Common use of Basis of Exchange Clause in Contracts

Basis of Exchange. The M3 Stockholders currently own 10,200,000 shares of the M3 Common Stock, which shares constitute all of the issued and outstanding shares of the capital stock of M3. As a result of the Merger, subject to adjustment as described below, the M3 Stockholders shall be entitled to receive, in exchange for all of their M3 Common Stock, 11,934,007 shares of the EGPI Common Stock on the basis of 1.1700006 shares of the EGPI Common Stock for each share of the M3 Common Stock held by each of the M3 Stockholders. Any fractional number of shares to be received shall be rounded up to the nearest whole number. Following the Effective Date, EGPI shall have 23,868,015 shares of the EGPI Common Stock issued and outstanding, owned as follows: (a) 9,547,206 shares owned by the EGPI Stockholders; (b) 11,934,007 shares owned by the M3 Stockholders, subject to adjustment as described below; and (c) 2,386,802 shares owned by Strategic Partners as described below, subject to adjustment as described below. Provided, however, notwithstanding anything herein contained to the contrary, the basis of the exchange described herein is based on a Liability Level of EGPI at the Effective Date (hereinafter defined) of no more than $290,000. At the $290,000 Liability Level of EGPI at the Effective Date, the M3 Stockholders will receive 11,943,007 of the EGPI Common Stock. If the Liability Level of EGPI at the Effective Date exceeds $290,000, the number of shares of the EGPI Common Stock to be received by the M3 Stockholders shall be equal to 11,934,007 divided by the quotient obtained by dividing $290,000 by the actual Liability Level of EGPI at the Effective Date. For example, if the Liability Level of EGPI at the Effective Date is $635,000 rather than $290,000, the quotient obtained by dividing $290,000 by $635,000 is 0.46. The 11,943,007 number of shares of the EGPI Common Stock will then be divided by 0.46 with a result of 25,943,493. Thereafter, as described below, an additional 14,009,486 shares of the EGPI Common Stock will be issued to the M3 Stockholders, so that the M3 Stockholders will receive at total of 25,943,493 shares of the EGPI Common Stock as a result of the Merger rather than 11,934,007 shares of the EGPI Common Stock. The intent of this Agreement is that Strategic Partners shall receive shares of the EGPI Common Stock on the Effective Date equal to 10 percent of the issued and outstanding shares of the EGPI Common Stock at the Effective Date. If the number of shares of the EGPI Common Stock to be received by the M3 Stockholders are increased as described below, then the number of shares of the EGPI Common Stock to be received by Strategic Partners shall be concomitantly increased so that Strategic Partners, following all adjustments hereunder, will own no less than 10 percent of the issued and outstanding shares of the EGPI Common Stock. For administrative purposes, on the Effective Date, the M3 Stockholders will receive 11,934,007 shares of the EGPI Common Stock. Within 120 days following the Effective Date a determination of the Liability Level of EGPI at the Effective Date shall be made, and if the Liability Level of EGPI at the Effective Date is greater than $290,000, then additional shares of the EGPI Common Stock shall immediately be issued to the M3 Stockholders as described above. If the Liability Level of EGPI at the Effective Date is less than $290,000, there shall be no adjustment in the shares of the EGPI Common Stock to be received by the M3 Stockholders. As used herein, the Liability Level of EGPI at the Effective Date shall mean all recorded liabilities of EGPI as reflected on Schedule 15(h) hereof, plus any unrecorded liabilities that are discovered during the 120 days following the Effective Date.