation of the transactions contemplated hereby;
provided
,
however
, that except as otherwise
set forth herein, neither the Company or any of its Affiliates nor Parent or any of its Affiliates shall be required to commence
or be a plaintiff in any litigation or offer or grant any material accommodation (financial or otherwise) to any Person in connection
with any such registration, filing, application, notice, approval, order, qualification or waiver. The Company and Parent each
shall pay half of all fees associated with such registrations, filings, applications, notices, approvals, orders, qualifications
and waivers.
Section 6.4.
Public
Announcements
. Except as otherwise provided herein (including
Section 6.9
), the timing and content of all announcements
regarding any aspect of this Agreement, the Mergers and the other transactions contemplated hereby to the financial community,
Governmental Authorities, or the general public shall be mutually agreed upon in advance by the Company and Parent;
provided
,
however
, that the Company or Parent may make any such announcement which it in good faith believes, based on advice of counsel,
is required by Law. Notwithstanding the foregoing, each party shall use commercially reasonable efforts to consult with the other
parties prior to any such announcement to the extent practicable, and shall in any event promptly provide the other parties hereto
with copies of any such announcement. This
Section 6.4
shall not apply to communications by any party to its counsel, accountants
or other advisors or, if the substance of such communication would not reasonably be expected to require Parent to file a Form
8-K and/or make a disclosure under Regulation FD promulgated under the Exchange Act, to employees.
Section 6.5.
Consents
and Waivers
. Any consents, waivers, approvals and notices necessary, proper or advisable to consummate the transactions
described herein shall be in form and substance reasonably satisfactory to the Company and Parent, and executed counterparts of
any consents, waivers and approvals shall be delivered to the other party promptly after receipt thereof, and copies of such notices
shall be delivered to the other party promptly after the making thereof. Any costs incurred as payments to any Person with respect
to such consents, waivers, approvals and notices shall be borne by the party required to seek such consents, waivers, approvals
or notices;
provided
,
however
, that any such costs shall be borne by Parent only after the Closing. In the event
the Closing does not occur, any such costs shall be borne by the Person incurring such costs.
Section 6.6.
Post-Closing
Obligations of Parent and the Surviving Entity to Certain Employees
.
(a) Subject
to the terms of
Section 6.6(b)
with respect to the duration of certain benefits, Parent shall, or shall cause its Affiliates
to, continue to provide the Transferred Employees, during the period commencing at the Effective Time and ending on the first anniversary
of the Closing Date (or such earlier date as the applicable Transferred Employee’s employment terminates), with annual base
pay, annual bonus opportunities and benefits that are substantially similar in the aggregate to those provided by the Company immediately
prior to the Effective Time;
provided
,
however
, that Parent and its Affiliates shall not be required to provide equity-based
compensation to the Transferred Employees. Parent shall or shall cause its Affiliates to credit Transferred Employees for services
performed with the Company or its Affiliates on and prior to the Effective Time for purposes of vesting and eligibility under any
employee benefit plan sponsored by Parent for which Transferred Employees become eligible,
provided
that the foregoing shall
not apply with respect to benefit accrual under any defined benefit pension plan or to the extent that its application would result
in a duplication of benefits to any Transferred Employee with respect to the same period of service for such Transferred Employee.
(b) Each
Transferred Employee shall continue through the duration of calendar year 2016 to participate in the Surviving Entity’s 401(k)
plan and health plans on substantially the same terms as were available from the Company to such Transferred Employee prior to
Closing.
(c) Nothing
in this Agreement shall restrict the ability of Parent or its Affiliates to terminate the employment of any Transferred Employee
for any reason at any time after the Effective Time. Nothing in this
Section 6.6
or any other provision of this Agreement
shall (i) be construed to establish, amend or modify any benefit or compensation plan, program, agreement or arrangement (including
any Benefit Plan transferred to Parent or any of its Affiliates) or (ii) limit the ability of Parent or any of its Affiliates (including
the Surviving Entity) to amend, modify or terminate any benefit plan, program, agreement or arrangement at any time assumed, established,
sponsored or maintained by Parent or any of its Affiliates (including any Benefit Plan transferred to Parent or any of its Affiliates).
Section 6.7.
Insurance
.
Except as set forth in
Section 6.7
of the Disclosure Schedule, during the period from and after the date hereof until
the Effective Time, the Company shall maintain in full force and effect the policies of insurance listed in
Section 4.21
of the Disclosure Schedule, subject only to variations required by the ordinary operation of its businesses, or else will obtain,
prior to the lapse of any such policy, the same or, if not available upon commercially reasonable economic terms and conditions,
substantially similar coverage with insurers of recognized standing and approved by Parent in advance, such approval not to be
unreasonably withheld. The Company shall promptly advise Parent in advance in writing of any change of insurer or material change
of type of coverage in respect of the policies listed in
Section 4.21
of the Disclosure Schedule.