UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed
by the Registrant [X]
Check
the appropriate box:
[ ] |
Preliminary
Proxy Statement |
[ ] |
Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
[X] |
Definitive
Proxy Statement |
[ ] |
Definitive
Additional Materials |
[ ] |
Soliciting
Material Pursuant to §240.14a-12 |
SMARTPROS
LTD.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
[X] |
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title
of each class of securities to which transaction applies: |
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Common
stock, par value $.0001 per share, of SmartPros Ltd. (“SmartPros Common Stock”) |
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(2) |
Aggregate
number of securities to which transaction applies: |
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As
of November 6, 2015, an aggregate of 4,909,416 shares of SmartPros Common Stock, including the following: (i) 4,601,241 shares
of SmartPros Common Stock outstanding; and (ii) 308,175 shares of SmartPros Common Stock issuable upon exercise of outstanding
stock options. |
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(3) |
Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): |
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The
maximum aggregate value was determined as follows: (i) 4,601,241 shares of SmartPros Common Stock outstanding multiplied by
$3.57 per share; and (ii) 308,175 shares of SmartPros Common Stock issuable upon exercise of outstanding options multiplied
by $1.25 (the difference between $3.57 and the weighted average exercise price of $2.32 per share). |
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(4) |
Proposed
maximum aggregate value of transaction: |
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$16,811,649 |
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(5) |
Total
fee paid: |
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$1,693,
calculated by multiplying the proposed maximum aggregate value of the transaction by 0.0001007. |
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[X] |
Fee
paid previously with preliminary materials. |
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[ ] |
Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing. |
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Amount
Previously Paid: |
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Form,
Schedule or Registration Statement No.: |
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Filing
Party: |
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Date
Filed: |
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SmartPros
Ltd.
12
Skyline Drive
Hawthorne,
New York 10532
November
17, 2015
Dear
Stockholder,
You
are cordially invited to attend a Special Meeting of the stockholders of SmartPros Ltd. (“SmartPros”) to be held on
December 22, 2015 (the “Special Meeting”) starting at 9:00 A.M. Eastern Time, at the Comfort Inn located at 20 Saw
Mill River Road, Hawthorne, New York 10532.
At
the Special Meeting, you will be asked to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated as of October 21, 2015, among SmartPros Ltd. (“SmartPros”), DF Institute, LLC (“Parent”) and SPL
Merger Corp. (“Merger Sub”), a wholly-owned subsidiary of Parent (the “Merger Agreement”) and the merger
contemplated thereby (the “Merger”). Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and
into SmartPros and each outstanding share of common stock, par value $.0001, of SmartPros (“SmartPros Common Stock”),
other than shares held in treasury, shares held by Parent or Merger Sub, and dissenting shares, will automatically be converted
into the right to receive $3.57 in cash, less any applicable withholding taxes, as more fully described in the enclosed proxy
statement. You will also be asked to approve, solely on a non-binding, advisory basis, change of control payments and other compensation
that certain executive officers of SmartPros will receive in connection with the Merger. Finally, you will be asked to approve
a proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal
to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger.
The
attached proxy statement contains detailed information about the Special Meeting, the Merger Agreement and the Merger. A copy
of the Merger Agreement is attached as Annex A to the proxy statement. We encourage you to read the proxy statement, including
the Merger Agreement and all other attachments thereto, carefully and in their entirety. You may also obtain more information
about SmartPros from documents we have filed with the Securities and Exchange Commission.
After
careful consideration, the Board of Directors of SmartPros (the “Board”) (based upon, among other things, a recommendation
from a Special Committee of the Board comprised solely of independent directors that was established to review and evaluate potential
strategic transactions), has unanimously approved, adopted and declared advisable the Merger Agreement and the transactions contemplated
thereunder, including the Merger, and determined that the terms of the Merger, including the per share Merger consideration to
be received by stockholders of SmartPros, and the other transactions contemplated by the Merger Agreement are advisable and fair
to and in the best interests of SmartPros and its stockholders, and the Board unanimously recommends that you vote “FOR”
the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger, and
“FOR” the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor
of the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act requires that we seek a non-binding advisory vote from our stockholders
with respect to certain payments that will be made to SmartPros’ executive officers in connection with the Merger. Accordingly,
at the Special Meeting, you will also be asked to consider and vote upon a proposal to approve, solely on a non-binding, advisory
basis, change of control payments and other compensation that certain executive officers of SmartPros will receive in connection
with the Merger. The Board unanimously recommends that you vote “FOR” the proposal to approve, solely on a non-binding,
advisory basis, the change of control payments and other compensation that will be received by certain executive officers of SmartPros
in connection with the Merger.
Whether
or not you plan to attend the Special Meeting, please complete, sign, date and return, as promptly as possible, the enclosed proxy
card in the accompanying reply envelope or grant your proxy electronically over the Internet or by telephone. If you subsequently
attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted. If
you hold your shares in “street name,” you should instruct your bank, broker, trustee or other nominee how to vote
in accordance with the voting instruction form you will receive from your bank, broker, trustee or other nominee.
Your
vote is very important, regardless of the number of shares of SmartPros Common Stock you own. We cannot consummate the Merger
unless the Merger Agreement is approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares
of SmartPros Common Stock. Your failure to vote will have the same effect as a vote “AGAINST” the proposal to approve
and adopt the Merger Agreement and the transaction contemplated thereunder, including the Merger. If you hold your shares in “street
name,” the failure to instruct your bank, broker, trustee or other nominee how to vote your shares will have the same effect
as a vote “AGAINST” the proposal to approve and adopt the Merger Agreement and the transaction contemplated thereunder,
including the Merger.
If
you have any questions concerning the Merger or the proxy statement or if you would like additional copies of the proxy statement,
please contact Allen Greene, our Chief Executive Officer, by telephone (914) 517-1180 or by e-mail proxy@smartpros.com,
or our proxy solicitation agent, D.F. King & Co., Inc., by telephone at the (866) 342-2676 (Toll-free).
If
you require assistance in voting your shares of SmartPros Common Stock and you are a stockholder of record, please contact American
Stock Transfer & Trust Company, our transfer agent, by telephone toll-free at (800) 937-5449. If your shares are registered
in the name of a bank, broker, trustee, or other nominee, please follow the proxy instructions on the form you receive from the
nominee or contact the nominee for further assistance.
Thank
you in advance for your continued support and your consideration of this matter.
Sincerely,
/s/
Allen Greene |
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Allen Greene |
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Chairman
of the Board and
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Chief Executive Officer |
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SmartPros
Ltd.
12
Skyline Drive
Hawthorne,
New York 10532
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TIME: |
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9:00
A.M., Eastern Time, on December 22, 2015 |
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PLACE: |
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Comfort
Inn
20
Saw Mill River Road, Hawthorne, New York 10532. |
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ITEMS
OF BUSINESS: |
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Proposal
#1: To consider and vote to approve and adopt the Agreement and Plan of Merger, dated
as of October 21, 2015, by and among SmartPros Ltd. (“SmartPros”), DF Institute,
LLC (“Parent”) and SPL Merger Corp., a wholly-owned subsidiary of Parent
(“Merger Sub”), as it may be amended from time to time (the “Merger
Agreement”), and the transactions contemplated thereunder, including the merger
(the “Merger”). |
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Proposal
#2: To consider and vote to approve, solely on a non-binding, advisory basis, change of control payments and other compensation
that certain executive officers of SmartPros will receive in connection with the Merger. |
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Proposal
#3: To consider and vote upon a proposal to adjourn the Special Meeting, if necessary or appropriate, if there are insufficient
affirmative votes present at the Special Meeting to approve and adopt the Merger Agreement and the transactions contemplated
thereunder, including the Merger. |
RECORD
DATE: |
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Only
stockholders of record at the close of business on November 16, the date fixed by SmartPros’ Board of Directors (the
“Board”) as the record date for the Special Meeting, are entitled to notice of, and to vote at, the Special Meeting.
All stockholders of record on the record date are cordially invited to attend the Special Meeting in person. |
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PROXY
VOTING: |
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Your
vote is very important, regardless of the number of shares of common stock, par value
$.0001, of SmartPros (“SmartPros Common Stock”) you own. The Merger cannot
be completed unless the Merger Agreement and the transactions contemplated thereunder,
including the Merger, are adopted by the affirmative vote of the holders of a majority
of the outstanding shares of SmartPros Common Stock entitled to vote thereon. Even if
you plan to attend the Special Meeting in person, we request that you complete, sign,
date and return, as promptly as possible, the enclosed proxy card in the accompanying
pre-paid reply envelope or submit your proxy by telephone or the Internet prior to the
Special Meeting to ensure that your shares of SmartPros Common Stock will be represented
at the Special Meeting if you are unable to attend. If you fail to return your proxy
card and fail to submit your proxy by telephone or the Internet, your shares of SmartPros
Common Stock will not be counted for purposes of determining whether a quorum is present
at the Special Meeting and will have the effect of a vote “AGAINST”
the proposal to approve and adopt the Merger Agreement and the transactions contemplated
thereunder, including the Merger. |
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If
you are a stockholder of record, voting by ballot at the Special Meeting will revoke any vote previously submitted whether
by proxy, through the Internet or by telephone. If you hold your shares of SmartPros Common Stock through a bank, broker,
trustee or other nominee, you should follow the procedures provided by your bank, broker, trustee or other nominee in order
to vote. |
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RECOMMENDATION: |
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After
careful consideration, the Board (based upon, among other things, a recommendation from a Special Committee of the Board comprised
solely of independent directors that was established to review and evaluate potential strategic transactions) has unanimously
approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereunder, including the
Merger, and determined that the terms of the Merger, including the consideration per share to be received by stockholders
of SmartPros, and the other transactions contemplated by the Merger Agreement are advisable and fair to and in the best interests
of SmartPros and its stockholders, and the Board unanimously recommends that you vote “FOR” the proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger, “FOR” the approval,
solely on a non-binding, advisory basis, of the change of control payments and other compensation that certain executive officers
of SmartPros will receive in connection with the Merger, and “FOR” the proposal to adjourn the Special Meeting,
if necessary or appropriate. The Board recommends that you vote “FOR” approval of each of Proposal #1, #2 and
#3 set forth in this Notice of Special Meeting of Stockholders. |
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ATTENDANCE: |
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You
are entitled to attend the Special Meeting only if you were a holder of SmartPros Common Stock as of the close of business
on November 16, 2015, the date fixed by the Board as the record date for the Special Meeting, which we refer to as the record
date, or hold a valid proxy for the Special Meeting. You should be prepared to present photo identification for admittance.
If you are not a stockholder of record but hold shares through a bank, broker, trustee or other nominee (i.e., in “street
name”), please follow the proxy instructions on the form you received from your bank, broker, trustee or other nominee. |
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APPRAISAL
RIGHTS: |
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Stockholders
of SmartPros who do not vote in favor of or submit a proxy in favor of the proposal to adopt the Merger Agreement will have
the right to seek appraisal of the fair value of their shares of SmartPros Common Stock if they deliver a demand for appraisal
before the vote is taken on the Merger Agreement and the transaction contemplated thereunder, including the Merger, and comply
with all the requirements of Delaware law, which are summarized in the accompanying proxy statement and reproduced in their
entirety in Annex D to the accompanying proxy statement, and the Merger is consummated. |
WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY
CARD IN THE ACCOMPANYING PRE-PAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET.
By
Order of the Board of Directors,
/s/ Allen Greene |
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Allen Greene |
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Chairman
of the Board and
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Chief Executive Officer |
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SUMMARY
The
following summary highlights selected information in this proxy statement and may not contain all the information that may be
important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its Annexes and the documents referred
to in or incorporated by reference into this proxy statement. Each item in this summary includes a page reference directing you
to a more complete description of that topic. You may obtain the information incorporated by reference in this proxy statement
without charge by following the instructions under “Where You Can Find More Information” beginning on page 72 of this
proxy statement.
Parties
to the Merger (Page 20)
SmartPros
Ltd., which we refer to as “SmartPros”, “the Company”, “we”, “our” or “us”,
is a Delaware corporation headquartered in Hawthorne, New York. Our products and services are primarily focused in the accredited
professional areas of corporate accounting, financial management, public accounting, governmental and not for-profit accounting,
financial services, banking, engineering, legal, ethics and compliance, and information technology. We are a leading provider
of professional education products to Fortune 500 companies, as well as the major firms and associations in each of its professional
markets. SmartPros provides education and content publishing and development services in a variety of media including Web, CD-ROM,
video and live seminars and events. Our subscription libraries feature hundreds of course titles and 2,800 plus hours of accredited
education. Our proprietary Professional Education Center (PEC) Learning Management System (LMS) offers enterprise distribution
and administration of education content and information. Unless the context otherwise requires, references to SmartPros, the Company,
we, our or us in this proxy statement include SmartPros and its subsidiaries on a consolidated basis. Shares of SmartPros Common
Stock currently trade on the Nasdaq Capital Market under the symbol “SPRO”.
DF
Institute, LLC, (d/b/a Kaplan Professional Education), which we refer to as “DFI” or “Parent,” is
an Illinois limited liability company and an indirect wholly owned subsidiary of Kaplan, Inc. (“Kaplan”). Kaplan is
the largest subsidiary of Graham Holdings Company (NYSE: GHC) and serves over 1.2 million students globally each year through
its array of higher education, test preparation, professional education, English-language training, and university preparation,
and offerings to individuals, institutions, and businesses. Across its 75-plus year history, first as small test-prep pioneer
and then an early online education leader and now a global education provider, Kaplan has been recognized for expanding educational
access and using technology and learning science innovations to continually improve outcomes for its students and partners. Kaplan
has operations in over 30 countries, employs more than 19,000 full- and part-time professionals, and maintains relationships and
partnerships with more than 1,000 school districts, colleges, and universities, and over 2,600 corporations and businesses.
Kaplan
Professional Education helps professionals obtain in-demand certifications, licensing and designations that enable them to advance
and succeed in their careers. Through live and online instruction, Kaplan Professional Education provides test preparation, licensing,
continuing education, and professional development programs to businesses and individuals in the accounting, insurance, securities,
real estate, financial planning, and information technology, industries. SmartPros will become a wholly-owned subsidiary of DFI
and an indirect, wholly owned subsidiary of both Kaplan and Graham Holdings Company.
SPL
Merger Corp, which we refer to as “Merger Sub,” is a Delaware corporation that is a wholly-owned subsidiary of
Parent and was organized solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated
by the Merger Agreement, including the Merger. Under the terms of the Merger Agreement, Merger Sub will merge with and into SmartPros,
with SmartPros continuing as the surviving corporation and the separate corporate existence of Merger Sub will thereupon cease.
In
this proxy statement, we refer to the Agreement and Plan of Merger, dated as of October 21, 2015 as it may be further amended
from time to time, by and among SmartPros, Parent and Merger Sub, as the “Merger Agreement”, and the Merger of Merger
Sub with and into SmartPros as the “Merger”.
The
Special Meeting (Page 21)
Time,
Place and Purpose (Page 21)
The
Special Meeting will be held on December 22, 2015, starting at 9:00 A.M. Eastern Time, at the Comfort Inn located at 20 Saw Mill
River Road, Hawthorne, New York 10532.
At
the Special Meeting, holders of SmartPros’ Common Stock, will be asked to approve and adopt the Merger Agreement and the
transactions contemplated thereunder, including the Merger and approve the proposal to adjourn the Special Meeting, if necessary
or appropriate, to solicit additional proxies in favor of the proposal to approve and adopt the Merger Agreement and transactions
contemplated thereunder, including the Merger. Further, stockholders will be asked to approve, solely on a non-binding, advisory
basis, change of control payments and other compensation that certain executive officers of SmartPros will receive in connection
with the Merger pursuant to existing agreements with SmartPros.
Record
Date and Quorum (Page 21)
You
are entitled to receive notice of, and to vote at, the Special Meeting if you owned shares of SmartPros Common Stock at the close
of business on November 16, 2015, which SmartPros’ Board of Directors (the “Board”) has set as the record date
for the Special Meeting and which we refer to as the “record date.” You will have one vote for each share of SmartPros
Common Stock that you owned on the record date. As of the record date, there were 4,601,241 shares of SmartPros Common Stock outstanding
and entitled to vote at the Special Meeting. A majority of the shares of SmartPros Common Stock outstanding at the close of business
on the record date and entitled to vote at the meeting, present in person or represented by proxy at the Special Meeting, constitutes
a quorum for the purposes of the Special Meeting.
Vote
Required (Page 22)
Proposal
#1: Approval and adoption of the Merger Agreement and the transactions contemplated thereunder, including the Merger, requires
the affirmative vote, in person or by proxy, of the holders of a majority of the outstanding shares of SmartPros Common Stock
as of the record date.
Proposal
#2: Approval, on a non-binding, advisory basis, of change of control payments and other compensation that certain executive
officers of SmartPros will receive in connection with the Merger requires the affirmative vote, in person or by proxy, of a majority
of the votes cast at the Special Meeting.
Proposal
#3: Approval of the proposal to adjourn the Special Meeting, if necessary or appropriate, if there are insufficient affirmative
votes at the Special Meeting to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including
the Merger, requires the affirmative vote, in person or by proxy, of a majority of the votes cast at the Special Meeting.
On
October 21, 2015, SmartPros’ officers and directors, in their capacity as stockholders and one significant stockholder,
entered into Support Agreements with Parent which together represent approximately 27.1% of the outstanding shares of SmartPros
Common Stock (the “Support Agreements”). Under the Support Agreements, such stockholders have agreed to vote their
shares in favor of the approval and adoption of the Merger Agreement and the transactions contemplated thereunder, including the
Merger, and against any proposal made in opposition to, or in competition or inconsistent with, the Merger Agreement and the transactions
contemplated thereunder, including the Merger.
Voting;
Revocation of Proxies (Page 24)
Any
stockholder of record entitled to vote at the Special Meeting may submit a proxy by telephone, over the Internet, or by returning
the enclosed proxy card in the accompanying pre-paid reply envelope, or may vote in person at the Special Meeting. If your shares
of SmartPros Common Stock are held in “street name”
by
your bank, broker, trustee or other nominee you should instruct your bank, broker, trustee or other nominee on how to vote your
shares of SmartPros Common Stock using the instructions provided by your bank, broker, trustee or other nominee. If you fail to
submit a proxy or vote in person at the Special Meeting, or abstain, or you do not provide your bank, broker, trustee or other
nominee with instructions, as applicable, your shares of SmartPros Common Stock will not be voted on the Merger proposal, which
will have the same effect as a vote “AGAINST” of the proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereunder, including the Merger.
If
you are a stockholder of record, you have the right to revoke a proxy, whether delivered over the Internet, by telephone or by
mail, at any time before it is exercised, by voting at a later date through any of the methods available to you, by giving written
notice of revocation to our Corporate Secretary, which must be filed with the Corporate Secretary by the time the Special Meeting
begins, or by voting by ballot at the Special Meeting. Attending the Special Meeting, by itself, is not enough to revoke a proxy.
If you are a beneficial owner and wish to revoke your voting instructions you should follow the instructions provided by your
bank, broker, trustee or other nominee.
The
Merger (Page 25)
The
Merger Agreement provides that Merger Sub will merge with and into SmartPros, with SmartPros continuing as the surviving corporation
and doing business following the Merger, and the separate corporate existence of Merger Sub shall thereupon cease. As a result
of the Merger, SmartPros will cease to be a publicly-traded company. If the Merger is completed, you will not own any shares of
the capital stock of the surviving corporation. Assuming timely satisfaction of necessary closing conditions, we anticipate that
the Merger will be completed by year-end.
Merger
Consideration (Page 25)
In
the Merger, each outstanding share of SmartPros Common Stock (except for any shares held by SmartPros, Parent or Merger Sub and
shares held by stockholders who have properly exercised their appraisal rights) will be converted into the right to receive $3.57
in cash which amount we refer to as the per share Merger consideration, less any applicable withholding taxes. At the effective
time of the Merger, each outstanding stock option will become fully vested and will be cancelled and terminated and converted
into the right to receive cash equal to the excess, if any, of the per share Merger consideration of $3.57 over the per share
exercise price of such option, multiplied by the shares subject to such option, less any applicable tax withholding.
Reasons
for the Merger; Recommendation of the Special Committee and the Board (Page 32)
After
careful consideration of various factors described in the section entitled “The Merger — Reasons for the Merger; Recommendation
of the Board of Directors,” based upon, among other things, a recommendation from a Special Committee of the Board comprised
solely of independent directors that was established to review and evaluate potential strategic transactions (the “Special
Committee”), the Board has unanimously approved the terms of the Merger Agreement and the transactions contemplated thereunder,
including the Merger, determined that the Merger Agreement, including the per share Merger consideration to be received by stockholders
of SmartPros, and the transactions contemplated thereunder, including the Merger, are advisable and fair to and in the best interests
of SmartPros and its stockholders, and the Board approved and adopted the Merger Agreement and the transactions contemplated thereunder,
including the Merger, and unanimously recommends that you vote “FOR” the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereunder, including the Merger (the “Company Board Recommendation”),
and “FOR” the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies
in favor of the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including the
Merger.
In
considering the Company Board Recommendation, you should be aware that certain of our directors and executive officers have interests
in the Merger that are different from, or in addition to, your interests as a stockholder. The Special Committee and the Board
were aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the
Merger, and in recommending that the Merger Agreement and the transactions contemplated thereunder, including the Merger, be approved
and adopted by the stockholders of SmartPros. See the section entitled “The Merger — Interests of Certain Persons
in the Merger” beginning on page 41 of this proxy statement.
The
Board believes that the Merger is advisable and fair to and in the best interests of SmartPros and its stockholders and recommends
that the stockholders approve and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger.
The Board recommends that you vote “FOR” the approval and adoption of the Merger Agreement and the transactions
contemplated thereunder, including the Merger.
Opinion
of Berkery Noyes & Co., LLC (Page 36)
The
Special Committee and the Board received a written opinion, dated October 21, 2015, from SmartPros’ financial advisor, Berkery
Noyes & Co. LLC, (“Berkery”) to the effect that, as of that date and based upon and subject to the assumptions,
procedures, factors, limitations and qualifications stated in its written opinion, the $3.57 per share Merger consideration to
be received by SmartPros’ stockholders in the Merger is fair, from a financial point of view, to the stockholders. The full
text of Berkery’s written opinion, which sets forth assumptions made, procedures followed, matters considered and limitations
on the review undertaken in connection with the opinion is attached as Annex C to this proxy statement.
Berkery
provided the written opinion for the information and assistance of the Special Committee and the Board in connection with its
consideration of the approval of the Merger Agreement and the transactions contemplated thereunder, including the Merger. Berkery
did not recommend the amount or form of consideration payable pursuant to the Merger Agreement. Berkery’s opinion does not
address the merits of the underlying decision by SmartPros to enter into the Merger Agreement, the merits of the Merger as compared
to other alternatives potentially available to SmartPros or the relative effects of any alternative transaction in which SmartPros
might engage, nor is it intended to be a recommendation to any person as to how to vote on the proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereunder, including the Merger. Berkery received a fee of $50,000 for its
opinion. Berkery has also acted as the financial advisor to SmartPros in connection with the Merger and will receive a fee of
approximately $487,000 upon consummation of the Merger.
Financing
of the Merger (Page 41)
There
is no financing condition to the Merger. The Merger consideration is expected to be funded by Parent from its cash on hand.
Interests
of the Certain Persons in the Merger (Page 41)
In
considering the Company Board Recommendation, you should be aware that certain executive officers and directors of SmartPros have
interests in the transaction that are different from, or are in addition to, your interests as a stockholder. The Special Committee
and the Board were aware of these actual and potential conflicts of interest and considered them along with other matters when
it determined to recommend the Merger Agreement and the transactions contemplated thereunder, including the Merger. These interests
are described in more detail under the section entitled “The Merger — Interests of Certain Persons in the Merger”
beginning on page 41 of this proxy statement. These differing interests include the following:
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SmartPros’
employment agreement with Allen Greene, our Chief Executive Officer, provides that, in the event of a change of control, which
the closing of the Merger will constitute, Mr. Greene will receive a cash payment in the amount of his unpaid salary and expense
allowance to January 31, 2018, the termination date of the employment agreement, or approximately $927,000 if the Merger |
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occurs
between December 31, 2015 and January 15, 2016. If the effective time of the Merger occurs between December 15, 2015 and December
30, 2015 the cash payment will increase by approximately $18,500. If the effective time of the Merger occurs between January
16, 2016 and January 31, 2016 the cash payment will decrease by approximately $18,500 and thereafter will decrease by approximately
$18,500 for each half month period during which the effective time of the Merger occurs. For example, if the Merger occurs
between February 16, 2016 and February 28, 2016 the cash payment to Mr. Greene would be approximately $890,000. Mr. Greene
has not been offered a position with the Company surviving the Merger. |
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SmartPros’
employment agreement with Stanley Wirtheim, our Chief Financial Officer, provides that, in the event of a change of control,
which the Merger will constitute, and in the event he is not offered a position at the same salary with the company surviving
the Merger, he would receive a cash payment of $135,000. He has not been offered such position and therefore, will receive
such cash payment. |
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Pursuant
to the Merger Agreement, at the effective time of the Merger, each outstanding option will become fully vested, be cancelled
and terminated and converted into the right to receive cash equal to the excess of the per share Merger consideration of $3.57
over the per share exercise price of such option, multiplied by the number of shares subject to the option, less any applicable
tax withholding. As a result, upon the closing of the Merger, our officers and directors will collectively receive approximately
$351,420, with respect to outstanding options held by them. Mr. Greene will receive approximately $162,000, Mr. Fingerhut
will receive approximately $70,050, Mr. Fish will receive approximately $83,450 and Mr. Wirtheim will receive approximately
$30,450 with respect to outstanding options held by them, respectively. All other offices and directors will receive less
than $5,000 with respect to outstanding options held by them. |
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Pursuant
to the Merger Agreement and the terms of our restricted stock grants, at the effective time of the Merger all of such restricted
shares of SmartPros Common Stock, will become fully vested and no longer subject to forfeiture. Our officers and directors
hold 14,500 restricted shares subject to forfeiture and upon completion of the Merger will receive a total of $51,765 with
respect to these shares. |
After
the Merger, Parent shall, and shall cause SmartPros to, (i) until the sixth (6th) anniversary of the date on which the effective
time of the Merger shall occur, indemnify and hold harmless each individual who at the effective time of the Merger is, or at
any time prior to the effective time of the Merger was, a director or officer of SmartPros or of a subsidiary of SmartPros (with
respect to all claims, liabilities, losses, damages, judgments, fines, penalties, costs) and reasonable expenses in connection
with any civil, criminal, administrative or investigative action, whenever asserted, based on or arising out of, in whole or in
part, such prior service of an officer or director of SmartPros or of a subsidiary of SmartPros.
At
the Parent’s election, either (i) SmartPros shall obtain prior to the effective time of the Merger “tail” insurance
policies with a claims period of at least six (6) years from the effective time of the Merger with respect to the directors’
and officers’ liability insurance in amount and scope no less favorable than the existing policy of SmartPros for claims
arising from facts or events that occurred on or prior to the effective time of the Merger at a cost that does not exceed 250%
of the annual premium currently paid by SmartPros for D&O Insurance (as defined below); or (ii) Parent will provide, or cause
the surviving corporation to provide, for a period of not less than six (6) years after the effective time of the Merger, the
Indemnitees who are insured under SmartPros’ directors’ and officers’ insurance and indemnification policy with
an insurance and indemnification policy that provides coverage for events occurring at or prior to the effective time of the Merger
(the “D&O Insurance” ) that is no less favorable, taken as a whole, than the existing policy of SmartPros
or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, however,
that Parent and the surviving corporation shall not be required to pay an aggregate amount for the D&O Insurance during such
six (6) year period in excess of 250% of the annual premium currently paid by SmartPros for such insurance.
Material
U.S. Federal Income Tax Consequences of the Merger (Page 44)
The
receipt of cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign income or other tax laws. Generally, for U.S. federal income tax purposes,
if you are a U.S. holder (defined below in the section of this proxy statement entitled “The Merger—Material U.S.
Federal Income Tax Consequences of the Merger”), you will recognize gain or loss equal to the difference, if any, between
the amount of cash you receive pursuant to the Merger and your adjusted tax basis in the shares of SmartPros Common Stock converted
into cash pursuant to the Merger. If you are a non-U.S. holder (defined below in the section of this proxy statement entitled
“The Merger—Material U.S. Federal Income Tax Consequences of the Merger”), the receipt of cash pursuant to the
Merger will generally not be a taxable transaction to you under U.S. federal income tax laws unless you have certain connections
to the United States, but may be a taxable transaction to you under non-U.S. federal income tax laws, and you are encouraged to
seek tax advice regarding such matters. Because individual circumstances may differ, we recommend that you consult your own tax
advisor to determine the particular tax effects to you of the Merger.
You
should read the section of this proxy statement entitled “The Merger—Material U.S. Federal Income Tax Consequences
of the Merger” beginning on page 44 of this proxy statement for a more complete discussion of the material U.S. federal
income tax consequences of the Merger.
Litigation
Relating to the Merger (Page 41)
A
purported class action on behalf of the Company’s stockholders was filed on November 6, 2015 in the Supreme Court of the
State of New York, County of Westchester, captioned Jack Isaacs, individually and on behalf of all others similarly situated,
as Plaintiff, v. Allen S. Greene, Jack Fingerhut, John J. Gorman, Martin H. Lager, Leonard J. Stanley, SmartPros Ltd., DF Institute,
LLC and SPL Merger Corp., as Defendants (the “Action”).
The
Action relates to the Merger Agreement and the transactions contemplated thereunder, including the Merger.
The
Action alleges that the Board breached their fiduciary duties owed to the stockholders of the Company. It further alleges that
Parent and Merger Sub aided and abetted the Board in their breach of their fiduciary duties to the stockholders of the Company.
The
Action seeks relief: (i) declaring that the Action is properly maintainable as a Class action and certifying Plaintiff as Class
representative; (ii) enjoining Defendants, and their counsel, agents, employees and all persons acting under, in concert with,
or for them, from proceeding with, consummating, or closing the Merger Agreement and the transactions contemplated thereunder,
including the Merger, unless and until the Company adopts and implements a procedure or process to obtain an agreement providing
fair and reasonable terms and consideration to Plaintiff and the Class; (iii) rescinding, to the extent already implemented, the
Merger Agreement or any of the terms thereof, or granting Plaintiff and the Class rescissory damages; (iv) directing the individual
Defendants to account to Plaintiff and the Class for all damages suffered as a result of the individual Defendants’ wrongdoing;
(v) awarding Plaintiff the costs and disbursements of the Action, including reasonable attorneys’ and experts’ fees;
and (vi) granting such other and further equitable relief as the Court may deem just and proper.
We
believe that the Action is without merit and intend to assert a vigorous defense.
To
our Knowledge, there is no other pending litigation relating to the Merger.
The
Merger Agreement (Page 47)
Treatment
of Common Stock, Restricted Stock and Options (Pages 48, 49)
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Common
Stock. At the effective time of the Merger, each share of SmartPros Common Stock
issued and outstanding (except for any shares of SmartPros Common Stock held by SmartPros,
Parent or Merger Sub and shares held by stockholders of SmartPros who have properly exercised
their appraisal rights) will convert into the right to receive the per share Merger consideration
of $3.57 in cash, less any applicable withholding taxes.
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Options.
At the effective time of the Merger, each outstanding option will become fully vested
and will be cancelled and terminated and converted into the right to receive cash equal
to the excess, if any, of the per share Merger consideration of $3.57 over the per share
exercise price of such option, multiplied by the number of shares subject to such option,
less any applicable tax withholding.
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At
the effective time of the Merger each share of SmartPros Common Stock issued to officers
and employees which is subject to forfeiture, will become fully vested and therefore
the holders will have the right to receive the per share Merger consideration of $3.57
in cash, less any applicable tax withholding. |
No
Solicitation of Takeover Proposals (Page 53)
From
and after October 21, 2015, we are, with certain exceptions, subject to customary “no-shop” restrictions on our ability
to solicit or respond to alternative Takeover Proposals (as defined on page 55 of this proxy statement) from third parties, furnish
information to and engage in discussions with third parties regarding alternative Takeover Proposals, recommend an alternative
Takeover Proposal or enter into an
agreement with respect to
an alternative Takeover Proposal.
See
“The Merger Agreement — No Solicitation of Takeover Proposals” beginning on page 53 of this proxy statement
and see “The Merger Agreement — Termination Fees” beginning on page 62 of this proxy statement.
Conditions
to the Merger (Page 58)
The
respective obligations of SmartPros, Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver
of certain customary conditions, including: (i) the adoption of the Merger Agreement and the transactions contemplated thereunder,
including the Merger, by our stockholders; (ii) there not being any law, injunction or other judgment or ruling issued by any
governmental authority or other legal restraint or prohibition in effect preventing, restraining or prohibiting the consummation
of the Merger (each a “Restraint”); (iii) the accuracy of the representations and warranties of the parties; (iv)
compliance by the parties with their respective obligations under the Merger Agreement; (v) the receipt of required consents from
(x) an industry group that regulates a CPA continuing education and approves certain of SmartPros’ products and (y) certain
counterparties to material business contracts necessary to assign such contracts to the surviving corporation; (vi) stockholders
holding no more than 5% of the shares of SmartPros Common Stock having exercised appraisal rights under the Delaware General Corporation
Law, or the DGCL; (vii) the completion of certain employment and consulting arrangements with certain current officers of SmartPros;
(viii) SmartPros’ satisfaction of certain financial conditions; (ix) the termination or amendment of certain of SmartPros’
contracts and benefit plans; (x) within 20 business days of the date of the Merger Agreement, Parent, in its reasonable discretion,
shall have received from certain SmartPros customers reasonable assurances that such customer intends to continue doing business
with the Company under the ownership of Parent in a manner reasonably comparable to past experience (Parent has advised us that
they were reasonably satisfied with the assurances provided in each customer call accordingly, this obligation has been satisfied);
and (xi) there not having occurred a material adverse effect with respect to SmartPros.
Termination
(Page 59)
We
and Parent may, by mutual written consent, terminate the Merger Agreement and the transactions contemplated thereunder, including
the Merger, at any time prior to the effective time of the Merger.
The
Merger Agreement may also be terminated and the Merger abandoned at any time prior to the effective time of the Merger as follows:
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by
either SmartPros or Parent, if: |
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the
Merger has not been consummated on or before April 30, 2016 (the “Walk Away Date”)
(but this right to terminate will not be available to a party if the failure of the Merger
to have been consummated on or before the Walk Away Date was primarily due to the failure
of such party to perform any of its obligations contained in the Merger Agreement);
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any
Restraint shall be in effect enjoining, restraining, preventing or prohibiting consummation of the Merger or making the consummation
of the Merger illegal and such Restraint shall have become final and nonappealable (but this right to terminate will not be
available to a party if the Restraint was primarily due to the failure of such party to perform any of its obligations contained
in the Merger Agreement); |
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our
stockholders’ meeting has been held and completed and our stockholders have not
adopted the Merger Agreement and the transactions contemplated thereunder, including
the Merger, at such meeting, but this right to terminate will not be available to SmartPros
if the failure of our stockholders to adopt the Merger Agreement and the transactions
contemplated thereunder including the Merger, was primarily due to: |
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a
material breach by SmartPros of its obligations to timely file this proxy |
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statement and promptly respond to any comments or
request for additional information from the Securities and Exchange Commission (“SEC”); |
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a
material breach by SmartPros of its obligations to, as soon as practicable following the date that the proxy statement is
cleared by the SEC or the SEC advises SmartPros that it will not review the proxy statement, to establish a record date for,
duly call, give notice of, convene and hold a meeting of our stockholders for the purpose of obtaining their approval of the
Merger Agreement and transactions contemplated thereunder, including the Merger. |
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the
Board shall have failed to recommend that our stockholders adopt the Merger Agreement and the transactions contemplated thereunder,
including the Merger; |
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however
the Company shall have no obligation to do any of the foregoing if there shall have been a Company Adverse Recommendation
Change (as defined below); |
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our
material breach of any of the following obligations: |
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(1) |
we
shall cause and shall cause each of our subsidiaries and their respective officers, directors,
employees, investment bankers, attorneys, accountants and other consultants, advisors,
Affiliates and other representatives (collectively, “Representatives”) to
(i) immediately cease any solicitation, discussions or negotiations with any persons
that may be ongoing with respect to a Takeover Proposal, and (ii) and deliver a written
notice to each such person to the effect that the Company is ending all discussions and
negotiations with such person with respect to any Takeover Proposal. |
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(2) |
we
shall not, and shall cause our subsidiaries and Representatives not to, except as otherwise permitted by the Merger Agreement
(as described in “The Merger Agreement – No Solicitation of Takeover Proposals” beginning on page 53 of
this proxy statement), (A) solicit, initiate or take any action that we reasonably know or should know would facilitate (including
by way of furnishing non-public information or providing consent or authorization to make a Takeover Proposal) any inquiries
regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, a Takeover
Proposal, (B) enter into, engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish
to any other party information relating to us or any of our subsidiaries or afford access to our business, properties, assets,
books or records, or that of any of our subsidiaries, or otherwise cooperate in any way with, or knowingly assist, participate
in, or facilitate any effort by any third party that is seeking to make, or has made, a Takeover Proposal in connection with
or for the purpose of facilitating, a Takeover Proposal, (C) approve, endorse or recommend any Takeover Proposal, (D) enter
into any letter of intent, agreement or agreement in principle, term sheet or other contract with respect to a Takeover Proposal,
(E) fail to make, or withdraw or modify in a manner adverse to Parent, or publicly propose to withdraw or modify in a manner
adverse to Parent, the Company Board Recommendation or take any action or make any statement inconsistent with the Company
Board Recommendation, (F) grant any waiver or release under any standstill or similar agreement with respect to any class
of our equity securities or any of our subsidiaries, or (G) propose to do any of the foregoing. |
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we
have materially breached or failed to perform any of our representations, warranties, covenants or other agreements set forth
in the Merger Agreement, which breach or failure to perform (i) would give rise to a failure to satisfy the conditions to
Parent’s and Merger Sub’s obligation to close the Merger, and (ii) cannot be cured by us by the earlier of ten
(10) days following receipt of written notice from Parent of such breach or failure or the Walk Away Date; |
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we
shall have failed to include the Company Board Recommendation in the Proxy Statement; |
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the
Board shall have made a Company Adverse Recommendation Change; |
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at
any time prior to the approval by our stockholders of the Merger Agreement and the transaction contemplated thereunder, including
the Merger, the Board shall have failed to recommend against any Takeover Proposal or failed to reaffirm the Company Board
Recommendation after public announcement of any Takeover Proposal or within three business days of Parent’s written
request for such reaffirmation; |
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the
Company enters into any letter of intent, agreement or agreement in principle or other contract with respect to a Takeover
Proposal (“Company Acquisition Agreement”); |
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the
Board shall have failed to hold the Stockholders’ Meeting or to use reasonable best efforts to solicit proxies in favor
of the adoption of the Merger Agreement, the Merger and the transactions contemplated thereunder, including the Merger, and
to obtain stockholder approval in accordance with the terms and conditions of the Merger Agreement; or |
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the
Company or the Board shall have publicly announced its intention to do any of the foregoing. |
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Parent
or Merger Sub shall have materially breached or failed to perform any of its representations, warranties, covenants or agreements
set forth in the Merger Agreement, which breach or failure to perform (i) would give rise to a failure to satisfy certain
conditions to SmartPros’ obligation to close the Merger, and (ii) cannot be cured by Parent by the earlier of ten (10)
days following receipt of written notice from SmartPros of such breach or failure or the Walk Away Date, provided, however,
that SmartPros shall not have the right to terminate the Merger Agreement if it is then in breach of any of its representations,
warranties, covenants or agreements contained in the Merger Agreement; |
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at
any time prior to the adoption of the Merger Agreement by our stockholders, in order to enter into an agreement that constitutes
a Superior Proposal (as defined on page 55 of this proxy statement), if (i) SmartPros has complied with its obligations described
in the section entitled “The Merger Agreement — No Solicitation of Takeover Proposals” beginning on page
53 of this proxy statement and (ii) prior to or concurrently with such termination, we pay Parent the termination fee discussed
in the section entitled “The Merger Agreement — Termination Fees” below; or |
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(A)
the conditions to the closing of the Merger have been satisfied or waived, (B) Parent fails to consummate the Merger within
two (2) business days following the date on which such conditions were satisfied or waived, (C) nothing has occurred |
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and
no condition, event or circumstance exists that would cause any of the conditions to the closing of the Merger to fail to
continue to be satisfied by the second (2nd) business day following the date on which such conditions were satisfied or waived
and (D) we stood ready, willing and able to consummate the closing of the Merger during such period. |
Termination
Fees (Page 62)
If
the Merger Agreement is terminated in certain circumstances described under “The Merger Agreement — Termination”
beginning on page 59 of this proxy statement, SmartPros will be obligated to pay to Parent a termination fee of $525,000. If the
Merger Agreement is terminated in certain other circumstances described under “The Merger Agreement — Termination”
beginning on page 59 of this proxy statement, Parent will be obligated to pay to SmartPros a termination fee of $525,000.
Appraisal
Rights (Page 64)
You
are entitled to appraisal rights under the Delaware General Corporation Law, or the DGCL, in connection with the Merger, provided
that you meet all of the conditions set forth in Section 262 of the DGCL. If you meet all conditions required to make a proper
demand for appraisal rights, you are entitled to have the fair value of your shares of SmartPros Common Stock determined by the
Delaware Court of Chancery and to receive cash payment based on that valuation instead of receiving the per share Merger consideration
provided under the Merger Agreement. The ultimate amount you receive in an appraisal proceeding may be less than, equal to, or
more than the per share Merger consideration of $3.57.
To
exercise your appraisal rights, you must, among other things, submit a written demand for appraisal to the Company before the
vote is taken on the Merger Agreement and you must not submit a proxy or otherwise vote in favor of the proposal to adopt the
Merger Agreement. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal
rights. See “Appraisal Rights” beginning on page 59 of this proxy statement and the text of the Delaware appraisal
rights statute reproduced in its entirety as Annex D to this proxy statement. If you hold your shares of SmartPros
Common Stock through a bank, broker, trustee or other nominee and you wish to exercise appraisal rights, you should consult with
your bank, broker, trustee or other nominee to determine the appropriate procedures for the making of a demand for appraisal by
the bank, broker, trustee or other nominee. In view of the complexity of the procedures specified under the DGCL, stockholders
who may wish to pursue appraisal rights should consult their legal and financial advisors promptly.
Market
Prices of SmartPros Common Stock and Dividend Information (Page 68)
The
closing price of SmartPros Common Stock on the Nasdaq Capital Market (“Nasdaq Capital Market”) on October 21, 2015,
the last trading day prior to the public announcement of the execution of the Merger Agreement, was $2.55 per share. On November
16, 2015, the most recent practicable date prior to the date of this proxy statement, the closing price for SmartPros Common Stock
on the Nasdaq Capital Market was $3.49 per share. You are encouraged to obtain current market quotations for SmartPros Common
Stock in connection with voting your shares of SmartPros Common Stock. Since the first quarter of 2010 we have paid quarterly
cash dividends of between $.01 and $.015 per share on SmartPros Common Stock. The terms of the Merger Agreement provide that,
from the date of the Merger Agreement until the effective time of the Merger, we may not declare, set aside or pay any dividends
on shares of SmartPros Common Stock.
Delisting
and Deregistration of SmartPros Common Stock (Page 70)
If
the Merger is completed, you will no longer be a stockholder of SmartPros, and SmartPros Common Stock will no longer be listed
on the Nasdaq Capital Market and it will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). As such, we would no longer file periodic reports with the Securities and Exchange Commission (the “SEC”)
on account of SmartPros Common Stock.
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
The
following questions and answers are intended to address briefly some commonly asked questions regarding the Merger, the Merger
Agreement and the Special Meeting. These questions and answers may not address all questions that may be important to you as a
SmartPros stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this
proxy statement, the Annexes to this proxy statement and the documents referred to in this proxy statement, which you should read
carefully. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions
under “Where You Can Find More Information” beginning on page 72 of this proxy statement.
Q: |
What
is the proposed transaction and what effects will it have on SmartPros? |
A: |
The
proposed transaction is the acquisition of SmartPros by Parent pursuant to the Merger Agreement. If the proposal to adopt
the Merger Agreement and the transactions contemplated thereunder, including the Merger, is approved by our stockholders and
the other closing conditions under the Merger Agreement have been satisfied or waived, Merger Sub will merge with and into
SmartPros, with SmartPros continuing as the surviving corporation, and the separate corporate existence of Merger Sub shall
thereupon cease. As a result of the Merger, SmartPros will become a wholly owned subsidiary of Parent and will no longer be
a publicly-traded corporation, SmartPros Common Stock will be delisted from the Nasdaq Capital Market and deregistered under
the Exchange Act, we will no longer file periodic reports with the SEC on account of SmartPros Common Stock, and you will
no longer have any interest in our future earnings or growth. |
Q: |
What
will I receive if the Merger is completed? |
A: |
Upon
completion of the Merger, you will be entitled to receive the per share Merger consideration of $3.57 in cash, less any applicable
withholding taxes, for each share of SmartPros Common Stock that you own, unless you have properly exercised and not withdrawn
your appraisal rights under the DGCL with respect to such shares. For example, if you own 100 shares of SmartPros Common Stock,
you will receive $357.00 in cash in exchange for your shares of SmartPros Common Stock, less any applicable withholding taxes.
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Will
I own any shares of SmartPros Common Stock or common stock of Parent or any other entity after the Merger? |
A: |
No.
You will be paid cash for your shares of SmartPros Common Stock. Our stockholders will not have the option to receive equity
interests of Parent in exchange for their shares instead of cash. |
Q: |
How
does the per share Merger consideration compare to the market price of SmartPros Common Stock prior to announcement of the
Merger? |
A: |
The
per share Merger consideration represents a premium of approximately 40% to the closing price of SmartPros Common Stock of
$2.55 on October 21, 2015, the last trading day prior to the public announcement of the Merger Agreement. |
Q: |
How
does the Board recommend that I vote in connection with Proposal #1, which is the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereunder, including the Merger? |
A: |
The
Board unanimously recommends that you vote “FOR” approval of Proposal #1, which is the proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger. |
Q: |
What
was the role of the Special Committee? |
A: |
The
Board determined that it was advisable and in the best interests of SmartPros and its stockholders to form the Special Committee,
consisting solely of non-employee, independent directors, for the purpose of directing a full review of strategic alternatives
for SmartPros. The Board appointed each of John Gorman, Leonard Stanley and Martin Lager as members of the Special Committee.
Mr. Gorman served as chairperson of the Special Committee. The Special Committee was delegated full power and authority to:
(i) review and evaluate the terms and conditions, and determine the advisability, of a potential sale of SmartPros; (ii) participate,
directly or through their or SmartPros’ advisors, in negotiations with potentially interested parties of the terms and
conditions of a Merger; and (iii) recommend to the Board whether a merger or other acquisition transaction should be approved
or disapproved and any other action that should be taken by SmartPros in respect to such transaction. In connection with the
approval of the Merger Agreement, the Board determined to preserve the Special Committee and maintain its previously delegated
power and authority so that it could: (i) consider, evaluate and negotiate the terms and conditions of any alternative transaction;
and (ii) recommend, if appropriate, any alternative transaction to the Board as being in the best interests of SmartPros and
its stockholders. See the section entitled “The Merger – Background of the Merger” beginning on page 25
of this proxy statement. |
Q: |
When
do you expect the Merger to be completed? |
A: |
We
are working towards completing the Merger as soon as possible. Assuming timely satisfaction of closing conditions, we anticipate
that the Merger will be completed by December 31, 2015. If our stockholders vote to approve the proposal to approve and adopt
the Merger Agreement and the transactions contemplated thereunder, including the Merger, the Merger will become effective
as promptly as practicable following the satisfaction or waiver of the other conditions to the Merger. See the sections entitled
“The Merger Agreement — Closing” and “The Merger Agreement — Effective Time” beginning
on page 47 of this proxy statement. |
Q: |
What
happens if the Merger is not completed? |
A: |
If
the Merger Agreement is not adopted and approved by the stockholders of SmartPros or if the Merger is not completed for any
other reason, the stockholders of SmartPros will not receive any payment for their shares of SmartPros Common Stock in connection
with the Merger. Instead, SmartPros will remain an independent public company and SmartPros Common Stock will continue to
be listed on the Nasdaq Capital Market. Under specified circumstances, SmartPros may be required to pay to or receive from
Parent a fee with respect to the termination of the Merger Agreement, as described under “The Merger Agreement - Termination
Fees” beginning on page 62 of this proxy statement. |
Q: |
Is
the Merger expected to be taxable to me? |
A: |
Yes.
The receipt of cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also
be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for U.S. federal income
tax purposes, if you are a U.S. holder (defined below in the section of this proxy statement entitled “The Merger—Material
U.S. Federal Income Tax Consequences of the Merger”), you will recognize gain or loss equal to the difference, if any,
between the amount of cash you receive pursuant to the Merger and your adjusted tax basis in the shares of SmartPros Common
Stock converted into cash pursuant to the Merger. If you are a non-U.S. holder (defined below in the section of this proxy
statement entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”), the receipt
of cash pursuant to the Merger will generally not be a taxable transaction to you under U.S. federal income tax laws unless
you have certain connections to the United States, but may be a taxable transaction to you under non-U.S. income tax laws,
and you are encouraged to seek tax advice regarding such matters. Because individual circumstances may differ, we recommend
that you consult your own tax advisor to determine the particular tax effects to you of the Merger. |
Q: |
Do
any of SmartPros’ directors or officers have interests in the Merger that may differ from or be in addition to my interests
as a stockholder? |
A: |
Yes.
In considering the Company Board Recommendation, you should be aware that certain of SmartPros’ directors and executive
officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally.
The Special Committee and the Board were aware of and considered these interests, among other matters, in evaluating and negotiating
the Merger Agreement and the Merger, and in recommending that the Merger Agreement and the transactions contemplated thereunder,
including the Merger, be adopted by the stockholders of SmartPros. See “The Merger — Interests of Certain Persons
in the Merger” beginning on page 41 of this proxy statement. |
Q: |
What
happens to SmartPros stock options in the Merger? |
A: |
Upon
the consummation of the Merger, all outstanding options to acquire SmartPros Common Stock will accelerate and vest in full
and will then be cancelled and converted into the right to receive an amount in cash equal to the number of shares of SmartPros
Common Stock underlying the option multiplied by the amount (if any) by which $3.57 exceeds the exercise price for each share
of SmartPros Common Stock underlying the options, less any applicable withholding taxes. If the exercise price of the option
is equal to or exceeds $3.57, the holder of such option will not be entitled to any payment in connection with the cancellation
thereof. |
Q: |
What
happens to SmartPros restricted stock in connection with the Merger? |
A: |
At
the effective time of the Merger all shares of restricted stock will become fully vested and each holder will be entitled
to receive the per share Merger consideration of $3.57 in exchange for such shares of restricted stock. |
Q: |
Why
am I receiving this proxy statement and proxy card or voting instruction form? |
A: |
You
are receiving this proxy statement and proxy card or voting instruction form because you own shares of SmartPros Common Stock
as of November 16, 2015, the record date fixed by the SmartPros Board for the Special Meeting. This proxy statement describes
matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of SmartPros Common
Stock with respect to such matters. |
Q: |
When
and where is the Special Meeting? |
A: |
The
Special Meeting of stockholders of SmartPros will be held on December 22, 2015 at 9:00 A.M. Eastern Time, at the Comfort Inn
located at 20 Saw Mill River Road, Hawthorne, New York 10532. |
Q: |
What
am I being asked to vote on at the Special Meeting? |
A: |
You
are being asked to consider and vote on the following proposals:
Proposal
#1: Approval and adoption of the Merger Agreement and the transactions contemplated thereunder, including the Merger.
Proposal
#2: Approval, on a non-binding, advisory basis, of change of control payments and other compensation that certain
executive officers of SmartPros will receive in connection with the Merger.
Proposal
#3: Approval of the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies
in favor of the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including
the Merger, if there are insufficient votes to approve and adopt the Merger Agreement and the transactions contemplated
thereunder, including the Merger. |
Q: |
Why
is SmartPros asking that its stockholders approve, on an advisory non-binding basis, change of control payments and other
compensation that certain executive officers of SmartPros will receive in connection with the Merger? |
A: |
Rules
adopted by the SEC require that SmartPros provides its stockholders with the opportunity to vote to approve, on an advisory
non-binding basis, change of control payments and other compensation that certain executive officers of SmartPros will receive
in connection with the Merger. The approval of these payments is not a condition to completion of the Merger and the vote
with respect to this proposal is advisory only. Accordingly, the vote will not be binding on SmartPros or the Board. |
Q: |
What
vote is required to approve each proposal? |
A: |
Proposal
#1: Approval and adoption of the Merger Agreement and the transactions contemplated
thereunder, including the Merger, requires the affirmative vote, in person or by proxy,
of the holders of a majority of the outstanding shares of SmartPros Common Stock as of
the record date of the Special Meeting.
Proposal
#2: Approval, on a non-binding, advisory basis, of change of control payments and other compensation that certain
executive officers of SmartPros will receive in connection with the Merger requires the affirmative vote, in person or
by proxy, of a majority of the votes cast at the Special Meeting.
Proposal
#3: Approval of the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies
in favor of the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including
the Merger, if there are insufficient votes to approve, adopt and ratify the Merger Agreement and the transactions contemplated
thereunder, including the Merger, requires the affirmative vote, in person or by proxy, of a majority of the votes cast
at the Special Meeting. |
Q: |
Have
any stockholders agreed to vote in favor of the Merger? |
A: |
On
October 21, 2015, SmartPros’ officers and directors in their capacity as stockholders, and one significant stockholder
entered into the Support Agreements, which together represent approximately 27.1% of the outstanding shares of SmartPros Common
Stock. Under the Support Agreements, such stockholders have agreed to vote their shares in favor of the approval and adoption
of the Merger Agreement and the transactions contemplated thereunder, including the Merger, and against any proposal made
in opposition to, or in competition or inconsistent with, the Merger Agreement and the transactions contemplated thereunder,
including the Merger. As a result, the approval of Proposal #1 will therefore require that approximately an additional 22.9%
of the shares of SmartPros Common Stock outstanding as for the record date for the Special Meeting are voted in favor of Proposal
#1. |
Q: |
Who
can vote at the Special Meeting? |
A: |
All
of our holders of SmartPros Common Stock of record as of the close of business on November 16, 2015, the record date for the
Special Meeting, are entitled to receive notice of, and to vote at, the Special Meeting. Each holder of SmartPros Common Stock
is entitled to cast one vote on each proposal properly brought before the Special Meeting for each share of SmartPros Common
Stock that such holder owned as of the record date. |
A: |
A
majority of the shares of SmartPros Common Stock outstanding at the close of business on the record date and entitled to vote
at the meeting, present in person or represented by proxy, at the Special Meeting constitutes a quorum for the purposes of
the Special Meeting. Abstentions and broker non-votes, will be counted for purposes of determining a quorum. A quorum is necessary
to transact business at the Special Meeting. |
A: |
If
you are a stockholder of record as of the record date, you may have your shares of SmartPros Common Stock voted on proposals
presented at the Special Meeting in any of the following ways: |
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in
person — you may attend the Special Meeting and cast your vote there; |
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by
proxy — stockholders of record can choose to vote by proxy by signing and dating the proxy card you receive and returning
it in the accompanying pre-paid reply envelope; |
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over
the Internet — the website for Internet voting is identified on your proxy card; or |
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by
telephone – a toll-free telephone number is noted on your proxy card. |
If
you are a beneficial owner, please follow the proxy instructions on the form you received from your bank, broker, trustee or other
nominee or contact the nominee for further assistance.
A
control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of SmartPros
Common Stock, and to confirm that your voting instructions have been properly recorded, when voting over the Internet or by telephone.
Please be aware that if you vote by telephone or over the Internet, you may incur costs such as telephone and Internet access
charges for which you will be responsible.
Even
if you plan to attend the Special Meeting, we request that you complete, sign, date and return, as promptly as possible, the enclosed
proxy card in the accompanying pre-paid reply envelope or submit your proxy by telephone or the Internet prior to the Special
Meeting to ensure that your shares of SmartPros Common Stock will be represented at the Special Meeting if you are unable to attend.
Q: |
What
is the difference between holding shares as a stockholder of record and as a beneficial owner? |
A: |
If
your shares of SmartPros Common Stock are registered directly in your name with our transfer
agent, American Stock Transfer & Trust Company, you are considered, with respect
to those shares of SmartPros Common Stock, the “stockholder of record.” In
that case, this proxy statement and your proxy card have been sent directly to you by
SmartPros.
If
your shares of SmartPros Common Stock are held through a bank, broker, trustee or other nominee, you are considered the
“beneficial owner” of shares of SmartPros Common Stock held in “street name.” In that case, this
proxy statement has been forwarded to you by your bank, broker, trustee or other nominee who is considered, with respect
to those shares of SmartPros Common Stock, the stockholder of record. As the beneficial owner, you have the right to direct
your bank, broker, trustee or other |
|
nominee
how to vote your shares of SmartPros Common Stock by following their instructions for
voting. |
Q: |
If
my shares of SmartPros Common Stock are held in “street name” by my bank, broker, trustee or other nominee, will
my bank, broker, trustee or other nominee vote my shares of SmartPros Common Stock for me? |
A: |
Your
bank, broker, trustee or other nominee will only be permitted to vote your shares of SmartPros Common Stock if you instruct
your bank, broker, trustee or other nominee how to vote. You should follow the procedures provided by your bank, broker, trustee
or other nominee regarding the voting of your shares of SmartPros Common Stock. If you do not instruct your bank, broker,
trustee or other nominee to vote your shares of SmartPros Common Stock, your shares of SmartPros Common Stock will not be
voted and the effect will be the same as a vote “AGAINST” approval of the proposal to adopt the Merger
Agreement and the transactions contemplated thereunder, including the Merger, and your shares of SmartPros Common Stock will
not have an effect on the proposal to adjourn the Special Meeting or the advisory non-binding proposal relating to the change
of control payments and other compensation, regardless of whether or not a quorum is present. |
Q: |
How
can I change or revoke my vote? |
A: |
If
you are a stockholder of record, you have the right to revoke a proxy, whether delivered over the Internet, by telephone or
by mail, at any time before it is exercised, by voting again at a later date through any of the methods available to you,
by giving written notice of revocation to our Corporate Secretary, which must be filed with the Corporate Secretary by the
time the Special Meeting begins, or by voting by ballot at the Special Meeting. Attending the Special Meeting, by itself,
is not enough to revoke a proxy. If you are a beneficial owner and wish to revoke your voting instructions, you should follow
the instructions provided by your bank, broker, trustee or other nominee. |
A: |
A
proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of stock. The
written document describing the proposals to be considered and voted on at the Special Meeting is called a “proxy statement.”
The document used to designate a proxy to vote your shares of stock is called a “proxy card.” The Board has designated
Allen Greene and Jack Fingerhut, and each of them, with full power of substitution, as proxies for the Special Meeting. |
Q: |
If
a stockholder gives a proxy, how are the shares of SmartPros Common Stock voted? |
A: |
Regardless
of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares
of SmartPros Common Stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card,
you may specify that your shares of SmartPros Common Stock be voted for or against, or you may abstain from voting on, all,
some or none of the specific items of business to come before the Special Meeting. If you properly sign your proxy card but
do not mark the boxes showing how your shares should be voted on a proposal, the shares represented by your properly signed
proxy will be voted “FOR” approval of the proposal to adopt the Merger Agreement and the transactions contemplated
thereunder, including the Merger, and “FOR” approval of the proposal to adjourn the Special Meeting, if
necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting
to approve the proposal to adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger.
In such circumstances, no vote will be cast on Proposal #2, the non-binding advisory vote on change of control payments and
other compensation payable to our executive officers. |
Q: |
What
happens if I fail to vote or I abstain from voting? |
A: |
If
you do not vote, it will be more difficult for us to obtain the vote necessary to adopt
the Merger Agreement and approve the transactions contemplated by the Merger Agreement,
including the Merger.
You
may vote “FOR,” “AGAINST” or “ABSTAIN” on each of the proposals. Abstentions and broker
non- |
|
votes
will be counted for purposes of determining a quorum. However, if you are the stockholder
of record, and you fail to vote by proxy or by ballot at the Special Meeting, your shares
will not be counted for purposes of determining a quorum. Abstentions, failures to submit
a proxy card or vote in person and broker non-votes will be treated in the following
manner with respect to determining the votes received for each of the proposals: |
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an
abstention, failure to submit a proxy card or vote in person, or a broker non-vote will be treated as a vote “AGAINST”
Proposal #1; |
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an
abstention, failure to submit a proxy card or vote in person, or a broker non-vote will have no effect on the outcome of Proposal
#2; and |
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an
abstention, failure to submit a proxy card or vote in person, or a broker non-vote will have no effect on the outcome of Proposal
#3. |
Q: |
Who
will count the votes? |
A: |
A
representative of our transfer agent, American Stock Transfer & Trust Company, will count the votes and act as inspector
of election at the Special Meeting. |
Q: |
What
do I do if I receive more than one proxy or set of voting instructions? |
A: |
If
you hold shares of SmartPros Common Stock in “street name” through a bank, broker, trustee or other nominee and
also directly as a record holder or otherwise, you may receive more than one proxy and/or set of voting instructions relating
to the Special Meeting. These materials should each be voted and/or returned separately in accordance with the instructions
provided in this proxy statement in order to ensure that all of your shares of SmartPros Common Stock are voted. |
Q: |
What
happens if I sell my shares of SmartPros Common Stock before the Special Meeting? |
A: |
The
record date for stockholders entitled to vote at the Special Meeting is earlier than the date of the Special Meeting and the
consummation of the Merger. If you transfer your shares of SmartPros Common Stock after the record date but before the Special
Meeting, you will, unless special arrangements are made, retain your right to vote at the Special Meeting but will transfer
the right to receive the Merger consideration to the person to whom you transfer your shares. |
Q: |
What
happens if I have lost my stock certificate(s)? |
A: |
You
will be sent a letter of transmittal promptly after completion of the Merger describing the procedures that you must follow
if you have certificated shares and you cannot locate your stock certificate(s). This will include an affidavit that you will
need to sign attesting to the loss of your certificate. You may also be required to provide a bond in order to cover any potential
losses in connection with your failure to locate your stock certificates. |
Q: |
Who
will solicit and pay the cost of soliciting proxies? |
A: |
Our
directors, officers and employees may solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They
will not be paid any additional amounts for soliciting proxies. We will reimburse banks, brokers, trustees, nominees and other
fiduciaries representing beneficial owners of shares of SmartPros Common Stock for their expenses in forwarding soliciting
materials to beneficial owners of SmartPros Common Stock and in obtaining voting instructions from those owners. We have hired
D.F. King & Co., Inc., as our proxy solicitation agent with offices located at 48 Wall Street, New York, New York 10005,
to solicit proxies at a cost of $5,500 plus all reasonable out-of-pocket expenses. |
Q: |
What
do I need to do now? |
A: |
Even
if you plan to attend the Special Meeting, after carefully reading and considering the information contained in this proxy
statement, including the attached Annexes, please vote promptly to ensure that your shares are represented at the Special
Meeting. If you hold your shares of SmartPros Common Stock in your own name as the stockholder of record, please vote your
shares of SmartPros Common Stock by completing, signing, dating and returning the enclosed proxy card in the accompanying
pre-paid reply envelope, using the telephone number printed on your proxy card, or using the Internet voting instructions
printed on your proxy card. If you decide to attend the Special Meeting and vote in person, your vote by ballot will revoke
any proxy previously submitted. If you are a beneficial owner, please refer to the instructions provided by your bank, broker,
trustee or other nominee to see which of the above choices are available to you. |
Q: |
Should
I send in my stock certificates now? |
A: |
No.
If you hold certificated shares, you should not send in your stock certificates now. You will be sent a letter of transmittal
promptly after the completion of the Merger describing how you may exchange your shares of SmartPros Common Stock for the
per share Merger consideration. If your shares of SmartPros Common Stock are held in “street name” by your bank,
broker, trustee or other nominee, you will receive instructions from your bank, broker, trustee or other nominee as to how
to effect the surrender of your “street name” shares of SmartPros Common Stock in exchange for the per share Merger
consideration. If you hold certificated shares, please do NOT return your stock certificate(s) with your proxy. |
Q: |
Am
I entitled to exercise appraisal rights under the DGCL instead of receiving the per share Merger consideration for my shares
of SmartPros Common Stock? |
A: |
Yes.
As a holder of shares of SmartPros Common Stock, you are entitled to appraisal rights under the DGCL in connection
with the Merger if you take certain actions and meet certain conditions. See the section entitled “Appraisal Rights”
beginning on page 64 of this proxy statement and the text of the Delaware appraisal rights statute reproduced in its entirety
as Annex D to this proxy statement. |
Q: |
Who
can help answer my other questions? |
A: |
If
you have any questions concerning the Merger or this proxy statement, or if you would
like additional copies of this proxy statement please contact Allen Greene, our Chief
Executive Officer, by telephone at (914) 517-1180 or by e-mail at proxy@smartpros.com,
or our proxy solicitation agent, D.F. King & Co., Inc., by telephone at the (866)
342-2676 (Toll-free).
If
you require assistance in voting your shares of SmartPros Common Stock and you are a stockholder of record, please contact
American Stock Transfer & Trust Company, our transfer agent, by telephone toll-free at (800) 937-5449. If your shares
are registered in the name of a bank, broker, trustee, or other nominee, please follow the proxy instructions on the form
you receive from the nominee or contact the nominee for further assistance. |
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This
proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements that involve
numerous risks and uncertainties. The statements contained in this proxy statement that are not purely historical are forward-looking
statements within the meaning of Section 21E of the Exchange Act, including, without limitation, statements regarding the expected
benefits and closing of the proposed Merger transaction and SmartPros’ expectations, beliefs and intentions. All forward
looking statements included in this proxy statement are based on information available to SmartPros on the date hereof. There
are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary,”
“Questions and Answers about the Special Meeting and the Merger,” “Proposal #1 — The Merger,” “Opinion
of Berkery, Financial Adviser,” “Regulatory Approvals,” and “Litigation Related to the Merger.”
In some cases, you can identify forward-looking statements by terminology such as “may,” “can,” “will,”
“could,” “expects,” “intends,” “anticipates,” “believes,” “estimates,”
“predicts,” “projects,” or variations of such words, similar expressions, or the negative of these terms
or other comparable terminology. No assurance can be given that any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do so, what impact they will have on our results of operations or financial condition.
Accordingly, actual results may differ materially and adversely from those expressed in any forward-looking statements. There
are various important factors that could cause actual results to differ materially from those in any such forward-looking statements,
many of which are beyond our control. In addition to other factors and matters contained or incorporated in this document, these
statements are subject to risks, uncertainties, and other factors, including among others:
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the
occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement; |
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the
inability to complete the Merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions
required for the consummation of the Merger; |
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failure
or delay in consummation of the Merger for other reasons; |
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the
effect of the announcement of the Merger on our customer relationships, operating results and business generally; |
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the
diversion of our management’s attention from our ongoing business concerns; |
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the
outcome of any legal proceedings that may be instituted against SmartPros and/or others relating to the Merger Agreement;
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limitations
placed on our ability to operate the business by the Merger Agreement; |
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the
amounts of the costs, fees, expenses and charges related to the Merger; |
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changes
in laws or regulations; |
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changes
in the financial or credit markets or economic conditions generally; |
and
other risks as are mentioned in reports filed by SmartPros with the SEC from time to time, including our most recent filing on
Form 10-K and Form 10-Q. See “Where You Can Find More Information” beginning on page 72 of this proxy statement. We
do not undertake any obligation to publicly release any revision to any forward-looking statements contained in this proxy statement
to reflect events, changes and circumstances occurring after the date of this proxy statement or to reflect the occurrence of
unanticipated events. Caution should be taken that these factors could cause the actual results to differ from those stated or
implied in this proxy statement.
PARTIES
TO THE MERGER
SmartPros
Ltd.
12
Skyline Drive
Hawthorne,
New York 10532
Tel:
(914) 345-2620
SmartPros
Ltd., which we refer to herein as “SmartPros,” the “Company,” “we,” “our” or “us,”
is a Delaware corporation headquartered in Hawthorne, New York. Our products and services are primarily focused in the accredited
professional areas of corporate accounting, financial management, public accounting, governmental and not for-profit accounting,
financial services, banking, engineering, legal, ethics and compliance, and information technology. We are a leading provider
of professional education products to Fortune 500 companies, as well as the major firms and associations in each of its professional
markets. SmartPros provides education and content publishing and development services in a variety of media including Web, CD-ROM,
video and live seminars and events. Our subscription libraries feature hundreds of course titles and 2,800 plus hours of accredited
education. Our proprietary Professional Education Center (PEC) Learning Management System (LMS) offers enterprise distribution
and administration of education content and information. For additional information visit: www.smartpros.com.Unless the context
otherwise requires, references to SmartPros, the Company, we, our or us in this proxy statement include SmartPros and its subsidiaries
on a consolidated basis. Shares of SmartPros Common Stock currently trade on the Nasdaq Capital Market under the symbol “SPRO”.
DF
Institute, LLC
332
Front Street, Suite 500
La
Crosse, WI 54601
Tel:
(608) 779-8376
DF
Institute, LLC, (d/b/a Kaplan Professional Education), which we refer to as “DFI” or “Parent,” is
an Illinois limited liability company and an indirect wholly owned subsidiary of Kaplan, Inc. (“Kaplan”). Kaplan is
the largest subsidiary of Graham Holdings Company (NYSE: GHC) and serves over 1.2 million students globally each year through
its array of higher education, test preparation, professional education, English-language training, and university preparation,
and offerings to individuals, institutions, and businesses. Across its 75-plus year history, first as small test-prep pioneer
and then an early online education leader and now a global education provider, Kaplan has been recognized for expanding educational
access and using technology and learning science innovations to continually improve outcomes for its students and partners. Kaplan
has operations in over 30 countries, employs more than 19,000 full- and part-time professionals, and maintains relationships and
partnerships with more than 1,000 school districts, colleges, and universities, and over 2,600 corporations and businesses.
Kaplan
Professional Education helps professionals obtain in-demand certifications, licensing and designations that enable them to advance
and succeed in their careers. Through live and online instruction, Kaplan Professional Education provides test preparation, licensing,
continuing education, and professional development programs to businesses and individuals in the accounting, insurance, securities,
real estate, financial planning, and information technology, industries. SmartPros will become a wholly-owned subsidiary of DFI
and an indirect, wholly owned subsidiary of Kaplan and Graham Holdings Company.
SPL
Merger Corp
c/o
Kaplan, Inc.
750
Third Avenue
New
York, NY 10017
Tel:
(212) 974-2700
SPL
Merger Corp, which we refer to as “Merger Sub,” is a Delaware corporation that is a wholly-owned subsidiary of
Parent and was organized solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated
by the Merger Agreement. Under the terms of the Merger Agreement, Merger Sub will merge with and into SmartPros, with SmartPros
continuing as the surviving corporation and the separate corporate existence of Merger Sub will thereupon cease.
THE
SPECIAL MEETING
Time,
Place and Purpose of the Special Meeting
This
proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the Board for use at the Special
Meeting to be held on December 22, 2015 at 9:00 A.M. Eastern Time, at the Comfort Inn located at 20 Saw Mill River Road, Hawthorne,
New York 10532, or at any adjournment or postponement thereof. At the Special Meeting, holders of SmartPros Common Stock will
be asked to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger, and to
approve the proposal to adjourn the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional proxies
if there are insufficient votes at the time of the Special Meeting to approve the proposal to approve adopt the Merger Agreement
and the transactions contemplated thereunder, including the Merger. Our stockholders will also be asked to consider and vote to
approve, solely on a non-binding, advisory basis, change of control payments and other compensation that certain executive officers
of SmartPros will receive in connection with the Merger.
Our
stockholders must approve the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereunder,
including the Merger, for the Merger to occur. If our stockholders fail to approve and adopt the Merger Agreement and the transactions
contemplated thereunder, including the Merger, and the other conditions set forth in the Merger Agreement are not satisfied or
waived, the Merger will not occur. A copy of the Merger Agreement is attached as Annex A to this proxy statement,
which we encourage you to read carefully in its entirety.
Record
Date and Quorum
SmartPros’
Board has fixed the close of business on November 16, 2015 as the record date for the Special Meeting, and only holders of record
of SmartPros Common Stock on the record date are entitled to vote at the Special Meeting. You are entitled to receive notice of,
and to vote at, the Special Meeting if you owned shares of SmartPros Common Stock at the close of business on the record date.
On the record date, there were 4,601,241 shares of SmartPros Common Stock outstanding and entitled to vote. Each share of SmartPros
Common Stock entitles its holder to one vote on all proposals properly coming before the Special Meeting.
A
majority of the shares of SmartPros Common Stock outstanding at the close of business on the record date and entitled to vote
at the meeting, present in person or represented by proxy, at the Special Meeting constitutes a quorum for the purposes of the
Special Meeting. Abstentions and broker non-votes will be counted for purposes of determining a quorum. A quorum is necessary
to transact business at the Special Meeting. Once a share of SmartPros Common Stock is represented at the Special Meeting, it
will be counted for the purpose of determining a quorum at the Special Meeting and any adjournment of the Special Meeting. However,
if a new record date is set for the adjourned Special Meeting, then a new quorum will have to be established. In the event that
a quorum is not present at the Special Meeting, it is expected that the Special Meeting will be adjourned or postponed to solicit
additional proxies.
Attendance
You
are entitled to attend the Special Meeting only if you were a holder of SmartPros Common Stock as of the close of business on
November 16, 2015, which we refer to as the “record date,” or hold a valid proxy for the Special Meeting. You should
be prepared to present photo identification for admittance. If you are not a stockholder of record but hold shares through a bank,
broker, trustee or other nominee (i.e., in “street name”), you should provide proof of beneficial ownership as of
the record date, such as your most recent account statement prior to the record date, a copy of the voting instruction card provided
by your bank, broker, trustee or other nominee, or similar evidence of ownership.
Vote
Required
The
votes required for each proposal are as follows:
Proposal
#1. The affirmative vote, in person or by proxy, of the holders of a majority of the outstanding shares of SmartPros Common
Stock as of the record date for the Special Meeting is required to approve and adopt the Merger Agreement and the transactions
contemplated thereunder, including the Merger. The required vote on Proposal #1 is based on the number of outstanding shares as
of the record date for the Special Meeting —not the number of shares actually voted. The failure of any SmartPros stockholder
to cause its shares to be voted (i.e., not submitting a proxy and not voting in person) and any abstention from voting by a SmartPros
stockholder will have the same effect as a vote against Proposal #1. Likewise, broker non-votes will have the same effect as voting
against Proposal #1. Broker non-votes occur when a beneficial owner holding shares in “street name” does not instruct
the broker, bank, trustee or other nominee that is the record owner of such stockholder’s shares on how to vote those shares
on a particular proposal, and the broker, bank, trustee or other nominee does not have discretionary voting power with respect
to such proposal. Consequently, the failure of a beneficial owner to provide voting instructions to its broker, bank, trustee
or other nominee will have the same effect as a vote against Proposal #1. Pursuant to the Support Agreements, approximately 27.1%
of the shares of SmartPros Common Stock outstanding as of the record date for the Special Meeting are committed to be voted in
favor of Proposal #1. The approval of Proposal #1 will therefore require that approximately an additional 22.9% of the shares
of SmartPros Common Stock outstanding as of the record date for the Special Meeting are voted in favor of Proposal #1.
Proposal
#2. The affirmative vote, in person or by proxy, of a majority of the votes cast on the proposal is required to approve, on
a non-binding, advisory basis, change of control payments and other compensation that certain executive officers of SmartPros
will receive in connection with the Merger. The required vote on Proposal #2 is based on the number of shares actually voted on
the proposal —not the number of outstanding shares. However, while the Board intends to consider the vote resulting from
this proposal, the vote is advisory only and therefore not binding on SmartPros, and, if the Merger Agreement is approved by SmartPros
stockholders and the Merger is consummated, the compensation will be payable even if Proposal #2 is not approved. Brokers, banks,
trustees and other nominees do not have discretionary authority with respect to Proposal #2; however, broker non-votes or the
failure to otherwise submit a proxy will not affect the outcome of Proposal #2. Abstentions from voting on Proposal #2 will have
no effect on the outcome of Proposal #2.
Proposal
#3. The affirmative vote, in person or by proxy, of a majority of the votes cast on the proposal is required to approve any
adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger, if there are insufficient votes
to approve, adopt and ratify the Merger Agreement and the transactions contemplated thereunder, including the Merger. The required
vote on Proposal #3 is based on the number of shares actually voted on the proposal —not the number of outstanding shares.
Abstentions from voting will therefore have no effect on the outcome of Proposal #3. Brokers, banks, trustees and other nominees
do not have discretionary authority to vote on Proposal #3 and therefore will not be able to vote on Proposal
#3 absent instructions
from the beneficial owner. Accordingly, broker non-votes or the failure to otherwise submit a proxy will have no effect on the
outcome of Proposal #3.
Other
Matters of Business
No
matters other than the matters described in this proxy statement are anticipated to be presented for action at the Special Meeting
or at any adjournment or postponement of the Special Meeting. However, if any other matters should properly come before the Special
Meeting or an adjournment or postponement thereof, shares represented by proxies will be voted in accordance with the judgment
of the persons voting the proxies.
How
to Vote
If
your shares of SmartPros Common Stock are registered directly in your name with our transfer agent, American Stock Transfer &
Trust Company, you are considered, with respect to those shares of SmartPros Common Stock, the “stockholder of record.”
This proxy statement and proxy card have been sent directly to you by SmartPros.
SmartPros
stockholders of record may submit a proxy in one of three ways or in person at the Special Meeting:
Internet:
SmartPros stockholders may submit a proxy over the Internet by going to www.voteproxy.com and following the on-screen instructions.
Internet proxy submission is available 24 hours a day and will be accessible until 11:59 p.m., Eastern Time, on December 21, 2015.
Stockholders will be given an opportunity to confirm that their voting instructions have been properly recorded. SmartPros stockholders
who submit a proxy this way should NOT send in their proxy card.
Telephone:
SmartPros stockholders may submit a proxy by calling (800) PROXIES or (800) 776-9437, or may vote by telephone from outside the
United States, by calling (718) 921-8500. Telephone proxy submission is available 24 hours a day and will be accessible until
11:59 p.m., Eastern Time, on December 21, 2015. Easy-to-follow voice prompts will guide stockholders and allow them to confirm
that their instructions have been properly recorded. SmartPros stockholders who submit a proxy this way should NOT send in their
proxy card.
Mail:
SmartPros stockholders may submit a proxy by properly completing, signing, dating and mailing their proxy card in the postage-paid
envelope (if mailed in the United States) included with this proxy statement. SmartPros stockholders who submit a proxy this way
should mail the proxy card early enough so that it is received before the date of the Special Meeting.
In
Person: SmartPros stockholders may vote their shares in person at the Special Meeting or by sending a representative with
an acceptable proxy that has been signed and dated. SmartPros will provide a ballot for voting at the Special Meeting. Attendance
at the Special Meeting will not, in and of itself, constitute a vote or a revocation of a prior proxy, however.
SmartPros
stockholders who hold their shares beneficially in “street name” should refer to the instructions provided by your
bank, broker, trustee or other nominee to see which of the above voting choices are available to you. Please note that if you
are a beneficial owner and wish to vote in person at the Special Meeting, you must provide a legal proxy from your bank, broker,
trustee or other nominee.
SmartPros
stockholders are encouraged to promptly submit a proxy through one of the above methods. Each valid proxy received in time will
be voted at the Special Meeting according to the choice specified, if any. Executed but uninstructed proxies (i.e., proxies that
are properly signed, dated and returned but are not marked to tell the proxies how to vote) will be voted in accordance with the
recommendations of the Board described below under “Reasons for the Merger; Recommendation of the Special Committee and
the Board” beginning on page 32 of this proxy statement.
If
you require assistance in voting your shares of SmartPros Common Stock and you are a stockholder of record, please contact American
Stock Transfer & Trust Company, our transfer agent, by telephone toll-free at (800) 937-5449. If your shares are registered
in the name of a bank, broker, trustee or other nominee, please follow the proxy instructions on the form you receive from the
nominee or contact the nominee for further assistance.
Revocation
of Proxies
SmartPros
stockholders of record may change their proxy at any time before their shares are voted at the SmartPros Special Meeting in any
of the following ways:
|
● |
sending
a written notice of revocation to SmartPros’ principal executive offices at 12 Skyline Drive, Hawthorne, New York 10532,
Attention: Corporate Secretary, which must be received before their shares are voted at the Special Meeting; |
|
|
|
|
● |
properly
submitting a new proxy card, which must be received before their shares are voted at the Special Meeting (in which case only
the later-submitted proxy is counted and the earlier proxy is revoked); |
|
|
|
|
● |
submitting
a proxy via Internet or by telephone at a later date (in which case only the later-submitted proxy is counted and the earlier
proxy is revoked); or |
|
|
|
|
● |
attending
the Special Meeting and voting by ballot in person. Attendance at the Special Meeting will not, in and of itself, constitute
a vote or revocation of a prior proxy, however. |
SmartPros’
beneficial owners may change their voting instruction only by submitting new voting instructions to the brokers, banks, trustees
or other nominees that hold their shares of record.
Adjournments
and Postponements
Although
it is not currently expected by SmartPros, the Special Meeting may be adjourned or postponed for the purpose of soliciting additional
proxies if there are insufficient votes at the time of the Special Meeting to approve the proposal to adopt the Merger Agreement
and the transactions contemplated thereunder, including the Merger, if Proposal #3 receives the affirmative vote of a majority
of the votes cast. Other than an announcement to be made at the Special Meeting of the time, date and place of an adjourned meeting,
any adjournment may be made without notice (if the adjournment for no more than 30 days and a new record date has not been fixed).
Any adjournment or postponement of the Special Meeting for the purpose of soliciting additional proxies will allow SmartPros’
stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned
or postponed.
Anticipated
Date of Completion of the Merger
We
are working towards completing the Merger as soon as possible. Assuming timely satisfaction or waiver of conditions to the Merger
Agreement, we anticipate that the Merger will be completed by December 31, 2015. If our stockholders vote to approve the proposal
to adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger, the Merger will become effective
as promptly as practicable following the satisfaction or waiver of the other closing conditions to the Merger Agreement. See the
sections entitled “The Merger Agreement — Closing” and “The Merger Agreement — Effective Time”
beginning on page 47 of this proxy statement.
Rights
of Stockholders Who Seek Appraisal
Stockholders
are entitled to appraisal rights under the DGCL in connection with the Merger. This means that you are entitled to have the fair
value of your shares of SmartPros Common Stock determined by the Delaware Court of Chancery and to receive cash payment based
on that valuation instead of receiving the per share Merger consideration. The ultimate amount you receive in an appraisal proceeding
may be less than, equal to or more than the per share Merger consideration.
To
exercise your appraisal rights, you must submit a written demand for appraisal to the Company before the vote is taken on the
proposal to adopt the Merger Agreement and you must not vote in favor of the
proposal to adopt the Merger Agreement. Your
failure to follow exactly the procedures specified under the DGCL may result in the loss of your appraisal rights. See the section
entitled “Appraisal Rights” beginning on page 64 and the text of the Delaware appraisal rights statute reproduced
in its entirety as Annex D to this proxy statement. If you hold your shares of SmartPros Common Stock through a bank, broker,
trustee or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker, trustee or other
nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee. In view of the complexity
of the procedures specified under the DGCL, stockholders who may wish to pursue appraisal rights should consult their legal and
financial advisors.
Questions
and Additional Information
If
you have any questions concerning the Merger or this proxy statement or if you would like additional copies of this proxy statement,
please contact Allen Greene, our Chief Executive Officer, by telephone at (914) 517-1180 or by e-mail at proxy@smartpros.com,
or our proxy solicitation agent, D.F. King & Co., Inc., by telephone at the (866) 342-2676 (Toll-free).
If
you require assistance in voting your shares of SmartPros Common Stock and you are a stockholder of record, please contact American
Stock Transfer & Trust Company, our transfer agent, by telephone toll-free at (800) 937-5449. If your shares are registered
in the name of a bank, broker, trustee, or other nominee, please follow the proxy instructions on the form you receive from the
nominee or contact the nominee for further assistance.
PROPOSAL
#1 – THE MERGER
This
discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement
as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.
The
Merger Agreement provides that, upon completion of the Merger, Merger Sub will merge with and into SmartPros, with SmartPros continuing
as the surviving corporation, and the separate corporate existence of Merger Sub shall thereupon cease. As a result of the Merger,
SmartPros will cease to be a publicly-traded company. You will not own any shares of the capital stock of the surviving corporation.
Merger
Consideration
In
the Merger, each outstanding share of SmartPros Common Stock (except for any shares held by SmartPros, Parent or Merger Sub and
shares held by stockholders who have properly exercised appraisal rights) will be converted into the right to receive the per
share Merger consideration of $3.57 in cash, less any applicable withholding taxes.
Background
of the Merger
Our
Board of Directors and senior management have periodically reviewed SmartPros’ long-term strategic plan with the goal of
maximizing stockholder value. As part of this ongoing process, the Board regularly engaged in general discussions regarding our
financial results, business, and financial prospects for the current fiscal year, the following fiscal year and sometimes longer
future periods. These discussions included, but were not limited to, financial results compared to budget and to the previous
year for the respective periods, and trends in revenue, gross margin, operating expenses, income from continuing operations, capital
expenditures and cash flows. As our growth strategy, until late 2013, included making strategic acquisitions, we also reviewed
our acquisition pipeline.
The
Board, which has extensive knowledge of, and expertise in, the training industry, recognized that the annual revenue decline from
2010 through 2014 was due to decreased attendance at live training events,
a decrease in custom e-learning
and fluctuations in the online usage of SmartPros’ various product libraries. We believe that this trend was due to a number
of factors, including the adoption of relatively few new accounting pronouncements, increased competition, and personnel reductions
and budgetary restraints for many of our clients due to macroeconomic conditions. Other factors were a general change in the preferred
delivery method of continuing education from live training to digital delivery. We attempted to counter our declining revenue
by introducing new products and services and implementing product enhancements, including our eLP-Mobile Compatible Player. We
also developed and introduced several other innovations including our Audit Management System (AMS) software currently designed
for financial services firms that have an internal audit branch function, CPE/CLE administration, refreshed course libraries,
and a state-of-the-art Learning Management System (LMS), known as e-Campus. Our overall efforts failed to reverse the revenue
decline in the 2010 through 2014 period.
In
the 2013 and subsequent periods, acquisition candidates meeting our criteria commanded multiples of revenue and EBITDA that precluded
an appropriate return on investment and would therefore not be beneficial to our stockholders.
On
November 7, 2013, during a meeting of the Board, our Chief Financial Officer, Stanley Wirtheim, advised the Board that our full
year 2013 financial results were likely to surpass 2013 budget with the help of the recovering economy. The Board then initiated
discussion about the retention of an investment bank to explore the strategic value of SmartPros that could be realized through
a possible sale of the Company. Given that the Company had been unable to successfully implement an acquisition program, the Board
concluded that SmartPros was experiencing growth challenges. As a result, the Board in the discharge of its fiduciary duty to
stockholders and desire to maximize stockholder value, determined to explore the Company’s strategic options, including
the potential sale of the Company. After interviewing several investment banks, the Board selected Berkery, Noyes & Co., LLC,
(“Berkery”) to represent us in furtherance of this initiative and entered into an engagement letter with Berkery dated
January 2, 2014.
On
November 30, 2013, the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $1.99.
In
January 2014, Berkery commenced a comprehensive, but confidential, process to explore a sale of the Company.
On
January 31, 2014 and February 28, 2014, the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was
$2.40 and $2.09, respectively.
On
March 6, 2014, Mary Jo Zandy, a Managing Director at Berkery, attended a meeting of the Board. Ms. Zandy addressed the potential
sale of the Company and informed the Board that Berkery expected that the initial stages of the sale exploratory process would
be completed by mid-May 2014. At the March 6, 2014 Board meeting, the Board established a mergers and acquisitions committee,
consisting of independent directors Martin Lager, Leonard Stanley, and John Gorman.
Commencing
on March 6, 2014, Berkery approached 86 potential acquirers to gauge interest in the acquisition of SmartPros. Of the 86 companies
approached, 51 were financial acquirers and 35 were strategic acquirers. From this marketing effort, Berkery secured 37 executed
confidentiality agreements from these potential acquirers and distributed to each of them a Confidential Offering Memorandum,
“CIM” which had been prepared by SmartPros and Berkery between January 2014 and March 6, 2014. Twenty-two of the 37
potential acquirers that executed confidentiality agreements were potential financial acquirers and 15 were potential strategic
acquirers.
Between
March 10, 2014 and March 27, 2014, Berkery made follow-up calls with potential acquirers and responded to preliminary due diligence
requests. The potential acquirers were advised that preliminary indications of interest for the acquisition of the Company were
required to be submitted to Berkery on or before March 27, 2014.
By
March 27, 2014, Berkery had received seven preliminary non-binding indications of interest from potential acquirers. Of the seven
bids that were received, the majority valued SmartPros at an enterprise value between $12.0 million and $15.0 million. Company
A, a potential strategic acquirer, submitted the highest preliminary bid, with a valuation range of $15.0 million to $20.0 million.
However, Company A elected not to submit a final bid. Based upon the preliminary offers, the potential acquirers that submitted
the four highest preliminary bids, two potential financial acquirers and two potential strategic acquirers, were invited to attend
management presentations and were provided with access to a virtual data room to commence their respective due diligence investigation
on the Company. The other three bids were deemed too low to pursue further.
On
March 31, 2014, the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $2.30.
Management
presentations were conducted with the four potential acquirers between April 17, 2014 and May 9, 2014. A final bid instruction
letter accompanied by a proposed form of merger agreement were provided to the four potential acquirers on May 12, 2014. The bid
instruction letter provided that final bids, together with a mark-up of the proposed form of merger agreement, were required to
be submitted on or before June 6, 2014.
On
April 30, 2014, the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $2.30.
Following
the management presentations and access to the virtual data room to undertake due diligence on the Company, three of the four
prospective acquirers withdrew from the process indicating that their respective revised valuation range would not be competitive
as they had significantly decreased their estimate of enterprise value from their initial indication of interest. The principal
reasons expressed for the revised lower estimates of value included a recent drop-off in billings and the Company’s revised
lower financial projections for the 2014 full year, including a projected drop-off from the prior year’s results, principally
due to disappointing results in the Company’s core subscription based accounting products and custom e-learning projects.
On June 6, 2014, the remaining prospective acquirer submitted a final bid with an enterprise value of $12.0 million, with a markup
of the merger agreement. The Company’s mergers and acquisitions committee and the Board declined to proceed based upon the
inadequacy of the offer. As a result, the sales process was terminated. During the sale process, we became aware of actions we
could take that we believed would enhance the value of SmartPros to potential acquirers. In the second half of 2014, in light
of a higher than forecast decline in our 2014 results, the Board decided to implement the “Back to Basics” strategy,
further described below.
On
June 30, 2014 the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $2.33.
After
the sale process was terminated, we began to implement our “Back to Basics” strategy. Among other initiatives, the
plan included: (i) reducing staffing in certain areas; (ii) closing, selling or reducing specific product verticals; and (iii)
focusing the Company’s resources on areas of the business that provide the greatest return and potential for growth. In
conjunction with this plan, effective December 31, 2014 SmartPros sold substantially all of the assets of Skye Multimedia Ltd.
and discontinued its custom e-learning ethics business. Also, the number of live events managed by Executive Enterprises Institute
were cut back. Development overhead was reduced as a number of technology capital projects had been completed. Additionally, we
terminated or did not renew customer contracts that were unprofitable. The implementation of our “Back to Basics”
strategy continued into the first fiscal quarter of 2015.
In
January 2015, Mr. Greene received a call from a representative of Company Z asking if we had any interest in selling the Company.
Mr. Greene scheduled a meeting on February 5, 2015 to meet with representatives of Company Z. At the meeting, Company Z asked
SmartPros to provide to them certain confidential information relating to SmartPros. Mr. Greene asked Company Z to provide certain
information, including financial information, either on the principals of Company Z or a company that would be used to acquire
SmartPros to show they had the financial ability to consummate an acquisition of SmartPros. They declined to provide financial
information and discussions did not proceed.
With
the implementation of our “Back to Basics” strategy and improving financial results, at a meeting of the Board on
March 5, 2015, the Board addressed the merits of recommencing a potential sales process and re-engaging Berkery in connection
with that initiative. The Board believed that the implementation of the “Back to Basics” strategy and the positive
trend in financial results presented an opportunity to achieve significant stockholder value through a sales process. Berkery
telephonically indicated to the Special Committee and the Board that there were a number of new potential acquirers in the market
and in view of the improved 2015 year-to-date results and the full year prospects Berkery believed that a sales process could
yield positive results. The Board unanimously approved entering into a new engagement agreement with Berkery to re-explore a sale
of the Company. On March 5, 2015, an engagement agreement was entered into with Berkery and management and Berkery undertook to
update the CIM to facilitate the new sales process. At the same meeting, the Board established the Special Committee.
On
March 31, 2015 the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $1.75.
Commencing
May 29, 2015, Berkery approached 51 potential acquirers to gauge interest in the acquisition of SmartPros. Of the 51 companies
approached, 22 were potential financial acquirers and 29 were potential strategic acquirers. From this marketing effort, Berkery
secured 18 executed confidentiality agreements with potential acquirers and provided each with the updated CIM. Berkery made follow-up
calls with potential acquirers and provided additional due diligence items. Each potential acquirer was advised that preliminary
indications of interest in acquiring SmartPros were due on or before June 27, 2015. None of the confidentiality agreements contain
provisions prohibiting the potential acquirer from acquiring shares of SmartPros Common Stock or making an offer to acquire the
Company.
On
May 29, 2015 the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $1.57.
Between
June 8, 2015 and June 27, 2015, Berkery had follow-up calls with the potential acquirers who had received the updated CIM. On
June 27, 2015, Berkery received six preliminary non-binding indications of interest from potential acquirers which reflected enterprise
valuations between $6.0 million and $16.5 million. The Special Committee and the Board reviewed these indications of interest
with Berkery and determined that four of the indications of interest which presented an enterprise valuation of between $13.0
million and $16.5 million warranted further consideration. Two of these potential acquirers were financial buyers and two were
strategic buyers. These four potential acquirers were invited to attend management presentations with SmartPros management team
which occurred between June 2015 and July 2015. In addition, the four potential acquirers were provided with access to the virtual
data room to undertake their respective due diligence investigation on the Company.
On
June 30, 2015 and July 31, 2015 the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $1.75 and
$1.98, respectively.
A
final bid instruction letter accompanied by a proposed form of merger agreement were provided to the four potential acquirers
on August 5, 2015. The bid instruction letter provided that final bids, together with a mark-up of the proposed form of merger
agreement, were required to be submitted on or before August 17, 2015. It further provided that since the Company had cash on-hand
substantially in excess of our then current working capital needs, bids were to be made for the “enterprise value”
of SmartPros, with the understanding that any cash in excess of our working capital requirements, after payment of all expenses
associated with the transaction, would be “distributed” to our stockholders. The method of the distribution, whether
by an increase in the per share Merger consideration, by dividend or otherwise, was not specified.
Two
of the four potential acquirers withdrew from the process following the management presentations and access to the virtual data
room. One such party, a strategic buyer, advised Berkery that it had a number of higher priority internal opportunities at that
juncture to pursue and the other, a financial buyer, advised Berkery that it had concluded that the Company, in it its view, presented
a turn-around situation not previously envisioned and for this reason it did not meet their investment criteria.
The
two remaining potential acquirers submitted their final bids along with a mark-up of the proposed merger agreement on August 17,
2015. Company Z, a financial acquirer with an existing education portfolio
company and the same company
that on an unsolicited basis had contacted Mr. Greene in January 2015, submitted an enterprise value bid of $16.5 million. Kaplan
submitted an enterprise value bid of $14.0 million.
On
August 17, 2015 the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $2.17.
On
August 17, 2015, the Special Committee met with Berkery and Morse, Zelnick, Rose & Lander, LLP, our legal counsel (“MZRL”),
to review both bids. The discussion included an analysis of the final bid offers and the marked merger agreements. The Special
Committee also discussed the prior due diligence efforts on the part of these acquirers and their capability to complete a transaction
on a timely basis on the terms offered. Company Z had not undertaken thorough due diligence but was prepared to retain an outside
consulting firm and other experts to conduct its due diligence investigation. MZRL advised the Special Committee that the mark-up
by Company Z of the proposed merger agreement contained a provision that gave Company Z thirty days to conduct additional due
diligence and to terminate the merger agreement if it was not satisfied with the results of such due diligence and also advised
the Special Committee that there was no evidence provided that Company Z had the financial ability to complete the transaction.
The
Special Committee determined that Company Z’s offer was superior to Kaplan’s offer, however, they concluded that SmartPros
would not enter into any agreement that permitted the acquirer an unfettered right to terminate the merger agreement, which in
essence would grant a “free” option to the potential acquirer.
On
August 19, 2015, Berkery advised Company Z that we would not execute an agreement with a due diligence out. However, we would
be willing to allow them to continue their due diligence, and that we and our counsel were prepared to begin negotiation of the
final terms of a merger agreement simultaneous with their due diligence investigation with the expectation that a binding merger
agreement (with no due diligence contingency) could be signed within a fifteen-day period. Company Z agreed and the agreement
negotiation process commenced simultaneous with their ongoing due diligence. Also, on the same day we contacted Company Z and
again asked them to provide financial statements or other evidence of their financial ability to complete the transaction.
On
August 26, 2015, MZRL met with legal counsel for Company Z in order to review Company Z’s mark-up of the proposed merger
agreement. At that time MZRL again advised Company Z’s legal counsel that we would require evidence of Company Z’s
financial ability to complete the Merger.
On
August 28, 2015, a revised merger agreement was received from Company Z’s legal counsel, reflecting, in part, the results
of the prior discussions between legal counsel. Based upon the revised merger agreement provided, several issues still needed
to be resolved. In response to receipt of the revised merger agreement, MZRL again requested evidence from Company Z’s legal
counsel of Company Z’s financial ability to complete the merger.
On
August 28, 2015, copies of the revised merger agreement were circulated to the Special Committee and the Board, along with a list
of the issues, prepared by MZRL, that were outstanding. A meeting of the Special Committee and the Board to address and approve
the merger agreement was tentatively scheduled for September 3, 2015, subject to the resolution of outstanding issues.
Between
August 28, 2015, and September 1, 2015, MZRL and Company Z’s legal counsel continued to address open issues. Further, MZRL
reiterated its request for receipt of evidence of Company Z’s ability to complete the merger indicating that without this
evidence the Special Committee and the Board could not proceed.
On
August 31, 2015, Company Z met with us at our offices to finalize their due diligence. At the meeting we responded to questions
and provided them with incremental information they requested.
On
September 2, 2015, Company Z advised us that it was no longer interested in pursuing its acquisition of the Company.
During
the Company Z process, Berkery maintained a dialogue with Kaplan, on behalf of the Special Committee, with respect to enterprise
valuation and other salient terms. During a conversation between Berkery and Kaplan on August 31, 2015, Kaplan agreed to increase
its offer from an enterprise value of $14.0 million to an enterprise value of $15 million.
On
September 9, 2015, Kaplan and the Company entered into a letter of intent approved by the Special Committee and the Board,
which provided Kaplan exclusivity for 30 days, a period Kaplan indicated was necessary for it to complete its due diligence and
negotiate the Merger Agreement. Such exclusivity was subsequently extended, to October 20, 2015 since progress was being made
in finalizing the terms of the Merger Agreement.
On
September 17, 2015, MZRL transmitted a revised draft of the merger agreement to Kaplan and its legal counsel.
On
September 22, 2015, the parties discussed the revised draft of the Merger Agreement.
On
September 30, 2015 the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $2.66.
On
October 1, 2015, a revised draft of the Merger Agreement was received from Kaplan’s legal counsel.
On
October 2, 2015, MZRL reviewed the revised Merger Agreement with the Special Committee and the Board. MZRL informed the Board
that as a condition to Kaplan’s acquisition proposal, each of the Company’s directors and executive officers, in their
capacity as stockholders, and one significant stockholder would be required to enter into the Support Agreements.
On
October 6, 2015, MZRL sent proposed revisions to certain sections of the Merger Agreement to Kaplan and its legal counsel.
On
October 7, 2015, discussions were held between Kaplan and its counsel and MZRL and the Company to discuss the remaining open issues.
The major open issue was how the “excess cash” would be “distributed” to our stockholders.
On
October 9, 2015, during a telephone call among members of the Special Committee, certain of our officers, Berkery, MZRL, Kaplan
and its counsel, it was agreed that the “excess cash” would remain in SmartPros and the merger consideration would
be increased by the amount of such “excess cash” and, that in light of this, the merger agreement would include a
closing condition in favor of Parent that an agreed upon minimum amount of cash and working capital would be available at the
effective time of the Merger, after payment of all expenses associated with the transaction, including (i) the “change in
control” payments due to Messrs. Greene and Wirtheim, (ii) the payment of the fees to Berkery, (iii) the payment of all
legal and accounting fees and (iv) the payment of all other expenses associated with the transaction.
On
October 13, 2015, MZRL received a revised draft of the merger agreement from Kaplan’s legal counsel which incorporated the
provisions agreed to on the October 9, 2015 conference call, but left blank the specific amount of working capital required at
closing which still needed to be agreed upon by the parties.
On
October 21, 2015, Kaplan agreed to pay approximately $16.858 million of total Merger consideration which includes approximately
$432,000 to be paid to the holders of outstanding options to purchase shares of SmartPros Common Stock based upon the difference
between $3.57 per share Merger consideration and the exercise price per share of their options (not including options with an
exercise price per share that is greater than or equal to $3.57). The total Merger consideration consisted of an enterprise value
of $15 million plus an estimated amount of excess cash to remain in SmartPros of $2,514,000 reduced by $575,000 to be retained
by SmartPros on account of deferred revenue and further reduced by approximately $81,000 for certain other expenses and contingencies
for a balance of approximately $1,858,000. We further agreed with Kaplan that as a condition of their obligation to proceed with
the Merger (i) Company Net Working Capital (as defined in the Merger Agreement) would not be less than $1,200,000 and (ii) the
sum of (a) the amount by which Company Net Working Capital exceeds $1,200,000 plus (b) the
Company’s Available
Cash (as defined in the Merger Agreement) would not be less than $2,514,000, as of the closing date.
Between
October 13, 2015 and October 21, 2015, the Company’s senior management team, Berkery, and MZRL finalized the Merger Agreement,
the Company’s disclosure schedules thereto, and all ancillary agreements to be executed at the time the parties executed
the Merger Agreement.
On
October 21, 2015, at a telephonic meeting of the Special Committee (with all committee members in attendance) at which Berkery,
and MZRL were present, MZRL explained in detail the fiduciary duties of the members of the Special Committee and the principal
terms and conditions of the Merger Agreement, the Support Agreement and the management employee and consultant offer letters.
The Special Committee discussed in detail the advantages and disadvantages of the proposed transaction, including those set forth
in the “Reasons for the Merger; Recommendation of the Board” section below. Berkery then reviewed its financial analysis
of the $3.57 per share Merger consideration. At the request of the Special Committee, Berkery delivered its oral opinion that,
as of the date of the opinion and based upon and subject to various assumptions and limitations set forth in its written opinion,
the $3.57 per share Merger consideration to be received by holders of the shares of SmartPros Common Stock was fair, from a financial
point of view, to such holders. The Special Committee asked Berkery questions concerning its analysis. The Special Committee further
considered the terms and conditions of the proposed Merger, including the Merger Agreement. After extensive discussion, the Special
Committee unanimously approved a recommendation to the Board that the Board vote for the approval and adoption of the Merger Agreement
to effect the Merger.
Immediately
thereafter a telephonic meeting of the Board was convened (with all Board members in attendance), at which Berkery, MZRL and Mr.
Wertheim were present. MZRL explained in detail the fiduciary duties of the members of the Board and the principal terms and conditions
of the Merger Agreement, the Support Agreement and the management employee and consultant offer letters. The Board discussed in
detail the advantages and disadvantages of the proposed transaction, including those set forth in the “Reasons for the Merger;
Recommendation of the Board” section below. Berkery then reviewed its financial analysis of the $3.57 per share Merger consideration
and delivered its oral opinion that, as of the date of the opinion and based upon and subject to various assumptions and limitations
set forth in its written opinion, the $3.57 per share Merger consideration to be received by holders of the shares of SmartPros
Common Stock was fair, from a financial point of view, to such stockholders. The Board then asked Berkery questions concerning
its analysis and received responses. The Board then further considered the terms and conditions of the proposed Merger, including
the Merger Agreement. After further evaluation and discussion of the considerations set forth above, and of Berkery’s oral
opinion, it was determined that the Merger and the Merger Agreement, including the $3.57 per share Merger consideration to be
paid to the holders of shares of SmartPros Common Stock contained therein, was fair to, and in the best interests of the Company’s
stockholders. The Board then unanimously approved the Merger Agreement and voted to recommend to the Company’s stockholders
that they vote to approve the Merger Agreement and the transactions contemplated thereby, including the Merger.
On
October 21, 2015, after the Board meeting adjourned, the Company and Parent executed the Merger Agreement.
The
Company issued a press release announcing the Merger Agreement on October 22, 2015.
On
October 21, 2015 the closing price per share of SmartPros Common Stock on the Nasdaq Capital Market was $2.55.
Reasons
for the Merger; Recommendation of the Special Committee and the Board
Special
Committee
The
Special Committee, consisting solely of non-employee independent directors and acting with the advice and assistance of legal
and financial advisors, evaluated and negotiated the acquisition proposal by Parent, including the terms and conditions of the
Merger Agreement. The Special Committee (i) determined that the Merger consideration, the terms of the Merger Agreement and the
Merger are advisable and fair to and in the best interests of SmartPros and its stockholders; and (ii) recommended to the Board
that the Board vote for the approval and adoption of the Merger Agreement and the transactions contemplated thereunder, including
the Merger.
In
the course of reaching their determination, the Special Committee and the Board considered the following factors and potential
benefits of the Merger, each of which the members of the Special Committee and the Board believed supported its decision:
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the
current and historical market prices of SmartPros Common Stock and the fact that the price of $3.57 per share of SmartPros
Common Stock represented a premium of approximately 40% to the closing price of SmartPros Common Stock on October 21, 2015,
the last trading day prior to the public announcement of the Merger Agreement, and a premium of approximately 44% and 49%,
respectively, to the average closing price for the six- and twelve-month periods prior to October 21, 2015; |
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at
no time in the ninety-day period prior to the execution and announcement of the Merger Agreement had the closing market price
of SmartPros Common Stock been greater than $2.80 per share; |
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the
prospect that the following factors negatively affecting our stock price would continue to negatively affect our stock price
in the future: |
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limited
market liquidity; |
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no
industry analyst coverage and no visibility on future coverage; |
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a
low market capitalization relative to our publicly-traded peer group; and |
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given
our size, the costs of being a public company outweighing the benefits of being a public company; |
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the
business, operations, financial condition, earnings and prospects of SmartPros, including: |
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the
lack of our ability to achieve and sustain year-over-year revenue growth; |
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our
results of operations in each of 2011, 2012, 2013 and 2014; |
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obstacles
to further penetration into new and existing markets; and |
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the
uncertainty of successfully executing upon an acquisition strategy given our limited capital resources; |
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the possible alternatives to the sale
of SmartPros, including a strategic combination or continuing to operate SmartPros on a stand-alone basis, and the significant
risks and uncertainties associated with such alternatives, including the risks associated with our ability to achieve revenue
growth and maintain margins and profitability at acceptable levels, compared to the certainty of realizing in cash a fair
value for our stockholders through the Merger; |
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the
fact that Berkery had contacted 51 parties that might be interested in a business combination transaction with SmartPros to
solicit their interest in pursuing such a transaction, and that only six, indicated any interest in pursuing a transaction;
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the
terms of the Merger Agreement and the related agreements, including: |
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the
nature of the conditions to Parent’s obligation to consummate the Merger; |
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our
ability, under certain circumstances specified in the Merger Agreement, at any time prior to the time our stockholders adopt
the Merger Agreement and the transactions contemplated thereunder, including the Merger, to consider and respond to written
Takeover Proposals or provide non-public information to or engage in discussions or negotiations with the person making such
proposals if the Board, prior to taking any such actions, determines in good faith after consultation with financial advisors
and legal counsel that (i) failure to take action would violate the directors’ fiduciary duties to SmartPros’
stockholders, and (ii) the Takeover Proposal either constitutes a Superior Proposal or could reasonably be expected to result
in a Superior Proposal; |
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our
ability, under certain circumstances specified in the Merger Agreement, to terminate the Merger Agreement in order to accept
a Superior Proposal, subject to paying Parent a termination fee of $525,000; |
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our
ability, under certain circumstances specified in the Merger Agreement, to withhold, withdraw, qualify or modify the Company
Board Recommendation subject to Parent’s subsequent right to terminate the Merger Agreement and our subsequent obligation
to pay a termination fee of $525,000; |
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the
fact that the consummation of the Merger is not conditioned on Parent’s ability to secure debt financing or equity financing
in order to pay the Merger consideration; and |
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the
fact that the termination date of April 30, 2016 under the Merger Agreement allows for sufficient time to complete the Merger;
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the
fact that the Merger consideration is all cash, allowing our stockholders to immediately realize a fair value for their investment,
while also providing the stockholders certainty of value for their shares of SmartPros Common Stock, while avoiding long-term
business risk; |
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the
financial presentation of Berkery, including its written opinion to the Special Committee and to the Board dated October 21,
2015, to the effect that, as of that date and based upon and subject to the factors and assumptions set forth in such written
opinion, the per share Merger consideration of $3.57 in cash to be received by the holders of outstanding shares of SmartPros
Common Stock pursuant to the Merger Agreement is fair from a financial point of view to our public stockholders (see the section
entitled “Opinion of Berkery, Financial Advisor,” beginning on page 36 of this proxy statement); |
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the
fact that the negotiations of the transaction with Parent, including the Merger Agreement and the Merger, were conducted under
the oversight of the Special Committee, which: |
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is
comprised solely of independent directors who are not employees of SmartPros and who have no material financial interest in
the Merger that is different from that of our stockholders; |
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retained
and received advice and assistance from the financial and legal advisors retained by the Special Committee in evaluating,
negotiating and recommending the terms of the Merger Agreement; and |
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was
delegated the power and authority to review and evaluate, participate in the negotiations of, and make recommendations to
the Board with respect to a transaction or any alternative thereto; |
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the
fact that the Merger is subject to the approval of our stockholders. |
The
Special Committee also considered the following variety of risks and other potentially negative factors, among others, concerning
the Merger Agreement and the transactions contemplated thereunder, including the Merger:
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the
current uncertain state of the economy and general uncertainty surrounding forecasted economic conditions in both the near-term
and the long-term; |
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the
risks and costs to SmartPros if the Merger is not consummated, including the diversion of management and employee attention,
potential employee attrition and the potential effects on our business and our relationships with our customers; |
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the
fact that our stockholders will not participate in any future earnings or growth of SmartPros and will not benefit from any
appreciation in value of SmartPros, including any appreciation in value that could be realized as a result of any acquisitions
or improvements to SmartPros’ operations; |
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the
requirement that we pay Parent a termination fee of $525,000 if we enter into a definitive
agreement as the result of a Superior Proposal, which may discourage other potential
bidders from making a competing bid to acquire us;
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the
restrictions on the conduct of our business prior to the completion of the Merger, requiring us to conduct our business only
in the ordinary course, subject to specific limitations, which may delay or prevent us from undertaking business opportunities
that may arise pending completion of the Merger; |
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the
fact that certain of our directors and executive officers have financial interests in the Merger that are different from,
or in addition to, those of our stockholders generally (see the section entitled “The Merger — Interests of Certain
Persons in the Merger” beginning on page 41 of this proxy statement); |
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the
fact that, even if the Merger is not completed, we will be required to pay the fee for obtaining the fairness opinion of Berkery,
our legal and accounting fees, and other miscellaneous fees and expenses; |
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the
fact that, for U.S. federal income tax purposes, the transaction would be taxable to our |
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stockholders that are U.S. holders; and |
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the
fact that, while we expect that the Merger will be consummated, there can be no assurance that all conditions to the parties’
obligations to complete the Merger Agreement will be satisfied, and, as a result, the Merger may not be consummated. |
This
discussion summarizes the material factors considered by the Special Committee in its consideration of the Merger but is not meant
to be an exhaustive list of the factors considered by the Special Committee. After considering these factors, the Special Committee
concluded that the positive factors relating to the Merger Agreement and the Merger significantly outweighed the potential negative
factors. In view of the wide variety of factors considered by the Special Committee, and the complexity of these matters, the
Special Committee did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition,
individual members of the Special Committee may have assigned different weights to various factors. As a result, the Special Committee
unanimously determined that the Merger consideration, the Merger Agreement and the transactions contemplated thereunder, including
the Merger, are advisable and fair to, and in the best interests of, SmartPros and its stockholders and unanimously recommended
to the Board that the Board vote for the approval and adoption of the Merger Agreement and the transactions contemplated thereunder,
including the Merger.
Board
of Directors
The
Board has concluded, based on, among other things: (i) the unanimous recommendation of the Special Committee; (ii) the historical
and projected financial condition, results of operations and cash flows of SmartPros; (iii) the current and future prospects for
SmartPros’ businesses; (iv) the written presentations by Berkery to the Special Committee and the Board of its fairness
opinion as to the fairness of the Merger consideration to be received pursuant to the Merger Agreement by the holders of SmartPros
Common Stock (except for any shares held by Parent and its directors, officers and affiliates and the directors, officers, and
affiliates of SmartPros) from a financial point of view; (v) the efforts of management and the Board to investigate other alternatives
to the Merger Agreement and the Merger; (vi) the recent trading prices of, and volume of trading in, SmartPros Common Stock; (vii)
the terms of the Merger Agreement (including, without limitation, the provisions thereof that permit the Board to consider unsolicited
bona fide, written Takeover Proposals and to accept a Superior Proposal and the termination fee by SmartPros relating thereto,
the payment by SmartPros of a termination fee of $525,000 to Parent in the event SmartPros commits a breach of the Merger Agreement
that results in the termination of the Merger Agreement by Parent, and the likely timing of the Merger), and (viii) the other
factors and reasons described above as having been considered by the Special Committee, that Merger Agreement and the transactions
contemplated thereunder, including the Merger are advisable and fair to, and in the best interests of, SmartPros and its stockholders
and represent the best alternative for SmartPros’ stockholders.
The
foregoing discussion summarizes the material factors considered by the Board in its consideration of the Merger. In view of the
wide variety of factors considered by the Board, and the complexity of these matters, the Board did not find it practicable to
quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the Board may have
assigned different weights to various factors. The Board, based upon, among other things, a recommendation from the Special Committee,
unanimously approved and adopted the Merger Agreement and the transactions contemplated thereunder, including the Merger.
The
Board recommended that the Merger Agreement be submitted to the stockholders of SmartPros for approval and adoption at the Special
Meeting and recommended that the stockholders of SmartPros vote for the approval and adoption of the Merger Agreement and the
transactions contemplated thereunder, including the Merger. The Board recommends that you vote “FOR” the approval
and adoption of the Merger Agreement and the transactions contemplated thereunder, including the Merger.
Opinion
of Berkery, Financial Advisor
Berkery
was retained as a financial advisor in March 2015 to assist the Special Committee and the Board in analyzing any potential offer
in the sale of SmartPros Ltd. As part of its engagement, at the request of the Special Committee, Berkery provided its written
opinion as to the fairness, from a financial point of view, to SmartPros’ public stockholders of the per share Merger consideration
of $3.57 in cash, to be received by SmartPros’ public stockholders in the Merger pursuant to the Merger Agreement. For the
purposes of Berkery’s opinion, the “public stockholders” of SmartPros means the holders of outstanding shares
of SmartPros Common Stock, (except for any shares held by the directors, officers, employees and affiliates of SmartPros). On
October 21, 2015, Berkery delivered its opinion and explained to the Special Committee and the Board and subsequently confirmed
in a written opinion, dated October 21, 2015, that, as of that date and based upon and subject to the assumptions, procedures,
factors, limitations and qualifications stated in its written opinion, the per share Merger consideration of $3.57 in cash, to
be received by SmartPros’ public stockholders in the Merger is fair, from a financial point of view.
Berkery
provided the opinion described above for the information and assistance of the Special Committee and the Board in connection with
its consideration of the approval of the Merger Agreement. The terms of the Merger Agreement, including the amount and form of
the consideration payable pursuant to the Merger Agreement to SmartPros’ public stockholders, were determined through negotiations
between SmartPros and Parent, and were approved by the Special Committee and the Board. Berkery did not recommend the amount or
form of consideration payable pursuant to the Merger Agreement. Berkery has consented to the inclusion within the proxy statement
of its opinion and the description of its opinion appearing under this subheading “Opinion of Berkery, Financial Advisor.”
The full text of the written opinion of Berkery, dated October 21, 2015, which sets forth assumptions made, procedures followed,
matters considered and limitations on the review undertaken in connection with its opinion, is attached as Annex C to
this proxy statement.
Berkery’s
opinion does not address the merits of the underlying decision by SmartPros to enter into the Merger Agreement, the merits of
the Merger as compared with other alternatives potentially available to SmartPros or the relative effects of any alternative transaction
in which SmartPros might engage, nor is the opinion intended to be a recommendation to any person as to how to vote on the proposal
to adopt the Merger Agreement. In addition, except as explicitly set forth in Berkery’s opinion, Berkery was not asked to
address, and Berkery’s opinion does not address, the fairness to, or any other consideration of, the holders of any class
of securities, creditors or other constituencies of SmartPros other than the public stockholders. Berkery was not asked to express
any opinion, and did not express any opinion, as to the fairness of the amount or nature of the compensation to any of SmartPros’
officers, directors or employees, or to any group of such officers, directors or employees, relative to the compensation to other
stockholders of SmartPros. Berkery’s fairness opinion committee approved and authorized the issuance of Berkery’s
opinion.
In
connection with its opinion, Berkery, among other things:
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1. |
Reviewed
certain business and financial information relating to SmartPros; |
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Reviewed
certain information, including financial forecasts (the “2015 Budget”) and other financial and operating data
concerning SmartPros, prepared by SmartPros management; |
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3. |
Held
discussions with members of the senior management of SmartPros regarding their assessment of the past and current business
operations, regulatory environment, financial condition and future prospects of SmartPros; |
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4. |
Compared
the per share consideration premiums of certain relevant transactions prior to the announcement of such transaction to the
per share Merger consideration premium to be paid to SmartPros’ stockholders in relation to the closing prices of SmartPros
Common Stock for periods from one to 180 trading days prior to the announcement of the Merger; |
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5. |
Compared
the proposed financial terms of the Merger with the financial terms, to the extent publicly available, of certain other transactions
Berkery deemed relevant; |
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6. |
Compared
certain financial information of SmartPros with similar publicly available information of certain other companies Berkery
deemed relevant; |
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7. |
Reviewed
the Merger Agreement, in the form approved by the Special Committee on October 21, 2015; and |
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8. |
Performed
such other analyses, including a review of SmartPros’ Common Stock trading history and considered such other factors
as deemed appropriate. |
The
preparation of the financial statements of SmartPros and the forecast of the 2015 results (“Forecast”) that Berkery
relied upon in expressing its opinion, as well as any relevant assertions with respect to the financial statements and Forecast
were the responsibility of the management of SmartPros. It is Berkery’s responsibility to evaluate and express an opinion
as to whether the per share Merger consideration is fair from a financial point of view to the extent expressly specified therein.
In arriving at its opinion, Berkery has assumed and relied upon, without independent verification, the accuracy and completeness
of all of the financial and other information and data, including without limitation the Forecast, publicly available information,
and information or provided to, or otherwise reviewed by or discussed with Berkery and Berkery relied upon the assurances of the
management of SmartPros that they are not aware of any facts or circumstances that would make such information or data inaccurate
or misleading in any material respect.
Berkery
did not, and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of SmartPros, nor did they make any physical inspection of the properties or assets of SmartPros. Berkery did not evaluate the
solvency of SmartPros or Parent under any state, federal or other laws relating to bankruptcy, insolvency or similar matters.
Berkery assumed that the representations and warranties made by the parties in the definitive Merger Agreement and the related
agreements were and will be true and correct in all respects material to its analysis. Berkery assumed, at SmartPros direction,
that the Merger will be consummated in accordance with its terms, without waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents,
releases and waivers for the Merger, no delay, limitation, restriction or condition will be imposed that would have an adverse
effect on SmartPros or the contemplated benefits of the Merger.
Berkery
expressed no view or opinion as to any terms or other aspects of the Merger (other than the per share Merger consideration and
the total Merger consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure
of the Merger. Berkery’s opinion is limited to the fairness, from a financial point of view, of the per share Merger consideration
to be paid to the holders of SmartPros Common Stock. Berkery’s opinion was not intended to be and does not constitute a
recommendation to members of the Special Committee or the Board as to whether they should have approved the Merger or the Merger
Agreement, and Berkery expressed no opinion or recommendation as to how any stockholder should vote or act in connection with
the Merger.
Berkery
has acted as financial advisor to the Special Committee and the Board in connection with, and has participated in certain of the
negotiations leading to the Merger. Berkery expects to receive fees for its services in connection with the Merger, the principal
portion of which is contingent upon consummation of the Merger. SmartPros has agreed to reimburse Berkery’s expenses arising,
and indemnify Berkery against certain liabilities that may arise, out of its engagement.
Berkery’s
opinion is for the benefit and use of the Special Committee and the Board in connection with and for purposes of their evaluation
of the Merger and may not be used for any other purpose without their prior written consent with limited exceptions, including
its use in this Proxy Statement.
Berkery’s
opinion is necessarily based on financial, economic, monetary, market and other conditions and circumstances as they exist and
can be evaluated on, and the information made available to it as of the date of the opinion. Berkery does not have any obligation
to update, revise, or reaffirm its opinion as a result of subsequent developments.
Based
upon and subject to the foregoing, including the various assumptions and limitations set forth herein, and its experience as business
appraisers, Berkery is of the opinion that, as of October 21, 2015, the per share Merger consideration to be received pursuant
to the Merger by holders of SmartPros Common Stock is fair, from a financial point of view, to such holders.
The
following is a summary of the material financial analyses performed and material factors considered by Berkery in connection with
reaching its opinion. Berkery performed certain procedures, including each of the financial analyses described below, and reviewed
with the Special Committee the assumptions upon which the analyses were based, as well as other factors. Although the summary
does not purport to describe all of the analyses performed or factors considered by Berkery in this regard, it does set
forth those considered by
Berkery to be material in arriving at its written opinion. The order of the summaries of analyses described does not represent
the relative importance or weight given to those analyses by Berkery. It should be noted that in arriving at its opinion, Berkery
made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Berkery’s analysis
must be considered as a whole and that considering any portion of such analyses and factors, without considering all analyses
and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.
Certain
terms are used in Berkery’s analyses. “Enterprise Value” is defined as total paid consideration less debt obligations
plus net cash balances. Deferred subscription revenue liability is defined as revenue collected or billed but not yet earned under
the principles of revenue recognition in accordance with Accounting Principles Generally Accepted in the United States (“U.S.
GAAP”). Through the generation of subscription revenue contracts, principally of twelve months’ duration, the deferred
subscription revenue liability is created. Revenues from subscription services are recognized as earned; deferred at the time
of billing or payment and amortized into revenue on a monthly basis over the term of the subscription. Merger consideration is
defined as the Enterprise Value plus Net Cash. “Net Cash” is defined as estimated cash balances at the closing of
the Merger, less adjustments for transaction expenses, including termination of Management contracts, and less the estimated fulfillment
costs of the deferred subscription revenue liability. Per share Merger consideration is the Merger consideration divided by the
4,601,241 shares outstanding. As used within the description of Berkery’s financial analyses, “EBITDA” means
earnings before interest, taxes, depreciation and amortization. “EPS” means earnings per share and “LTM”
means last twelve months.
Premium
Analysis
Berkery
analyzed the per share Merger consideration to be received by holders of SmartPros’ Common Stock pursuant to the Merger
Agreement in relation to the closing price of SmartPros Common Stock on October 21, 2015, and the closing prices of SmartPros
Common Stock for periods from one to 180 trading days prior to the announcement of the Merger Agreement and the transactions contemplated
thereunder, including the Merger. These historical SmartPros share prices, in relation to the per share Merger consideration,
were compared to historical stock price premiums paid on education and training sector all cash consideration change of control
transactions in the United States and Canada.
Berkery’s
analysis is based upon 123 selected transactions primarily related to the education and training industry with transaction values
between $10 million and $150 million. The table below shows the premiums paid prior to the announcement of the transaction:
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SmartPros
Stock Price | | |
Deal
Offer Price Per | | |
Implied
Premium Per | | |
Relevant
Transactions Premiums Range | |
Premiums
Paid Analysis | |
| History | | |
| Share | | |
| Share | | |
| Median
| | |
| Mean | |
SmartPros
Price Per Share Price As of 10/20/2015 (1 Trading Day Prior) | |
$ | 2.56 | | |
$ | 3.57 | | |
| 39 | % | |
| 44 | % | |
| 50 | % |
SmartPros
Price Per Share Price As of 10/1/2015 (14 Trading Days Prior) | |
$ | 2.54 | | |
$ | 3.57 | | |
| 40 | % | |
| 35 | % | |
| 53 | % |
SmartPros
Price Per Share Price As of 9/9/2015 (30 Trading Days Prior) | |
$ | 2.45 | | |
$ | 3.57 | | |
| 46 | % | |
| 37 | % | |
| 55 | % |
SmartPros
Price Per Share Price As of 6/15/2015 (90 Trading Days Prior) | |
$ | 1.67 | | |
$ | 3.57 | | |
| 113 | % | |
| 35 | % | |
| 55 | % |
SmartPros
Price Per Share Price As of 1/30/2015 (183 Trading Days Prior) | |
$ | 1.51 | | |
$ | 3.57 | | |
| 136 | % | |
| 39 | % | |
| 57 | % |
This
analysis indicated that the price per share to be paid to the holders of shares of the Common Stock pursuant to the Merger Agreement
bears a premium falling within these historical ranges.
Comparable
Transactions Analysis
Berkery
reviewed the financial terms of select training and education acquisition transactions from January 2012 to the date of its opinion
deemed relevant to the SmartPros transaction. The following transactions were selected by Berkery (in each case, the first named
company was the acquired company and the second named company was the acquiring company):
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FRA
Associates/Wilmington PLC |
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Videotel
Marine International/KVH Industries, Inc. |
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Line
Communications/Epic Group PLC |
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MISTI/
Learning Technologies Group |
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BankersEdge/OnCourse
Learning |
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Informa
Training Divestiture/Providence Equity |
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Petroleum
Institute for Continuing Education Inc./RPS Group PLC |
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BlessingWhite,
Inc./GP Strategies Corporation |
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Human
Concepts, LLC/Saba Software, Inc. |
Berkery
considered these training and education acquisition transactions to be reasonably similar to the Merger. A total of 75 transactions
for which there was information available were reviewed in selecting these transactions.
Berkery
calculated an implied Enterprise Value, excluding cash balances and the deferred subscription revenue liability. The results of
these analyses are summarized in the table below:
All
figures in $ Millions
Analysis
of Selected | |
SmartPros
Financials | | |
Relevant
Multiple Range | | |
Implied
Enterprise Values | | |
Implied
Enterprise Value | | |
Implied
E nterprise Value Range (EBITDA) | |
M&A
Transactions | |
| | |
Median | | |
Mean | | |
Median | | |
Mean | | |
Median | | |
Mean | | |
Median | | |
Mean | |
LTM
June 2015 Revenue | |
$ | 13.5 | | |
| 1.6 | x | |
| 1.6 | x | |
$ | 21.3 | | |
$ | 21.0 | | |
$ | 21.3 | | |
$ | 21.0 | | |
$ | 7.2 | | |
$ | 7.7 | |
LTM
June 2015 EBITDA | |
$ | 1.0 | | |
| 7.0 | x | |
| 7.4 | x | |
$ | 7.2 | | |
$ | 7.7 | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Combined
Range | |
| | | |
$ | 7.2 | | |
$ | 21.3 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
As
evidenced in the above table, Parent’s Enterprise Value offer falls within the valuation range. No consideration was made
for SmartPros’ flat to declining revenue and its loss making years in the last twelve months and 2014 periods.
Parent’s
offer yields an Enterprise Value of $15 million which was adjusted for SmartPros’ Net Cash in deriving at the per share
Merger consideration based upon the following: 1) estimated deferred revenue liability at the estimated 2015 closing date and
the costs of fulfillment of such liability; 2) various transaction expenses, including the termination of various management contracts
and legal and investment banking fees, among others; and 3) Net Cash balances at the closing of the Merger based upon estimates
of working capital at that date. SmartPros’ Enterprise Value plus Net Cash results in total Merger consideration of $16.86
million, or per share Merger consideration of $3.57.
Comparable
Companies Analysis
Berkery
analyzed the public market statistics of certain other training and education companies deemed relevant by Berkery and examined
various trading statistics and information relating to those companies. Berkery selected the companies below because their businesses
and operating profiles are reasonably similar to that of SmartPros, although they are substantially larger companies. Berkery
selected the following companies:
|
● |
DeVry
Education Group |
|
|
|
|
● |
GP
Strategies Corp |
|
|
|
|
● |
Graham
Holdings Company |
Berkery
examined the market trading Enterprise Value multiples for each public company based on the October 21, 2015 closing price and
information publicly available at that time, including the multiples of Enterprise Value to LTM Revenue and LTM EBITDA, 2014 results
and the 2015 forecasts. For the purposes of this analysis, Enterprise Value of the Comparable Companies is defined as Market Capitalization
plus Net Debt (Total Debt less Cash and Equivalents), Preferred Equity and Non-Controlling Interests.
The
results of these analyses are summarized in the table below:
All
figures n $ Milions
Analysis of
Selected Publicly | |
SmartPros | | |
Relevant
Multiple Range | | |
Implied
Enterprise Values | | |
Implied
Enterprise Value Range (Revenue) | | |
Implied
Enterprise Value Range (EBITDA) | | |
| |
Traded Companies | |
Financials
| | |
Median
| | |
Mean | | |
Median
| | |
Mean
| | |
Median
| | |
Mean | | |
Median
| | |
Mean
| | |
Weighting
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2014A
Revenue | |
$ | 13.5 | | |
| 0.8 | x | |
| 0.9 | x | |
$ | 11.4 | | |
$ | 11.6 | | |
| | | |
| | | |
| | | |
| | | |
| | |
2014A
EBITDA | |
$ | 0.6 | | |
| 5.4 | x | |
| 6.4 | x | |
$ | 3.4 | | |
$ | 4.0 | | |
$ | 11.4 | | |
$ | 11.6 | | |
$ | 3.4 | | |
$ | 4.0 | | |
| 25 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
LTM
June 2015 Revenue | |
$ | 13.5 | | |
| 0.8 | x | |
| 0.9 | x | |
$ | 11.4 | | |
$ | 11.7 | | |
| | | |
| | | |
| | | |
| | | |
| | |
LTM
June 2015 EBITDA | |
$ | 1.0 | | |
| 5.9 | x | |
| 7.1 | x | |
$ | 6.1 | | |
$ | 7.3 | | |
$ | 11.4 | | |
$ | 11.7 | | |
$ | 6.1 | | |
$ | 7.3 | | |
| 50 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
2015F
A&F Revenue | |
$ | 14.6 | | |
| 1.0 | x | |
| 0.9 | x | |
$ | 14.3 | | |
$ | 13.8 | | |
| | | |
| | | |
| | | |
| | | |
| | |
2015F
A&F EBITDA | |
$ | 1.8 | | |
| 9.1 | x | |
| 8.6 | x | |
$ | 15.9 | | |
$ | 15.0 | | |
$ | 14.3 | | |
$ | 13.8 | | |
$ | 15.9 | | |
$ | 15.0 | | |
| 25 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Implied
Enterprise Values | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 12.1 | | |
$ | 12.
2 | | |
$ | 7.9 | | |
$ | 8.4 | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Combined
Range | |
| | | |
$ | 7.9 | | |
$ | 12.2 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Based
on this data and its understanding of the relative operating, financial and trading characteristics of the selected companies
and of SmartPros, Berkery derived a range for the implied enterprise value of $7.9 million and $12.2 million, compared to the
Parent’s offer of $15 million Enterprise Value.
Historical
Trading Analysis. Berkery analyzed the historical daily closing prices per share of the Common Stock for the one-year trading
period ended October 21 ,2015. Berkery noted that during this period, the 52-week low (reached on 2/27/15) and 52-week high (reached
on 5/28/14) closing prices per share of the Common Stock were $1.30 and $2.94, respectively. Berkery further noted that the Merger
consideration of $3.57 per share for SmartPros Common Stock was above the 52-week range for the closing prices per share of SmartPros
Common Stock for the one-year period ended October 21, 2015, and that the offer price represented a premium of 21% to the 52-week
high.
As
part of Berkery’s investment banking business, Berkery regularly issues fairness opinions and is continually engaged in
the valuation of companies and their securities in connection with business reorganizations, private placements, negotiated underwritings,
mergers and acquisitions and valuations for estate, corporate and other purposes.
Fee
Arrangements
We
retained Berkery based on its qualifications and expertise and its reputation as an investment banking firm that specializes in
mergers and acquisitions in the education and training sector. Pursuant to a letter agreement dated March 5, 2015, as amended
on August 31, 2015, a fee of $50,000 became payable to Berkery upon the delivery of its written fairness opinion. Berkery will
receive an additional fee of approximately $487,000 contingent upon the closing of the Merger and certain of its out-of-pocket
expenses (including fees and expenses of its counsel) reasonably incurred by it in connection with its services. We have agreed
to indemnify Berkery against potential liabilities arising out of its engagement, including certain liabilities that could arise
in connection with its fairness opinion under U.S. federal securities laws.
Support
Agreements
Under
the Support Agreements, which were entered into simultaneously with the execution of the Merger Agreement, by each of, Messrs.
Allen Greene, Jack Fingerhut, Stanley Wirtheim, Joseph Fish, John Gorman, Martin Lager and Leonard Stanley as stockholders and
option holders of SmartPros who are members of management and/or directors of SmartPros, and Mr. Zohar Ben Dov a significant stockholder
of SmartPros, who we refer to together as the “Voting Stockholders,” agreed to vote all of their shares of SmartPros
Common Stock (representing approximately 27.1% of the outstanding shares of SmartPros Common Stock as of November 16, 2015): (i)
in favor of adoption of the Merger Agreement and the transactions contemplated thereunder, including the Merger, and (ii) against
(x) any proposal for any recapitalization, merger, sale of assets or other business combination (other than the Merger) between
the Company and any person or entity other than Parent, (y) any other action or agreement that would reasonably be expected to
result in a breach of any
covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or the stockholder
under his Support Agreement, or (z) which would reasonably be expected to result in any of the conditions to the Company’s
obligations under the Merger Agreement not being fulfilled. Each of the Voting Stockholders also agreed to irrevocably appoint
officers of Parent as such Voting Stockholder’s proxy and attorney-in-fact, with full power of substitution and re-substitution,
to cause such stockholder’s shares of SmartPros Common Stock to be voted in favor of the Merger Agreement and the transactions
contemplated thereunder, including the Merger and against the actions set forth above in clause (ii). Additionally, the Voting
Stockholders agreed, among other things, not to transfer their shares of SmartPros Common Stock, subject to certain exceptions.
The Support Agreements will terminate upon the earliest to occur of the completion of the Merger, or the termination of the Merger
Agreement in accordance with its terms.
The
vote of the Voting Stockholders is not sufficient under Delaware law to approve and adopt the Merger Agreement and the transactions
contemplated thereunder, including the Merger, without the approval of any other stockholders of SmartPros. A copy of the Form
of Support Agreement is attached to this proxy statement as Annex B. See the section entitled “Support Agreements”
beginning on page 63 of this proxy statement.
Litigation
Relating to the Merger
A
purported class action on behalf of the Company’s stockholders was filed on November 6, 2015 in the Supreme Court of the
State of New York, County of Westchester, captioned Jack Isaacs, individually and on behalf of all others similarly situated,
as Plaintiff, v. Allen S. Greene, Jack Fingerhut, John J. Gorman, Martin H. Lager, Leonard J. Stanley, SmartPros Ltd., DF Institute,
LLC and SPL Merger Corp., as Defendants (the “Action”).
The
Action relates to the Merger Agreement and the transactions contemplated thereunder, including the Merger.
The
Action alleges that the Board breached their fiduciary duties owed to the stockholders of the Company. It further alleges that
Parent and Merger Sub aided and abetted the Board in their breach of their fiduciary duties to the stockholders of the Company.
The
Action seeks relief: (i) declaring that the Action is properly maintainable as a Class action and certifying Plaintiff as Class
representative; (ii) enjoining Defendants, and their counsel, agents, employees and all persons acting under, in concert with,
or for them, from proceeding with, consummating, or closing the Merger Agreement and the transactions contemplated thereunder,
including the Merger, unless and until the Company adopts and implements a procedure or process to obtain an agreement providing
fair and reasonable terms and consideration to Plaintiff and the Class; (iii) rescinding, to the extent already implemented, the
Merger Agreement or any of the terms thereof, or granting Plaintiff and the Class rescissory damages; (iv) directing the individual
Defendants to account to Plaintiff and the Class for all damages suffered as a result of the individual Defendants’ wrongdoing;
(v) awarding Plaintiff the costs and disbursements of the Action, including reasonable attorneys’ and experts’ fees;
and (vi) granting such other and further equitable relief as the Court may deem just and proper.
We
believe that the Action is without merit and intend to assert a vigorous defense.
To
our Knowledge, there is no other pending litigation relating to the Merger.
Financing
of the Merger
There
is no financing condition to the Merger. The Merger consideration is expected to be funded by Parent from its cash on hand.
Interests
of Certain Persons in the Merger
In
considering the Company Board Recommendation, you should be aware that certain of our directors and executive officers have financial
interests in the Merger that are different from, or in addition to, those of our stockholders generally. The Board was aware of
and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in
recommending that the Merger Agreement and the transactions contemplated thereunder, including the Merger, be approved and adopted
by the stockholders of SmartPros. For the purposes of all of the agreements and plans described below, the completion of the transactions
contemplated by the Merger Agreement will constitute a change of control.
Equity
Compensation and Incentive Awards
Pursuant
to the terms of the Merger Agreement and our restricted stock grants, at the effective time of the Merger all of such restricted
shares of SmartPros Common Stock, will become fully vested and no longer subject to forfeiture.
At
the effective time of the Merger, each outstanding option to purchase shares of SmartPros Common Stock that is outstanding and
unexercised as of immediately prior to the effective time of the Merger, whether vested or unvested, will automatically vest and
be converted into the right to receive a cash payment equal to the number of shares of SmartPros Common Stock subject to such
option multiplied by the amount (if any) by which $3.57 exceeds the exercise price per share of such option, less any applicable
withholding taxes.
The
following table sets forth, as of November 16, 2015 the equity compensation award holdings of SmartPros’ directors and executive
officers and the gross value of such holdings assuming the Merger is completed:
Holder | |
Number
of Shares Subject to Vested Stock Options | | |
Cash
Consideration to be Received for Vested Stock Options | | |
Number
of Shares Subject to Unvested Stock Options | | |
Cash
Consideration to be Received for Unvested Stock Options | | |
Number
of Shares of Restricted Stock Subject to Forfeiture | | |
Cash
Consideration to be Received for Restricted Stock Subject to Forfeiture | | |
Total
Consideration | |
Allen
S. Greene | |
| 115,000 | | |
$ | 162,000.00 | | |
| 0 | | |
$ | 0.00 | | |
| 0 | | |
$ | 0.00 | | |
$ | 162,000.00 | |
Jack
Fingerhut | |
| 20,000 | | |
$ | 24,000.00 | | |
| 21,000 | | |
$ | 46,050.00 | | |
| 6,000 | | |
$ | 21,420.00 | | |
$ | 91,470.00 | |
Stanley
P. Wirtheim | |
| 2,500 | | |
$ | 3,950.00 | | |
| 12,000 | | |
$ | 26,500.00 | | |
| 2,000 | | |
$ | 7,140.00 | | |
$ | 37,590.00 | |
Joseph
R. Fish | |
| 25,000 | | |
$ | 39,500.00 | | |
| 20,000 | | |
$ | 43,950.00 | | |
| 5,000 | | |
$ | 17,850.00 | | |
| 101,300.00 | |
Martin
H. Lager | |
| 0 | | |
$ | 0.00 | | |
| 0 | | |
$ | 0.00 | | |
| 500 | | |
$ | 1,785.00 | | |
$ | 1,785.00 | |
John
Gorman | |
| 9,000 | | |
$ | 4,680.00 | | |
| 0 | | |
$ | 0.00 | | |
| 500 | | |
$ | 1,785.00 | | |
$ | 6,465.00 | |
Leonard
J. Stanley | |
| 9,000 | | |
$ | 0.00 | | |
| 0 | | |
$ | 0.00 | | |
| 500 | | |
$ | 1,785.00 | | |
$ | 1,785.00 | |
Karen
Stolzar | |
| 500 | | |
$ | 790.00 | | |
| 0 | | |
$ | 0.00 | | |
| 0 | | |
$ | 0.00 | | |
$ | 790.00 | |
Total | |
| 181,000 | | |
$ | 234,920.00 | | |
| 53,000 | | |
$ | 116,500.00 | | |
| 14,500 | | |
$ | 51,765.00 | | |
$ | 403,185.00 | |
Change
of Control Payments
SmartPros’
existing employment agreement with Allen Greene, our Chief Executive Officer, provides that, in the event of a change of control,
which the closing of the Merger will constitute, Mr. Greene, will receive a cash payment in the amount of the balance of his salary
and benefits through January 31, 2018, which if the Merger is effective between December 31, 2015 and January 15, 2016, will be
approximately $927,000 payable in a lump sum. If the effective time of the Merger occurs between December 15, 2015 and December
30, 2015 the cash payment will increase by approximately $18,500. If the effective time of the Merger occurs between January 16,
2016 and and January 31, 2016 the cash payment will decrease by approximately $18,500 and thereafter will decrease by approximately
$18,500 for each half month period during which the effective time of the Merger occurs. For example, if the effective time of
the Merger occurs between February 16, 2016 and February 28, 2016 the cash payment to Mr. Greene would be approximately $890,000.
Mr. Greene has not been offered a position with the Company surviving the Merger.
SmartPros
‘existing employment agreement with Stanley Wirtheim, our Chief Financial Officer, provides that, in the event of a change
of control, which the Merger will constitute, and in the event he is not offered a position at the same salary with the company
surviving the Merger, he would receive a cash payment of $135,000. He has not been offered such position and therefore, will receive
such cash payment.
Employment
Letter Agreements with the Surviving Corporation
In
October 2015, we entered into employment letter agreements with each of Mr. Jack Fingerhut, our President and Mr. Joseph Fish,
our Chief Technology Officer, which will only take effect upon the
consummation
of the Merger. Their existing employment agreements with SmartPros will be terminated simultaneously with the effectiveness of
the new employment agreements.
Under
the new letter agreement with Mr. Fingerhut, he will (i) continue his full-time employment with us as an Executive Director at
an annual base salary of $205,000, (ii) be eligible for an annual bonus of up to 20% of his annual base salary beginning in 2016
with guaranteed bonuses of a minimum of $27,000 per year in 2016 and 2017 (“Guaranteed Bonus”) unless he resigned
or was terminated by us for cause prior the bonus distribution date, (iii) be eligible for Kaplan’s standard severance benefits
(subject to the last sentence of the paragraph) and (iv) continue to be eligible to participate in SmartPros employee benefit
programs, including health and long-term disability insurance until such time as Kaplan may transition him to Kaplan plans. In
addition, if Mr. Fingerhut is terminated by the Company other than for cause during the 24-month period following the Closing,
he will be paid the remainder of the first 24-months’ salary and Guaranteed Bonus, from the date of termination in a lump
sum or the amount he would receive under Kaplan’s standard severance benefit plan (but not both).
In
comparison, our existing employment agreement with Mr. Fingerhut is for a term of three years, through September 30, 2017, but
renews automatically for a new three-year term at the end of each successive three-year term unless either party gives written
notice of nonrenewal at least thirty (30) days prior to the end of any term of its intention not to renew the agreement. His current
annual base salary is $232,000. He is also entitled to participate in all of our employee benefit programs, including health and
long-term disability insurance. In addition, he receives an annual car allowance. In the event: (i) his contract is terminated
by us without cause, he will be entitled to his base salary and all fringe benefits for the remainder of the term of the contract,
and a payment equal to the average of the then last two years’ bonuses multiplied by the number of years, or fraction thereof,
remaining on the term of the contract; or (ii) he is not continued in a position at the same or greater salary within 30 days
after a change in control, he will be entitled to severance pay equal to his annual base salary in lieu of any other payments
that would be due under the contract.
Under
the new letter agreement with Mr. Fish, he will (i) continue his full-time employment with us as an Executive Director at the
same annual base salary of $212,000, (ii)be eligible for an annual bonus of up to 20% of his annual base salary beginning in 2016,
(iii) be eligible for Kaplan’s standard severance benefits (subject to the last sentence of this paragraph) and (iv) continue
to be eligible to participate in SmartPros employee benefit programs, including health and long-term disability insurance until
such time as Kaplan may transition him to Kaplan plans. In addition, Mr. Fish will be paid a one-time sign-on bonus of $50,000
within 30 days following the Merger, which will be subject to partial forfeiture if his employment terminates during the 24-month
period following the Merger for any reason other than termination by us without cause or the amount he would receive under Kaplan’s
standard severance benefit plan (but not both).
In
comparison, our existing employment agreement with Mr. Fish is for a term of two years ending on February 28, 2016 and at annual
base salary of $212,000. The term automatically renews for an additional new two-year term at the end of each successive two-year
term unless either party gives written notice of nonrenewal at least thirty (30) days prior to the end of any term of his or its
intention not to renew the agreement. He is also entitled to participate in all of our employee benefit programs, including health
and long-term disability insurance. In addition, he receives an annual car allowance. In the event: (i) his contract is terminated
by us without cause, he will be entitled to his base salary for the remainder of the term of the contract; (ii) he is not continued
in a position at the same or greater salary within 30 days after a change in control during the first year of any two-year term,
he will be entitled to severance pay equal to his annual base salary in lieu of any other payments that would be due under the
contract; or (iii) he is not continued in a position at the same or greater salary within 30 days after a change in control during
the second year of any two-year term, he will be entitled to severance pay equal to six (6) months of his base salary in lieu
of any other payments that would be due under the contract.
Indemnification
and Insurance
From
and after the effective time of the Merger, Parent shall, and shall cause SmartPros to, (i) until the sixth (6th) anniversary
of the date on which the effective time of the Merger shall occur, indemnify and hold harmless each individual who at the effective
time of the Merger is, or at any time prior to the effective
time
of the Merger was, a director or officer of SmartPros or of a subsidiary of SmartPros (each, an “Indemnitee”
and, collectively, the “Indemnitees”) (with respect to all claims, liabilities, losses, damages, judgments,
fines, penalties, costs) and reasonable expenses in connection with any civil, criminal, administrative or investigative action,
whenever asserted, based on or arising out of, in whole or in part, (A) the fact that an Indemnitee was a director or officer
of SmartPros or such subsidiary or (B) acts or omissions by an Indemnitee in the Indemnitee’s capacity as a director, officer,
employee or agent of SmartPros or such subsidiary or taken at the request of SmartPros or such subsidiary (including in connection
with serving at the request of SmartPros or such subsidiary as a director, officer, employee, agent, trustee or fiduciary of another
Person (including any employee benefit plan)), in each case under (A) or (B), at, or at any time prior to, the effective time
of the Merger (including any action relating in whole or in part to the Merger), to the fullest extent permitted under applicable
law, and (ii) assume all obligations of SmartPros and such subsidiaries to the Indemnitees in respect of indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the effective time of the Merger as provided in (x) SmartPros
certificate of incorporation and by-laws and the organizational documents of such subsidiaries as in effect as of the date of
the Merger Agreement and (y) indemnification agreements with the Indemnities in effect as of the date of the Merger Agreement,
which shall survive the Merger.
In
addition, Parent shall, for six years after the effective time of the Merger, (i) cause the certificate of incorporation and bylaws
of the surviving corporation to contain provisions no less favorable to the Indemnitees with respect to limitation of liabilities
of directors and officers and indemnification than are set forth in SmartPros certificate of incorporation and by-laws as of the
date of the Merger Agreement and (ii) advance any expenses of any Indemnitee as provided in the above paragraph as incurred to
the fullest extent permitted under Delaware law, provided that the person to whom expenses are advanced provides an undertaking
to repay such advances to the extent required by Delaware law.
At
the Parent’s election, either (i) SmartPros shall obtain prior to the effective time of the Merger “tail” insurance
policies with a claims period of at least six (6) years from the effective time of the Merger with respect to the directors’
and officers’ liability insurance in amount and scope no less favorable than the existing policy of SmartPros for claims
arising from facts or events that occurred on or prior to the effective time of the Merger at a cost that does not exceed 250%
of the annual premium currently paid by SmartPros for D&O Insurance ; or (ii) Parent will provide, or cause the surviving
corporation to provide, for a period of not less than six (6) years after the effective time of the Merger, the Indemnitees who
are insured under SmartPros’ directors’ and officers’ insurance and indemnification policy with an insurance
and indemnification policy that provides coverage for events occurring at or prior to the effective time of the Merger that is
no less favorable, taken as a whole, than the existing policy of SmartPros or, if substantially equivalent insurance coverage
is unavailable, the best available coverage; provided, however, that Parent and the surviving corporation shall
not be required to pay an aggregate amount for the D&O Insurance during such six (6) year period in excess of 250% of the
annual premium currently paid by SmartPros for such insurance.
Accounting
Treatment
The
Merger will be accounted for as a “purchase transaction” for financial accounting purposes.
Material
U.S. Federal Income Tax Consequences of the Merger
The
following is a summary of the material U.S. federal income tax consequences of the Merger to U.S. holders (as defined below) whose
shares of SmartPros Common Stock are converted into the right to receive, and are exchanged for, cash in the Merger. This summary
is for the general information of SmartPros’ stockholders only and does not address all aspects of U.S. federal income taxation
that might be relevant to our stockholders. For example, this summary does not consider the effect of any applicable state, local
or foreign income tax laws, or of any non-income tax laws (including estate and gift tax).
For
purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of SmartPros Common
Stock that is, for U.S. federal income tax purposes:
|
● |
an
individual who is a citizen or resident of the United States; |
|
|
|
|
● |
a
corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the
laws of the United States, any state thereof or the District of Columbia; |
|
|
|
|
● |
a
trust (i) the administration of which is subject to the primary supervision of a U.S. court and all substantial decisions
of which are controlled by one or more U.S. persons or (ii) that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person; or |
|
|
|
|
● |
an
estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source. |
If
a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds SmartPros Common Stock,
the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. Partnerships
holding SmartPros Common Stock and partners in such partnerships should consult their tax advisors as to the particular U.S. federal
income tax consequences of the Merger to them.
This
discussion is based upon the Internal Revenue Code of 1986, as amended, which we refer to in this proxy statement as the “Code,”
and Treasury regulations, Internal Revenue Service rulings and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. Any such change could alter the tax consequences to holders of
SmartPros Common Stock as described in this proxy statement. No ruling from the Internal Revenue Service (“IRS”) has
been or will be sought with respect to any aspect of the Merger. This discussion applies only to beneficial owners who hold shares
of SmartPros Common Stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment).
In addition, this discussion does not address all aspects of U.S. federal income tax consequences that may be relevant to a holder
in light of the holder’s particular circumstances or to holders subject to special rules, such as holders who receive shares
of SmartPros Common Stock in connection with the exercise of employee stock options or otherwise as compensation, holders who
hold an equity interest, actually or constructively, in Parent or the surviving corporation after the Merger, holders who validly
exercise their rights under the DGCL to object to the Merger, banks, insurance companies and other financial institutions, tax-exempt
organizations, broker-dealers, partnerships, S corporations or other pass-through entities, regulated investment companies, real
estate investment trusts, certain former citizens or residents of the United States, traders in securities who elect the mark-to-market
method of accounting, holders subject to the alternative minimum tax, holders that have a functional currency other than the U.S.
dollar, holders who hold SmartPros Common Stock as part of a hedge, straddle, constructive sale or conversion transaction, controlled
foreign corporations and passive foreign investment companies. This discussion also does not address the U.S. federal income tax
consequences of the receipt of cash in connection with the cancellation of options to purchase shares of SmartPros Common Stock
or any other matters relating to equity compensation or benefit plans.
Exchange
of Shares of SmartPros Common Stock for Cash Pursuant to the Merger Agreement
U.S.
Holders
The
exchange of shares of SmartPros Common Stock for cash in the Merger will be a taxable transaction for U.S. federal income tax
purposes. In general, a U.S. holder whose shares of SmartPros Common Stock are converted into the right to receive, and are exchanged
for, cash in the Merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any,
between the amount of cash received with respect to such shares (determined before the deduction of any applicable withholding
taxes) and the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis will generally
equal the price the U.S. holder paid for such shares. Gain or loss will be determined separately for each block of shares of SmartPros
Common Stock (i.e., shares of SmartPros Common Stock acquired at the same cost in a single transaction). Such gain or loss will
be long-term capital gain or loss if
the
U.S. holder’s holding period for such shares of SmartPros Common Stock exceeds one year at the time of the completion of
the Merger. Long-term capital gains of non-corporate U.S. holders generally are subject to U.S. federal income tax at preferential
rates. The deductibility of capital losses is subject to limitations. Capital gains recognized by individuals, trusts and estates
also may be subject to a 3.8% federal Medicare contribution tax.
Non-U.S.
Holders
A
“non-U.S. holder” is a beneficial owner of SmartPros Common Stock that is not a U.S. holder or a partnership (or any
other entity classified as a partnership for U.S. federal income tax purposes). Payments made to a non-U.S. holder in exchange
for shares of SmartPros Common Stock pursuant to the Merger generally will not be subject to U.S. federal income tax unless:
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the
gain, if any, on such shares is effectively connected with a trade or business of the non-U.S. holder in the United States
(and, if required by an applicable income tax treaty, is attributable to the non-U.S. holder’s permanent establishment
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the
non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the exchange
of shares of SmartPros Common Stock pursuant to the Merger and certain other conditions are met; or |
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the
non-U.S. holder owned, directly or under certain constructive ownership rules of the Code, more than 5% of the outstanding
shares of SmartPros Common Stock at any time during the five-year period preceding the Merger, and SmartPros is or has been
a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code for U.S.
federal income tax purposes at any time during the shorter of the five-year period preceding the Merger or the period that
the non-U.S. holder held SmartPros Common Stock. |
A
non-U.S. holder described in the first bullet point immediately above will be subject to regular U.S. federal income tax on any
gain realized as if the non-U.S. holder were a U.S. holder, subject to an applicable income tax treaty providing otherwise. If
such non-U.S. holder is a foreign corporation, it may also be subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits (or a lower treaty rate). A non-U.S. holder described in the second bullet point immediately above
will be subject to tax at a rate of 30% (or a lower treaty rate) on any gain realized, which may be offset by U.S.-source capital
losses recognized in the same taxable year, even though the individual is not considered a resident of the United States.
SmartPros
believes it has not been a “United States real property holding corporation” for U.S. federal income tax purposes
at any time during the five-year period preceding the Merger.
Information
Reporting and Backup Withholding
Payments
made in exchange for shares of SmartPros Common Stock generally will be subject to information reporting unless the holder is
an “exempt recipient” and may also be subject to backup withholding at a rate of 28%. Each of our U.S. holders should
complete and sign, under penalty of perjury, the Substitute Form W-9 included as part of the letter of transmittal that will be
sent promptly after the completion of the Merger (but in no event more than five business days thereafter) and return such Substitute
Form W-9 to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless
an exemption applies and is established in a manner satisfactory to the paying agent. A non-U.S. holder that provides the applicable
withholding agent with an IRS Form W-8BEN or W-8ECI, as appropriate, will generally establish an exemption from backup withholding.
Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against a holder’s
U.S. federal income tax liability, provided the relevant information is timely furnished to the IRS.
This
summary of material U.S. federal income tax consequences is for general information only, is not intended to constitute a complete
description of all tax consequences relating to the Merger and is not tax advice. Because individual circumstances may differ,
each stockholder should consult
such
stockholder’s own tax advisor regarding the applicability of the rules discussed above to the stockholder and the particular
tax effects to the stockholder of the Merger in light of such stockholder’s particular circumstances, the application of
federal, state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with
the cancellation of options, including the transactions described in this proxy statement relating to outstanding stock options.
THE
MERGER AGREEMENT
The
following summary describes the material terms of the Merger Agreement but does not purport to describe all of the terms of the
Merger Agreement. This summary of the Merger Agreement is qualified by reference to the full text of the Merger Agreement, a copy
of which is attached as Annex A, and is incorporated by reference into, this proxy statement. The Merger Agreement has
been included to provide you with information regarding its terms. We encourage you to read the Merger Agreement carefully and
in its entirety because it is the legal document that governs the Merger. It is not intended to provide you with any factual information
about us. Such factual information about us can be found elsewhere in this proxy statement and in the public filings we make with
the SEC, as described in the section entitled “Where You Can Find More Information” beginning on page 72 of this proxy
statement.
The
Merger
The
Merger Agreement provides that Merger Sub will merge with and into SmartPros, with SmartPros continuing as the surviving corporation
and doing business following the Merger, and the separate corporate existence of Merger Sub shall thereupon cease.
Closing
The
closing of the Merger will take place on the second business day following the date on which the conditions to the closing of
the Merger (described in the section entitled “The Merger Agreement — Conditions to the Merger” beginning on
page 58 of this proxy statement) have been satisfied or waived (other than the conditions that by their nature are to be satisfied
at the closing of the Merger, but subject to the fulfillment or waiver of those conditions), unless another date is agreed to
in writing by Parent and SmartPros.
Effective
Time
The
effective time of the Merger will occur upon the filing of certificate of merger with the Secretary of State of the State of Delaware
(or at such later date as we and Parent may agree and specify in the certificate of merger).
Directors
and Officers of Surviving Corporation
The
Board of Directors of the surviving corporation will, from and after the effective time of the Merger, consist of the directors
of Merger Sub until their successors have been duly elected or appointed and qualified or until their death resignation or removal.
The officers of Merger Sub at the effective time of the Merger will, from and after the effective time of the Merger, be the officers
of the surviving corporation until their successors have been duly appointed and qualified.
Organizational
Documents of Surviving Corporation
The
certificate of incorporation of the surviving corporation will be in the form of the certificate of incorporation of Merger Sub.
The bylaws of the surviving corporation will be the bylaws of Merger Sub.
Effect
of the Merger on the Common Stock of the Parties
At
the effective time of the Merger:
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each
issued and outstanding share of capital stock of Merger Sub will become one share of common stock of the surviving corporation;
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any
shares of SmartPros Common Stock that are owned by us as treasury stock or any shares of SmartPros Common Stock owned by Parent
or Merger Sub will be canceled and no consideration will be delivered in exchange for those shares; and |
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each
issued and outstanding share of SmartPros Common Stock (other than those canceled as
above and shares of SmartPros Common Stock of stockholders who have properly exercised
appraisal rights) will be converted into the right to receive $3.57 in cash, less any
applicable withholding taxes.
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Shares
of SmartPros Common Stock owned by stockholders who have perfected and not withdrawn a demand for, or lost the right to, appraisal
rights under the DGCL will be cancelled without payment of the per share Merger consideration. Such stockholders will instead
be entitled to the appraisal rights provided under the DGCL as described in the section entitled “Appraisal Rights”
beginning on page 64 of this proxy statement.
Exchange
and Payment Procedures
As
soon as practicable following the effective time of the Merger, Parent will deposit, or will cause to be deposited, with a bank
or trust company designated by Parent and reasonably acceptable to us, as paying agent, a cash amount necessary for the paying
agent to make payment of the aggregate per share Merger consideration to the holders of shares of SmartPros Common Stock.
Promptly
after the effective time of the Merger, each record holder of shares of SmartPros Common Stock will be sent a letter of transmittal
and instructions describing how the stockholder may exchange his, her or its shares of SmartPros Common Stock for the per share
Merger consideration after the completion of the Merger.
If
your shares are certificated, you should not return your stock certificates with the enclosed proxy card, and you should not forward
your stock certificates to the paying agent without a letter of transmittal.
Following
the Merger, you will not be entitled to receive the per share Merger consideration until you deliver a duly completed and validly
executed letter of transmittal to the paying agent. If your shares are certificated, you must also surrender your stock certificate
or certificates to the paying agent along with your letter of transmittal.
No
interest will be paid or accrued on the cash payable as the per share Merger consideration. Parent, the surviving corporation
and the paying agent will be entitled to deduct and withhold any applicable taxes from the per share Merger consideration. Any
amount that is withheld and paid over to the appropriate taxing authority will be deemed to have been paid to the stockholder
with regard to whom it is withheld.
From
and after the effective time of the Merger, there will be no transfers on our stock transfer books of shares of SmartPros Common
Stock that were outstanding immediately prior to the effective time of the Merger. If, after the effective time of the Merger,
any person presents to the surviving corporation any certificates for any reason, such certificates must be cancelled and exchanged
for the per share Merger
consideration as provided
above to the extent that the per share Merger consideration has not already been paid in respect of the shares of SmartPros Common
Stock represented by such certificates.
Any
portion of the per share Merger consideration deposited with the paying agent that remains unclaimed by record holders of SmartPros
Common Stock one year after the effective time of the Merger will, upon demand of Parent, be delivered to Parent. Record holders
of SmartPros Common Stock who have not complied with the above-described exchange and payment procedures will thereafter only
look to Parent for payment of the per share Merger consideration. None of the surviving corporation, Parent, Merger Sub, SmartPros
or the paying agent will be liable to any person for any cash delivered to a public official pursuant to any applicable abandoned
property, escheat or other similar laws.
If
you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the per share
Merger consideration, you must make an affidavit of the loss, theft or destruction, and if required by Parent, post a bond in
an amount sufficient to provide a full indemnity against any claim that may be made against it with respect to such certificate.
These procedures will be described in the letter of transmittal that you will receive following the Merger, which you should read
carefully in its entirety.
SmartPros
Stock Options
At
the effective time of the Merger, each outstanding option to purchase shares of SmartPros Common Stock will be cancelled and terminated
and converted into the right to receive cash equal to the excess, if any, of the per share Merger consideration over the exercise
price payable in respect of each share of SmartPros Common Stock issuable under such option.
Restricted
Stock
Pursuant
to the terms of the Merger Agreement and our restricted stock grants, at the effective time of the Merger all of such restricted
shares of SmartPros Common Stock, will become fully vested and no longer subject to forfeiture.
Representations
and Warranties
We
made customary representations and warranties in the Merger Agreement that are subject, in some cases, to specified exceptions
and qualifications contained in the Merger Agreement, in the disclosure schedules to the Merger Agreement or, subject to certain
exceptions, in certain documents filed with the SEC. These representations and warranties relate to, among other things:
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corporate
matters, including our and our subsidiaries due organization, existence, good standing and requisite corporate power; |
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the
unanimous approval and declaration of the advisability of the Merger Agreement and the transactions contemplated thereunder,
including the Merger, by the Board, the determination that the Merger Agreement and the transactions contemplated thereunder,
including the Merger are advisable and fair to, and in the best interests of, our stockholders and the resolution to recommend
that our stockholders adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger; |
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the
receipt of an opinion from Berkery; |
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our
corporate power and authority to execute, and consummate the transactions under, the Merger Agreement, and the enforceability
of the Merger Agreement against us; |
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our
capitalization; |
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compliance
with applicable laws; |
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any
consents required from any governmental entity or any governmental body that approves
us as a provider of professional education and training products and services; |
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the
absence of violations of, or conflicts with, our governing documents, applicable law
and certain agreements as a result of our entering into and performing our obligations
under the Merger Agreement;
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required
governmental consents, approvals and filings; |
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the
timely filing of required reports and other filings with the SEC since January 1, 2011, material compliance of our filings
with securities laws and our financial statements with accounting standards, and maintenance of internal controls; |
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the
conduct of our business in the ordinary course of business consistent with past practice and the absence of any material adverse
effect since January 1, 2015; |
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tax
matters; |
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legal
proceedings; |
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compliance
with laws; |
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government
contracts; |
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affiliate
transactions; |
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employee
benefits matters; |
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labor
and employment matters; |
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material
business contracts; |
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real
property, including leasehold interests in real property; |
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environmental
matters; |
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intellectual
property, including the ownership of certain trademarks, domain names and copyrights; |
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customers
and suppliers; |
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unlawful
payments and export controls; |
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the
absence of a stockholder rights agreement and the non-applicability of antitakeover statutes to the Merger; |
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the
absence of any undisclosed broker’s or advisor fees; |
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insurance;
and |
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the
absence of untrue statements of material fact or omissions of material fact in information contained in certain documents. |
Some
of our representations and warranties made in the Merger Agreement are qualified by a material adverse effect standard. For purposes
of the Merger Agreement “material adverse effect” means any fact, circumstance, condition, change, event, occurrence,
development or effect, that individually or in the aggregate together with all other facts, circumstances, conditions, changes,
events, occurrences, developments or effects: (i) which has had or would reasonably be expected to have directly or indirectly
a material adverse effect on the results of operations, condition (financial or otherwise), business, assets or liabilities of
the Company and its subsidiaries taken as a whole; other than facts, circumstances, conditions, changes, events, occurrences or
effects (A) generally affecting (1) the industry of the Company and its subsidiaries, or (2) the economy, or financial or capital
markets, in the United States or elsewhere in the world, or (B) arising out of, resulting from or directly attributable to (X)
changes after the date of the Merger Agreement in law or in generally accepted accounting principles or in accounting standards,
or changes in general legal, regulatory or political conditions, (Y) acts of war, sabotage or terrorism, or any escalation or
worsening of any such acts of war, sabotage or terrorism threatened or underway as of the date of this Agreement or (Z) earthquakes,
hurricanes, tornados or other natural disasters, except, with respect to (i)(A)(1), (i)(A)(2) and (i)(B)(X), only to the extent
that the effects of such change disproportionately affect the Company and its subsidiaries, taken as a whole, as compared to other
companies in the industry in which the Company and its subsidiaries operate; or (ii) which has impaired or prevented or would
reasonably be expected to impair or prevent in any material respect the ability of the Company to perform its obligations under
the Merger Agreement or prevent or materially delay the consummate the Merger on a timely basis.
The
Merger Agreement also contains customary representations and warranties made by Parent and Merger Sub that are subject, in some
cases, to specified exceptions and qualifications contained in the Merger Agreement. The representations and warranties of Parent
and Merger Sub relate to, among other things:
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corporate
matters, including their due organization, existence and good standing; |
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their
corporate power and authority to execute, and consummate the transactions under, the Merger Agreement, and the enforceability
of the Merger Agreement against them; |
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the
absence of violations of, or conflicts with, their respective governing documents, applicable law and certain agreements as
a result of entering into and performing their obligations under the Merger Agreement; |
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required
consents, approvals and filings; |
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the
ownership and operations of Merger Sub; |
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the
ability to fund the Merger consideration; |
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the
absence of legal proceedings; |
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the
absence of any contracts between Parent or Merger Sub on the one hand and any of the Company’s directors or officers
on the other hand (except for the Support Agreements); and |
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the
absence of any undisclosed broker’s or advisor’s fees. |
The
representations and warranties in the Merger Agreement of each of SmartPros, Parent and Merger Sub will terminate upon the consummation
of the Merger or the termination of the Merger Agreement pursuant to its terms, except that any provision in the Merger Agreement
which contemplates performance after the effective time of the Merger will survive indefinitely, including certain provisions
regarding exchange of stock certificates, indemnification and insurance, fees and expenses and employee matters.
Stockholders’
Meeting
We
agreed to establish a record date for, call, give notice of, convene and hold a meeting of our stockholders for the purpose of
obtaining stockholder approval of the Merger Agreement and the transactions contemplated thereunder, including the Merger. Subject
to the provisions of the Merger Agreement described in the section entitled “The Merger Agreement — No Solicitation
of Takeover Proposals” beginning on page 53 of this proxy statement, the Board will recommend that our stockholders vote
to adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger. We may adjourn or postpone the
stockholders’ meeting to the extent necessary to ensure that any required supplement or amendment to this proxy statement
is provided to our stockholders or, if as of the time for which the stockholders’ meeting is originally scheduled, there
are insufficient shares of SmartPros Common Stock represented to constitute a quorum necessary to conduct business at such meeting.
Conduct
of Our Business Pending the Merger
Between
October 21, 2015 and the effective time of the Merger, we have agreed, subject to certain exceptions as contemplated by the Merger
Agreement or the disclosure schedules thereto, that unless consented to by Parent, which consent shall not be unreasonably withheld
or delayed, we and our subsidiaries will: (i) conduct our business in the ordinary course of business consistent with past practice;
(ii) comply in all material respects with all laws and requirements of any material contacts; and (iii) use our commercially reasonable
efforts to preserve intact our business organizations and goodwill of our business relationships.
Subject
to certain exceptions set forth in the Merger Agreement and the disclosure schedules to the Merger Agreement, between October
21, 2015 and the effective time of the Merger, we will not, and we will not permit our subsidiaries to, among other things:
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amend
the certificate of incorporation or bylaws (or equivalent organizational documents) of SmartPros or any of our subsidiaries. |
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(i)
issue, sell or grant any shares of our capital stock or any securities or options convertible into or exchangeable for any
shares of our capital stock; (ii) redeem, purchase or otherwise acquire any shares of our capital stock; (iii) declare or
pay any dividends on shares of our capital stock or (iv) subdivide, reclassify, split or combine any shares of our capital
stock; |
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incur
or assume any indebtedness for borrowed money in excess of $25,000 or make any loans, advances or capital contributions or
investments; |
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sell,
transfer, lease, mortgage or otherwise encumber any of our properties or assets; |
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directly
or indirectly acquire by merging or consolidating with, or by purchasing assets of, or by any other manner, any division,
business or equity interest of any person; |
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adopt
a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation
or other reorganization of SmartPros or any SmartPros subsidiaries (other than the Merger Agreement); |
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implement
or adopt any change in our accounting methods, principles or policies other than as may be required by applicable law or GAAP
and as concurred with by our independent auditors; |
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make
any capital expenditures in excess of $25,000; |
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make
any investment in or loan or advance to any person; |
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increase
the compensation or benefits (including bonuses) to any officer or employee, |
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except we may grant a raise of up to 3% to an employee
on their employment anniversary date; |
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enter
into or amend any employment agreement; |
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make
or change any material election concerning taxes, file any amended tax return or settle any tax claim or assessment; |
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amend
modify, extend or renew any real estate lease or enter into any new real estate lease; |
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enter
into any collective bargaining agreement; |
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settle
any material claims against the Company or its subsidiaries or liabilities; |
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enter
into any agreement that limits the Company’s or any of its subsidiaries’ ability to compete with or conduct any
business or line of business (including geographic limitations); |
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modify,
amend or terminate any of our material contracts or enter into any new contract that would be a material contract; |
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communicate
with employees of the Company or any of its subsidiaries regarding the compensation,
benefits or other treatment that they will receive in connection with the Merger;
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take
any action which would result in any of the conditions to the consummation of the Merger not being satisfied; |
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license,
disclose or otherwise provide to any person the source code for any material software owned by the Company; or |
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authorize
or commit or agree to take any of the foregoing actions. |
No
Solicitation of Takeover Proposals
From
and after the date of the Merger Agreement, we and our representatives agreed to cease and cause to be terminated any discussions
or negotiations with any persons that were ongoing with respect to any Takeover Proposal and with any persons who made or indicated
an intention to make a Takeover Proposal and request that such persons promptly return or destroy all confidential information
concerning SmartPros and our subsidiaries. From and after date of the Merger Agreement until the effective time of the Merger
or, if earlier, the termination of the Merger Agreement, we, our subsidiaries and our representatives may not, directly or indirectly:
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solicit,
initiate, or take any other actions that we reasonably know or should know would facilitate,
any Takeover Proposal; |
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enter
into, engage in, continue or participate in any discussions or negotiations regarding, or furnish to any other party any information
or access to, our business, properties, assets books or records or otherwise cooperate with any person that is seeking to
make or has made a proposal that constitutes, or that may reasonably be expected to lead to, any Takeover Proposal; |
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approve,
endorse or recommend any Takeover Proposal; |
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enter
into any letter of intent or agreement with respect to a Takeover Proposal; |
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withdraw
or modify the Company Board Recommendation; or |
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propose,
agree, or publicly announce an intention to take any of the above actions. |
Notwithstanding
the foregoing, if the Board receives an unsolicited, bona fide written Takeover Proposal made after October 21, 2015 in circumstances
not involving a breach of the Merger Agreement and the Board determines in good faith that such Takeover Proposal constitutes
or would reasonably be expected to lead to a Superior Proposal (as defined below) and with respect to which the Board determines
in good faith, after consulting with and receiving the advice of independent financial advisors and outside counsel, that the
taking of such action is necessary in order for the Board to comply with its fiduciary duties to SmartPros’ stockholders
under Delaware law, then SmartPros may, at any time prior to obtaining stockholder approval of the Merger Agreement and the transactions
contemplated thereunder, including the Merger, and after providing Parent written notice of its intention to take such actions:
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furnish
information with respect to SmartPros to the person making such Takeover Proposal, but only after such person enters into
a customary confidentiality agreement with SmartPros, provided that, SmartPros advises Parent of all such non-public information
delivered to such Person concurrently with its delivery to such Person and, concurrently with its delivery to such person,
SmartPros delivers to Parent all such information not previously provided to Parent; and |
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participate
in discussions and negotiations with such person or its representatives regarding such Takeover Proposal. |
Following
the date of the Merger Agreement, we must advise Parent no later than twenty four hours after receipt, of any Takeover Proposal
or any inquiry that would reasonably be expected to lead to any Takeover Proposal and shall, in any such notice to Parent, indicate
the identity of the person making such proposal or inquiry and the material terms and conditions of any proposals or inquiries
(and shall include with such notice copies of any proposed transaction agreements received from, provided to, or on behalf of
such person relating to such proposal or inquiry), and thereafter shall promptly keep Parent fully informed of all material developments
affecting the status of any such proposals or inquiries (and SmartPros shall provide Parent with copies of any additional written
materials received that relate to such proposals or inquiries) and of the status of any such discussions or negotiations.
Except
as permitted by the Merger Agreement, neither the Board nor the Special Committee (nor any other committee of the Board) may:
(i)(a) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Parent, the Company Board Recommendation,
or otherwise repudiate the approval or declaration of advisability by the Board of the Merger Agreement and the transactions contemplated
thereunder, including the Merger, (b) take any formal action or make any recommendation or public statement in connection with
a tender offer or exchange offer other than a recommendation against such offer or a temporary “stop, look and listen”
communication by the Board pursuant to Rule 14d-9(f) of the Exchange Act (c) approve or recommend, or propose publicly to approve
or recommend, any Takeover Proposal, (d) fail to publicly reaffirm the Company Board Recommendation within three (3) business
days after Parent so requests, or (e) fail to recommend against any Takeover Proposal within ten (10) business days after the
commencement of such Takeover Proposal the actions described in the clause (i) are referred to as a “Company Adverse Recommendation
Change”; or (ii) permit, approve or recommend, or cause or authorize SmartPros or any of its subsidiaries to enter into,
any letter of intent, agreement in principle, memorandum of understanding, or option, merger, acquisition, purchase, joint venture
or other similar agreement related to any Takeover Proposal (other than a permitted confidentiality agreement), which we refer
to as a “Company Acquisition Agreement”. We are required to promptly notify Parent if we decide to provide information
to, or begin discussions with, any third party related to a Takeover Proposal. Notwithstanding the foregoing and so long as SmartPros
is in compliance with its obligations under the Merger Agreement, at any time prior to obtaining the stockholder approval of the
Merger Agreement and the transactions contemplated thereunder, including the Merger, the Board may withdraw or modify its recommendation
in response to a Superior Proposal, terminate the Merger Agreement and approve or recommend a Takeover Proposal or enter into
a definitive acquisition agreement, if the Board determines in good faith, after consulting with, and receiving advice from, outside
counsel, that the failure to make such withdrawal, approval, modification or
recommendation,
or take such action, would constitute a breach by the Board of its fiduciary duties to SmartPros’ stockholders under Delaware
law; provided, that prior to taking any action with respect to a Superior Proposal:
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we
must provide at least five days’ prior written notice to Parent of our intention to effect a change of the Company Board
Recommendation specifying the terms and conditions of any such Superior Proposal, including the identity of the person making
such Superior Proposal; |
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we
must provide a copy to Parent of the relevant proposed transaction agreements with the party making such proposal; |
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prior
to taking any such action, we and our counsel and financial advisors must negotiate during
the five-day notice period with Parent in good faith (to the extent Parent desires to
negotiate) to enable Parent to revise the terms of the Merger Agreement such that it
would cause such Superior Proposal not to constitute a Superior Proposal;
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the
Board must have considered in good faith any changes to the Merger Agreement proposed in writing by Parent and must have determined
that the Superior Proposal would still constitute a Superior Proposal if such changes were given effect; and |
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we
must deliver to Parent any amendment to the financial terms or other material terms of a Superior Proposal and, in such case,
provide Parent an additional five days’ prior written notice and comply with the provisions above. |
Nothing
in the provisions of the Merger Agreement relating to Takeover Proposals prevents us from complying with our disclosure obligations
under U.S. federal or state law with regard to a Takeover Proposal, including taking and disclosing to our stockholders a position
contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A under the Exchange Act.
For
purposes of the Merger Agreement, “Takeover Proposal” means any inquiry, proposal or offer from any Person (other
than Parent and its subsidiaries) or “group”, within the meaning of Section 13(d) of the Exchange Act, which the Company
believes in good faith to be bona fide, relating to, in a single transaction or series of related transactions, any (i) acquisition
of assets of the Company and its subsidiaries equal to more than 20% of the Company’s consolidated assets or to which more
than 20% of the Company’s revenues on a consolidated basis are attributable, (ii) acquisition of more than 20% of the outstanding
SmartPros Common Stock, (iii) tender offer or exchange offer that if consummated would result in any person beneficially owning
more than 20% of the outstanding SmartPros Common Stock or (iv) merger, consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company.
For
purposes of the Merger Agreement, “Superior Proposal” means any bona fide unsolicited written Takeover Proposal
to acquire, directly or indirectly (whether by way of merger, consolidation, share exchange, business combination, recapitalization,
tender or exchange offer, asset sale or otherwise), for consideration consisting of cash and/or securities, more than 90% of the
equity securities of the Company or more than 90% of the assets of the Company and its subsidiaries on a consolidated basis, (i)
that includes consideration per share of SmartPros Common Stock that is greater than the per share Merger consideration and that
the Board has determined in its good faith judgment (after consultation with independent financial advisors and outside legal
counsel) is reasonably likely to be consummated in accordance with its terms without unreasonable delay, taking into account all
legal, regulatory and financial aspects of the proposal and the person making the proposal, and if consummated, would result in
a transaction more favorable to the SmartPros’ Stockholders from a financial point of view than the transaction contemplated
by the Merger Agreement (including any changes to the terms of the Merger Agreement proposed by Parent in response to such proposal
or otherwise) and (ii) accompanied by executed customary financing commitments from recognized financing sources not subject to
any due diligence conditions and that, together with available cash on hand, are sufficient to fund the cash portion of such Takeover
Proposal.
Agreement
to Use Reasonable Best Efforts
We and Parent will cooperate
and use our respective reasonable best efforts to promptly (i) take, or cause to be taken, all actions, and do, or cause to be
done, all things, necessary, proper or advisable to cause the conditions to closing to be satisfied as promptly as practicable
and to consummate and make effective, in the most expeditious manner practicable, the Merger, 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 and (ii) obtain all approvals, consents, registrations, permits, authorizations and other confirmations
from any governmental authority or third party necessary, proper or advisable to consummate the Merger.
We also agreed, subject
to certain exceptions, to use our reasonable best efforts to:
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take all action
necessary to ensure that no state takeover statute applies to the Merger and any and all of the transactions contemplated
thereunder; and |
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if any takeover
statute becomes applicable to the Merger or any of the other transactions contemplated by the Merger Agreement, ensure that
the Merger or any of the transactions contemplated thereunder may be consummated as promptly as practicable on the terms contemplated
by the Merger Agreement. |
Other
Covenants and Agreements
Public
Announcements
The parties agreed that
the initial press release with respect to the execution of the Merger Agreement would be a joint press release to be reasonably
agreed upon by Parent and SmartPros. SmartPros and Parent agreed not to issue any further public announcement with respect to
the Merger without the prior consent of the other party, except as required by applicable law, rule or regulation.
Indemnification;
Directors’ and Officers’ Insurance
From and after the effective
time of the Merger, Parent shall, and shall cause SmartPros to, (i) until the sixth (6th) anniversary of the date on which the
effective time of the Merger shall occur, indemnify and hold harmless the Indemnitees with respect to all claims, liabilities,
losses, damages, judgments, fines, penalties, costs and reasonable expenses in connection with any civil, criminal, administrative
or investigative action, whenever asserted, based on or arising out of, in whole or in part, (A) the fact that an Indemnitee was
a director or officer of SmartPros or such subsidiary or (B) acts or omissions by an Indemnitee in the Indemnitee’s capacity
as a director, officer, employee or agent of SmartPros or such subsidiary or taken at the request of SmartPros or such subsidiary
(including in connection with serving at the request of SmartPros or such subsidiary as a director, officer, employee, agent,
trustee or fiduciary of another Person (including any employee benefit plan)), in each case under (A) or (B), at, or at any time
prior to, the effective time of the Merger (including any action relating in whole or in part to the Merger), to the fullest extent
permitted under applicable law, and (ii) assume all obligations of SmartPros and such subsidiaries to the Indemnitees in respect
of indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the Merger
as provided in (x) SmartPros certificate of incorporation and by-laws and the organizational documents of such subsidiaries as
in effect as of the date of the Merger Agreement and (y) indemnification agreements with the
Indemnities in effect as of the date of the Merger Agreement, which shall survive the Merger.
In
addition, Parent shall, for six years after the effective time of the Merger, (i) cause
the certificate of incorporation and bylaws of the surviving corporation to contain provisions no less favorable to the Indemnitees
with respect to limitation of liabilities of directors and officers and indemnification than are set forth in SmartPros certificate
of incorporation and by-laws as of the date of the Merger Agreement and (ii)
advance any expenses of any
Indemnitee as provided in the above paragraph as incurred to the fullest extent permitted under Delaware law, provided that the
person to whom expenses are advanced provides an undertaking to repay such advances to the extent required by Delaware law.
At the Parent’s
election, either (i) SmartPros shall obtain prior to the effective time of the Merger “tail” insurance policies with
a claims period of at least six (6) years from the effective time of the Merger with respect to the directors’ and officers’
liability insurance in amount and scope no less favorable than the existing policy of SmartPros for claims arising from facts
or events that occurred on or prior to the effective time of the Merger at a cost that does not exceed 250% of the annual premium
currently paid by SmartPros for D&O Insurance; or (ii) Parent will provide, or cause the surviving corporation to provide,
for a period of not less than six (6) years after the effective time of the Merger, the Indemnitees who are insured under SmartPros’
directors’ and officers’ insurance and indemnification policy with an insurance and indemnification policy that provides
coverage for events occurring at or prior to the effective time of the Merger that is no less favorable, taken as a whole, than
the existing policy of SmartPros or, if substantially equivalent insurance coverage is unavailable, the best available coverage;
provided, however, that Parent and the surviving corporation shall not be required to pay an aggregate amount for
the D&O Insurance during such six (6) year period in excess of 250% of the annual premium currently paid by SmartPros for
such insurance.
Employees
Parent has agreed that
for a period of six months following the Merger it will cause SmartPros to provide to its employees (i) the same level of base
salary as they are receiving at the effective time of the Merger and (ii) benefits that are no less favorable in the aggregate
to those being provided to them at the effective time of the Merger.
Stockholder
Litigation
We agreed to provide Parent
with prompt notice of any litigation brought by any of our stockholders relating to the Merger. We have further agreed to give
Parent the opportunity to participate (at its expense) in the defense or settlement of any stockholder litigation against us and/or
our directors relating to the Merger and not to settle that stockholder litigation without Parent’s consent.
Fees
and Expenses
Except as otherwise specified
in the Merger Agreement, all fees and expenses incurred in connection with the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement will be paid by the party incurring the fees or expenses, whether or not the Merger and the
other transactions contemplated by the Merger Agreement are consummated.
Delisting
Prior to the effective
time of the Merger, SmartPros agreed to cooperate with Parent and use its reasonable best efforts to take, or cause to be taken,
all actions reasonably necessary to enable the surviving corporation to de-list the SmartPros Common Stock securities from the
Nasdaq Capital Market and de-register the SmartPros Common Stock under the Exchange Act as soon as practicable following the effective
time of the Merger.
Customers
Each of Parent and SmartPros
agreed to use all commercially reasonable efforts to arrange for customer telephone calls as soon as practicable after the date
of the Merger Agreement among a representative of each of Parent and SmartPros and an appropriate representative of certain SmartPros
customers.
Conditions
to the Merger
The respective obligations
of SmartPros, Parent and Merger Sub to effect the Merger are subject to the satisfaction (or waiver, if permissible under applicable
law) of the following conditions:
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the approval of the adoption of the Merger Agreement
and the transactions contemplated thereunder, including the Merger, by holders of a majority of the outstanding shares of
SmartPros Common Stock; and |
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no law or injunction, judgment or ruling shall
be in effect enjoining or prohibiting the consummation of the Merger. |
The obligations of Parent
and Merger Sub to effect the Merger are also subject to the satisfaction (or waiver, if permissible under applicable law) of the
certain additional conditions including the following:
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we shall have performed,
in all material respects, all of the covenants and obligations required to be performed by us pursuant to the Merger Agreement
at or prior to the closing; |
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our representations
and warranties set forth in Merger Agreement regarding (i) organization and standing authority, financial statements, no material
adverse effect, opinion of financial advisor, and brokers and other advisors shall be true and correct in all respects both
as of October 21, 2015 and as of the closing date as though made on and as of such date (except the opinion of financial advisor
shall be true and correct in all respects only at and as of the specific date given)); (ii) capitalization shall be true and
correct in all but de minimis respects on and as of October 21, 2015 and as if made on and as of the closing date (or, if
given as of a specific date, at and as of such date); and (iii) all other representations and warranties contained in the
Merger Agreement (other than those specifically referred to in the foregoing clauses (i) and (ii) shall be true and correct
in all material respects (without giving effect to any “materiality” or “material adverse effect”
qualifications contained therein) both as of October 21, 2015 and as of the closing date as though made on and as of the such
date or, if given as of a specific date, at and as of such date; |
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since October 21,
2015, there shall not, with respect to SmartPros, have been any occurrence, event, change, effect or development that, would
constitute a material adverse effect; |
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holders of not more
than five percent (5%) of our outstanding Common Stock as of the record date shall have exercised their appraisal rights under
the DGCL; |
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SmartPros shall
have received the consents and approvals from (i) an industry group that approves SmartPros as a sponsor of continuing professional
education for CPAs and (ii) certain counterparties to material business contracts necessary to assign such contracts to the
surviving corporation; |
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the Company’s
Federal Supply Schedule (FSS) contract with the U.S. General Services Administration (Contract No. GS-02-F-0025N) shall have
been terminated and canceled to the reasonable satisfaction of Parent based on such evidence as it shall reasonably request;
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as of the closing
date, each of: (i) the Company’s net working capital shall be not less than $1,200,000; and (ii) the sum of (x) the
Company’s available cash plus (y) the amount by which the Company’s net working capital exceeds $1,200,000 as
of the closing date, shall be not less than $2,514,000 after payment of transaction expenses, each as determined to the reasonable
satisfaction of Parent based on such evidence as it shall reasonably request; and |
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Parent shall have
received from the Company evidence reasonably satisfactory that all 401(k) plans have been terminated pursuant to resolution
of the Board or the sponsoring ERISA affiliate, as the case may be (the form and substance of which shall have been subject
to review and approval of Parent), effective as of the day immediately preceding the closing date of the Merger. |
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within 20 business
days of the date of the Merger Agreement, Parent shall have completed to its reasonable satisfaction the customer calls and
shall, in Parent’s reasonable discretion, have received from each customer reasonable assurances that such customer
intends to continue doing business with the Company under the ownership of Parent in a manner reasonably comparable to past
experience; provided, that Parent shall inform the Company within 20 business days of the date of the Merger Agreement whether
or not Parent is reasonably satisfied with the assurances provided in each customer call. Parent has advised us that they
were reasonably satisfied with the assurances provided in each customer call accordingly, this obligation has been satisfied. |
Our obligation to effect
the Merger is subject to the satisfaction (or waiver, if permissible under applicable law) of the following additional conditions:
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each
of Parent and Merger Sub shall have performed and complied with, in all material respects, all of the covenants and obligations
required to be performed by it pursuant to the Merger Agreement at or prior to the closing date; and |
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the
representations and warranties of Parent and Merger Sub set forth in Merger Agreement shall be true and correct in all material
respects (disregarding all qualifications and exceptions contained therein relating to materiality) both as of October 21,
2015 and as of the closing date as though made on and as of the closing date (or, if given as of a specific date, at and as
of such date), except where the failure to be true and correct would not individually or in the aggregate, reasonably be expected
to impair in any material respect the ability of Parent or Merger Sub to perform its obligations under the Merger Agreement
or prevent or materially delay consummation of the Merger. |
Termination
We and Parent may, by
mutual written consent, terminate the Merger Agreement and the transactions contemplated thereunder, including the Merger, at
any time prior to the effective time of the Merger.
The Merger Agreement may
also be terminated and the Merger abandoned at any time prior to the effective time of the Merger as follows:
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by either
SmartPros or Parent, if: |
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the
Merger has not been consummated on or before April 30, 2016 (the “Walk Away Date”) (but this right to terminate
will not be available to a party if the failure of the Merger to have been consummated on or before the Walk Away Date was
primarily due to the failure of such party to perform any of its obligations contained in the Merger Agreement); |
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any
Restraint shall be in effect enjoining, restraining, preventing or prohibiting consummation of the Merger or making the consummation
of the Merger illegal and such Restraint shall have become final and nonappealable (but this right to terminate will not be
available to a party if the Restraint was primarily due to the failure of such party to perform any of its obligations contained
in the Merger Agreement); |
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our
stockholders’ meeting has been held and completed and our stockholders have not adopted the Merger Agreement and the
transactions contemplated thereunder, including the Merger, at such meeting, but this right to terminate will not be available
to SmartPros if the failure of our stockholders to adopt the Merger Agreement and the transactions contemplated thereunder
including the Merger, was primarily due to: |
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a material breach
by SmartPros of its obligations to timely file this proxy statement and promptly respond to any comments or request for additional
information from the Securities and Exchange Commission (“SEC”); |
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a material breach
by SmartPros of its obligations to, as soon as practicable following the date that the proxy statement is cleared by the SEC
or the SEC advises SmartPros that it will not review the proxy statement, to establish a record date for, duly call, give
notice of, convene and hold a meeting of our stockholders for the purpose of obtaining their approval of the Merger Agreement
and transactions contemplated thereunder, including the Merger. |
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the Board shall
have failed to recommend that our stockholders adopt the Merger Agreement and the transactions contemplated thereunder, including
the Merger; |
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however the Company
shall have no obligation to do any of the foregoing if there shall have been a Company Adverse Recommendation Change (as defined
below); |
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our material breach
of any of the following obligations: |
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(1) |
we shall cause and
shall cause each of our subsidiaries and their respective officers, directors, employees, investment bankers, attorneys, accountants
and other consultants, advisors, Affiliates and other representatives (collectively, “Representatives”) to (i)
immediately cease any solicitation, discussions or negotiations with any persons that may be ongoing with respect to a Takeover
Proposal, and (ii) and deliver a written notice to each such person to the effect that the Company is ending all discussions
and negotiations with such person with respect to any Takeover Proposal. |
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(2) |
we shall not, and
shall cause our subsidiaries and Representatives not to, except as otherwise permitted by the Merger Agreement (as described
in “The Merger Agreement – No Solicitation of Takeover Proposals” beginning on page 53 of this proxy statement),
(A) solicit, initiate or take any action that we reasonably know or should know would facilitate (including by way of furnishing
non-public information or providing consent or authorization to make a Takeover Proposal) any inquiries regarding, or the
making of any proposal or offer that constitutes, or could reasonably be expected to lead to, a Takeover Proposal, (B) enter
into, engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other party
information relating to us or any of our subsidiaries or afford access to our business, properties, assets, books or records,
or that of any of our subsidiaries, or otherwise cooperate in any way with, or knowingly assist, participate in, or facilitate
any effort by any third party that is seeking to make, or has made, a Takeover Proposal in connection with or for the purpose
of facilitating, a Takeover Proposal, (C) approve, endorse or recommend any Takeover Proposal, (D) enter into any letter of
intent, agreement or agreement in principle, term sheet or other contract with respect to a Takeover Proposal, (E) fail to
make, or withdraw or modify in a manner adverse to Parent, or publicly propose to withdraw or modify in a manner adverse to
Parent, the Company Board Recommendation or take any action or make any statement inconsistent with the Company Board Recommendation,
(F) grant any waiver or release under any standstill or similar agreement with respect to any class of our equity securities
or any of our subsidiaries, or (G) propose to do any of the foregoing; |
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we have materially
breached or failed to perform any of our representations, warranties, covenants or other agreements set forth in the Merger
Agreement, |
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which breach or
failure to perform (i) would give rise to a failure to satisfy the conditions to Parent’s and Merger Sub’s obligation
to close the Merger, and (ii) cannot be cured by us by the earlier of ten (10) days following receipt of written notice from
Parent of such breach or failure or the Walk Away Date; |
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we shall have failed
to include the Company Board Recommendation in the Proxy Statement; |
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the Board shall
have made a Company Adverse Recommendation Change; |
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at any time prior
to the approval by our stockholders of the Merger Agreement and the transaction contemplated thereunder, including the Merger,
the Board shall have failed to recommend against any Takeover Proposal or failed to reaffirm the Company Board Recommendation
after public announcement of any Takeover Proposal or within three business days of Parent’s written request for such
reaffirmation; |
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the Company enters
into any letter of intent, agreement or agreement in principle or other contract with respect to a Takeover Proposal (“Company
Acquisition Agreement”); |
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the Board shall
have failed to hold the Stockholders’ Meeting or to use reasonable best efforts to solicit proxies in favor of the adoption
of the Merger Agreement, the Merger and the transactions contemplated thereunder, including the Merger, and to obtain stockholder
approval in accordance with the terms and conditions of the Merger Agreement; or |
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the Company or the
Board shall have publicly announced its intention to do any of the foregoing. |
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Parent
or Merger Sub shall have materially breached or failed to perform any of its representations, warranties, covenants or agreements
set forth in the Merger Agreement, which breach or failure to perform (i) would give rise to a failure to satisfy certain
conditions to SmartPros’ obligation to close the Merger, and (ii) cannot be cured by Parent by the earlier of ten (10)
days following receipt of written notice from SmartPros of such breach or failure or the Walk Away Date, provided, however,
that SmartPros shall not have the right to terminate the Merger Agreement if it is then in breach of any of its representations,
warranties, covenants or agreements contained in the Merger Agreement; |
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at
any time prior to the adoption of the Merger Agreement by our stockholders, in order to enter into an agreement that constitutes
a Superior Proposal, if (i) SmartPros has complied with its obligations described in the section entitled “The Merger
Agreement — No Solicitation of Takeover Proposals” beginning on page 53 of this proxy statement and (ii) prior
to or concurrently with such termination, we pay Parent the termination fee discussed in the section entitled “The Merger
Agreement — Termination Fees” below; or |
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if
(A) the conditions to the closing of the Merger have been satisfied or waived, (B) Parent fails to consummate the Merger within
two (2) business days following the date on which such conditions were satisfied or waived, (C) nothing has occurred and no
condition, event or circumstance exists that would cause any of the conditions to the closing of the Merger to fail to continue
to be satisfied by the |
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second
(2nd) business day following the date on which such conditions were satisfied or waived and (D) we stood ready, willing and
able to consummate the closing of the Merger during such period. |
Effect
of Termination
If the Merger Agreement
is terminated, the terminating party must give written notice to the other parties. Upon such notice, the Merger Agreement will
become null and void, except for certain provisions, including the provision discussed in the section entitled “The Merger
Agreement — Termination Fees below. Upon termination, the parties will have no liability, except they may be liable for
termination fees, and nothing will relieve any party from liability for fraud in connection with, or any willful and material
breach of, the Merger Agreement.
Termination
Fees
SmartPros
Termination Fee
We will be obligated to
pay Parent a termination fee of $525,000 upon the occurrence of the following events:
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If,
prior to our stockholders’ meeting or prior to the termination of the Merger Agreement if no stockholders’ meeting
is held, (a) a Takeover Proposal shall have been made to us, and not withdrawn and such Takeover Proposal becomes publicly
known or shall have been made directly to our stockholders generally or any person shall have publicly announced an interest
in making its intention (whether or not conditional) to make, or its consideration of making a Takeover Proposal, (b) the
Merger Agreement is terminated by (1) Parent or us because (i) the closing of the Merger shall not have occurred by April,
30, 2016 (ii) approval of the Merger by our stockholders shall not have been obtained after a stockholder meeting shall have
been conducted or (2) Parent because we shall have breached or failed to perform any of our representations, warranties, covenants
or other agreements contained in the Merger Agreement after the running of any applicable cure period, and (c) within twelve
(12) months after such termination, we enter into a definitive agreement to consummate a Takeover Proposal or consummates
a Takeover Proposal; |
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The
Merger Agreement is terminated by Parent following (a) our Board making a Company Adverse Recommendation Change, (b) our failure
to include the Company Board Recommendation in our proxy statement, (c) our failure to hold our stockholders meeting and solicit
proxies in connection therewith as provided for in the Merger Agreement, (d) our Board’s failure to reject a Takeover
Proposal within ten (10) business days after becoming aware of such proposal, (e) our Board’s failure to recommend that
our stockholders reject any tender or exchange offer received within ten (10) business days after any such tender or exchange
offer is first published, (f) our Board fails to reaffirm publicly the Company Board Recommendation within five (5) days of
receipt of a request to do so from Parent, or (g) we shall have materially breached our no solicitation obligations set forth
in the Merger Agreement; or (iii) the Merger Agreement is terminated by us to enter into a definitive agreement with respect
to a Superior Proposal; or |
|
|
|
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● |
The
Merger Agreement is terminated by the Company prior to the receipt of the approval by our stockholders of the Merger Agreement
and the transaction contemplated thereunder, including the Merger, in order to concurrently enter into a Company Acquisition
Agreement, provided the Company has complied with the non-solicitation provisions in the Merger Agreement. |
Parent
Termination Fee
Upon the termination of
the Merger Agreement by SmartPros because (i)Parent or Merger Sub shall have breached or failed to perform any of its representations,
warranties, covenants or agreements set forth
in the Merger Agreement, which
breach or failure to perform (x) would give rise to a failure the satisfy certain conditions to SmartPros’ obligation to
close the Merger, and (i) cannot be cured by Parent within ten (10) days following receipt of written notice from Parent of such
breach or failure, or (ii) the conditions to the closing of the Merger were satisfied or waived and Parent failed to consummate
the Merger and we stood ready, willing and able to consummate the closing of the Merger during such period, Parent and Merger
Sub may be obligated to pay to us a termination fee equal to $525,000.
No
Survival
Except as otherwise provided
for in the Merger Agreement, all representations, warranties and agreements contained in the Merger Agreement shall terminate
at the effective time of the Merger, and Parent will, following the closing, of the Merger, have no recourse against SmartPros
or its stockholders for any breaches thereof.
Amendment
or Supplement
At any time prior to the
effective time of the Merger, the parties to the Merger Agreement may amend or supplement the Merger Agreement, whether before
or after the stockholder approval, by written agreement of the parties and by action of their respective Boards of directors.
However, following stockholder approval, the parties may not amend the provisions of the Merger Agreement in any manner which
changes the amount or the form of the consideration to be delivered under the Merger Agreement would require further approval
by our stockholders under applicable law without such approval.
SUPPORT
AGREEMENTS
As a condition to Parent
entering into the Merger Agreement, on October 21, 2015 each of Messrs. Greene, Fingerhut, Fish, Wirtheim, Gorman, Lager and Stanley,
officers and directors of SmartPros in their capacity as stockholders and Mr. Zohar Ben-Dov a significant stockholder who we collectively
refer to as, the “Voting Stockholders”, entered into a Support Agreement. The following summary describes certain
material provisions of the Support Agreement and is qualified in its entirety by reference to the Form of Support Agreement, a
copy of which is attached to this proxy statement as Annex B and which is incorporated by reference into this proxy statement.
This summary does not purport to be complete and may not contain all of the information about the Support Agreement that may be
important to you. We encourage you to read the Form of Support Agreement carefully and in its entirety.
Agreement
to Vote and Irrevocable Proxy
Under the Support Agreements
the Voting Stockholders, agreed to vote all of their shares of SmartPros Common Stock and any such shares that they may acquire
after the date of the Support Agreement (i) in favor of adoption of the Merger Agreement and the transactions contemplated thereunder,
including the Merger, and (ii) against (x) any proposal for any recapitalization, merger, sale of assets or other business combination
(other than the Merger) between the Company and any person or entity other than Parent, (y) any other action or agreement that
would reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement
of the Company under the Merger Agreement or voting stockholder under their Support Agreement, or (z) which would reasonably be
expected to result in any of the conditions to the Company’s obligations under the Merger Agreement not being fulfilled.
Each of the Voting Stockholders also agreed to irrevocably appoint officers of Parent as such Voting Stockholder’s proxy
and attorney-in-fact, with full power of substitution and re-substitution, to cause such stockholder’s shares of SmartPros
Common Stock to be voted in favor of the Merger Agreement and the transactions contemplated thereunder, including the Merger and
against the actions set forth above in clause (ii). Additionally, the Voting Stockholders agreed, among other things, not to transfer
their shares of SmartPros Common Stock, subject to certain exceptions. The Support Agreement will terminate upon the earliest
to occur of the completion of the Merger, or the termination of the Merger Agreement in accordance with its terms.
Transfer
Restrictions
A Voting Stockholder will
not, during the term of the Support Agreement: (i) sell or otherwise transfer any of the covered shares (including, but not limited
to, any covered shares that such Voting Stockholder has the right to vote due to any agreement, proxy or other similar right)
or any economic, voting or other direct or indirect interest therein; or (ii) grant a proxy or enter into any voting agreement
concerning any of the covered shares (except as contemplated by the Support Agreement).
Termination
The Support Agreements
will remain in effect until the earliest to occur of: (i) the closing of the Merger; (ii) the date of termination of the Merger
Agreement in accordance with its terms; or (iii) the parties to the Support Agreements agree in writing to its termination.
APPRAISAL
RIGHTS
APPRAISAL
RIGHTS
Under the DGCL, if you
do not wish to accept the per share Merger consideration provided for in the Merger Agreement, you have the right to seek appraisal
of your shares of SmartPros Common Stock and, if the Merger is completed, to receive payment in cash for the fair value of your
shares of SmartPros Common Stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger,
as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be fair
value. The “fair value” of your shares of SmartPros Common Stock as determined by the Delaware Court of Chancery may
be more or less than, or the same as, the $3.57 per share that you are otherwise entitled to receive under the terms of the Merger
Agreement. These rights are known as appraisal rights. The Company’s stockholders who elect to exercise appraisal rights
must not vote in favor of the proposal to adopt the Merger Agreement and must comply with the provisions of Section 262 of the
DGCL, or Section 262, in order to perfect their rights. Strict compliance with the statutory procedures in Section 262 is required.
Failure to follow precisely any of the statutory requirements may result in the loss of your appraisal rights.
This section is intended
as a brief summary of the material provisions of the Delaware statutory procedures that a stockholder must follow in order to
seek and perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements, and it is
qualified by reference to Section 262, the full text of which appears in Annex D to this proxy statement. The following
summary does
not constitute any legal or
other advice, nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262.
Section 262 requires that
where a merger agreement is to be submitted for adoption at a meeting of stockholders, the stockholders be notified that appraisal
rights will be available not less than 20 days before the stockholder meeting to vote on the Merger. A copy of Section 262 must
be included with such notice. This proxy statement constitutes the Company’s notice to our stockholders that appraisal rights
are available in connection with the Merger, in compliance with the requirements of Section 262. If you wish to consider exercising
your appraisal rights, you should carefully review the text of Section 262 contained in Annex D to this proxy statement.
Failure to comply timely and properly with the requirements of Section 262 will result in the loss of your appraisal rights under
the DGCL.
If you elect to demand
appraisal of your shares of SmartPros Common Stock, you must satisfy each of the following conditions:
|
● |
you
must deliver to the Company a written demand for appraisal of your shares of SmartPros Common Stock before the vote is taken
to approve the proposal to adopt the Merger Agreement, which must reasonably inform us of the identity of the holder of record
of SmartPros Common Stock who intends to demand appraisal of his, her or its shares of SmartPros Common Stock; and |
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you
must not vote in favor of the proposal or submit a proxy in favor of the proposal to adopt the Merger Agreement. |
If you fail to comply
with either of these conditions and the Merger is completed, you will be entitled to receive payment for your shares of SmartPros
Common Stock as provided for in the Merger Agreement, but you will have no appraisal rights with respect to your shares of SmartPros
Common Stock. A holder of shares of SmartPros Common Stock wishing to exercise appraisal rights must hold of record the shares
of SmartPros Common Stock on the date the written demand for appraisal is made and must continue to hold the shares of SmartPros
Common Stock of record through the effective time of the Merger, because appraisal rights will be lost if the shares of SmartPros
Common Stock are transferred prior to the effective time of the Merger. Voting against or failing to vote for the proposal to
adopt the Merger Agreement by itself does not constitute a demand for appraisal within the meaning of Section 262. A proxy that
is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the proposal to adopt the Merger
Agreement, and it effectively will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously
delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights
must either submit a proxy containing instructions to vote against the proposal to adopt the Merger Agreement or abstain from
voting on the proposal to adopt the Merger Agreement. The written demand for appraisal must be in addition to and separate from
any proxy or vote on the proposal to adopt the Merger Agreement.
All demands for appraisal
should be addressed to SmartPros Ltd., 12 Skyline Drive, Hawthorne, New York 10532, Attention: Corporate Secretary, and must be
delivered before the stockholder vote is taken to approve the proposal to adopt the Merger Agreement at the Special Meeting, and
should be executed by, or on behalf of, the record holder of the shares of SmartPros Common Stock. The demand must reasonably
inform the Company of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or
its shares of SmartPros Common Stock.
To be effective, a demand
for appraisal by a stockholder of SmartPros Common Stock must be made by, or in the name of, the registered stockholder, fully
and correctly, as the stockholder’s name appears on the Company’s stock ledger. The demand cannot be made by the beneficial
owner if he or she does not also hold the shares of SmartPros Common Stock of record. The beneficial holder must, in such cases,
have the registered owner, such as a bank, broker, trustee or other nominee, submit the required demand in respect of those shares
of SmartPros Common Stock. If you hold your shares of SmartPros Common Stock through a bank, broker, trustee or other nominee
and you wish to exercise appraisal rights, you should consult with your bank, broker, trustee or other nominee to determine the
appropriate procedures for the making of a demand for appraisal by the bank, broker, trustee or other nominee.
If shares of SmartPros
Common Stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for
appraisal should be made in that capacity. If the shares of SmartPros Common Stock are owned of record by more than one person,
as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including
an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds shares of SmartPros Common Stock as a nominee for others,
may exercise his or her right of appraisal with respect to the shares of SmartPros Common Stock held for one or more beneficial
owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number
of shares of SmartPros Common Stock as to which appraisal is sought. Where no number of shares of SmartPros Common Stock is expressly
mentioned, the demand will be presumed to cover all shares of SmartPros Common Stock held in the name of the record owner.
Within ten days after
the effective time of the Merger, the surviving corporation in the Merger must give written notice that the Merger has become
effective to each of the Company’s stockholders who has properly filed and not withdrawn a written demand for appraisal
and who did not vote in favor of the proposal to adopt the Merger Agreement. At any time within 60 days after the effective time
of the Merger, any stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw
the demand for appraisal and accept the cash payment specified by the Merger Agreement for that stockholder’s shares of
SmartPros Common Stock by delivering to the surviving corporation a written withdrawal of the demand for appraisal. However, any
attempt to withdraw the demand for appraisal made more than 60 days after the effective time of the Merger will require written
approval of the surviving corporation. Unless the demand for appraisal is properly withdrawn by a stockholder within 60 days after
the effective date of the Merger, no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder
without the approval of the Delaware Court of Chancery, with approval conditioned upon the terms as the court deems just. If more
than 60 days have elapsed since the effective time of the Merger and either the surviving corporation does not approve a request
to withdraw a demand for appraisal or the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding,
the stockholder will be entitled to receive only the appraised value determined in any appraisal proceeding, which value could
be less than, equal to or more than the per share Merger consideration.
Within 120 days after
the effective time of the Merger, but not thereafter, either the surviving corporation or any stockholder who has complied with
the requirements of Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by
filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of SmartPros Common
Stock held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of the
petition must be made upon the surviving corporation. The surviving corporation has no obligation to file a petition, and holders
should not assume that the surviving corporation will file a petition. Accordingly, the failure of a stockholder to file a petition
within the period specified could nullify the stockholder’s previous written demand for appraisal. In addition, within 120
days after the effective time of the Merger, any stockholder who has properly filed a written demand for appraisal and who did
not vote in favor of the proposal to adopt the Merger Agreement, upon written request, will be entitled to receive from the surviving
corporation, a statement setting forth the aggregate number of shares of SmartPros Common Stock not voted in favor of the proposal
to adopt the Merger Agreement and with respect to which demands for appraisal have been received and the aggregate number of holders
of shares of SmartPros Common Stock. The statement must be mailed to the requesting stockholder within ten days after written
request has been received by the surviving corporation. A person who is the beneficial owner of shares of SmartPros Common Stock
held either in a voting trust or by a nominee on behalf of a person may, in the person’s own name, file a petition or request
from the surviving corporation for the statement.
If a petition for appraisal
is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, then the surviving corporation
will be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery
in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded
payment for their shares of SmartPros Common Stock and with whom agreements as to the value of their shares of SmartPros
Common Stock have not been
reached. After the Delaware Register in Chancery gives notice of the time and place of the hearing to stockholders who have demanded
appraisal, if notice is ordered by the Delaware Court of Chancery, the Delaware Court of Chancery is empowered to conduct a hearing
upon the petition and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal
rights provided by Section 262. The Delaware Court of Chancery may require stockholders who have demanded appraisal for their
shares of SmartPros Common Stock and who hold stock represented by certificates to submit their stock certificate(s) to the Delaware
Register in Chancery for notation of the pendency of the appraisal proceedings, and if any stockholder fails to comply with that
direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.
After determination of
the stockholders entitled to appraisal of their shares of SmartPros Common Stock, the Delaware Court of Chancery will appraise
the shares of SmartPros Common Stock, determining their fair value as of the effective time of the Merger after taking into account
all relevant factors exclusive of any element of value arising from the accomplishment or expectation of the Merger, together
with interest, if any, to be paid upon the amount determined to be the fair value. When the value is determined, the Delaware
Court of Chancery will direct the payment of value upon surrender to the Company by those stockholders of the certificate(s) representing
their shares of SmartPros Common Stock. Unless the Delaware Court of Chancery in its discretion determines otherwise for good
cause shown, interest from the effective date of the Merger through the date of payment of the judgment will be compounded quarterly
and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during
the period between the effective time of the Merger and the date of payment of the judgment.
You should be aware that
an investment banking opinion as to fairness from a financial point of view is not necessarily an opinion as to fair value under
Section 262. Although we believe that the per share Merger consideration is fair, no representation is made as to the outcome
of the appraisal of fair value as determined by the Delaware Court of Chancery and stockholders should recognize that an appraisal
could result in a determination of a value higher or lower than, or the same as, the per share Merger consideration. Moreover,
we do not anticipate offering more than the per share Merger consideration to any stockholder exercising appraisal rights and
reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a
share of SmartPros Common Stock is less than the per share Merger consideration. In determining “fair value,” the
Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware
Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that
“proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise
admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant
factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair
value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other
facts which could be ascertained as of the date of the Merger which throw any light on future prospects of the merged corporation.
Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation
of the Merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is
a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative
elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed
Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible
of proof as of the date of the Merger and not the product of speculation, may be considered.” Costs of the appraisal proceeding
may be determined by the Delaware Court of Chancery and imposed upon the surviving corporation and the stockholders participating
in the appraisal proceeding by the Delaware Court of Chancery, as it deems equitable in the circumstances. However, costs do not
include attorneys’ and expert witness fees. Each stockholder is responsible for his, her or its attorneys’ and expert
witness fees, although, upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’
fees and the fees and expenses of experts used in the appraisal proceeding, to be charged pro rata against the value of all shares
of SmartPros Common Stock entitled to appraisal. Any stockholder who demanded appraisal rights will not, after the effective time
of the Merger, be entitled to vote shares of SmartPros Common Stock subject to that demand for any purpose or to receive payments
of dividends or any other distribution with respect to those shares of SmartPros Common Stock, other than with respect to dividends
or
distributions payable to stockholders
of record as of a record date prior to the effective time of the Merger. However, if no petition for appraisal is filed within
120 days after the effective time of the Merger, or if the stockholder delivers a written withdrawal of the stockholder’s
demand for an appraisal and an acceptance of the Merger within 60 days after the effective time of the Merger, then the right
of that stockholder to appraisal will cease and that stockholder will be entitled to receive the per share Merger consideration
of $3.57 in cash (without interest) for his, her or its shares of SmartPros Common Stock pursuant to the Merger Agreement.
The summary set forth
above does not purport to be a complete statement of the provisions of the DGCL relating to appraisal rights, and is qualified
in its entirety by reference to the applicable sections of the DGCL, which are included as Annex D to this proxy statement.
In view of the complexity
of Section 262 of the DGCL, SmartPros stockholders who may wish to pursue appraisal rights should consult their legal and financial
advisors.
MARKET
PRICES OF SMARTPROS COMMON STOCK AND DIVIDEND INFORMATION
SmartPros Common Stock
is traded on the Nasdaq Capital Market under the symbol “SPRO.” The table below shows the high and low sales prices
for SmartPros Common Stock for the periods indicated, as reported by the Nasdaq Capital Market. The closing price of SmartPros
Common Stock on the Nasdaq Capital Market on October 21, 2015, the last trading day prior to the public announcement of the execution
of the Merger Agreement, was $2.55 per share of SmartPros Common Stock. On November 16, 2015, the most recent practicable date
prior to the date of this proxy statement, the closing price for SmartPros Common Stock on the Nasdaq Capital Market was $3.49
per share of SmartPros Common Stock. You are encouraged to obtain current market quotations for SmartPros Common Stock in connection
with voting your shares of SmartPros Common Stock.
| |
High | |
Low |
| |
| |
|
Year Ending December 31, 2015: | |
| | | |
| | |
| |
| | | |
| | |
Fourth Quarter (through November
16, 2015) | |
$ | 3.85 | | |
$ | 2.24 | |
Third Quarter | |
$ | 2.90 | | |
$ | 1.42 | |
Second Quarter | |
$ | 2.25 | | |
$ | 1.52 | |
First Quarter | |
$ | 1.82 | | |
$ | 1.25 | |
| |
| | | |
| | |
Year Ending December 31, 2014: | |
| | | |
| | |
| |
| | | |
| | |
Fourth Quarter | |
$ | 2.08 | | |
$ | 1.49 | |
Third Quarter | |
$ | 2.31 | | |
$ | 1.78 | |
Second Quarter | |
$ | 3.60 | | |
$ | 2.21 | |
First Quarter | |
$ | 2.12 | | |
$ | 2.00 | |
| |
| | | |
| | |
Year Ending December 31, 2013: | |
| | | |
| | |
| |
| | | |
| | |
Fourth Quarter | |
$ | 2.67 | | |
$ | 1.97 | |
Third Quarter | |
$ | 2.14 | | |
$ | 1.54 | |
Second Quarter | |
$ | 1.75 | | |
$ | 1.43 | |
First Quarter | |
$ | 1.85 | | |
$ | 1.37 | |
As of November 16, 2015,
there were an estimated 300 beneficial holders and 85 holders of record of SmartPros Common Stock.
Since the first quarter
of 2010 we have paid quarterly cash dividends of between $.01 and $.015 per share on SmartPros Common Stock. The terms of the
Merger Agreement provide that, from the date of the Merger Agreement until the effective time of the Merger, we may not declare,
set aside or pay any dividends on shares of SmartPros Common Stock.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets
forth information with respect to the beneficial ownership of SmartPros Common Stock as of November 16, 2015, by (a) each person
known by us to own beneficially more than five percent of the outstanding shares of SmartPros Common Stock, (b) each director,
(c) our Named Executive Officers (as defined in the Exchange Act), and (d) all current directors and officers as a group. Beneficial
ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of SmartPros Common Stock subject to options or warrants held by that person
that are currently exercisable or that are or may become exercisable within 60 days of November 16, 2015, are deemed outstanding.
These shares, however, are not deemed outstanding for purposes of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and under applicable community property laws, each stockholder named in the table
has sole voting and dispositive power with respect to the shares set forth opposite the stockholder’s name. Except as otherwise
indicated, beneficial ownership includes both voting and investment power.
Except as otherwise indicated,
the persons listed below have sole voting and investment power with respect to all of SmartPros Common Stock owned by them. The
individual stockholders have furnished all information concerning their respective beneficial ownership to us.
Name
and address
of beneficial owner (1) | |
|
Shares
of
SmartPros
Common
Stock
Beneficially Owned
|
| |
Percent
of Common Shares Beneficially Owned (2) |
Directors
and Named Executive Officers | |
| | | |
| | |
Allen S. Greene | |
| 477,714 | (3) | |
| 10.1 | % |
Jack Fingerhut | |
| 183,498 | (4) | |
| 4.0 | % |
Joseph Fish | |
| 35,000 | (5) | |
| * | |
Martin H. Lager | |
| 16,833 | (6) | |
| * | |
John J. Gorman | |
| 59,100 | (7) | |
| 1.3 | % |
Leonard J. Stanley | |
| 16,000 | (7) | |
| * | |
All directors and executive officers as a group(8 persons) | |
| 802,540 | (8) | |
| 16.8 | % |
| |
| | | |
| | |
Zohar Ben-Dov 2125 Hatchers Mill Road Marshall,
Virginia 20115 | |
| 638,259 | (9) | |
| 13.9 | % |
*Less than 1%
(1) |
Unless
otherwise indicated all addresses are c/o SmartPros Ltd., 12 Skyline Drive, Hawthorne, New York 10532. |
(2) |
Based
on 4,601,241 shares of SmartPros Common Stock outstanding as of the Record Date. |
(3) |
Includes
115,000 shares of SmartPros Common Stock underlying outstanding options and 10,000 shares of SmartPros Common Stock that are
subject to vesting. |
(4) |
Includes
25,000 shares of SmartPros Common Stock underlying options and 6,000 shares of SmartPros Common Stock are subject to vesting. |
(5) |
Includes
25,000 shares of SmartPros Common Stock underlying options and 5,000 shares of SmartPros |
|
Common
Stock are subject to vesting. |
(6) |
Includes
12,333 shares of SmartPros Common Stock beneficially owned by Mr. Lager as trustee of the trust U/W/O Irwin Lager and 500
shares of SmartPros Common Stock that are subject to vesting. |
(7) |
Includes
9,000 shares of SmartPros Common Stock underlying options and 500 shares of SmartPros Common Stock that are subject to vesting. |
(8) |
Includes
an aggregate of 186,000 shares of SmartPros Common Stock underlying outstanding options and an aggregate of 14,500 shares
of SmartPros Common Stock are subject to vesting. |
(9) |
The
information with respect to this stockholder is derived from the Form 4 filed by the stockholder on January 2, 2013 with the
SEC. |
DELISTING
AND DEREGISTRATION OF SMARTPROS COMMON STOCK
If the Merger is completed,
SmartPros Common Stock will no longer be listed on the Nasdaq Capital Market and it will be deregistered under the Exchange Act
and we will no longer file periodic reports with the SEC on account of SmartPros Common Stock. In addition, if the Merger is completed,
SmartPros Common Stock will no longer be publicly-traded.
PROPOSAL
#2 — ADVISORY VOTE ON CHANGE OF CONTROL PAYMENTS AND
OTHER COMPENSATION
TO BE PAID IN CONNECTION WITH THE MERGER
Section 14A of the Exchange
Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that we provide
our stockholders with the opportunity to vote to approve, on an advisory, non-binding basis, the change of control payments and
other compensation that our named executive officers will receive in connection with the Merger, as disclosed in the section of
this proxy statement entitled “The Merger—Interests of Certain Persons in the Merger— Change of Control Payments”
beginning on page 42 of this proxy statement.
We are asking our stockholders
to indicate their approval of the various change of control payments and other compensation which our named executive officers
will or may be eligible to receive in connection with the Merger. These payments are set forth in the section of this proxy statement
entitled “The Merger— Interests of Certain Persons in the Merger— Change of Control Payments” beginning
on page 42 of this proxy statement. The various plans and arrangements pursuant to which these compensation payments may be made
have previously formed part of SmartPros’ overall compensation program for its named executive officers, which has been
disclosed to our stockholders in our annual proxy statement. These arrangements were adopted and approved by the Compensation
Committee of the Board, which is comprised solely of non-management independent directors, and are believed to be reasonable and
competitive with the arrangements being offered by other U.S.-based, general diversified manufacturing companies with similar
domestic and international sales and industries.
Accordingly, we are seeking
approval of the following resolution at the Special Meeting:
“RESOLVED, that
the stockholders of SmartPros approve, solely on a non-binding, advisory basis, the change of control payments and other compensation
that certain named executive officers of SmartPros will receive in connection with the Merger.”
Stockholders should note
that this non-binding proposal regarding change of control is merely an advisory vote that will not be binding on SmartPros or
Parent, their Boards of Directors or the compensation committees of SmartPros or Parent. Further, the underlying plans and arrangements
are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of
the advisory vote, if the Merger is consummated our named executive officers will be eligible to receive the various change of
control payments in accordance with the terms or conditions applicable to those payments.
Assuming a quorum is present
at the Special Meeting, approval of the non-binding proposal regarding certain Merger-related executive compensation arrangements
will require the affirmative vote, in person or by proxy, of a majority of the votes cast on the proposal. For the non-binding
proposal regarding certain Merger-related executive compensation arrangements, you may vote “FOR,” “AGAINST”
or “ABSTAIN.” Abstentions and broker non-votes will be counted for purposes of determining a quorum. No proxy that
is specifically marked against adoption of the Merger Agreement will be voted FOR the non-binding proposal, unless it is specifically
marked “FOR” the non-binding proposal.
The Board recommends
that you vote “FOR” the proposal to approve, solely on a non-binding, advisory basis, the change of control payments
and other compensation that certain named executive officers of SmartPros will receive in connection with the Merger.
PROPOSAL
#3 — ADJOURNMENT OF THE SPECIAL MEETING
If we fail to receive
a sufficient number of votes to adopt the Merger Agreement, we may propose to adjourn the Special Meeting. We currently do not
intend to propose adjournment of our Special Meeting if there are sufficient votes to adopt the Merger Agreement and the transactions
contemplated thereunder, including the Merger.
Assuming a quorum is present
at the Special Meeting, approval of the proposal to adjourn the Special Meeting, if necessary or appropriate, if there are insufficient
affirmative votes present at the Special Meeting to approve and adopt the Merger Agreement and the transactions contemplated thereunder,
including the Merger, will require the affirmative vote, in person or by proxy, of a majority of the votes cast on the proposal.
If a quorum is not present at the Special Meeting, approval of the proposal to adjourn the Special Meeting will require the affirmative
vote of a majority of the votes cast on the motion to adjourn the Special Meeting.
The Board recommends
that you vote “FOR” the proposal to adjourn the Special Meeting if there are insufficient affirmative votes at the
time of the meeting to approve and adopt the Merger Agreement and the transactions contemplated thereunder, including the Merger.
OTHER
MATTERS OF BUSINESS
No matters other than
the matters described in this proxy statement are anticipated to be presented for action at the Special Meeting or at any adjournment
or postponement of the Special Meeting. However, if any other matters should properly come before the Special Meeting or an adjournment
or postponement thereof, shares represented by proxies will be voted in accordance with the judgment of the persons voting the
proxies.
HOUSEHOLDING
OF PROXY MATERIAL
The SEC has adopted rules
that permit companies and intermediaries (e.g., banks, brokers, trustees or other nominees) to satisfy the delivery requirements
for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement
addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means
extra convenience for stockholders and cost savings for companies. Each stockholder who participates in householding will continue
to receive a separate proxy card. Under Delaware law, stockholders must consent to “householding” and any stockholder
who fails to object in writing to the corporation within 60 days of having been given written notice by the corporation of its
intent to “household” is deemed to have consented to “householding.”
A number of brokers with
account holders who are our stockholders will be “householding” our proxy materials. A single proxy statement report
will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected
stockholders. Once you have received notice from your broker that they will be “householding” communications to your
address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any
time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement,
please notify your bank, broker, trustee or other nominee and direct a written request to SmartPros Ltd., 12 Skyline Drive, Hawthorne,
New York 10532, Attn: Corporate Secretary, or by telephone at (914) 517-1180 or by e-mail at proxy@smartpros.com. If any stockholders
in your household wish to receive a separate copy of this proxy statement, they may call or write to Investor Relations and we
will promptly provide additional copies. Stockholders who currently receive multiple copies of the proxy statement at their address
and would like to request “householding” of their communications should contact their bank, broker, trustee or other
nominee.
WHERE
YOU CAN FIND MORE INFORMATION
We file annual, quarterly
and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC
public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) 732-0330 for further
information on the public reference room. Our SEC filings are also available to the public at the SEC website at www.sec.gov.
You also may obtain free copies of the documents we file with the SEC, including this proxy statement, by going to the “Investors”
page of our corporate website at www.SmartPros.com. Our website address is provided as an inactive textual reference only. The
information provided on our website, other than copies of the documents listed below that have been filed with the SEC, is not
part of this proxy statement, and therefore is not incorporated herein by reference.
Statements contained in
this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents of any contract
or other document, are not necessarily complete and each statement is qualified by reference to that contract or other document
filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents
we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC
will update and supersede that information. We incorporate by reference the documents listed below and any documents filed by
us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date
of the Special Meeting:
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Annual
Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 24, 2015; |
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Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2015, filed with the SEC on May 5, 2015; |
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Current
Report on Form 8-K filed with the SEC on June 26, 2015; |
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Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2015, filed with the SEC on August 6, 2015; |
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Current
Report on Form 8-K filed with the SEC on October 23, 2015; and |
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Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2015, filed with the SEC on November 5, 2015. |
Any person, including
any beneficial owner, to whom this proxy statement is delivered may request copies of proxy statements and any of the documents
incorporated by reference in this document or other information concerning us, without charge, by written, telephonic or e-mail
request directed to SmartPros Ltd., 12 Skyline Drive, Hawthorne, New York, 10532, Attn: Corporate Secretary or by telephone (914)
517-1180
or by e-mail at proxy@smartpros.com
or from the SEC through the SEC website at the address provided above. Documents incorporated by reference are available without
charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents.
IMPORTANT
NOTICE
ATTENDANCE
AT SPECIAL MEETING
For building and personnel
security reasons, all stockholders of record desiring to attend the Special Meeting in person must so indicate by checking the
box on the accompanying proxy card.
All stockholders whose
shares are held in street name in a brokerage or other account should contact such broker or custodian of such account to obtain
instructions to receive building security clearance. In the interest of building and employee security, anyone not complying with
the foregoing procedures will not be admitted to the meeting. No exceptions will be made.
THIS PROXY STATEMENT DOES
NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED NOVEMBER 17, 2015. YOU SHOULD
NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING
OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
Execution
Version
ANNEX
A
AGREEMENT
AND PLAN OF MERGER
Dated
as of October 21, 2015
among
DF
INSTITUTE, LLC,
SPL
MERGER CORP.
and
SMART
PROS LTD.
TABLE
OF CONTENTS
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Page
|
|
|
ARTICLE
I The Merger |
1 |
|
SECTION
1.1 |
The Merger |
1 |
|
SECTION 1.2 |
Closing |
2 |
|
SECTION 1.3 |
Effective Time |
2 |
|
SECTION 1.4 |
Effects of the Merger |
2 |
|
SECTION 1.5 |
Certificate of Incorporation
and Bylaws of the Surviving Corporation |
2 |
|
SECTION 1.6 |
Directors and Officers
of the Surviving Corporation |
2 |
|
|
|
|
ARTICLE II Effect of the Merger on the Capital Stock
of the Constituent Corporations; Exchange of Certificates; Company Stock Options |
3 |
|
SECTION
2.1 |
Effect on Capital
Stock |
3 |
|
SECTION 2.2 |
Exchange of Certificates |
3 |
|
SECTION 2.3 |
Appraisal Rights |
5 |
|
SECTION 2.4 |
Company Stock Options |
6 |
|
SECTION 2.5 |
Restricted Stock |
6 |
ARTICLE III Representations
and Warranties of the Company |
7 |
|
SECTION
3.1 |
Organization, Standing
and Corporate Power |
7 |
|
SECTION 3.2 |
Capitalization |
8 |
|
SECTION 3.3 |
Authority; Noncontravention;
Voting Requirements |
9 |
|
SECTION 3.4 |
Governmental Approvals |
10 |
|
SECTION 3.5 |
Company SEC Documents;
Undisclosed Liabilities |
11 |
|
SECTION 3.6 |
Absence of Certain
Changes |
12 |
|
SECTION 3.7 |
Legal Proceedings |
12 |
|
SECTION 3.8 |
Compliance With Laws;
Permits |
13 |
|
SECTION 3.9 |
Information Supplied |
13 |
|
SECTION 3.10 |
Tax Matters |
13 |
|
SECTION 3.11 |
Employee Benefits
and Labor Matters |
15 |
|
SECTION 3.12 |
Environmental Matters |
18 |
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SECTION 3.13 |
Intellectual Property |
18 |
|
SECTION 3.14 |
Contracts |
23 |
|
SECTION 3.15 |
Properties |
25 |
|
SECTION 3.16 |
Customers and Suppliers |
26 |
|
SECTION 3.17 |
Insurance |
26 |
|
SECTION 3.18 |
Unlawful Payments;
Export Controls |
26 |
|
SECTION 3.19 |
Opinion of Financial
Advisor |
27 |
|
SECTION 3.20 |
Brokers and Other
Advisors |
27 |
|
SECTION 3.21 |
Takeover Statutes |
27 |
|
SECTION 3.22 |
Affiliate and Related
Party Transactions |
27 |
|
SECTION 3.23 |
Government Contracts |
28 |
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SECTION 3.24 |
No Other Representations
or Warranties |
28 |
ARTICLE IV Representations
and Warranties of Parent and Merger Sub |
28 |
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|
SECTION
4.1 |
Organization; Standing |
28 |
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SECTION 4.2 |
Authority; Noncontravention |
28 |
|
SECTION 4.3 |
Governmental Approvals |
29 |
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SECTION 4.4 |
Information Supplied |
29 |
|
SECTION 4.5 |
Ownership and Operations
of Merger Sub |
29 |
|
SECTION 4.6 |
Financing |
30 |
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SECTION 4.7 |
Certain Arrangements |
30 |
|
SECTION 4.8 |
Legal Proceedings |
30 |
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SECTION 4.9 |
Brokers and Other
Advisors |
30 |
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SECTION 4.10 |
No Other Representations
or Warranties |
30 |
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ARTICLE V Additional
Covenants and Agreements |
30 |
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SECTION
5.1 |
Preparation of the
Proxy Statement; Stockholders Meeting |
30 |
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SECTION 5.2 |
Conduct of Business |
31 |
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SECTION 5.3 |
No Solicitation; Potential
Change in Recommendation |
34 |
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SECTION 5.4 |
Reasonable Best Efforts |
37 |
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SECTION 5.5 |
Public Announcements |
38 |
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SECTION 5.6 |
Access to Information;
Confidentiality |
38 |
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SECTION 5.7 |
Notification of Certain
Matters |
39 |
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SECTION 5.8 |
Indemnification and
Insurance |
39 |
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SECTION 5.9 |
Securityholder Litigation |
41 |
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SECTION 5.10 |
Fees and Expenses |
41 |
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SECTION 5.11 |
Rule 16b-3 |
41 |
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SECTION 5.12 |
Employee Matters |
41 |
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SECTION 5.13 |
Delisting |
42 |
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SECTION 5.14 |
Internet Domain Name
Registrations |
42 |
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SECTION 5.15 |
FIRPTA |
42 |
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SECTION 5.16 |
Customers |
42 |
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ARTICLE VI Conditions
Precedent |
43 |
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|
|
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SECTION
6.1 |
Conditions to Each
Party’s Obligation to Effect the Merger |
43 |
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SECTION 6.2 |
Conditions to Obligations
of Parent and Merger Sub |
43 |
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SECTION 6.3 |
Conditions to Obligations
of the Company |
46 |
|
SECTION 6.4 |
Frustration of Closing
Conditions |
46 |
ARTICLE VII Termination |
46 |
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SECTION
7.1 |
Termination |
46 |
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SECTION 7.2 |
Effect of Termination |
48 |
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SECTION 7.3 |
Termination Fee |
48 |
ARTICLE VIII Miscellaneous |
50 |
|
SECTION
8.1 |
No Survival of Representations
and Warranties |
50 |
|
SECTION 8.2 |
Amendment or Supplement |
50 |
|
SECTION 8.3 |
Extension of Time,
Waiver, Etc. |
50 |
|
SECTION 8.4 |
Assignment |
50 |
|
SECTION 8.5 |
Counterparts |
51 |
|
SECTION 8.6 |
Entire Agreement;
No Third-Party Beneficiaries |
51 |
|
SECTION 8.7 |
Governing Law; Jurisdiction;
Waiver of Jury Trial |
51 |
|
SECTION 8.8 |
Notices |
52 |
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SECTION 8.9 |
Severability |
53 |
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SECTION 8.10 |
Definitions |
53 |
|
SECTION 8.11 |
Interpretation |
59 |
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SECTION 8.12 |
Non-Recourse |
60 |
Exhibit A - Support
Agreement |
|
AGREEMENT
AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER, dated as of October 21, 2015 (this “Agreement”), is among DF Institute, LLC,
an Illinois limited liability company (“Parent”), SPL Merger Corp., a Delaware corporation and a wholly owned
Subsidiary of Parent (“Merger Sub”), and Smart Pros Ltd., a Delaware corporation (the “Company”).
WHEREAS,
the parties intend that Merger Sub be merged with and into the Company, with the Company surviving the merger on the terms and
subject to the conditions set forth in this Agreement as a result of which the Company will become a wholly-owned Subsidiary of
Parent (the “Merger”);
WHEREAS,
the board of directors of the Company, acting upon the recommendation of the special committee of the board of directors, has
(i) determined that it is advisable and in the best interests of the Company and its stockholders to enter into this Agreement
and that the Transactions are fair to, and in the best interests of the Company and its stockholders, (ii) approved the execution,
delivery and performance by the Company of this Agreement and the consummation of the Transactions, including the Merger, and
(iii) resolved to recommend that the stockholders of the Company approve and adopt this Agreement; and
WHEREAS,
the board of directors of each of Parent and Merger Sub have approved this Agreement and declared it advisable for Parent and
Merger Sub, respectively to enter into this Agreement.
WHEREAS,
Parent has required as a condition to its willingness to enter into this Agreement that certain stockholders of the Company (the
“Supporting Stockholders”) enter into Support Agreements, each dated as of the date hereof in the form attached
as Exhibit A (the “Support Agreements”), simultaneously herewith, pursuant to which, among other things,
each Supporting Stockholder has agreed to vote to adopt this Agreement and take certain other actions in furtherance of the Merger,
in each case, on the terms and subject to the conditions provided for in the Support Agreements.
NOW,
THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and intending
to be legally bound hereby, Parent, Merger Sub and the Company hereby agree as follows:
Article
I
The
Merger
SECTION
1.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the
General Corporation Law of the State of Delaware (the “DGCL”), at the Effective Time, Merger Sub shall be merged
with and into the Company, and the separate corporate existence of Merger Sub shall thereupon cease, and the Company shall be
the surviving corporation in the Merger (the “Surviving Corporation”).
SECTION
1.2 Closing. The closing of the Merger (the “Closing”) shall take place at 10:00 a.m. (Eastern time)
on the second (2nd) Business Day after satisfaction or waiver of the conditions set forth in Article VI (the “Closing
Date”) (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction
or waiver of those conditions at the Closing), at the offices of Morse, Zelnick, Rose & Lander, LLP, 825 Third Avenue New
York, NY 10022, unless another time, date or place is agreed to in writing by Parent and the Company.
SECTION
1.3 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on the Closing Date the parties
shall file with the Secretary of State of the State of Delaware a certificate of merger, executed in accordance with, and in such
form as is required by, the relevant provisions of the DGCL (the “Certificate of Merger”). The Merger shall
become effective upon the filing of the Certificate of Merger or at such later time as is agreed to by the parties hereto and
specified in the Certificate of Merger (the time at which the Merger becomes effective is herein referred to as the “Effective
Time”).
SECTION
1.4 Effects of the Merger. The Merger shall have the effects set forth in the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION
1.5 Certificate of Incorporation and Bylaws of the Surviving Corporation. At the Effective Time, the certificate of
incorporation and bylaws of the Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of
incorporation and bylaws of the Surviving Corporation until thereafter amended as provided by applicable Law.
SECTION
1.6 Directors and Officers of the Surviving Corporation
.
(a) The
directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation immediately
following the Effective Time, until their respective successors are duly elected or appointed and qualified or their earlier death,
resignation or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.
(b) The
officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation immediately
following the Effective Time, until their respective successors are duly appointed and qualified or their earlier death, resignation
or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.
Article
II
Effect
of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates; Company Stock Options
SECTION
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the
holder of any shares of the Company’s common stock, par value $.0001 per share (“Company Common Stock”),
or any shares of capital stock of Merger Sub:
(a) Capital
Stock of Merger Sub. Each issued and outstanding share of capital stock of Merger Sub shall be converted into and become one
validly issued, fully paid and nonassessable share of common stock, par value $.01 per share, of the Surviving Corporation.
(b) Cancellation
of Treasury Stock and Parent-Owned Stock. Any shares of Company Common Stock that are owned by the Company as treasury stock,
and any shares of Company Common Stock owned by Parent or Merger Sub, shall be automatically canceled and shall cease to exist
and no consideration shall be delivered in exchange therefor.
(c) Conversion
of Company Common Stock. Each issued and outstanding share of Company Common Stock (other than shares to be canceled in accordance
with Section 2.1(b) and Dissenting Shares) shall be converted automatically into and shall thereafter represent the right
to receive $3.57 in cash, without interest (the “Merger Consideration”). As of the Effective Time, each such
share of Company Common Stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and
each holder of a certificate (or evidence of shares in book-entry form) which immediately prior to the Effective Time represented
any such share of Company Common Stock (each, a “Certificate”) shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration to be paid in consideration therefor upon surrender of such Certificate
in accordance with Section 2.2(b), without interest.
SECTION
2.2 Exchange of Certificates.
(a) Paying
Agent. Prior to the Effective Time, Parent shall designate a bank or trust company, which shall be reasonably acceptable to
the Company, to act as agent for the holders of shares of Company Common Stock in connection with the Merger (the “Paying
Agent”) to receive, on terms reasonably acceptable to the Company, for the benefit of holders of shares of Company Common
Stock, the aggregate Merger Consideration to which holders of shares of Company Common Stock shall become entitled pursuant to
Section 2.1(c). Parent shall deposit, or cause to be deposited, such aggregate Merger Consideration with the Paying Agent
immediately following the Effective Time. Such aggregate Merger Consideration deposited with the Paying Agent shall, pending its
disbursement to such holders, be invested by the Paying Agent in accordance with instructions from Parent in (i) short-term direct
obligations of the United States of America, (ii) short-term obligations for which the full faith and credit of the United States
of America is pledged to provide for the payment of principal and interest, or (iii) money market funds investing solely in a
combination of the foregoing. No such investment or losses thereon shall affect the Merger Consideration payable to the holders
of shares of Company Common Stock. Any net profit resulting from, or interest or income produced by, such investments will, at
Parent’s direction, be distributed to Parent or the Surviving Corporation.
(b) Payment
Procedures. Promptly after the Effective Time (but in no event more than three (3) Business Days thereafter), the Paying Agent,
in accordance with written instructions received from the Company at or prior to the Effective Time, shall mail to each holder
of record of Company Common Stock entitled to receive Merger Consideration pursuant to Section 2.1(c) (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates (or affidavits of loss in lieu of such Certificates) to the Paying Agent, and which shall be in such form
and shall have such other customary provisions (including customary provisions with respect to delivery of an “agent’s
message” with respect to shares held in book-entry form)) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment of the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions (and
such other customary documents as may reasonably be required by the Paying Agent), the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration, without interest, for each share of Company Common Stock formerly represented
by such Certificate, and the Certificate so surrendered shall immediately be canceled. If payment of the Merger Consideration
is to be made to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition
of payment that (x) the Certificate so surrendered shall be properly endorsed (or accompanied by separate stock powers) and shall
otherwise be in proper form for transfer (and the signature on the endorsement or stock power, as the case may be, shall be guaranteed
by an “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 under the Exchange Act) and (y) the
Person requesting such payment shall have paid any transfer and other similar taxes required by reason of the payment of the Merger
Consideration to a Person other than the registered holder of such Certificate surrendered or shall have established to the reasonable
satisfaction of the Surviving Corporation that such tax either has been paid or is not applicable. Until surrendered as contemplated
by this Section 2.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right
to receive the Merger Consideration as contemplated by this Article II, without interest.
(c) Transfer
Books; No Further Ownership Rights in Company Stock. The Merger Consideration paid in respect of shares of Company Common
Stock upon the surrender for exchange of Certificates in accordance with the terms of this Article II shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock previously represented by such
Certificates, and at the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be
no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common
Stock that were outstanding immediately prior to the Effective Time. From and after the Effective Time, the holders of Certificates
that evidenced ownership of shares of Company Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock, except as otherwise provided for herein or by applicable
Law. If, at any time after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall
be canceled and exchanged as provided in this Article II.
(d) Lost,
Stolen or Destroyed Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit
(in the form required by Parent) of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such Person of a bond, in such amount as is sufficient to provide a full indemnity against
any claim that may be made against it with respect to such Certificate, the Paying Agent will pay, in exchange for such lost,
stolen or destroyed Certificate, the applicable Merger Consideration to be paid in respect of the shares of Company Common Stock
formerly represented by such Certificate, as contemplated by this Article II.
(e) Termination
of Fund. At any time following the one (1) year anniversary of the Closing Date, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) that had been made
available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall
be entitled to look only to Parent and the Surviving Corporation (subject to abandoned property, escheat or other similar Laws)
as general creditors thereof with respect to the payment of any Merger Consideration that may be payable upon surrender of any
Certificates held by such holders, as determined pursuant to this Agreement, without any interest thereon. Any amounts remaining
unclaimed by such holders at such time at which such amounts would otherwise escheat to or become property of any Governmental
Authority shall become, to the extent permitted by applicable Law, the property of Parent, free and clear of all claims or interest
of any Person previously entitled thereto.
(f) No
Liability. Notwithstanding any provision of this Agreement to the contrary, none of the parties hereto, the Surviving Corporation
or the Paying Agent shall be liable to any Person for Merger Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or other similar Law.
(g) Withholding
Taxes. Parent, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement such amounts as are required to be deducted and withheld with respect to the making
of such payment under the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder (collectively, the
“Code”), or under any provision of state, local or foreign tax Law. To the extent amounts are so withheld and
paid over to the appropriate taxing authority, the withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the Person in respect of which such deduction and withholding was made.
SECTION
2.3 Appraisal Rights.
(a) Notwithstanding
anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to
the Effective Time and which are held by a stockholder who did not vote in favor of the Merger (or consent thereto in writing)
and who is entitled to demand and properly demands appraisal of such shares pursuant to, and who complies in all respects with,
the provisions of Section 262 of the DGCL (the “Dissenting Stockholders”), shall not be converted into or be
exchangeable for the right to receive the Merger Consideration (the “Dissenting Shares”). At the Effective
Time, (i) the holder or holders of Dissenting Shares shall be entitled only to such rights as may be granted to him, her, it or
them under Section 262 of the DGCL, and (ii) such Dissenting Shares shall no longer be outstanding and shall automatically be
canceled and shall cease to exist, and such holder shall cease to have any rights with respect thereto, except the right to receive
the fair value of such Dissenting Shares in accordance with Section 262 of the DGCL, unless and until such holder shall have failed
to perfect or shall have effectively withdrawn or lost rights to appraisal under the DGCL.
(b) Notwithstanding
the provisions of Section 2.3(a), if any Dissenting Stockholder shall have effectively withdrawn or lost such right (through
failure to perfect such appraisal rights or otherwise), such holder’s shares of Company Common Stock (i) shall no longer
be deemed Dissenting Shares and (ii) shall be treated as if they had been converted automatically into and become exchangeable
for the right to receive, as of the Effective Time, the Merger Consideration for each such share of Company Common Stock, in accordance
with Section 2.1, without any interest thereon.
(c) The
Company shall give Parent (i) prompt notice of any demands for appraisal of any shares of Company Common Stock, any withdrawals
of such demands and any other instrument served on the Company pursuant to Section 262 of the DGCL, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any demands for appraisal under the DGCL. The Company shall not
offer to make, agree to make, or make any payment with respect to any demands for appraisal without the prior written consent
of Parent.
SECTION
2.4 Company Stock Options. Prior to the Effective Time, the Company shall take all actions necessary to provide that,
and shall cause, each option outstanding immediately prior to the Effective Time (whether or not then vested or exercisable) that
represents the right to acquire shares of Company Common Stock (each, an “Option”) shall at the Effective Time
be canceled and terminated and converted at the Effective Time into the right to receive a cash amount equal to the Option Consideration,
if any, for each share of Company Common Stock then subject to the Option. The Option Consideration shall be paid by the Surviving
Corporation through its payroll system on the first regular payroll date after the Closing Date. Notwithstanding the foregoing,
Parent and the Company shall be entitled to deduct and withhold from the Option Consideration otherwise payable such amounts as
are required to be deducted and withheld with respect to the making of such payment under the Code, or any provision of state,
local or foreign tax Law. For purposes of this Agreement, “Option Consideration” means, with respect to any
share of Company Common Stock issuable under a particular Option, an amount equal to the excess, if any, of (x) the Merger Consideration
per share of Company Common Stock over (y) the exercise price payable in respect of such share of Company Common Stock issuable
under such Option. For the avoidance of doubt, each Option with an exercise price per share of Company Common Stock subject to
such Option that is greater than or equal to the Merger Consideration shall be canceled and terminated and no Option Consideration
shall be payable with respect thereto.
SECTION
2.5 Restricted Stock. Prior to the Effective Time, the Company shall take all actions necessary to provide that, and
shall cause, each share of Company Common Stock subject to vesting, repurchase or other lapse restriction granted under a Company
Stock Plan outstanding immediately prior to the Effective Time to, at the Effective Time, fully vest and be canceled and converted
automatically into the right to receive the Merger Consideration payable pursuant to Section 2.1(c) and be treated in the
same manner as all other shares of Company Common Stock for such purposes. Notwithstanding the foregoing, Parent shall or shall
cause the Surviving Corporation to pay or issue the consideration described in this Section 2.5 through its payroll system
on the first regular payroll date after the surrender of the applicable Certificate representing such shares for cancelation,
and shall be entitled to deduct and withhold from such payments otherwise payable such amounts as are required to be deducted
and withheld with respect to the making of such payment under the Code, or any provision of state, local or foreign tax Law.
Article
III
Representations
and Warranties of the Company
The
Company represents and warrants to Parent and Merger Sub that except as disclosed in the disclosure schedule delivered by the
Company to Parent simultaneously with the execution of this Agreement (the “Company Disclosure Schedule”) or
in the Filed Company SEC Documents (other than any disclosure in the Company SEC Filings (x) set forth under “Risk Factors”,
(y) “Forward Looking Statements”, and any other statements that are not factual information but merely cautionary
language and (z) any exhibits or other documents appended thereto) (it being understood that any matter disclosed in the Company
Disclosure Schedule or in such Company SEC Documents shall be deemed disclosed with respect to any Section of this Article
III to which the matter relates, to the extent the relevance of such matter to such a section of the Company Disclosure Schedule
is reasonably apparent on its face):
SECTION
3.1 Organization, Standing and Corporate Power.
(a) Each
of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the Laws of the
jurisdiction in which it is incorporated and has all requisite corporate power and authority necessary to own or lease all of
its properties and assets and to carry on its business as it is now being conducted. Each of the Company and its Subsidiaries
is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed, qualified or in good standing, individually or in the aggregate, has not
had and would not reasonably be expected to have a Company Material Adverse Effect (as defined below). For purposes of this Agreement,
“Company Material Adverse Effect” shall mean any fact, circumstance, condition, change, event, occurrence,
development or effect, that individually or in the aggregate together with all other facts, circumstances, conditions, changes,
events, occurrences, developments or effects: (i) which has had or would reasonably be expected to have, directly or indirectly,
a material adverse effect on the results of operations, condition (financial or otherwise), business, assets or liabilities of
the Company and its Subsidiaries taken as a whole; other than facts, circumstances, conditions, changes, events, occurrences or
effects (A) generally affecting (1) the industry of the Company and its Subsidiaries, or (2) the economy, or financial or capital
markets, in the United States or elsewhere in the world, or (B) arising out of, resulting from or directly attributable to (X)
changes after the date of this Agreement in Law or in GAAP, or changes in general legal, regulatory or political conditions, (Y)
acts of war, sabotage or terrorism, or any escalation or worsening of any such acts of war, sabotage or terrorism threatened or
underway as of the date of this Agreement or (Z) earthquakes, hurricanes, tornados or other natural disasters, except, with respect
to (i)(A)(1), (i)(A)(2) and (i)(B)(X), only to the extent that the effects of such change disproportionately affect the Company
and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which the Company and its Subsidiaries
operate; or (ii) which has impaired or prevented or would reasonably be expected to impair or prevent in any material respect
the ability of the Company to perform its obligations hereunder or prevent or materially delay the consummate the Transactions
on a timely basis.
(b) Section
3.1(b) of the Company Disclosure Schedule lists all Subsidiaries of the Company together with the jurisdiction of organization
of each such Subsidiary. All the outstanding shares of capital stock of, or other equity interests in, each Subsidiary of the
Company have been duly authorized and validly issued and are fully paid and nonassessable and are owned directly or indirectly
by the Company free and clear of all Liens and transfer restrictions, except for such transfer restrictions of general applicability
as may be provided under the Securities Act of 1933, and the rules and regulations promulgated thereunder (the “Securities
Act”), and other applicable securities laws. Except as set forth in Section 3.1(b) of the Company Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock, voting securities or equity interests in any Person.
(c) The
Company has prior to the date of this Agreement delivered to Parent complete and correct copies of the certificate of incorporation
and bylaws of the Company, as amended to the date of this Agreement (the “Company Charter Documents”), and
complete and correct copies of the certificates of incorporation and bylaws (or comparable organizational documents) of each of
its Subsidiaries (the “Subsidiary Documents”), in each case as amended to the date of this Agreement. All such
Company Charter Documents and Subsidiary Documents are in full force and effect and neither the Company nor any of its Subsidiaries
is in violation of any of their respective provisions.
SECTION
3.2 Capitalization.
(a) The
authorized capital stock of the Company consists of 30,000,000 shares of Company Common Stock and 1,000,000 shares of preferred
stock, par value $.001 per share (“Company Preferred Stock”). At the close of business on October, 20, 2015,
(i) 4,601,241 shares of Company Common Stock were issued and outstanding, (ii) 1,084,192 shares of Company Common Stock were held
by the Company in its treasury, (iii) 308,175 shares of Company Common Stock were reserved for issuance under the Company Stock
Plans (of which 308,175 shares of Company Common Stock are subject to outstanding Options, and 23,775 of such Options have an
exercise price per share that is greater than or equal to the Merger Consideration and, at the Effective Time, shall be canceled
and terminated pursuant to Section 2.4), (iv) 45,500 shares of Company Common Stock were granted subject to vesting, repurchase
or other lapse restrictions (all of which are included in subsection (i) above) and (iv) no shares of Company Preferred Stock
were issued or outstanding. All outstanding shares of Company Common Stock have been duly authorized and validly issued and are
or will be in the case of Options, fully paid and nonassessable and were not issued in violation of any preemptive rights or of
any federal or state securities law. As of the date of this Agreement, there are no outstanding shares of the Company’s
capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock. Except as
set forth above as of the date of this Agreement there are not, and as of the Effective Time there will not be, any shares of
capital stock, voting securities or equity interests of the Company issued and outstanding or any subscriptions, “phantom
stock,” RSUs, stock appreciation rights, options, warrants, calls, convertible or exchangeable securities, rights, commitments
or agreements of any character providing for the issuance of any shares of capital stock, voting securities or equity interests
of the Company, including any representing the right to purchase or otherwise receive any Company Common Stock.
(b) None
of the Company’s Subsidiaries has issued or is bound by any outstanding subscriptions, “phantom stock,” RSUs,
stock appreciation rights, options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements
of any character providing for the issuance or disposition of any shares of capital stock, voting securities or equity interests
of any Subsidiary of the Company. There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock, voting securities or equity interests (or any options, warrants or other
rights to acquire any shares of capital stock, voting securities or equity interests) of the Company or any of its Subsidiaries.
The Company directly or indirectly owns all of the outstanding capital stock of each of its Subsidiaries, free and clear of any
and all Liens and transfer restrictions, except for such transfer restrictions of general applicability as may be provided under
the Securities Act.
SECTION
3.3 Authority; Noncontravention; Voting Requirements.
(a) The
Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder
and, subject to obtaining the Company Stockholder Approval, to consummate the Transactions. The execution, delivery and performance
by the Company of this Agreement, and the consummation by it of the Transactions, have been duly authorized and approved by its
board of directors, and except for obtaining the Company Stockholder Approval, no other corporate action on the part of the Company
or its stockholders is necessary to authorize the execution, delivery and performance by the Company of this Agreement and the
consummation by it of the Transactions. This Agreement has been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery hereof by the other parties hereto, constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other similar laws of general application affecting or relating to the enforcement
of creditors’ rights generally and (ii) is subject to general principles of equity, whether considered in a proceeding at
law or in equity (the “Bankruptcy and Equity Exception”).
(b) The
Company’s board of directors, at a meeting duly called and held on or prior to the date of this Agreement, has unanimously
(i) determined that it is advisable and in the best interests of the Company and its stockholders to enter into this Agreement
and that the Transactions are fair to, and in the best interests of, the Company and its stockholders, (ii) approved the execution,
delivery and performance by the Company of this Agreement and the consummation of the Transactions, and (iii) resolved to recommend
adoption of this Agreement by the stockholders of the Company.
(c) Neither
the execution and delivery of this Agreement by the Company nor the consummation by the Company of the Transactions, nor compliance
by the Company with any of the terms or provisions hereof, will (with or without the giving of notice, the lapse of time, or both)
(i) conflict with or violate any provision of the Company Charter Documents or any of the Subsidiary Documents or any resolution
adopted by the board of directors or the stockholders of the Company or any of its Subsidiaries or (ii) assuming that the authorizations,
consents and approvals referred to in Section 3.4 and on Section 3.14(b)(2) of the Company Disclosure Schedule and the
Company Stockholder Approval are obtained and the filings referred to in Section 3.4 are made, (x) conflict with or violate
any Law, judgment, writ or injunction of any Governmental Authority applicable to the Company or any of its Subsidiaries or to
which any of their assets are subject or (y) violate, conflict with, result in a breach of any provision of or the loss of any
benefit under, or constitute a default under or result in or permit the modification, revocation, cancellation, termination or
acceleration of rights under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective
properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any loan or
credit agreement, debenture, note, bond, mortgage, indenture, deed of trust, lease, contract or other agreement (each, a “Contract”)
to which the Company or any of its Subsidiaries is a party or by which any of their assets are bound.
(d) The
affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Company Common Stock at the
Company Stockholders Meeting, or any adjournment or postponement thereof, in favor of the adoption of this Agreement (the “Company
Stockholder Approval”) is the only vote or approval of the holders of any class or series of capital stock of the Company
or any of its Subsidiaries which is necessary to adopt this Agreement and approve the Transactions.
SECTION
3.4 Governmental Approvals. Except for (a) the filing with the SEC of a proxy statement relating to the Company Stockholders
Meeting (as amended or supplemented from time to time, the “Proxy Statement”), and other filings required under,
and compliance with other applicable requirements of, the Securities Exchange Act of 1934, and the rules and regulations promulgated
thereunder (the “Exchange Act”), (b) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware pursuant to the DGCL, and (c) the approvals, authorizations, notices and findings of suitability, together
with any filings in connection therewith, of any Governmental Entity with regulatory control or jurisdiction over, or which accredits
or approves (x) the Company or any of its Subsidiaries as a provider of professional education and training products and services,
and (y) any Company Product, that are required or otherwise triggered by or in connection with, or as a result of, the Merger,
each of which is set forth on Section 3.4(c) of the Company Disclosure Schedule, no consents or approvals of, or filings, notifications
to, declarations or registrations with, any Governmental Authority are necessary for the execution and delivery of this Agreement
by the Company and the consummation by the Company of the Transactions, other than, in each case, such other consents, approvals,
filings, notifications, declarations or registrations that, if not obtained, made or given, individually or in the aggregate,
have not impaired and would not reasonably be expected to impair in any material respect the business operations of the Company
and its Subsidiaries as presently conducted.
SECTION
3.5 Company SEC Documents; Undisclosed Liabilities.
(a) The
Company has timely filed with or furnished to the SEC all required reports, schedules, forms, certifications, prospectuses and
registration, proxy and other statements with the SEC since January 1, 2011 (collectively, and in each case including all exhibits
and schedules thereto and documents incorporated by reference therein, the “Company SEC Documents”). As of
their respective SEC filing dates the Company SEC Documents complied as to form in all material respects with the requirements
of the Exchange Act and the Securities Act, as the case may be, applicable to such Company SEC Documents, and none of the Company
SEC Documents as of such respective dates (or, if amended prior to the date of this Agreement, the date of the filing of such
amendment, with respect to the disclosures that are amended) 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) The
consolidated financial statements of the Company included in the Company SEC Documents have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved and fairly present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations
and cash flows for the periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments).
(c) The
Company has established and maintains internal control over financial reporting and disclosure controls and procedures (as such
terms are defined in Rule 13a-15 and Rule 15d-15 under the Exchange Act); such disclosure controls and procedures are designed
to ensure that material information relating to the Company, including its consolidated Subsidiaries, required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s
principal executive officer and its principal financial officer to allow timely decisions regarding required disclosure; and such
disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms. The Company’s principal executive officer and its principal financial officer have disclosed, based
on their most recent evaluation, to the Company’s auditors and the audit committee of the board of directors of the Company
(x) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s
ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material
weaknesses in internal controls and (y) any fraud, whether or not material, that involves management or other employees who have
a significant role in the Company’s internal controls. The principal executive officer and the principal financial officer
of the Company have timely made all certifications required by the Sarbanes-Oxley Act, the Exchange Act and any related rules
and regulations promulgated by the SEC with respect to the Company SEC Documents, and the statements contained in such certifications
are complete and correct.
(d) Neither
the Company nor any of its Subsidiaries has any liabilities or obligations of any nature whatsoever (whether direct or indirect,
fixed or contingent, known or unknown, due or to become due, accrued or otherwise, and whether or not determined or determinable),
except (i) liabilities reflected or reserved against on the audited balance sheet of the Company and its Subsidiaries as of December
31, 2014 (the “Balance Sheet Date”) (including the notes thereto) included in the Filed Company SEC
Documents, (ii) current liabilities incurred after the Balance Sheet Date in the ordinary course of business consistent with past
practice, (iii) liabilities explicitly contemplated by this Agreement or otherwise directly related to the Transactions or (iv)
liabilities that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material
Adverse Effect.
(e) No
Subsidiary of the Company is required to file or furnish any report, statement, schedule, form or other document with, or make
any other filing with, or furnish any other material to, the SEC.
(f) The
Company has made available to Parent (including via the EDGAR system, as applicable) to Parent all material correspondence between
the SEC on the one hand, and the Company and any of its Subsidiaries, on the other hand, since January 1, 2011. As of the date
hereof, there are no outstanding or unresolved comments in comment letters from the SEC staff with respect to any of the Company
SEC Documents. To the Knowledge of the Company, as of the date hereof, none of the Company SEC Documents is the subject of ongoing
SEC review, outstanding SEC comment or outstanding SEC investigation.
(g) The
Company has adopted a code of ethics, as defined by Item 406(b) of Regulation S-K promulgated under the Exchange Act, which applies
to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing
similar functions. The Company has timely disclosed, by filing a Form 8-K, any change in or waiver of the Company’s code
of ethics, as required by Item 5.05(a) of Form 8-K. To the Knowledge of the Company, there have been no violations of provisions
of the Company’s code of ethics.
SECTION
3.6 Absence of Certain Changes. Since the Balance Sheet Date and except as set forth in Section 3.6 of the Company Disclosure
Schedule:
(a) the
Company has carried on and operated its businesses in the ordinary course of business consistent with past practice; and
(b) there
have not been any events, changes or occurrences that, individually or in the aggregate, have had, continue to have or would reasonably
be expected to have a Company Material Adverse Effect.
SECTION
3.7 Legal Proceedings. Except as set forth in Section 3.7 of the Company Disclosure Schedule, there is no pending or,
to the Knowledge of the Company, threatened in writing, investigation, audit, legal or administrative proceeding, claim, dispute,
suit, arbitration or action (“Action”) against the Company or any of its Subsidiaries, nor is there any injunction,
order, judgment, ruling or decree imposed (or, to the Knowledge of the Company, threatened, in writing, to be imposed) upon the
Company or any of its Subsidiaries, in each case, by or before any Governmental Authority, that, individually or in the aggregate,
has impaired or would reasonably be expected to impair in any material respect the business operations of the Company and its
Subsidiaries as presently conducted or to prevent or delay in any material respect the consummation of the Transactions. As of
the date of this Agreement, there is not any material internal investigation or inquiry being conducted by the Company, the board
of directors of the Company (or any committee thereof) or, to the Knowledge of the Company, any third party or Governmental Authority
at the request of any of the foregoing concerning any financial, accounting, tax, conflict of interest, self-dealing, fraudulent
or deceptive conduct or other misfeasance or malfeasance issues. Except as disclosed in Section 3.7 of the Company Disclosure
Schedule, since the Balance Sheet Date until the date of this Agreement, there has not been any action taken by the Company or
any of its Subsidiaries that, if taken during the period from the date of this Agreement through the Effective Time without Parent’s
consent, would constitute a breach of Section 5.2(o).
SECTION
3.8 Compliance With Laws; Permits. The Company and its Subsidiaries are in compliance with all laws, statutes, ordinances,
codes, rules, regulations, decrees and orders of Governmental Authorities (collectively, “Laws”) applicable
to the Company or any of its Subsidiaries, except for such non-compliance as, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse Effect. The Company and each of its Subsidiaries hold all
licenses, franchises, permits, certificates, approvals, accreditations and authorizations from Governmental Authorities necessary
for the lawful conduct of their respective businesses or required to make the Company Products marketable (collectively, “Permits”),
except where the failure to hold the same, individually or in the aggregate, has not impaired and would not reasonably be expected
to impair in any material respect the business operations of the Company and its Subsidiaries as presently conducted. The Company
and its Subsidiaries are in compliance with the terms of all Permits in all material respects. Since January 1, 2011, neither
the Company nor any of its Subsidiaries has received written notice to the effect that a Governmental Authority (a) claimed or
alleged that the Company or any of its Subsidiaries was not in compliance with all Laws applicable to the Company or any of its
Subsidiaries or (b) was considering the amendment, termination, revocation or cancellation of any Permit. The Company and its
Subsidiaries have abided and abide in all material respects by all Laws and internal policies regarding the privacy and security
of data or information that is linked to any reasonably identifiable person (“Personal Data”), and no claims
have been asserted or, to the Knowledge of the Company, threatened against the Company by any Person alleging a violation of any
of the foregoing.
SECTION
3.9 Information Supplied. The Proxy Statement, as may be amended and supplemented from time to time, will not, on the
date first mailed to stockholders of the Company and at the time of the Company Stockholders Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will on the date of filing
comply as to form in all material respects with the applicable requirements of the Exchange Act. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to information supplied by or on behalf of Parent or Merger Sub expressly
for inclusion or incorporation by reference in the Proxy Statement.
SECTION
3.10 Tax Matters.
(a) (i)
Each of the Company, its Subsidiaries (A) have timely filed Tax Returns required to be filed by them, and (B) all Taxes required
to be paid by them have been timely paid by them (after giving effect to any valid extensions of time in which to make such filings),
(ii) such Tax Returns are true, correct and complete in all material respects and (iii) all material Taxes required to be withheld
by the Company or any of its Subsidiaries have been withheld and have been (or will be) duly and timely paid to the proper Governmental
Authority.
(b) Except
as set forth in Section 3.10(b) of the Company Disclosure Schedule, none of the Tax Returns filed by the Company or any of its
Subsidiaries in the past five (5) years, or Taxes payable by the Company or any of its Subsidiaries in the past five (5) years,
have been the subject of an audit, action, suit, proceeding, claim, examination, deficiency or assessment by any Governmental
Authority, and no such audit, action, suit, proceeding, claim, examination, deficiency or assessment is currently pending, nor
has the Company or any of its Subsidiaries received any written notice of any threatened audit, action, suit, proceeding, claim,
examination, deficiency or assessment. Neither the Company nor any of its Subsidiaries has waived any statute of limitation with
respect to any Tax or agreed to any extension of time with respect to a Tax assessment or deficiency.
(c) There
are no Liens for Taxes upon any of the Company’s or any of its Subsidiaries’ assets, other than Liens for Taxes not
yet due and payable or for Taxes that are being contested in good faith through appropriate proceedings and for which appropriate
reserves have been made in accordance with GAAP.
(d) None
of the Company nor any of its Subsidiaries has any liability for Taxes of another Person (other than the Company or any of its
Subsidiaries) under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law), as transferee or successor,
by contract, or otherwise.
(e) The
Company and its Subsidiaries are not bound by any Tax sharing or Tax allocation agreement or arrangement (other than any such
agreement or arrangement solely between the Company and its Subsidiaries).
(f) During
the two-year period ending on the date hereof, neither the Company nor any of its Subsidiaries was a distributing corporation
or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.
(g) No
claim has ever been made by any Governmental Authority in a jurisdiction where the Company or any of its Subsidiaries does not
file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction. Neither the
Company nor any of its Subsidiaries has a permanent establishment or fixed place of business in any country other than its country
of incorporation.
(h) Except
as disclosed in Section 3.10 of the Company Disclosure Schedule, none of the Company or its Subsidiaries is a party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any “excess
parachute payment” within the meaning of Code Section 280G by reason of the consummation of the transactions contemplated
by this Agreement.
(i) Neither
the Company nor any of its Subsidiaries has any written indemnity obligation for any Taxes imposed under Section 4999 or 409A
of the Code.
SECTION
3.11 Employee Benefits and Labor Matters.
(a) Section
3.11(a) of the Company Disclosure Schedule lists each Company Plan, but excluding any individual award or participation agreements
under any Company Plan (collectively, “Individual Agreements”). None of the Company Plans is subject to Title
IV of ERISA, and neither the Company nor any of its Subsidiaries or Affiliates has or has ever had any potential liability, contingent
or otherwise, under Title IV of ERISA. None of the Company Plans is, and neither the Company nor any of its Subsidiaries or Affiliates
has or has ever had any liability, contingent or otherwise, under or with respect to, a “multiemployer plan” (as defined
in Section 3(37) of ERISA), a plan subject to Section 4063 or 4064 of ERISA, a “multiemployer welfare arrangement”
(as defined in Section 3(40) of ERISA), or a “voluntary employees’ beneficiary association” (as defined in Section
501(c)(9) of the Code. The Company has prior to the date of this Agreement made available to Parent correct and complete copies
of each Company Plan (or, in the case of any such Company Plan that is unwritten, written descriptions thereof) and all amendments
thereto, in each case, other than Individual Agreements that contain terms and conditions identical to those of other Individual
Agreements that have been made available to Parent prior to the date of this Agreement and with respect to each such plan, if
applicable: (i) the most recent annual reports on Form 5500 (including all required schedules), (ii) the most recent summary plan
description or other document that describes the term of the Company Plan and all summaries of material modification and other
updates, (iii) the most recent determination letter from the Internal Revenue Service or other governmental authority, (iv) the
most recent trust agreement and all amendments thereto, (v) the most recent insurance contract and all amendments thereto, and
(vi) any correspondence with any Governmental Authority regarding the Company Plan. Each Company Plan has been maintained, funded,
and administered in accordance with its terms and the applicable provisions of ERISA, the Code and all other applicable Laws,
except for any instances of noncompliance that, individually or in the aggregate, has not had and would not reasonably be expected
to have a Company Material Adverse Effect. No Company Plan is subject to any laws other than the United States or any state, county
or municipality in the United States. All Company Plans that are intended to be tax qualified under Section 401(a) of the Code
(each, a “Company Pension Plan” ) are so qualified, all required amendments to each Company Pension Plan have
been timely adopted, and nothing has occurred that could reasonably be expected to adversely affect the qualification of such
Company Pension Plan (after taking into account commercially reasonable actions to maintain such qualification, such as corrections
of errors, that do not result in a material liability to the Company). All contributions, premiums and benefit payments under
or in connection with the Company Plans that are required to have been made as of the date of this Agreement in accordance with
the terms of the Company Plans have been timely made or will be made by the applicable deadline and have been reflected on the
most recent consolidated balance sheet filed or incorporated by reference into the Company SEC Documents. The Company has prior
to the date of this Agreement made available to Parent correct and complete copies of all currently effective policies, surety
bonds and letters of credit relating to workers compensation. All assets of each Company Plan consist exclusively of cash and
publicly traded securities.
(b) Except
as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), or similar state law under
which the beneficiary pays the entire premium cost or its equivalent, neither the Company nor any of its Subsidiaries or Affiliates
has any obligation, whether under a Company Plan or otherwise, to provide any post-termination health or other welfare benefits
coverage to any Person.
(c) Other
than routine claims for benefits, there are no claims, proceedings, audits, investigations, suits, or other actions pending or,
to the Knowledge of the Company, threatened arising from or related to any Company Plan. There has been no non-exempt “prohibited
transaction” (as defined in Section 406 of ERISA) or Section 4975 of the Code) and there has been no breach of fiduciary
(as determined under ERISA) with respect to any Company Plan that would reasonably be expected to have a Material Adverse Effect.
(d) Except
as set forth in Section 3.11(d) of the Company Disclosure Schedule, neither the execution of this Agreement nor the consummation
of the transactions contemplated by this Agreement (alone or in combination with any other event, such as termination of a Person’s
employment), will (i) increase the amount of benefits otherwise payable under any Company Plan, (ii) result in the acceleration
of the time of payment, exercisability, funding or vesting of any such benefits, or (iii) result in any payment (whether severance
or otherwise) becoming due to, or with respect to, any current or former employee, or director of the Company or its Subsidiaries
or Affiliates. Subject to the assumptions and methods set forth in the worksheets provided to Parent prior to the date of this
Agreement, no payment or series of payments that would constitute an “excess parachute payment” (within the meaning
of Section 280G of the Code) has been made or will be made by the Company, directly or indirectly, to any employee in connection
with the execution of this Agreement or as a result of the consummation of the transactions contemplated hereby (alone or in combination
with any other event).
(e) No
Company Plan is a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code, and no
Individual Award provides for a deferral of compensation under Treasury Regulation Section 1.409A-1(b).
(f) Each
Company Plan may be amended or terminated as of the Closing, or before or after the Closing, without resulting in any material
liability for any additional funding, contributions, penalties, premiums, fees, fines, excise Taxes, or other charges or liabilities,
other than accrued benefits and ordinary administrative expenses typically incurred in a termination event.
(g) (i)
No employees of the Company or its Subsidiaries or Affiliates are covered by a collective bargaining, works council, or similar
agreement, (ii) no employees of the Company or its Subsidiaries or Affiliates are, or within the last three years have been, represented
by a union, works council, or other bargaining agent, and (iii) to the Knowledge of the Company, no employee or union, works council,
organizing efforts are pending with respect to employees of the Company or its Subsidiaries or Affiliates. Within the three years
preceding the date of this Agreement, there has been no strike, work slowdown or other material labor dispute with respect to
employees of the Company or its Subsidiaries or Affiliates, nor to the Knowledge of the Company is any strike, work slowdown or
other material labor dispute pending, and to the Knowledge of the Company, no employee of, or other service provider to, the Company
or any of its Subsidiaries or Affiliates is a party to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality or non-competition agreement, that in any way adversely affects or restricts the performance of such Person’s
duties.
(h) The
Company and its Subsidiaries and Affiliates are in compliance in all material respects with all Laws with respect to labor relations,
employment and employment practices, occupational safety and health standards, terms and conditions of employment, payment of
wages, classification of employees (including the proper classification of independent contractors, dependent contractors and
consultants, and proper classification of exemptions from the overtime requirements of the Fair Labor Standards Act), immigration,
visa, work status, human rights, pay equity, employment equity and workers’ compensation, and are not engaged in any unfair
labor practices in connection with the conduct of the business, except for non-compliance which, individually or in the aggregate,
has not had and would not reasonably be expected to have a Material Adverse Effect. The Company is and at all times has been in
material compliance with all contractual commitments related to employment or other service. Except as set forth in Section 3.11(h)
of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries or Affiliates has since January 1, 2010 engaged
any service provider through a leasing arrangement or similar arrangement with an employment or temp agency, professional employer
organization, or similar organization.
(i) The
Company and each of its Subsidiaries and Affiliates has, or will have no later than the Closing Date, paid all accrued salaries,
bonuses, commissions, benefits, and other compensation due to be paid through the Closing Date.
(j) In
the 90-day period preceding the date of this Agreement, neither the Company nor any of its Subsidiaries or Affiliates has effectuated
(i) a “plant closing” (as defined in the Workers Adjustment and Retraining Notification Act of 1989 (the “WARN
Act”), affecting any site of employment or one or more facilities or operating units within any site of employment or
facility of the Company or its Subsidiaries or Affiliates, or (ii) a “mass layoff” (as defined in the WARN Act) affecting
any site of employment or facility of the Company or any of its Subsidiaries; nor has the Company or any of its Subsidiaries or
Affiliates been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application
of any state, local or foreign law or regulation similar to the WARN Act.
(k) Section
3.11(k) of the Company Disclosure Schedule separately sets forth all of the Company’s employees, including for each such
employee: name, job title, Fair Labor Standards Act designation, work location, current compensation paid or payable, all wage
arrangements, fringe benefits (other than employee benefits applicable to all employees, which benefits are set forth on a separate
list on Section 3.11(a) of the Company Disclosure Schedule), and visa and greencard application status. To the Knowledge of the
Company and except as set forth on Section 3.11(k) of the Company Disclosure Letter, no employee intends to terminate his or her
employment with the Company.
SECTION
3.12 Environmental Matters.
Except
for those matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect, (a) each of the Company and its Subsidiaries is and has for the past three (3) years been in compliance
with all applicable Environmental Laws, (b) there is no Action relating to or arising under Environmental Laws that is pending
or, to the Knowledge of the Company, threatened, in writing, against the Company or any of its Subsidiaries or any real property
leased by the Company or any of its Subsidiaries, (c) neither the Company nor any of its Subsidiaries has received any notice
of or entered into any obligation, liability, order, settlement, judgment, injunction or decree involving uncompleted, outstanding
or unresolved requirements relating to or arising under Environmental Laws and (d) neither the Company nor its Subsidiaries have
handled, generated, treated, stored, disposed, arranged for or permitted the disposal of, released or exposed any person to any
Hazardous Substance or, to the Knowledge of the Company, owned or operated any property or facility (and no such property or facility
is or has been contaminated by any such substance), in a manner that would reasonably be expected to give rise to liability of
the Company or any of its Subsidiaries under Environmental Laws. To the Knowledge of the Company, the Company has made available
to Parent copies of all environmental reports, assessments or other material environmental documents relating to the Company,
its Subsidiaries, their business, or any properties or facilities currently or formerly owned, leased or operated by the Company
or its Subsidiaries that are in the Company’s possession or custody.
SECTION
3.13 Intellectual Property.
(a) For
purposes of this Agreement:
(i) “Company
Intellectual Property” shall mean all Company Owned Intellectual Property Rights and all other Intellectual Property
Rights used in the conduct of the business of the Company or any of its Subsidiaries.
(ii) “Company
Owned Intellectual Property” shall mean all Intellectual Property Rights in which the Company or any of its Subsidiaries
has an ownership interest, which, includes, for the avoidance of doubt, the Company Registered Intellectual Property.
(iii) “Company
Owned Software” shall mean any Software in which the Company or any of its Subsidiaries has an ownership interest.
(iv) “Company
Registered Intellectual Property” shall mean all issued Patents, pending Patent applications, registered Marks, pending
applications for registration of Marks, registered Copyrights, pending applications for registration of Copyrights, and Internet
domain names owned, filed, registered or applied for by the Company or any of its Subsidiaries.
(v) “Intellectual
Property Rights” shall mean all intellectual property and proprietary rights, including the rights arising from or in
respect of the following, whether protected, created or arising under the Laws of the United States or any foreign jurisdiction
or under any international convention: (A) patents, patent applications and any reissues, reexaminations, divisionals, provisionals,
continuations, continuations-in-part, substitutions and extensions of any of the foregoing (collectively, “Patents”);
(B) trademarks, service marks, trade names, brand names, trade dress, logos, corporate names and other source or business identifiers,
together with all goodwill associated with the foregoing (collectively, “Marks”); (C) copyrights and works
of authorship, including all moral rights and droit moral (collectively, “Copyrights”); (D) Internet domain
names; (E) trade secrets and confidential business information (including pricing and cost information, business and marketing
plans and customer and supplier lists) and know-how, in each case excluding any rights in respect of any of the foregoing that
comprise or are protected by Patents (“Trade Secrets”); (F) computer programs, in any form or format including
source and object code, databases and computer files containing data, applications, assemblers, applets, compilers, development
tools, design tools, diagnostics, utilities, user interfaces and any and all software implementations of algorithms, models, methodologies
and all programmer and user documentation, including user manuals and training materials, related to any of the foregoing (collectively
“Software”); (G) data and database rights; and (H) applications, registrations, renewals, reversions and extensions
of any of the foregoing in clauses (A) through (G).
(vi) “Open
Source Software” shall mean any Software that is licensed pursuant to: (A) any license that is, or is substantially
similar to a license approved by the Open Source Initiative and listed at http://www.opensource.org/licenses, which licenses include
all versions of the Apache License, GNU General Public License (GPL), the GNU Lesser General Public License (LGPL), the GNU Affero
GPL, the MIT license, the Eclipse Public License, the Common Public License, the CDDL, the Mozilla Public License (MPL), the Artistic
License, the Netscape Public License, the Sun Community Source License (SCSL), and the Sun Industry Standards License (SISL),
(B) any license under which Software is distributed or licensed as “free software,” “open source software,”
or under similar terms, or (C) any Reciprocal License, in each case whether or not source code is available or included in such
license.
(vii) “Reciprocal
License” shall mean a license of an item of Software that requires or that conditions any rights granted in such license
upon: (A) the disclosure, distribution or licensing of any other Software (other than such item of Software in its unmodified
form), (B) a requirement that any disclosure, distribution or licensing of any other Software (other than such item of Software
in its unmodified form) be at no charge, (C) a requirement that any other licensee of the Software be permitted to modify, make
derivative works of, or reverse-engineer (other than as prohibited under law) any such other Software, or (D) a requirement that
such other Software be redistributable by other licensees.
(viii) “Company
Products” means all products or services produced, marketed, licensed, sold, distributed or performed by or on behalf
of the Company or any of its Subsidiaries.
(b) Section
3.13(b) of the Company Disclosure Schedule sets forth an accurate and complete list of all Company Registered Intellectual Property,
including (i) the name, description or title (as applicable), (ii) nature of right (e.g., Patent, Copyright, Mark or Internet
domain name), (iii) the registration or application date and number (as applicable) and (iv) the jurisdiction in which such item
of Company Registered Intellectual Property has been issued or registered or is pending.
(c) Section
3.13(c) of the Company Disclosure Schedule sets forth an accurate and complete list of the application names of computer programs
included in (i) all Company Owned Software and (ii) Software that the Company or one of its Subsidiaries is granted a license
to use from third parties (excluding commercially available Software that is licensed to the Company or the relevant Subsidiary
for a total license fee or royalty of less than $10,000), in each instance in the foregoing (i) and (ii), that is material to
the conduct of the business of the Company or any of its Subsidiaries.
(d) Section
3.13(d) of the Company Disclosure Schedule sets forth an accurate and complete list, to the Company’s Knowledge, of all
Open Source Software used by the Company or any of its Subsidiaries in any way (including use internally by the Company or any
of its Subsidiaries in development, testing, licensing, offering, or as a backend component of any Company Products), describes
the manner in which such Open Source Software is (or was) being used (the term “use” with respect to Open Source Software
shall include modification and/or distribution by the Company or any of its Subsidiaries), as well as the name and version number
of any applicable Open Source Software license. The Company and its Subsidiaries are in full compliance with the terms and conditions
of all licenses for the Open Source Software used by the Company or any of its Subsidiaries in any way. No Company Owned Intellectual
Property or any portion of any Company Product have become subject to any terms of any Open Source Software license through use,
combination, linking, or compilation with Open Source Software or otherwise.
(e) Except
as set forth on Section 3.13(e) of the Company Disclosure Schedule: (i) the Company or one of its Subsidiaries is the sole and
exclusive owner of, or has a valid and continuing right or license to use, license, sell or otherwise exploit all other Company
Intellectual Property as such Company Intellectual Property is used, licensed, sold and otherwise exploited by the Company or
any of its Subsidiaries in its respective business as currently conducted, and is free and clear of all Liens; and (ii) the Company
Intellectual Property owned by or licensed to the Company and its Subsidiaries includes all Intellectual Property Rights sufficient
to enable each of the Company and its Subsidiaries to operate and conduct their businesses. To the Knowledge of the Company, (A)
all issuances and registrations for any Company Registered Intellectual Property are valid and enforceable; and (B) all necessary
registration, maintenance, renewal and other filing fees, documents and certificates have been paid or filed with the relevant
Governmental Authority for the purpose of obtaining, maintaining or renewing any registrations and applications for registration
included in the Company Registered Intellectual Property.
(f) Neither
the use of the Company Owned Intellectual Property nor the conduct of the businesses of the Company and any of its Subsidiaries
infringes, uses without authorization, misappropriates or otherwise violates, or in the past six (6) years has infringed, used
without authorization, misappropriated or otherwise violated any Intellectual Property Rights of any other Person. Neither the
Company nor any of its Subsidiaries (i) is a party to or the subject of any pending, or to the Knowledge of the Company, threatened,
suit, action, investigation or proceeding which involves a claim against the Company or any of its Subsidiaries of infringement,
unauthorized use, registrability, misappropriation or violation of any Intellectual Property Rights of any other Person or challenging
the ownership, use, validity or enforceability of any material Company Intellectual Property or (ii) has received written notice
of any such threatened claim. None of the Company Owned Intellectual Property, and to the Knowledge of the Company, no other Company
Intellectual Property is subject to any outstanding order, settlement, judgment, injunction or decree that does or would restrict
or impair the use of any Company Intellectual Property by the Company or its Subsidiaries.
(g) (i)
To the Knowledge of the Company, no Person is infringing, violating or misappropriating or using without authorization any material
Company Owned Intellectual Property and (ii) neither the Company nor any of its Subsidiaries has made any written claim of infringement,
unauthorized use, violation or misappropriation of any material Company Owned Intellectual Property.
(h) Each
of the Company and its Subsidiaries has taken commercially reasonable measures to protect and preserve the confidentiality of
all Trade Secrets and other material non-public, confidential and/or proprietary information owned by the Company or any of its
Subsidiaries (and any Trade Secrets and other material non-public confidential and/or proprietary information owned by any other
Person for which the Company or any of its Subsidiaries has written confidentiality obligations to such other Person with respect
thereto) (“Company Confidential Information”). All current and former employees and other Persons with access
or who have had access to any Company Confidential Information have signed a written Contract that includes customary confidentiality
and restriction on use terms sufficient to maintain the confidential status and limit the use thereof.
(i) The
Company and each of its Subsidiaries has entered into and received an executed, valid and enforceable written agreement from each
of its current and former employees and from all other Persons who have contributed to the conception, development, creation,
reduction to practice, improvement to or modification of any Company Product or Intellectual Property Rights used or intended
for use in the conduct of the Company’s business (or any portion thereof) (collectively, the “Developers”),
which agreement assigns to the Company or its applicable Subsidiary, all right, title and interest in and to any and all Intellectual
Property Rights created, conceived, reduced to practice or developed by such employees within the scope of or resulting from his
or her employment or, in the case of a Person other than an employee, from the services such Person performed or performs for
the Company. No Developer has any rights, title or interest in or to any Intellectual Property Rights that are material to, used
in or held for use in the Company’s business (including in any Company Product). Except as set forth on Section 3.13(i)
of the Company Disclosure Schedule, there are no royalties, honoraria, fees or other payments payable by the Company or any of
its Subsidiaries to any Person (other than salaries payable to employees, consultants and independent contractors not contingent
on or related to use of their work product) as a result of the ownership, use, possession, license-in, license-out, sale, marketing,
advertising or disposition of any Company Intellectual Property by the Company or any of its Subsidiaries. The standard forms
of Contract used for the agreements referenced in Section 3.13(h) or this Section 3.13(i) (collectively, “IP
Agreements”) have been made available to Parent and no agreement referenced in this Section 3.13(i) includes
any material exceptions or deviations from the standard form of IP Agreement or any reservation or preservation of any rights
by the other party thereto.
(j) Neither
the Company nor any of Subsidiaries has delivered, made available or licensed to any Person any Company Intellectual Property
consisting of source code (except to employees and contractors who need to access such source code to develop, maintain or provide
services with respect to Company Products) and no such source code is subject to any source code escrow, assignment or other contingent
obligation. No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time, or
both) will, or would reasonably be expected to, result in or require the delivery, license, disclosure or release of any source
code included in the Company Intellectual Property or Company Products by or on behalf of the Company or any of its Subsidiaries.
(k) To
the Knowledge of the Company, no government funding and no facilities of a university, college, or other educational institution
were used in the development of any Company Product or any Company Intellectual Property.
(l) None
of the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, or the performance
by the Company of its obligations hereunder, (i) conflict with, alter or impair, or will conflict with, alter or impair any of
the Company’s or its Subsidiaries’ rights in or to any Intellectual Property Rights or the validity, enforceability,
use, right to use, right to register, ownership, priority, duration, scope or effectiveness of any Company Intellectual Property,
(ii) otherwise trigger any additional payment obligations with respect to any Company Intellectual Property or result in or require
any royalties or fees or payments to a third party with respect to Intellectual Property Rights of the Company or any of its Subsidiaries,
or (iii) will result in or require the grant to any Person (other than Parent) of any access or right to any Intellectual Property
Rights of the Company or Parent.
(m) The
Company Products operate and perform in all material respects in accordance with their documentation, applicable contractual commitments,
express and implied warranties, and functional specifications and otherwise as required by the Company and its Subsidiaries in
connection with the conduct of their businesses.
(n) The
Company and each of its Subsidiaries have taken all commercially reasonable steps and have implemented all commercially reasonable
procedures to protect their information technology systems (including software and data) and Company Products from Contaminants.
As used herein, “Contaminants” means all “back doors,” “time bombs,” “Trojan
horses,” “worms,” “drop dead devices,” “viruses” and other software routines and hardware
components that may or may be used to (i) permit unauthorized access to or unauthorized disablement or erasure of any Software,
data or information technology system or (ii) otherwise interrupt, destroy or otherwise materially adversely affect the functionality
or operation of any Company Product. There has not been in the three (3) years prior to the date hereof, any (x) to the Knowledge
of the Company, unauthorized intrusions or breaches of the security of the information technology systems of the Company or any
of its Subsidiaries, (y) material malfunction of such information technology systems that has not been remedied, or (z) any material
unplanned downtime or service interruption with respect to such information technology systems.
(o) Except
as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, neither the
Company nor its Subsidiaries have experienced any security incident resulting in the unauthorized access, use, or disclosure of
Personal Data. All Personal Data collected, stored and processed by Company and its Subsidiaries could be used by Parent and the
Surviving Corporation, consistent with applicable Law, after the Closing in the manner currently used by the Company and its Subsidiaries.
SECTION
3.14 Contracts.
(a) Set
forth in Section 3.14(a) of the Company Disclosure Schedule is a list, as of the date of this Agreement, of (i) each Contract
that would be required to be filed as an exhibit to a Registration Statement on Form S-1 under the Securities Act or an Annual
Report on Form 10-K under the Exchange Act if such registration statement or report was filed by the Company with the SEC on the
date of this Agreement, and (ii) each of the following to which the Company or any of its Subsidiaries is a party or otherwise
bound:
(A) any
Contract that contains a non-competition provision or that otherwise purports to limit, curtail or restrict the ability of the
Company or any of its Subsidiaries (or, after the Effective Time, Parent or any of its Affiliates) to solicit customers, compete
in any geographic area or line of business or restrict the Persons to whom the Company or any of its Subsidiaries may sell products
or deliver services,
(B) any
Contract that grants any third party “most favored nation” status or the exclusive right to deal with the Company
or any of its Subsidiaries,
(C) any
partnership or joint venture agreement,
(D) any
Government Contract,
(E) any
Contract with any director or officer of the Company or any of its Subsidiaries or any Affiliate of the Company (except for Contracts
listed on Section 3.14(a)(J) of the Company Disclosure Schedule),
(F) any
loan or credit agreement, mortgage, indenture, note or other Contract or instrument evidencing Indebtedness of the Company or
any of its Subsidiaries,
(G) any
mortgage, pledge, security agreement, deed of trust or other Contract granting a Lien on any property or assets of the Company
or any of its Subsidiaries,
(H) any
customer or client Contract that involves total consideration of in excess of $50,000 annually,
(I) any
Contract pursuant to which the Company or any of its Subsidiaries (x) is granted a license to use any Company Intellectual Property
from third parties (excluding Contracts pertaining to unmodified, commercially available Software pursuant to a click-wrap, shrink-wrap
or similar agreement and which is licensed to the Company or the relevant Subsidiary that is not material to the functionality
of any currently licensed or supported Company Products) or (y) has granted a license to any Person under any Intellectual Property
(other than nonexclusive object code licenses granted to customers in the ordinary course of business of the Company and its Subsidiaries
consistent with past practice),
(J) any
Contract which is an employment agreement with an executive officer or employee with an annual base salary of $100,000 or more
or which includes a change-in-control provision,
(K) any
Contract which is a collective bargaining agreement or similar agreement with any labor union or association representing employees
of the Company or any of its Subsidiaries,
(L) any
Contract which is a lease, whether as a lessor or lessee, with respect to any real property that involves payments to or from
the Company in excess of $50,000 annually,
(M) any
Contract which is an agreement for any development, marketing, resale, distribution or similar arrangement relating to any Company
Product involving payments to or from the Company in excess of $50,000,
(N) which
is a contract, agreement or arrangement (other than pursuant to Company Charter Documents) providing for indemnification by the
Company of any officer, director or employee of the Company,
(O) any
Contract other than endorsements of checks, which is a contract, agreement or arrangement pursuant to which the Company or any
of its Subsidiaries has any obligations or liabilities as guarantor, surety, co-signer, endorser or co-maker in respect of any
obligation of any Person, or any capital maintenance, keep well or similar agreements or arrangements,
(P) any
Contract which is a contract, agreement or arrangement that prohibits the payment of dividends or distribution in respect of the
capital stock of the Company or any of its Subsidiaries, prohibits the pledging of the capital stock of the Company or any of
its Subsidiaries or prohibits the issuance of guarantees by any of the Company’s Subsidiaries,
(Q) any
Contract which is a contract, agreement or arrangement relating to any acquisition of another business or assets by the Company
or any of its Subsidiaries pursuant to which the Company or any of its Subsidiaries has continuing indemnification, “earn
out” or other contingent payment or guarantee obligations,
(R) any
Contract which is a contract, agreement or arrangement that involves any exchange-traded or over-the-counter swap, forward, future,
option, cap, floor or collar financial contract, or any other interest-rate, commodity price, equity value or foreign currency
protection contract,
(S) any
Contract which contains an agreement by the Company or any of its Subsidiaries to provide any Person with access to the source
code for any material Software owned by the Company or any of its Subsidiaries and embodied in any currently licensed or supported
Company Products or to provide for the source code for any Company Products to be put in escrow, and
(T) any
Contract pursuant to which the Company or any of its Subsidiaries obtains co-location or hosting services in connection with the
hosted Company Products involving payments from the Company or any of its Subsidiaries.
The
Contracts and other documents required to be listed on Section 3.13(i) and Section 3.14(a) of the Company Disclosure Schedule
are referred to herein as “Company Material Contracts”. The Company has prior to the date of this Agreement
made available to Parent correct and complete copies of each Company Material Contract in existence as of the date of this Agreement,
together with any and all amendments and supplements thereto.
(b) Except
as set forth in Section 3.14(b)(1) of the Company Disclosure Schedule: (i) each Company Material Contract is valid, binding and
in full force and effect and is enforceable in accordance with its terms by the Company and its Subsidiaries party thereto, subject
to the Bankruptcy and Equity Exception; (ii) neither the Company nor any of its Subsidiaries is in default under any Company Material
Contract, nor does any condition exist that, with notice or lapse of time or both, would constitute a default thereunder by the
Company and its Subsidiaries party thereto; (iii) to the Knowledge of the Company, no other party to any Company Material Contract
is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default by
any such other party thereunder; and (iv) neither the Company nor any of its Subsidiaries has received any notice of termination
or cancellation under any Company Material Contract, received any written notice of breach or default under any Company Material
Contract which breach or default has not been cured. Except as set forth in Section 3.14(b)(2) of the Company Disclosure
Schedule, no approval, consent or waiver of or notice to any Person is needed in order that any Company Material Contract continue
in full force and effect following the consummation of the Transactions.
SECTION
3.15 Properties.
(a) Each
of the Company and its Subsidiaries (i) owns and has good and valid title (or such lesser interest that is the maximum permitted
by applicable Law) to all of their respective properties and other assets free and clear of all Liens except (A) statutory liens
securing payments not yet due, and (B) such other imperfections or irregularities of title or other Liens that would not reasonably
be expected to materially affect the use of the properties or assets subject thereto or otherwise impair in any material respect
business operations as presently conducted, and (ii) is the lessee or sublessee of all of their respective leasehold estates and
leasehold interests. Each of the Company and its Subsidiaries enjoys peaceful and undisturbed possession under all such leases
in all material respects.
(b) Neither
the Company nor any of its Subsidiaries owns any real property.
(c) Section
3.15(c) of the Company Disclosure Schedule sets forth any Contract pursuant to which the Company leases, licenses or otherwise
obtains the right to use any real property (the “Real Property Leases”). The Company has delivered to Parent
a true and complete copy of each such Real Property Lease.
(d) Except
as set forth in the Company Disclosure Schedule, with respect to each Lease: (i) such Real Property Lease is legal, valid, binding,
enforceable and in full force and effect; (ii) none of the execution and delivery of this Agreement by the Company, the consummation
by the Company of the Transactions, or the compliance by the Company with any of the terms and provisions hereof, will require
the consent of any other party to such Real Property Lease, will result in a breach of or default under such Real Property Lease,
or otherwise cause such Real Property Lease to cease to be legal, valid, binding, enforceable and in full force and effect on
identical terms following the Closing; (iii) the Company’s or any of its Subsidiaries’ possession and quiet enjoyment
of the real property used by it under the Real Property leases has not been disturbed, and to the Company’s Knowledge, there
are no disputes with respect to such Real Property Leases; (iv) neither the Company nor any of its Subsidiaries owes, or will
owe in the future, any brokerage commissions or finder’s fees with respect to such Real Property Leases; (v) the other party
to such Real Property Lease is not an affiliate of, and to the knowledge of the Company otherwise does not have any economic interest
in the Company or any of its Subsidiaries; (vi) the Company or any of its Subsidiaries has not subleased, licensed or otherwise
granted any person the right to use such real property or any portion thereof; (vii) the Company or any of its Subsidiaries has
not collaterally assigned or granted any other security interest in such Real Property Lease or any interest therein; and (viii)
there are no Liens or encumbrances on the estate or interest created by such Lease.
SECTION
3.16 Customers and Suppliers. Section 3.16 of the Company Disclosure Schedule sets forth the twenty (20) largest customers
and any supplier of the Company which has provided products or services to the Company valued at more than $50,000 in the aggregate
in the past twelve months (which includes, without limitation, developers of content and resellers of content) of the Company
and its Subsidiaries for the year ended December 31, 2014. As of the date of this Agreement, neither the Company nor any of its
Subsidiaries has received notification (whether written or oral) that any such customer or supplier intends to terminate or adversely
change its relationship with the Company or any of its Subsidiaries
SECTION
3.17 Insurance. The Company has provided Parent with a summary of all material insurance policies held by the Company
and its Subsidiaries. The Company and its Subsidiaries maintain, and have maintained without interruption, policies or binders
of insurance covering risks and events and in amounts adequate for their respective businesses and operations and customary in
the industry in which they operate and, to the Company’s Knowledge, such insurance coverage is in full force and effect
as of the date hereof. As of the date hereof, none of the limits for any such policy have been exhausted or materially reduced.
There is no claim by the Company or any of its Subsidiaries pending under any of such policies as to which the Company has been
notified that coverage has been denied or disputed by the underwriters of such policies. All premiums due and payable under all
such insurance policies have been paid when due and the Company and its Subsidiaries are otherwise in compliance with the terms
of all such insurance policies. The aggregate annual premiums that the Company is paying with respect to the Company’s directors
and officers insurance policy for the current policy period that includes the date of this Agreement is set forth in Section 3.17
of the Company Disclosure Schedule.
SECTION
3.18 Unlawful Payments; Export Controls. Since January 1, 2011, neither the Company nor any of its Subsidiaries nor,
any officer, director, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, directly
or indirectly: (a) used any funds of the Company or any of its Subsidiaries for unlawful contributions, unlawful gifts, unlawful
entertainment or other unlawful expenses relating to any Governmental Authority, or employee thereof, political party or candidate
for political office; (b) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or
domestic political parties or campaigns from funds of the Company or any of its Subsidiaries; (c) violated any provision of the
Foreign Corrupt Practices Act of 1977, or any similar Law; (d) established or maintained any unlawful fund of monies or other
assets of the Company or any of its Subsidiaries; (e) made any fraudulent entry on the books or records of the Company or any
of its Subsidiaries; or (f) made any unlawful bribe, unlawful rebate, unlawful payoff, unlawful influence payment, unlawful kickback
or other unlawful payment to any Person, private or public, regardless of form, whether in money, property or services, to obtain
favorable treatment in securing business, to obtain special concessions for the Company or any of its Subsidiaries, to pay for
favorable treatment for business secured or to pay for special concessions already obtained for the Company or any of its Subsidiaries.
The Company, its Subsidiaries, and their agents have not made any payment, transfer of funds, or otherwise used corporate funds
in a manner that violates applicable anti-money laundering Laws, including the U.S. Bank Secrecy Act and Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. The Company and
its Subsidiaries are in compliance with all applicable Customs & International Trade Laws, and at no time in the last five
years have the Company or its Subsidiaries, or, to the Knowledge of the Company, any director, officer, agent, employee, Affiliate,
or Person acting on their behalf committed any violation of Customs & International Trade Laws. There are no unresolved investigations
or claims concerning any liability of the Company and its Subsidiaries with respect to any such Laws.
SECTION
3.19 Opinion of Financial Advisor. The board of directors of the Company has received the opinion of Berkery Noyes &
Co., LLC dated the date of this Agreement, to the effect that, as of such date, and subject to the various assumptions and qualifications
set forth therein, the Merger Consideration is fair from a financial point of view, to holders of Company Common Stock (the “Fairness
Opinion”). A signed correct and complete copy of the Fairness Opinion has been delivered to Parent prior to or concurrently
with the execution and delivery of this Agreement.
SECTION
3.20 Brokers and Other Advisors. Except for Berkery Noyes & Co., LLC the fees and expenses of which will be paid
by the Company, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s,
financial advisor’s or other similar fee or commission, or the reimbursement of expenses, in connection with the Transactions
based upon arrangements made by or on behalf of the Company or any of its Subsidiaries.
SECTION
3.21 Takeover Statutes. The board of directors of the Company has taken all necessary action to ensure that the restrictions
on business combinations contained in Section 203 of the DGCL will not apply to this Agreement, the Merger or the other transactions
expressly contemplated by this Agreement, including by approving this Agreement, the Merger and the other transactions contemplated
by this Agreement. To the Knowledge of the Company, no other so-called “fair price,” “moratorium,” “control
share acquisition” or other state anti-takeover Laws apply or purport to apply to this Agreement, the Merger or any of the
other transactions expressly contemplated by this Agreement.
SECTION
3.22 Affiliate and Related Party Transactions. No Person covered by Item 404 of Regulation S-K has entered into any
transactions with the Company or any of its Subsidiaries that were required to be disclosed by Item 404 of Regulation S-K but
were not so disclosed in the Company SEC Documents. Other than such contracts, arrangements or shared interests between the Company
and its Subsidiaries disclosed in Section 3.14(a)(ii)(E) of the Company Disclosure Schedule or disclosed pursuant to Item 404
of Regulation S-K in the Company SEC Documents, except for the ownership of less than 3% of the outstanding equity interests of
any publicly traded entity, no director or executive officer holds, directly or indirectly: (a) any interest in any entity that
purchases from or sells or furnishes to the Company or its Subsidiaries any goods or services involving an amount in excess of
$25,000 annually; (b) a beneficial interest in any Company Material Contract; or (c) any interest in Intellectual Property used
in the conduct of business of the Company or its Subsidiaries.
SECTION
3.23 Government Contracts. With such exceptions as, individually or in the aggregate, have not had and are not reasonably
likely to have a Company Material Adverse Effect, (a) the Company and its Subsidiaries have complied with the terms and conditions
of each Government Contract and each Government Bid, including all clauses, provisions and requirements incorporated expressly
by reference or by operation of Law therein; (b) all representations and certifications of the Company or any of its Subsidiaries
executed, acknowledged or set forth in or pertaining to a Government Contract or Government Bid were current, accurate and complete
as of the dates they were made (or deemed made), and the Company or any of its Subsidiaries, as applicable, has complied with
all such representations and certifications; and (c) neither the Company nor any of its Subsidiaries has been suspended or debarred,
or proposed for debarment or suspension from government contracting.
SECTION
3.24 No Other Representations or Warranties. Except for the representations and warranties made by the Company in this
Article III, neither the Company nor any other Person makes any representation or warranty with respect to the Company
or its Subsidiaries or their respective business, operations, assets, liabilities, condition (financial or otherwise) or prospects,
notwithstanding the delivery or disclosure to Parent or any of its Affiliates or Representatives of any documentation, projections,
forecasts, estimates, budgets, prospect information or other information with respect to any one or more of the foregoing.
Article
IV
Representations
and Warranties of Parent and Merger Sub
Parent
and Merger Sub jointly and severally represent and warrant to the Company:
SECTION
4.1 Organization; Standing. Parent is a limited liability company duly organized, validly existing and in good standing
under the Laws of the State of Illinois, and Merger Sub is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware.
SECTION
4.2 Authority; Noncontravention.
(a) Each
of Parent and Merger Sub has all necessary corporate or limited liability company power and authority to execute and deliver this
Agreement, to perform their respective obligations hereunder and to consummate the Transactions. The execution, delivery and performance
by Parent and Merger Sub of this Agreement, and the consummation by Parent and Merger Sub of the Transactions, have been duly
authorized and approved by their respective boards of directors, manager(s) or member(s), as applicable, and no other corporate
or limited liability company action on the part of Parent and Merger Sub is necessary to authorize the execution, delivery and
performance by Parent and Merger Sub of this Agreement and the consummation by them of the Transactions. This Agreement has been
duly executed and delivered by Parent and Merger Sub and, assuming due authorization, execution and delivery hereof by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger Sub, enforceable against each of them in accordance
with its terms, subject to the Bankruptcy and Equity Exception.
(b) Neither
the execution and delivery of this Agreement by Parent and Merger Sub, nor the consummation by Parent or Merger Sub of the Transactions,
nor performance or compliance by Parent or Merger Sub with any of the terms or provisions hereof, will (with or without the giving
of notice, the lapse of time, or both) (i) conflict with or violate any provision of the certificate of incorporation, articles
of organization, bylaws or operating agreement of Parent or Merger Sub, as applicable, or (ii) (x) conflict with or violate any
Law, judgment, writ or injunction of any Governmental Authority applicable to Parent or Merger Sub or to which any of their assets
are subject, or (y) violate or constitute a default under or result in or permit the modification, revocation, cancellation, termination
or acceleration of rights under, any of the terms, conditions or provisions of any Contract to which Parent, Merger Sub or any
of their respective Subsidiaries is a party or by which any of their assets are bound, except, in the case of clause (ii)(y),
for such violations or defaults as, individually or in the aggregate, would not reasonably be expected to impair in any material
respect the ability of Parent or Merger Sub to perform its obligations hereunder or prevent or materially delay consummation of
the Transactions.
SECTION
4.3 Governmental Approvals. Except for filings required under, and compliance with other applicable requirements of,
the Exchange Act and the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to
the DGCL, no consents or approvals of, or filings, licenses, permits or authorizations, declarations or registrations with, any
Governmental Authority are necessary for the execution, delivery and performance of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the Transactions, other than such other consents, approvals, filings, licenses, permits
or authorizations, declarations or registrations that, if not obtained, made or given, individually or in the aggregate, would
not reasonably be expected to impair in any material respect the ability of Parent or Merger Sub to perform its obligations hereunder
or prevent or materially delay consummation of the Transactions.
SECTION
4.4 Information Supplied. Subject to the accuracy of the representations and warranties of the Company set forth in
Section 3.9, the information supplied, or to be supplied after the date hereof, by Parent expressly for inclusion (or incorporation
by reference) in the Proxy Statement, as may be amended and supplemented from time to time, will not, on the date it is first
mailed to stockholders of the Company and at the time of the Company Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
SECTION
4.5 Ownership and Operations of Merger Sub. Parent owns beneficially and of record all of the outstanding capital stock
of Merger Sub. Merger Sub was formed solely for the purpose of engaging in the Transactions, has engaged in no other business.
SECTION
4.6 Financing. Parent has sufficient cash, available lines of credit or other sources of readily available funds to
enable it to pay all amounts required to be paid as Merger Consideration in the Merger.
SECTION
4.7 Certain Arrangements. Except for the Support Agreements, there are no Contracts between Parent, or Merger Sub on
the one hand, and any member of the Company’s management or directors, on the other hand, as of the date of this Agreement
that relate in any way to the Company or the Transactions.
SECTION
4.8 Legal Proceedings. There is no pending or, to the knowledge of Parent, threatened, Action against Parent or Merger
Sub, nor is there any injunction, order, judgment, ruling or decree imposed (or, to the knowledge of Parent, threatened, in writing,
to be imposed) upon Parent or Merger Sub, in each case, by or before any Governmental Authority, that would reasonably be expected
to prevent, materially delay or materially impede the ability of Parent and Merger Sub to consummate the Transactions.
SECTION
4.9 Brokers and Other Advisors. No broker, investment banker, financial advisor or other Person is entitled to any broker’s,
finder’s, financial advisor’s or other similar fee or commission in connection with the Transactions based upon arrangements
made by or on behalf of Parent or any of its Subsidiaries except for Persons whose fees and expenses will be paid by Parent or
its Affiliates as of the date of this Agreement.
SECTION
4.10 No Other Representations or Warranties. Except for the representations and warranties made by Parent and Merger
Sub in this Article IV, neither Parent nor Merger Sub nor any other Person makes any representation or warranty with respect
to Parent or Merger Sub or their respective business, operations, assets, liabilities, condition (financial or otherwise) or prospects.
Article
V
Additional
Covenants and Agreements
SECTION
5.1 Preparation of the Proxy Statement; Stockholders Meeting.
(a) As
soon as practicable following the date of this Agreement (but in any event within fifteen (15) calendar days after the date of
this Agreement), (i) the Company shall prepare the Proxy Statement, (ii) Parent shall promptly provide to the Company any information
required for inclusion in the Proxy Statement and shall promptly provide such other information or assistance in the preparation
thereof as may be reasonably requested by the Company, and (iii) the Company shall file the Proxy Statement with the SEC. The
Company shall thereafter (A) respond to any comments on the Proxy Statement or requests for additional information from the SEC
as soon as practicable after receipt of any such comments or requests and (B) cause the Proxy Statement to be mailed to the stockholders
of the Company as promptly as practicable after the Proxy Statement is cleared by the SEC (the “SEC Clearance Date”);
provided, that if the SEC has failed to affirmatively notify the Company within ten (10) calendar days after the filing of the
Proxy Statement with the SEC that it will not review the Proxy Statement, then the Company shall use its commercially reasonable
efforts to obtain confirmation from the SEC that it will not comment on, or that it has no additional comments on, the Proxy Statement
and the date on which the Company receives such confirmation shall be the “SEC Clearance Date.” The Company shall
promptly (but in any event within two (2) Business Days) notify Parent upon the receipt of any such comments or requests or any
request from the SEC or its staff for amendments or supplements to the Proxy Statement and shall provide Parent with copies of
all correspondence between the Company and its representatives, on the one hand, and the SEC and its staff, on the other hand.
In the event that the Company receives any comments from the SEC or its staff or any request from the SEC or its staff for amendments
or supplements to the Proxy Statement, Parent shall promptly provide to the Company, upon receipt of notice from the Company,
any information required for inclusion in the response of the Company to such comments or such request and shall promptly provide
such other information or assistance in the preparation thereof as may be reasonably requested by the Company. Notwithstanding
the foregoing, prior to filing or mailing the Proxy Statement (or any amendment or supplement thereto) or responding to any comments
of the SEC with respect thereto, the Company shall (x) provide Parent with a reasonable opportunity to review and comment on any
drafts of the Proxy Statement and related correspondence and filings and (y) reasonably consider all comments proposed by Parent
for inclusion in such drafts, correspondence and filings. If at any time prior to the Effective Time any fact or information relating
to the Company shall be discovered by the Company which should be set forth in an amendment of or a supplement to the Proxy Statement,
so that the Proxy Statement would not include any misstatement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they were made, not misleading, the Company shall, in
accordance with the procedures set forth in this Section 5.1(a), prepare and file with the SEC such amendment or supplement
as soon thereafter as is reasonably practicable and to the extent required by applicable Law, cause such amendment or supplement
to be distributed to the stockholders of the Company.
(b) The
Company shall, as soon as practicable following the SEC Clearance Date, establish a record date for, duly call, give notice of,
convene and hold a meeting of its stockholders (the “Company Stockholders Meeting”) for the purpose of obtaining
the Company Stockholder Approval. The Company shall, through its board of directors, recommend to its stockholders adoption of
this Agreement. The Proxy Statement shall, in addition to such recommendation, include disclosure of the unanimous: (x) determination
by the Company’s board of directors that it is advisable and in the best interests of the Company and its stockholders to
enter into this Agreement, (y) approval by the Company’s board of directors of the execution, delivery and performance by
the Company of this Agreement and the consummation of the Transactions, including the Merger, and (z) resolution by the Company’s
board of directors to recommend adoption of this Agreement by the stockholders of the Company. Notwithstanding the foregoing,
(i) the Company shall have no obligation to do any of the foregoing if there shall have been a Company Adverse Recommendation
Change, and (ii) the Company may adjourn or postpone the Company Stockholders Meeting to the extent necessary to ensure that any
required supplement or amendment to the Proxy Statement is provided to the Company’s stockholders or, if as of the time
for which the Company Stockholders Meeting is originally scheduled (as set forth in the Proxy Statement) there are insufficient
shares of Company Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct business
at such meeting; provided that no adjournment may be to a date on or after five (5) Business Days prior to the Walk-Away
Date. If requested by Parent, the Company shall retain a proxy solicitor reasonably acceptable to, and on terms reasonably acceptable
to, Parent in connection with obtaining the Company Stockholder Approval.
SECTION
5.2 Conduct of Business. Except as contemplated or permitted by this Agreement or as required by applicable Law or as
contemplated by Section 5.2 of the Company Disclosure Schedule, during the period from the date of this Agreement until the Effective
Time, unless Parent otherwise consents (which consent shall not be unreasonably withheld or delayed), the Company shall, and shall
cause each of its Subsidiaries to, (x) conduct its business in all material respects in the ordinary course of business consistent
with past practice, (y) comply in all material respects with all applicable Laws and the requirements of all Company Material
Contracts, and (z) use commercially reasonable efforts to maintain and preserve intact its business organization and the goodwill
of those having business relationships with it and retain the services of its present officers and key employees, in each case,
to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, except as contemplated by Section 5.2 of the Company Disclosure Schedule, during the period from the date of this
Agreement until the Effective Time, the Company shall not, and shall not permit any of its Subsidiaries to:
(a) (i)
issue, sell or grant any shares of its capital stock, or any securities or rights convertible into, exchangeable or exercisable
for, or evidencing the right to subscribe for any shares of its capital stock, or any rights, warrants or options to purchase
any shares of its capital stock, or any securities or rights convertible into, exchangeable or exercisable for, or evidencing
the right to subscribe for, any shares of its capital stock, provided that the Company may issue shares of Company Common
Stock upon the exercise of Options that are outstanding on the date of this Agreement; (ii) redeem, purchase or otherwise acquire
any of its outstanding shares of capital stock, or any rights, warrants or options to acquire any shares of its capital stock,
except in connection with withholding to satisfy tax obligations with respect to Options, or acquisitions in connection with the
net exercise of Options; (iii) declare, set aside for payment or pay any dividend on, or make any other distribution in respect
of, any shares of its capital stock or otherwise make any payments to its stockholders in their capacity as such; or (iv) split,
combine, subdivide or reclassify any shares of its capital stock;
(b) incur
or assume any Indebtedness in excess of $25,000;
(c) sell,
transfer, lease, mortgage, encumber or otherwise dispose of any of their respective properties or assets that are individually
or in the aggregate material to the Company and its Subsidiaries taken as a whole, except (i) sales, leases, rentals and licenses
in the ordinary course of business consistent with past practice, (ii) pursuant to Contracts in force on the date of this Agreement
and disclosed in Section 3.14(a) of the Company Disclosure Schedule, (iii) dispositions of obsolete or worthless assets or (iv)
transfers among the Company and its Subsidiaries;
(d) make
capital expenditures in excess of $25,000 or outside of the Company’s ordinary course of business and consistent with past
practice;
(e)
make any investment (by contribution to capital, property transfers, purchase of securities or otherwise) in, or loan or advance
(other than travel and similar advances to its employees and extension of credit to customers, in each case in the ordinary course
of business and consistent with past practice) to, any Person other than a direct or indirect wholly owned Subsidiary of the Company
in the ordinary course of business consistent with past practice;
(f)
increase the compensation, benefits (including severance and other contingent benefits), or bonus opportunity of, or provide for
any acceleration of vesting or pay or award any bonus to any of its current or former directors, officers, or employees, except
that compensation of individual employees may be increased on their employment anniversary date in the ordinary course of business
consistent with past practices by, in each case, an amount not to exceed 3% of the applicable employee’s compensation;
(g)
enter into or amend any employment agreement that is not terminable at will by the Company, without any obligation to make any
severance or other post-termination payments thereunder;
(h)
except as required by applicable Law, make or change any material election concerning Taxes or Tax Returns, file any amended Tax
Return, enter into any closing agreement with respect to Taxes, settle any material Tax claim or assessment or surrender any right
to claim a material refund of Taxes or obtain any Tax ruling;
(i)
make any changes in financial accounting methods, principles or practices (or change an annual accounting period) or cash management
and treasury policies or practices, except insofar as may be required by a change in GAAP or applicable Law;
(j)
amend the Company Charter Documents or the Subsidiary Documents;
(k)
adopt a plan or agreement of complete or partial liquidation dissolution, restructuring, recapitalization, merger, consolidation
or other reorganization (other than transactions exclusively between wholly owned Subsidiaries of the Company);
(l)
amend, modify, extend, renew or terminate any Real Estate Lease or enter into any new lease, sublease, license or other agreement
for the use or occupancy of any real property;
(m)
acquire (including by merger, consolidation, acquisition of stock or assets or otherwise) or purchase, directly or indirectly,
any business, division or assets of any Person;
(n)
enter into any collective bargaining agreement or enter into any substantive negotiations with respect to any collective bargaining
agreement, except as required by Law;
(o)
(i) pay, discharge, settle, or satisfy any material claims against the Company or any of its Subsidiaries (including claims of
stockholders relating to this Agreement or the Transactions), liabilities or obligations (whether absolute, accrued, contingent,
or otherwise), other than (x) the payment, discharge, settlement, or satisfaction of such claim, liability or obligation in the
ordinary course of business consistent with past practice; or (y) the payment, discharge, settlement, or satisfaction of claims,
liabilities or obligations that involve only the payment of monetary damages, without the imposition of equitable relief on, or
the admission of wrongdoing by, the Company or any of its Subsidiaries; or (ii) waive, release, grant, or transfer any right of
material value, other than in the ordinary course of business consistent with past practice or, subject to the terms hereof, fail
to enforce, or consent to any material matter with respect to which its consent is required under, any material confidentiality,
standstill or similar agreement to which the Company or any of its Subsidiaries is a party;
(p)
enter into any agreement, understanding, or commitment that restrains, limits or impedes the Company’s or any of its Subsidiaries’
ability to compete with or conduct any business or line of business, including geographic limitations on the Company’s or
any of its Subsidiaries’ activities;
(q)
modify, amend, or terminate any Company Material Contract or enter into any contract that would be a Company Material Contract
if entered into prior to the date hereof, or waive or assign any of its rights or claims under a Company Material Contract or
contract that would be a Company Material Contract if entered into prior to the date hereof, in each case except in the ordinary
course of business consistent with past practice;
(r)
communicate with employees of the Company or any of its Subsidiaries regarding the compensation, benefits or other treatment that
they will receive in connection with the Merger, unless any such communications are consistent with prior directives or documentation
provided to the Company by Parent (in which case, the Company shall provide Parent with prior notice of and the opportunity to
review and comment upon any such communications);
(s)
take any action which would result in any of the conditions to the Merger set forth in Article VI not being satisfied or that
would reasonably be expected to prevent, delay or impair the ability of the Company to consummate the Merger;
(t)
license, disclose or otherwise provide to any Person, or grant a contingent right to any Person to be licensed, disclosed or provided,
the source code or related source materials for any material Software owned by the Company or any of its Subsidiaries other than
where such Person is an employee or independent contractor of the Company or one of its Subsidiaries and pursuant to a signed
written agreement containing non-use, non-disclosure and return/destruction obligations for the benefit of the Company or any
of its Subsidiaries with respect to such source code or related source materials; or
(u)
agree, in writing or otherwise, to take any of the foregoing actions.
SECTION
5.3 No Solicitation; Potential Change in Recommendation.
(a)
Except as permitted by this Section 5.3, until the earlier of (x) the Closing Date or (y) the date of termination of this
Agreement pursuant to Section 7.1 hereof, the Company shall and shall cause each of its Subsidiaries and their respective
officers, directors, employees, investment bankers, attorneys, accountants and other consultants, advisors, Affiliates and other
representatives (collectively, “Representatives”) to (i) immediately cease any solicitation, discussions or
negotiations with any Persons that may be ongoing with respect to a Takeover Proposal (as defined herein), and (ii) and deliver
a written notice to each such Person to the effect that the Company is ending all discussions and negotiations with such Person
with respect to any Takeover Proposal and such notice shall also request each such Person to promptly return or destroy all confidential
information concerning the Company and its Subsidiaries. Except as permitted by this Section 5.3, the Company shall not,
and shall cause each of its Subsidiaries and Representatives not to, until the Effective Time or, if earlier, the termination
of this Agreement in accordance with Article VII, directly or indirectly, (A) solicit, initiate or take any action that
it reasonably knows or should know would facilitate (including by way of furnishing non-public information or providing consent
or authorization to make a Takeover Proposal) any inquiries regarding, or the making of any proposal or offer that constitutes,
or could reasonably be expected to lead to, a Takeover Proposal, (B) enter into, engage in, continue or otherwise participate
in any discussions or negotiations regarding, or furnish to any other party information relating to the Company or any of its
Subsidiaries or afford access to the business, properties, assets, books or records of the Company or any of its Subsidiaries,
or otherwise cooperate in any way with, or knowingly assist, participate in, or facilitate any effort by any Third Party that
is seeking to make, or has made, a Takeover Proposal in connection with or for the purpose of facilitating, a Takeover Proposal,
(C) approve, endorse or recommend any Takeover Proposal, (D) enter into any letter of intent, agreement or agreement in principle,
term sheet or other Contract with respect to a Takeover Proposal, (E) fail to make, or withdraw or modify in a manner adverse
to Parent, or publicly propose to withdraw or modify in a manner adverse to Parent, the Company Board Recommendation (it being
understood that taking a neutral position or no position with respect to any Takeover Proposal, other than a statement contemplated
by Rule 14d-9(f) under the Exchange Act during the initial period of ten Business Days following the commencement of the Takeover
Proposal, shall be considered to be a modification of the Company Board Recommendation in a manner adverse to Parent), or take
any action or make any statement inconsistent with the Company Board Recommendation (any of the foregoing in this clause (E),
an “Adverse Recommendation Change”), (F) grant any waiver or release under any standstill or similar agreement
with respect to any class of equity securities of the Company or any of its Subsidiaries, or (G) propose to do any of the foregoing.
(b)
Notwithstanding anything to the contrary contained herein, if at any time prior to obtaining the Company Stockholder Approval,
the Company or any of its Representatives receives a bona fide written unsolicited Takeover Proposal from any Person, which
Takeover Proposal was made or renewed on or after the date hereof and that did not result from any breach of this Section 5.3,
if the board of directors of the Company determines in good faith, after consultation with independent financial advisors and
outside legal counsel, that (i) failure to take such action would violate the directors’ fiduciary duties to the Company’s
stockholders under applicable Law and (ii) such Takeover Proposal constitutes or is reasonably likely to result in a Superior
Proposal, then the Company and its Representatives may (x) furnish, pursuant to an Acceptable Confidentiality Agreement, information
(including non-public information) with respect to the Company and its Subsidiaries to the Person or group of Persons who has
made such Takeover Proposal; provided that the Company shall provide to Parent any material non-public information provided
orally and any non-public information provided in writing, in each case, concerning the Company or its Subsidiaries that is provided
to any Person given such access which was not previously provided to Parent or its Representatives prior to or at the same time
as such information is provided to such other Person; and (y) engage in or otherwise participate in discussions or negotiations
with the Person or group of Persons making such Takeover Proposal; provided, further that the Company shall promptly
provide to Parent (and in any event within twenty-four (24) hours) the identity of the Person making the Takeover Proposal and
the material terms and conditions of such Takeover Proposal. From and after the date of this Agreement, the Company shall not
grant any waiver, amendment or release under any standstill agreement without the prior written consent of Parent. For the purposes
of this Agreement, “Acceptable Confidentiality Agreement” means any confidentiality agreement that contains
provisions that are no less favorable to the Company than those contained in the Confidentiality Agreement; provided that such
agreement shall not prohibit the Company from complying with the terms of this Agreement. In making the determination whether
a Takeover Proposal constitutes or is reasonably likely to result in a Superior Proposal, the board of directors of the Company
shall take into consideration, among other factors: (1) whether such Party is reasonably likely to have adequate sources of financing
or adequate funds to consummate such Takeover Proposal and (2) whether approval of such Party’s stockholders is required
as a condition to its obligation to consummate such Takeover Proposal. The Company shall require any Person submitting an unsolicited
Takeover Proposal to provide a definitive agreement that marks any proposed changes to the terms of this Agreement. The Company
shall keep Parent reasonably informed of the status of any Takeover Proposal.
(c)
Except as expressly permitted by this Section 5.3(c), the board of directors of the Company shall not (i)(A) fail to make
the Company Board Recommendation or fail to include the Company Board Recommendation in the Proxy Statement, (B) change, qualify,
withhold, withdraw or modify, or publicly propose to change, qualify, withhold, withdraw or modify, in a manner adverse to Parent,
the Company Board Recommendation, (C) take any formal action or make any recommendation or public statement in connection with
a tender offer or exchange offer other than a recommendation against such offer or a temporary “stop, look and listen”
communication by the board of directors of the Company pursuant to Rule 14d-9(f) of the Exchange Act, (D) adopt, approve or recommend,
or publicly propose to approve or recommend to the stockholders of the Company a Takeover Proposal, (E) fail to publicly reaffirm
the Company Board Recommendation within three (3) Business Days after Parent so requests or (F) fail to recommend against any
Takeover Proposal subject to Regulation 14D under the Exchange Act in a Tender Offer Solicitation/Recommendation Statement on
Schedule 14D-9 within ten (10) Business Days after the commencement of such Takeover Proposal (actions described in this clause
(i) being referred to as a “Company Adverse Recommendation Change”), (ii) subject to the compliance by the
Company with Section 7.1(d)(ii), authorize, cause or permit the Company or any of its Subsidiaries to enter into any letter
of intent, agreement or agreement in principle or other Contract with respect to any Takeover Proposal (other than an Acceptable
Confidentiality Agreement) (each, a “Company Acquisition Agreement”) or (iii) take any action pursuant to Section
7.1(d)(ii). Notwithstanding anything to the contrary herein, prior to the time the Company Stockholder Approval is obtained,
but not after, the board of directors of the Company may make a Company Adverse Recommendation Change or enter into a Company
Acquisition Agreement with respect to a Takeover Proposal, if and only if, prior to taking such action, the board of directors
of the Company has determined in good faith, after consultation with independent financial advisors and outside legal counsel,
(i) that failure to take such action would violate the directors’ fiduciary duties to the Company’s stockholders under
applicable Law and (ii) that such Takeover Proposal constitutes a Superior Proposal; provided, however, that (w)
the Company has given Parent at least five (5) Business Days’ prior written notice of its intention to take such action
(which notice shall specify the material terms and conditions of any such Superior Proposal (including the identity of the party
making such Superior Proposal) and has contemporaneously provided a copy of the relevant proposed transaction agreements with
the party making such Proposal), (x) the Company has negotiated, and has caused its Representatives to negotiate, in good faith
with Parent during such notice period to the extent Parent wishes to negotiate, to enable Parent to revise the terms of this Agreement
such that it would cause such Superior Proposal to no longer constitute a Superior Proposal, (y) following the end of such notice
period, the board of directors of the Company shall have considered in good faith any changes to this Agreement proposed in writing
by Parent, and shall have determined that the Superior Proposal would continue to constitute a Superior Proposal if such revisions
were to be given effect, and (z) in the event of any change to the terms of such Superior Proposal (other than changes that are,
individually and in the aggregate, inconsequential), the Company shall, in each case, have delivered to Parent an additional notice
and the five (5) Business Days’ notice period shall have recommenced unless the event requiring notice pursuant to clause
(z) of this Section 5.3(c) occurred less than five (5) Business Day’s prior to the Company Stockholders Meeting,
in which case the Company shall deliver notice to Parent of such event as promptly as practicable; and provided, further,
that the Company has complied in all material respects with its obligations under this Section 5.3.
(d)
Except to the extent provided in Section 5.3(c), nothing in this Section 5.3 shall prohibit the board of directors
of the Company from taking and disclosing to the stockholders of the Company a position contemplated by Rule 14e-2(a), Rule 14d-9
or Item 1012(a) of Regulation M-A promulgated under the Exchange Act, if failure to do so would violate applicable Law.
(e)
For purposes of this Agreement:
“Takeover
Proposal” means any inquiry, proposal or offer from any Person (other than Parent and its Subsidiaries) or “group”,
within the meaning of Section 13(d) of the Exchange Act, which the Company believes in good faith to be bona fide, relating
to, in a single transaction or series of related transactions, any (i) acquisition of assets of the Company and its Subsidiaries
equal to more than 20% of the Company’s consolidated assets or to which more than 20% of the Company’s revenues on
a consolidated basis are attributable, (ii) acquisition of more than 20% of the outstanding Company Common Stock, (iii) tender
offer or exchange offer that if consummated would result in any Person beneficially owning more than 20% of the outstanding Company
Common Stock or (iv) merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving the Company.
“Superior
Proposal” means any bona fide unsolicited written Takeover Proposal to acquire, directly or indirectly (whether
by way of merger, consolidation, share exchange, business combination, recapitalization, tender or exchange offer, asset sale
or otherwise), for consideration consisting of cash and/or securities, more than 90% of the equity securities of the Company or
more than 90% of the assets of the Company and its Subsidiaries on a consolidated basis, (i) that includes consideration per share
of Company Common Stock that is greater than the per share Merger Consideration and that the board of directors of the Company
has determined in its good faith judgment (after consultation with independent financial advisors and outside legal counsel) is
reasonably likely to be consummated in accordance with its terms without unreasonable delay, taking into account all legal, regulatory
and financial aspects of the proposal and the Person making the proposal, and if consummated, would result in a transaction more
favorable to the Company’s stockholders from a financial point of view than the transaction contemplated by this Agreement
(including any changes to the terms of this Agreement proposed by Parent in response to such proposal or otherwise) and (ii) accompanied
by executed customary financing commitments from recognized financing sources not subject to any due diligence conditions and
that, together with available cash on hand, are sufficient to fund the cash portion of such Takeover Proposal.
(f)
The Company agrees that in the event any of its Representatives takes any action which action has been authorized or permitted
by the Company which, if taken by the Company, would constitute a breach of this Section 5.3, then the Company shall be
deemed to be in breach of this Section 5.3.
SECTION
5.4 Reasonable Best Efforts.
(a)
Subject to the terms and conditions of this Agreement, each of the parties hereto shall cooperate with the other parties and use
(and shall cause their respective Subsidiaries 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, all things, necessary, proper or advisable to cause the conditions to Closing
to be satisfied as promptly as practicable and to consummate and make effective, in the most expeditious manner practicable, the
Transactions, 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 and (ii) obtain all approvals, consents,
registrations, permits, authorizations and other confirmations from any Governmental Authority or third party necessary, proper
or advisable to consummate the Transactions
(b)
In furtherance and not in limitation of the foregoing, the Company and Parent shall each use its reasonable best efforts to (x)
take all action necessary to ensure that no state takeover statute or similar Law is or becomes applicable to any of the Transactions
and (y) if any state takeover statute or similar Law becomes applicable to any of the Transactions, use their commercially reasonable
efforts to ensure that the Transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement
and otherwise minimize the effect of such Law on the Transactions. Notwithstanding anything to the contrary contained in this
Agreement, nothing in this Agreement will require or obligate Parent or any of its Affiliates to (and in no event shall any representation,
warranty or covenant or agreement of Parent or Merger Sub contained in this Agreement be inaccurate or breached or deemed inaccurate
or breached as a result of the failure of Parent or Merger Sub to): agree to or otherwise become subject to any limitations on
(1) the right of Parent effectively to control or operate its business (including the business of the Company and its Subsidiaries)
or assets (including the assets of the Company), (2) the right of Parent to acquire the Company pursuant to the Merger, or (3)
the right of Parent to exercise full rights of ownership of its business (including the business of the Company and its Subsidiaries)
or assets (including the assets of the Company and its Subsidiaries).
(c)
Each of the parties hereto shall use its reasonable best efforts to (i) cooperate in all respects with each other in connection
with any filing or submission with a Governmental Authority in connection with the Transactions and in connection with any investigation
or other inquiry by or before a Governmental Authority relating to the Transactions, including any Action initiated by a private
party, and to contest and resist any Action by or before a Governmental Authority and to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the Transactions, and (ii) keep the other party informed in all material respects and on
a reasonably timely basis of any material communication received by such party from, or given by such party to any Governmental
Authority and of any material communication received or given in connection with any Action by a private party, in each case regarding
any of the Transactions. Subject to applicable Laws relating to the exchange of information, each of the parties hereto shall
have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating
to the other parties and their respective Subsidiaries, as the case may be, that appears in any filing made with, or written materials
submitted to, any third party and/or any Governmental Authority in connection with the Transactions.
SECTION
5.5 Public Announcements. The initial press release with respect to the execution of this Agreement shall be a joint press
release to be reasonably agreed upon by Parent and the Company. Thereafter, neither the Company nor Parent shall issue or cause
the publication of any press release or other public announcement (to the extent not previously issued or made in accordance with
this Agreement) with respect to the Merger, this Agreement or the other Transactions without the prior consent of the other party
(which consent shall not be unreasonably withheld or delayed), except as may be required by Law as determined in the good faith
judgment of the party proposing to make such release (in which case such party shall not issue or cause the publication of such
press release or other public announcement without prior consultation with the other party); provided, however, that
each of Parent and the Company may make any public statement in response to specific questions by the press, analysts, investors
or those attending industry conferences or financial analyst conference calls, so long as such statement is substantially similar
to previous press releases, public disclosures or public statements made jointly by Parent and the Company (or individually, if
approved by the other party).
SECTION
5.6 Access to Information; Confidentiality. The Company shall, and shall cause each of its Subsidiaries to, afford to Parent
and Parent’s representatives reasonable access during normal business hours to the Company’s and its Subsidiaries’
properties, books, Contracts, commitments, records and correspondence (in each case, whether in physical or electronic form),
officers, employees, accountants, counsel, financial advisors and other representatives and the Company shall furnish promptly
to Parent (i) a copy of each report, schedule and other document filed by it pursuant to the requirements of Federal or state
securities Laws and a copy of any communication (including “comment letters”) received by the Company from the SEC
concerning compliance with securities Laws and (ii) such other information concerning its and its Subsidiaries’ business,
properties and personnel as Parent may reasonably request (provided that Parent and its representatives shall conduct any such
activities in such a manner as not to interfere unreasonably with the business or operations of the Company). The Company shall,
and shall cause each of its Subsidiaries to, furnish, to the extent currently prepared by the Company in the ordinary course of
business, for the period beginning after the date of this Agreement and ending at the Effective Time, as soon as practicable after
the end of each month during such period, a copy of the monthly internally prepared financial statements of the Company, including
statements of financial condition, results of operations and statements of cash flow. Except for disclosures permitted by the
terms of the Non-Disclosure Agreement, dated as of June 8, 2015, between the Company and Parent (as it may be amended from time
to time, the “Confidentiality Agreement” ), Parent and its representatives shall hold information received
from the Company pursuant to this Section 5.6 in confidence in accordance with the terms of the Confidentiality Agreement.
SECTION
5.7 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice
to the Company, of (a) any notice or other communication received by such party from any Governmental Authority in connection
with the Transactions or from any Person alleging that the consent of such Person is or may be required in connection with the
Transactions, if the subject matter of such communication or the failure of such party to obtain such consent could be material
to the Company, the Surviving Corporation or Parent, (b) any Actions commenced or, to such party’s knowledge, threatened
against, relating to or involving or otherwise affecting such party or any of its Subsidiaries which relate to the Transactions,
(c) the discovery of any fact or circumstance that, the occurrence or non-occurrence of which, would cause any representation
or warranty made by such party contained in this Agreement (i) that is qualified as to materiality or Company Material Adverse
Effect or “material adverse effect” or a similar qualifier, as the case may be, to be untrue and (ii) that is not
so qualified to be untrue in any material respect and (d) any material failure of such party to comply with or satisfy any covenant
or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.7 shall not (x) cure any in accuracy or breach of any representation, warranty, covenant or
agreement contained herein or (y) limit the remedies available to the party receiving such notice.
SECTION
5.8 Indemnification and Insurance
.
(a)
From and after the Effective Time, Parent shall, and shall cause the Company and the Surviving Corporation to, (i) until the sixth
(6th) anniversary of the date on which the Effective Time shall occur, indemnify and hold harmless each individual who at the
Effective Time is, or at any time prior to the Effective Time was, a director or officer of the Company or of a Subsidiary of
the Company (each, an “Indemnitee” and, collectively, the “Indemnitees”) with respect to
all claims, liabilities, losses, damages, judgments, fines, penalties, costs (including amounts paid in settlement or compromise)
and reasonable expenses (including reasonable fees and expenses of legal counsel) in connection with any Action (whether civil,
criminal, administrative or investigative), whenever asserted, based on or arising out of, in whole or in part, (A) the fact that
an Indemnitee was a director or officer of the Company or such Subsidiary or (B) acts or omissions by an Indemnitee in the Indemnitee’s
capacity as a director, officer, employee or agent of the Company or such Subsidiary or taken at the request of the Company or
such Subsidiary (including in connection with serving at the request of the Company or such Subsidiary as a director, officer,
employee, agent, trustee or fiduciary of another Person (including any employee benefit plan)), in each case under (A) or (B),
at, or at any time prior to, the Effective Time (including any Action relating in whole or in part to the Transactions), to the
fullest extent permitted under applicable Law, and (ii) assume all obligations of the Company and such Subsidiaries to the Indemnitees
in respect of indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time
as provided in (x) the Company Charter Documents and the organizational documents of such Subsidiaries as currently in effect
and (y) the indemnification agreements listed on Section 5.8 of the Company Disclosure Schedule, which shall survive the Transactions
and continue in full force and effect in accordance with their respective terms. Without limiting the foregoing, Parent shall,
from and after the Effective Time and until the sixth (6th) anniversary of the date on which the Effective Time shall occur, cause
the certificate of incorporation and bylaws of the Surviving Corporation to contain provisions no less favorable to the Indemnitees
with respect to limitation of liabilities of directors and officers and indemnification than are set forth as of the date of this
Agreement in the Company Charter Documents, which provisions shall not be amended, repealed or otherwise modified in a manner
that would adversely affect the rights thereunder of the Indemnitees. In addition, from and after the Effective Time and until
the sixth (6th) anniversary of the date on which the Effective Time shall occur, Parent shall, and shall cause the Company and
the Surviving Corporation to, advance any expenses (including reasonable fees and expenses of legal counsel) of any Indemnitee
under this Section 5.8 (including in connection with enforcing the indemnity and other obligations referred to in this
Section 5.8) as incurred to the fullest extent permitted under applicable Law, provided that the person to whom
expenses are advanced provides an undertaking to repay such advances to the extent required by applicable Law.
(b)
At the Parent’s election, either (i) the Company shall obtain prior to the Effective Time “tail” insurance policies
with a claims period of at least six (6) years from the Effective Time with respect to the directors’ and officers’
liability insurance in amount and scope no less favorable than the existing policy of the Company for claims arising from facts
or events that occurred on or prior to the Effective Time at a cost that does not exceed 250% of the annual premium currently
paid by the Company for D&O Insurance (as defined below); or (ii) Parent will provide, or cause the Surviving Corporation
to provide, for a period of not less than six (6) years after the Effective Time, the Indemnitees who are insured under the Company’s
directors’ and officers’ insurance and indemnification policy with an insurance and indemnification policy that provides
coverage for events occurring at or prior to the Effective Time (the “D&O Insurance” ) that is no less
favorable, taken as a whole, than the existing policy of the Company or, if substantially equivalent insurance coverage is unavailable,
the best available coverage; provided, however, that Parent and the Surviving Corporation shall not be required
to pay an aggregate amount for the D&O Insurance during such six (6) year period in excess of 250% of the annual premium currently
paid by the Company for such insurance; provided, further, that if the annual premiums of such insurance coverage
exceed such amount, Parent or the Surviving Corporation shall be obligated to obtain a policy with the greatest coverage available
for a cost not exceeding such amount.
(c)
The provisions of this Section 5.8 are (i) intended to be for the benefit of, and shall be enforceable by, each Indemnitee,
his or her heirs and his or her representatives and (ii) in addition to, and not in substitution for, any other rights to indemnification
or contribution that any such Person may have by contract or otherwise. The obligations of Parent and the Surviving Corporation
under this Section 5.8 shall not be terminated or modified in such a manner as to adversely affect the rights of any Indemnitee
to whom this Section 5.8 applies unless the affected Indemnitee shall have consented in writing to such termination or
modification (it being expressly agreed that the Indemnitees to whom this Section 5.8 applies shall be third party beneficiaries
of this Section 5.8).
(d)
In the event that Parent, the Surviving Corporation or any of their respective successors or assigns transfers or conveys all
or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so
that the successors and assigns of Parent and the Surviving Corporation shall assume all of the obligations thereof set forth
in this Section 5.8.
(e)
Notwithstanding anything herein to the contrary, if any Action (whether arising before, at or after the Effective Time) is made
against any Indemnitee on or prior to the sixth anniversary of the Effective Time, the provisions of this Section 5.8 shall continue
in effect until the final disposition of such Action.
SECTION
5.9 Securityholder Litigation. The Company shall give Parent the opportunity to participate in the defense or settlement
of any securityholder litigation against the Company and/or its directors relating to the Transactions, and no such settlement
shall be agreed to without Parent’s prior consent.
SECTION
5.10 Fees and Expenses. Except as otherwise provided in this Agreement, all fees and expenses incurred in connection with
this Agreement and the Transactions shall be paid by the party incurring such fees or expenses, whether or not the Transactions
are consummated.
SECTION
5.11 Rule 16b-3. Prior to the Effective Time, the Company shall take such steps as may be reasonably requested by any party
hereto to cause dispositions of Company equity securities (including derivative securities) pursuant to the transactions contemplated
by this Agreement by each individual who is a director or officer of the Company to be exempt under Rule 16b-3 promulgated under
the Exchange Act to the extent permitted by applicable Law.
SECTION
5.12 Employee Matters.
(a)
Except for the persons listed on Section 6.2(i) of the Company Disclosure Schedule, Parent shall, for a period of 6 months immediately
following the Closing Date, cause the Surviving Corporation and its Subsidiaries to provide employees of the Company and its Subsidiaries
(the “Company Employees” ) during their employment with (x) the same level of base salary as in effect on the
Closing Date and (y) employee benefit plans, programs, contracts and arrangements, other than equity-based plans and fringe benefit
plans, that are no less favorable, in the aggregate, than similar employee benefit plans, programs, contracts and arrangements
provided by the Company and its Subsidiaries to Company Employees prior to the Closing Date. Parent or one of its Affiliates shall
recognize the service of Company Employees with the Company prior to the Closing Date as service with Parent and its Affiliates
in connection with any welfare benefit plans and policies (including vacations and holiday policies) maintained by Parent or one
of its Affiliates which is made available following the Closing Date by Parent or one of its Affiliates for purposes of any waiting
period, vesting, eligibility determination of severance pay and vacation entitlement (but not for any other purpose, such as benefit
accrual under a retirement plan), except to the extent such credit would result in a duplication of benefits or is prohibited
under Law. Parent shall (i) waive, or cause its insurance carriers to waive, all limitations as to pre-existing and at-work conditions,
if any, with respect to participation and coverage requirements applicable to Company Employees under any welfare benefit plan
(as defined in Section 3(1) of ERISA) which is made available to Company Employees following the Closing Date by Parent or one
of its affiliates to the same extent as under any similar type of welfare benefit plan applicable to Company Employees prior to
the Closing Date, and (ii) provide credit to Company Employees for any co-payments, deductibles and out-of-pocket expenses paid
by such employees under the employee benefit plans, programs and arrangements of the Company and its subsidiaries during the portion
of the relevant plan year including the Closing Date. The provisions of this Section 5.12(a) are solely for the benefit
of the Parties, and no other Person, including any current or former employee of the Company or any of its Subsidiaries or any
of their dependents or beneficiaries shall be regarded as a third party beneficiary of this Section 5.12(a). No provision
of this Agreement shall be construed as amending any Company Plan or as limiting the ability of the Company, Parent or any Affiliate
of either to terminate the employment of any Company Employee or to amend or terminate any Company Plan.
(b)
Effective as of the day immediately preceding (and contingent upon) the Closing Date, the Company shall terminate, or cause to
be terminated, any and all Company Plans that include a Code Section 401(k) arrangement (each, a “401(k) Plan”).
In the event that termination of a 401(k) Plan would reasonably be anticipated to trigger liquidation charges, surrender charges
or other fees other than ordinary administrative expenses incurred in connection with the termination, then the Company shall
take such actions as are necessary to reasonably estimate the amount of such charges and/or fees and provide such estimate in
writing to Parent no later than fifteen (15) days prior to the Closing Date.
SECTION
5.13 Delisting. Prior to the Effective Time, the Company shall cooperate with Parent and use its reasonable best efforts
to take, or cause to be taken, all actions reasonably necessary to enable the Surviving Corporation to de-list the Company’s
securities from the Nasdaq Capital Market and de-register the Company’s securities under the Exchange Act as soon as practicable
following the Effective Time.
SECTION
5.14 Internet Domain Name Registrations. Prior to the Closing, the Company shall, or shall cause each of its applicable
Subsidiaries to, use commercially reasonable efforts to update the registration information for the Internet domain name registrations
required to be set forth in Section 3.14(a) of the Company Disclosure Schedule that are material to the operation of the Company’s
business to reflect the Company or one of its Subsidiaries as the registrant of such Internet domain names (to the extent the
Company or one of its Subsidiaries is not the registrant of such Internet domain names as of the date hereof).
SECTION
5.15 FIRPTA. The Company shall deliver to Parent at or prior to the closing an affidavit, under penalties of perjury, stating
that the Company is not and has not been a United States real property holding corporation, dated as of the Closing Date and in
form and substance required under Treasury Regulation Section 1.897-2(h) and reasonably acceptable to Parent.
SECTION
5.16 Customers. Each of Parent and the Company shall use all commercially reasonable efforts to arrange for customer telephone
calls as soon as practicable after the date hereof among a representative of each of Parent and the Company and an appropriate
representative of each of the Company’s customers listed on Section 5.16 of the Company Disclosure Schedule (the “Customer
Calls”).
Article
VI
Conditions
Precedent
SECTION
6.1 Conditions to Each Party’s Obligation to Effect the Merger. The respective obligations of each party hereto to
effect the Merger shall be subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior to the Closing
Date of the following conditions:
(a)
Company Stockholder Approval. The Company Stockholder Approval shall have been obtained; and
(b)
No Injunctions or Restraints. No Law, injunction, judgment or ruling enacted, promulgated, issued, entered, amended or
enforced by any Governmental Authority (collectively, “Restraints” ) shall be in effect enjoining, restraining,
preventing or prohibiting consummation of the Merger or making the consummation of the Merger illegal.
SECTION
6.2 Conditions to Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to effect the Merger are
further subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior to the Closing Date of the following
conditions:
(a)
Representations and Warranties. The representations and warranties of the Company set forth in (i) Sections 3.1,
3.3(a), 3.3(b), 3.3(c)(i), 3.3(d), 3.5(b), 3.6(b), 3.19, 3.20 and 3.21
shall be true and correct on and as of the date of this Agreement and as of the Closing Date as if made on and as of the Closing
Date (or, with respect to Section 3.19, at and as of the specific date given), (ii) Section 3.2 shall be true and
correct in all but de minimis respects on and as of the date of this Agreement and as if made on and as of the Closing
Date (or, if given as of a specific date, at and as of such date), and (iii) in this Agreement, other than those Sections specifically
identified in subclause (i) or (ii) of this paragraph, disregarding all qualifications and exceptions contained therein relating
to materiality or Company Material Adverse Effect, shall be true and correct in all material respects on and as of the date of
this Agreement and as of the Closing Date as if made on the Closing Date (or, if given as of a specific date, at and as of such
date);
(b)
Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed
on behalf of the Company by the chief executive officer or the chief financial officer of the Company to such effect;
(c)
Company Material Adverse Change. Since the date of this Agreement, no Company Material Adverse Effect shall have occurred;
(d)
Company Reports. The Company shall have filed its Annual Report on Form 10-K and Quarterly Report on Form 10-Q, if required,
with the SEC prior to the Effective Time;
(e)
Related Party Transactions. The Company shall have terminated each of the Contracts or transactions set forth on Section
6.2(e) of the Company Disclosure Schedule;
(f)
Appraisal Rights. There shall be no more than 5% Dissenting Shares;
(g)
Termination of Existing Employment Agreement. The employment agreement listed on Section 6.2(g) of the Company Disclosure
Schedule shall have been terminated (except for such provisions which, by their terms, survive termination) and such employee
shall have entered into, and not withdrawn, a customary release of claims satisfactory to Parent in its reasonable discretion.
The Company shall pay any amounts due thereunder and have no further obligation to make any severance or other post-termination
payments thereunder;
(h)
Consulting Agreement. The Company shall have entered into a consulting agreement with the person set forth on and substantially
in the form attached to Section 6.2(h) of the Company Disclosure Schedule, to become effective at the Effective Time;
(i)
Offer Letters. The Company shall have entered into offer letters of employment with the persons set forth on and substantially
in the form attached to Section 6.2(i) of the Company Disclosure Schedule, to become effective at the Effective Time;
(j)
No Indebtedness. The Company and its Subsidiaries shall have no Indebtedness;
(k)
Consents and Approvals. The Company shall have received the consents and approvals set forth on Section 6.2(k) of the Company
Disclosure Schedule;
(l)
Closing Certificate. Parent shall have received a certificate signed on behalf of the Company by the chief executive officer
or the chief financial officer of the Company certifying that each of the conditions set forth in Sections 6.2 shall have
been satisfied;
(m)
Unpaid Company Transaction Expenses. As of the Closing Date, the Company shall have no Unpaid Company Transaction Expenses
and shall have delivered to Parent invoices, receipts and similar documentation to the reasonable satisfaction of Parent received
by the Company prior to the Closing with respect to the Company’s payment of the expenses of investment bankers, attorneys,
accountants, proxy solicitors and other consultants and all printing, mailing, and all filing fees in connection with the transactions
contemplated by this Agreement (including confirmations, releases, and/or acknowledgements from each applicable professional or
vendor that all such expenses have been paid in full prior to the Closing);
(n)
Company Stock Plans. The Company shall have delivered to Parent from each Option holder an acknowledgment/amendment to
their award agreements, in a form reasonably satisfactory to Parent, that confirms the Company’s right to terminate the
Options in in accordance with Section 2.4 hereof, including an acknowledgement, if applicable, that each Option with an
exercise price per share of Company Common Stock subject to such Option that is greater than or equal to the Merger Consideration
shall be canceled and terminated at the Effective Time in exchange for the consideration provided therein (which shall have been
paid prior to the Closing Date);
(o)
Government Contract Termination. The Company’s Federal Supply Schedule (FSS) contract with the U.S. General Services
Administration (Contract No. GS-02-F-0025N) shall have been terminated and canceled to the reasonable satisfaction of Parent based
on such evidence as it shall reasonably request;
(p)
Financial Condition and Liquidity. As of the Closing Date, each of: (i) the Company Net Working Capital shall be not less
than $1,200,000; and (ii) the sum of (x) the Company’s Available Cash plus (y) the amount by which Company Net Working Capital
exceeds $1,200,000 as of the Closing Date, shall be not less than $2,514,000 after payment of transaction expenses as contemplated
in Section 6.2(m) each as determined to the reasonable satisfaction of Parent based on such evidence as it shall reasonably request.
If Parent is not reasonably satisfied with the Company’s determination of the amount of the Company Net Working Capital
or the Company’s Available Cash, and the Company objects in good faith to Parent’s failure to be so reasonably satisfied,
then for a period of five days, Parent and the Company shall attempt in good faith to resolve the Company’s objections.
If Parent and the Company are unable to resolve all such objections within such five-day period, then the matters remaining in
dispute shall be submitted to a nationally recognized independent accounting firm mutually agreed upon by Parent and Seller, which
shall use its reasonable best efforts to resolve such dispute within 10 days. The independent accounting firm shall be engaged
pursuant to an engagement letter among Parent, the Company and the independent accounting firm providing that all fees and expenses
of the independent accounting firm shall be borne equally by Parent and the Company;
(q)
Customers. Within 20 Business Days of the date of this Agreement, Parent shall have completed to its reasonable satisfaction
the Customer Calls and shall, in Parent’s reasonable discretion, have received from each customer reasonable assurances
that such customer intends to continue doing business with the Company under the ownership of Parent in a manner reasonably comparable
to past experience; provided, that Parent shall inform the Company within 20 Business Days of the date of this Agreement
whether or not Parent is reasonably satisfied with the assurances provided in each Customer Call; and
(r)
Termination of 401(k) Plans. Parent shall have received from the Company evidence reasonably satisfactory that all 401(k)
Plans have been terminated pursuant to resolution of the board of directors of the Company or the sponsoring ERISA Affiliate,
as the case may be (the form and substance of which shall have been subject to review and approval of Parent), effective as of
the day immediately preceding the Closing Date.
SECTION
6.3 Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is further subject to
the satisfaction (or waiver, if permissible under applicable Law) on or prior to the Closing Date of the following conditions:
(a)
Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement,
disregarding all qualifications and exceptions contained therein relating to materiality, shall be true and correct in all material
respects, in each case on and as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing
Date (or, if given as of a specific date, at and as of such date), except where the failure to be true and correct would not,
individually or in the aggregate, reasonably be expected to impair in any material respect the ability of Parent or Merger Sub
to perform its obligations under this Agreement or prevent or materially delay consummation of the Transactions. The Company shall
have received a certificate signed on behalf of Parent by an executive officer to such effect; and
(b)
Performance of Obligations of Parent and Merger Sub. Parent and Merger Sub shall have performed in all material respects
all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Parent by an executive officer to such effect.
SECTION
6.4 Frustration of Closing Conditions. None of the Company, Parent or Merger Sub may rely on the failure of any condition
set forth in Section 6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was caused by such
party’s failure to use its commercially reasonable efforts to consummate the Merger and the other Transactions, as required
by and subject to Section 5.4.
Article
VII
Termination
SECTION
7.1 Termination. This Agreement may be terminated and the Transactions abandoned at any time prior to the Effective Time,
whether before or after receipt of the Company Stockholder Approval (except as otherwise expressly noted):
(a)
by the mutual written consent of the Company and Parent duly authorized by each of their respective boards of directors; or
(b)
by either of the Company or Parent:
(i)
if the Merger shall not have been consummated on or before April 30, 2016 (the “Walk-Away Date” ); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)(i) shall not be available to a party if the
failure of the Merger to have been consummated on or before the Walk-Away Date was primarily due to the failure of such party
to perform any of its obligations under this Agreement; or
(ii)
if any Restraint having the effect set forth in Section 6.1(b) shall be in effect and shall have become final and nonappealable;
provided, however, that the right to terminate this Agreement under this Section 7.1(b)(ii) shall not be
available to a party if the issuance of such final, nonappealable Restraint was primarily due to the failure of such party to
perform any of its obligations under this Agreement; or
(iii)
if the Company Stockholder Approval shall not have been obtained at the Company Stockholders Meeting duly convened therefor or
at any adjournment or postponement thereof; provided, however, that the right to terminate this Agreement under
this Section 7.1(b)(iii) shall not be available to the Company if the failure of the Company Stockholder Approval to be
obtained was primarily due to a material breach of any of the Company’s obligations under Section 5.1, Section
5.3 or Section 5.4; or
(c)
by Parent,
(i)
if the Company shall have materially breached or failed to perform any of its representations, warranties, covenants or agreements
set forth in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in
Section 6.2 and (B) cannot be cured by the Company by the earlier of (x) ten (10) calendar days following receipt of written
notice from Parent of such breach or failure or (y) the Walk-Away Date; or
(ii)
if: (A) the board of directors of the Company shall have failed to include the Company Board Recommendation in the Proxy Statement
or shall have effected a Company Adverse Recommendation Change; (B) at any time prior to the Company Stockholder Approval, the
board of directors of the Company shall have failed to recommend against any Takeover Proposal or failed to reaffirm the Company
Board Recommendation, in each case, within three (3) Business Days after (x) the public announcement of any Takeover Proposal
and (y) the receipt of a written request to do so from Parent; (C) the Company enters into a Company Acquisition Agreement; (D)
the Company shall have failed to call the Company Stockholders Meeting in accordance with Section 5.1(b) or shall have
failed to prepare and mail the Proxy Statement in accordance with Section 5.1(a) and either such breach shall remain uncured
for ten (10) Business Days after the Company’s receipt of written notice thereof from Parent; or (E) the Company or the
board of directors of the Company shall have publicly announced its intention to do any of the foregoing; or
(d)
by the Company:
(i)
if Parent or Merger Sub shall have materially breached or failed to perform any of its representations, warranties, covenants
or agreements set forth in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition
set forth in Section 6.3(a) or 6.3(b) and (B) cannot be cured by Parent by the earlier of (x) ten (10) calendar
days following receipt of written notice from the Company of such breach or failure or (y) the Walk-Away Date; provided,
however, that the Company shall not have the right to terminate this Agreement pursuant to this Section 7.1(d)(i)
if the Company is then in breach of any of its representations, warranties, covenants or agreements contained in this Agreement;
or
(ii)
prior to the receipt of the Company Stockholder Approval, in order to concurrently enter into a Company Acquisition Agreement
that constitutes a Superior Proposal, if, (A) the Company has (without giving effect to any materiality qualifiers set forth in
Section 5.3 complied in all material respects with the requirements of Section 5.3 and (B) prior to or concurrently
with such termination, the Company pays the fee due under Section 7.3 (as contemplated by clause (y) of Section 7.3(a));
or
(iii)
if (A) the conditions set forth in Sections 6.1 and 6.2 (other than those conditions that by their nature are to
be satisfied by actions taken at the Closing) have been satisfied or waived, (B) Parent fails to consummate the Closing within
two (2) Business Days following the date on which such conditions were satisfied or waived (or, if the Walk-Away Date is fewer
than two (2) Business Days after the date on which such conditions (other than those conditions that by their nature are to be
satisfied by actions taken at the Closing) were satisfied or waived, on the Walk-Away Date) (other than those conditions that
by their nature are to be satisfied by actions taken at the Closing), (C) nothing has occurred and no condition, event or circumstance
exists that would cause any of the conditions set forth in Section 6.1 or 6.2 to fail to continue to be satisfied
by the second (2nd) Business Day following the date on which such conditions were satisfied or waived (or, if the Walk-Away Date
is fewer than two (2) Business Days after the date on which such conditions (other than those conditions that by their nature
are to be satisfied by actions taken at the Closing) were satisfied or waived, on the Walk-Away Date) (other than those conditions
that by their nature are to be satisfied by actions taken at the Closing) and (D) the Company stood ready, willing and able to
consummate the Closing during such period.
SECTION
7.2 Effect of Termination. In the event of the termination of this Agreement as provided in Section 7.1, written
notice thereof shall be given to the other party or parties, specifying the provision hereof pursuant to which such termination
is made, and this Agreement shall forthwith become null and void (other than Sections 5.10, 7.2 and 7.3,
Article VIII, and the Confidentiality Agreement in accordance with their respective terms, all of which shall survive termination
of this Agreement), and there shall be no liability on the part of Parent, Merger Sub or the Company, except (a) the Company may
have liability as provided in Section 7.3, and (b) subject to Section 7.3(a)(i), and Section 7.3(a)(iii),
nothing shall relieve any party from liability for any willful and material breach of this Agreement.
SECTION
7.3 Termination Fee.
(a)
In the event that:
(i)
(A) a Takeover Proposal shall have been made, proposed or communicated, after the date of this Agreement and not withdrawn prior
to the Company Stockholders Meeting or prior to the termination of this Agreement if there has been no Company Stockholders Meeting,
and (B) following the occurrence of an event described in the preceding clause (A), this Agreement is terminated by the Company
or Parent pursuant to Section 7.1(b)(i) or Section 7.1(b)(iii) or by Parent pursuant to Section 7.1(c)(i)
and (C) the Company enters into a definitive agreement with respect to any Takeover Proposal, or any Takeover Proposal is consummated,
in either case within twelve (12) months after the date of this Agreement; provided that for purposes of clause (c) of this Section
7.3(a)(i) the reference to 20% in the definition of “Takeover Proposal” shall be deemed to be references to 50%; or
(ii)
this Agreement is terminated by the Company pursuant to Section 7.1(d)(ii); or
(iii)
this Agreement is terminated by Parent pursuant to Section 7.1(c)(ii);
then,
in any such event under clause (i), (ii) or (iii) of this Section 7.3(a), the Company shall pay as directed by Parent the
Company Termination Fee (as defined below), by wire transfer of immediately available funds (x) in the case of Section 7.3(a)(iii),
within two (2) Business Days after such termination, (y) prior to or currently with such termination if pursuant to Section
7.1(d)(ii), or (z) in the case of Section 7.3(a)(i), two (2) Business Days after the earlier of the entry into a Company
Acquisition Agreement or the consummation of a Takeover Proposal; it being understood that in no event shall the Company be required
to pay the Termination Fee on more than one occasion. As used herein, “Company Termination Fee” shall mean a cash
amount equal to $525,000. In the event that the Parent or Merger Sub shall receive full payment pursuant to this Section 7.3(a),
the receipt of the Parent Termination Fee shall be deemed to be liquidated damages for any and all losses or damages suffered
or incurred by, and shall be the sole and exclusive remedy of, the Parent and Merger Sub or any other Person in connection with
this Agreement (and the termination hereof), the transactions contemplated hereby (and the abandonment or termination hereof)
or any matter forming the basis for such termination, and neither the Parent nor Merger Sub nor any other Person shall be entitled
to bring or maintain any Action against the Company arising out of or in connection with this Agreement, any of the transactions
contemplated hereby (or the abandonment or termination hereof) or any matters forming the basis for such termination.
(b)
In the event that the Company shall terminate this Agreement pursuant to Section 7.1(d)(i) or Section 7.1(d)(iii),
then, if at such time, the Company is not in material breach of any representations, warranties, covenants or other agreements
hereunder that would result in the conditions to Closing set forth in Section 6.2 not being satisfied and all conditions
to Parent’s and Merger Sub’s obligations to consummate the Merger shall have been satisfied, then Parent shall pay
to the Company a termination fee of $525,000 in cash (the “Parent Termination Fee”), such payment to be made
by wire transfer of same day funds within five (5) Business Days after the termination of this Agreement; it being understood
that in no event shall Parent be required to pay the Parent Termination Fee on more than one occasion. In the event that the Company
shall receive full payment pursuant to this Section 7.3(b), the receipt of the Parent Termination Fee shall be deemed to
be liquidated damages for any and all losses or damages suffered or incurred by, and shall be the sole and exclusive remedy of,
the Company or any other Person in connection with this Agreement (and the termination hereof), the transactions contemplated
hereby and thereby (and the abandonment or termination thereof) or any matter forming the basis for such termination, and neither
the Company nor any other Person shall be entitled to bring or maintain any Action against Parent or Merger Sub arising out of
or in connection with this Agreement, any of the transactions contemplated hereby or thereby (or the abandonment or termination
thereof) or any matters forming the basis for such termination.
(c)
Each of the parties hereto acknowledge that the agreements contained in this Section 7.3 are an integral part of the Transactions,
and that without these agreements, the other party would not enter into this Agreement; accordingly, if the Company or Parent,
as the case may be, fails to timely pay any amount due pursuant to this Section 7.3, and, in order to obtain the payment,
Parent or the Company, as the case may be, commences a suit which results in a judgment against the other party for the payment
set forth in this Section 7.3, such paying party shall pay the other party its reasonable and documented costs and expenses
(including reasonable and documented attorneys’ fees) in connection with such suit, together with interest on such amount
at the prime rate as published in The Wall Street Journal in effect on the date such payment was required to be made through the
date such payment was actually received.
Article
VIII
Miscellaneous
SECTION
8.1 No Survival of Representations and Warranties. The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or, except as otherwise provided in Section 7.2, upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set forth in Article II and Sections
5.8, 5.10, and 5.12 and any other agreement in this Agreement which contemplates performance after the Effective
Time shall survive the Effective Time indefinitely. The Confidentiality Agreement shall (i) survive termination of this Agreement
in accordance with its terms and (ii) terminate as of the Effective Time.
SECTION
8.2 Amendment or Supplement. At any time prior to the Effective Time, this Agreement may be amended or supplemented in
any and all respects, whether before or after receipt of the Company Stockholder Approval, by written agreement of the parties
hereto, by action taken by their respective boards of directors; provided, however, that following approval of the
Transactions by the stockholders of the Company, there shall be no amendment or change to the provisions hereof which by Law would
require further approval by the stockholders of the Company without such approval.
SECTION
8.3 Extension of Time, Waiver, Etc. At any time prior to the Effective Time, any party may, subject to applicable Law,
(a) waive any inaccuracies in the representations and warranties of any other party hereto, (b) extend the time for the performance
of any of the obligations or acts of any other party hereto or (c) waive compliance by the other party with any of the agreements
contained herein or, except as otherwise provided herein, waive any of such party’s conditions. Notwithstanding the foregoing,
no failure or delay by the Company, Parent or Merger Sub in exercising any right hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right
hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
SECTION
8.4 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in
whole or in part, by operation of Law or otherwise, by any of the parties without the prior written consent of the other parties;
provided, however, that, for the avoidance of doubt and without limitation of the rights of Parent and the Surviving
Corporation from and after the Effective Time, Parent may (and, following the Effective Time, Parent may cause the Surviving Corporation
to) collaterally assign, without the consent of any other party hereto, all of their respective rights and obligations under this
Agreement (including their rights under covenants, representations, warranties and indemnities) to an Affiliate or to any Person
who acquires all or substantially all of any of their respective properties or assets. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors
and permitted assigns. Any purported assignment not permitted under this Section shall be null and void.
SECTION
8.5 Counterparts. This Agreement may be executed in counterparts (each of which shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement) and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.
SECTION
8.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement, the Support Agreements and the Company Disclosure Schedule
together with the other instruments referred to herein including the Confidentiality Agreement (a) constitute the entire agreement,
and supersede all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect
to the subject matter hereof and thereof and (b) except for (i) if the Effective Time occurs, (A) the right of the Company’s
stockholders to receive the Merger Consideration at the Effective Time and (B) the right of the holders of Options to receive
the Option Consideration on the Closing Date; and (ii) the provisions of Section 5.8, are not intended to and shall not
confer upon any Person other than the parties hereto any rights or remedies hereunder.
SECTION
8.7 Governing Law; Jurisdiction; Waiver of Jury Trial.
(a)
This Agreement together with the Support Agreements shall be governed by, and construed in accordance with, the Laws of the State
of Delaware, applicable to contracts executed in and to be performed entirely within that State.
(b)
Each of the parties hereto, on behalf of itself and its respective Affiliates, (i) consents to submit itself to the personal jurisdiction
of the Delaware Court of Chancery or the other courts of the State of Delaware, in each case in connection with any dispute arising
out of, in connection with, in respect of, or in any way relating to (A) the negotiation, execution and performance of this Agreement
and the Transactions, (B) the interpretation and enforcement of the provisions of this Agreement and any agreements entered into
in connection herewith, or (C) any actions of or omissions of any party in any way connected with, related to or giving rise to
any of the foregoing matters (clauses (A)-(C) collectively, the “Covered Matters”), (ii) hereby waives, and
agrees not to assert as a defense in any Action with regard to or involving a Covered Matter that such Action may not be brought
or is not maintainable in said courts or that venue thereof may not be appropriate or that this Agreement or any agreement entered
into in connection herewith may not be enforced in any such court, (iii) irrevocably agree that all claims with respect to any
such Action shall be heard and determined exclusively by such courts, (iv) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court, (v) consents to and grants to any such court jurisdiction
over the person of such parties and over the subject matter of any such dispute and agrees that the mailing of process or other
papers in connection with such Action in the manner specified in Section 8.8 or in such other manner as may be permitted
by Law shall be valid and sufficient service thereof and (vi) agrees that it will not bring any Action relating to any Covered
Matter in any court other than any such court. Each of the parties, on behalf of itself and each of its Affiliates, irrevocably
and unconditionally waives any objection to the laying of venue of any Action arising out of this Agreement or the Transactions
in Delaware Court of Chancery or other courts of the State of Delaware, as applicable pursuant to clause (i) above, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action brought
in any such court has been brought in an inconvenient forum.
(c)
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THE COVERED MATTERS.
SECTION
8.8 Notices. All notices, requests and other communications to any party hereunder shall be in writing and shall be deemed
given if delivered personally, facsimiled or other electronic communication (which is confirmed) or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses:
|
If
to Parent or Merger Sub, to: |
|
|
DF
Institute, LLC. |
|
|
c/o
Kaplan, Inc. |
|
|
750
Third Avenue
New
York, NY 10017
Attention:
Christopher Neumann Vice President, Deputy General Counsel
Facsimile:
212-489-2301
Email:
chris.neumann@kaplan.com |
|
with
a copy (which shall not constitute notice) to: |
|
|
Covington
& Burling LLP |
|
|
One
CityCenter |
|
|
850
Tenth Street NW |
|
|
Washington,
DC 20001
Attention:
Paul V. Rogers
Facsimile:
202 778-5592
Email:
progers@cov.com |
|
|
Smart
Pros Ltd.
12
Skyline Drive
Hawthorne,
New York 10352 |
|
|
Attention:
Allen Greene, CEO
Facsimile: |
|
with
a copy (which shall not constitute notice) to: |
|
|
Morse,
Zelnick, Rose & Lander, LLP |
|
|
825
Third Avenue |
|
|
New
York, NY 10022
Attention:
George Lander, Esq.
Facsimile:
212-208-6809 |
or
such other address or facsimile number as such party may hereafter specify by like notice to the other parties hereto. All such
notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received
prior to 5 P.M. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request
or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.
SECTION
8.9 Severability. If any term or other provision of this Agreement is determined by a court of competent jurisdiction to
be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms, provisions and conditions
of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable Law in
an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
SECTION
8.10 Definitions.
(a)
As used in this Agreement, the following terms have the meanings ascribed thereto below:
“Affiliate”
shall mean, as to any Person, any other Person that, directly or indirectly, controls, or is controlled by, or is under common
control with, such Person. For this purpose, “control” (including, with its correlative meanings, “controlled
by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other
ownership interests, by contract or otherwise.
“Available
Cash” means all actual cash, cash equivalents of the Company and its Subsidiaries on a consolidated basis in US dollars
(i) in one or more US dollar denominated bank or investment accounts of the Company or its Subsidiaries opened at banks or other
institutions in the United States, excluding Trapped Cash and net of issued but uncleared checks and drafts, or (ii) held by the
Company’s landlord as a security deposit, in each case, as of the Closing Date.
“Business
Day” shall mean any day of the year, other than a Saturday or Sunday, on which national banking institutions in the
City of New York are open to the public for conducting business and are not required or authorized to close.
“Company
Board Recommendation” shall mean the unanimous recommendation of the board of directors of the Company to its stockholders
that the Company Stockholder Approval be given.
“Company
Net Working Capital” means as of a particular date, total consolidated current assets less total consolidated current
liabilities (excluding cash and deferred revenue) of the Company determined in accordance with GAAP, except as specifically provided
for herein, as applied in a manner consistent with the Company’s historical practices and the preparation of its audited
consolidated balance sheet as of December 31, 2014.
“Company
Plan” shall mean (i) each “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”)), (ii) each other employee benefit plan, policy or agreement, whether
written or unwritten, including, any stock option, stock purchase, stock award, stock appreciation, phantom stock, deferred compensation,
pension, retirement, savings, profit sharing, incentive bonus, health, life insurance, cafeteria, flexible spending, dependent
care, fringe benefit, vacation pay, holiday pay, disability, sick pay, workers’ compensation, unemployment, severance, employee
loan (other than any 401(k) plan loan), retention, change in control or education assistance plan, policy or agreement, and (iii)
any employment or consulting agreement, in each case, which is sponsored or maintained by the Company or any of its Subsidiaries,
or to which the Company or any of its Subsidiaries or Affiliates contributes or is required to contribute, on behalf of current
or former employees, or directors of the Company or its Subsidiaries or Affiliates or their beneficiaries or dependents, other
than any governmental plan or program.
“Company
Stock Plans” shall mean the SmartPros Ltd. 2009 Incentive Compensation Plan and all predecessors thereto (including,
for example, the Company’s 1999 Stock Option Plan).
“Customs
& International Trade Laws” shall mean any applicable Law concerning the importation, exportation, re-exportation,
or deemed exportation of products, technical data, technology, software, software source code, and/or services, and economic sanctions
measures, including but not limited to those that apply to the terms and conduct of transactions and making or receiving of payment
related to such importation, exportation, re-exportation or deemed exportation, including, but not limited to, the Tariff Act
of 1930; the Export Administration Regulations; the International Traffic in Arms Regulations; the International Emergency Economic
Powers Act; the Trading with the Enemy Act; all laws, regulations, statutes, and orders pertaining to economic sanctions, including
those enforced by the U.S. Department of Treasury, Office of Foreign Assets Control; and the U.S. antiboycott laws and regulations
administered by the U.S. Departments of Commerce and Treasury, and similar laws of any applicable jurisdiction.
“Environmental
Laws” shall mean: Laws relating to pollution, protection of the environment or human health or safety as related to
environmental matters, including Laws relating to emissions, spills, discharges, generation, storage, leaks, injection, leaching,
seepage, releases or threatened releases of Hazardous Substances into the environment or otherwise relating to the processing,
distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances.
“Filed
Company SEC Documents” shall mean: (i) the Company’s annual report on Form 10-K for the year ended December 31,
2014, as filed with the SEC and as thereafter amended by the filing of Form 10-KA and (ii) the Company’s quarterly report
on Form 10-Q for the quarter ended June 30, 2015, as filed with the SEC.
“GAAP”
shall mean generally accepted accounting principles in the United States.
“Government
Bid” shall mean any bid, offer or proposal made by the Company or any of its Subsidiaries which, if accepted or successful,
would result in a Government Contract.
“Government
Contract” shall mean any prime contract, subcontract, basic ordering agreement, pricing agreement, letter contract or
other similar arrangement of any kind, between the Company or any of its Subsidiaries, on the one hand, and (i) any Governmental
Authority, (ii) any prime contractor of a Governmental Authority in its capacity as a prime contractor, or (iii) any subcontractor
with respect to any contract of a type described in clauses (i) or (ii) above, on the other hand.
“Governmental
Authority” shall mean any government, court, regulatory or administrative agency, commission or authority or other governmental
instrumentality, federal, state, provincial or local, municipal, domestic, foreign or multinational, non-governmental self-regulatory
agency, commission, authority or accrediting body (whether or not private or quasi-private) or accrediting body, or any arbitral
authority.
“Hazardous
Substance” shall mean: (i) any petroleum, hazardous or toxic petroleum-derived substance or petroleum product, flammable
or explosive material, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation,
foundry sand or polychlorinated biphenyls (PCBs); or (ii) any chemical or other material or substance that is regulated, classified
or defined as or included in the definition of “hazardous substance,” “hazardous waste,” “hazardous
material,” “extremely hazardous substance,” “restricted hazardous waste,” “toxic substance,”
“toxic pollutant,” “pollutant” or “contaminant” under any applicable Law, or any similar denomination
intended to classify substance by reason of toxicity, carcinogenicity, ignitability, corrosivity or reactivity under any applicable
Law.
“Indebtedness”
shall mean: (i) all of the indebtedness for borrowed money of the Company or any of its Subsidiaries; (ii) all obligations of
the Company or any of its Subsidiaries evidenced by notes, bonds, debentures or similar instruments; (iii) all obligations of
the Company or any of its Subsidiaries for the deferred purchase price of property or services; (iv) all obligations of the Company
or any of its Subsidiaries under capitalized leases with respect to which any of them are liable as an obligor; (v) all indebtedness
of the Company or any of its Subsidiaries created or arising under any conditional sale or other title retention agreement; (vi)
all outstanding obligations of the Company or any of its Subsidiaries under acceptance, letter of credit or similar facilities
or surety bonds; (vii) all obligations arising out of interest rate and currency swap arrangements and any other arrangements
designed to provide protection against fluctuations in interest or currency rates; (viii) all indebtedness of the type described
in clauses (i) through (vii) above guaranteed, directly or indirectly, in any manner by the Company or any of its Subsidiaries,
including interest and penalties thereon; (ix) any indebtedness of the type described in clauses (i) through (viii) above secured
by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on
assets or property owned by the Company or any of its Subsidiaries.
“Knowledge”
of the Company shall mean, with respect to any matter in question, the knowledge after due inquiry of the Persons set forth in
Section 8.10 of the Company Disclosure Schedule and, with respect to any Intellectual Property Rights matter, by the Company’s
outside Intellectual Property attorneys.
“Liens”
shall mean all liens, claims, mortgages, encumbrances, pledges, security interests, equity or charge of any kind.
“Person”
shall mean an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity,
including a Governmental Authority.
“SEC”
shall mean the Securities and Exchange Commission.
“Subsidiary”
when used with respect to any party, shall mean any corporation, limited liability company, partnership, association, trust or
other entity of which securities or other ownership interests representing more than 50% of the equity and more than 50% of the
ordinary voting power (or, in the case of a partnership, more than 50% of the general partnership interests) are, as of such date,
owned by such party or one or more Subsidiaries of such party or by such party and one or more Subsidiaries of such party.
“Taxes”
shall mean (i) all federal, state, provincial, local, municipal or foreign taxes, charges, imposts, levies or other assessments,
including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory,
capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, assessments and charges of any kind whatsoever, and (ii) all interest, penalties,
fines, additions to tax or additional amounts imposed by any Governmental Authority in connection with any item described in clause
(i).
“Tax
Returns” shall mean any return, report, claim for refund, estimate, information return or statement or other similar
document relating to or required to be filed with any Governmental Authority with respect to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
“Transactions”
refers collectively to this Agreement, the Support Agreements, and the transactions contemplated hereby, including the Merger.
“Trapped
Cash” means any cash, checks, rental deposits and bank credit balances that are subject to any restrictions or local
exchange control, Tax or other requirements, such that the full amount of such deposits cannot be accessed within ninety (30)
days.
“Unpaid
Company Transaction Expenses” means all expenses and fees incurred by the Company and its Subsidiaries at or prior to
the Closing in connection with the transactions contemplated by this Agreement (including investment bankers, attorneys, accountants,
proxy solicitors and other consultants and advisors and all printing, mailing, and filing fees), but only to the extent such expenses
and fees have not been paid by the Company in cash as of immediately prior to the Closing.
The
following terms are defined in the Section of this Agreement set forth after such term below:
Acceptable
Confidentiality Agreement |
|
5.3(b) |
Action |
|
3.7 |
Adverse
Recommendation Change |
|
5.1(b) |
Affiliate |
|
8.10 |
Agreement |
|
Preamble |
Balance
Sheet Date |
|
3.5(d) |
Bankruptcy
and Equity Exception |
|
3.3(a) |
Business
Day |
|
8.10 |
Certificate |
|
2.1(c) |
Certificate
of Merger |
|
1.3 |
Closing |
|
1.2 |
Closing
Date |
|
1.2 |
Code |
|
2.2(g) |
Company |
|
Preamble |
Company
Acquisition Agreement |
|
5.3(c) |
Company
Adverse Recommendation Change |
|
5.3(c) |
Company
Board Recommendation |
|
8.10 |
Company
Charter Documents |
|
3.1(c) |
Company
Common Stock |
|
2.1 |
Company
Confidential Information |
|
3.13(h) |
Company
Disclosure Schedule |
|
Article
III |
Company
Employees |
|
5.12(a) |
Company
Intellectual Property |
|
3.13(a)(i) |
Company
Material Adverse Effect |
|
3.1(a) |
Company
Material Contract |
|
3.14(a)(T) |
Company
Net Working Capital |
|
8.10 |
Company
Intellectual Property |
|
3.13(a)(i) |
Company
Owned Software |
|
3.13(a)(iii) |
Company
Pension Plan |
|
3.11(a) |
Company
Plan |
|
8.10 |
Company
Preferred Stock |
|
3.2(a) |
Company
Products |
|
3.13(a)(viii) |
Company
Registered Intellectual Property |
|
3.13(a)(iv) |
Company
SEC Documents |
|
3.5(a) |
Company
Stock Plans |
|
8.10 |
Company
Stockholder Approval |
|
3.3(d) |
Company
Stockholders Meeting |
|
5.1(b) |
Company
Termination Fee |
|
7.3(a)(iii) |
Confidentiality
Agreement |
|
5.6 |
Contaminants |
|
3.13(n) |
Contract |
|
3.13(n) |
Copyrights |
|
8.7(b) |
Covered
Matters |
|
8.7(b) |
Customer
Calls |
|
5.16 |
Customs
& International Trade Laws |
|
8.10 |
D&O
Insurance |
|
5.8(b) |
DGCL |
|
1.1 |
Dissenting
Shares |
|
2.3(a) |
Dissenting
Stockholders |
|
2.3(a) |
Effective
Time |
|
1.3 |
Environmental
Laws |
|
8.10 |
ERISA |
|
8.10 |
Exchange
Act |
|
3.4 |
Fairness
Opinion |
|
3.19 |
Filed
Company SEC Documents |
|
8.10 |
GAAP |
|
8.10 |
Governmental
Authority |
|
8.10 |
Government
Bid |
|
8.10 |
Government
Contract |
|
8.10 |
Hazardous
Substance |
|
8.10 |
Indebtedness |
|
8.10 |
Indemnitee |
|
5.8(a) |
Indemnitees |
|
5.8(a) |
Individual
Agreements |
|
3.11(a) |
Intellectual
Property Rights |
|
3.13(a)(v) |
Knowledge |
|
8.10 |
Laws |
|
3.8 |
Liens |
|
8.10 |
Marks |
|
3.13(a)(v) |
Merger |
|
Preamble |
Merger
Consideration |
|
2.1(c) |
Merger
Sub |
|
Preamble |
Option |
|
2.4 |
Option
Consideration |
|
2.4 |
Parent |
|
Preamble |
Patents |
|
3.13(a)(v) |
Paying
Agent |
|
2.2(a) |
Permits |
|
3.8 |
Person |
|
8.10 |
Personal
Data |
|
3.8 |
Proxy
Statement |
|
3.4 |
Real
Property Leases |
|
3.15(c) |
Reciprocal
License |
|
3.13(a)(vii) |
Representatives |
|
5.3(a) |
Restraints |
|
6.1(b) |
SEC |
|
8.10 |
Securities
Act |
|
3.1(b) |
Software |
|
3.13(a)(v) |
Subsidiary |
|
8.10 |
Subsidiary
Documents |
|
3.1(c) |
Superior
Proposal |
|
5.3(e) |
Support
Agreements |
|
Preamble |
Supporting
Stockholders |
|
Preamble |
Surviving
Corporation |
|
1.1 |
Takeover
Proposal |
|
5.3(e) |
Tax
Returns |
|
8.10 |
Taxes |
|
8.10 |
Trade
Secrets |
|
3.13(a)(v) |
Transactions |
|
8.10 |
Trapped
Cash |
|
8.10 |
Unpaid
Company Transaction Expenses |
|
8.10 |
Walk-Away
Date |
|
7.1(b)(i) |
SECTION
8.11 Interpretation.
(a)
When a reference is made in this Agreement to an Article, a Section, Exhibit or Schedule, such reference shall be to an Article
of, a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement,
they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein”
and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. Unless the context otherwise requires, the word “or” is not exclusive.
All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as
well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments
thereto and instruments incorporated therein. References to a Person are also to its permitted assigns and successors.
(b)
The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and
no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of
this Agreement.
SECTION
8.12 Non-Recourse. Each party hereto covenants and agrees that it shall not institute, and shall cause its Affiliates not
to institute, an Action arising under or in connection with, this Agreement, the Support Agreements or the transactions contemplated
hereby, except against the other parties hereto and thereto. Any claim or cause of action based upon, arising out of, or related
to this Agreement or the Support Agreements may only be brought against Persons that are expressly named as parties hereto or
thereto, and then only with respect to the specific obligations set forth herein or therein. No former, current or future direct
or indirect equity holders, controlling Persons, stockholders, directors, officers, employees, agents, Affiliates, members, managers,
general or limited partners or assignees of the Company, Parent or Merger Sub or any of their respective Affiliates shall have
any liability or obligation for any of the representations, warranties, covenants, agreements, obligations or liabilities of the
Company, Parent or Merger Sub under this Agreement or of or for any Action based on, in respect of, or by reason of, the transactions
contemplated hereby (including the breach, termination or failure to consummate such transactions), in each case whether based
on Contract, tort, strict liability, other Laws or otherwise and whether piercing the corporate veil, by a claim by or on behalf
of a party hereto or another Person or otherwise.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of Merger to be duly executed and delivered as of the
date first above written.
|
DF
INSTITUTE, LLC |
|
|
|
|
By:
|
/s/
Andrew Temte |
|
Name: |
Andrew
Temte |
|
Title: |
President |
|
SPL
MERGER CORP. |
|
|
|
|
By:
|
/s/
Andrew Temte |
|
Name: |
Andrew
Temte |
|
Title: |
President |
|
SMART
PROS LTD. |
|
|
|
|
By:
|
/s/
Allen Greene |
|
Name: |
Allen
Greene |
|
Title: |
Chief
Executive Officer |
[Signature
Page - Agreement and Plan of Merger]
Execution
Version
ANNEX
B
SUPPORT
AGREEMENT
This
Support Agreement (the “Agreement”) is made and entered into as of [●], 2015, by and among DF Institute,
LLC, an Illinois limited liability company (“Parent”), Smart Pros Ltd., a Delaware corporation (the “Company”),
and the undersigned stockholder of the Company (“Holder”).
RECITALS
Pursuant
to an Agreement and Plan of Merger, dated as of [●], 2015 (the “Merger Agreement”), by and among Parent,
SPL Merger Corp., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), and the Company,
Merger Sub is merging with and into the Company (the “Merger”) and the Company, as the surviving corporation
of the Merger, will thereby become a wholly owned subsidiary of Parent. Concurrently with the execution and delivery of the Merger
Agreement and as a condition and inducement to Parent and Merger Sub to enter into the Merger Agreement, Parent has required that
Holder enter into this Agreement. Holder is the record and beneficial owner (within the meaning of Rule 13d-3 of the Exchange
Act) of such number of shares of the outstanding Common Stock, par value $0.0001 per share, of the Company as is indicated beneath
Holder’s signature on the last page of this Agreement (the “Shares”). Capitalized terms used herein but
not defined shall have the meanings ascribed to them in the Merger Agreement.
AGREEMENT
The
parties agree as follows:
1.
Agreement to Retain Shares.
(a)
Transfer. (1) Except as contemplated by the Merger Agreement, and except as provided in Section 1(b) below, during
the period beginning on the date hereof and ending on the earlier to occur of (i) the Effective Time (as defined in the Merger
Agreement) and (ii) the Expiration Date (as defined below), Holder agrees not to, directly or indirectly, sell, transfer, assign,
exchange or otherwise dispose of (including by merger, consolidation or otherwise by operation of law) the Shares or any New Shares
(as defined below), (2) Holder agrees not to, directly or indirectly, pledge, encumber or create a Lien on any Shares or enter
into any contract, option, commitment or other arrangement or understanding with respect to the foregoing, grant any proxies or
powers of attorney, deposit any of such Holder’s Shares into a voting trust or enter into a voting agreement with respect
to any of such Holder’s Shares, or enter into any agreement or arrangement providing for any of the actions described in
this clause (2), and (3) Holder agrees not to, directly or indirectly, take any action that could reasonably be expected to have
the effect of preventing or disabling Holder from performing Holder’s obligations under this Agreement at any time prior
to the earlier to occur of (i) the Effective Time and (ii) the Expiration Date. As used herein, the term “Expiration
Date” shall mean the date of termination of the Merger Agreement in accordance with the terms and provisions thereof.
(b)
Permitted Transfers. Section 1(a) shall not prohibit a transfer of Shares or New Shares (as defined below) by Holder
to any Affiliate of Holder or any family member or trust for the benefit of any family member so long as the assignee or transferee
agrees to be bound by the terms of this Agreement and executes and delivers to the parties hereto a written consent memorializing
such agreement.
(c)
New Shares. Holder agrees that any shares of Company Common Stock that Holder purchases or with respect to which Holder
otherwise acquires record or beneficial ownership after the date of this Agreement and prior to the earlier to occur of (i) the
Effective Time and (ii) the Expiration Date (“New Shares”) shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
(d)
Stop Transfer. From and after the date of this Agreement through the term of this Agreement, the Company will not register
or otherwise recognize the transfer (by book entry or otherwise) of any Shares or any certificate or uncertificated interest representing
any of Holder’s Shares, except as permitted by, and in accordance with, Section 1(b).
2.
Agreement to Vote Shares.
(a)
Until the earlier to occur of the Effective Time and the Expiration Date, at every meeting of the stockholders of the Company
called with respect to any of the following, and at every adjournment thereof, and on every action or approval by written consent
of the stockholders of the Company with respect to any of the following, Holder shall appear at such meeting (in person or by
proxy) to be counted as present for the purposes of calculating a quorum and shall vote (or cause to be voted) or deliver a written
consent (or cause a consent to be delivered) covering all the Shares and any New Shares: (i) in favor of adoption of the Merger
Agreement and the approval of the transactions contemplated thereby and (ii) against (x) any proposal for any recapitalization,
merger, sale of assets or other business combination (other than the Merger) between the Company and any person or entity other
than Parent, (y) any other action or agreement that would reasonably be expected to result in a breach of any covenant, representation
or warranty or any other obligation or agreement of the Company under the Merger Agreement or Holder under this Agreement, or
(z) which would reasonably be expected to result in any of the conditions to the Company’s obligations under the Merger
Agreement not being fulfilled (each such action or proposal described in this clause (ii), an “Opposing Proposal”).
This Agreement is intended to bind Holder as a stockholder of the Company only with respect to the specific matters set forth
herein. Except as set forth in clauses (i) and (ii) of this Section 2, Holder shall not be restricted from voting in favor
of, against or abstaining with respect to any other matter presented to the stockholders of the Company. Prior to the termination
of this Agreement, Holder covenants and agrees not to enter into any agreement or understanding with any person to vote or give
instructions in any manner inconsistent with the terms of this Agreement.
(b)
Holder hereby appoints Parent and any designee of Parent, and each of them individually, its proxies and attorneys-in-fact, with
full power of substitution and resubstitution, to vote or act by written consent until the earlier to occur of the Effective Time
and the Expiration Date with respect to the Shares and any New Shares in accordance with Section 2(a) but, only with respect to
those matters referred to in Section 2(a). This proxy and power of attorney is given to secure the performance of the duties of
Holder under this Agreement. Holder shall take such further action or execute such other instruments as may be necessary to effectuate
the intent of this proxy. This proxy and power of attorney granted by Holder shall be irrevocable until the earlier to occur of
the Effective Time and the Expiration Date, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable
proxy and shall revoke any and all prior proxies granted by Holder with respect to the Shares. The power of attorney granted by
Stockholder herein is a durable power of attorney and shall survive the dissolution, bankruptcy, death or incapacity of Holder.
The proxy and power of attorney granted hereunder shall terminate upon until the earlier to occur of the Effective Time and the
Expiration Date.
(c)
Holder further agrees that, until the termination of this Agreement, Holder will not, and will not permit any entity under Holder’s
control to, (A) solicit proxies or become a “participant” in a “solicitation” (as such terms are defined
in Rule 14A under the Exchange Act) with respect to an Opposing Proposal (as defined below), (B) initiate a stockholders’
vote with respect to an Opposing Proposal or (C) become a member of a “group” (as such term is used in Section
13(d) of the Exchange Act) with respect to any voting securities of the Company with respect to an Opposing Proposal.
3.
Representations Warranties and Covenants of Holder. Holder hereby represents, warrants and covenants to Parent that:
(a)
Holder (i) is the sole record and/or sole beneficial owner of the Shares, which, at the date of this Agreement and at all times
up until the earlier to occur of (A) the Effective Time and (B) the Expiration Date, are and will be free and clear of any liens,
claims, options, charges or other encumbrances, and (ii) does not own of record or beneficially any shares of capital stock of
the Company other than the Shares (excluding shares as to which Holder currently disclaims beneficial ownership in accordance
with applicable law).
(b)
Holder has the legal capacity, power and authority to enter into and perform all of Holder’s obligations under this Agreement.
This Agreement has been duly and validly executed and delivered by Holder and constitutes a valid and binding agreement of Holder,
enforceable against Holder in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
(c)
The execution and delivery of this Agreement by such Holder does not, and the performance by such Holder of his, her or its obligations
hereunder and the consummation by such Holder of the transactions contemplated hereby will not, violate or conflict with, or constitute
a default under, any agreement, instrument, contract or other obligation or any order, arbitration award, judgment or decree to
which such Holder is a party or by which such Holder is bound, or any statute, rule or regulation to which such Holder is subject
or, in the event that such Holder is a corporation, partnership, trust or other entity, any governing document of such Holder.
The execution and delivery of this Agreement by such Holder does not, and the performance of this Agreement by such Holder does
not and will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental
Entity by such Holder except for applicable requirements, if any, of the Exchange Act, and except where the failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay the
performance by such Holder of his, her or its obligations under this Agreement in any material respect.
(d)
Holder hereby waives, to the fullest extent permitted by law, and agrees not to assert any appraisal rights pursuant to Section
262 of the General Corporation Law of the State of Delaware or otherwise in connection with the Merger with respect to all the
Shares and any New Shares,
4.
Additional Documents. Holder hereby covenants and agrees to execute and deliver any additional documents reasonably necessary
to carry out the purpose and intent of this Agreement.
5.
Termination. This Agreement shall terminate and shall have no further force and effect upon the earlier of the Effective
Time or the Expiration Date. Holder shall have the right to terminate this Agreement immediately following Parent’s notification
to the Company of (a) any decrease in the Merger Consideration payable in the Merger or (b) any change to the form of consideration
payable in the Merger.
6.
Fiduciary Duties. Notwithstanding anything in this Agreement to the contrary: (a) Holder makes no agreement or understanding
herein in any capacity other than in Holder’s capacity as a record holder and/or beneficial owner of the Shares, (b) nothing
in this Agreement shall be construed to limit or affect any action or inaction by Holder (or any person that is employed by or
that renders services for Holder or any of its Affiliates) acting in his, her or its capacity as a director or fiduciary of the
Company, including, for the avoidance of doubt and without limitation, any participation by any such person in his capacity as
a director of the Company in any discussions or negotiations regarding, and making any determinations or recommendations with
respect to, Section 5.3(c) or Articles VI or VII of the Merger Agreement, or (c) Holder shall have no liability
to Parent, Merger Sub or any of their Affiliates under this Agreement as a result of any action or inaction by Holder (or any
person that is employed by or that renders services for Holder or any of its Affiliates) acting in his capacity as a director
or fiduciary of the Company.
7.
Miscellaneous.
(a)
Amendments and Waivers. Any term of this Agreement may be amended or waived with the written consent of the parties or
their respective successors and assigns. Any amendment or waiver effected in accordance with this Section 7(a) shall be
binding upon the parties and their respective successors and assigns.
(b)
Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law thereof that might otherwise refer construction or interpretation of this
Agreement to the substantive law of another jurisdiction. Each of the parties hereto (i) consents to submit to the personal jurisdiction
of any federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this
Agreement, (ii) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave
from any such court and (iii) agrees that it shall not bring any action relating to this Agreement in any court other than a federal
or state court sitting in the State of Delaware.
(c)
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and
all of which together shall constitute one instrument.
(d)
Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
(e)
Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt,
when delivered personally or by courier, overnight delivery service or confirmed facsimile, or 72 hours after being deposited
in the regular mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified
at such party’s address or facsimile number as set forth below, or as subsequently modified by written notice.
(f)
Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties
agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as
possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and
enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable
in accordance with its terms.
(g)
Specific Performance. Each of the parties hereto recognizes and acknowledges that a breach of any covenants or agreements
contained in this Agreement will cause Parent and Merger Sub to sustain damages for which they would not have an adequate remedy
at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach Parent shall be
entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition
to any other remedy to which they may be entitled, at law or in equity.
[SIGNATURE
PAGE FOLLOWS]
The
parties have caused this Agreement to be duly executed on the date first above written.
|
DF
INSTITUTE, LLC |
|
|
|
By: |
|
|
Name: |
|
|
Title: |
|
|
|
|
|
Address: |
|
|
|
|
SMART
PROS LTD. |
|
By: |
|
|
Name: |
|
|
Title: |
|
|
|
|
|
Address: |
|
|
|
|
“HOLDER” |
|
|
|
|
|
|
|
|
|
|
Holder’s
Address for Notice: |
|
|
|
|
|
|
[SIGNATURE
PAGE TO SUPPORT AGREEMENT]
Shares
owned of record:
Class
of Shares |
|
Number |
|
Common
Stock |
|
|
|
October
21,
2015 |
Private
& Confidential |
The
Special
Committee
of the Board
of Directors
The
Board
of Directors
SmartPros
Ltd.
12
Skyline
Drive
Hawthorne,
NY 10532
We
understand
that SmartPros
Ltd. (“SmartPros”
or “SP”)
proposes
to enter
the Agreement
and Plan
of Merger,
in the form
approved
by the Special
Committee
of the Board
of Directors
on October
21, 2015 (the “Merger
Agreement”),
among SP,
DF Institute
LLC, a limited
liability
company,
and SPL
Merger
Corp., a wholly owned
subsidiary of
DF Institute
LLC, pursuant
to which, among
other things, SP
Merger
Corp. will merge with and into
SP (the “Merger”)
and each
outstanding share
of the common
stock, par value
$0.0001 per share,
of SmartPros
(“SP Common
Stock”),
will
be converted
into the right
to receive
$3.57 per
share.
You
have requested
our opinion,
as investment
bankers,
as to
the fairness,
from a
financial
point of view,
to the holders
of SP
Common Stock
of the Per
Share
Consideration
to be received
by such
holders in the
Merger.
In
connection
with this opinion,
we have,
among
other things:
|
1. |
Reviewed
certain
business and
financial information
relating to
SP; |
|
|
|
|
2. |
Reviewed
certain
information, including financial
forecasts
and other
financial
and operating
data concerning
SP, prepared
by SP
management (the
“2015 Budget”); |
|
|
|
|
3. |
Held
discussions with members
of the senior
management
of SP
regarding
their
assessment of the
past and
current
business operations,
regulatory environment,
financial
condition and
future prospects
of SP; |
|
|
|
|
4. |
Compared
certain
financial
information of
SP with
similar
publicly
available
information of certain
other
companies
we deemed
relevant; |
|
|
|
|
5. |
Compared
the proposed
financial
terms of
the Merger
with the financial
terms, to
the extent
publicly
available,
of certain
other
transactions
we deemed relevant; |
|
|
|
|
6. |
Reviewed
the Merger
Agreement,
in the form
approved
by the
Special
Committee
of the Board
of Directors
on October
21, 2015; and |
|
|
|
|
7. |
Performed
such other
analyses
and studies
and considered
such
other factors
as we
deemed appropriate. |
Special
Committee
of the Board
of Directors
October
21, 2015
Page
2
In
arriving
at our
opinion,
we have
assumed
and relied
upon, without independent
verification,
the accuracy
and completeness
of all
of the financial
and other
information and
data, including
without limitation the
SP Forecast,
publicly
available
or provided
to or otherwise
reviewed by
or discussed
with us and have
relied
upon the assurances
of the management
of SP that they
are not
aware
of any
facts
or circumstances
that would make such
information or
data inaccurate
or misleading
in any
material.
We
have not
made or been
provided with any
independent
evaluation or
appraisal
of the assets
or liabilities
(contingent
or otherwise)
of SP,
nor have
we made any
physical
inspection
of the properties
or assets
of SP.
We have
not evaluated
the solvency
of SP or
Parent
under any
state, federal
or other laws
relating
to bankruptcy,
insolvency
or similar
matters. We
have assumed
that the
definitive
Agreement
will not differ
in any
material
respects
from the
draft thereof
furnished to
us and
that
the representations
and warranties
made by the
parties
in the
Agreement
and the related
agreements
are and
will be true and correct
in all respects
material to our analysis.
We have assumed,
at your
direction,
that the Merger
will be consummated
in accordance
with its
terms, without waiver,
modification
or amendment of any
material term,
condition or agreement
and that, in the
course of
obtaining
the necessary
governmental,
regulatory and
other
approvals,
consents, releases
and waivers
for the Merger,
no delay,
limitation,
restriction or condition
will be imposed that would have
an adverse
effect
on SP
or the contemplated
benefits
of the Merger.
We
express
no view or
opinion
as to
any
terms or
other aspects
of the Merger
(other than
the Per
Share
Consideration
to the
extent
expressly
specified
herein),
including,
without limitation,
the form
or structure of the Merger.
Our opinion
is limited
to the fairness,
from a financial
point of view,
of the Per
Share
Consideration
to be paid
to the
holders of
SP Common
Stock and
no opinion or
view is expressed
with respect
to any
consideration
received
in connection
with the Merger
by the holders
of any
other
class of
securities,
creditors
or other constituencies
of SP. Furthermore,
no opinion
or view is expressed
as to
the relative
merits
of the Merger
in comparison
to other strategies
or transactions
that might
be available
to SP
or in which
SP might
engage
or as
to the underlying
business decision
of SP
to proceed
with or effect
the Merger.
This opinion
is not intended
to be and does
not constitute
a recommendation
to members of the
Special Committee
or the Board
of Directors
as to
whether
they should approve
the Merger
or the
Merger
Agreement,
and we
express
no opinion
or recommendation
as to
how any
stockholder should
vote or act
in connection
with the Merger.
Our opinion is limited
to the fairness,
from a financial
point of view, to the holders
of SP Common
Stock of the Per
Share Consideration
to be received
by such
holders in the
proposed
Transaction.
Furthermore,
we express
no opinion
with respect
to the amount
or nature of
any
compensation
to any officers,
directors,
or employees
of any
party
to the Transaction
relative to
the Per
Share
Consideration
to be received
by the holders
of the SP
Common
Stock in the Transaction
or with respect
to the fairness
of any
such compensation.
We
have acted
as financial
advisor to
the Special
Committee
of the Board
of Directors of
SP in connection
with, and
have participated
in certain
of the negotiations
leading to the
Merger.
We expect
to receive
fees for
our services
in connection
with the Merger,
the principal
portion of which
is contingent
upon consummation
of the Merger,
and you
have
agreed
to reimburse
our expenses
arising,
and indemnify
us against
certain
liabilities
that may arise,
out of our
engagement.
Other than the foregoing,
we have
not been, and
are not,
engaged
by SP, Parent,
or Merger
Sub.
Special
Committee
of the Board
of Directors
October
21, 2015
Page
3
It
is understood
that this
letter is for
the benefit
and use
of the
Special
Committee
and the
Board
of Directors
of SP
in connection
with and
for purposes
of its
evaluation
of the Merger
and may not be used
for any other
purpose without our prior
written consent,
except
that this opinion,
may be included in its
entirety
in any
proxy or other
information statement
or registration
statement to be mailed
to stockholders
of SP in
connection
with the Merger.
You will
afford
us the opportunity
to review and
approve any
reference
to Berkery,
Noyes
& Co., LLC and
this opinion
in any
such proxy or other
information
statement or
registration
statement prior
to their
dissemination
to stockholders or
other parties
or their filing
with the
SEC or
any other
regulatory agency,
which approval
shall not be unreasonably
withheld or delayed.
Our
opinion is
necessarily
based
on financial,
economic,
monetary,
market
and other
conditions and
circumstances
as they
exist
and can
be evaluated
on, and
the information
made available
to us as
of, the date
hereof.
It should be
understood that
subsequent developments
may affect
this opinion,
and we
do not have
any
obligation
to update, revise,
or reaffirm
this opinion.
The issuance
of this opinion was approved
by our
Opinion Committee.
Based
upon and
subject to
the foregoing,
including the various
assumptions
and limitations
set forth
herein,
and our
experience
as business
appraisers,
we are of the
opinion that,
as of
the date hereof,
the Per
Share
Consideration
to be
received
pursuant to
the Merger
by holders
of SP Common
Stock is fair, from
a financial
point of view,
to such holders.
Sincerely
yours,
BERKERY,
NOYES
& CO., LLC
By: |
/s/
Mary Jo
Zandy |
|
|
Mary
Jo Zandy |
|
|
Managing
Director |
|
ANNEX
D
GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
§
262. Appraisal rights
(a)
Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation
nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder’s shares of stock under the circumstances described in subsections (b) and (c) of
this section. As used in this section, the word “stockholder” means a holder of record of stock in a corporation;
the words “stock” and “share” mean and include what is ordinarily meant by those words; and the words
“depository receipt” mean a receipt or other instrument issued by a depository representing an interest in 1 or more
shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b)
Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this
title), § 252, § 254, § 255, § 256, § 257, § 258, § 263
or § 264 of this title:
(1) Provided,
however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice
of the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national
securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval
the vote of the stockholders of the surviving corporation as provided in § 251(f) of this title.
(2)
Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of
merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a.
Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares
of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national
securities exchange or held of record by more than 2,000 holders;
c. Cash
in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or
d.
Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In
the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 or § 267
of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of
the subsidiary Delaware corporation.
(c) Any
corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the
shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation
in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation.
If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d)
and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal
rights shall be perfected as follows:
(1) If
a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders
who was such on the record date for notice of such meeting (or such members who received notice in accordance with § 255(c)
of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of
this section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114
of this title. Each stockholder electing to demand the appraisal of such stockholder’s shares shall deliver to the corporation,
before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares.
Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If
the merger or consolidation was approved pursuant to § 228, § 253, or § 267 of this title, then
either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of
this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such
notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after
the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder’s
shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice did not notify stockholders
of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice,
such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of
such holder’s shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior
to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation,
the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e) Within
120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights,
may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the
merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party
shall have the right to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger
or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder’s written request for such a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof,
whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such
stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition
or request from the corporation the statement described in this subsection.
(f) Upon
the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed
a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The
Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition
by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing,
in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At
the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold
stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings
as to such stockholder.
(h) After
the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with
the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding
the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines
otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall
be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established
from time to time during the period between the effective date of the merger and the date of payment of the judgment. Upon application
by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is required,
may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights
under this section.
(i) The
Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of
uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation
of the certificates representing such stock. The Court’s decree may be enforced as other decrees in the Court of Chancery
may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j) The
costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection
with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts,
to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From
and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions
on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective
date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided
in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written
withdrawal of such stockholder’s demand for an appraisal and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding
the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision
shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named
party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation
within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.
(l) The
shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted
had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting
corporation.
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