AGREEMENT AND PLAN OF MERGER
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (“Agreement”) is made and entered into this 12th
day of August, 2008 by and among (a) Wherify Wireless, Inc., a Delaware
corporation (“Wherify”),
Wherify Acquisition, Inc., a newly-formed wholly-owned subsidiary of Wherify
established under the laws of the State of Delaware (the “Merger
Sub”),
Wherify California, Inc. a wholly-owned subsidiary of Wherify established under
the laws of California (“Wherify
California”)
and
4031806 Canada Inc., a wholly-owned subsidiary of Wherify established under
the
Canada Business Corporations Act (“Wherify
Canada”,
and
collectively with Wherify and Wherify California, the “Wherify
Entities”
or
individually as “Wherify
Entity”),
on
the one hand, and (b) LY Holdings, LLC, a Kentucky limited liability company
(“Lightyear”),
Lightyear Network Solutions, LLC, a Kentucky limited liability company
(“LNS”),
Lightyear Alliance of Puerto Rico, LLC. (“Puerto
Rico”, and
collectively with Lightyear and LNS, the “Lightyear
Companies”),
LANJK
LLC, a Kentucky limited liability company (“LANJK”),
SullivanLY, LLC, a Nevada limited liability company (“SullivanLY”),
Rice-LY Ventures, LLC, a Kentucky limited liability company (“Rice-LY”),
Telemix Investments, LLC, a California limited liability company (“Telemix”)
and
MAP II, LLC, a Kentucky limited liability company (“MAP”)
(LANJK, SullivanLY, Rice-LY, Telemix and MAP to be collectively referred to
as
“Lightyear
Members”)
(Lightyear, LNS, Puerto Rico and Lightyear Members to be collectively referred
to as “Lightyear
Parties”
or
individually as “Lightyear
Party”),
on
the other hand (each a “Party”
and
collectively, the “Parties”).
RECITALS:
WHEREAS,
the Board of Directors of the Wherify Entities, Lightyear, LNS and Merger Sub
deem it advisable and in the best interests of each entity and its stockholders
or member that Wherify combine with Lightyear in order to advance the long-term
business interests of Wherify and Lightyear; and
WHEREAS,
the business combination of Wherify and Lightyear shall be effected through
a
merger (the “Merger”) of the Merger Sub into Lightyear in accordance with the
terms of this Agreement, and the Delaware General Corporation Law (the “DGCL”)
and Kentucky Revised Statutes (the “Kentucky Statutes”), with Lightyear as the
surviving entity as a result of which Lightyear shall become a wholly owned
subsidiary of Wherify.
AGREEMENT:
NOW,
THEREFORE, in consideration of the mutual covenants, agreements, representations
and warranties set forth herein and other valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties agree
as
follows:
ARTICLE
I
DEFINITIONS
“Acquisition
Proposal” means (i) any inquiry, proposal or offer for (A) the dissolution or
liquidation of Wherify, Lightyear or any Subsidiary of either or (B) a merger,
consolidation, tender offer, recapitalization, share exchange or other business
combination involving 25% or more of such entity’s equity securities or
membership interests, (ii) any proposal for the issuance by any such entity
of
over 25% of its equity securities or membership interests or (iii) any proposal
or offer to acquire in any manner, directly or indirectly, over 25% of the
equity securities, membership interests or consolidated total assets of such
entity, in each case other than the Merger contemplated by this Agreement.
“Action”
shall mean any action, order, writ, injunction, judgment or decree outstanding
or suit, litigation, proceeding, arbitration, audit or investigation by or
before any Governmental Entity.
“Affiliate”
shall mean, with respect to any Person, any other Person that directly, or
through one or more intermediaries, controls or is controlled by or is under
common control with such Person.
“Ancillary
Agreements” shall mean the Certificate of Merger, the officers’ certificates
delivered pursuant to Sections 12.2(a) and 12.3(a), the Escrow Agreement
provided for in Section 10.5, and each employment agreement provided for in
Section 10.3.
“Assets”
shall mean, with respect to any Person, the right, title and interest of such
Person, in their properties, assets and rights of any kind, whether tangible
or
intangible, real or personal, including without limitation the right, title
and
interest in the following:
(a) all
Contracts;
(b) all
Fixtures and Equipment;
(c) all
Facilities;
(d) all
inventory;
(e) all
Books
and Records;
(f) all
Intellectual Property;
(g) all
Permits;
(h) all
return and other rights under or pursuant to all warranties, representations
and
guarantees made by suppliers and other third parties in connection with the
Assets or services furnished to such Person;
(i) all
cash,
accounts receivable, deposits and prepaid expenses; and
(j) all
goodwill.
“Benefit
Arrangement” shall mean any employment, consulting or severance arrangement or
policy and each plan, arrangement, program, agreement or commitment providing
for insurance coverage, workers’ compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health,
disability or accident benefits or for deferred compensation, profit-sharing
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement insurance, compensation
or
benefits which (a) is not a Welfare Plan, Pension Plan or Multiemployer Plan,
(b) is or has been entered into, maintained, contributed to or required to
be
contributed to by a Party or an ERISA Affiliate of a Party or under which a
Party or any ERISA Affiliate of a Party may incur any liability or obligation,
and (c) covers any employee, former employee, consultant or director of a Party
or any ERISA Affiliate of a Party (with respect to their relationship with
such
entities).
“Books
and Records” shall mean, with respect to any Person, (a) all product, business
and marketing plans, sales and promotional literature and artwork relating
to
the Assets or the business of such Person and (b) all books, records, lists,
ledgers, financial data, files, reports, product and design manuals, plans,
drawings, technical manuals and operating records of every kind relating to
the
Assets or the business of such Person, in each case whether maintained as hard
copy or stored in computer memory.
-2-
“CERCLA”
shall mean the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601, et seq., as amended.
“Certificate”
shall mean an outstanding certificate or certificates which immediately prior
to
the Effective Time represented units of Lightyear Membership
Interests.
“Code”
shall mean the Internal Revenue Code of 1986, as amended, or any successor
law.
“Contracts”
means, with respect to any Person, all agreements, contracts, obligations,
binding commitments and binding arrangements (a) to which such Person is a
party, (b) under which such Person has any rights, (c) under which such Person
has any Liability or (d) by which such Person or any Asset of such Person is
bound, including, in each case, all amendments, modifications and supplements
thereto.
“Daily
Per Share Price” shall mean, for any trading day, the last reported sale price
per share of Wherify Common Stock as reported on the Over-the-Counter Bulletin
Board (or such successor reporting agency that reports trading in Wherify Common
Stock) for that day.
“DGCL”
shall mean the Delaware General Corporation Law.
“Employee
Plans” shall mean all Benefit Arrangements, Multiemployer Plans, Pension Plans,
Welfare Plans and Employment Agreements.
“Encumbrances”
shall mean any lien, pledge, option, right of first refusal, charge, easement,
security interest, deed of trust, mortgage, right-of-way, covenant, condition,
restriction or encumbrance of third parties.
“Environmental
Laws” shall mean any federal, state or local law, statute, ordinance, order,
decree, rule or regulation relating to: (a) the preservation or reclamation
of
natural resources, (b) releases, discharges, emissions or disposals to air,
water, land or groundwater of Hazardous Materials; (c) the use, handling or
disposal of polychlorinated biphenyls, asbestos or urea formaldehyde or any
other Hazardous Material; (d) the treatment, storage, disposal or management
of
Hazardous Materials; (e) exposure to toxic, hazardous or other controlled,
prohibited or regulated substances; or (f) the transportation, release or any
other use of Hazardous Materials, including CERCLA, EPCRA, HTMA, RCRA, TSCA,
the
Occupational, Safety and Health Act, 29 U.S.C. 651, et seq., the Clean Air
Act,
42 U.S.C. 7401, et seq., the Federal Water Pollution Control Act, 33 U.S.C.
1251, et seq., and the Safe Drinking Xxxxx Xxx, 00 X.X.X. 000x, et seq., and
other comparable state and local laws and all rules and regulations promulgated
pursuant thereto or published thereunder.
“EPCRA”
shall mean the Emergency Planning and Community Right to Xxxx Xxx, 00 X.X.X.
00000, et seq., as amended.
“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as
amended.
“ERISA
Affiliate” shall mean, with respect to a party, any entity which is (or at any
relevant time was) a member of a “controlled group of corporations” with, under
“common control” with, or a member of “affiliated service group” with, the party
as defined in Section 414(b) or (c) of the Code or, solely for the purposes
of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, as defined in Section 414(m) or (o) of the Code.
“Exchange
Act” shall mean the Securities and Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
-3-
“Exchange
Ratio” shall
mean a fraction (expressed as a decimal and rounded to the nearest
ten-thousandth of a share), determined by dividing:
(a) the
number of Lightyear Issuable Wherify Shares minus the number of shares of
Wherify Common Stock issuable upon conversion of Senior Subordinated Convertible
Notes under Exhibit F and Section 8.2(g) outstanding immediately prior to the
Closing; by
(b) 10,000
which is the fully diluted number of membership interest units of Lightyear
outstanding immediately prior to the Merger.
“Facilities”
shall mean, as to any Person, all plants, offices, manufacturing facilities,
stores, warehouses, administration buildings and all real property and related
facilities owned, leased or used by such Person.
“Financing
Shares” shall mean shares of Wherify Series D Preferred Stock issued after the
date of this Agreement and prior to or simultaneously with the Closing to one
or
more bona fide third party purchasers in an equity financing pursuant to which
Wherify sells shares of its Preferred Stock with the principal purpose of
raising capital.
“Fixtures
and Equipment” shall mean, with respect to any Person, all of the furniture,
fixtures, furnishings, machinery and equipment owned, leased or used by such
Person and located in, at or upon the Facilities of such Person.
“GAAP”
shall mean generally accepted accounting principles in the United States of
America, as in effect from time to time, consistently applied.
“Governmental
Entity” shall mean any court, regulatory or administrative agency, commission or
other governmental authority, body or instrumentality, domestic or
foreign.
“Hazardous
Materials” shall mean each and every element, compound, chemical mixture,
contaminant, pollutant, material, waste or other substance which is defined,
determined or identified as hazardous or toxic under applicable Environmental
Laws or the release of which is regulated under applicable Environmental Laws.
Without limiting the generality of the foregoing, the term includes: “hazardous
substances” as defined in CERCLA; “extremely hazardous substances” as defined in
EPCRA; “hazardous waste” as defined in RCRA; “hazardous materials” as defined in
HMTA; a “chemical substance or mixture” as defined in TSCA; crude oil or
petroleum products; radioactive materials, including source, byproduct or
special nuclear materials; asbestos or asbestos-containing materials;
chlorinated fluorocarbons; and radon.
“HTMA”
shall mean the Hazardous Materials Transportation Act, 49 U.S.C. 1802 et seq.,
as amended.
“Intellectual
Property” shall mean all (a) U.S. and foreign patents, patent applications,
patent disclosures and improvements thereto, including xxxxx patents and utility
models and applications therefor, (b) U.S. and foreign trademarks, service
marks, trade dress, logos, trade names and corporate names and the goodwill
associated therewith and registrations and applications, extensions or renewals
for registration thereof, (c) U.S. and foreign copyrights and registrations
and
applications, extensions or renewals for registration thereof, (d) U.S. and
foreign mask work rights and registrations and applications, extensions or
renewals for registration thereof, (e) trade secrets, (f) inventions, formulae,
tools, methods, processes, designs, know-how or other data or information,
(g)
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (h)
World Wide Web addresses, domain names and sites; (i) copies and tangible
embodiments of any of the items described in the foregoing (a) through (g);
and
(j) licenses of any rights with respect to any of the items described in the
foregoing (a) through (i).
-4-
“IRS”
shall mean the United States Internal Revenue Service or any successor
agency.
“Kentucky
Statutes” shall mean the Kentucky Revised Statutes.
“Knowledge”
shall mean with respect to any Person, the actual knowledge of such Person.
Lightyear shall be deemed to have “Knowledge” of a particular fact or other
matter if any of its Managers or officers has Knowledge of such fact or other
matter. Wherify shall be deemed to have “Knowledge” of a particular fact or
other matter if any of its directors and officers has Knowledge of such fact
or
other matter.
“Liability”
shall mean any direct or indirect liability, indebtedness, obligation,
commitment, expense, claim, deficiency, guaranty or endorsement of or by any
Person of any type, whether accrued, absolute, contingent, matured, unmatured
or
other.
“Lightyear
Issuable Wherify Shares” shall mean a number of shares of Wherify Series C
Preferred Stock which are convertible into that number of shares of Wherify
Common Stock at the Closing equal to 1.038 multiplied by the Wherify Outstanding
Shares, where “Wherify Outstanding Shares” means the sum of:
(i)
the
number of shares of Wherify Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any Financing Shares that are Wherify
Common Stock);
(ii)
the
number of shares of Wherify Common Stock issuable upon exercise of warrants
and
conversion of shares, debentures and other rights to acquire shares of Wherify
Common Stock outstanding immediately prior to the Effective Time, including
without limitation:
(A)
Wherify Series A Preferred Stock and Wherify Series B Preferred Stock, on an
as
converted basis (including without limitation any accrued but undeclared
dividends payable in such shares);
(B)
the
number of shares of Wherify Common Stock issuable upon conversion of all
Financing Shares issued prior to the Effective Time, to the extent such
Financing Shares have a purchase price of up to but not more than $15,000,000,
on an as converted basis;
but
excluding:
(1)
all
shares of Series C Stock issuable as Merger Shares; and
(2)
shares of Wherify Common Stock issuable upon conversion of all Financing Shares
issued prior to the Effective Time, to the extent such Financing Shares have
a
purchase price in excess of $15,000,000, on an as converted basis. For the
purpose of clarity, the equity dilution caused by the sale of Financing Shares
having an aggregate purchase price in excess of $15,000,000 and of any equity
issuances after the Effective Time shall apply pro rata to all holders of
Wherify equity, including without limitation holders of Wherify Issuable Shares
or any convertible notes, after the Effective Time.
“Lightyear
Operating Agreement” shall mean that Second Amended and Restated Operating
Agreement of Lightyear dated July 30, 2003.
“Lightyear
Membership Interests” shall mean the membership interest of
Lightyear.
“Lightyear
Members” mean the holders of Lightyear Membership Interests immediately prior to
the Closing.
“LNS
Membership Interests” shall mean the membership interest of LNS.
-5-
“LNS
Operating Agreement “shall mean that certain operating agreement of LNS dated
December 2, 2003.
“Material
Adverse Effect” shall mean, with respect to a Person, any event, fact or
circumstance that has substantial adverse effect or substantial adverse change
in the assets, liabilities, business, operations, results of operations or
condition (financial or otherwise) of such Person, taken as a whole, or, if
such
Person is a Party, on the ability of such Person to consummate the transactions
contemplated hereby; provided, however, that any adverse change, event,
circumstance or development with respect to, or effect resulting from (A)
general economic conditions or conditions generally affecting the Party’s
industry, except in either case to the extent such Party is materially
disproportionately affected thereby, (B) the announcement or pendency of the
Merger or any other transactions expressly contemplated hereby, (C) compliance
with the terms and conditions of this Agreement, (D) a change in the stock
price
or trading volume of Wherify Common Stock, provided that clause (D) shall not
exclude any underlying effect which may have caused such change in stock price
or trading volume or failure to meet published revenue or earnings projections,
(E) any change in accounting requirements or principles or any change in
applicable laws, rules or regulations or the interpretation thereof or (F)
the
continued incurrence of losses by Wherify shall not in and of itself constitute,
or otherwise be considered in determining whether there exists, a Material
Adverse Effect.
“Multiemployer
Plan” shall mean any “multiemployer plan,” as defined in Section 3(37) of ERISA,
(a) which the Company or any ERISA Affiliate maintains, administers, contributes
to or is required to contribute to, or, after September 25, 1980, maintained,
administered, contributed to or was required to contribute to, or under which
the Company or any ERISA Affiliate may incur any liability or obligation and
(b)
which covers any employee or former employee of the Company or any ERISA
Affiliate (with respect to their relationship with such entities).
“Party
Contract” with respect to a party shall mean the following
Contracts:
(a) all
written management, compensation, employment or other Contracts entered into
with any executive officer, director or key employee of such party;
(b) all
Contracts which provide for Liability to the party in excess of
$25,000.00;
(c) all
contracts under which such party has any outstanding indebtedness, obligation
or
liability for borrowed money or the deferred purchase price of property or
has
the right or obligation to incur any such indebtedness, obligation or liability,
in each case in an amount greater than $25,000.00 or in the aggregate more
than
$50,000.00;
(d) all
Contracts providing for indemnification of any Person with respect to
Liabilities relating to any current or former business of such party, other
than
customary indemnification provisions contained in Contracts for the purchase
of
supplies or the sale of inventory in the ordinary course of business, in an
individual amount or potential amount greater than $25,000.00 or in the
aggregate more than $50,000.00;
(e) all
Contracts under which such party has directly or indirectly guaranteed any
Liabilities of any Person in an individual amount or potential amount greater
than $25,000.00 or in the aggregate more than $50,000.00;
(f) all
Contracts which limit the ability of such party to compete in any line of
business or with any Person or in any geographic area or which limit the ability
of such party with respect to the development, manufacture, marketing, sale
or
distribution of, or other rights with respect to, any products or
services;
-6-
(g) all
Contracts concerning a partnership, joint venture or joint
development;
(h) all
Contracts relating to acquisitions or dispositions of any business or product
line;
(i) all
material Contracts pursuant to which such party has agreed to pay a rebate
other
than any such Contracts entered in the ordinary course of business consistent
with past practice;
(j) all
material Contracts pursuant to which such party has licensed from or to a third
party any Intellectual Property (except any such agreements relating to
commercially available off the shelf software);
(k) all
Contracts providing for or granting an Encumbrance upon any material Asset
of
such party (other than a Permitted Encumbrance);
(l) all
Contracts providing for or containing confidentiality and non-disclosure
obligations (other than standard non-disclosure forms signed by employees
generally); and
(m) all
other
material Contracts.
“Pension
Plan” shall mean any “employee pension benefit plan” as defined in Section 3(2)
of ERISA (other than a Multiemployer Plan) (a) which a Party or any ERISA
Affiliate of a Party maintains, administers, contributes to or is required
to
contribute to, or has been maintained, administered or contributed to or
required to be contributed to, or under which a Party or any ERISA Affiliate
of
a Party may incur any liability and (b) which covers any employee or former
employee of a Party or any ERISA Affiliate of a Party (with respect to their
relationship with such entities).
“Permits”
means all consents, licenses, permits, certificates, variances, exemptions,
franchises and other approvals issued, granted, given, or otherwise made
available by any Governmental Entity.
“Permitted
Encumbrances” shall mean (a) those Encumbrances that result from all statutory
or other liens for Taxes or assessments (1) which are not yet due and payable
or
(2) the validity of which is being contested in good faith by appropriate
proceedings and for which adequate reserves are being maintained in accordance
with GAAP; (b) those Encumbrances that result from any cashiers’, landlords’,
workers’, mechanics’, carriers’, materialmen’s, suppliers’ or repairers’ lien
and other similar Encumbrances imposed by law or incurred in the ordinary course
of business in respect of obligations which are not overdue; (c) those
Encumbrances imposed by any law, rule, regulation, ordinance or restriction
promulgated by any Governmental Entity, other than those created by agreement
with a Governmental Entity; (d) those Encumbrances that result from all leases,
subleases or licenses to which Lightyear or Wherify is a party; (e) any title
exception set forth Section 1(a) of the Lightyear or Wherify Disclosure
Schedule; and (f) all other Encumbrances which, individually, or in the
aggregate, do not detract from or interfere with or impair the use, value or
marketability of the Asset subject thereto or affected thereby or the conduct
of
the Company’s business.
“Person”
shall mean any individual, corporation, partnership, limited liability company,
joint venture, governmental agency or instrumentality, or any other
entity.
“Prohibited
Transaction” means a transaction that is prohibited under Section 4975 of the
Code or Section 406 of ERISA and not exempt under Section 4975 of the Code
or
Section 408 of ERISA, respectively.
“Puerto
Rico Membership Interests” shall mean the membership interest of Lightyear
Alliance of Puerto Rico, LLC.
-7-
“Qualifying
Proposal” means a Superior Proposal or an Acquisition Proposal that constitutes
or, in the good faith judgment of the Board of Directors of Wherify or
Lightyear, as applicable, after consultation with outside counsel and its
independent financial advisor, would reasonably be expected to result in a
Superior Proposal.
“RCRA”
shall mean the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq.,
as amended.
“Representative”
shall mean, with respect to any Person, that Person’s officers, directors,
employees, financial advisors, agents or other representatives.
“SEC”
shall mean the Securities and Exchange Commission.
“Securities
Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“Senior
Subordinated Convertible Notes” shall mean those senior subordinated convertible
notes to be issued by LNS prior to the Closing with the terms as set forth
in
Exhibit
F,
including any convertible notes issues under Section 8.2(g).
“Stock
Price” shall mean the average of the Daily Per Share Prices for the ten
consecutive trading days ending on the trading day two days prior to the date
on
which such price is to be determined.
“Subsidiary”
shall mean, with respect to any Person, any corporation, partnership, limited
liability company, joint venture, association or other entity, of which (a)
such
Person directly or indirectly owns or controls at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions; (b) such Person is a general partner, manager or managing member
or
(c) such Person holds a majority of the equity economic interest.
“Superior
Proposal” means any unsolicited, bona fide written proposal made by a third
party to acquire all or substantially all of the equity securities, equity
interests or assets of Wherify or Lightyear, pursuant to a tender or exchange
offer, a merger, a consolidation or a sale of its assets, on terms which the
Board of Directors of Wherify or the Board of Directors of Lightyear, as
applicable, determines in its good faith judgment to be more favorable from
a
financial point of view to the stockholders of Wherify or the Members of
Lightyear, as applicable, than the transactions contemplated by this Agreement
(after consultation with respect thereto with its independent financial
advisor), taking into account all the terms and conditions of such proposal
and
this Agreement (including any proposal by either party to amend the terms of
this Agreement).
“Tax”
or
“Taxes” shall mean any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including
any
interest, penalty, or addition thereto, whether disputed or not.
“Tax
Return” shall mean any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
“TSCA”
shall mean the Toxic Substances Control Act, 15 U.S.C. 2601, et seq., as
amended.
-8-
“Welfare
Plan” shall mean any “employee welfare benefit plan” as defined in Section 3(1)
of ERISA, (a) which Lightyear or Wherify or any ERISA Affiliate of Lightyear
or
Wherify maintains, administers, contributes to or is required to contribute
to,
or under which Lightyear or Wherify or any ERISA Affiliate of Lightyear or
Wherify may incur any liability or obligation and (b) which covers any employee
or former employee, consultant or director of Lightyear or Wherify or any ERISA
Affiliate of Lightyear or Wherify (with respect to their relationship with
such
entities).
“Wherify
Canada” shall mean 4031806 Canada Inc., a wholly-owned subsidiary of Wherify
established under the Canada Business Corporations Act.
“Wherify
Common Stock” shall mean the Common Stock, par value $0.01 per share, of
Wherify.
“Wherify
Series A Preferred Stock” shall mean the Series A Preferred Stock, par value
$0.01 per share, of Wherify.
“Wherify
Series B Preferred Stock” shall mean the Series B Preferred Stock, par value
$0.01 per share, of Wherify.
“Wherify
Series C Preferred Stock” shall mean the Series C Preferred Stock, par value
$0.01 per share, of Wherify.
“Wherify
Series D Preferred Stock” shall mean the Series D Preferred Stock, par value
$0.01 per share, of Wherify.
Table
of
Other Defined Terms
|
Terms
|
Cross
Reference
in
Agreement
|
|
|
Agreement
|
Preamble
|
|
|
Alternative
Acquisition Agreement
|
Section
10.1(b)
|
|
|
Certificate
of Merger
|
Section
2.2
|
|
|
Closing
|
Section
2.4
|
|
|
Closing
Date
|
Section
2.4
|
|
|
Combined
Company
|
Section
2.1
|
|
|
Confidentiality
Agreement
|
Section
10.10
|
|
|
Constituent
Corporations
|
Section
2.1
|
|
|
Effective
Time
|
Section
2.2
|
|
|
Expenses
|
Section
10.12
|
|
|
Governmental
Approvals
|
Section
10.16(a)
|
|
|
Lightyear
Disclosure Schedule
|
Article
V
|
|
|
Lightyear
Indemnified Party
|
Section
11.4
|
|
|
Lightyear
Voting Proposal
|
Section
5.5
|
|
|
Lightyear
Warrant
|
Section
3.2
|
|
|
LNS
Balance Sheet
|
Section
5.8
|
|
|
LNS
Financial Statements
|
Section
5.8
|
|
|
LNS
Insurance Policies
|
Section
5.19
|
|
|
LNS
Leased Real Property
|
Section
5.10(f)
|
|
|
LNS
Owned Real Property
|
Section
5.10(e)
|
|
|
Merger
|
Recitals
|
|
|
Merger
Shares
|
Section
3.1(b)
|
|
|
Merger
Sub
|
Preamble
|
|
|
Merger
Sub Disclosure Schedule
|
Article
VI
|
|
|
Notifying
Party
|
Section
10.16(b)
|
|
|
Occupancy
Agreements
|
Section
5.10(e)
|
|
|
Party
or Parties
|
Preamble
|
|
|
Puerto
Rico
|
Preamble
|
|
|
Surviving
Entity
|
Section
2.1
|
|
|
Wherify
Disclosure Schedule
|
Article
VII
|
|
|
Wherify
Indemnified Party
|
Section
11.5
|
|
|
Wherify
Reference Balance Sheet
|
Section
7.6
|
|
|
Wherify
SEC Report
|
Section
7.5
|
-9-
ARTICLE
II
THE
MERGER
2.1 The
Merger.
In
accordance with the provisions of this Agreement, at the Effective Time (as
hereinafter defined), the Merger Sub shall be merged with and into Lightyear,
with Lightyear as the Surviving Entity which shall continue its existence under
the laws of the State of Kentucky (the “Surviving Entity”) unimpaired and
unaffected by the Merger and the separate existence of the Merger Sub shall
cease. Lightyear and the Merger Sub are sometimes hereinafter collectively
referred to as the “Constituent Corporations.” Lightyear and Wherify after the
Merger are sometimes hereinafter referred to as the “Combined
Company.”
2.2 Effective
Time.
The
Merger shall become effective at the time of the effective filing of a
Certificate of Merger, attached hereto as Exhibit
A (the “Certificate of Merger”),
with
the Secretary of State of Delaware and Secretary of State of Kentucky in
accordance with the provisions of the DGCL and/or Chapter 271B of the Kentucky
Statutes, respectively, or at such later time as is established by Wherify
and
Lightyear and set forth in the Certificate of Merger (the “Effective Time”).
Lightyear and the Merger Sub agree to file the aforementioned Certificate of
Merger at the time of the Closing, as hereinafter defined or as soon as
practicable thereafter.
2.3 Effect
of the Merger.
(a) At
the
Effective Time, the Surviving Entity shall, without transfer, thereupon and
thereafter possess all assets and property of every description, and every
interest therein, wherever located, and the rights privileges, immunities,
powers, franchises and authority, of a public as well as of a private nature,
and be subject to all of the restrictions, disabilities, and duties of each
of
the Constituent Corporations, and all obligations of, or belonging to, or due
to, either of the Constituent Corporations, shall be vested in the Surviving
Entity without further act or deed; all assets and property of every
description, and every interest therein, wherever located, and the rights,
privileges, immunities, powers, franchises, and authority shall thereafter
be
the property of the Surviving Entity as effectively as when they were the
property of the Constituent Corporations, and the title to any real estate
or
any interest therein vested in either of the Constituent Corporations shall
not
revert or in any way be impaired by reason of the Merger; all rights of
creditors and all liens upon any property of the Constituent Corporations
existing as of the Effective Time shall be preserved unimpaired; and all debts,
liabilities, and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Entity and may be enforced against it to the same extent as
if
such debts, liabilities, and duties had been incurred for or by it; and any
action or proceeding, whether civil, criminal, or administrative, pending by
or
against either Constituent Corporation shall be prosecuted as if the Merger
had
not taken place, or the Surviving Entity may be substituted in any such action
or proceeding.
(b) All
corporate acts, plans, policies, contracts, approvals, and authorizations of
Lightyear and its Members, Managers, committees elected or appointed by its
Board of Directors, officers, and agents that were valid and effective
immediately prior to the Effective Time shall be taken for all purposes as
the
acts, plans, policies, contracts, approvals, and authorizations of the Surviving
Entity and shall be effective and binding thereon as the same were with respect
to Lightyear provided that this clause shall not in any way negate or negatively
affect any representations and warranties, agreements or covenants of Lightyear
Parties contained in this Agreement.
-10-
(c) All
corporate acts, plans, policies, contracts, approvals, and authorizations of
Merger Sub and its shareholders, directors, committees elected or appointed
by
its Board of Directors, officers, and agents that were valid and effective
immediately prior to the Effective Time shall be taken for all purposes as
the
acts, plans, policies, contracts, approvals, and authorizations of the Surviving
Entity and shall be effective and binding thereon as the same were with respect
to Merger Sub provided that this clause shall not in any way negate or
negatively affect any representations and warranties, agreements or covenants
of
Wherify and Merger Sub contained n this Agreement.
2.4 Closing.
The
Closing of the transactions contemplated by this Agreement (the “Closing”) shall
take place on a date to be specified by Wherify and Lightyear (the “Closing
Date”), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article XII (other than delivery of
items to be delivered at the Closing and other than satisfaction of those
conditions that by their nature are to be satisfied at the Closing, it being
understood that the occurrence of the Closing shall remain subject to the
delivery of such items and the satisfaction or waiver of such conditions at
the
Closing) at the offices of Xxxxx Xxxxx Xxxx LLC, 000 Xxxx Xxxxxx Xxxxxx,
00xx
Xxxxx,
Xxxxxxxxxx, Xxxxxxxx, 00000-0000 or at such other place and on such other date
as the Parties may mutually agree in writing.
2.5 Articles
of Organization, Operating Agreement.
The
Articles of Organization and Operating Agreement attached hereto as Exhibit
B
shall be
the Articles of Organization and Operating Agreement of the Surviving Entity
immediately after Closing. Each of the Lightyear Members hereby agrees to the
amendment of the Charter Documents to the Operating Agreement attached as
Exhibit
B
effective as of the Closing.
2.6 Directors
and Officers.
The
managers and officers of Merger Sub immediately prior to the Effective Time
shall be the initial directors and officers, respectively, of the Surviving
Entity from and after the Effective Time, each to hold office in accordance
with
the Articles of Organization and the Operating Agreement of the Surviving Entity
until their successors are elected or appointed and qualified or until their
resignation or removal.
2.7 Shareholder
and Director Approvals.
(a) Merger
Sub shall submit the Merger and all other actions contemplated by this Agreement
that require approval and adoption by its shareholders, for consideration,
approval and adoption at a special meetings of shareholders, as the case may
be,
convened as soon after the date hereof as is possible (or if feasible, by means
of written consent in lieu of a special meeting.
(b) Subject
to all the conditions set forth in Article XII being satisfied, the Lightyear
Managers hereby approve the Merger, agree to execute any and all documents
to
evidence such approval as required by the Kentucky Statutes and authorize the
appropriate officers of Lightyear to sign this Agreement and all documents
necessary to consummate the transactions consummated herein.
(c) The
Merger Sub shall submit, for consideration, approval and adoption at a special
meeting of directors convened as soon prior to the Closing as is possible after
the date hereof, the Merger and all other actions contemplated by this Agreement
that require approval and adoption by the directors of the Merger Sub.
(d) Wherify
and Lightyear shall promptly make any and all necessary filings with respect
to
the Merger under the Securities Act, the Exchange Act, applicable state blue
sky
laws and the rules and regulations thereunder.
-11-
ARTICLE
III
CONVERSION
OF SHARES
3.1 Conversion.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
the holders thereof:
(a) Each
share of the common stock of the Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and become one fully paid
and nonassessable unit of membership interest of the Surviving Entity. Each
certificate of Merger Sub evidencing ownership of any such shares shall evidence
ownership of a like number of units of membership interest of the Surviving
Entity.
(b) Each
unit
of Lightyear Membership Interests issued and outstanding immediately prior
to
the Effective Time shall automatically be converted into (and represent the
right to receive) that number of validly issued, fully paid and nonassessable
shares of Wherify Series C Preferred Stock equal to the Exchange Ratio (the
“Merger Shares”). As of the Effective Time, the units of Lightyear Membership
Interests converted into Wherify Series C Preferred Stock pursuant to this
Section 3.1(b) shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist, and each holder of any such units of
Lightyear Membership Interests shall cease to have any rights with respect
to
such Lightyear Membership Interests and any other rights under or arising out
of
the Charter Documents except (i) the right to receive the Wherify Series C
Preferred Stock pursuant to this Section 3.1(b), (ii) any cash in lieu of
fractional Wherify Series C Preferred Stock to be issued or paid in
consideration therefor and (iii) any dividends or distributions payable pursuant
to Section 3.7 upon the surrender of such certificate in accordance with Section
3.5, without interest.
3.2 Lightyear
Warrant; Legend.
Lightyear has issued to MCI Worldcom n/k/a Verizon (“Verizon”) on November 5,
2003 a warrant granting Verizon the right to acquire 1,000 units in Lightyear,
which was subsequently decreased by agreement between Lightyear and Verizon,
to
660 units (the “Verizon Warrant”). LANJK has agreed, and hereby ratifies such
agreement, that if Verizon exercises the warrant, LANJK shall sell to Lightyear
660 units for the exercise price (which amount is $1.00 per share) under the
Lightyear Warrant such that LANJK would be the only Lightyear member diluted
if
the Lightyear Warrant were exercised by Verizon. If Verizon exercises the
warrant prior to the Closing, the 660 Lightyear units shall be issued to Verizon
and 660 units shall be redeemed from LANJK. If Verizon exercises the warrant
after the Closing, LANJK shell convey to Verizon those number of Wherify Series
C Preferred Stock that Verizon would have received under Section 3.1(b) to
this
Agreement it had exercised its warrant prior to the Closing. The Merger Shares
issued to LANJK and the stock certificate evidencing such shall have the
appropriate legends reflecting the above terms.
3.3 Fractional
Shares.
Wherify
shall not issue fractional shares of Wherify Series C Preferred Stock pursuant
to the provisions of 3.1(b) immediately above, but, in lieu thereof, shall
make
a cash payment equal to the product of the Stock Price multiplied by the
fraction of a whole share represented by the fractional share.
3.4 Adjustments
to Exchange Ratio.
Subject
to Lightyear’s consent, the Exchange Ratio shall be adjusted to reflect fully
the effect of any reclassification, stock split, consolidation, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Wherify Common Stock or Lightyear Membership Interests), reorganization,
capital redemption or repayment, bonus issue, recapitalization or other like
change with respect to Wherify Common Stock, Wherify Series C Preferred Stock
or
Lightyear Membership Interests occurring (or for which a record date is
established) after the date hereof and prior to the Closing.
-12-
3.5 Exchange
of Certificates.
(a) After
the
Effective Time, each holder of any outstanding Certificate or Certificates
may,
but is not required to, surrender such Certificate or Certificates to Lightyear
along with such other documents as may be deemed necessary by Lightyear, the
Surviving Entity or Wherify effectively to surrender and exchange such
Certificate or Certificates. From and after the Effective Time and until
Certificates are surrendered for exchange or registration of transfer, all
Certificates shall be deemed for all purposes to represent and evidence the
number of shares of Wherify Series C Preferred Stock into which they were so
converted under the terms of Section 3.1(b) of this Agreement.
(b) After
the
Effective Time, whenever Certificates are presented for exchange or registration
of transfer, Wherify shall cause to be issued in respect thereof certificates
representing the number of shares of Wherify Series C Preferred Stock into
which
the surrendered units of Lightyear Membership Interests were so converted under
the terms of Section 3.1(b) of this Agreement.
3.6 Full
Satisfaction.
All
shares of Wherify Series C Preferred Stock into which Lightyear Membership
Interests shall have been converted pursuant to this Article III shall be deemed
to have been issued in full satisfaction of all rights pertaining to such
converted shares and shall, when issued pursuant to the provisions hereof,
be
validly issued, fully paid, and nonassessable.
3.7 Dividends
and Distributions. No
dividends or other distributions declared or made after the Effective Time
with
respect to Wherify Series C Preferred Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Lightyear
Certificate until the holder of record of such Lightyear Certificate shall
surrender such Lightyear Certificate. Subject to the effect of applicable laws,
following surrender of any such Lightyear Certificate, there shall be issued
and
paid to the record holder of the Lightyear Certificate, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time previously paid with respect to such whole Wherify
Series C Preferred Stock, without interest, and, at the appropriate payment
date, the amount of dividends or other distributions having a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender that are payable with respect to such whole Wherify Series C Preferred
Stock.
ARTICLE
IV
[INTENTIONALLY
OMITTED]
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF LIGHTYEAR PARTIES
Each
Lightyear Party represents and warrants to Wherify and the Merger Sub that, to
its Knowledge, the statements contained in this Article V (Section 5.1 through
5.34) are true and correct, except as expressly set forth herein or in the
disclosure schedule delivered by Lightyear to Wherify on or before the date
of
this Agreement (the “Lightyear Disclosure Schedule”). The Lightyear Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article V and the disclosure in any
paragraph shall qualify the corresponding paragraph in this Article V where
such
disclosure would be appropriate and for which the relevance of such disclosure
is reasonably apparent based upon its nature and substance.
5.1 Organization
and Standing of Lightyear.
Each of
Lightyear and LNS is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Kentucky. Each
has
full requisite power and authority to carry on its business as it is now being
conducted and as proposed to be conducted, and to own, operate, and lease the
properties now owned, operated, or leased by it. Each is duly authorized and
qualified to carry on its business in the manner as now conducted and as
proposed to be conducted in each state in which authorization and qualification
is required. Section 5.1 of the Lightyear Disclosure Schedule sets forth a
list
of the jurisdictions in which each is qualified to transact business. Each
has
made available to Wherify and its representatives as requested true, correct
and
complete copies of the contents of its minute book, which are accurate in all
material respects and set forth fully and fairly all of its material
transactions. Each has delivered to Wherify complete and accurate copies of
the
Lightyear Operating Agreement, which is the current operating agreement of
Lightyear.
-13-
5.2 Capitalization
of Lightyear and LNS.
(a) All
units
of Lightyear Membership Interests are held by Lightyear Members and were issued
and outstanding prior to the Effective Time. The units of Lightyear Membership
Interests issued and outstanding prior to the Effective Time are duly and
validly authorized and issued, fully paid and non-assessable, and were not
issued in violation of any preemptive rights. The units of Lightyear Membership
Interests issued and outstanding prior to the Closing were issued, and all
secondary transfers of such shares permitted by Lightyear were made, in
compliance with all applicable law (including, without limitation, available
exemptions from the securities offering registration requirements of federal
and
state law). Except for the Lightyear Warrant, no warrant, call, subscription,
convertible security, or commitment of any kind obligating Lightyear to issue
any Lightyear Membership Interests exists. Lightyear does not have any stock
option or purchase plans. There is not any compensation plan applicable to
any
of the officers, directors, or employees of Lightyear under which compensation
accrued or payable is determined, in whole or in part, by reference to Lightyear
Membership Interests. There are no agreements or commitments obligating
Lightyear to repurchase or otherwise acquire any Lightyear Membership Interests,
except as set forth in the Lightyear Operating Agreement. Lightyear has no
rights of repurchase or redemption right or right of first refusal with respect
to any units of Lightyear Membership Interests, except as set forth in the
Lightyear Operating Agreement.
(b) Lightyear
is the sole member of LNS. Such LNS Membership Interests issued and outstanding
prior to the Effective Time are duly and validly authorized and issued, fully
paid and non-assessable, and were not issued in violation of any preemptive
rights. The LNS Membership Interests issued and outstanding prior to the
consummation of the Merger were issued, and all secondary transfers of such
shares permitted by LNS were made, in compliance with all applicable law
(including, without limitation, available exemptions from the securities
offering registration requirements of federal and state law). No warrant, call,
subscription, convertible security, or commitment of any kind obligating LNS
to
issue any LNS Membership Interests exists. LNS does not have any stock option
or
purchase plans. There is not any compensation plan applicable to any of the
officers, directors, or employees of LNS under which compensation accrued or
payable is determined, in whole or in part, by reference to LNS Membership
Interests. There are no agreements or commitments obligating LNS to repurchase
or otherwise acquire any LNS Membership Interests, except as set forth in the
LNS Operating Agreement. LNS has no rights of repurchase or redemption right
or
right of first refusal with respect to any units of LNS Membership Interests,
except as set forth in the LNS Operating Agreement.
(c) LNS
is
the sole member of Puerto Rico. Such Puerto Rico Membership Interests issued
and
outstanding prior to the Effective Time are duly and validly authorized and
issued, fully paid and non-assessable, and were not issued in violation of
any
preemptive rights. The Puerto Rico Membership Interests issued and outstanding
prior to the consummation of the Merger were issued, and all secondary transfers
of such shares permitted by Puerto Rico were made, in compliance with all
applicable law (including, without limitation, available exemptions from the
securities offering registration requirements of federal and state law). No
warrant, call, subscription, convertible security, or commitment of any kind
obligating Puerto Rico to issue any Puerto Rico Membership Interests exists.
Puerto Rico does not have any stock option or purchase plans. There is not
any
compensation plan applicable to any of the officers, directors, or employees
of
Puerto Rico under which compensation accrued or payable is determined, in whole
or in part, by reference to Puerto Rico Membership Interests. There are no
agreements or commitments obligating Puerto Rico to repurchase or otherwise
acquire any Puerto Rico Membership Interests, except as may be set forth in
applicable statutes. Puerto Rico has no rights of repurchase or redemption
right
or right of first refusal with respect to any units of Puerto Rico Membership
Interests, except as may be set forth in applicable statute.
-14-
5.3 Subsidiaries
and Other Ventures.
Other
than LNS, Lightyear has no subsidiaries or affiliated corporations, and owns
no
capital stock, bond, or other security of, or has any equity or proprietary
interest in, any corporation, partnership, joint venture, trust, or
unincorporated association. Other than Puerto Rico, LNS has no subsidiaries
or
affiliated corporations, and owns no capital stock, bond, or other security
of,
or has any equity or proprietary interest in, any corporation, partnership,
joint venture, trust, or unincorporated association. Puerto Rico has no
subsidiaries or affiliated corporations, and owns no capital stock, bond, or
other security of, or has any equity or proprietary interest in, any
corporation, partnership, joint venture, trust, or unincorporated
association.
5.4 Ownership
of Membership Interest.
(a) Section
5.4(a) of the Lightyear Disclosure Schedule sets forth the respective ownership
percentage or units of Lightyear Membership Interests. Except as set forth
on
Section 5.4(a) of the Lightyear Disclosure Schedule, all of Lightyear Membership
Interests are owned free and clear of any Encumbrances. None of the outstanding
units of Lightyear Membership Interests are subject to any voting trust, voting
agreement, or other agreement or understanding with respect to the voting
thereof, nor is any proxy in existence with respect to any such shares.
(b) Except
as
set forth on Section 5.4(b) of the Lightyear Disclosure Schedule, all of LNS
Membership Interests are owned free and clear of any Encumbrances. None of
the
outstanding units of LNS Membership Interests are subject to any voting trust,
voting agreement, or other agreement or understanding with respect to the voting
thereof, nor is any proxy in existence with respect to any such
shares.
(c) Except
as
set forth on Section 5.4(c) of the Lightyear Disclosure Schedule, all of Puerto
Rico Membership Interests are owned free and clear of any Encumbrances. None
of
the outstanding units of Puerto Rico Membership Interests are subject to any
voting trust, voting agreement, or other agreement or understanding with respect
to the voting thereof, nor is any proxy in existence with respect to any such
shares.
5.5 Capacity
to Enter into Agreement.
Each
Lightyear Party has all requisite power and authority to enter into this
Agreement, the Ancillary Agreements to which such Lightyear Party is a party,
and all other agreements, documents and instruments to be executed in connection
herewith and, subject only to the adoption of this Agreement and the approval
of
the Merger (the “Lightyear Voting Proposal”) by Lightyear Members under the
Kentucky Statutes, to consummate the transactions contemplated by this
Agreement. The execution and delivery by each Lightyear Party of this Agreement,
the Ancillary Agreements to which such Lightyear Party is a party, and all
other
agreements, documents and instruments to be executed by such Lightyear Party
in
connection herewith have been authorized by all necessary action by such
Lightyear Party. When this Agreement, the Ancillary Agreements to which such
Lightyear Party is a party, and all other agreements, documents and instruments
to be executed by such Lightyear Party in connection herewith have been executed
by such Lightyear Party and delivered to Wherify and the Merger Sub, this
Agreement, the Ancillary Agreements and such other agreements, documents and
instruments will constitute the valid and binding agreements of such Lightyear
Party enforceable against such Lightyear Party in accordance with their
respective terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors’ rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good
faith and fair dealing.
5.6 Conflicts.
Except
as set forth on Section 5.6 of the Lightyear Disclosure Schedule, the execution
and delivery of this Agreement and the Ancillary Agreements, the performance
by
each Lightyear Party of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated by this Agreement hereby or
thereby will not (a) violate, conflict with or result in (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, require a consent or waiver under, constitute a change in control under,
require the payment of a penalty under or result in the imposition of any lien
on any Lightyear Company’s material Assets under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, license or other
agreement, instrument or obligation to which any Lightyear Company is a party
or
by which it or any of its properties or material Assets may be bound or
affected, (b) violate any statute, law, ordinance, rule, regulation or judgment,
decree or order of any Governmental Entity, applicable to any Lightyear Company
or any of its material Assets, (c) result in the creation of any Encumbrance
upon any material Assets or business of any Lightyear Company pursuant to the
terms of any Contract, permit, authorization, or any order, judgment or decree
to which such Lightyear Company is a party or by which such Lightyear Company
or
any of its Assets are bound or encumbered, or (d) violate any provision in
the
Lightyear Operating Agreement, the LNS Operating Agreement or Puerto Rico
Operation Agreement or any other agreement affecting the governance and control
of each Lightyear Company.
-15-
5.7 Consents.
Except
as set forth on Section 5.7 of the Lightyear Disclosure Schedule, no consent,
approval, license, permit, order or authorization of, or registration,
declaration, notice or filing with, any Governmental Entity or any other person,
which has not been obtained, is necessary in connection with the execution,
delivery, or performance of this Agreement by Lightyear Parties, other than
for
the approval of the members of Lightyear, which will be sought pursuant to
this
Agreement.
5.8 LNS
Financial Statements.
Each
Lightyear Company has delivered to Wherify or its representatives copies of
the
following financial statements of Lightyear Companies (including, in each case,
any related notes and schedules) (hereinafter collectively referred to as the
“LNS Financial Statements”): (i) financial statements with full footnotes
for the fiscal years ending December 31, 2004, December 31, 2005, December
31,
2006, and December 31, 2007, and (ii) unaudited balance sheet, statement
of income and retained earnings, and cash flows as of June 30, 2008
(collectively “the LNS Balance Sheet”). Except as set forth on Section 5.8 of
the Lightyear Disclosure Schedule hereto:
(a) The
LNS
Financial Statements are complete and correct in all material respects, present
fairly the financial condition of each Lightyear Company as at the respective
dates thereof, and the results of operations for the respective periods covered
thereby, complied or will comply as to form in all material respects with
applicable accounting requirements and have been prepared in accordance with
GAAP applied on a consistent basis, subject to year-end adjustments and except
that unaudited financial statements do not contain all required
footnotes;
(b) There
is
no basis for the assertion of any liabilities or obligations, either accrued,
absolute, contingent, or otherwise, which might have a Material Adverse Effect
on the value, use, operation or enjoyment of the assets or business of each
Lightyear Company, which liabilities or obligations are not expressly set forth
on the LNS Balance Sheet;
(c) None
of
Lightyear Companies are a party to or bound either absolutely or on a contingent
basis by any agreement of guarantee, indemnification, assumption or endorsement
or any like commitment of the obligations, liabilities or indebtedness of any
other person (whether accrued, absolute, contingent or otherwise), which
liabilities or obligations are not expressly set forth on the LNS Balance Sheet;
and
(d) The
information to be supplied by or on behalf of Lightyear Companies for inclusion
or incorporation by reference in the 8-K to be filed by Wherify after the
signing of this Agreement and the 8-K to be filed before the commencement of
the
sale of the Financing Shares shall not at the time such 8-K is
filed
with the SEC or at any time it is amended or supplemented, as applicable,
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 not misleading.
-16-
(e) Lightyear
Members do not have any claims, contingent or otherwise, against any Lightyear
Company, and will not have any such claims after the Closing, under the
Lightyear Operating Agreement or otherwise, except the right to receive the
Merger Shares.
5.9 Absence
of Certain Changes and Events.
Except
as set forth on Section 5.9 of the Lightyear Disclosure Schedule, since the
date
of the LNS Balance Sheet, there has not been:
(a) Any
change having a Material Adverse Effect in the financial condition, operations,
business, employee relations, customer relations, assets, liabilities (accrued,
absolute, contingent, or otherwise) or income of any Lightyear Company, or
the
business of any Lightyear Company, from that shown on the LNS Financial
Statements;
(b) Any
declaration, setting aside, or payment of any distribution in respect of the
equity interests in any Lightyear Company, or any direct or indirect redemption,
purchase, or any other acquisition of any such interests;
(c) Any
borrowing of, or agreement to borrow any funds or any debt, obligation, or
liability (absolute or contingent) incurred by any Lightyear Company (whether
or
not presently outstanding) except current liabilities incurred, and obligations
under agreements entered into in the ordinary course of business;
(d) Any
creation or assumption by any Lightyear Company of any Encumbrance, other than
a
Permitted Encumbrance, on any material Asset;
(e) Any
sale,
assignment, or transfer of any Lightyear Company’s assets, except in the
ordinary course of business, any cancellation of any debts or claims owed to
any
Lightyear Company, any capital expenditures or commitments therefore exceeding
in the aggregate $15,000, any damage, destruction or casualty loss exceeding
in
the aggregate $15,000 (whether or not covered by insurance), or any charitable
contributions or pledges;
(f) Any
amendment or termination of any Contracts to which any Lightyear Company is
or
was a party or to which any Assets of any Lightyear Company is or was subject,
which amendment or termination has had, or may be reasonably expected to have,
a
Material Adverse Effect on any Lightyear Company; or
(g) any
split, combination, reclassification or other amendment of any material term
of
any outstanding security of any Lightyear Company;
(h) any
making of any material loan, advance or capital contribution to any
Person;
(i) any
compromise, relinquishment, settlement or waiver by any Lightyear Company of
a
valuable right or material debt owed to it in excess of $5,000;
(j) any
resignation or termination of employment of any key employee or executive
officer of any Lightyear Company and, each Lightyear Company has not received
written notice of any such pending resignation or termination;
(k) except
for regularly scheduled increases in compensation or bonuses for
non-professional level employees, in each case in the ordinary course of
business consistent with past practice, any material change in the rate of
compensation, commission, bonus or other direct or indirect remuneration payable
or to become payable to any director, officer or employees or agreement or
binding promise (orally or otherwise) to pay, conditionally or otherwise, any
bonus or extra compensation or other employee benefit to any of such directors,
officers or employees or severance;
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(l) any
employment or severance agreement with or for the benefit of any director,
officer or employee of any Lightyear Company;
(m) any
change in accounting methods, principles or practices of any Lightyear Company
affecting its Assets, Liabilities or business, except immaterial changes
permitted by GAAP;
(n) any
claim
of wrongful discharge or other unlawful labor practice or action with respect
to
any Lightyear Company;
(o) any
material revaluation by any Lightyear Company of any of its Assets;
(p) any
material change or modification of any of the credit, collection or payment
policies, procedures or practices of any Lightyear Company, including
acceleration of collections of receivables, failure to make or delay in making
collections of receivables, acceleration of payment of payables or other
Liabilities or failure to pay or delay in payment of payables or other
Liabilities;
(q) any
material discount activity with customers of any Lightyear Company that has
accelerated or would accelerate to pre-Closing periods sales that would
otherwise in the ordinary course of business consistent with past practices
be
expected to occur in post-Closing periods;
(r) any
settlement or compromise of any Action involving in excess of $50,000;
(s) Any
other
material transaction by any Lightyear Company outside the ordinary course of
business or any other event or condition pertaining to, and that has or
reasonably would be expected to have a Material Adverse Effect on any Lightyear
Company; or
(t) any
agreement by any Lightyear Company or any officer or employees thereof to do
any
of the things described in the preceding clauses (a) through (s) (other than
negotiations with Wherify and its representatives regarding the transactions
contemplated by this Agreement).
5.10 Assets.
Except
as set forth on Schedule 5.10 hereto,
(a) Each
Lightyear Company has good and valid title to all of its material Assets, free
and clear of all Encumbrances other than Permitted Encumbrances;
(b) Each
Lightyear Company’s machinery, equipment, appliances, motor vehicles and
fixtures are in good operating condition and repair, subject only to ordinary
wear and tear and routine maintenance items;
(c) All
of
the inventories of Lightyear Companies (including, without limitation, raw
materials, spare parts and supplies, work-in-process, finished goods) consist
of
items of a quality, condition and quantity useable and saleable in the normal
course of business;
(d) All
of
the accounts receivable of Lightyear Entities are valid, subsisting, and
genuine, arose out of bona fide transactions and are current and collectible,
subject to reserves reflected on the LNS Balance Sheet;
(e) Real
Property.
Section
5.10(e) of the Lightyear Disclosure Schedule sets forth a list of all real
properties owned by Lightyear Companies (collectively, the “LNS Owned Real
Property”). Each Lightyear Company has good and valid fee title to, and enjoys
peaceful and undisturbed possession of, the LNS Owned Real Property free and
clear of any and all Encumbrances other than any Permitted Encumbrances. Except
as set forth in Section 5.10(e) of the Lightyear Disclosure Schedule, no
Lightyear Entity has received written notice of any pending or threatened
special assessment relating to the LNS Owned Real Property. Section 5.10(e)
of
the Lightyear Disclosure Schedule sets forth a list of all leases, licenses
or
other occupancy rights affecting the LNS Owned Real Property (“Occupancy
Agreements”). The Occupancy Agreements are in full force and effect and there
has been no material default under such Occupancy Agreements by Lightyear
Companies, or to the Knowledge of any Lightyear Company, by any other party
thereto, and, to the Knowledge of any Lightyear Company, there is no existing
event or circumstance that with the passage of time or the giving of notice,
or
both, would constitute a default under such Occupancy Agreements;
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(f) Leased
Real Property.
Section
5.10(f) of Lightyear Disclosure Schedule sets forth a list of all material
leased real property used by Lightyear Companies (the “LNS Leased Real
Property”). Each Lightyear Company has good and valid leasehold title to, and
enjoys peaceful and undisturbed possession of, all of LNS Leased Real Property,
free and clear of any and all Encumbrances other than any Permitted
Encumbrances. There has been no material default under any lease relating to
LNS
Leased Real Property by any LNS Entity or, to the Knowledge of any Lightyear
Company, by any other party and, to the Knowledge of any Lightyear Company,
there is no existing event or circumstance that with the passage of time or
the
giving of notice, or both, would constitute a default under such lease. Except
as set forth in Section 5.10(c) of the Lightyear Disclosure Schedule, no
Lightyear Entity has received written notice of any pending or threatened
special assessment relating to LNS Leased Real Property; and
(g) There
are
no restrictions imposed by any Contract which preclude or restrict in any
material respect the ability of any Lightyear Company to use any of LNS Owned
Real Property or LNS Leased Real Property for the purposes for which it is
currently being used.
5.11 Party
Contracts.
Section
5.11 of the Lightyear Disclosure Schedule sets forth a list of the Party
Contracts of each Lightyear Company.
(a) Except
as
set forth on Section 5.11(a) of the Lightyear Disclosure Schedule, each Party
Contract of Lightyear Companies is in full force and effect and is legal, valid,
binding and enforceable in accordance with its terms against such Lightyear
Company, as applicable and, to the Knowledge of each Lightyear Company, against
all other parties thereto; and
(b) There
is
not, under any such Party Contract of Lightyear Companies any existing or
prospective default or event of default by Lightyear Entities or to the
Knowledge of Lightyear Companies, any other Person, or event which with notice
or lapse of time, or both would constitute a default or give Lightyear Companies
or any other Person the right to declare a default or exercise any remedy under,
or to accelerate the maturity of, or to cancel, terminate or modify, any right,
obligation or remedy under any Party Contract of Lightyear Companies, except
where such violation, breach, default, exercise, acceleration, cancellation,
termination or modification would not reasonably be expected to have a Material
Adverse Effect on any Lightyear Company, and in respect to which such Lightyear
Company has not taken adequate steps to prevent a default from
occurring.
5.12 Permits.
Section
5.12 of the Lightyear Disclosure Schedule contains a complete and accurate
list
of all material Permits that are held by Lightyear Companies. All material
Permits of Lightyear Companies are validly held by Lightyear Companies and
are
in full force and effect. Except
as
set forth on Section
5.12 of the Lightyear Disclosure Schedule,
(a) the
Permits listed on Section 5.12 of the Lightyear Disclosure Schedule, constitute
all material Permits that are necessary for Lightyear Companies to carry on
their business and to own and use their assets in compliance with all Laws
applicable to such operation, ownership and use, and all such licenses, permits
and authorizations are in good standing;
(b) Lightyear
Companies are in full compliance with and not in default or violation with
respect to any term or provision of any of their material Permits;
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(c) No
notice
of pending, threatened, or possible violation or investigation in connection
with, or loss of, any Permit of Lightyear Companies, has been received by
Lightyear Companies;
(d) Lightyear
Companies have no knowledge that the issuance of such a notice is being
considered or of any facts or circumstances which form the basis for the
issuance of such a notice; and
(e) Except
as
set forth on Section 5.12 of the Lightyear Disclosure Schedule, no material
Permits of Lightyear Companies will be subject to suspension, modification,
revocation, cancellation, termination or nonrenewal as a result of the
execution, delivery or performance of this Agreement or any Ancillary Agreement
or the consummation by Lightyear Companies of the transactions contemplated
by
this Agreement or any Ancillary Agreement. Lightyear Companies have complied
in
all material respects with all of the terms and requirements of the material
Permits of Lightyear Companies.
5.13 Intellectual
Property.
Except
as set forth on Section 5.13 of the Lightyear Disclosure Schedule,
(a) Each
Lightyear Company owns
or
has the exclusive right to use pursuant to license, sublicense, agreement or
permission all of its Intellectual Property, free from any Encumbrances other
than other than those Permitted Encumbrances set forth in clauses (a), (b),
(c)
and (e) of the definition of Permitted Encumbrances set forth in Article I
hereof and free from any requirement of any past, present or future royalty
payments, license fees, charges or other payments, or conditions or restrictions
whatsoever. Lightyear’s Intellectual Property comprise all of the Intellectual
Property necessary to conduct and operate the business as now being conducted
by
Lightyear.
LNS’
Intellectual Property comprise all of the Intellectual Property necessary to
conduct and operate the business as now being conducted by LNS. Puerto Rico’s
Intellectual Property comprise all of the Intellectual Property necessary to
conduct and operate the business as now being conducted by Puerto
Rico.
(b) Immediately
after the Closing, each Lightyear Company will own all of its Intellectual
Property and will have a right to use all its Intellectual Property, free from
any Liens and on the same terms and conditions as in effect prior to the
Closing.
(c) The
conduct of each Lightyear Company’s business does not infringe or otherwise
conflict with any rights of any Person in respect of any of its Intellectual
Property. None of its Intellectual Property is being infringed or otherwise
used
or available for use, by any other Person. As of the date of this Agreement,
none of its Intellectual Property is being used or enforced in a manner that
would reasonably be expected to result in the abandonment, cancellation or
unenforceability of such Intellectual Property rights.
(d) Schedule
5.13 sets forth all agreements, arrangements or laws (i) pursuant to which
each
Lightyear Company has licensed its Intellectual Property to, or the use of
its
Intellectual Property is otherwise permitted (through non-assertion, settlement
or similar agreements or otherwise) by, any other Person, and (ii) pursuant
to
which each Lightyear Company has had Intellectual Property licensed to it,
or
has otherwise been permitted to use Intellectual Property (through
non-assertion, settlement or similar agreements or otherwise). All of the
agreements or arrangements set forth on Schedule 5.13 (x) are in full force
and
effect in accordance with their terms and no default exists thereunder by each
Lightyear Company, or by any other party thereto, (y) are free and clear of
all
Encumbrances other than other than those Permitted Encumbrances set forth in
clauses (a), (b), (c) and (e) of the definition of Permitted Encumbrances set
forth in Article I hereof, and (z) do not contain any change in control or
other
terms or conditions that will become applicable or inapplicable as a result
of
the consummation of the transactions contemplated by this Agreement. To the
extent requested, each Lightyear Company has delivered to Wherify true and
complete copies of all licenses and arrangements (including amendments) set
forth on Schedule 5.13. All royalties, license fees, charges and other amounts
payable by, on behalf of, to, or for the account of, each Lightyear Company
in
respect of any Intellectual Property are disclosed in the Financial
Statements.
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(e) No
claim
or demand of any Person has been made nor is there any proceeding that is
pending, or threatened, nor is there a reasonable basis therefor, which (i)
challenges the rights of any Lightyear Company in respect of any Intellectual
Property, (ii) asserts that any Lightyear Company is infringing or otherwise
in
conflict with, or is, except as set forth on Schedule 5.13, required to pay
any
royalty, license fee, charge or other amount with regard to, any Intellectual
Property, (iii) claims that any default exists under any agreement or
arrangement listed on Schedule 5.13, or (iv) asserts that any Intellectual
Property is being used or enforced in a manner that would reasonably be expected
to result in the abandonment, cancellation or unenforceability of such
Intellectual Property right. None of its Intellectual Property is subject to
any
outstanding order, ruling, decree, judgment or stipulation by or with any court,
arbitrator, or other Governmental Authority, or has been the subject of any
litigation, whether or not resolved in favor of a Lightyear
Company.
(f) The
Intellectual Property of each Lightyear Company has been duly registered with,
filed in or issued by, as the case may be, the United States Patent and
Trademark Office, United States Copyright Office or such other filing offices,
domestic or foreign, and each Lightyear Company has taken such other actions,
to
ensure full protection under any applicable laws or regulations, and such
registrations, filings, issuances and other actions remain in full force and
effect, in each case to the extent material to the business of each Lightyear
Company.
(g) There
are, and immediately after the Closing will be, no contractual restriction
or
limitations pursuant to any orders, decisions, injunctions, judgments, awards
or
decrees of any Governmental Authority on Wherify’s right to use the name and
marks of the business of each Lightyear Company as presently carried on by
each
of them or as such business may be extended by Wherify.
(h) There
are
no defects in any software embodied in the Intellectual Property that would
prevent such software from performing in all material respects the tasks and
functions that it was intended to perform. All of the commercially available
software that is incorporated into the Owned Software can be replaced by other
widely-available and similarly priced alternative commercially available
software.
(i) Except
as
set forth in Section 5.13(i) of the Lightyear Disclosure Schedule, all employees
of each Lightyear Company have entered into a valid and binding written
agreement with each Lightyear Company sufficient to vest title in each Lightyear
Company of all Intellectual Property created by such employee in the scope
of
his or her employment with each Lightyear Company.
5.14 Employees.
Except
as set forth on Schedule 5.14 hereto,
(a) No
Lightyear
Company
is a
party as an employer to any employment contract, agreement or understanding
which is not terminable at will without any penalty, liquidated damages or
other
required payment;
(b) Each
Lightyear
Company
has
satisfied all salaries, wages, unemployment insurance premiums, worker
compensation payments, income tax, FICA and other deductions and any like
payments required by law; and
(c) No
Lightyear Company’s
employees are unionized and there have not been, to the Knowledge of Lightyear
Company, attempts to unionize them.
5.15 Employee
Benefit Plans.
Except
as set forth on Schedule 5.15 hereto,
(a) No
Lightyear
Company
nor any
of its ERISA Affiliates sponsors or has ever sponsored, maintained, contributed
to, or incurred an obligation to contribute to, any Employee Plan;
(b) No
individual shall accrue or receive additional benefits, service or accelerated
rights to payments of benefits under any Employee Plan including the right
to
receive any parachute payment, as defined in Section 280G of the Code, or become
entitled to severance, termination allowance or similar payments as a direct
result of the transactions contemplated by this Agreement;
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(c) No
Employee Plan has participated in, engaged in or been a party to any non-exempt
Prohibited Transaction, and neither LNS nor any of its ERISA Affiliates has
had
asserted against it any claim for taxes under Chapter 43 of Subtitle D of the
Code and Sections 4971 et.
seq. of
the
Code, or for penalties under ERISA Section 502(c), (i) or (1) with respect
to
any Employee Plan nor is there a basis for any such claim. No officer, director
or employee of any Lightyear
Company
has
committed a breach of any material responsibility or obligation imposed upon
fiduciaries by ERISA with respect to any Employee Plan;
(d) Other
than routine claims for benefits, there is no claim pending or threatened,
involving any Employee Plan by any person against such plan or any Lightyear
Company
or any
ERISA Affiliate. There is no pending or threatened proceeding involving any
Employee Plan before the IRS, the U.S. Department of Labor or any other
Governmental Entity;
(e) There
is
no material violation of any reporting or disclosure requirement imposed by
ERISA or the Code with respect to any Employee Plan;
(f) Each
Employee Plan has at all times prior hereto been maintained in all material
respects, by its terms and in operation, in accordance with ERISA and the Code.
Each Lightyear
Company
and its
ERISA Affiliates have made full and timely payment of all amounts required
to be
contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses under such Employee Plan. Each Employer Plan intended
to
be qualified under Code Section 401(a) has received a determination letter
to
that effect from the Internal Revenue Service and no event has occurred and
no
amendment has been made that would adversely affect such qualified
status;
(g) With
respect to any group health plans maintained by each Lightyear
Company
or its
ERISA Affiliates, whether or not for the benefit of any Lightyear
Company’s
employees, each Lightyear
Company
and its
ERISA Affiliate have complied in all material respects with the provisions
of
Part 6 of Title I of ERISA and 4980B of the Code. No Lightyear
Company
is
obligated to provide health care benefits of any kind to its retired employees
pursuant to any Employee Plan, including without limitation any group health
plan, or pursuant to any agreement or understanding; and
(h) Each
Lightyear Company has
made
available to Wherify a copy of the three (3) most recently filed federal Form
5500 series and accountant’s opinion, if applicable, for each Employee Plan and
all applicable IRS determination letters.
5.16 Litigation.
Except
as set forth on Section 5.16 of the Lightyear Disclosure Schedule,
(a) There
are
no Actions instituted, pending or to the Knowledge of each Lightyear
Company,
threatened, against any Lightyear
Company,
nor are
there any outstanding judgments, decrees or injunctions against any Lightyear
Company
or any
of its Assets or any rule or order of any Governmental Entity applicable to
any
Lightyear
Company,
in each
case which, individually or in the aggregate, could reasonably be expected
to
result in a Material Adverse Effect on such Lightyear
Company;
and
(b) There
is
no action, suit, proceeding, or claim pending or, to the Knowledge of each
Lightyear
Company,
threatened against any Lightyear
Company
by
persons not a party to this Agreement wherein an unfavorable decision, ruling,
or finding would render unlawful or otherwise materially adversely affect the
consummation of the transactions contemplated by this Agreement, nor is there
any basis therefor.
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5.17 Compliance with Law.
Except
as set forth on Section 5.17 of the Lightyear Disclosure Schedule,
(a) No
Lightyear
Company
is in
violation of, or in default with respect to, or in alleged violation of or
alleged default with respect to, any applicable law, rule, regulation, permit,
or any writ or decree of any Governmental Entity, including without limitation,
any laws, ordinances, rules, regulations, Permits, or orders relating to the
business of such Lightyear
Company,
or the
business operations and practices, health and safety, and employment practices
of such Lightyear
Company
except
where such violation or default would not have a Material Adverse Effect on
such
Lightyear
Company;
(b) No
Lightyear
Company
is
delinquent with respect to any report required to be filed with any Governmental
Entity that has in the past certified or endorsed the business of such
Lightyear
Company
except
where such delinquency would not have a Material Adverse Effect on such
Lightyear
Company;
and
(c) No
Lightyear
Company
is
delinquent with respect to any reports required by private covenants or
agreements to which it is a party except where such delinquency would not have
a
Material Adverse Effect on such Lightyear
Company.
5.18 Taxes.
To the
extent requested, each Lightyear
Company
has
delivered to Wherify or its representatives as requested true, correct and
complete copies of all federal, state, and other appropriate jurisdictional
Tax
Returns, reports, and estimates regarding LNS. Except as set forth on Section
5.18 of the Lightyear Disclosure Schedule,
(a) Each
of
the Tax Returns is complete, proper and accurate and has been filed with
appropriate governmental agencies by each Lightyear
Company
for each
period for which such Tax Return was due;
(b) All
Taxes
shown by the Tax Returns to be due and payable have been timely paid;
(c) The
unpaid Taxes of each Lightyear
Company
for Tax
periods through the date of the LNS Balance Sheet do not exceed the accruals
and
reserves for Taxes set forth on the LNS Balance Sheet exclusive of any accruals
and reserves for “deferred taxes” or similar items that reflect timing
differences between Tax and financial accounting principles. All Taxes
attributable to the period from and after the date of the LNS Balance Sheet
and
continuing through the Closing Date are attributable to the conduct by each
Lightyear
Company
of its
operations in the ordinary course of business and are consistent both as to
type
and amount with Taxes attributable to such comparable period in the immediately
preceding year. All Taxes that each Lightyear
Company
is or
was required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Entity.
(d) No
Lightyear
Company
has
given or been requested to give, or executed, any extension of time or waiver
of
any statute of limitations with respect to federal, state, or other political
subdivision income or other tax for any period;
(e) No
Lightyear
Company
has
received any notice of deficiency or assessment issued or proposed deficiency
or
assessment by the IRS or any other taxing authority, nor is there any basis
therefor; and
(f) The
income Tax Returns of each Lightyear
Company
have not
been audited by the applicable Governmental Entity. No examination, audit or
other dispute with respect to any material Tax Return of each Lightyear
Company
by any
Governmental Entity is currently in progress or threatened or contemplated.
No
Lightyear
Company
has been
informed by any Governmental Entity that the Governmental Entity believes that
such Lightyear
Company
was
required to file any material Tax Return that was not filed. No Lightyear
Company
has
waived any statute of limitations with respect to Taxes or agreed to an
extension of time with respect to a Tax assessment or deficiency.
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(g) No
Lightyear Company
(i) has
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code; (ii) has made any payments, is obligated to make
any payments, or is a party to any agreement that could obligate it to make
any
payments that may be treated as an “excess parachute payment” under Section 280G
of the Code (without regard to Section 280G(b)(4)); (iii) has actual or
potential liability for any Taxes of any person (other than Lightyear) under
Treasury Regulation Section 1.1502-6 (or any similar provision of law in any
jurisdiction), or as a transferee or successor, by contract, or otherwise;
or
(iv) is or has been required to make a basis reduction pursuant to Treasury
Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
Each Lightyear
Company
has
provided to Wherify the information necessary to accurately calculate any excise
tax due under Section 4999 of the Code as a result of the transactions
contemplated by this Agreement for which Lightyear, LNS or Wherify may directly
or indirectly become liable and the amount of deductions that may be disallowed
under Section 280G of the Code as a result of the transactions contemplated
by
this Agreement.
5.19 Insurance.
Except
as set forth on Section 5.19 of the Lightyear Disclosure Schedule,
(a) All
insurance policies either maintained by each Lightyear
Company
or
maintained by any other person which relates to each Lightyear
Company
or its
assets in any manner as of the date hereof (collectively, the “LNS Insurance
Policies”) are still in full force and effect, and all premiums due thereon have
been paid;
(b) Each
Lightyear
Company has
complied in all material respects with the provisions of all LNS Insurance
Policies;
(c) No
claim
is pending under any of the LNS Insurance Policies;
(d) There
are
no outstanding requirements or recommendations by any insurance company that
issued any of the LNS Insurance Policies or by any Board of Fire Underwriters
or
other similar body exercising similar functions or by any Governmental Entity
exercising similar functions which requires or recommends any changes in the
conduct of the business of, or any repairs or other work to be done on or with
respect to any of the properties or Assets of, each Lightyear
Company;
and
(e) No
Lightyear
Company has
received any notice or other communication from any such insurance company
within the one (1) year preceding the date hereof canceling or materially
amending or materially increasing the annual or other premiums payable under
any
of the LNS Insurance Policies, and no such cancellation, amendment or increase
of premiums is threatened.
5.20 Environmental
Matters.
Except
as set forth on Section 5.20 of the Lightyear Disclosure Schedule,
(a) Each
Lightyear
Company
is in
compliance with all applicable federal, state and local laws and regulations
relating to pollution control and environmental contamination including, but
not
limited to, all laws and regulations governing the generation, use, collection,
treatment, storage, transportation, recovery, removal, discharge or disposal
of
Hazardous Materials (and all laws and regulations with regard to record keeping,
notification and reporting requirements respecting Hazardous Materials;
(b) No
Lightyear
Company
has
received any notice from any Governmental Entity with respect to any alleged
violation by it of any applicable federal, state or local environmental or
health and safety statutes and regulations in connection with any Lightyear
Company’s
operations, nor is there any basis therefor;
-24-
(c) No
Lightyear
Company
has been
alleged to be in violation of, or has been subject to any administrative or
judicial proceeding pursuant to, such laws and regulations, either now or at
any
time during the past five years;
(d) There
are
no permits, licenses, consents, filings or other approvals necessary or required
to be obtained or made by laws and regulations relating to Hazardous Material,
pollution controls and environmental contamination in connection with any
Lightyear
Company’s
business;
(e) No
Lightyear
Company
is a
party to any contract or other agreement relating to the storage,
transportation, treatment or disposal of Hazardous Materials;
(f) There
are
no claims or facts or circumstances that any Lightyear
Company
reasonably believes could form the basis for the assertion of any claim relating
to environmental matters involving such Lightyear
Company,
including, but not limited to, any claim arising from past or present practices
of the business of such Lightyear
Company,
or with
respect to properties now or previously owned or leased, as asserted under
CERCLA, or RCRA, or any other federal, state or local environmental statute,
or
the generation, use, treatment, disposal, discharge, ownership, operation,
transportation, storage of Hazardous Materials, or any other related act or
omission of such Lightyear
Company;
(g) No
Lightyear
Company
is
subject to any remedial obligation under applicable law or administrative order
or decree pertaining to environmental, health or safety statutes or regulations,
including, without limitation, CERLA, RCRA or any similar state statute;
(h) To
each
Lightyear
Company’s
Knowledge, no Hazardous Material or other substances known or suspected to
pose
a threat to health or the environmental have been disposed of or otherwise
released on or near any real property or improvements of any Lightyear
Company,
and
there are no off-site locations where Hazardous Materials associated in any
way
with any Lightyear
Company
have
been generated, used, collected, treated, stored, transported, recycled,
discharged or disposed of.
5.21 Transactions
with Affiliated Parties.
Except
as set forth on Section 5.21 of the Lightyear Disclosure Schedule,
(a) There
are
no transactions currently engaged in between any Lightyear
Company
and any
party affiliated with such Lightyear
Company
(other
than transactions inherent in the normal capacities of shareholders, officers,
directors, or employees);
(b) Except
for the ownership of non-controlling interests in securities of corporations
the
shares of which are publicly traded, no party affiliated with any Lightyear
Company has
any
investment or ownership interest, directly, indirectly, or beneficially, in
any
competitor or potential competitor, major supplier, or customer of any
Lightyear
Company;
and
(c) There
are
no agreements to which any Lightyear
Company
is a
party under which the transactions contemplated by this Agreement (i) will
require payment by any Lightyear
Company
or any
consent or waiver from any shareholder, officer, director, employee, consultant
or agent of any Lightyear
Company,
or (ii)
will result in any change in the nature of any rights of any shareholder,
officer, director, employee, consultant or agent of any Lightyear
Company
under
any such agreement.
5.22 Finder’s
Fees; Certain Expenses.
All
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried on by each Lightyear
Company
and
their counsel directly with Wherify and its counsel, without the intervention
of
any other person as the result of any act of any of them, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder’s
fee, or any similar payment, other than for those parties specifically engaged
by written agreement for the transactions contemplated herein.
-25-
5.23 Customers
and Suppliers.
Section
5.23 of the Lightyear Disclosure Schedule accurately identifies, and provides
an
accurate and complete breakdown of each Lightyear
Company’s
ten
largest customers in terms of revenue of each Lightyear
Company
and each
Person, including each reseller, with whom each Lightyear
Company
is
currently negotiating or in discussions with a business relationship in
connection with the current or future purchase, distribution or resale of each
Lightyear
Company’s
products or services (each a “Potential Customer”) including projected orders
from such customers and Potential Customers; provided, however, that each
Lightyear
Company
makes no
representation or warranty with respect to such order projections, other than
that the projections were based on information provided to such Lightyear
Company
by such
customers and Potential Customers, and the projections were prepared in good
faith. Except as disclosed in Section 5.23 of the Lightyear Disclosure Schedule,
no such customer has ceased or materially reduced its purchases from each
Lightyear
Company
or has
threatened to cease or materially reduce such purchases after the date hereof.
Except as disclosed in Section 5.23 of the Lightyear Disclosure Schedule, no
Potential Customer has ceased or threatened to cease negotiations or discussions
with each Lightyear
Company.
To the
Knowledge of Lightyear
Companies,
no such
customer or Potential Customer is threatened with bankruptcy or
insolvency.
5.24 No
Registration.
Each
Lightyear Member understands that the Merger Shares have not been, and will
not
be, registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act, the availability of which
depends upon, among other things, and the accuracy of the Lightyear Members’
representations as expressed herein or otherwise made pursuant
hereto.
5.25 Investment
Intent.
Each
Lightyear Member is acquiring the Merger Shares for investment for its own
account, not as a nominee or agent, and not with the view to, or for resale
in
connection with, any distribution thereof into the public market; provided,
however, the Lightyear Members may at their discretion sell such number of
Merger Shares equal to not more than $10,000,000 in the aggregate for tax
planning purposes, so long as such sale shall be in full compliance with all
applicable state and federal securities laws, including without limitation,
Rule
144 and Rule 145.
5.26 Investment
Experience.
Each
Lightyear Member has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar to Wherify
so
that it is capable of evaluating the merits and risks of its investment in
Wherify and has the capacity to protect its own interests.
5.27 Accredited
Investor.
Each
Lightyear Member is an “accredited investor” within the meaning of Regulation D,
Rule 501(a), promulgated by the Securities and Exchange Commission, as attached
hereto as Schedule
5.27.
5.28 Restriction
on Resale.
Except
as noted in Section 5.25, each Lightyear Member acknowledges that the Merger
Shares must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available.
Wherify has no present intention of registering the Merger Shares. The Lightyear
Members further understand that there is no assurance that any exemption from
registration under the Securities Act will be available or, if available, that
such exemption will allow Lightyear Members to dispose of or otherwise transfer
any or all of the Merger Shares under the circumstances, in the amounts or
at
the times the Lightyear Members might propose.
5.29 Access
to Data.
Each
Lightyear Member has had an opportunity to discuss Wherify’s business,
management and financial affairs with its management and to obtain any
additional information which such Lightyear Member has deemed necessary or
appropriate for deciding whether or not to acquire the Merger Shares hereunder,
including an opportunity to receive, review and understand the information
regarding Wherify’s financial statements, capitalization and other business
information as such Lightyear Member deems prudent. Each Lightyear Member
acknowledges that no representations or warranties, oral or written, have been
made by Wherify or any agent thereof except as set forth in this Agreement.
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5.30 No
Fairness Determination.
Each
Lightyear Member is aware that no federal, state or other agency has made any
finding or determination as to the fairness of the investment, nor made any
recommendation or endorsement of the Merger Shares.
5.31 Restrictive
Legends.
Each
instrument evidencing the Merger Shares which a Lightyear Member may receive
hereunder and any other securities issued upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event (unless no longer
required in the opinion of the counsel for Wherify) shall be imprinted with
legend substantially in the following form:
THE
SECURITIES OF THE COMPANY OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), IN RELIANCE UPON REGULATION D
PROMULGATED UNDER THE ACT, AND THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN THE STATES WHERE THIS
OFFERING IS MADE. THEREFORE, THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT OR QUALIFICATION UNDER
SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION
AND
QUALIFICATION IS NOT REQUIRED. THESE SECURITIES MAY BE SUBJECT TO ADDITIONAL
RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS STATES WHERE THEY ARE BEING
ISSUED.
Solely
for the purpose of effectuating the restriction set forth in the above Legend,
Wherify shall be entitled to enter stop transfer notices on its transfer books
with respect to the Merger Shares.
5.32 Approval
of the Merger.
Each
Lightyear Member has approved the Merger, this Agreement and the Ancillary
Agreements and no other action is required for such approval under the Charter
Documents or applicable law.
5.33 Senior
Subordinated Convertible Notes.
Each
Persons which will be offered Senior Subordinated Convertible Notes (including
under Section 8.2(g)) are an “accredited investor” within the meaning of
Regulation D, Rule 501(a), promulgated by the Securities and Exchange
Commission, as attached hereto as Schedule
5.27.
5.34
Untrue Statements.
This
Agreement, the schedules and exhibits hereto, and all other documents and
information furnished by each Lightyear
Company,
or any
of its respective representatives pursuant hereto or in connection herewith,
do
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading.
-27-
ARTICLE
VI
REPRESENTATIONS
AND WARRANTIES OF MERGER SUB
Wherify
and Merger Sub hereby represent, warrant, and agree, to their Knowledge, that
the statements contained in this Article VI are true and correct, except as
expressly set forth herein or in the disclosure schedule delivered by Merger
Sub
to Lightyear on or before the date of this Agreement (the “Merger Sub Disclosure
Schedule”). The Merger Sub Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
VI and the disclosure in any paragraph shall qualify the corresponding paragraph
in this Article VI where such disclosure would be appropriate and for which
the
relevance of such disclosure is reasonably apparent based upon its nature and
substance.
6.1 Organization
and Standing of the Merger Sub.
The
Merger Sub is a corporation duly and validly existing, organized and in good
standing under the laws of the State of Delaware, formed on July 30, 2008.
The
Merger Sub has full requisite power and authority to carry on its business
as it
is now being conducted, and to own, operate, and lease the properties now owned,
operated, or leased by it. Merger Sub has not conducted, nor will conduct until
the Effective Time, any business and has no, and will not have until the
Effective Time, assets or liabilities, contingent or otherwise.
6.2 Capacity
to Enter into Agreement.
Merger
Sub has all requisite corporate power and authority to enter into this
Agreement, the Ancillary Agreements and all other agreements, documents and
instruments to be executed in connection herewith and, subject only to the
adoption of this Agreement and the approval of the Merger by the sole
stockholder of the Merger Sub. The execution and delivery by Merger Sub of
this
Agreement, the Ancillary Agreements and all other agreements, documents and
instruments to be executed by Merger Sub in connection herewith have been
authorized by all necessary corporate action by Merger Sub, other than for
the
approval of the sole stockholder of Merger Sub, which will be sought pursuant
to
this Agreement. When this Agreement, the Ancillary Agreements and all other
agreements, documents and instruments to be executed by Merger Sub in connection
herewith have been executed by Merger Sub and delivered to Lightyear, this
Agreement, the Ancillary Agreements and such other agreements, documents and
instruments will constitute the valid and binding agreements of Merger Sub
enforceable against Merger Sub in accordance with their respective terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors’ rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and
fair
dealing. Merger Sub has not entered into any agreements other than this
Agreement and will not enter into any agreement prior to the Closing other
than
those agreements to be executed in connection herewith.
6.3 Conflicts.
Except
as set forth on Section 6.3 of the Merger Sub Disclosure Schedule, the execution
and delivery of this Agreement and the Ancillary Agreements, the performance
by
Merger Sub of its obligations hereunder and thereunder, and the consummation
of
the transactions contemplated by this Agreement hereby or thereby will not
(a)
violate, conflict with or result in (with or without notice or lapse of time,
or
both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, require
a
consent or waiver under, constitute a change in control under, require the
payment of a penalty under or result in the imposition of any lien on Merger
Sub’s Assets under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license or other agreement, instrument or
obligation to which Merger Sub is a party or by which it or any of its
properties or assets may be bound or affected, (b) violate any statute, law,
ordinance, rule, regulation or judgment, decree or order of any Governmental
Entity, applicable to Merger Sub or any of its Assets, (c) result in the
creation of any Encumbrance upon any Assets or business of Merger Sub pursuant
to the terms of any Merger Sub Contract, permit, authorization, or any order,
judgment or decree to which Merger Sub is a party or by which Merger Sub or
any
of its Assets are bound or encumbered, or (d) violate any provision in the
charter documents, bylaws or any other agreement affecting the governance and
control of Merger Sub.
6.4 Consents.
Except
as set forth on Section 6.4 of the Merger Sub Disclosure Schedule, no consent,
waiver, approval, license, permit, order or authorization of, or registration,
declaration, notice or filing with, any Governmental Entity or any other person,
which has not been obtained, is necessary in connection with the execution,
delivery, or performance of this Agreement by Merger Sub, other than for the
approval of the sole stockholder of Lightyear, which will be sought pursuant
to
this Agreement.
-28-
6.5 Finder’s Fees.
All
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried on by the Merger Sub and its counsel directly with Lightyear
and their counsel, without the intervention of any other person as the result
of
any act by the Merger Sub, and so far as is known to the Merger Sub, without
the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finders’
fee, or any similar payment, other than for those parties specifically engaged
by written agreement for the transactions contemplated herein.
ARTICLE
VII
REPRESENTATIONS
AND WARRANTIES OF WHERIFY
The
Wherify Entities each hereby represents, warrants, and agrees, to its Knowledge,
that the statements contained in this Article VII are true and correct, except
as expressly set forth herein or in the disclosure schedule delivered by the
Wherify Entities to Lightyear on or before the date of this Agreement (the
“Wherify Disclosure Schedule”). The Wherify Disclosure Schedule shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article VII and the disclosure in any paragraph shall qualify
the corresponding paragraph in this Article VII where such disclosure would
be
appropriate and for which the relevance of such disclosure is reasonably
apparent based upon its nature and substance.
7.1 Organization
and Standing of Wherify and Wherify California.
(a) Wherify
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Wherify has full requisite corporate power
and authority to carry on its business as it is now being conducted and as
proposed to be conducted, and to own, operate, and lease the properties now
owned, operated, or leased by it. Wherify is duly authorized and qualified
to
carry on its business in the manner as now conducted and as proposed to be
conducted in each state in which authorization and qualification is required.
Section 7.1 of the Wherify Disclosure Schedule sets forth a list of the
jurisdictions in which Wherify is qualified to transact business. Wherify has
made available to Lightyear and its representatives as requested true, correct
and complete copies of the contents of Wherify’s minute book, which are accurate
in all material respects and set forth fully and fairly all of the Wherify’s
transactions. Wherify has delivered to Lightyear complete and accurate copies
of
the Certificate of Incorporation and Bylaws of Wherify each as amended to
date.
(b) Organization
and Standing of Wherify California.
Wherify
California is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Wherify California has full
requisite corporate power and authority to carry on it business as it is now
being conducted and as proposed to be conducted, and to own, operate and lease
the properties now owned, operated, or leased by it. Wherify California is
duly
authorized and qualified to carry on its business in the manner as now conducted
and as proposed to be conducted in each state in which authorization and
qualification is required. Section 7.1 of the Wherify Disclosure Schedules
sets
forth a list of the jurisdictions in which Wherify California is qualified
to
transact business. Wherify California has made available to Lightyear and its
representatives as requested true, correct and complete copies of the contents
of Wherify California’s minute book, which are accurate in all material respects
and set forth fully and fairly all of the Wherify California’s transactions.
Wherify California has delivered to Lightyear complete and accurate copies
of
the Certificate of Incorporation and Bylaws of Wherify California each as
amended to date.
(c) Organization
and Standing of Wherify Canada.
Wherify
Canada is a corporation duly organized, validly existing, and in good standing
under the Canada Business Corporations Act. Wherify Canada has full requisite
corporate power and authority to carry on it business as it is now being
conducted and as proposed to be conducted, and to own, operate and lease the
properties now owned, operated, or leased by it. Wherify Canada is duly
authorized and qualified to carry on its business in the manner as now conducted
and as proposed to be conducted in each state in which authorization and
qualification is required. Section 7.1 of the Wherify Disclosure Schedules
sets
forth a list of the jurisdictions in which Wherify Canada is qualified to
transact business. Wherify Canada has made available to Lightyear and its
representatives as requested true, correct and complete copies of the contents
of Wherify Canada’s minute book, which are accurate in all material respects and
set forth fully and fairly all of its material transactions. Wherify Canada
has
delivered to Lightyear complete and accurate copies of its organization
documents, each as amended to date.
-29-
7.2 Capitalization
of Wherify, Merger Sub, Wherify California and Wherify
Canada.
(a) All
shares of Wherify Series A Preferred Stock, Wherify Series B Preferred Stock
and
Wherify Common Stock are held by Wherify shareholders and were issued and
outstanding prior to the Effective Time. The Wherify Series A Preferred Stock,
Wherify Series B Preferred Stock and Wherify Common Stock issued and outstanding
prior to the Effective Time are duly and validly authorized and issued, fully
paid and non-assessable, and were not or will not be issued in violation of
the
pre-emptive rights. The Wherify Series A Preferred Stock, Wherify Series B
Preferred Stock and Wherify Common Stock issued and outstanding prior to the
consummation of the Merger were issued, and all secondary transfers of such
shares permitted by Wherify were made, in compliance with all applicable law
(including, without limitation, available exemptions from the securities
offering registration requirements of federal and state law). Except as set
forth in Section 7.2(a) of the Wherify Disclosure Schedule, no warrant, call,
subscription, convertible security, or commitment of any kind obligating Wherify
to issue any equity securities in Wherify exists. Wherify does not have any
purchase plans. Except as set forth in Section 7.2 of the Wherify Disclosure
Schedule, there is not any compensation plan applicable to any of the officers,
directors, or employees of Wherify under which compensation accrued or payable
is determined, in whole or in part, by reference to equity securities in
Wherify. There are no agreements or commitments obligating Wherify to repurchase
or otherwise acquire any equity securities in Wherify. Wherify has no rights
of
repurchase or redemption right or right of first refusal with respect to any
equity securities in Wherify.
(b) Wherify
is the sole shareholder of equity securities in the Merger Sub. Such Merger
Sub
equity securities issued and outstanding prior to the Effective Time are duly
and validly authorized and issued, fully paid and non-assessable, and were
not
or will not be issued in violation of the pre-emptive rights of any current
or
former shareholder. The Merger Sub equity securities issued and outstanding
prior to the consummation of the Merger were issued, and all secondary transfers
of such shares permitted by Merger Sub were made, in compliance with all
applicable law (including, without limitation, available exemptions from the
securities offering registration requirements of federal and state law). No
warrant, call, subscription, convertible security, or commitment of any kind
obligating the Merger Sub to issue any Merger Sub equity securities exists.
The
Merger Sub does not have any stock option or purchase plans. There is not any
compensation plan applicable to any of the officers, directors, or employees
of
the Merger Sub under which compensation accrued or payable is determined, in
whole or in part, by reference to Merger Sub equity securities. There are no
agreements or commitments obligating the Merger Sub to repurchase or otherwise
acquire any Merger Sub equity securities. The Merger Sub has no rights of
repurchase or redemption right or right of first refusal with respect to any
Merger Sub equity securities.
(c) Wherify
is the sole shareholder of equity securities in Wherify California. Wherify
California equity securities issued and outstanding prior to the Effective
Time
are duly and validly authorized and issued, fully paid and non-assessable,
and
were not or will not be issued in violation of the pre-emptive rights of any
current or former shareholder. Wherify California equity securities issued
and
outstanding prior to the consummation of the Merger were issued, and all
secondary transfers of such shares permitted by Wherify California were made,
in
compliance with all applicable law (including, without limitation, available
exemptions from the securities offering registration requirements of federal
and
state law). No warrant, call, subscription, convertible security, or commitment
of any kind obligating Wherify California to issue any Wherify California equity
securities exists. Wherify California does not have any stock option or purchase
plans. There is not any compensation plan applicable to any of the officers,
directors, or employees of Wherify California under which compensation accrued
or payable is determined, in whole or in part, by reference to Wherify
California equity securities. There are no agreements or commitments obligating
Wherify California to repurchase or otherwise acquire any Wherify California
equity securities. Wherify California has no rights of repurchase or redemption
right or right of first refusal with respect to any Wherify California equity
securities.
-30-
(d) Wherify
is the sole shareholder of equity securities in Wherify Canada. Wherify Canada
equity securities issued and outstanding prior to the Effective Time are duly
and validly authorized and issued, fully paid and non-assessable, and were
not
or will not be issued in violation of the pre-emptive rights of any current
or
former shareholder. Wherify Canada equity securities issued and outstanding
prior to the consummation of the Merger were issued, and all secondary transfers
of such shares permitted by Wherify Canada were made, in compliance with all
applicable law (including, without limitation, available exemptions from the
securities offering registration requirements of federal and state law). No
warrant, call, subscription, convertible security, or commitment of any kind
obligating Wherify Canada to issue any Wherify Canada equity securities exists.
Wherify Canada does not have any stock option or purchase plans. There is not
any compensation plan applicable to any of the officers, directors, or employees
of Wherify Canada under which compensation accrued or payable is determined,
in
whole or in part, by reference to Wherify Canada equity securities. There are
no
agreements or commitments obligating Wherify Canada to repurchase or otherwise
acquire any Wherify Canada equity securities. Wherify Canada has no rights
of
repurchase or redemption right or right of first refusal with respect to any
Wherify Canada equity securities.
7.3 Subsidiaries
and Other Ventures.
Neither
Merger Sub, Wherify California nor Wherify Canada have subsidiaries or
affiliated corporations, and owns no capital stock, bond, or other security
of,
or has any equity or proprietary interest in, any corporation, partnership,
joint venture, trust, or unincorporated association.
7.4 Ownership
of Stock.
(a) Except
as
set forth on Section 7.4(a) of the Wherify Disclosure Schedule, all of equity
securities in Wherify are owned free and clear of any Encumbrances. None of
the
outstanding equity securities in Wherify are subject to any voting trust, voting
agreement, or other agreement or understanding with respect to the voting
thereof, nor is any proxy in existence with respect to any such shares.
(b) Except
as
set forth on Section 7.4(b) of the Wherify Disclosure Schedule, all of the
equity securities in Merger Sub, Wherify California and Wherify Canada are
owned
free and clear of any Encumbrances. None of the outstanding equity securities
in
Merger Sub and Wherify California are subject to any voting trust, voting
agreement, or other agreement or understanding with respect to the voting
thereof, nor is any proxy in existence with respect to any such
shares.
7.5 Capacity
to Enter into Agreement.
Each
Wherify Entity has all requisite corporate power and authority to enter into
this Agreement, the Ancillary Agreements to which such entity is a party, and
all other agreements, documents and instruments to be executed in connection
herewith and to consummate the transactions contemplated by this Agreement.
The
execution and delivery by each Wherify Entity, of this Agreement, the Ancillary
Agreements to which such entity is a party, and all other agreements, documents
and instruments to be executed by such entity, in connection herewith have
been
authorized by all necessary action by such entity. When this Agreement, the
Ancillary Agreements to which such Wherify Entity are a party, and all other
agreements, documents and instruments to be executed by such Wherify Entity
in
connection herewith are approved and are executed by such Wherify Entity and
delivered to Lightyear, this Agreement, the Ancillary Agreements to which such
Wherify Entity are a party, and such other agreements, documents and instruments
will constitute the valid and binding agreements of such Wherify Entity,
enforceable against such Wherify Entity in accordance with their respective
terms subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights and to general equity principles.
-31-
7.6 Conflicts.
Except
as set forth on Section 7.6 of the Wherify Disclosure Schedule, the execution
and delivery of this Agreement and the Ancillary Agreements, the performance
by
each Wherify Entity of their obligations hereunder and thereunder, and the
consummation of the transactions contemplated by this Agreement hereby or
thereby will not (a) violate, conflict with or result in (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, require a consent or waiver under, constitute a change in control under,
require the payment of a penalty under or result in the imposition of any lien
on any of the Wherify Entities’ material Assets under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license
or other agreement, instrument or obligation to which the Wherify Entities
are a
party or by which it or any of its properties or material Assets may be bound
or
affected, (b) violate any statute, law, ordinance, rule, regulation or judgment,
decree or order of any Governmental Entity, applicable to the Wherify Entities
or any of their material Assets, (c) result in the creation of any Encumbrance
upon any material Assets or business of the Wherify Entities pursuant to the
terms of any Contract, permit, authorization, or any order, judgment or decree
to which the Wherify Entities are a party or by which the Wherify Entities
or
any of their Assets are bound or encumbered, or (d) violate any provision in
the
charter documents, bylaws or any other agreement affecting the governance and
control of the Wherify Entities.
7.7 Consents.
Except
as set forth on Section 7.7 of
the
Wherify Disclosure Schedule,
no
consent, approval, license, permit, order or authorization of, or registration,
declaration, notice or filing with, any Governmental Entity or any other Person,
which has not been obtained, is necessary in connection with the execution,
delivery, or performance of this Agreement by Wherify
Entities.
7.8 Financial
Statements.
The
Wherify Entities have delivered to Lightyear or its representatives copies
of
the following financial statements of Wherify Entities (including, in each
case,
any related notes and schedules) (hereinafter collectively referred to as the
“Wherify Financial Statements”): (i) financial statements with full
footnotes for the fiscal years ending June 30, 2004, June 30, 2005, June 30,
2006, and June 30, 2007, and (ii) unaudited balance sheet, statement of
income and retained earnings, and cash flows as of June 30, 2008 (collectively,
the “Wherify Balance Sheet”). Except as set forth on Section 7.8 of the Wherify
Disclosure Schedule hereto:
(a) The
Wherify Financial Statements are complete and correct in all material respects,
present fairly the financial condition of the Wherify Entities as at the
respective dates thereof, and the results of operations for the respective
periods covered thereby, complied or will comply as to form in all material
respects with applicable accounting requirements and have been prepared in
accordance with GAAP applied on a consistent basis, subject to year-end
adjustments and except that unaudited financial statements do not contain all
required footnotes;
(b) There
is
no basis for the assertion of any liabilities or obligations, either accrued,
absolute, contingent, or otherwise, which might have a Material Adverse Effect
on the value, use, operation or enjoyment of the assets or business of Wherify
Entity, which liabilities or obligations are not expressly set forth on the
Wherify Balance Sheet;
(c) None
of
Wherify Entities are a party to or bound either absolutely or on a contingent
basis by any agreement of guarantee, indemnification, assumption or endorsement
or any like commitment of the obligations, liabilities or indebtedness of any
other person (whether accrued, absolute, contingent or otherwise), which
liabilities or obligations are not expressly set forth on the Wherify Balance
Sheet; and
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(d) The
information to be supplied by or on behalf of Wherify Entities for inclusion
or
incorporation by reference in the 8-K to be filed by Wherify after the signing
of the Agreement and the 8-K to be filed before the commencement of the sale
of
the Financing Shares shall not at the time such 8-K is
filed
with the SEC or at any time it is amended or supplemented, as applicable,
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 not misleading.
7.9 SEC
Filings; Financial Statements.
Wherify
has filed all registration statements, forms, reports and other documents
required to be filed by the Company with the SEC and has made available to
Lightyear copies of all registration statements, forms, reports and other
documents filed by Wherify with the SEC since such date, all of which are
publicly available on the SEC’s XXXXX system without redaction. All such
registration statements, forms, reports and other documents are referred to
herein as the “Wherify SEC Reports.” The Wherify SEC Reports (i) were at the
time filed, prepared in compliance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be,
and
the rules and regulations of the SEC thereunder applicable to such Wherify
SEC
Reports and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Wherify SEC Reports or necessary in order to make the statements
in such Wherify SEC Reports, in the light of the circumstances under which
they
were made, not misleading. Each of the consolidated financial statements
(including, in each case, any related notes and schedules) contained or to
be
contained in the Wherify SEC Reports at the time filed (i) complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited interim financial statements, as
permitted by the SEC on Form 10-QSB under the Exchange Act) and (iii) fairly
presented in all material respects the consolidated financial position of
Wherify as of the dates indicated and the consolidated results of its operations
and cash flows for the periods indicated, consistent with the books and records
of Wherify, except that the unaudited interim financial statements were or
are
subject to normal and recurring year-end adjustments which were not or are
not
expected to be material in amount.
7.10 Absence
of Certain Changes and Events.
Except
as set forth on Section 7.10 of the Wherify Disclosure Schedule, since the
unaudited balance sheet of the Wherify Entities at June 30, 2008 (collectively,
the “Wherify Reference Balance Sheet”), there has not been:
(a) Any
change having a Material Adverse Effect in the financial condition, operations,
business, employee relations, customer relations, assets, liabilities (accrued,
absolute, contingent, or otherwise) or income of Wherify, or the business of
the
Wherify Entities, from that shown on the Wherify Reference Balance Sheet;
(b) Any
declaration, setting aside, or payment of any distribution in respect of the
equity interests in the Wherify Entities, or any direct or indirect redemption,
purchase, or any other acquisition of any such interests;
(c) Any
borrowing of, or agreement to borrow any funds or any debt, obligation, or
liability (absolute or contingent) incurred by the Wherify Entities (whether
or
not presently outstanding) except current liabilities incurred, and obligations
under agreements entered into in the ordinary course of business;
(d) Any
creation or assumption by the Wherify Entities of any Encumbrance, other than
a
Permitted Encumbrance, on any material Asset;
(e) Any
sale,
assignment, or transfer of the Wherify Entities’ assets, except in the ordinary
course of business, any cancellation of any debts or claims owed to Wherify,
any
capital expenditures or commitments therefore exceeding in the aggregate
$15,000, any damage, destruction or casualty loss exceeding in the aggregate
$15,000 (whether or not covered by insurance), or any charitable contributions
or pledges;
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(f) Any
amendment or termination of any Contracts which the Wherify Entities are or
were
a party or to which any assets of the Wherify Entities are or were subject,
which amendment or termination has had, or may be reasonably expected to have,
a
Material Adverse Effect on the Wherify Entities;
(g) any
split, combination, reclassification or other amendment of any material term
of
any outstanding security of the Wherify Entities;
(h) any
making of any material loan, advance or capital contribution to any
Person;
(i) any
compromise, relinquishment, settlement or waiver by the Wherify Entities of
a
valuable right or material debt owed to it in excess of $5,000;
(j) any
resignation or termination of employment of any key employee or executive
officer of the Wherify Entities and, the Wherify Entities have not received
written notice of any such pending resignation or termination;
(k) except
for regularly scheduled increases in compensation or bonuses for
non-professional level employees, in each case in the ordinary course of
business consistent with past practice, any material change in the rate of
compensation, commission, bonus or other direct or indirect remuneration payable
or to become payable to any director, officer or employees or agreement or
binding promise (orally or otherwise) to pay, conditionally or otherwise, any
bonus or extra compensation or other employee benefit to any of such directors,
officers or employees or severance;
(l) any
employment or severance agreement with or for the benefit of any director,
officer or employee of the Wherify Entities;
(m) any
change in accounting methods, principles or practices of the Wherify Entities
affecting its Assets, Liabilities or business, except immaterial changes
permitted by GAAP;
(n) any
claim
of wrongful discharge or other unlawful labor practice or action with respect
to
the Wherify Entities;
(o) any
material revaluation by the Wherify Entities of any of its Assets;
(p) any
material change or modification of any of the credit, collection or payment
policies, procedures or practices of the Wherify Entities, including
acceleration of collections of receivables, failure to make or delay in making
collections of receivables, acceleration of payment of payables or other
Liabilities or failure to pay or delay in payment of payables or other
Liabilities;
(q) any
material discount activity with customers of the Wherify Entities that has
accelerated or would accelerate to pre-Closing periods sales that would
otherwise in the ordinary course of business consistent with past practices
be
expected to occur in post-Closing periods;
(r) any
settlement or compromise of any Action involving in excess of $50,000;
(s) Any
other
material transaction by the Wherify Entities outside the ordinary course of
business or any other event or condition pertaining to, and that has or
reasonably would be expected to have a Material Adverse Effect on the Wherify
Entities; or
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(t) any
agreement by the Wherify Entities or any officer or employees thereof to do
any
of the things described in the preceding clauses (a) through (s) (other than
negotiations with Lightyear and its representatives regarding the transactions
contemplated by this Agreement).
7.11 Assets.
Except
as set forth on Schedule 7.11 hereto,
(a) Each
Wherify Entity, has good and valid title to all of its material Assets, free
and
clear of all Encumbrances other than Permitted Encumbrances;
(b) Each
Wherify Entity’s machinery, equipment, appliances, motor vehicles and fixtures
are in good operating condition and repair, subject only to ordinary wear and
tear and routine maintenance items;
(c) All
of
the inventories of the Wherify Entities (including, without limitation, raw
materials, spare parts and supplies, work-in-process, finished goods) consist
of
items of a quality, condition and quantity useable and saleable in the normal
course of business;
(d) All
of
the accounts receivable of the Wherify Entities are valid, subsisting, and
genuine, arose out of bona fide transactions and are current and collectible,
subject to reserves reflected on the Wherify Balance Sheet;
(e) Real
Property.
Section
7.11(e) of the Wherify Disclosure Schedule sets forth a list of all real
properties owned by the Wherify Entities (collectively, the “Wherify Owned Real
Property”). Wherify has good and valid fee title to, and enjoys peaceful and
undisturbed possession of, its respective Wherify Owned Real Property free
and
clear of any and all Encumbrances other than any Permitted Encumbrances. Except
as set forth in Section 7.11(e) of the Wherify Disclosure Schedule, None of
the
Wherify Entities have received written notice of any pending or threatened
special assessment relating to the Wherify Owned Real Property. Section 7.11(e)
of the Wherify Disclosure Schedule sets forth a list of all leases, licenses
or
other occupancy rights affecting the Wherify Owned Real Property (“Wherify
Occupancy Agreements”). The Wherify Occupancy Agreements are in full force and
effect and there has been no material default under such Wherify Occupancy
Agreements by none of the Wherify Entities, or to the Knowledge of any of the
Wherify Entities, by any other party thereto, and, to the Knowledge of the
Wherify Entities, there is no existing event or circumstance that with the
passage of time or the giving of notice, or both, would constitute a default
under such Wherify Occupancy Agreements;
(f) Leased
Real Property.
Section
7.11(f) of Wherify Disclosure Schedule sets forth a list of all material leased
real property used by each of the Wherify Entities (the “Wherify Leased Real
Property”). Each of the Wherify Entities have good and valid leasehold title to,
and enjoys peaceful and undisturbed possession of, all of Wherify Leased Real
Property, free and clear of any and all Encumbrances other than any Permitted
Encumbrances. There has been no material default under any lease relating to
Wherify Leased Real Property by the Wherify Entities or, to the Knowledge of
the
Wherify Entities, by any other party and, to the Knowledge of any of the Wherify
Entities, there is no existing event or circumstance that with the passage
of
time or the giving of notice, or both, would constitute a default under such
lease. Except as set forth in Section 7.11(f) of the Wherify Disclosure
Schedule, none of the Wherify Entities have received written notice of any
pending or threatened special assessment relating to Wherify Leased Real
Property; and
(g) There
are
no restrictions imposed by any Contract which preclude or restrict in any
material respect the ability of the Wherify Entities to use any of Wherify
Owned
Real Property or Wherify Leased Real Property for the purposes for which it
is
currently being used.
7.12 Party
Contracts.
Section
7.12 of the Wherify Disclosure Schedule sets forth a list of the Party Contracts
of the Wherify Entities.
(a) Except
as
set forth on Section 7.12(a) of the Wherify Disclosure Schedule, each Party
Contract of the Wherify Entities are in full force and effect and are legal,
valid, binding and enforceable in accordance with its terms against each of
the
Wherify Entities, as applicable and, to the Knowledge of each of the Wherify
Entities, against all other parties thereto; and
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(b) There
is
not, under any such Party Contract of the Wherify Entities any existing or
prospective default or event of default by the Wherify Entities or to the
Knowledge of each of the Wherify Entities, any other Person, or event which
with
notice or lapse of time, or both would constitute a default or give the Wherify
Entities or any other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity of, or to cancel, terminate or
modify, any right, obligation or remedy under any Party Contract of the Wherify
Entities, except where such violation, breach, default, exercise, acceleration,
cancellation, termination or modification would not reasonably be expected
to
have a Material Adverse Effect on the Wherify Entities, and in respect to which
the Wherify Entities have not taken adequate steps to prevent a default from
occurring.
7.13 Permits.
Section
7.13 of the Wherify Disclosure Schedule contains a complete and accurate list
of
all material Permits that are held by each of the Wherify Entities. All material
Permits of the Wherify Entities are validly held by the Wherify Entities and
are
in full force and effect. Except
as
set forth on Section
7.13 of the Wherify Disclosure Schedule,
(a) the
Permits listed on Section 7.13 of the Wherify Disclosure Schedule, constitute
all material Permits that are necessary for the Wherify Entities to carry on
their respective business and to own and use their assets in compliance with
all
Laws applicable to such operation, ownership and use, and all such licenses,
permits and authorizations are in good standing;
(b) The
Wherify Entities are in full compliance with and not in default or violation
with respect to any term or provision of any of their material Permits;
(c) No
notice
of pending, threatened, or possible violation or investigation in connection
with, or loss of, any Permit of the Wherify Entities, has been received by
any
of the Wherify Entities;
(d) Wherify
has no Knowledge that the issuance of such a notice is being considered or
of
any facts or circumstances which form the basis for the issuance of such a
notice; and
(e) Except
as
set forth on Section 7.13 of the Wherify Disclosure Schedule, no material
Permits of the Wherify Entities will be subject to suspension, modification,
revocation, cancellation, termination or nonrenewal as a result of the
execution, delivery or performance of this Agreement or any Ancillary Agreement
or the consummation by Wherify of the transactions contemplated by this
Agreement or any Ancillary Agreement. The Wherify Entities have complied in
all
material respects with all of the terms and requirements of the material Permits
of the Wherify Entities.
7.14 Intellectual
Property.
(a) Wherify
owns or has the exclusive right to use pursuant to license, sublicense,
agreement or permission all Intellectual Property of each of the Wherify
Entities, the (“Wherify Intellectual Property”), free from any Encumbrances
other than other than those Permitted Encumbrances set forth in clauses (a),
(b), (c) and (e) of the definition of Permitted Encumbrances set forth in
Article I hereof and free from any requirement of any past, present or future
royalty payments, license fees, charges or other payments, or conditions or
restrictions whatsoever. The Wherify Intellectual Property comprise all of
the
Intellectual Property necessary to conduct and operate the business as now
being
conducted by Wherify.
(b) Immediately
after the Closing, Wherify will own all of the Wherify Intellectual Property
and
will have a right to use all other Wherify Intellectual Property Assets, free
from any Liens and on the same terms and conditions as in effect prior to the
Closing.
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(c) The
conduct of Wherify’s business does not infringe or otherwise conflict with any
rights of any Person in respect of any Intellectual Property. None of the
Wherify Intellectual Property is being infringed or otherwise used or available
for use, by any other Person. As of the date of this Agreement, after due
inquiry, none of the Wherify Intellectual Property is being used or enforced
in
a manner that would reasonably be expected to result in the abandonment,
cancellation or unenforceability of such Intellectual Property
rights.
(d) Schedule
7.14 sets forth all agreements, arrangements or laws (i) pursuant to which
Wherify has licensed Wherify Intellectual Property to, or the use of Wherify
Intellectual Property is otherwise permitted (through non-assertion, settlement
or similar agreements or otherwise) by, any other Person, and (ii) pursuant
to
which Wherify has had Intellectual Property licensed to it, or has otherwise
been permitted to use Intellectual Property (through non-assertion, settlement
or similar agreements or otherwise). All of the agreements or arrangements
set
forth on Schedule 7.14 (x) are in full force and effect in accordance with
their
terms and no default exists thereunder by the Wherify Entities , or by any
other
party thereto, (y) are free and clear of all Encumbrances other than other
than
those Permitted Encumbrances set forth in clauses (a), (b), (c) and (e) of
the
definition of Permitted Encumbrances set forth in Article I hereof, and (z)
do
not contain any change in control or other terms or conditions that will become
applicable or inapplicable as a result of the consummation of the transactions
contemplated by this Agreement. Wherify has delivered to Lightyear true and
complete copies of all licenses and arrangements (including amendments) set
forth on Schedule 7.14. All royalties, license fees, charges and other amounts
payable by, on behalf of, to, or for the account of, each of the Wherify
Entities in respect of any Intellectual Property are disclosed in the Financial
Statements.
(e) No
claim
or demand of any Person has been made nor is there any proceeding that is
pending, or threatened, nor is there a reasonable basis therefor, which (i)
challenges the rights of Wherify in respect of any Intellectual Property, (ii)
asserts that Wherify is infringing or otherwise in conflict with, or is, except
as set forth on Schedule 5.13, required to pay any royalty, license fee, charge
or other amount with regard to, any Intellectual Property, (iii) claims that
any
default exists under any agreement or arrangement listed on Schedule 7.14,
or
(iv) asserts that any Intellectual Property is being used or enforced in a
manner that would reasonably be expected to result in the abandonment,
cancellation or unenforceability of such Intellectual Property right. None
of
the Wherify Intellectual Property is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, arbitrator, or other
Governmental Authority, or has been the subject of any litigation, whether
or
not resolved in favor of Wherify.
(f) The
Wherify Intellectual Property has been duly registered with, filed in or issued
by, as the case may be, the United States Patent and Trademark Office, United
States Copyright Office or such other filing offices, domestic or foreign,
and
Wherify has taken such other actions, to ensure full protection under any
applicable laws or regulations, and such registrations, filings, issuances
and
other actions remain in full force and effect, in each case to the extent
material to the business of the Wherify Entities.
(g) There
are, and immediately after the Closing will be, no contractual restriction
or
limitations pursuant to any orders, decisions, injunctions, judgments, awards
or
decrees of any Governmental Authority on Lightyear’s right to use the name and
marks of the business of Wherify as presently carried on by Wherify or as such
business may be extended by Lightyear.
(h) There
are
no defects in any software embodied in the Wherify Intellectual Property or
Intellectual Property Wherify is properly using that would prevent such software
from performing in all material respects the tasks and functions that it was
intended to perform. All of the commercially available software that is
incorporated into the Owned Software can be replaced by other widely-available
and similarly priced alternative commercially available software.
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(i) None
of
the Wherify Entities nor any of their predecessors in interest, made a sale
or
offer to sell of (i) the invention claimed in any patent application listed
on
Schedule 7.14, (ii) any substantial equivalent of such inventions, or (iii)
any
product or service derived therefrom such invention or substantial equivalent.
The invention claimed in the patent application listed on Schedule 7.14 was
not
in public use before March 2004.
(j) Except
as
set forth in Section 7.14(j) of the Wherify Disclosure Schedule, all employees
of the Wherify Entities have entered into a valid and binding written agreement
with the Wherify Entities sufficient to vest title in Wherify of all
Intellectual Property created by such employee in the scope of his or her
employment with the Wherify Entities.
7.15 Employees.
Except
as set forth on Schedule 7.15 hereto,
(a) None
of
the Wherify Entities are a party as an employer to any employment contract,
agreement or understanding which is not terminable at will without any penalty,
liquidated damages or other required payment;
(b) Each
of
the Wherify Entities have satisfied all salaries, wages, unemployment insurance
premiums, worker compensation payments, income tax, FICA and other deductions
and any like payments required by law; and
(c) Employees
of the Wherify Entities are not unionized and there have not been, to the
Knowledge of the Wherify Entities, attempts to unionize them.
7.16 Employee
Benefit Plans.
Except
as set forth on Schedule 7.16 hereto,
(a) No
Wherify Entity nor any of their ERISA Affiliates sponsors or has ever sponsored,
maintained, contributed to, or incurred an obligation to contribute to, any
Employee Plan;
(b) No
individual shall accrue or receive additional benefits, service or accelerated
rights to payments of benefits under any Employee Plan including the right
to
receive any parachute payment, as defined in Section 280G of the Code, or become
entitled to severance, termination allowance or similar payments as a direct
result of the transactions contemplated by this Agreement;
(c) No
Employee Plan has participated in, engaged in or been a party to any non-exempt
Prohibited Transaction, and neither Wherify nor any of its ERISA Affiliates
has
had asserted against it any claim for taxes under Chapter 43 of Subtitle D
of
the Code and Sections 4971 et.
seq. of
the
Code, or for penalties under ERISA Section 502(c), (i) or (1) with respect
to
any Employee Plan nor, to the Knowledge of any of the Wherify Entities, is
there
a basis for any such claim. No officer, director or employee of the Wherify
Entities has committed a breach of any material responsibility or obligation
imposed upon fiduciaries by ERISA with respect to any Employee
Plan;
(d) Other
than routine claims for benefits, there is no claim pending or threatened,
involving any Employee Plan by any person against such plan or the Wherify
Entities or any ERISA Affiliate. There is no pending or threatened proceeding
involving any Employee Plan before the IRS, the U.S. Department of Labor or
any
other Governmental Entity;
(e) There
is
no material violation of any reporting or disclosure requirement imposed by
ERISA or the Code with respect to any Employee Plan;
(f) Each
Employee Plan has at all times prior hereto been maintained in all material
respects, by its terms and in operation, in accordance with ERISA and the Code.
The Wherify Entities and their ERISA Affiliates have made full and timely
payment of all amounts required to be contributed under the terms of each
Employee Plan and applicable law or required to be paid as expenses under such
Employee Plan. Each Employer Plan intended to be qualified under Code Section
401(a) has received a determination letter to that effect from the Internal
Revenue Service and no event has occurred and no amendment has been made that
would adversely affect such qualified status;
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(g) With
respect to any group health plans maintained by the Wherify Entities or their
ERISA Affiliates, whether or not for the benefit of the Wherify Entities’
employees, the Wherify Entities and their ERISA Affiliate have complied in
all
material respects with the provisions of Part 6 of Title I of ERISA and 4980B
of
the Code. The Wherify Entities are not obligated to provide health care benefits
of any kind to its retired employees pursuant to any Employee Plan, including
without limitation any group health plan, or pursuant to any agreement or
understanding; and
(h) The
Wherify Entities have made available to Lightyear a copy of the three (3) most
recently filed federal Form 5500 series and accountant’s opinion, if applicable,
for each Employee Plan and all applicable IRS determination
letters.
7.17 Litigation.
Except
as set forth on Section 7.17 of the Wherify Disclosure Schedule,
(a) There
are
no Actions instituted, pending or to the Knowledge of any of the Wherify
Entities, threatened, against the Wherify Entities, nor are there any
outstanding judgments, decrees or injunctions against the Wherify Entities
or
any of their Assets or any rule or order of any Governmental Entity applicable
to the Wherify Entities, in each case which, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect on the
Wherify Entities; and
(b) There
is
no action, suit, proceeding, or claim pending or, to the Knowledge of any of
the
Wherify Entities, threatened against the Wherify Entities by persons not a
party
to this Agreement wherein an unfavorable decision, ruling, or finding would
render unlawful or otherwise materially adversely affect the consummation of
the
transactions contemplated by this Agreement, nor is there any basis
therefor.
7.18 Compliance with Law.
Except
as set forth on Section 7.18 of the Wherify Disclosure Schedule,
(a) The
Wherify Entities are not in violation of, or in default with respect to, or
in
alleged violation of or alleged default with respect to, any applicable law,
rule, regulation, permit, or any writ or decree of any Governmental Entity,
including without limitation, any laws, ordinances, rules, regulations, Permits,
or orders relating to the business of the Wherify Entities, or the business
operations and practices, health and safety, and employment practices of the
Wherify Entities except where such violation or default would not have a
Material Adverse Effect on the Wherify Entities;
(b) The
Wherify Entities are not delinquent with respect to any report required to
be
filed with any Governmental Entity that has in the past certified or endorsed
the business of the Wherify Entities except where such delinquency would not
have a Material Adverse Effect on the Wherify Entities; and
(c) The
Wherify Entities are not delinquent with respect to any reports required by
private covenants or agreements to which it is a party except where such
delinquency would not have a Material Adverse Effect on the Wherify
Entities.
7.19 Taxes.
The
Wherify Entities have delivered to Lightyear or its representatives as requested
true, correct and complete copies of all federal, state, and other appropriate
jurisdictional Tax Returns, reports, and estimates regarding Wherify. Except
as
set forth on Section 7.19 of the Wherify Disclosure Schedule,
(a) Each
of
the Tax Returns is complete, proper and accurate and has been filed with
appropriate governmental agencies by the Wherify Entities for each period for
which such Tax Return was due;
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(b) All
Taxes
shown by the Tax Returns to be due and payable have been timely paid;
(c) The
unpaid Taxes of the Wherify Entities for Tax periods through the date of the
Wherify Balance Sheet do not exceed the accruals and reserves for Taxes set
forth on the Wherify Balance Sheet exclusive of any accruals and reserves for
“deferred taxes” or similar items that reflect timing differences between Tax
and financial accounting principles. All Taxes attributable to the period from
and after the date of the Wherify Balance Sheet and continuing through the
Closing Date are attributable to the conduct by the Wherify Entities of their
operations in the ordinary course of business and are consistent both as to
type
and amount with Taxes attributable to such comparable period in the immediately
preceding year. All Taxes that the Wherify Entities are or were required by
law
to withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity.
(d) The
Wherify Entities have not given or been requested to give, or executed, any
extension of time or waiver of any statute of limitations with respect to
federal, state, or other political subdivision income or other tax for any
period;
(e) The
Wherify Entities have not received any notice of deficiency or assessment issued
or proposed deficiency or assessment by the IRS or any other taxing authority,
nor is there any basis therefor; and
(f) The
income Tax Returns of each Wherify Entity have not been audited by the
applicable Governmental Entity. No examination, audit or other dispute with
respect to any material Tax Return of the Wherify Entities by any Governmental
Entity is currently in progress or threatened or contemplated. The Wherify
Entities have not been informed by any Governmental Entity that the Governmental
Entity believes that the Wherify Entities were required to file any material
Tax
Return that was not filed. The Wherify Entities have not waived any statute
of
limitations with respect to Taxes or agreed to an extension of time with respect
to a Tax assessment or deficiency.
(g) None
of
the Wherify Entities (i) have been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (ii) have
made any payments, are obligated to make any payments, or are a party to any
agreement that could obligate it to make any payments that may be treated as
an
“excess parachute payment” under Section 280G of the Code (without regard to
Section 280G(b)(4)); (iii) have actual or potential liability for any Taxes
of
any person under Treasury Regulation Section 1.1502-6 (or any similar provision
of law in any jurisdiction), or as a transferee or successor, by contract,
or
otherwise; or (iv) are or have been required to make a basis reduction pursuant
to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation Section
1.337(d)-2(b). The Wherify Entities have provided to Lightyear the information
necessary to accurately calculate any excise tax due under Section 4999 of
the
Code as a result of the transactions contemplated by this Agreement for which
Lightyear, LNS or the Wherify Entities may directly or indirectly become liable
and the amount of deductions that may be disallowed under Section 280G of the
Code as a result of the transactions contemplated by this
Agreement.
7.20 Insurance.
Except
as set forth on Section 7.20 of the Wherify Disclosure Schedule,
(a) All
insurance policies either maintained by the Wherify Entities or maintained
by
any other person which relates to the Wherify Entities or their assets in any
manner as of the date hereof (collectively, the “Wherify Insurance Policies”)
are still in full force and effect, and all premiums due thereon have been
paid;
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(b) The
Wherify Entities have complied in all material respects with the provisions
of
all Wherify Insurance Policies;
(c) No
claim
is pending under any of the Wherify Insurance Policies;
(d) There
are
no outstanding requirements or recommendations by any insurance company that
issued any of the Wherify Insurance Policies or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity exercising similar functions which requires or recommends
any changes in the conduct of the business of, or any repairs or other work
to
be done on or with respect to any of the properties or Assets of, the Wherify
Entities; and
(e) The
Wherify Entities have not received any notice or other communication from any
such insurance company within the one (1) year preceding the date hereof
canceling or materially amending or materially increasing the annual or other
premiums payable under any of the Wherify Insurance Policies, and no such
cancellation, amendment or increase of premiums is threatened.
7.21 Environmental
Matters.
Except
as set forth on Section 7.21 of the Wherify Disclosure Schedule,
(a) The
Wherify Entities are in compliance with all applicable federal, state and local
laws and regulations relating to pollution control and environmental
contamination including, but not limited to, all laws and regulations governing
the generation, use, collection, treatment, storage, transportation, recovery,
removal, discharge or disposal of Hazardous Materials (and all laws and
regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials;
(b) The
Wherify Entities have not received any notice from any Governmental Entity
with
respect to any alleged violation by it of any applicable federal, state or
local
environmental or health and safety statutes and regulations in connection with
Wherify’s operations, nor is there any basis therefor;
(c) The
Wherify Entities have not been alleged to be in violation of, or has been
subject to any administrative or judicial proceeding pursuant to, such laws
and
regulations, either now or at any time during the past five years;
(d) There
are
no permits, licenses, consents, filings or other approvals necessary or required
to be obtained or made by laws and regulations relating to Hazardous Material,
pollution controls and environmental contamination in connection with the
Wherify Entities businesses;
(e) The
Wherify Entities are not a party to any contract or other agreement relating
to
the storage, transportation, treatment or disposal of Hazardous Materials;
(f) There
are
no claims or facts or circumstances that the Wherify Entities reasonably believe
could form the basis for the assertion of any claim relating to environmental
matters involving the Wherify Entities, including, but not limited to, any
claim
arising from past or present practices of the business of the Wherify Entities,
or with respect to properties now or previously owned or leased, as asserted
under CERCLA, or RCRA, or any other federal, state or local environmental
statute, or the generation, use, treatment, disposal, discharge, ownership,
operation, transportation, storage of Hazardous Materials, or any other related
act or omission of the Wherify Entities;
(g) The
Wherify Entities are not subject to any remedial obligation under applicable
law
or administrative order or decree pertaining to environmental, health or safety
statutes or regulations, including, without limitation, CERLA, RCRA or any
similar state statute;
(h) To
each
of the Wherify Entities’ Knowledge, no Hazardous Material or other substances
known or suspected to pose a threat to health or the environmental have been
disposed of or otherwise released on or near any real property or improvements
of the Wherify Entities, and there are no off-site locations where Hazardous
Materials associated in any way with the Wherify Entities have been generated,
used, collected, treated, stored, transported, recycled, discharged or disposed
of.
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7.22 Transactions
with Affiliated Parties.
Except
as set forth on Section 7.22 of the Wherify Disclosure Schedule,
(a) There
are
no transactions currently engaged in between the Wherify Entities and any party
affiliated with the Wherify Entities (other than transactions inherent in the
normal capacities of shareholders, officers, directors, or employees);
(b) Except
for the ownership of non-controlling interests in securities of corporations
the
shares of which are publicly traded, no party affiliated with the Wherify
Entities have any investment or ownership interest, directly, indirectly, or
beneficially, in any competitor or potential competitor, major supplier, or
customer of the Wherify Entities; and
(c) There
are
no agreements to which the Wherify Entities are a party under which the
transactions contemplated by this Agreement (i) will require payment by the
Wherify Entities or any consent or waiver from any shareholder, officer,
director, employee, consultant or agent of the Wherify Entities, or (ii) will
result in any change in the nature of any rights of any shareholder, officer,
director, employee, consultant or agent of the Wherify Entities under any such
agreement.
7.23 Finder’s
Fees; Certain Expenses.
Except
as set forth in Section 7.6 of the Wherify Disclosure Schedule, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on by the Wherify Entities and their counsel directly with Lightyear
and
its counsel, without the intervention of any other person as the result of
any
act of any of them, without the intervention of any other person in such manner
as to give rise to any valid claim against any of the parties hereto for a
brokerage commission, finder’s fee, or any similar payment, other than for those
parties specifically engaged by written agreement for the transactions
contemplated herein.
7.24 Customers
and Suppliers.
Section
7.24 of the Wherify Disclosure Schedule accurately identifies, and provides
an
accurate and complete breakdown of each of the Wherify Entities ten largest
customers in terms of revenue of each of the Wherify Entities and each Person,
including each reseller, with whom each of the Wherify Entities are currently
negotiating or in discussions with a business relationship in connection with
the current or future purchase, distribution or resale of each of the Wherify
Entities’ products or services (each a “Wherify Potential Customer”) including
projected orders from such customers and Wherify Potential Customers; provided,
however, that none of the Wherify Entities makes any representation or warranty
with respect to such order projections, other than that the projections were
based on information provided to each of the Wherify Entities by such customers
and Wherify Potential Customers, and the projections were prepared in good
faith. Except as disclosed in Section 7.24 of the Wherify Disclosure Schedule,
no such customer has ceased or materially reduced its purchases from or has
threatened to cease or materially reduce such purchases after the date hereof.
Except as disclosed in Section 7.24 of the Wherify Disclosure Schedule, no
Wherify Potential Customer has ceased or threatened to cease negotiations or
discussions with LNS. To the Knowledge of each of the Wherify Entities, no
such
customer or Wherify Potential Customer is threatened with bankruptcy or
insolvency
7.25 Valid
Issuance.
Each
share of the Financing Shares and each share of Wherify Series C Preferred
Stock
to be issued to the members of Lightyear in connection with the Merger shall
(when issued in accordance with this Agreement) be duly authorized, validly
issued, fully paid and non-assessable and not subject to or issued in violation
of any preemptive right under Wherify’s Certificate of Incorporation or any
agreement to which the Wherify Entities are a party or is otherwise bound.
7.26 Untrue
Statements.
This
Agreement, the schedules and exhibits hereto, and all other documents and
information furnished by the Wherify Entities, or any of their respective
representatives pursuant hereto or in connection herewith, do not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements made herein and therein not misleading.
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7.27 Access
to Data.
Each of
the Wherify Entities have had an opportunity to discuss Lightyear’s, LNS’s and
Puerto Rico’s business, management and financial affairs with its management and
to obtain any additional information which the Wherify Entities have deemed
necessary or appropriate for deciding whether or not to participate in the
transactions contemplated hereunder, including an opportunity to receive, review
and understand the information regarding Lightyear’s, LNS’s and Puerto Rico’s
financial statements, capitalization and other business information as the
Lightyear Companies deem prudent. Each of the Wherify Entities acknowledges
that
no representations or warranties, oral or written, have been made by Lightyear,
LNS or Puerto Rico or any agent thereof except as set forth in this
Agreement.
ARTICLE
VIII
COVENANTS
OF LIGHTYEAR PARTIES
8.1 Conduct
of Business of Lightyear. From
the
date of this Agreement until the Closing Date, Lightyear Parties shall, and
shall cause its members, officers, managers and employees, to:
(a) Conduct
each Lightyear Company’s business in the ordinary course of business;
(b) Pay
all
of the Liabilities and Taxes of each Lightyear Company when due, subject to
good
faith disputes over such Liabilities or Taxes;
(c) Prosecute
pending applications for its Intellectual Property registration;
(d) Maintain
each Lightyear Company’s rights in and to material their Intellectual Property
and their registered Intellectual Property; and
(e) Maintain
insurance coverage in amounts adequate to cover the reasonably anticipated
risks
of each Lightyear Company’s business.
8.2 Restrictions
on Conduct of Business of Lightyear.
Except
as contemplated by this Agreement, during the period from the date hereof to
the
Closing or the termination of this Agreement, unless otherwise agreed to in
writing by the Wherify Entities, each Lightyear Company shall conduct its
respective business in the ordinary course consistent with past practice, pay
their debts and Taxes and perform their other obligations when due (subject
to
good faith disputes over such debts, Taxes or obligations), comply with all
applicable laws, rules and regulations, keep their assets in good repair and
working order except for ordinary wear and tear, maintain any existing insurance
on the assets, and use commercially reasonable efforts, consistent with past
practices, to maintain and preserve their present business organization, assets
and properties, keep available the services of their present officers and
employees and preserve their advantageous business relationships with customers,
strategic partners, suppliers, distributors and others having business dealings
with them. Without limiting the generality of the foregoing, after the date
hereof and until the Closing or the termination of this Agreement, each
Lightyear Company shall not without the prior written consent of Wherify, which
consent shall not be unreasonably withheld or delayed:
(a) declare,
set aside or pay any dividends on, or make any other distributions (whether
in
cash, securities or other property) in respect of, any of its
equity;
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(b) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or any of its other securities;
(c) purchase,
redeem or otherwise acquire any shares of its capital stock or any other of
its
securities or any rights, warrants or options to acquire any such shares or
other securities, except as set forth in the companies’ respective Operating
Agreements;
(d) make
any
acquisition, by means of a merger or otherwise, of a material amount of assets
or securities, other than acquisitions in the ordinary course consistent with
past practice;
(e) agree
to
any sale, lease, encumbrance or other disposition of a material amount of assets
or securities or any material change in its capitalization, other than sales
or
other dispositions in the ordinary course consistent with past practice;
(f) enter
into any material contract other than in the ordinary course of business or
agree to any release or relinquishment of any material contract rights;
(g) incur
any
long-term debt or short-term debt for borrowed money except for debt incurred
in
the ordinary course consistent with past practice; provided that LNS may incur
additional debt of up to $600,000 which shall be secured and which has the
same
convertible terms as the Senior Subordinated Convertible Notes as set forth
in
Exhibit
F;
provided that any dilution resulting from the issuance of such debt under this
subsection shall reduce the shareholding ratio of 46% which is contemplated
to
be the percentage of ownership of Wherify by the Lightyear Members after the
Closing;
(h) issue,
deliver, sell, grant, pledge or otherwise dispose of or encumber any units
of
Lightyear Membership Interests, options, warrants, convertible debt or other
security convertible or exercisable into Lightyear Membership Interests, except
for the Lightyear Warrant;
(i) amend
their Operating Agreements or other comparable charter or organizational
documents, except as expressly provided by this Agreement;
(j) make
any
capital expenditures or other expenditures with respect to property, plant
or
equipment in excess of US $5,000 in the aggregate;
(k) make
any
changes in accounting methods, principles or practices, except insofar as may
have been required by a change in GAAP or, except as so required, change any
assumption underlying, or method of calculating, any bad debt, contingency
or
other reserve; except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof;
(l)
(A)
enter into or adopt any employment or similar agreement with any person who
is
not terminable at will and whose annual rate of cash compensation exceeds U.S.
$100,000 per year pursuant to such employment agreement, (B) take any action
with respect to, adopt, enter into, terminate or amend any employment, severance
or similar agreement or benefit plan for the benefit or welfare of any current
or former director, officer, employee or consultant or any collective bargaining
agreement, (C) increase in any material respect the compensation or fringe
benefits of, or pay any bonus to, any director, officer, employee or consultant
(except for annual increases of the salaries of non-officer employees in the
ordinary course of business), (D) amend or accelerate the payment, right to
payment or vesting of any compensation or benefits, including any outstanding
options or restricted stock awards, (E) pay any material benefit not provided
for as of the date of this Agreement under any benefit plan, (F) grant any
awards under any bonus, incentive, performance or other compensation plan or
arrangement or benefit plan, including the equity interest, or (G) take any
action other than in the ordinary course of business to fund or in any other
way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
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(m) make
or
rescind any material Tax election, make any material settlement or material
compromise to any Tax liability or make any material amendments to any Tax
Return;
(n) fail
to
pay when due any trade payable, except in the ordinary course of business
consistent with past practice; or
(o) agree
in
writing or otherwise to take any of the foregoing actions or any action which
would prevent or materially impair the satisfaction of any conditions in Article
XII hereof.
8.3 Access
to Information.
Between
the date hereof and the Closing, each Lightyear Company shall (a) give Wherify
and its authorized representatives such access during regular business hours
to
each Lightyear Company’s books, records, properties, personnel and to such other
information as Wherify reasonably request and shall instruct each Lightyear
Company’s independent public accountants to provide access to their work papers
and such other information as Wherify may reasonably request, and (b) cause
its
officers to furnish Wherify with such financial and operating data and other
information with respect to the business and properties of each Lightyear
Company as Wherify may reasonably request.
8.4 Certain
Notifications. From
the
date of this Agreement until the Closing, each Lightyear Company shall promptly
notify Wherify in writing regarding any:
(a) Circumstance
or event that would reasonably be expected to have a Material Adverse Effect
on
the business of any Lightyear Company;
(b) Fact,
circumstance, event or action by each Lightyear Company, the existence,
occurrence, or taking of which, results in any of the representations and
warranties of Lightyear Parties contained in this Agreement not being true
and
correct and which would cause the closing conditions specified in Article XII
to
not be satisfied (provided that the failure of a party to deliver any notice
hereunder shall not constitute a breach of covenant for indemnification purposes
hereunder); and
(c) Material
breach of any covenant or obligation of any Lightyear Party
hereunder.
8.5 Lightyear
Member Approval.
Subject
to all the conditions set forth in Article XII being satisfied, each Lightyear
Member agrees (a) to not rescind or withdraw in any manner whatsoever the
approval of the Merger and all other transactions which each Lightyear Member
has granted under this Agreement; (b) waive any and all rights of refusal
granted under the Lightyear Operating Agreement; (c) that Wherify be admitted
as
the Sole Member of Lightyear after the closing; and (d) to execute any and
all
documents to evidence such approval as required by the Kentucky Statutes and
authorize the appropriate officers of Lightyear to sign this Agreement and
all
documents necessary to consummate the transactions consummated herein.
ARTICLE
IX
COVENANTS
OF WHERIFY
9.1 Conduct
of Business of Wherify.
Except
as contemplated by this Agreement, during the period from the date hereof to
the
Closing or the termination of this Agreement, unless otherwise agreed to in
writing by Lightyear, each Wherify Entity shall conduct its business in the
ordinary course consistent with past practice and shall use reasonable efforts
to keep its assets in good repair and working order except for ordinary wear
and
tear, maintain any existing insurance on the assets, and preserve intact each
Wherify Entity’s business. Without limiting the generality of the foregoing,
after the date hereof and until the Closing or the termination of this
Agreement, Wherify shall not:
(a) declare,
set aside or pay any dividends on, or make any other distributions (whether
in
cash, securities or other property) in respect of, any of its capital stock,
except (i) the sale and issuance of the Financing Shares, (ii) sale and issuance
equity of for an aggregate consideration of up to $500,000 provided that the
dilution from such sale shall not apply to the Merger Shares to be issued to
Lightyear Members, and (iii) issuance of stock to employees or directors in
the ordinary course of business;
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(b) except
as
contemplated by this Agreement, split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of,
in lieu of or in substitution for shares of its capital stock or any of its
other securities;
(c) purchase,
redeem or otherwise acquire any shares of its capital stock or any other of
its
securities or any rights, warrants or options to acquire any such shares or
other securities; provided, however, that nothing in this Section 9.1 shall
prohibit Wherify from exercising contractual rights of repurchase of any shares
of Wherify Common Stock under any employee, consultant or director plan or
agreement as in effect on the date hereof;
(d) make
any
acquisition, by means of a merger or otherwise, of a material amount of assets
or securities, other than acquisitions in the ordinary course consistent with
past practice;
(e) agree
to
any sale, lease, encumbrance or other disposition of a material amount of assets
or securities or any material change in its capitalization, other than sales
or
other dispositions in the ordinary course consistent with past practice;
(f) enter
into any material contract other than in the ordinary course of business or
agree to any release or relinquishment of any material contract rights;
(g) incur
any
long-term debt or short-term debt for borrowed money except for debt incurred
in
the ordinary course consistent with past practice;
(h) except
as
contemplated by this Agreement or as to the Common Stock grants issued to
employees, consultants, directors and officers as approved by the Board of
Directors of Wherify issue, deliver, sell, grant, pledge or otherwise dispose
of
or encumber any shares of Wherify Common Stock, options, warrants, convertible
debt or other security convertible or exercisable into Wherify Common Stock;
(i) except
as
contemplated by this Agreement, amend its certificate of incorporation, by-laws
or other comparable charter or organizational documents;
(j) make
any
capital expenditures or other expenditures with respect to property, plant
or
equipment in excess of US $5,000 in the aggregate;
(k) make
any
changes in accounting methods, principles or practices, except insofar as may
have been required by a change in GAAP or, except as so required, change any
assumption underlying, or method of calculating, any bad debt, contingency
or
other reserve; except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof;
(l)
(A)
enter into or adopt any employment or similar agreement with any person whose
annual rate of cash compensation exceeds U.S. $100,000 per year pursuant to
such
employment agreement, (B) take any action with respect to, adopt, enter into,
terminate or amend any employment, severance or similar agreement or benefit
plan for the benefit or welfare of any current or former director, officer,
employee or consultant or any collective bargaining agreement, (C) increase
in
any material respect the compensation or fringe benefits of, or pay any bonus
to, any director, officer, employee or consultant (except for annual increases
of the salaries of non-officer employees in the ordinary course of business),
(D) amend or accelerate the payment, right to payment or vesting of any
compensation or benefits, including any outstanding options or restricted stock
awards, (E) pay any material benefit not provided for as of the date of this
Agreement under any benefit plan, (F) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or benefit
plan, including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or the
removal of existing restrictions in any benefit plans or agreements or awards
made thereunder, or (G) take any action other than in the ordinary course of
business to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement or benefit
plan;
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(m) make
or
rescind any material Tax election, make any material settlement or material
compromise to any Tax liability or make any material amendments to any Tax
Return;
(n) fail
to
pay when due any trade payable, except in the ordinary course of business
consistent with past practice; or
(o) agree
in
writing or otherwise to take any of the foregoing actions or any action which
would prevent or materially impair the satisfaction of any conditions in Article
XII hereof.
9.2 Access
to Information.
Between
the date hereof and the Closing, each Wherify Entity shall (a) give
Lightyear and its authorized representatives such access during regular business
hours to each Wherify Entity’s books, records, properties, personnel and to such
other information as Lightyear reasonably requests and shall instruct each
Wherify Entity’s independent public accountants to provide access to their work
papers and such other information as Lightyear may reasonably request, and
(b)
cause its officers to furnish Lightyear with such financial and operating data
and other information with respect to the business and properties of each
Wherify Entity as Lightyear may reasonably request.
9.3 Certain
Notifications. From
the
date of this Agreement until the Closing, Wherify Entities shall promptly notify
Lightyear in writing regarding any:
(a) Fact,
circumstance, event or action by each Wherify Entity, the existence, occurrence,
or taking of which, results in any of the representations and warranties of
Wherify contained in this Agreement not being true and correct and which would
cause the closing conditions specified in Article XII to not be satisfied
(provided that the failure of a party to deliver any notice hereunder shall
not
constitute a breach of covenant for indemnification purposes hereunder);
and
(b) Material
breach of any covenant or obligation of any Wherify Entity hereunder.
ARTICLE
X
ADDITIONAL
AGREEMENTS
10.1 Acquisition
Proposals.
(a) Each
of
the Wherify Entities and Lightyear Companies agrees that it shall not, directly
or indirectly, and shall instruct its officers, directors, employees, agents
or
advisors or other representatives or consultants not to, directly or indirectly,
until the Closing or the termination of this Agreement, solicit or initiate
any
proposals or offers from any person relating to any acquisition, purchase or
sale of all or a material amount of the assets of, or any securities of, or
any
merger, consolidation or business combination with, the Wherify Entities or
Lightyear Companies. Notwithstanding the foregoing, each of the Wherify Entities
and Lightyear Companies, to the extent required by the fiduciary obligations
of
its Board of Directors and Managers, respectively, as determined in good faith
by such Board of Directors and Managers, respectively, after consultation with
outside counsel, in response to a Qualifying Proposal that did not result from
a
breach by such entity of this Section 10.1, (i) furnish information with respect
to it, to the person making such Qualifying Proposal and its representatives
pursuant to a confidentiality agreement not less restrictive of the other party
than the Confidentiality Agreement and (ii) participate in discussions or
negotiations with such person and its representatives regarding such Qualifying
Proposal.
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(b) None
of
the Board of Directors of Wherify Entities or Lightyear Companies, nor any
committee thereof, shall, except as set forth in this Section 10.1:
(i) shall
withdraw or modify, or publicly propose to withdraw or modify, in a manner
adverse to the other Party the approval or recommendation by such Board of
Directors or any committee thereof of this Agreement or the Merger.
(ii) cause
or
permit any Lightyear Company or Wherify Entity to enter into any letter of
intent, memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement or similar agreement (an “Alternative Acquisition
Agreement”) constituting or relating to any Acquisition Proposal (other than a
confidentiality agreement referred to in Section 10.1(a) entered into in the
circumstances referred to in Section 10.1(a)); or
(iii) adopt,
approve or recommend, or propose to adopt, approve or recommend, any Acquisition
Proposal.
(c) Notwithstanding
the foregoing:
(i) the
Board
of Directors of Wherify may, in response to a Superior Proposal that did not
result from a breach by Wherify of this Section 10.1, withdraw or modify the
recommendation by the Board of Directors of Wherify or any committee thereof
of
this Agreement and the Merger, if the Board of Directors determines in good
faith (after consultation with outside counsel) that such actions are required
by its fiduciary obligations, but only after the third business day following
receipt by Lightyear of written notice advising it that the Board of Directors
of Wherify desires to withdraw or modify the recommendation due to the existence
of a Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the entity making such Superior Proposal.
Nothing in this Section 10.1 (other than Section 10.1(f)) shall be deemed to
limit Wherify’s obligation to call, give notice of, convene and hold the Wherify
stockholders meeting, regardless of whether the Board of Directors of Wherify
has withdrawn or modified its recommendation of this Agreement and the Merger;
and
(ii) the
Managers of Lightyear may, in response to a Superior Proposal that did not
result from a breach by Lightyear of this Section 10.1, withdraw or modify
the
recommendation by the Board of Directors of Lightyear or any committee thereof
of this Agreement and the Merger, but only after the third business day
following receipt by Wherify of written notice advising it that the Board of
Directors of Lightyear desires to withdraw or modify the recommendation due
to
the existence of a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the entity making such
Superior Proposal. Nothing in this Section 10.1 shall be deemed to limit
Lightyear’s obligation to call, give notice of, convene and hold the Lightyear
Members meeting, regardless of whether the Managers of Lightyear has withdrawn
or modified its recommendation of this Agreement and the Merger.
(d) In
the
event any Wherify Entity or Lightyear Company or any of its respective officers,
directors, investment bankers, financial advisors or attorneys attains knowledge
of any Acquisition Proposal or any request for nonpublic information in
connection with any Acquisition Proposal, or of any inquiry with respect to,
or
that could reasonably be expected to lead to, any Acquisition Proposal, such
party shall promptly advise the other party orally, with written confirmation
to
follow promptly (and in any event within 24 hours), of the material terms and
conditions of any such Acquisition Proposal or inquiry and the identity of
the
Person making any such Acquisition Proposal or inquiry. Such party shall not
provide any information to or participate in discussions or negotiations with
the Person making any Qualifying Proposal until three business days after the
date the written notice required above is received. Wherify or Lightyear, as
applicable, shall (i) keep the other party fully informed, on a prompt basis
(and in any event within 24 hours), of the status and any material change to
the
terms of any such Acquisition Proposal or inquiry, (ii) provide to the other
party as promptly as practicable after receipt or delivery thereof copies of
all
correspondence and other written material sent or provided from any third party
describing the terms of any Acquisition Proposal, and (iii) if a counterproposal
is timely made, consider and cause its financial and legal advisors to negotiate
on its behalf in good faith with respect to the terms of such counterproposal.
Contemporaneously with providing any information to a third party in connection
with any such Qualifying Proposal, the disclosing party shall furnish a copy
of
such information to the other party hereto.
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(e) Nothing
contained in this Section 10.1 shall be deemed to prohibit Wherify from taking
and disclosing to its stockholders a position with respect to a tender offer
contemplated by Rule 14e-2(a) promulgated under the Exchange Act if, in the
good
faith judgment of the Board of Directors of Wherify, after consultation with
outside counsel, failure to so disclose would be inconsistent with its
obligations under applicable law; provided, however, that, except as set forth
in Section 10.1(b), in no event shall the Board of Directors of Wherify or
any
committee thereof withdraw or modify or propose to withdraw or modify, in a
manner adverse to Lightyear, the approval or recommendation by the Wherify
or
such committee of the Merger or this Agreement.
10.2 Board
of Directors.
Wherify
shall take all action necessary before the Closing to cause the Wherify Board
of
Directors immediately after the Closing Time, to consist of seven (7) persons,
five (5) of whom shall be designated by Lightyear, of which one (1) shall be
approved by Wherify to appoint. Wherify’s approval shall not be unreasonably
withheld. The other two (2) directors shall be designated by Wherify and GPS
Associates, LLC (“GPS”), respectively. The parties agree that Certificate of
Designation for Wherify Series C Preferred Stock shall provide that,
except
as
required by Delaware law, Wherify Series C Preferred Stock and Common Stock
will
vote together as a single class on all matters presented to a vote of
stockholders, including the election of directors. With respect to the election
of directors, each share of Wherify Series C Preferred Stock will have 1.3
votes
per share while each share of Common Stock will have 1.0 vote per share; and
on
all other matters, each share of Wherify Series C Preferred Stock and Common
Stock have 1 vote per share. Each share of Wherify Series C Preferred Stock
is
convertible into Common Stock at the first to occur of (i) the discretionary
conversion by the holder of the Wherify Series C Preferred Stock and (ii) the
transfer of Wherify Series C Preferred Stock to a purchaser outside the
Lightyear Members or their Affiliates.
10.3 Officers
of Wherify. At
the
Effective Time, Xxxxxxx Xxxxxxxxx will be appointed the Chairman of the Board
of
Wherify as set forth in the employment contract between Wherify and
Xx. Xxxxxxxxx. Xx. Xxxxxxxxx will be appointed the Chief Executive
Officer of Wherify as set forth in the employment contract between Wherify
and
Xx. Xxxxxxxxx, attached hereto as Exhibit
G.
10.4 Employment
Agreements.
Prior
to Closing the employment agreement between Wherify and Xxxxxxx Xxxxxxx shall
be
amended to, among other things, change Xx. Xxxxxxx’x scope of
responsibility to include his title as Senior Vice President of Location Based
Technologies in form and substance satisfactory to Lightyear and Xx. Xxxxxxx.
10.5 Escrowed
Funds. At
the
time of execution of this Agreement, Wherify shall deposit $100,000 (the “Escrow
Amount”) with McBrayer, McGinnis, Xxxxxx & Xxxxxxxx, PLLC, or such other
bank or trust company as shall be mutually acceptable to Wherify and Lightyear
and such bank or trust company shall act as escrow agent (the “Escrow Agent”)
pursuant to the terms of this section and otherwise pursuant to that certain
Escrow Agreement, in substantially the same form and substance as attached
hereto as Exhibit
G
(the
“Escrow Agreement”). Among
other provisions, the Escrow Agreement shall provide that the Escrow Amount
shall be delivered immediately to Lightyear upon the termination of this
Agreement or the failure to close the transactions set forth herein (a
“Termination Event”) except where the Agreement is terminated or the
transactions do not close because of a material breach of the Agreement by
Lightyear. Upon a Termination Event, Lightyear shall deliver written notice
to
the Escrow Agent directing the Escrow Agent to disburse the Escrow Amount to
Lightyear pursuant to the terms of the Escrow Agreement. Upon the consummation
of the Merger contemplated in this Agreement, the Escrow Amount shall be
returned to the Surviving Entity.
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10.6 Press
Releases.
Wherify, the Merger Sub and Lightyear will seek to consult with each other
before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby; provided,
however, that Wherify shall ultimately determine in its sole discretion the
timing and content of any press release as it deems necessary or advisable
pursuant to or arising out of its status and obligations as an SEC reporting
issuer.
10.7 Wherify
Change of Name; Reverse Stock Split.
As soon
as practicable after the Closing, Wherify’s Board shall propose and recommend
that its Certificate of Incorporation be amended to change its name to
“Lightyear Network Solutions, Inc.” In addition, subject to the terms hereof, as
soon as practicable after the Closing, at the Wherify stockholders meeting
Wherify shall propose and recommend that its Certificate of Incorporation be
amended to effect a reverse stock split or increase in authorized shares as
may
be required by the issuance of the Merger Shares or Financing
Shares.
10.8 Commercially
Reasonable Efforts.
Upon
the terms and subject to the conditions hereof, all of the parties hereto agree
to use their commercially reasonable efforts to take, or cause to be taken,
all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated
by
this Agreement and to cooperate in connection with the foregoing, including
using commercially reasonable efforts (a) to obtain any necessary waivers,
consents and approvals from other parties to material notes, licenses,
agreements, and other instruments and obligations; (b) to obtain any material
consents, approvals, authorizations and permits required to be obtained under
any federal, state or local statute, rule or regulation; (c) to defend all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby; and (d) promptly to effect
all necessary filings and notifications. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes
of
this Agreement, the proper officers and directors of the Surviving Entity shall
take all such action on behalf of Lightyear and the Merger Sub.
10.9 Indemnification.
From
and after the Effective Time, Wherify will and will cause the Surviving Entity
to fulfill and honor in all respects the obligations of Wherify and Lightyear
pursuant to any indemnification agreements between Wherify and Lightyear and
its
directors and officers existing prior to the date hereof. The charter documents
of the Surviving Entity will contain the provisions with respect to
indemnification set forth which provisions will not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees
or
agents of Lightyear, unless such modification is required by law.
10.10 Confidentiality.
The
parties acknowledge that Wherify and Lightyear have previously executed a
confidentiality agreement, dated as of January 18, 2008 (the “Confidentiality
Agreement”), which Confidentiality Agreement shall continue in full force and
effect in accordance with its terms, except as expressly modified herein.
Notwithstanding anything herein to the contrary, any party to this Agreement
(and any employee, representative, shareholder, stockholder or other agent
of
any party to this Agreement) may disclose to any and all Persons, without
limitation of any kind, the tax treatment and tax structure of the proposed
transactions contemplated by this Agreement and all materials of any kind
(including opinions or other tax analyses) that are provided to it relating
to
such tax treatment and tax structure; provided, however, that such disclosure
may not be made to the extent such disclosure would reasonably be expected
to
violate any applicable federal or state securities laws. For the purposes of
the
foregoing sentence: (a) the “tax treatment” of a transaction means the purported
or claimed federal income tax treatment of the transaction; and (b) the “tax
structure” of a transaction means any fact that may be relevant to understanding
the purported or claimed federal income tax treatment of the transaction.
10.11 Expenses.
Except
as otherwise expressly provided for herein, whether or not the Merger is
consummated, all fees and expenses incurred in connection with the Merger
including all legal, accounting, financial advisory, consulting and all other
fees and expenses of (including the fees and expenses of third parties)
(“Expenses”) incurred by a Party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be for the account of the respective Party incurring
such fees and expenses.
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10.12 SEC
Filings.
Lightyear and the Lightyear Members shall cooperate with Wherify to enable
Wherify to comply with its SEC filing and disclosure obligations, including
but
not limited to its obligations to file an 8-K within four (4) business days
after execution of this Merger Agreement. Each of Wherify, Lightyear and each
Lightyear Member shall use its commercially reasonable efforts to
cause
all documents that it is responsible for filing with the SEC or other regulatory
authorities under this Section 10.12 to comply in all material respects with
all
applicable requirements of law
and the
rules and regulations promulgated thereunder and
to
timely file such documents with the appropriate regulatory authority.
10.13 Tax
Matters.
The
Lightyear Members shall be responsible for timely filing all federal and state
income tax returns of Lightyear for taxable periods ending on or prior to the
Effective Time of the Merger and have paid or will pay all income taxes
attributable to the income of Lightyear for such periods. Such returns will
be
prepared and filed in accordance with applicable law and in a manner consistent
with past practices. Wherify and Lightyear, on the one hand, and the Lightyear
Members, on the other hand, will make available to the other, as reasonably
requested, all information, records or documents relating to the liability
for
Taxes of Lightyear for all periods ending on or prior to the Effective Time
and
will preserve such information, records or documents until the expiration of
any
applicable statute of limitations or extensions thereof.
10.14 Governmental
Approvals.
(a) The
Parties shall cooperate with each other and use their commercially reasonable
efforts to promptly prepare and file all necessary documentation, to effect
all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits and authorizations of all third parties and Governmental
Entities which are necessary to consummate the transactions contemplated by
this
Agreement, including, without limitation, from the Federal Communication
Commission (“FCC”) (“Governmental Approvals”), and to comply with the terms and
conditions of all such Governmental Approvals. Each of the Parties shall use
their commercially reasonable efforts to, and shall use their commercially
reasonable efforts to cause their respective Representatives and other
Affiliates to, file within 20 days after the date hereof, and in all events
shall file within 60 days after the date hereof, all required initial
applications and documents in connection with obtaining the Governmental
Approvals and shall act reasonably and promptly thereafter in responding to
additional requests in connection therewith. Without limiting the foregoing,
within 20 days from the date hereof, if required, Lightyear and Wherify shall
make their respective filings under the HSR Act with respect to the Merger
and
thereafter shall promptly make any other required submissions under the HSR
Act.
The filing fee that is required to be submitted with Lightyear’s and Wherify’s
filing under the HSR Act in connection with the Merger shall be split evenly,
by
Wherify and Lightyear. Wherify and Lightyear shall have the right to review
in
advance, and to the extent practicable, each will consult the other on, in
each
case subject to applicable laws relating to the exchange of information, all
the
information relating to Wherify and Lightyear, as the case may be, and any
of
Wherify’s subsidiaries, directors, officers and stockholders which appear in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. Without limiting the foregoing, each of Wherify and Lightyear (the
“Notifying Party”) will notify the other promptly of the receipt of comments or
requests from Governmental Entities relating to Governmental Approvals, and
will
supply the other Party with copies of all correspondence between the Notifying
Party or any of its Representatives and Governmental Entities with respect
to
Governmental Approvals.
(b) Wherify
and Lightyear shall promptly advise each other upon receiving any communication
from any Governmental Entity whose consent or approval is required for
consummation of the transactions contemplated by this Agreement which causes
such Party to believe that there is a reasonable likelihood that any approval
needed from a Governmental Entity will not be obtained or that the receipt
of
any such approval will be materially delayed. Wherify and Lightyear shall take
any and all actions reasonably necessary to vigorously defend, lift, mitigate
and rescind the effect of any litigation or administrative proceeding adversely
affecting this Agreement or the transactions contemplated hereby or thereby,
including, without limitation, promptly appealing any adverse court or
administrative order or injunction to the extent reasonably necessary for the
foregoing purposes.
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(c) Notwithstanding
the foregoing or any other provision of this Agreement, Wherify shall have
no
obligation or affirmative duty under this Section 10.14 to cease or refrain
from
the ownership of any Assets, or the association with any Person which
association is material to the operations of Wherify, whether on the date hereof
or at any time in the future.
10.15 Pro-forma
Capitalization.
The
Parties agree that the projected pro-forma capitalization of Wherify, on a
consolidated basis, after the Merger is expected to be as set forth in the
Projected Proforma Capitalization attached hereto as Schedule 10.15; provided
that in the event the aggregate gross proceeds from the sale of the Financing
Shares shall exceed $15,000,000, the dilution from such excess shall be applied
to
all of
the holders of equity, including the Lightyear Members on a pro rata basis.
10.16 Employee
Stock Options.
The
Parties agree that after the Effective Time, they will cause the Board of
Directors of Wherify to limit the grants of stock options or stock grants to
employees,
officers, consultants and directors of Wherify or any Affiliate to such number
of shares equal to or below two percent (2%) of Wherify fully-diluted shares
during the six (6) month period following the Effective Time.
10.17 Rule
16b-3 Exemption.
The
Board of Directors of Wherify, upon approving the Merger but prior to the
consummation of the Merger, shall approve, in such form as is required by Rule
16b-3 promulgated by the SEC under the Exchange Act, the deemed acquisition
of
shares of Wherify Series C Preferred Stock and issued in connection with the
Merger and Wherify Common Stock issued upon conversion thereof by the directors
or officers of Lightyear, if any, who will be (a) exchanging Lightyear
Membership Interest for Wherify Common Stock, and (b) functioning as directors
or officers of Wherify following the Merger.
ARTICLE
XI
INDEMNIFICATION
11.1 Survival
of Representations and Warranties.
With
the exception of the representations and warranties in Sections 5.2, 5.4, 7.2,
7.3 and 7.4 the respective representations and warranties of Lightyear Parties,
the Wherify Entities contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall expire with, and be terminated and extinguished
upon, the Closing. This Section 11.1 shall have no effect upon any other
obligations of the parties hereto, whether to be performed before or after
the
consummation of the Merger.
11.2 Indemnification
by Lightyear Parties.
Lightyear Parties shall, jointly and severally, protect, indemnify and hold
harmless Wherify Entities, and its respective officers, directors, stockholders,
attorneys, accountants, employees, affiliates, heirs, beneficiaries, legal
representatives, successors and assigns, from any and all demands, claims,
actions, causes of actions, lawsuits, proceedings, judgments, losses, damages,
injuries, liabilities, obligations, expenses and costs (including costs of
litigation and attorneys’ fees), arising from any breach of any agreement,
representation or warranty made by Lightyear Parties in this
Agreement.
11.3 Indemnification
by Wherify.
Wherify
Entities shall, jointly and severally, protect, indemnify and hold harmless
Lightyear Parties, and their respective officers, directors, shareholders,
attorneys, accountants, employees, affiliates, heirs, beneficiaries, legal
representatives, successors and assigns, from any and all demands, claims,
actions, causes of actions, lawsuits, proceedings, judgments, losses, damages,
injuries, liabilities, obligations, expenses and costs (including costs of
litigation and attorneys’ fees), arising from any breach of any agreement,
representation or warranty made by Wherify Entities in this
Agreement.
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11.4 Indemnification.
At all
times after the Effective Time, Lightyear Parties shall cause Wherify to, and
Wherify Entities shall cause Lightyear Parties and Wherify Entities to, jointly
and severally indemnify the officers, directors, employees or agents of
Lightyear Companies or any Subsidiary of either (each a “Lightyear Indemnified
Party”) to the fullest extent permitted by applicable law with respect to all
acts and omissions arising out of such individuals’ services as officers,
directors, employees or agents of Lightyear Companies or any Subsidiary of
either, or as trustees or fiduciaries of any plan for the benefit of employees,
occurring at or prior to the Effective Time, including, without limitation,
the
transactions contemplated by this Agreement. Without limiting the foregoing,
at
all times after the Effective Time, in the event any such Lightyear Indemnified
Party is or becomes involved in any capacity in any action, complaint, petition,
investigation, suit, audit, arbitration, litigation or other proceeding, whether
civil or criminal, in law or in equity, before any arbitrator or governmental
entity in connection with any matter, including, without limitation, the
transactions contemplated by this Agreement, occurring at or prior to, and
including, the Effective Time, Lightyear Parties shall pay as incurred such
Lightyear Indemnified Party’s legal and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith so long
as
such party shall enter into an undertaking with Lightyear Parties to reimburse
Lightyear Parties, to the extent required by applicable law, for all amounts
advanced if a court of competent jurisdiction shall ultimately determine, in
a
judgment that is not subject to appeal or review, that indemnification of such
Lightyear Indemnified Party is prohibited by applicable law. At all times after
the Effective Time, Lightyear Parties shall pay all expenses, including
reasonable attorneys’ fees, that may be incurred by any Indemnified Party in
enforcing the indemnity and other obligations provided for in this Section
11.4
Moreover, for six (6) years after the Effective Time, Lightyear Parties shall
cause to be maintained in effect in its Charter Documents, and shall not
eliminate or modify, Lightyear Parties’ current provisions regarding the
elimination of liability of directors and the indemnification of officers,
directors and employees and advancement of expenses. The obligations of
Lightyear under this Section 11.4 shall not be terminated or modified in such
a
manner as to adversely affect any Lightyear Indemnified Party without the
consent of such Indemnified Party (it being expressly agreed that Lightyear
Indemnified Parties shall be third party beneficiaries of this Section
11.4).
11.5 Indemnification.
At all
times after the Effective Time, Wherify Entities shall indemnify all the
officers, directors, employees or agents of Wherify Entities (each an “Wherify
Indemnified Party”) to the fullest extent permitted by applicable law with
respect to all acts and omissions arising out of such individuals’ services as
officers, directors, employees or agents of Wherify Entities or any of its
subsidiaries, or as trustees or fiduciaries of any plan for the benefit of
employees, occurring at or prior to the Effective Time, including, without
limitation, the transactions contemplated by this Agreement. Without limiting
the foregoing, at all times after the Effective Time, in the event any such
Wherify Indemnified Party is or becomes involved in any capacity in any action,
complaint, petition, investigation, suit, audit, arbitration, litigation or
other proceeding, whether civil or criminal, in law or in equity, before any
arbitrator or governmental entity in connection with any matter, including,
without limitation, the transactions contemplated by this Agreement, occurring
at or prior to, and including, the Effective Time, Wherify Entities shall pay
as
incurred such Wherify Indemnified Party’s legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith
so long as such party shall enter into an undertaking with new Wherify Entities
to reimburse new Wherify, to the extent required by applicable law, for all
amounts advanced if a court of competent jurisdiction shall ultimately
determine, in a judgment that is not subject to appeal or review, that
indemnification of such Wherify Indemnified Party is prohibited by applicable
law. At all times after the Effective Time, Wherify Entities shall pay all
expenses, including reasonable attorneys’ fees, that may be incurred by any
Wherify Indemnified Party in enforcing the indemnity and other obligations
provided for in this Section 11.5.
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ARTICLE
XII
CONDITIONS
TO CLOSING
12.1 Conditions
to the Parties’ Obligations to Close.
The
respective obligations of Lightyear, the Merger Sub and Wherify to consummate
the Merger are subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) As
of the
Closing, no action, suit or proceeding shall have been instituted or, to the
knowledge of the parties, be pending or threatened before any court or other
governmental body by any public agency or governmental authority seeking to
restrain, enjoin or prohibit the consummation of the transactions contemplated
hereby or to seek damages or other relief in connection therewith against any
officer or director of Lightyear Companies or the Wherify Entities;
(b) Other
than the filing of the Certificate of Merger, all authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any Governmental Entity in connection with the
Merger and the consummation of the other transactions contemplated by this
Agreement, including without limitation the Governmental Approvals, shall have
been filed, been obtained or occurred on terms and conditions which would not
reasonably be likely to have a Material Adverse Effect on the Wherify Entities
or Lightyear Companies;
(c) All
third
party and other consents and actions required for the Merger shall have been
obtained, including without limitation, those consents and actions from the
holders of Wherify Series A Preferred Stock and Wherify Series B Preferred
Stock
as contemplated in Exhibit
E;
(d) A
certificate of designation designating the rights and preferences of Wherify
Series C Preferred Stock, as approved by Lightyear, shall have been filed with
the Delaware Secretary of State;
(e) Simultaneously
with the Closing, Wherify shall have closed the transaction in which it issues
the Financing Shares pursuant to which, after the estimated use of proceeds
as
set forth in Schedule 12.1(e), the net proceeds for working capital to Wherify
shall equal not less than $6,500,000, provided that the termination fees of
the
LNS Debt shall be paid from such $6,500,000 as set forth on Schedule
12.1(e);
(f) The
Wherify Entities shall have restructured all of their debt and equity as
follows:
(i) restructuring
of senior secured debt and equity with YA Global Investments, L.P. under the
terms substantially as set forth in Exhibit
C,
attached
hereto;
(ii) restructuring
of approximately $18,000,000 in other debt, payables, vendor obligations and
liabilities for prior tax and workers’ compensation obligations (excluding any
debt owed to officers and directors of Wherify not to exceed $100,000) under
the
terms substantially as set forth in Exhibit
D,
attached hereto;
(iii) conversion
of Wherify Series A Preferred Stock and Wherify Series B Preferred Stock under
the terms substantially as set forth in Exhibit
E,
attached hereto and waiver by the holders of Wherify Series A Preferred Stock
and Wherify Series B Preferred Stock of any rights and preferences to which
they
are entitled or which may be triggered by the transactions contemplated under
this Agreement, including without limitation, the liquidation preference upon
a
change in control transaction; provided, however, that each Lightyear Member
shall have the opportunity to review, but not approve, the terms of the
conversion and waiver of Wherify Series A Preferred Stock and Wherify Series
B
Preferred Stock, including without limitation the conversion set forth in this
Section 12.1(f)(iii), and provided further that each such Lightyear Member’s
review shall occur within seven (7) days from the day each received the terms
thereof;
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(iv) Wherify
shall be capitalized substantially as set forth on Schedule 10.15; as considered
in its entirety; provided that the per share pricing and the number of shares
sold for the Financing Shares may change as necessary to complete the
transactions as contemplated herein and the number of shares designated
“Lightyear Senior Subordinated Note Conversion Shares” and “Lightyear Merger
Consideration Shares” on Schedule 10.15 may change as a result thereof and as a
result of the restructuring under Exhibit F and loans under Section 8.2(g);
provided further that in the event the aggregate gross proceeds from the sale
of
the Financing Shares exceed $15,000,000, the dilution from such excess shall
be
applied to all the holders of equity, including the Lightyear Members on a
pro
rata basis.
(g) Lightyear
Companies shall have restructured its debt in an amount not to exceed
$18,000,000 under the terms substantially as set forth in Exhibit
F,
attached hereto; provided that if the debt exceeds $18,000,000, then Lightyear
Companies shall obtain Wherify’s prior written consent, which consent it may
withhold in its sole discretion. If the debt exceeds $18,000,000, any such
excess shall be restructured as a secured convertible note with the same
conversion terms as the Senior Subordinated Convertible Note as set forth in
Exhibit
F
attached
hereto;
(h) Each
of
the Ancillary Agreements shall have been executed by the respective
parties;
(i) The
authorized number of directors of Wherify shall be seven (7) directors and
the
following persons shall have been appointed to the Wherify Board of Directors
as
of the Closing: (i) five (5) persons as designated by Lightyear, one of whom
shall be Xxxxxxx Xxxxxxxxx who will also be the Chairman of the Board and one
of
whom shall be approved by Wherify, which approval shall not be unreasonably
withheld; and (ii) the remaining two (2) persons shall be appointed (one each)
by the current Board of Directors of Wherify and GPS, respectively.
(j) All
directors and officers of Wherify and GPS will execute lock up letter agreements
restricting the sale of their respective Wherify Series A Preferred Stock,
Wherify Series B Preferred Stock, or Wherify Common Stock for the period as
required by the holders of the majority of the Financing Shares;
(k) The
Board
of Directors of Wherify in the exercise of its business judgment in its sole
discretion determines that the terms of the Financing Shares will not have
a
Material Adverse Effect on the combined business entities following the Merger
contemplated herein;
(l) The
Managers of Lightyear by a vote conducted under Section 10.3(b) of the Lightyear
Operating Agreement, in the exercise of their business judgment in their sole
discretion, determine that the terms of the Financing Shares will not have
a
Material Adverse Effect on the combined business entities following the Merger
contemplated herein; and
(m) The
Managers of Lightyear by a vote conducted under Section 10.3(b) of the Lightyear
Operating Agreement, in the exercise of their business judgment, determine
that
Wherify’s technology has the technical viability and scalability necessary to
achieve Wherify’s financial projections as set forth on the page entitled
“Financial Overview Summary” of the investor presentation prepared for potential
investors by Seven Hill Advisors dated August, 2008, provided that the
determination by Lightyear’s Managers shall be made within thirty(30) days from
the execution of this Agreement, it being presumed that the Managers of
Lightyear are satisfied unless the Managers of Lightyear provide written notice
to Wherify to the contrary within thirty (30) days from the execution of this
Agreement.
12.2 Further
Conditions to Lightyear’s Obligations to Close.
The
obligations of Lightyear Parties to consummate the Merger are further subject
to
the satisfaction at or prior to the Closing of the following
conditions:
(a) Each
of
the representations and warranties of Wherify Entities contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing as if each such representation and warranty were made at and as of
the
Closing (except in each case (i) to the extent such representations and
warranties are specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date; (ii)
for changes contemplated by this Agreement and (iii) where the failure to be
true and correct individually or in the aggregate has not had a Material Adverse
Effect on Wherify Entities, and Wherify Entities shall have performed in all
material respects all agreements and covenants required by this Agreement to
be
performed by them separately or collectively prior to or at the Closing, and
at
the Closing there shall be delivered to Lightyear customary bring-down
certificates (each dated as of the Closing, signed by Wherify and the Merger
Sub) to the foregoing effects;
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(b) Since
the
date of this Agreement there shall not have been any change, event,
circumstance, development or effect that individually or in the aggregate has
had a Material Adverse Effect on Wherify and its subsidiaries; and
(c) Wherify
shall have filed its 10-K before the Closing.
12.3 Further
Conditions to the Merger Sub’s and Wherify Obligations to
Close.
The
obligations of the Wherify Entities to consummate the Merger are further subject
to the satisfaction at or prior to the Closing of the following
conditions:
(a) Each
of
the representations and warranties of Lightyear Parties contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing as if each such representation and warranty were made at and as of
the
Closing, (except in each case (i) to the extent such representations and
warranties are specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date; (ii)
for changes contemplated by this Agreement and (iii) where the failure to be
true and correct individually or in the aggregate has not had a Material Adverse
Effect on any Lightyear Company, and Lightyear Parties shall have performed
in
all material respects all agreements and covenants required by this Agreement
to
be performed by them separately or collectively prior to or at the Closing,
and
at the Closing there shall be delivered to Wherify Entities customary bring-down
certificates (each dated as of the Closing, signed by Lightyear) to the
foregoing effects;
(b) Since
the
date of this Agreement there shall not have been any change, event,
circumstance, development or effect that individually or in the aggregate has
had a Material Adverse Effect on any Lightyear Company;
(c) Lightyear
shall have received the approval from the FCC for the consummation of the
Merger; and
(d) No
appraisal rights, right of first refusal or any other similar rights shall
be
applicable or, if applicable, each Lightyear Member shall have lawfully and
irrevocably waived such rights for the Merger.
ARTICLE
XIII
TERMINATION
13.1 Termination.
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Closing:
(a) By
mutual
consent of the Boards of Directors of Lightyear and Wherify;
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(b) by
Wherify, if there has been a material breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Lightyear set
forth in this Agreement, which breach or failure to perform (i) would cause
the
conditions set forth in Sections 12.1 and 12.3 not to be satisfied, and (ii)
if
curable, shall not have been cured within 20 days following receipt by Lightyear
of written notice of such breach or failure to perform from Wherify;
(c) by
Lightyear, if there has been a material breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Wherify or the
Merger Sub set forth in this Agreement, which breach or failure to perform
(i)
would cause the conditions set forth in Sections 12.1 and 12.2 not to be
satisfied, and (ii) if curable, shall not have been cured within 20 days
following receipt by Wherify of written notice of such breach or failure to
perform from Lightyear;
(d) by
either
Wherify or Lightyear if the Closing has not occurred by November 30, 2008
provided that the terminating party shall not have committed any willful breach
of any of material obligation under this Agreement.
(e) by
Wherify, if Lightyear shall have materially breached its obligations under
Sections 10.1 or 10.12; or
(f) by
Lightyear, if Wherify shall have materially breached its obligations under
Sections 10.1.
13.2 Effect
of Termination.
In the
event of termination of this Agreement as provided in Section 13.1, this
Agreement shall immediately become void and there shall be no liability or
obligation on the part of Wherify Entities or Lightyear Parties or their
respective officers, directors, stockholders or Affiliates; provided that (i)
any such termination shall not relieve any party from liability for any willful
breach of this Agreement (which includes, without limitation, the making of
any
representation or warranty by a party in this Agreement that the party knew
was
not true and accurate when made) and (ii) the provisions of Sections 5.24,
7.23,
10.15, 10.11, 11.1, 11.2 and 11.3 and Article XIV of this Agreement and the
Confidentiality Agreement, as amended hereby, shall remain in full force and
effect and survive any termination of this Agreement.
ARTICLE
XIV
MISCELLANEOUS
PROVISIONS
14.1 Complete
Agreement.
This
Agreement contains a complete and exclusive statement of the agreement of the
parties with respect to the subject matter hereof, and all prior negotiations
and agreements between the parties are superseded by this
Agreement.
14.2 Waiver
and Amendment.
Any
representation, warranty, covenant, term or condition of this Agreement which
may legally be waived, may be waived, or the time of performance thereof
extended, at any time by the party entitled to the benefit thereof, and any
term, condition or covenant hereof (including, without limitation, the period
during which any condition is to be satisfied or any obligation performed)
may
be amended by the parties at any time. Any waiver, extension or amendment shall
be evidenced by any instrument in writing executed on behalf of the appropriate
party or parties or on its behalf by its Chairman or President who has been
authorized by its Board of Directors to execute waivers, extensions or
amendments on its behalf.
14.3 Assignment;
Binding Effect.
This
Agreement may not be assigned by either party without the written consent of
the
other party. This Agreement shall be binding upon and inure to the benefit
of
the parties and their respective successors and permitted assigns.
-57-
14.4 Notices.
Any
notice, demand, claim or other communication under this Agreement shall be
in
writing and shall be deemed duly delivered (i) four business days after being
sent by registered or certified mail, return receipt requested, postage prepaid,
(ii) one business day after being sent for next business day delivery, fees
prepaid, via a reputable nationwide overnight courier service, or (iii) on
the
date of confirmation of receipt (or, the first business day following such
receipt if the date of such receipt is not a business day) of transmission
by
facsimile in each case to the intended recipient as set forth below:
|
(a)
|
if
to Wherify Entities, to
|
|
|
Wherify
Wireless, Inc.
|
||
|
00
Xxxxx Xxxx, #000
|
||
|
Xxx
Xxxxx, Xxxxxxxxxx 00000
|
||
|
Attention:
Chief Financial Officer
|
||
|
Facsimile:
000-000-0000
|
||
|
with
a copy to:
|
||
|
Xxxx
Xxxxx LLP
|
||
|
Xxx
Xxxxxxxxxxx Xxxxxx
|
||
|
Xxxxx
0000
|
||
|
Xxx
Xxxxxxxxx, XX 00000
|
||
|
Attention:
Xxxxxx X. Xxxxxx
|
||
|
Facsimile:
(000) 000-0000
|
||
|
(b)
|
if
to Lightyear Parties, to
|
|
|
Lightyear
Network Solutions, LLC
|
||
|
0000
Xxxxxxxxx Xxxxxxx
|
||
|
Xxxxxxxxxx,
XX 00000
|
||
|
Attention:
Legal Department
|
||
|
Facsimile:
000-000-0000
|
||
|
with
a copy to:
|
||
|
Xxxxxx
X. Xxxxxx
|
||
|
Xxxxx
Xxxxx Xxxx LLC
|
||
|
000
Xxxx Xxxx Xxxxxx, Xxxxx 0000
|
||
|
Xxxxxxxxx,
Xxxxxxxx 00000
|
||
|
Facsimile:
(000) 000-0000
|
Any
party
to this Agreement may give any notice or other communication hereunder using
any
other means (including personal delivery, messenger service, telecopy, telex,
ordinary mail or electronic mail), but no such notice or other communication
shall be deemed to have been duly given unless and until it actually is received
by the party for whom it is intended. Any party to this Agreement may change
the
address to which notices and other communications hereunder are to be delivered
by giving the other parties to this Agreement notice in the manner herein set
forth.
14.5 Governing
Law.
AS TO
ALL MATTERS OF LAW, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH CALIFORNIA LAW, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
BE
APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW.
14.6 Submission
to Jurisdiction.
Each of
the parties to this Agreement (a) consents to submit itself to the personal
jurisdiction of any state or federal court sitting in the State of California,
County of San Mateo in any action or proceeding arising out of or relating
to
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that all claims in respect of such action or proceeding may be heard
and
determined in any such court, (c) 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 (d) agrees not to bring any action or proceeding arising out
of
or relating to this Agreement or any of the transaction contemplated by this
Agreement in any other court.
-58-
14.7 Headings.
Any
headings in this Agreement are solely for convenience of reference and shall
not
affect its interpretation.
14.8 Execution
of Counterparts.
This
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which together shall constitute one and the same
instrument.
14.9 Severability.
If any
provision of this Agreement is held or deemed to be, or in fact is, invalid,
inoperative or unenforceable for any reason, this Agreement shall be construed
as though such invalid, inoperative or unenforceable provision had never been
contained in this Agreement; provided, however, that no such severability shall
be effective if it causes a material detriment to Wherify or
Lightyear.
[The
remainder of this page intentionally left blank]
-59-
IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement
on the day and year first above written.
|
WHERIFY
WIRELESS, INC.,
a Delaware corporation
|
LIGHTYEAR
NETWORK
SOLUTIONS, LLC,
a Kentucky LLC
By: LY Holdings, LLC, its sole member
|
||
|
By:
|
By:
|
||
|
Name:
|
Name:
|
||
|
Title:
|
Title:
|
|
WHERIFY
ACQUISITION, INC.,
a Delaware corporation
|
LY
HOLDINGS, LCC,
a Kentucky LLC
|
||
|
By:
|
By:
|
||
|
Name:
|
Name:
|
||
|
Title:
|
Title:
|
|
LIGHTYEAR
ALLIANCE OF
PUERTO
RICO, LLC
By:
Lightyear Network Solutions, LLC,
its
sole member
|
|||
|
By:
|
|||
|
Name:
|
|||
|
|
Title:
|
|
WHERIFY
CALIFORNIA, INC.,
a California corporation
|
LANJK
LLC,
a Kentucky LLC
|
||
|
By:
|
By:
|
||
|
Name:
|
Name:
|
||
|
Title:
|
Title:
|
-60-
|
4031806
CANADA INC.,
a Canadian corporation
|
SULLIVANLY,
LLC,
a Nevada LLC
|
||
|
By:
|
By:
|
||
|
Name:
|
Name:
|
||
|
Title:
|
Title:
|
|
RICE-LY
VENTURES, LLC,
a
Kentucky LLC
|
|||
|
By:
|
|||
|
Name:
|
|||
|
|
Title:
|
|
TELEMIX
INVESTMENTS, LLC,
a
California LLC
|
|||
|
By:
|
|||
|
Name:
|
|||
|
|
Title:
|
|
MAP
II, LLC,
a
Kentucky LLC
|
|||
|
By:
|
|||
|
Name:
|
|||
|
|
Title:
|
-61-
SCHEDULE
5.27
The
term
“Accredited Investor” under Regulation D refers to:
A
person
or entity who is a director or executive officer of the
Corporation;
Any
bank
as defined in Section 3(a)(2) of the Securities Act, or any savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity; any
broker or dealer registered pursuant to Section 15 of the Exchange Act;
insurance Corporation as defined in Section 2(13) of the Securities Act;
investment Corporation registered under the Investment Corporation Act of 1940;
or a business development Corporation as defined in Section 2(a)(48) of that
Act; Small Business Investment Corporation licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment
Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has total assets
in
excess of $5,000,000; employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made
by a
plan fiduciary, as defined in Section 3(21) of such Act, which is either a
bank,
savings and loan association, insurance Corporation, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decision made solely
by
persons that are accredited investors;
Any
private business development Corporation as defined in Section 202(a)(22) of
the
Investment Advisers Act of 1940;
Any
organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the Securities offered, with total assets
in excess of $5,000,000;
Any
natural person whose individual net worth, or joint net worth with that person’s
spouse, at the time of his purchase exceeds $1,000,000;
Any
natural person who had an individual income in excess of $200,000 during each
of
the previous two years or joint income with that person’s spouse in excess of
$300,000 in each of those years and has a reasonable expectation of reaching
the
same income level in the current year;
Any
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Securities offered, whose purchase is directed by
a
person who has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the prospective
investment; or
Any
entity in which all of the equity owners are accredited investors.
As
used
in this Schedule 1, the term “net worth” means the excess of total assets over
total liabilities. For the purpose of determining a person’s net worth, the
principal residence owned by an individual should be valued at fair market
value, including the cost of improvements, net of current encumbrances. As
used
in this Section 3.6, “income” means actual economic income, which may differ
from adjusted gross income for income tax purposes. Accordingly, the undersigned
should consider whether it should add any or all of the following items to
its
adjusted gross income for income tax purposes in order to reflect more
accurately its actual economic income: Any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to an XXX or Xxxxx retirement
plan, and alimony payments
-62-
SCHEDULE
10.15
Projected
Proforma Capitalization
|
|
|
|
|
|
|
Merger
Date
|
|
|
|
||||||||||
|
|
|
|
|
Pre-Merger
Capitalization
|
|
Proforma
|
|
|
|
||||||||||
|
Debt
|
|
|
|
Wherify
|
|
|
|
Lightyear
|
|
Combined
|
|||||||||
|
Senior
Secured Notes
|
|||||||||||||||||||
|
YA
Global
|
5,200,000
|
0
|
2,500,000
|
||||||||||||||||
|
Lightyear
Investor Line of Credit
|
0
|
16,000,000
|
16,000,000
|
||||||||||||||||
|
Total
Senior Debt
|
5,200,000
|
16,000,000
|
18,500,000
|
||||||||||||||||
|
Subordinated
Notes
|
0
|
1,500,000
|
1,500,000
|
||||||||||||||||
|
Wherify
Unsecured Creditors
|
16,300,000
|
0
|
0
|
||||||||||||||||
|
Total
Other Debt
|
16,300,000
|
1,500,000
|
1,500,000
|
||||||||||||||||
|
Total
Debt Capitalization
|
20,000,000
|
||||||||||||||||||
|
Preferred
Stock
|
|||||||||||||||||||
|
New
Investor Senior Convertible Preferred
|
0
|
0
|
15,000,000
|
||||||||||||||||
|
GPS
Series A Convertible Preferred
|
7,500,000
|
0
|
0
|
||||||||||||||||
|
GPS
Series B Convertible Preferred
|
1,120,000
|
0
|
0
|
||||||||||||||||
|
Total
Preferred Stock
|
15,000,000
|
||||||||||||||||||
|
Common
Stock
|
Shares
|
%
|
Shares
|
%
|
|||||||||||||||
|
COMMON
SHARES ISSUED AND OUTSTANDING (as of May 2, 2008)
|
99,600,000
|
46.9
|
%
|
99,600,000
|
14.0
|
%
|
|||||||||||||
|
Conversion/
|
|||||||||||||||||||
|
Exercise
Price
|
|||||||||||||||||||
|
DILUTIVE
COMMON SHARES (as of April 30, 2008) :
|
|||||||||||||||||||
|
For
YA Global Convertible Debentures
|
=>
$0.045
|
19,200,000
|
9.0
|
%
|
0
|
||||||||||||||
|
For
GPS Series A Convertible Preferred
|
$
|
0.125
|
60,000,000
|
28.3
|
%
|
60,000,000
|
8.5
|
%
|
|||||||||||
|
For
GPS Series B Convertible Preferred
|
$
|
0.160
|
7,056,250
|
3.3
|
%
|
7,056,250
|
1.0
|
%
|
|||||||||||
|
Warrants:
|
|||||||||||||||||||
|
YA
Global Warrant
|
$
|
0.142
|
7,000,000
|
3.3
|
%
|
7,000,000
|
0.99
|
%
|
|||||||||||
|
GPS
Investor Warrant
|
$
|
0.100
|
3,000,000
|
1.4
|
%
|
3,000,000
|
0.4
|
%
|
|||||||||||
|
Xxxxxxx
Agent Warrants
|
$
|
0.10
to $0.15
|
9,700,000
|
4.6
|
%
|
9,700,000
|
1.4
|
%
|
|||||||||||
|
Other
Warrants
|
992,119
|
0.5
|
%
|
992,119
|
0.1
|
%
|
|||||||||||||
|
Employee
Stock Options
|
.14
to .16 average
|
5,684,362
|
2.7
|
%
|
5,684,362
|
0.8
|
%
|
||||||||||||
|
112,632,731
|
53.1
|
%
|
93,432,731
|
||||||||||||||||
|
Total
Pre-Merger Fully-Diluted Shares
|
212,232,731
|
100.0
|
%
|
||||||||||||||||
|
PREFERRED
AND COMMON SHARES RESERVED FOR ISSUANCE IN CONNECTION WITH
MERGER
|
|||||||||||||||||||
|
New
Investor Conversion Shares
|
$
|
0.178
|
84,507,042
|
11.9
|
%
|
||||||||||||||
|
Seven
Hills Agent Warrants
|
$
|
0.178
|
750,000
|
0.0
|
%
|
||||||||||||||
|
Debt
for Equity Shares
|
$
|
0.142
|
42,574,454
|
6.0
|
%
|
||||||||||||||
|
GPS
Consent Warrants (A&B Preferred Stock)
|
$
|
0.222
|
22,000,000
|
3.1
|
%
|
||||||||||||||
|
Bridge
Lender Warrants
|
$
|
0.142
|
2,000,000
|
0.3
|
%
|
||||||||||||||
|
Xxxxxxx
Advisory Warrants
|
3,000,000
|
0.4
|
%
|
||||||||||||||||
|
154,492,825
|
|||||||||||||||||||
|
Lightyear
Senior Subordinated Note Conversion Shares
|
$
|
0.222
|
35,783,000
|
5.0
|
%
|
||||||||||||||
|
Lightyear
Merger Consideration Shares
|
325,927,000
|
46.0
|
%
|
||||||||||||||||
|
361,710,000
|
51.0
|
%
|
|||||||||||||||||
|
Total
Post-Merger Fully-Diluted Shares
|
709,235,825
|
100.0
|
%
|
||||||||||||||||
|
Implied
Equity Market Capitalization
|
$
|
126,243,830
|
|||||||||||||||||
Schedule
12.1(e)
Recapitalization
Financing Estimated Use of Proceeds
|
$
|
||||
|
Lightyear
Working Capital
|
3,500,000
|
|||
|
Wherify
Working Capital
|
3,000,000
|
|||
|
Portion
of Termination Fee
|
500,000
|
1 | ||
|
Closing
Date Working Capital Requirement
|
7,000,000
|
|||
|
Payoff
Pre-Merger Bridge Loan
|
800,000
|
|||
|
YA
Global Cash Payment
|
2,500,000
|
|||
|
Wherify
Unsecured Creditor Cash Payment
|
2,500,000
|
|||
|
Debt
Restructuring Payoffs
|
5,800,000
|
|||
|
Transaction
Fees and Expenses
|
||||
|
Recapitalization
Placement Fee 7%
|
1,050,000
|
|||
|
Unsecured
Creditor Restructuring Fee
|
150,000
|
|||
|
Merger
Advisory/YA Global Debt Restructuring Fee
|
500,000
|
|||
|
Legal
and Other Miscellaneous Fees
|
500,000
|
|||
|
Subtotal
|
2,200,000
|
|||
|
Total
Refinancing
|
15,000,000
|
(1)
After
payment of $500,000, remaining termination fees not to exceed
$1,600,000.
EXHIBIT
A
Certificate
of Merger
EXHIBIT
B
Operating
Agreement of Surviving Entity
EXHIBIT
C
Terms
of
Restructuring Wherify Senior Debt and Equity with YA Global
The
terms
of restructuring Wherify Senior Debt and Equity with YA Global are as
follows:
The
Existing Senior Secured Debt:
YA
Global Investments, L.P. (f/k/a Cornell Capital Partners, LP) (“YA
Global”),
the
holder of the existing approximate $5,510,000 (principal and accrued interest)
in Wherify Senior Secured Debt, will settle the full amount of the Wherify
Senior Secured Debt (including all principal, accrued interest, fees, costs,
and
expenses) in exchange for: (i) $2.5 million in cash plus (ii) a replacement
$2.5
million secured note (the “YA
Replacement Note”)
made
jointly and severally payable by the Merger Sub, Wherify, and Wherify California
to YA Global, where such YA Replacement Note will have the following basic
terms:
|
Amount:
|
$2,500,000
|
|
|
Interest:
|
12%
per annum, payable quarterly in arrears
|
|
|
Maturity:
|
3
years
|
|
|
Payments:
|
Commencing
on the thirteen month anniversary date from the Closing Date, and
continuing on the like day of each month thereafter, the makers shall
make
monthly principal payments in the amount of $83,333.33 each. At maturity
of the YA Replacement Note, the then outstanding principal balance
plus
any accrued and unpaid interest, and any other amounts due under
the YA
Replacement Note shall be due and payable in full.
|
|
|
Prepayment:
|
Anytime
in whole or part without penalty
|
|
|
Security:
|
YA
Global shall continue to hold a first perfected security interest
in all
assets of Wherify and Wherify California, whether existing as of
the
Closing Date or acquired thereafter (including, without limitation,
Wherify’s and Wherify California’s intellectual property). YA Global shall
not have a security interest in the assets of the Merger Sub. YA
Global’s
security documents shall provide that Wherify and Wherify California
may
license or utilize their intellectual property in the ordinary course
of
business in any reasonable way, provided that (a) any license of
the
intellectual property shall be expressly subordinate to the security
interest of YA Global, and (b) Wherify and/or Wherify California
shall not
sell or transfer title to such intellectual property or grant exclusive
licenses or the like without the prior written consent of YA Global1.
Wherify and Wherify California shall covenant and agree that none
of their
assets will be transferred to the Merger Sub either in connection
with the
Merger or otherwise without the prior written consent of YA
Global.
|
1
Provided, however, that with respect to exclusive licenses such consent shall
not be unreasonably withheld so long as no default or event of default has
occurred and is continuing, and such exclusive license is geographically
and
temporally limited and otherwise of a nature customarily entered into by
Wherify
in the ordinary course of its business.
page
1
In
addition, as part of this restructuring, the existing 7.0 million in Wherify
warrants owned by YA Global will be reset to provide an Exercise Price equal
to
equal to 75% of the purchase price of the Financing Shares (as defined in the
Merger Agreement). In addition, the Wherify warrants issued to YA Global shall
also be amended to provide (a) the cashless exercise may be elected at anytime
and shall not be subject to any conditions in order to elect the same, and
(b)
the expiration date of the warrant shall be seven years from the Closing Date.
Wherify,
Wherify California, and Merger Sub shall execute and deliver such documents,
instruments, and agreements as may be required by YA Global to evidence the
restructure outlined above, which documents shall be in a form and of a
substance acceptable to YA Global in all respects.
page
2
EXHIBIT
D
Terms
of
Restructuring Wherify’s Other Debt
The
terms
of restructuring all of Wherify’s approximately $18 million in existing debt and
other payables, overdue vendor obligations and liabilities for prior taxes
and
workers compensation as of June 30, 2008 are as follows:
The
approximate $18 million in other Wherify debt, payables, overdue vendor
obligations and liabilities for prior taxes and workers compensation obligations
(the “Wherify
Unsecured Creditors”)
will
be extinguished for an aggregate of not more than (i) $2.5 million in cash
and
(ii) that number of shares of common stock required to extinguish the balance
of
obligations not paid off in cash (the “Debt
for Equity Shares”);
provided,
however,
in no
event will the Debt for Equity Shares aggregate in excess of 6% of the aggregate
fully-diluted shares of Wherify that will be in existence on the Closing Date
after giving consideration to all shares of Wherify Series C Preferred Stock
that are contemplated to be issued or retired as part of the transactions
contemplated in the Merger Agreement.
page
1
EXHIBIT
E
Terms
of
Restructuring
Wherify
Series A Preferred Stock and
Wherify
Series B Preferred Stock
The
terms
of Restructuring Wherify Series A Preferred Stock and Wherify Series B Preferred
Stock are as follows:
The
holders of Wherify’s existing Series A and Series B Preferred Stock (the
“Wherify
Preferred Stock”),
will
(i) approve the Merger and this Agreement; (ii) agree to fully convert
such Wherify Preferred Stock on the Closing Date; (iii) waive any
rights and preferences to which they are entitled or which may be triggered
by
the transactions contemplated under the Merger Agreement, including without
limitation, the liquidation preference upon a change in control transaction;
(iv) agree to approve the reverse stock split or increase in the authorized
shares of Wherify after the Closing; and (v) agree to the lock-up for such
period as required by the holders of the Financing Shares.
In
consideration, the holders of Series A Preferred will
be
issued a five year warrant to purchase a total 20,000,000 shares of Wherify
common stock and the
holders of Series B Preferred will
be
issued a five year warrant to purchase a total 2,000,000 shares of Wherify
common stock, both at an exercise price equal to 125% of the per share purchase
price of the Financing Shares.
page
1
EXHIBIT
F
Terms
of
Restructuring of Debt of Lightyear or LNS
LNS’
current debt in an amount not to exceed $18.0 million including accrued
interest, but excluding termination fees (the “LNS
Debt”)
to be
restructured with the following basic terms:
Senior
Secured Portion
|
Amount:
|
Not
more than $15,000,000; consisting of the following notes in the original
principal amounts:
Xxxxx
Xxxxxxxx - $9,000,000 (the “Xxxxxxxx Note”);
SullivanLY,
LLC - $5,250,000 (the “SullivanLY Note”);
CTS
Equities Limited Partnership - $300,000 (the “CTS
Notes”).
|
|
|
Form:
|
Senior
Secured Term Note.
|
|
|
Interest:
|
Xxxxxxxx
Note - LIBOR plus 4.75% for first $7,000,000, capped at 10%; LIBOR
plus
7.75% for any amount over $7,000,000 with no cap.
SullivanLY
Note - Prime Rate plus 1%.
CTS
Notes - Prime Rate plus 1%.
|
|
|
Commitment Fee:
|
Annual
commitment fee of 5% of the then outstanding principal balance
of the Xxxxxxxx Note.
|
|
|
Term:
|
3
years.
|
|
|
Payments:
|
Xxxxxxxx
Note - $250,000 quarterly principal and accrued interest
payments.
SullivanLY
Note - quarterly accrued interest payments.
CTS
Note - quarterly accrued interest payments.
|
|
|
Prepayment:
|
Anytime
in whole or part without penalty.
|
|
|
Security:
|
As
set forth in the Security Agreement dated December 31, 2004 and related
documents. The holders of the LNS Debt shall not have a security
interest
in any of the assets of Wherify or Wherify
California.
|
Senior
Subordinated Notes
|
Not
more than $2,500,000; Consisting of the following notes in the original
principal amounts:
Map
II, LLC - $375,000;
Xxxxxx
X. Xxxx - $375,000;
Xxxxxx
X. Xxxx - $400,000;
Xxxxxx
X. Xxxx - $150,000;
Xxx
Xxxxxxxx - $150,000;
Xxx
Xxxxxxxx - $150,000;
LANJK,
LLC - $150,000;
LANJK,
LLC - $300,000;
Rice
Realty - $150,000;
Rice
Realty - $150,000.
|
page
1
|
Form:
|
Senior
Subordinated Note.
|
|
|
Interest
Rate:
|
Prime
Rate plus 1%.
|
|
|
Term:
|
3
years.
|
|
|
Payments:
|
Accrued
interest paid quarterly.
|
|
|
Prepayment:
|
Any
time in whole or part without penalty.
|
|
|
Security:
|
As
set forth in the Security Agreement dated December 31, 2004 and related
documents. The holders of the LNS Debt shall not have a security
interest
in any of the assets of Wherify or Wherify California.
|
|
|
|
||
|
Prime
Rate:
|
“Prime
Rate” means at any time the interest rate per annum most recently quoted
or the highest of any range quoted from time to time by The Wall
Street
Journal (“WSJ”) as the “Prime Rate” or base rate on corporate loans in
effect at large U.S. money center commercial
banks.
|
Conversion
Holders
of the Senior Secured Portion and Senior Subordinated Notes may, in proportions
to be determined by such holders in their sole discretion, convert $7.5 million
of the notes set forth above on a pro rata basis into Wherify Series C Preferred
Stock at any time at the conversion price (the “Conversion
Price”)
equal
to 125% of the per share purchase price of the Financing Shares.
page
2
EXHIBIT
G
Employment
Agreement with Xxxxxxx Xxxxxxxxx
page
1
EXHIBIT
H
Escrow
Agreement
page
1
