OPTION AGREEMENT
THIS
OPTION AGREEMENT is made and entered into as of this 22nd
day of
January, 2008, by and among Red Moon, Inc., a Delaware corporation (the
“Company”),
Zoom
Technologies, Inc., a Delaware corporation (the “Option
Holder”),
and
each of the stockholders of the Company listed on Schedule
A
(together with any subsequent stockholders, or any transferees, who become
parties hereto as “Holders” pursuant to Sections
7.1 or 7.2
below,
the “Holders”).
RECITALS
A. Concurrently
with the execution of this Agreement, the Company and the Option Holder are
entering into a Convertible Promissory Note Purchase Agreement (the
“Purchase
Agreement”)
providing for the sale of a Convertible Promissory Note in original principal
amount of $300,000 to the Option Holder.
B. The
parties desire to enter into this Agreement to set forth their agreements and
understandings with respect to the Option Holder’s right and option (the
“Option”)
to
purchase the Company (whether by means of a purchase of the assets, a merger
or
consolidation, a purchase of all outstanding capital stock of the Company not
then owned by the Option Holder, or otherwise, as determined pursuant to this
Agreement) on the terms and conditions set forth in this Agreement.
NOW,
THEREFORE, the parties agree as follows:
1. The
Option.
1.1 The
Option.
The
Option Holder shall have the right, exercisable during the period (the
“Option
Period”)
commencing with the date of this Agreement and ending at the close of the
business day, 5:00 p.m. Plano, Texas time, on August 31, 2008, to purchase
the
Company. Such purchase (the “Transaction”),
to
take the form of either (i) the purchase of all of the capital stock of the
Company then outstanding and not then held by the Option Holder such that,
upon
such purchase, the Option Holder will own all of the outstanding shares of
the
capital stock of the Company of any and all classes and series; or, (ii) such
other form as both of the Option Holder and the Company may agree, including
without limitation: (a) the purchase of all or substantially all of the assets
of the Company; or (b) the merger or consolidation of the Company with or into
the Option Holder or other entity. It is hereby agreed and acknowledged that,
in
selecting the form of the Transaction, the parties hereto desire that such
form
accommodate, as much as possible, the desire of all parties to limit or reduce
then current taxation to the Company and the holders of its capital stock and
to
provide the best possible long term tax and accounting treatment for the
Transaction to the Option Holder and the selling stockholders of the Company.
The Option may be exercised by the Option Holder at any time during the Option
Period by providing written notice (the “Exercise
Notice”)
to the
Company of the Option Holder’s exercise of the Option. Upon receipt of the
Exercise Notice, the Company shall promptly provide notice to all Holders of
the
exercise of the Option. In
the
event the Option Holder’s common stock is not listed for trading on either of
the NASDAQ Capital Market or the OTC Bulletin Board at the time of exercise
of
the Option, the Option will terminate.
1.2 Option
Price.
The
aggregate price (the “Purchase
Price”)
the
Option Holder shall pay upon exercise of the Option will be (i) 1,000,000 shares
of the Common Stock of the Option Holder (the “Initial
Payment”);
and
(ii) the Earn-Out Payments (as defined below), if any. Notwithstanding the
terms
and conditions of any (i) long term debt; (ii) current liability notes over
$11,000 and (iii) accrued interest payable to note holders of the Company
assumed by the Option Holder in acquiring the Company pursuant to the exercise
of the Option, such assumed debt will be paid in cash in eight (8) equal
quarterly installments commencing thirty (30) days after the Closing.
1.3 Payment
of Purchase Price; Closing.
No part
of the Purchase Price will be paid or distributed to the Option Holder as a
stockholder of the Company. In connection with the exercise of the Option,
the
Company and the Option Holder shall negotiate in good faith a purchase agreement
containing customary and reasonable representations, warranties and covenants.
The closing (the “Closing”)
of the
exercise of the Option will occur within thirty (30) days of the date of the
Exercise Notice. “Transferee”
shall
mean any an individual, firm, corporation, partnership, association, limited
liability company, trust or any other entity (each of which, a “Person”)
to
which the Option has been transferred pursuant to the terms of Section 7.2
hereof. Shares of the common stock of the Option Holder constituting a portion
of the Purchase Price are hereinafter referred to as “Consideration
Shares”).
1.4 Earn-Out
Payments.
In
addition to the Initial Payment, the stockholders of the Company other than
the
Option Holder are entitled to receive an aggregate of up to four (4) million
additional shares of the Common Stock of the Option Holder or, at the Option
Holder’s option, “share equivalents” as earn-out payments (the “Earn-Out
Payments”)
on the
terms and conditions set forth in this Section 1.4. A “share equivalent” is
defined as $1.25 per share if the Option Holder’s Common Stock remains listed
for trading on the NASDAQ CM; provided, however, if the Option Holder’s Common
Stock is only listed for trading on the OTCBB as of the date the Option is
exercised, the “share equivalent” shall instead be equal to $1.50. From zero (0)
to four (4) million shares or share equivalents may be earned as summarized
in
the Performance Earn-out below. At the time of an Earn-Out Payment, the
stockholders of the Company other than the Option Holder (by means of a
stockholder representative) may request that any Earn-Out Payment be a specific
combination of stock and cash ranging from 100% cash to 100% stock. Such request
must be made by written notice to the Option Holder within thirty (30) days
of
the end of the quarter to which such Earn-Out Payment relates. In the event
the
stockholders of the Company request a combination of stock and cash that is
50/50, the Option Holder will pay any earn-out 50/50 cash and stock. In the
event the stockholders of the Company request that the combination include
more
than 50% cash or more than 50% stock, the Option Holder will pay at least 50%
of
the Earn-Out Payment in the form of consideration so requested by the
stockholders of the Company, but will retain the right to pay less of the
Earn-Out Payment in the form of consideration requested by the stockholders
of
the Company than such stockholders may request provided such form of
consideration is at least 50% of the Earn-Out Payment. For example, if
stockholders of the Company specify payment of at least 60% in stock, the Option
Holder may elect to either grant such request or make the Earn-Out Payment
in
some other mix of cash and stock, provided such payment is at least 50% stock.
If the stockholders of the Company elect to receive any portion of an Earn-Out
Payment in cash, the Option Holder may, at its option, pay such cash earn-out
amount in eight (8) equal quarterly installments, with simple interest at six
percent (6%) per annum, starting 60 days after the end of the quarter, pursuant
to a promissory note in form and substance reasonably acceptable to the
Company.
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An
Earn-Out Payment will be made for a given quarter if and only if:
a) EBITDA
of
the Redmoon division is positive for the quarter; and
b) The
accumulated EBITDA of the Redmoon division is positive starting with the quarter
ending June 30, 2008; and
c) The
quarter ends between June 30th, 2008 through June 30, 2009.
If
an
Earn-Out Payment is to be made for a quarter, its dollar value will equal seven
(7) times the accumulated EBITDA less the total earn-out already paid, not
to
exceed one (1) million shares or share-equivalents in any quarter and not to
allow the total accumulated earn-out to exceed four (4) million shares or
share-equivalents. As an example, the Option Holder’s payment of $1.25 million
cash and 1 million shares would be equivalent to the Option Holder paying 2
million “shares or share-equivalents” if the Option Holder’s Common Stock is
then listed for trading on the NASDAQ CM; however, if the Option Holder’s Common
Stock is instead then only listed for trading on the OTCBB, $1.5 million would
be 1 million share equivalents. Further examples are set forth in Exhibit
B
attached
hereto. Each Earn-Out Payment to be made in stock will be made within sixty
(60)
days after the end of the quarter to which it relates.
2. Holder
Covenants.
2.1 Actions
to be Taken.
In the
event of the exercise of the Option, then each Holder hereby
agrees:
(a) if
the
Transaction requires approval of the stockholders of the Company or any of
them,
with respect to all capital stock that such Holder owns or over which such
Holder otherwise exercises voting power, to vote (in person, by proxy or by
action by written consent, as applicable) all such capital stock in favor of,
and adopt, the Transaction (together with any related amendment or waiver to
the
Company’s Certificate of Incorporation, as amended to date and as the same may
be further amended and/or restated from time to time (as the same may be so
amended and/or restated, the “Charter”))
and to
vote in opposition to any and all other proposals that could delay or impair
the
ability to consummate the Transaction;
(b) if
the
Transaction is a sale of the outstanding capital stock, to sell all of its
capital stock to the Option Holder in connection with and at the Closing of
the
Transaction;
(c) to
execute and deliver all related documentation and take such other action in
support of the exercise of the Option and the closing of the Transaction
contemplated thereunder as shall reasonably be requested by the Company or
the
Option Holder in order to carry out the terms and provision of this Section
2,
including without limitation executing and delivering instruments of conveyance
and transfer, and any purchase agreement, merger agreement, indemnity agreement,
escrow agreement, consent, waiver, governmental filing, share certificates
duly
endorsed for transfer (free and clear of impermissible liens, claims and
encumbrances) and any similar or related documents;
3
(d) not
to
deposit, and to cause its Affiliates not to deposit, except as provided in
this
Agreement or the Charter, any capital stock of the Company owned by such party
or Affiliate in a voting trust or subject any capital stock to any arrangement
or agreement with respect to the voting of such capital stock, unless
specifically requested to do so by the Option Holder;
(e) to
refrain from exercising any dissenters’ rights or rights of appraisal under
applicable law at any time with respect to the exercise of the Option and the
closing of the Transaction; and
(f) if
the
consideration to be paid in exchange for the capital stock includes any
securities and due receipt thereof by any Holder would require under applicable
law (x) the registration or qualification of such securities or of any person
as
a broker or dealer or agent with respect to such securities or (y) the provision
to any Holder of any information other than such information as a prudent issuer
would generally furnish in an offering made solely to “accredited investors” as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended, the Option Holder may cause to be paid to any such Holder in lieu
thereof, against surrender of the capital stock which would have otherwise
been
sold by such Holder, an amount in cash equal to the fair value (as determined
in
good faith by the Company) of the securities which such Holder would otherwise
receive as of the date of the issuance of such securities in exchange for the
Capital stock.
2.2 Exceptions.
Notwithstanding the foregoing Section 2.1, a Holder will not be required to
comply with Section
2.1
above in
connection with any exercise of the Option unless:
(a) any
representations and warranties to be made by such Holder in connection with
the
Transaction are limited to representations and warranties related to authority,
ownership and the ability to convey title to such Holder’s capital stock,
including but not limited to representations and warranties that (i) the Holder
holds all right, title and interest in and to the capital stock such Holder
purports to hold, free and clear of all liens and encumbrances, (ii) the
obligations of the Holder in connection with the Transaction have been duly
authorized, if applicable, (iii) the documents to be entered into by the Holder
have been duly executed by the Holder and delivered to the acquirer and are
enforceable against the Holder in accordance with their respective terms and
(iv) neither the execution and delivery of documents to be entered into in
connection with the Transaction, nor the performance of the Holder’s obligations
thereunder, will cause a breach or violation of the terms of any agreement,
law
or judgment, order or decree of any court or governmental agency;
4
(b) the
Holder shall not be liable for the inaccuracy of any representation or warranty
made by any other person in connection with the Transaction, other than the
Company (except to the extent that funds may be paid out of an escrow
established to cover breach of representations, warranties and covenants of
the
Company as well as breach by any stockholder of any of identical
representations, warranties and covenants provided by all
stockholders);
(c) the
liability for indemnification, if any, of such Holder in the Transaction and
for
the inaccuracy of any representations and warranties made by the Company in
connection with the Transaction, is several and not joint with any other Person
(except to the extent that funds may be paid out of an escrow established to
cover breach of representations, warranties and covenants of the Company as
well
as breach by any Holder of any of identical representations, warranties and
covenants provided by all Holders), and is pro rata in proportion to the amount
of consideration paid to such Holder in connection with such Transaction (in
accordance with the provisions of the Charter);
(d) liability
shall be limited to such Holder's applicable share (determined based on the
respective proceeds payable to each Holder in connection with such Transaction
in accordance with the provisions of the Charter) of a negotiated aggregate
indemnification amount that applies equally to all Holders but that in no event
exceeds the amount of consideration otherwise payable to such Holder in
connection with such Transaction, except with respect to claims related to
fraud
by such Holder, the liability for which need not be limited as to such Holder;
(e) upon
or
after (as appropriate) the consummation of the Transaction, (i) each holder
of
each class or series of the Company’s capital stock will receive the same form
of consideration for their capital stock of such class or series as is received
by other holders in respect of their capital stock of such same class or series;
and (ii) the aggregate Purchase Price shall be allocated among the Holders
on
the basis of the relative ownership percentages in accordance with the Charter;
and
(f) subject
to clause (e) above, requiring the same form of consideration to be available
to
the holders of any single class or series of capital stock, if any Holders
are
given an option as to the form and amount of consideration to be received as
a
result of the Transaction, all Holders of such class or series of capital stock
will be given the same option.
3. Remedies.
3.1 Covenants
of the Company.
Each of
the Option Holder and the Company agrees to use its best efforts, within the
requirements of applicable law, to ensure that the rights granted under this
Agreement are effective and that the parties enjoy the benefits of this
Agreement and to
take
such actions as may be required and to grant such waivers and consents as may
be
necessary or required, whether under the Charter or otherwise, to effectuate
the
closing of the Transaction upon and after the exercise of the Option.
5
3.2 Irrevocable
Proxy.
Each
Holder hereby constitutes and appoints the Treasurer of the Company, and in
such
officer’s absence, the President of the Company, and a designee of the Option
Holder, and each of them, with full power of substitution, as the proxies of
the
Holder with respect to the votes regarding any exercise of the Option pursuant
to Section 2 hereof, and hereby authorizes each of them to represent and to
vote, if and only if the party (i) fails to vote or (ii) attempts to
vote (whether by proxy, in person or by written consent), in a manner which
is
inconsistent with the terms of this Agreement, all of such party’s capital stock
pursuant to and in accordance with the terms and provisions of said Section
2.
The proxy granted pursuant to the immediately preceding sentence is given in
consideration of the agreements and covenants of the parties in connection
with
the transactions contemplated by this Agreement and, as such, is coupled with
an
interest and shall be irrevocable unless and until this Agreement terminates
or
expires pursuant to Section 6 hereof. Each party hereto hereby revokes any
and
all previous proxies with respect to the shares of capital stock of the Company
and shall not hereafter, unless and until this Agreement terminates or expires
pursuant to Section 6 hereof, purport to grant any other proxy or power of
attorney with respect to any of such shares of capital stock, deposit any of
such shares of capital stock into a voting trust or enter into any agreement
(other than this Agreement), arrangement or understanding with any person,
directly or indirectly, to vote, grant any proxy or give instructions with
respect to the voting of any of such shares of capital stock, in each case,
with
respect to any of the matters set forth herein.
3.3 Specific
Enforcement.
Each
party acknowledges and agrees that each party hereto will be irreparably damaged
in the event any of the provisions of this Agreement are not performed by the
parties in accordance with their specific terms or are otherwise breached.
Accordingly, it is agreed that each of the Company and the Option Holder shall
be entitled to an injunction to prevent breaches of this Agreement, and to
specific enforcement of this Agreement and its terms and provisions in any
action instituted in any court of the United States or any state having subject
matter jurisdiction.
3.4 Remedies
Cumulative.
All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
4. Option
Holder Covenants.
4.1 Registration.
(a) The
following terms have the following meanings for purposes of this Section
4:
“Business
Day”
shall
mean a day other than a Saturday, Sunday or other day on which commercial banks
in Boston, Massachusetts are authorized or required by law to
close.
“Commission”
means
the United States Securities and Exchange Commission, or any successor
governmental agency or authority.
“Effectiveness
Period”
means
the period beginning on the date the Registration Statement is declared
effective by the Commission and ending on the earlier of (i) the date when
all
Registrable Securities covered by the Registration Statement (A) cease to be
outstanding or otherwise to be Registrable Securities or (B) may be resold
pursuant to Rule 144(k) under the Securities Act or (ii) all Registrable
Securities have been sold.
6
“Exchange
Act” means
the
United States Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
“Person”
means
any individual, sole proprietorship, partnership, corporation, limited liability
entity, joint venture, unincorporated society or association, trust or other
legal entity or Governmental Authority.
“Prospectus”
means
the prospectuses included in any Registration Statement, as amended or
supplemented by any amendment or prospectus supplement, including post-effective
amendments, and all materials incorporated by reference or explicitly deemed
to
be incorporated by reference in such Prospectus.
“Registrable
Securities”
means
the Consideration Shares until the earliest of (a) their resale in
accordance with a Registration Statement covering such securities and
(b) their sale pursuant to an exemption from registration under the
Securities Act or in any other transaction in which the applicable purchaser
does not receive “restricted securities” (as such term is defined for the
purposes of Rule 144 under the Securities Act).
“Registration
Expenses” means
all
fees and expenses incurred by the Option Holder in connection with the
performance of its obligations under Section 4, whether or not a Registration
Statement is filed or becomes effective, including (i) all preparation,
registration and filing fees, (ii) printing expenses, (iii) all listing
fees and expenses, if any and (iv) fees and disbursements of counsel for
the Option Holder in connection with the Registration Statements relating to
the
Registrable Securities, but not including any and all
underwriting discounts, selling commissions, and stock transfer taxes applicable
to the sale of Registrable Securities, and fees and disbursements of legal
counsel for any selling security holder.
“Registration
Statement”
means
any registration statement of the Option Holder that covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including a
Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits, and all materials incorporated by
reference or explicitly deemed to be incorporated by reference in such
registration statement.
“Securities
Act”
means
the United States Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
7
(b) In
the
event of the exercise of the Option and Consideration Shares constitute a
portion of the Purchase Price, the Option Holder shall, for the benefit of
the
Holders, at the Option Holder’s cost, (A) as soon as practicable, but not later
than 180 days following the date on which the final aggregate amount of
Consideration Shares, including Consideration Shares issued as Earn-Out
Payments, is determined, prepare and file with the Commission, a Registration
Statement on an appropriate form under the Securities Act permitting
registration of the Registrable Securities for resale by the Holders to be
made
on a delayed or continuous basis, (B) use its best efforts to cause the
Registration Statement to be declared effective as soon as practicable, but
in
any event not later than 180 days after the date hereof, and (C) use its best
efforts to keep the Registration Statement (or any Subsequent Registration
Statement) continuously effective under the Securities Act until the expiration
of the Effectiveness Period. Notwithstanding the above, no Holder shall be
entitled to have the Registrable Securities held by such Holder covered by
the
Registration Statement unless such Holder agrees in writing to be bound by
the
provisions of this Section 4 applicable to such Holder.
(c) At
the
time the Registration Statement is declared effective, each Holder shall be
named as a selling securityholder in the Registration Statement and the related
Prospectus in such a manner as to permit such Holder to deliver such Prospectus
to purchasers of Registrable Securities in accordance with applicable
law.
(d) If
the
Registration Statement ceases to be effective for any reason at any time during
the Effectiveness Period, the Option Holder shall use its best efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof, and
in
any event shall within 30 days of such cessation of effectiveness amend the
Registration Statement in a manner reasonably expected to obtain the withdrawal
of the order suspending the effectiveness thereof, or promptly file an
additional Registration Statement covering all of the securities that as of
the
date of such filing are Registrable Securities (a “Subsequent Registration
Statement”).
If a
Subsequent Registration Statement is filed, the Option Holder shall use its
best
efforts to cause the Subsequent Registration Statement to become effective
as
promptly as is practicable after such filing and to keep such Subsequent
Registration Statement continuously effective under the Securities Act until
the
expiration of the Effectiveness Period.
(e) The
Option Holder shall supplement and amend the Registration Statement (or any
Subsequent Registration Statement) if required by the rules, regulations or
instructions applicable to the registration form used by The Option Holder
for
such Registration Statement, if required by the Securities Act or as reasonably
requested by a Holder.
(f) Notwithstanding
any other provisions of this Agreement to the contrary, the Option Holder shall
cause the Registration Statement and the Prospectus and any amendment or
supplement thereto, as of the effective date of the Registration Statement,
amendment or supplement, (A) to comply in all material respects with the
applicable requirements of the Securities Act, and (B) not to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading.
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4.2 Registration
Procedures.
In
connection with the registration obligations of the Option Holder under
Section 4.1:
(a) As
far in
advance as practical, but not less than 10 Business Days as such term is defined
below), before filing a Prospectus, Registration Statement or any amendment
or
supplement thereto, the Option Holder shall furnish to the Holders copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits) and shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as any counsel for
the Holders’ reasonably may propose.
(b) As
promptly as practicable, the Option Holder shall give notice to Holders (A)
when
any Prospectus, prospectus supplement, Registration Statement or post-effective
amendment to a Registration Statement has been filed with the Commission and,
with respect to a Registration Statement or any post-effective amendment, when
the same has been declared effective, (B) of any request, following the
effectiveness of a Registration Statement under the Securities Act, by the
Commission or any other Federal or state governmental authority for amendments
or supplements to any Registration Statement or related Prospectus or for
additional information, (C) of the issuance by the Commission or any other
Federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation or threatening
of
any proceedings for that purpose, (D) of the receipt by the Option Holder of
any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (E) of the occurrence of and details concerning a Material Event and
(F) of the determination by the Option Holder that a post-effective amendment
to
a Registration Statement will be filed with the Commission, which notice may,
at
the discretion of the Option Holder (or as required pursuant to Section
4.2(f),
state
that it constitutes a Deferral Notice, in which event the provisions of Section
4.2(f) shall
apply. As promptly as practicable after receipt thereof, the Option Holder
shall
give Holders copies of any comments received from the Commission with respect
to
any Registration Statement and responses thereto.
(c) The
Option Holder shall use its best efforts to obtain the prompt withdrawal of
any
order suspending the effectiveness of a Registration Statement or the lifting
of
any suspension of the qualification (or exemption from qualification) of any
of
the Registrable Securities for sale in any jurisdiction in which they have
been
qualified for sale.
(d) During
the Effectiveness Period, the Option Holder shall deliver to each Holder in
connection with any sale of Registrable Securities pursuant to a Registration
Statement, without charge, as many copies as such Holder may reasonably request,
of (A) the Prospectus or Prospectuses relating to such Registrable Securities
and any amendment or supplement thereto and (B) such other documents and
information as the Option Holder may be required to deliver with the Prospectus
under the Securities Act, including, but not limited to, copies of the Option
Holder’s latest Annual Report on Form 10-K or annual report to securityholders
meeting the requirements of Rule 14a-3 and latest Quarterly Report on Form
10-Q.
9
(e) Prior
to
any public offering of the Registrable Securities pursuant to any Registration
Statement, the Option Holder shall register or qualify or cooperate with the
Holders and their counsel in connection with the registration or qualification
of the Registrable Securities for offer and sale under the securities or “blue
sky” laws of such states of the United States as any Holder reasonably requests
in writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the Registrable Securities
covered by the Registration Statement; provided,
however,
that
the Option Holder shall not be required to (A) qualify generally to do business
in any jurisdiction where it is not then so qualified or (B) take any action
which would subject it to general service of process or to taxation in any
jurisdiction where it is not then so subject. In the event that the Option
Holder’s common stock is listed or admitted for trading on any national
securities exchange or quotation on any national-automated quotation system,
the
Option Holder shall cause all Registrable Securities to be included in such
listing or admission.
(f) Upon
(A)
the issuance by the Commission of a stop order suspending the effectiveness
of
the Registration Statement (or any Subsequent Registration Statement) or the
initiation of proceedings with respect to the Registration Statement (or any
Subsequent Registration Statement) under the Securities Act, (B) the occurrence
of any event or the existence of any fact (a “Material
Event”)
as a
result of which (1) any Registration Statement shall contain any untrue
statement of a material fact or omit to state any material fact required to
be
stated therein or necessary to make the statements therein not misleading,
or
(2) any Prospectus shall contain any untrue statement of a material fact or
omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were
made, not misleading, or (C) the occurrence or existence of any pending
corporate development with respect to the Option Holder that may (1) interfere
with or affect the negotiation or completion of a transaction that is being
contemplated by the Option Holder or (2) involve initial or continuing
disclosure obligations that are not in the best interests of the Option Holder’s
stockholders at such time, that, in the reasonable discretion of the Option
Holder, makes it appropriate to suspend the availability of the Registration
Statement (or any Subsequent Registration Statement) and the related
Prospectus(es), then (y) in the case of clause (B) above, the Option Holder
shall, as promptly as practicable, prepare and file a post-effective amendment
to such Registration Statement or a supplement to the related Prospectus or
any
document incorporated therein by reference or file any other required document
that would be incorporated by reference into such Registration Statement and
Prospectus so that such Registration Statement does not contain any untrue
statement of a material fact or omit to state any material fact required to
be
stated therein or necessary to make the statements therein not misleading,
and
such Prospectus does not contain any untrue statement of a material fact or
omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were
made, not misleading, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, and, in the case of a
post-effective amendment to a Registration Statement, use its best efforts
to
cause it to be declared effective as promptly as is reasonably practicable,
and
(z) the Option Holder shall give notice to Holders that the availability of
the
Registration Statement (or any Subsequent Registration Statement) is suspended
(a “Deferral
Notice”)
and,
upon receipt of any Deferral Notice, each Holder agrees not to sell any
Registrable Securities pursuant to such Registration Statement until such
Holder’s receipt of copies of the supplemented or amended Prospectus provided
for in clause (y) above, and until such Holder is advised in writing by the
Option Holder that the existing, supplemented or amended Prospectus may be
used,
and has received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in the applicable Prospectus,
provided,
that,
in the case of a Deferral Notice with respect to clause (C) above, no such
suspension of the availability of the Registration Statement (or any Subsequent
Registration Statement) or the related Prospectus(es) shall extend for a period
of more than 45 consecutive days or an aggregate of 90 days in any twelve-month
period. If the Option Holder provides the Holders with a Deferral Notice, then
the date set forth in clause (ii) of the definition of Effectiveness Period
shall be extended by the number of days from and including the date of the
giving of such Deferral Notice to and including the date when the Holders shall
have received such amended or supplemented Prospectus pursuant to this Section
6.15(c)(vi). The Option Holder shall use its best efforts to ensure that the
use
of the Prospectus may be resumed (1) in the case of clause (A) above, as
promptly as is practicable, (2) in the case of clause (B) above, as soon as,
in
the good faith judgment of the Option Holder, public disclosure of such Material
Event would not be materially prejudicial to or contrary to the interests of
the
Option Holder or, if necessary to avoid unreasonable burden or expense, as
soon
as reasonably practicable thereafter and (3) in the case of clause (C) above,
as
soon as, in the good faith judgment of the Option Holder, such suspension is
no
longer appropriate.
10
(g) The
Option Holder shall cooperate with each Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
sold pursuant to a Registration Statement free of any restrictive legends and
in
such denominations and registered in such names as such Holder may request
a
reasonable period of time prior to sales of the Registrable Securities pursuant
to the Registration Statement (or any Subsequent Registration
Statement).
4.3 Registration
Expenses.
The
Option Holder shall be responsible for and shall pay all Registration Expenses.
In addition, the Option Holder shall be responsible for and shall reimburse
the
Holders the reasonable fees and disbursements of not more than one counsel
(in
an amount not to exceed $20,000), exclusive of underwriting discounts and
commissions and stock transfer taxes, designated by the Seller Representative
to
act as counsel for the Holders in connection with this Section 4.3
(“Holders’
Counsel”).
11
4.4 Indemnification.
(a) The
Option Holder agrees to indemnify and hold harmless each Holder and each person,
if any, who controls the Holder within the meaning of the Securities Act or
the
Exchange Act (each Holder, and such controlling persons are referred to
collectively as the “Holder
Indemnified Parties”)
from
and against any losses, claims, damages or liabilities, joint or several, or
any
actions in respect thereof (including, but not limited to, any losses, claims,
damages, liabilities or actions relating to purchases and sales of the
Registrable Securities) to which each Holder Indemnified Party may become
subject under the Securities Act, the Securities Exchange Act of 1934 or
otherwise, insofar as such losses, claims, damages, liabilities or actions
arise
out of or are based upon any untrue statement or alleged untrue statement of
a
material fact contained in any Registration Statement or Prospectus including
any document incorporated by reference therein, or in any amendment or
supplement thereto or in any preliminary Prospectus relating to the Registration
Statement, or arise out of, or are based upon, the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to
make the statements therein not misleading, and shall reimburse, as incurred,
the Holder Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereof; provided,
however,
that
the Option Holder shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
in
any Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary Prospectus relating to the Registration Statement
in reliance upon and in conformity with written information pertaining to the
Holder furnished to the Option Holder by or on behalf of the Holder specifically
for inclusion therein; provided,
further,
that
this indemnity agreement will be in addition to any liability which the Option
Holder may otherwise have to the Holder Indemnified Party. The Option Holder
shall also indemnify any underwriters, their officers and directors and each
person who controls such underwriters within the meaning of the Securities
Act
or the Exchange Act to the same extent as provided above with respect to the
indemnification of the holders of the Registrable Securities if requested by
the
Holders.
(b) Each
Holder, severally and not jointly, will indemnify and hold harmless the Option
Holder, its officers and directors and each person, if any, who controls the
Option Holder within the meaning of the Securities Act or the Exchange Act
from
and against any losses, claims, damages or liabilities or any actions in respect
thereof, to which the Option Holder or any such controlling person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as
such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
in
any Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary Prospectus relating to the Registration Statement,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or omission or
alleged untrue statement or omission was made in reliance upon and in conformity
with written information pertaining to such Holder furnished to the Option
Holder by or on behalf of such Holder specifically for inclusion therein and,
subject to the limitation set forth immediately preceding this clause, shall
reimburse, as incurred, the Option Holder for any legal or other expenses
reasonably incurred by the Option Holder or any such controlling person in
connection with investigating or defending any loss, claim, damage, liability
or
action in respect thereof. This indemnity agreement will be a part of any
liability which the Holder may otherwise have to the Option Holder or any of
its
controlling persons.
12
(c) Promptly
after receipt by an indemnified party under this Section 4.4 of notice of the
commencement of any action or proceeding (including a governmental
investigation), such indemnified party will, if a claim in respect thereof
is to
be made against the indemnifying party under this Section 4.4, notify the
indemnifying party of the commencement thereof; but the failure to notify the
indemnifying party shall not relieve it from any liability that it may have
under Section 4.4(a) or
Section 4.4(b) above except to the extent that it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure;
and
provided further that the failure to notify the indemnifying party shall not
relieve it from any liability that it may have to an indemnified party otherwise
than under Section 4.4(a) or
Section 4.4(b) above.
In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party
will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party under this
Section 4.4 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement (x) includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action, and (y) does not include a statement as to or an admission
of
fault, culpability or a failure to act by or on behalf of any indemnified party.
No indemnified party shall effect any settlement of any pending or threatened
action without the prior written consent of the indemnifying party, which such
consent shall not be unreasonably withheld or delayed.
(d) If
(A)
the indemnification provided for in this Section 4.4 is unavailable or
insufficient to hold harmless an indemnified party under Section 4.4(a) or
Section 4.4(b) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
in
Section 4.4(a) or Section 4.4(b) above in such proportion as is appropriate
to
reflect the relative benefits received by the indemnifying party or parties
on
the one hand and the indemnified party on the other from the sale of the
Registrable Securities, pursuant to the Registration Statement, or (B) the
allocation provided by the foregoing clause (A) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (A) above but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on
the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this Section 4.4(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which
is
the subject of this Section 4.4(d). Notwithstanding any other provision of
this
Section 4.4(d), no Holder shall be required to contribute any amount in excess
of the amount by which the net proceeds received by such Holder from the sale
of
the Registrable Securities pursuant to the Registration Statement exceeds the
amount of damages which such Holder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
13
(e) The
agreements contained in this Section 4.4 shall survive the sale of the
Registrable Securities pursuant to the Registration Statement and shall remain
in full force and effect, regardless of any termination or cancellation of
this
Agreement or any investigation made by or on behalf of any indemnified
party.
4.5 Holders’
Obligations.
Each
Holder agrees promptly to furnish to the Option Holder all information with
respect to such Holder as may be required to be disclosed in the Registration
Statement under applicable law or pursuant to Commission comments or as the
Option Holder may reasonably request and all material information with respect
to such Holder required to be disclosed in order to make the information
previously furnished to the Option Holder by such Holder not false or
misleading.
4.6 “Market
Stand-off” Agreement. Each
Holder hereby agrees that it will not, without the prior written consent of
Option Holder, during the period commencing on the date of the final prospectus
relating to the registration
by the Option Holder of shares of its Common Stock or any other equity
securities under
the
Securities Act on a
registration statement on
Form
X-0, Xxxx X-0, Form S-3
or Form
SB-2, and
ending on the date specified by the Option Holder (such period not to exceed
ninety
(90) days), which period may be extended, to the extent required by any NASD
rules, for an additional period of up to fifteen (15) days if the Option Holder
issues or proposes to issue an earnings or other public release within fifteen
(15) days of the expiration of the 90-day lockup period, (i)
lend;
offer; pledge; sell; contract to sell; sell any option or contract to purchase;
purchase any option or contract to sell; grant any option, right, or warrant
to
purchase; or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable (directly
or indirectly) for
Common Stock
held
immediately before the effective date of the registration statement for such
offering
or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of such
securities,
whether
any such transaction described in clause (i) or (ii) above is to be settled
by
delivery of Common Stock or other securities, in cash, or otherwise.
4.7 Volume
Trading Limitations.
Collectively, the amount of the Option Holder’s securities registered hereunder
sold by the Holders during any one week period shall not exceed ten percent
(10%) of the Option Holder’s Average Weekly Trading Volume. For purposes hereof,
“Average Weekly Trading Volume” shall mean the number of shares (excluding those
shares traded by the Holders) traded on NASDAQ Small Cap on a weekly basis
for
the four weeks immediately prior to the week in which securities are to be
sold.
In the event that the Holders wish to sell more than ten percent (10%) of the
Option Holder’s Average Weekly Trading Volume, the Holders shall agree among
those Holders wishing to sell such shares.
14
4.8 Board
Representation and Employment Agreements.
Upon
the acquisition of the balance of the Company pursuant to the exercise of the
Option, the Option Holder will promptly take all reasonable actions to have
Xxxxx Xxxxxxxx nominated and appointed to the Board of Directors of the Option
Holder. Xxxxx Xxxxxxxx or other designee of the stockholders of the Company
will
be entitled to remain on the Board of Directors of the Option Holder for so
long
as the stockholders of the Company collectively continue to own at least 50%
of
the Consideration Shares received by them. Xxxxx Xxxxxxxx or such other designee
shall serve subject to the Certificate of Incorporation and By-laws of the
Option Holder, as each may be amended from time to time.
In
connection with the acquisition of the Company pursuant to the exercise of
the
Option, the Option Holder will offer employment agreements to Xxxxx Xxxxxxxx
and
any other key employees of the Company (as determined by the Option Holder)
upon
terms and conditions determined by the Option Holder but including in any event
significant employment related options in the Option Holder’s common stock
pursuant to the Option Holder’s employee option plan.
5. Company
Covenants.
5.1 Audited
Financial Statements.
The
Company hereby acknowledges that the Option Holder is a company subject to
the
periodic reporting requirements of the Securities Exchange Act of 1934, and,
as
such, will be required following the exercise of the Option to timely file
certain audited historical financial statements of the Company as required
by
Item 9.01 of Form 8-K pursuant to the Securities Exchange Act of 1934 (or any
successor or other requirement) (the
“Required Financial Statements”). It
is
understood and acknowledged that the Company currently has audited financial
statements for its 2004 and 2005 fiscal years and that the Company can obtain
audited financial statements for its 2006 fiscal year within 30 days or less
of
paying its auditors approximately $15,000 in overdue fees. The
Company hereby agrees, in addition to complying with its obligations under
section the
financial statements set forth in Section 3.1(a) of the Investor’s Rights
Agreement,
to use
its commercially reasonable efforts to deliver to the Option Holder as
soon
as practicable, but in any event within 120 days after the end of the Company’s
2007 fiscal year, (i) balance sheets as of December 31, 2006 and as of December
31, 2007,
and
(ii) statements of income and of cash flows for such years,
all
such financial statements
audited
and certified by the Company’s independent public accountants. The
Option Holder agrees and consents to the payment by the Company from the initial
investment made by the Option Holder under the Purchase Agreement of the
auditor’s fees and any other fees for professional services then outstanding or
incurred in connection with the transactions contemplated herein.
6. Term.
This
Agreement shall be effective as of the date hereof and shall continue in effect
until and shall terminate at and upon 5:01 p.m., Plano, Texas time, on the
last
day of the Option Period, unless the Option shall have been exercised prior
to
such time in which event this Agreement shall not terminate until the earlier
of
the consummation of the transaction contemplated by the Option or its earlier
abandonment by the Option Holder (as evidenced only by written notice from
the
Option Holder to such effect).
15
7. Miscellaneous.
7.1 Additional
Parties.
Notwithstanding anything to the contrary contained herein, if the Company issues
additional shares of capital stock after the date hereof, as a condition to
the
issuance of such capital stock the Company shall require the recipient of such
capital stock become a Holder party to this Agreement by executing and
delivering (i) the Adoption Agreement attached to this Agreement as Exhibit
A,
or (ii)
a counterpart signature page hereto agreeing to be bound by and subject to
the
terms of this Agreement as a Holder hereunder. In addition, the Company shall
(i) within thirty (30) days of the date of this Agreement, cause the following
stockholders of the Company to become a Holder party to this Agreement by
executing and delivering a counterpart signature page hereto agreeing to be
bound by and subject to the terms of this Agreement as a Holder hereunder:
Xxxxx
Xxxxxxxx, Xxxx Xxxxxx, Xxxx Xxxxx, Xxxx Xxxxxxx, Xxxxx Xxxx, Xxxx Xxxxxxx,
Xxxxx
XxXxxxxx, Xxxxx XxXxxxxx/Xxxx Xxxxxx, Xxxx Xxxxxx, Loyal X. Xxxxxxxxx, Xxxx
Xxxxxxxxx, Xxxx X. Xxxxx and Xxxxx Xxxx-Xxxxx (together, the “Preferred
Holders”);
and
(ii) use its best efforts to cause, within ninety (90) days of the date of
this
Agreement, the following stockholders of the Company to become a Holder party
to
this Agreement by executing and delivering a counterpart signature page hereto
agreeing to be bound by and subject to the terms of this Agreement as a Holder
hereunder: Xxx Xxxxxxx and New Market Technology. In any such event, each such
person shall thereafter shall be deemed a Holder for all purposes under this
Agreement.
.
In
addition, the Company shall, within thirty (30) days of the date of this
Agreement, cause the Preferred Holders to become Stockholder parties to the
Voting Agreement, dated as of even date hereof, by and among the Company, the
Option Holder and the other Stockholder parties thereto.
7.2 Transfers.
Each
transferee or assignee of any capital stock subject to this Agreement shall
continue to be subject to the terms hereof, and, as a condition precedent to
the
Company’s recognizing such transfer, each transferee or assignee shall agree in
writing to be subject to each of the terms of this Agreement by executing and
delivering an Adoption Agreement substantially in the form attached hereto
as
Exhibit
A.
Upon
the execution and delivery of an Adoption Agreement by any transferee, such
transferee shall be deemed to be a Holder party hereto as if such transferee
were the transferor and such transferee’s signature appeared on the signature
pages of this Agreement. The Company shall not permit the transfer of the shares
of capital stock subject to this Agreement on its books or pursuant to the
Charter or issue a new certificate representing any such shares of capital
stock
unless and until such transferee shall have complied with the terms of this
Section
7.2.
Each
certificate representing the shares of capital stock subject to this Agreement
if issued on or after the date of this Agreement shall be endorsed by the
Company with the legend set forth in Section
7.12.
The
Option Holder may transfer its rights and obligations under this Agreement,
including its rights under the Option, to any Person, subject to the Company’s
consent as to the transferee, such consent not to be unreasonably withheld.
7.3 Successors
and Assigns.
The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing
in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The
Option Holder may transfer and assign its rights hereunder, including its rights
under the Option, subject to the Company’s consent which shall not be
unreasonably withheld. The rights of the Option Holder hereunder, including
its
rights under the Option, may be transferred by the Option Holder without the
consent of the Company to an acquirer in the event of the acquisition of the
Option Holder.
16
7.4 Governing
Law.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law.
7.5 Counterparts;
Facsimile.
This
Agreement may be executed and delivered by facsimile signature and in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Titles
and Subtitles.
The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.
7.7 Notices.
All
notices and other communications given or made pursuant to this Agreement shall
be in writing and shall be deemed effectively given upon the earlier of actual
receipt or: (a) personal delivery to the party to be notified, (b) when sent,
if
sent by electronic mail or facsimile during normal business hours of the
recipient, and if not sent during normal business hours, then on the recipient’s
next business day, (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1)
business day after the business day of deposit with a nationally recognized
overnight courier, freight prepaid, specifying next business day delivery,
with
written verification of receipt. All communications shall be sent to the
respective parties at their address as set forth on Schedule
A
hereto,
or to such email address, facsimile number or address as subsequently modified
by written notice given in accordance with this Section
7.7.
If
notice
is given to the Option Holder, a copy shall also be given to Xxxxx, Xxxxxx-Xxxxx
& Xxxxxxxxx, P.C., Reservoir Place, 0000 Xxxxxxx Xxxx, Xxxxxxx,
Xxxxxxxxxxxxx 00000, Attention: Xxxxxxx X. Xxxxxx.
7.8 Consent
Required to Amend, Terminate or Waive.
This
Agreement may be amended or terminated and the observance of any term hereof
may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only
by a
written instrument executed by (a) the Company; (b) the Option Holder; and
(c)
the Holders holding a majority of the then outstanding shares of the capital
stock then held by the Holders. Notwithstanding the foregoing, (i) the consent
of the Holders shall not be required for any amendment or waiver if such
amendment or waiver either (A) is not directly applicable to the rights or
obligations of the Holders hereunder or (B) does not adversely affect the rights
or obligations of the Holders; (ii) Schedule
A
hereto
may be amended by the Company from time to time to add information regarding
additional stockholders without the consent of the other parties hereto; and
(iii) any provision hereof may be waived by the waiving party on such party’s
own behalf, without the consent of any other party.
The
Company shall give prompt written notice of any amendment, termination or waiver
hereunder to any party that did not consent in writing thereto. Any amendment,
termination or waiver effected in accordance with this Section
7.8
shall be
binding on each party and all of such party’s successors and permitted assigns,
whether or not any such party, successor or assignee entered into or approved
such amendment, termination or waiver.
17
7.9 Delays
or Omissions.
No
delay or omission to exercise any right, power or remedy accruing to any party
under this Agreement, upon any breach or default of any other party under this
Agreement, shall impair any such right, power or remedy of such non-breaching
or
non-defaulting party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default previously or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only
to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
7.10 Severability.
The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
7.11 Entire
Agreement.
This
Agreement (including the Exhibits hereto), constitutes the full and entire
understanding and agreement between the parties with respect to the subject
matter hereof, and any other written or oral agreement relating to the subject
matter hereof existing between the parties is expressly canceled.
7.12 Legend
on Certificates.
Each
certificate representing any shares of the capital stock issued after the date
hereof shall be endorsed by the Company with a legend reading substantially
as
follows:
“THE
SHARES EVIDENCED HEREBY ARE SUBJECT TO AN OPTION AGREEMENT, AS MAY BE AMENDED
FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM
THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING
SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF THAT OPTION AGREEMENT, INCLUDING CERTAIN OBLIGATIONS OF THE HOLDER
OF THE SHARES SET FORTH THEREIN.”
The
Company, by its execution of this Agreement, agrees that it will cause the
certificates evidencing the shares of the capital stock issued after the date
hereof to bear the legend required by this Section
7.12
of this
Agreement, and it shall supply, free of charge, a copy of this Agreement to
any
holder of a certificate evidencing shares of the capital stock upon written
request from such holder to the Company at its principal office. The parties
to
this Agreement do hereby agree that the failure to cause the certificates
evidencing the shares of the capital stock to bear the legend required by this
Section
7.12
herein
and/or the failure of the Company to supply, free of charge, a copy of this
Agreement as provided hereunder shall not affect the validity or enforcement
of
this Agreement.
18
7.13 Stock
Splits, Stock Dividends, etc.
In the
event of any issuance of shares of capital stock of the Company hereafter to
any
of the holders thereof (including, without limitation, in connection with any
stock split, stock dividend, recapitalization, reorganization, or the like),
such shares of capital stock shall become subject to this Agreement and shall
be
endorsed with the legend set forth in Section
7.12.
7.14 Manner
of Voting.
The
voting of shares of capital stock pursuant to this Agreement may be effected
in
person, by proxy, by written consent or in any other manner permitted by
applicable law.
7.15 Further
Assurances.
At any
time or from time to time after the date hereof, the parties agree to cooperate
with each other, and at the request of any other party, to execute and deliver
any further instruments or documents and to take all such further action as
the
other party may reasonably request in order to evidence or effectuate the
consummation of the transactions contemplated hereby and to otherwise carry
out
the intent of the parties hereunder.
7.16 Costs
of Enforcement.
If any
party to this Agreement seeks to enforce its rights under this Agreement by
legal proceedings, the non-prevailing party shall pay all costs and expenses
incurred by the prevailing party, including, without limitation, all reasonable
attorneys’ fees.
[Signature
Page Follows]
19
IN
WITNESS WHEREOF, the parties have executed this Option Agreement as of the
date
first written above.
|
By:
|
/s/Xxxxx
Xxxxxxxx
|
|
Name:
|
Xxxxx
Xxxxxxxx
|
|
Title:
|
President
|
|
OPTION
HOLDER:
|
|
|
Zoom
Technologies, Inc.
|
|
|
By:
|
/s/Xxxxx
Xxxxxxx
|
|
Name:
|
Xxxxx
Xxxxxxx
|
|
Title:
|
President
|
|
HOLDERS:
|
|
|
Signature:
|
/s/Xxxxx
Xxxxxxxx
|
|
Name:
Xxxxx
Xxxxxxxx
|
|
|
Signature:
|
/s/Xxxx
XxXxxxxx
|
|
Name:
Xxxx
XxXxxxxx
|
|
|
Signature:
|
|
|
Name:
Xxxxx
Xxxxxxxx
|
|
|
Signature:
|
|
|
Name:
Xxxx
Xxxxxx
|
|
|
Signature:
|
|
|
Name:
Xxxx
Xxxxx
|
|
20
|
Signature:
|
|
|
Name:
Xxxx
Xxxxxxx
|
|
|
Signature:
|
|
|
Name:
Xxxxx
Xxxx
|
|
|
Signature:
|
|
|
Name:
|
Xxxx
Xxxxxxx
|
|
Signature:
|
|
|
Name:
Xxxxx
XxXxxxxx
|
|
|
Signature:
|
|
|
Name:
Xxxxx
XxXxxxxx/Xxxx Xxxxxx
|
|
|
Signature:
|
|
|
Name:
Xxxx
Xxxxxx
|
|
|
Signature:
|
|
|
Name:
Loyal
X. Xxxxxxxxx
|
|
|
Signature:
|
|
|
Name:
|
Xxxx
Xxxxxxxxx
|
|
Signature:
|
|
|
Name:
Xxxx
X. Xxxxx
|
|
|
Signature:
|
|
|
Name:
Xxxxx
Xxxx-Xxxxx
|
|
|
Signature:
|
|
|
Name:
Xxx
Xxxxxxx
|
|
|
Signature:
|
|
|
Name:
New
Market Technology
|
|
|
Title
|
|
21
SCHEDULE
A
HOLDERS
|
Name
and Address
|
Capital
stock Held
|
|
|
Xxxxx
Xxxxxxxx
|
33,278,000
shares Common Stock
|
|
|
Xxxx
XxXxxxxx
|
15,393,677
shares Preferred Stock
|
|
|
Xxxxx
Xxxxxxxx
|
860,000
shares Preferred Stock
|
|
|
Xxxx
Xxxxxx
|
400,000
shares Preferred Stock
|
|
|
Xxxx
Xxxxx
|
480,000
shares Preferred Stock
|
|
|
Xxxx
Xxxxxxx
|
574,022
shares Preferred Stock
|
|
|
Xxxxx
Xxxx
|
400,000
shares Preferred Stock
|
|
|
Xxxx
Xxxxxxx
|
200,000
shares Preferred Stock
|
|
|
Xxxxx
XxXxxxxx
|
1,562,000
shares Preferred Stock
|
|
|
Xxxxx
XxXxxxxx/Xxxx Xxxxxx
|
700,000
shares Preferred Stock
|
|
|
Xxxx
Xxxxxx
|
4,861,932
shares Preferred Stock
|
|
|
Loyal
X. Xxxxxxxxx
|
2,995,278
shares Preferred Stock
1,210,200
shares Common Stock
|
|
|
Xxxx
Xxxxxxxxx
|
1,200,000
shares Preferred Stock
|
|
|
Xxxx
X. Xxxxx
|
100,000
shares Preferred Stock
|
|
|
Xxxxx
Xxxx-Xxxxx
|
200,000
shares Preferred Stock
|
|
|
Xxx
Xxxxxxx
|
1,537,500
shares Common Stock
|
|
|
New
Market Technology
|
8,032,817
shares Common Stock
|
EXHIBIT
A
This
Adoption Agreement (“Adoption
Agreement”)
is
executed on ___________________, 20__, by the undersigned (the “New
Party”)
pursuant to the terms of that certain Option Agreement dated as of January
22,
2008 (the “Agreement”),
by
and among the Company and the Option Holder and Holder parties thereto, as
such
Agreement may be amended or amended and restated hereafter. Capitalized terms
used but not defined in this Adoption Agreement shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this
Adoption Agreement, the New Party agrees as follows.
1.1 Acknowledgement.
Holder
acknowledges that New Party is acquiring certain shares of the capital stock
of
the Company, for one of the following reasons (Check the correct
box):
|
¨
|
as
a new Holder in accordance with Section
7.1
of
the Agreement, in which case New Party will be a “Holder” for all purposes
of the Agreement.
|
|
¨
|
as
a transferee of Capital stock from a party in such party’s capacity as a
“Holder” bound by the Agreement in accordance with Section
7.2
of
the Agreement, and after such transfer, New Party shall be considered
a
“Holder” for all purposes of the
Agreement.
|
1.2 Agreement.
New
Party hereby (a) agrees that the shares of the capital stock, and any other
securities required by the Agreement to be bound thereby, shall be bound by
and
subject to the terms of the Agreement and (b) adopts the Agreement with the
same
force and effect as if New Party were originally a “Holder” party
thereto.
1.3 Notice.
Any
notice required or permitted by the Agreement shall be given to New Party at
the
address or facsimile number listed below New Party’s signature hereto.
|
NEW PARTY:
|
ACCEPTED
AND AGREED:
|
|||
|
By:
|
Red
Moon, Inc.
|
|||
|
Name
and Title of Signatory
|
||||
|
Address:
|
By:
|
|||
|
Title:
|
||||
|
Facsimile Number:
|
EXHIBIT
B
EARN-OUT
EXAMPLES.
|
Quarter
|
EBITDA
|
Earnout
|
Comments
|
|||
|
1
|
$360K
|
1
million shares or $1.25 million
|
$360Kx7=$2.52
million
Max
payout is 1 million shares
|
|||
|
2
|
-$200K
|
0
|
EBITDA
must be positive
|
|||
|
3
|
$100K
|
$.57
million or (570K/1.25) shares
|
7x$260K
= $1.82 million
New
Earn ($1.82million-$1.25
million
already paid out)
|
|||
|
4
|
$200K
|
1
million shares or $1.25 million
|
New
Earn ($3.22 million -$1.82 Mil. already paid out)=$1.35
Million.
Cap $1.25 million
|
|
·
|
Assumes
Zoom shares remain listed on the NASDAQ
CM.
|
(This
continues until 4 million shares or share-equivalents are reached or until
the
quarter ending June 30, 2009 is reached.)
