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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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| Greenwood Hall, Inc. |
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(Exact name of registrant as specified in its charter)
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| Nevada |
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(State or other jurisdiction of incorporation or organization)
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| 8742 |
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(Primary Standard Industrial Classification Code Number)
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| 99-0376273 |
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(I.R.S. Employer Identification Number)
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1936 East Deere Avenue, Suite 120 Santa Ana, California 92705 Telephone: 949.655.5000 |
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(Address, including zip code, and telephone
number,
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Incorp Services, Inc. 2360 Corporate Circle Ste 400, Henderson, Nevada 89074 Telephone: 800.246.2677
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(Name, address, including zip code, and
telephone number,
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Copy of Communications To: DLA Piper LLP (US) 2000 Avenue of the Stars #400 Los Angeles, CA Telephone: 310.595.3000 |
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From time to time after the effective date of this registration statement. |
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(Approximate date of commencement of proposed sale to the public)
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:
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If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| (Do not check if a smaller reporting company) | |||
Calculation of Registration Fee
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Title of Each Class of Securities to be Registered |
Amount to be Registered(1) |
Proposed Maximum Offering Price Per Share(2) |
Proposed Maximum Aggregate Offering Price(2) |
Amount of Registration Fee |
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Common Stock to be offered for resale by selling stockholders |
5,673,980 | $0.75 (3) | $4,255,485.00 | $494.49 |
| (1) | An indeterminate number of additional shares of common stock shall be issuable pursuant to Rule 416 under the Securities Act of 1933 to prevent dilution resulting from stock splits, stock dividends or similar transactions and in such an event the number of shares registered shall automatically be increased to cover the additional shares in accordance with Rule 416. |
| (2) | Estimated in accordance with Rule 457(c) under the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee. |
| (3) | Based on the close price per share for the registrant’s common stock on March 18, 2015, as reported by the OTC Markets Group’s OTCQB. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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| The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Preliminary Prospectus
(Subject to Completion)
Dated March 24, 2015
5,673,980
GREENWOOD HALL, INC.
Common Stock
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The selling stockholders identified in this prospectus may offer and sell up to 5,673,980 shares of our common stock (“Selling Stockholder Shares”).
The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices.
Our common stock is currently quoted on the OTC Markets Group’s OTCQB under the symbol “ELRN”. On March 18, 2015, the last reported sale price of our common stock on the OTCQB was $0.75.
We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholders. We will pay for expenses of this offering, except that the selling stockholders will pay any broker discounts or commissions or equivalent expenses and expenses of their legal counsels applicable to the sale of their shares.
Investing in our common stock involves risks. See “Risk Factors” beginning on page 7 .
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is ________________, 2015.
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TABLE OF CONTENTS
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You should rely only on the information that we have provided in this prospectus and any applicable prospectus supplement. We have not authorized anyone to provide you with different information. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus and any applicable prospectus supplement. You must not rely on any unauthorized information or representation. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information in this prospectus and any applicable prospectus supplement is accurate only as of the date on the front of the document, regardless of the time of delivery of this prospectus, any applicable prospectus supplement, or any sale of a security.
As used in this prospectus, the terms “we”, “us”, “our” and “our company” mean Greenwood Hall, Inc. unless the context clearly indicates otherwise.
The Offering
The selling stockholders identified in this prospectus may offer and sell up to 5,673,980 shares of our common stock that have been issued pursuant to private placement subscription agreements as described under the Offering.
We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholders. We will pay for expenses of this offering, except that the selling stockholders will pay any broker discounts or commissions or equivalent expenses and expenses of their legal counsels applicable to the sale of their shares.
Our common stock is quoted on the OTC Markets Group’s OTCQB under the symbol “ELRN”.
Business Summary
Our corporate mission is to enable colleges and universities to remain relevant by helping them expand access to personalized educational opportunities that are flexible, affordable, and prepare students for career opportunities. We assist schools in maximizing student experience and driving successful student outcomes while leveraging technology to help reinvent their operating and financial models.
We provide colleges and universities with solutions that enable them to adapt and grow in a rapidly changing higher education marketplace. Our cloud-based platform provides schools with the turn-key operating infrastructure they need to recruit, enroll, engage, support, and create enduring relationships with students. By combining strategies, technology, and people resources, we are able to provide an unparalleled student experience that maximizes student outcomes while setting a new standard for the future of higher education. Our services are utilized by schools that need to enhance the student experience and are looking to expand into new markets such as online learning or international. All of our solutions are designed to help public and not-for-profit higher education institutions generate sustainable improvements in operating and financial results, while improving student success and satisfaction.
Our services include: (a) solutions that support the entire student lifecycle including lead generation/marketing, new student recruitment, enrollment counseling, financial aid advising, new student recruitment, retention counseling, career advising, student concierge, and help desk services; (b) consulting services, including market assessments and analysis of internal operational efficiency; and (c) various data and technology enabled solutions that enable school clients to better manage/analyze data, deliver instruction to students (online, hybrid, and classroom), and make certain institutional decisions. In addition to education management services, we provide donor lifecycle management services to various major non-profit organizations. The donor lifecycle management services are mainly related to legacy operations of our Company prior to entering the education marketplace in 2006.
We believe that our end-to-end solutions that span the entire student lifecycle provide us with an advantage over competing providers that often address isolated segments of the student lifecycle spectrum, such as student retention, or student acquisition. We generally focus on small to medium-sized, private, not-for-profit, and medium-sized to large public institutions.
We have a demonstrated track record of helping higher education clients improve their operating and financial performance while improving student outcomes. Since 2006, we have helped colleges and universities generate in excess of $270 million in college tuition revenue by custom tailoring our solutions to each institution’s requirements and organizational structure.
The measured benefits of our clients include:
Generated more than 31,000 new enrollments;
Secured more than 27,400 continuing enrollments;
Generated more than $9.1 million in marketing budget savings for one major client;
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Reduced cost of student services by an average of 41% (excluding intangible costs);
Reduced cost of student acquisition by an average of more than 36%, or up to $8,500 per student; and
Produced an average client return on their investment using our solutions of 35%-50%.
Our key achievements since 2006 include:
Served more than 450,000 traditional and non-traditional students (adult learners/online students);
Processed more than 5.6 million student inquiries; and
Answered 95% of all inquiries for student service (admissions, financial aid, student services) compared to an average of fewer than 65% in some cases when institutions handled their own inquiries
Our Company is built on a strong foundation of experience. We have a 17-year operating history in providing mission critical donor lifecycle management services to leading non-profits such as the American Red Cross and Stand Up to Cancer. During that time, we have generated more than $1.2 billion in aggregate donor contributions for non-profit clients. In 2006, we entered the education sector by leveraging our know-how in serving non-profits and our highly differentiated model, which combines strategy, people, processes and technology. We remain committed to providing services to the non-profit sector, but expect the majority of future revenue will continue to come from the education sector.
We have a growing list of clients that include many prestigious colleges and universities, most of which are non-profit institutions. As of November 30, 2014, we have served more than 40 education clients and more than 70 individual degree programs since entering the education sector. Among these notable institutions include the University of Alabama, Pepperdine University, University of Massachusetts, Texas Tech University, Saint Leo University, Concordia University, Simmons College, University of Mississippi, and the University of Maine. During 2014, we have added the following new clients: Florence-Darlington Technical College, Tennessee Temple University, Pepperdine University, Embry Riddle Aeronautical University, Woodbury University, Vermont Law School, St. Gregory’s University, Shorelight Education, Saint Mary’s University of Minnesota, and Stand Up To Cancer (2014) Telecast. Several of our service contracts are fixed-fee, annual or multi-year contracts that generate recurring monthly revenue. The remaining contracts are negotiated at an agreed-upon rate, based on the volume of services. Most have a one-year term and minimum revenue guarantees. Over the past three years, we have enjoyed a 100% renewal rate among our state school contracts that go through the formal renewal bid process.
We believe that our business is well positioned for growth. We have a multi-pronged growth strategy that includes adding new clients and expanding our service offerings to existing clients. To execute on our growth strategy, we are increasing our sales force and are extending our thought leadership through presentations at industry conferences to develop relationships that drive our business. We also plan to enhance our offerings through additional SaaS-technology offerings, including learning management, mobile course delivery, and other technologies aimed at supporting student engagement and success. Our Company has a strong operational infrastructure to support continued growth. Our technology-enabled platform is capable of handling millions of inquiries per month, we operate state-of-the-art education service centers, and our cloud-based technology supports 24/7, multilingual inbound and outbound calls, email inquiries, web chat, click-to-chat, text messaging and instant messaging. Our platform is technology-agnostic and can be easily incorporated with any client technology that comes with a client engagement.
Our Company is headquartered in Santa Ana, California, and we have facilities and offices in Phoenix, Arizona; College Station, Texas.
We generate revenue by charging recurring and transactional fees associated with the specific services we provide to our customers. Our most significant expenses are compensating employees, sales/marketing, facilities/ technology and debt service.
Summary Financial Information
The following information represents selected audited financial information for our company for the year ended as of August 31, 2014 and December 31, 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the eight months ended August 31, 2014 and for the years ended December 31, 2013 and 2012 and selected unaudited financial information for our company for the quarter ended November 30, 2014. The summarized financial information presented below is derived from and should be read in conjunction with our audited and unaudited financial statements, as applicable, including the notes to those financial statements which are included elsewhere in this prospectus along with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 58 of this prospectus.
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| Nov 30, 2014 | Nov 30, 2013 | |||||||
| Revenue | $ | 2,664,968 | $ | 2,103,272 | ||||
| Cost of goods sold | 1,578,471 | 891,803 | ||||||
| Gross margin | 1,086,497 | 1,211,469 | ||||||
| General & Administrative | ||||||||
| Expenses | 1,655,710 | 2,837,333 | ||||||
| Loss from operations | (569,213 | ) | (1,625,864 | ) | ||||
| Income tax provision | ||||||||
| NET INCOME (LOSS) | $ | (569,213 | ) | (1,625,864 | ) | |||
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An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks uncertainties in addition to other information in this prospectus in evaluating our company and our business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of following risks. You could lose all or part of your investment due to any of these risks. You should invest in our common stock only if you afford to lose your entire investment.
Risks Related To Our Business
We have incurred losses for fiscal 2014 and we expect our operating expenses to increase in the foreseeable future, which may make it more difficult for us to achieve and maintain profitability.
We are not profitable and have incurred losses in the last fiscal year. Our net loss for the eight months ended August 31, 2014 was $3.53 million. As of August 31, 2014, we had an accumulated deficit of $9.3 million. We will need to generate and sustain increased revenue levels in future periods in order to become profitable, and even if we do, we may not be able to maintain or increase our level of profitability. We anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake increased technology and production efforts to support a growing number of client programs, and increase our program marketing and sales efforts to drive the increase of universities and colleges utilizing our services. In addition, as a public company, we will incur significant accounting, legal and other expenses that we did not incur as a private company. These expenditures will make it harder for us to achieve and maintain profitability. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. If we are forced to reduce our expenses, our growth strategy could be compromised. We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications and delays and other unknown events. As a result, we can provide no assurance as to whether or when we will again achieve profitability. If we are not able to achieve and maintain profitability, the value of our Company and our Common Stock could decline significantly.
Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.
The ability of our business to grow and compete depends on the availability of adequate capital. We cannot assure you that we will be able to obtain equity or debt financing on acceptable terms, or at all, to implement our growth strategy. As a result, we cannot assure you that adequate capital will be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.
We will need substantial additional funding to continue our operations, which could result in dilution. We may not be able to raise capital when needed, if at all, which would force us to delay, reduce or eliminate our development of new programs or commercialization efforts and could cause our business to have insufficient funding for our current operations.
The expansion of our operations and our restructuring have consumed substantial amounts of cash during the last year. We expect to need substantial additional funding to continue to pursue our business and continue with our expansion plans. Furthermore, we expect to incur additional costs associated with operating as a public company. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster than we expect. Accordingly, we will need to obtain substantial additional funding in order to continue our operations. To date, we have financed our operations entirely through equity investments by founders and other investors and the incurrence of debt, and we expect to continue to do so in the foreseeable future. Additional funding from those or other sources may not be available when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution to our then existing stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional capital through the incurrence of additional indebtedness, we would likely become subject to further covenants restricting our business activities, and holders of debt instruments may have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support development of new programs and marketing to current and potential new clients. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate development of new programs or future marketing efforts. Any of these events could significantly harm our business, financial condition and prospects.
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We may incur substantial costs as a result of litigation or other proceeding, as well as costs associated with lawsuits.
The Company is the subject of pending litigation, which could cause it to incur significant costs in defending such litigation or in resulting actions or judgments. The Robin Hood Foundation (“Robin Hood”) filed suit against Patriot Communications, LLC (“Patriot”), a client of the Company, in the Superior Court of the State of California for the County of Los Angeles (Central District) for breach of contract and failure to perform, including among other things an intentional tort claim, in the amount of not less than $5,000,000. On May 6, 2014, Patriot filed a cross-complaint naming PCS Link as a cross-defendant. Patriot denies the allegations set forth by Robin Hood. On August 22, 2014, Robin Hood filed a First Amended Complaint, naming the Company and John Hall, in his individual capacity, as defendants. The First Amended Complaint asserts claims against the Company and Hall for fraud, fraudulent concealment, negligent misrepresentation, negligence and violation of Business & Professions Code section 17200. The First Amended Complaint also alleges a cause of action for breach of contract solely against the Company. An adverse judgment against the Company could be detrimental to the Company’s financial standing. Additionally, in the event that Patriot is held liable, Patriot alleges that PCS Link is responsible to indemnify and/or contribute to the satisfaction of any damages because PCS Link acted as a sub-contractor on behalf of Patriot with regard to the filed incident. We believe that we have strong defenses and we are vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not be until July 2015, at the earliest. The outcome of this matter is inherently uncertain and could have a materially adverse effect on our business, financial condition and results of operations if decided unfavorably against the Company and John Hall.
The Company is the subject of pending litigation, which could cause it to incur significant costs in defending such litigation or in resulting actions or judgments. Finance 500, Inc. (“Finance 500”) filed suit against the Company, in the Superior Court of the State of California for the County of Orange (Central Justice) for breach of contract and unjust enrichment, among other things, in the amount of not less than $ 250,000. We believe that we have strong defenses and we are vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not resolved anytime in the near future. The outcome of this matter is inherently uncertain and could have a materially adverse effect on our business, financial condition and results of operations if decided unfavorably against the Company
Our future success is dependent, in part, on the performance and continued service of our Chief Executive Officer, John Hall, Ed.D.
The loss of services of our Chief Executive Officer, Dr. John Hall, could have a material adverse effect on our business, financial condition or results of operation. We are highly dependent on Dr. Hall and his services are critical to the successful implementation of our continued success and expansion plans.
Our business depends heavily on colleges and universities co-sourcing their education management services and non-profit and for-profit corporations co-sourcing their contact center services. If we fail to attract new clients, our revenue growth and profitability may suffer.
The success of our business depends in large part on our ability to enter into agreements with additional colleges and universities regarding their education management activities. In particular, in order to engage new clients, we need to convince colleges and universities we can provide responsive and informative education management services more effectively and efficiently than they could do themselves. Some administrators have expressed concern regarding the perceived loss of control over the education management activities that are outsourced to third parties and are concerned about the collection of personal student information by third parties that might result as part of the outsourcing of education management services, as well as skepticism regarding the ability of colleges and universities to adequately connect with students if student management services are outsourced to third parties. It may be difficult to overcome this resistance, and there can be no assurance that education management services of the kind we develop with our clients will ever achieve significant market acceptance. Similarly, many non-profit and for-profit organizations are reluctant to outsource their contact center services due to the negative press and feedback that is often received with outsourcing contact services to a third party. There is no assurance that we will be able to overcome these doubts to achieve market acceptance of our services.
Our financial performance depends heavily on our ability to successfully generate positive results for colleges and universities and our non-profit and for-profit organizations, and our ability to do so may be affected by circumstances beyond our control.
Assisting our clients in recruiting and retaining larger numbers of better qualified applicants and assisting non-profit and for-profit corporations in outsourcing their contact center operations in a positive manner is critical to our ability to increase our client base and generate revenue. A substantial portion of our expenses is attributable to marketing and sales efforts dedicated to attracting potential students to our clients’ colleges and universities, providing services to those same colleges and universities so those students remain enrolled as well as marketing the positive results of our contact center services to non-profit and for-profit corporations. Because we generate revenue through transactional fees and recurring service fees, it is critical to our success that we are able to help the colleges and universities increase and maintain their enrollment, as well as provide positive demonstrative results in a cost-effective manner for both our college and university clients and our non-profit and for-profit contact center clients.
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The following factors, many of which are largely outside of our control, may prevent us from successfully attracting and maintaining our client base:
| □ | Cost of marketing. The cost to market to and recruit students continues to rise. If the cost of marketing becomes too prohibitive, universities and colleges may not be able to afford our services. |
| □ | Financial outlook for colleges and universities. Demographic changes, increased competition, concerns about return on investment as it relates to a post-secondary education, market saturation, public scrutiny involved in raising tuition and less costly alternatives, have impacted a large number of post-secondary schools in the United States. Many of our clients are highly dependent on tuition revenue and/or funding that is derived from state/federal sources or federally-guaranteed student loan programs. Without reliable tuition revenue coming in, many of our clients would not be able to continue to operate. Further, the financial condition of many of our would-be clients can impact their ability to contract with our Company. If the financial outlook for colleges and universities continues to worsen, it could be increasingly difficult to generate new business and to maintain existing client contracts. This could have a material impact on our ability to grow and operate profitably. |
| □ | Lower cost alternatives such as competency based learning programs and Massive Open Online Courses (MOOCs). Technology, open source content, and a focus on mastery/competency versus completing a traditional academic program could provide students with viable alternatives to completing a traditional degree program at a fraction of the cost and potentially better job prospects. Should these alternatives become commonly accepted or provide specific paths and usable credentials to students in a more efficient way than earning a degree, our ability to market our programs to our clients could be significantly compromised. |
| □ | Damage to client reputation. Because we market to specific colleges, universities, non-profit and for-profit organizations, the reputations of our clients are critical to those institutions and organizations having a need for our education management and relationship management services. Many factors affecting our clients’ reputations are beyond our control and can change over time, including their academic performance and ranking among educational institutions and negative publicity about the college, university, non-profit or for-profit corporations. |
| □ | Our lack of control over our clients’ admissions decisions. Even if we are able to identity prospective students for a program, there is no guarantee that students will be admitted to the program. Our clients retain complete discretion in their admissions decisions, and any changes to admissions standards, or inconsistent application of admissions standards, could affect student enrollment and our ability to generate revenue for our education management services. |
| □ | Our lack of control over our clients’ ability to serve students. Even if we are able to identity prospective students or enroll students for a program, there is no guarantee that students will be served well and efficiently. Today’s students expect state of the art amenities and 24/7 service. If one piece of the student experience is lacking, there could be an adverse impact on student enrollment and our ability to generate revenue for our education management services. |
Disruption to or failures of our platform could reduce client satisfaction with our clients’ programs and could harm our reputation.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunications and electrical failures. The performance and reliability of our platform is critical to our operations, reputation and ability to attract new clients. Our college and university clients rely on our cloud-based technology solutions to recruit new students and provide communication with students both before and after their enrollment. Students and clients access our platform on a frequent basis as an important part of the educational experience. Likewise, our non-profit and corporate clients rely heavily on our platform of services to do everything from collect donations to provide critical crisis communications to the public. Accordingly, any errors, defects, disruptions or other performance problems with our platform could damage our or our clients’ reputations, decrease student and customer satisfaction and impact our ability to attract new clients. While we have not experienced any such system failure, if any of these problems occur, our clients may, following notice and our failure to cure, terminate their agreements with us, or make indemnification or other claims against us. In addition, sustained or recurring disruptions in our technology platform could adversely affect our and our clients’ compliance with applicable regulations and accrediting body standards.
Launching a new program and attracting new clients for the new program is complex, expensive and time-consuming. If we pursue unsuccessful client opportunities, we may forego more profitable opportunities, and it may be several years, if ever, before we generate revenue from a new program sufficient to recover our costs.
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The process of identifying programs and student management needs at Tier 2 and Tier 3 colleges and universities that we believe will be a good fit for our platform, and then negotiating contracts with potential clients, is complex and time consuming. We must integrate our platform with the various student information and other operating systems our clients use to manage functions within their institutions. This process of launching a new program is time-consuming and costly and, under our agreements with our clients, we are primarily responsible for the significant costs of this effort, even before we generate any revenue. Additionally, during the life of our client agreements, we are responsible for the costs associated with continued program marketing, maintaining our technology platform and providing non-academic and other support for students enrolled with our clients. Further, because of the initial reluctance on the part of some colleges and universities to embrace a new method of delivering and managing their education services and the complicated approval process within universities, our sales process to attract and engage a new client can be lengthy. Depending on the particular college or university, during the process we may face resistance from university administrators or faculty members. The sales cycle for a new student management program often spans one year or longer. In addition, our sales cycle can vary substantially from program to program because of a number of factors, including the approval processes of the client or disagreements over the information and manner in which we are providing our student management services. Even if a college or university is ready to proceed with our services, limitations on funding can prevent us from finalizing an agreement with a new client. Further, even when a new program is launched with a client, because of the lengthy period required to recoup our investment in a program, unexpected developments beyond our control could occur that result in the client ceasing or significantly curtailing a program before we are able to fully recoup our investment. We spend substantial effort and management resources on our new sales efforts without any assurance that our efforts will result in the launch of a new service for a client. If we invest substantial resources pursuing unsuccessful opportunities, we may never recover our costs, we may forego other more profitable client relationships, and our operating results and growth would be harmed.
If we pursue our plan to expand our platform into grades K-12 and international education venues, we will incur significant expense in technology and work flow development, as well as sales and marketing efforts, and there is no guarantee that our programs will be successful in these new areas or that we will be able recoup our investment into these new programs.
In order to expand into these new areas of education, we will need to spend significant time and resources on developing our programs, and marketing them to administrators, faculty and staff. We will also need to spend significant amounts of time understanding how our programs would integrate into the individual school and corporations’ current structure. Additionally, we would need to spend significant amounts of time and money marketing these new programs. There is no guarantee that these programs for these new lines of business would be widely accepted and it could be a number of years, if ever, before we are able to recoup the costs of developing and marketing these new programs.
Future programs with colleges and universities outside the United States could expose us to risks inherent in international operations.
One element of our growth strategy is to expand our international operations and establish a worldwide client base. We cannot assure you that our expansion efforts into international markets will be successful. Our experience with attracting clients in the United States may not be relevant to our ability to attract clients in other emerging markets. In addition, we would face risks in doing business internationally that could constrain our operations and compromise our growth prospects, including:
| □ | the need to localize and adapt online degree programs for specific countries, including translation into foreign languages and ensuring that these programs enable our clients to comply with local education laws and regulations; |
| □ | data privacy laws that may require data to be handled in a specific manner; |
| □ | difficulties in staffing and managing foreign operations, including employment laws and regulations; different pricing environments, longer sales cycles, longer accounts receivable payment cycles and collections issues; |
| □ | new and different sources of competition, and practices that may favor local competitors; |
| □ | weaker protection for legal rights than in the United States and practical difficulties in enforcing rights outside of the United States; |
| □ | compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection, and anti-bribery laws and regulations, such as the U.S. Foreign Corrupt Practices Act; |
| □ | increased financial accounting and reporting burdens and complexities; |
| □ | restrictions on the transfer of funds; |
| □ | adverse tax consequences, including the potential for required withholding taxes for our overseas employees; |
| □ | unstable regional and economic political conditions; and |
| □ | future agreements with international clients that may provide for payments to us to be denominated in local currencies. In such case, fluctuations in the value of the U.S. dollar and foreign currencies could impact our operating results when translated into U.S. dollars, and we may not be able to engage in currency hedging activities to effectively limit the risk of exchange rate fluctuations. |
If we are not successful in quickly and efficiently scaling up programs with new and existing clients, our reputation and our revenue could suffer.
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Our continued growth and future profitability depends on our ability to successfully scale up newly launched programs with our clients. As we continue growing our business, we plan to continue to hire new employees at a rapid pace, particularly in our program marketing and sales team, our technology team and our operations team. If we cannot adequately train these new employees, we may not be successful in acquiring new clients and expanding the services we are providing for our current clients, which would adversely impact our ability to generate revenue, and our clients could lose confidence in the knowledge and capability of our employees. If we cannot quickly and efficiently scale up our technology to handle growing numbers of students and data, and new client programs, our clients’ experiences with our platform may suffer, which could damage our reputation among colleges and universities, and their faculty and students, as well as our reputation with our non-profit and corporate clients and their customers. Our ability to effectively manage any significant growth of new programs will depend on a number of factors, including our ability to:
| □ | satisfy existing clients in and attract new clients for our existing programs; |
| □ | assist our clients in recruiting qualified faculty to support their programs; |
| □ | successfully introduce new features and enhancements, and maintain a high level of functionality in our platform; and deliver high quality support to our clients, their faculty, students and/or customers. |
Establishing new client programs or expanding existing programs will require us to make investments in management and key staff, increase capital expenditures, incur additional marketing expenses and reallocate other resources. If we do not expand the programs we currently have with our clients, we are unable to launch new programs in a cost-effective manner or we are otherwise unable to manage new client programs effectively, our ability to grow our business and achieve profitability would be impaired, and the quality of our solutions and the satisfaction of our clients and their students and customers could suffer.
We currently have, and for the foreseeable future expect to continue to have, a small number of clients, and therefore we expect the loss, or material underperformance, of any one client could hurt our future financial performance.
We are currently engaged by fewer than 50 colleges and universities, and of these colleges and universities, our two largest clients account for approximately one-third of our revenue. For the foreseeable future, we expect to launch a small number of new programs that will be added with existing or new clients each year. As a result of the small number of our clients, the material underperformance of any one program with a client or any decline in the ranking of one of our clients’ or other impairment of their reputation, could have a disproportionate effect on our business. Additionally, because we rely on our own reputation for delivering high quality education management services and recommendations from existing clients in order to attract potential new clients, the loss of several key clients, or the failure of several key clients to renew their agreements with us upon expiration, could impair our ability to pursue our growth strategy and ultimately to become profitable.
If our security measures are breached or fail, and result in unauthorized disclosure of data, we could lose clients, fail to attract new clients and be exposed to protracted and costly litigation.
Maintaining platform security is of critical importance for our clients because the platform stores and transmits proprietary and confidential customer, university and student information, which may include sensitive personally identifiable information, credit card or financial institution information that is subject to stringent legal and regulatory obligations. As a technology company, we face an increasing number of threats to our technology platform, including unauthorized activity and access, system viruses, worms, malicious code and organized cyber-attacks, which could breach our security and disrupt our solutions and our clients’ programs. If our security measures are breached or fail as a result of third-party action, employee error, malfeasance or otherwise, we could be subject to liability or our business could be interrupted, potentially over an extended period of time. Any or all of these issues could harm our reputation, adversely affect our ability to attract new clients, cause existing clients to scale back their programs or elect to not renew their agreements, or subject us to third-party lawsuits, regulatory fines or other action or liability. Further, any reputational damage resulting from breach of our security measures could create distrust of our Company by prospective clients. In addition, our insurance coverage may not be adequate to cover losses associated with such events, and in any case, such insurance may not cover all of the types of costs, expenses and losses we could incur to respond to and remediate a security breach. As a result, we may be required to expend significant additional resources to protect against the threat of these disruptions and security breaches or to alleviate problems caused by such disruptions or breaches.
We plan to grow rapidly and expect to continue to invest in our growth for the foreseeable future. If we fail to manage this growth effectively, the success of our business model will be compromised.
We expect to experience rapid growth in a relatively short period of time, which will place a significant strain on our administrative and operational infrastructure, facilities and other resources. Our ability to manage our operations and growth will require us to continue to expand our program marketing and sales personnel, technology team, and finance and administration teams, as well as our facilities and infrastructure. We will also be required to refine our operational, financial and management controls, and reporting systems and procedures.
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These activities will require significant capital expenditures and allocation of valuable management and employee resources, and our growth will continue to place significant demands on our management and our operational and financial infrastructure. There are no guarantees that we will be able to effectively manage any future growth in an efficient, cost-effective or timely manner, or at all.
Risks Related to Our Market
We face competition from established as well as other emerging companies, which could divert clients to our competitors, result in pricing pressure and significantly reduce our revenue.
We expect existing competitors and new entrants to the education management market to constantly revise and improve their business models in response to challenges from competing businesses, including ours. If these or other market participants introduce new or improved delivery of education management and technology-enabled services that we cannot match or exceed in a timely or cost-effective manner, our ability to grow our revenue and achieve profitability could be compromised. Our primary competitors include 2U, Inc., Embanet-Pearson PLC, Blackboard Inc., Xerox Higher Education Services, PlattForm Advertising, Inc., Ellucian, Inc., Instructure, Inc., Royall & Company, Wiley & Company, Ruffalo CODY, LLC, Academic Partnerships, LLC and Global Financial Aid Services, Inc., all of which are large education management companies. There are also several new and existing vendors providing some or all of the services we provide to other segments of the education market, and these vendors may pursue the institutions we target. In addition, colleges and universities may choose to continue using or develop their own education management solutions in-house, rather than pay for our solutions. Some of our competitors and potential competitors have significantly greater resources than we do. Increased competition may result in pricing pressure for us in terms of the fees that we are able to negotiate to receive from a client. The competitive landscape may also result in longer and more complex sales cycles with a prospective client or a decrease in our market share among selective colleges and universities, either of which could negatively affect our revenue and future operating results and our ability to grow our business.
If we cannot compete successfully against our competitors our ability to grow our business and achieve profitability could be impaired.
The education marketplace is experiencing significant change, which could adversely impact the need for our services.
Due to significant technological innovations, changes in marketplace demand, and increased regulatory intervention, the entire model of higher education could significantly change in ways that could significantly reduce the Company’s market, as well as the ways in which students receive education and interact with schools. As a result, the Company’s products and services could become irrelevant or of diminished value in the Company’s marketplace.
Macroeconomic conditions may significantly impact our ability to generate revenue.
The services we offer to colleges, universities, non-profit and for-profit organizations require these companies and organizations to have a need for our education management and relationship management services. To the extent economic conditions make it difficult for students to obtain the necessary employment or financial aid, enrollment numbers may drop, and colleges and universities may not have as great a need for our services. Similarly, if macroeconomic conditions are such that non-profit and for-profit corporations reduce their event marketing efforts or reduce the services they offer, they may not have a need for our services.
Activities of the U.S. Congress could result in legislation or regulations that negatively impact our operations.
The United States Department of Education (“USDOE”) plays a significant role in regulating the higher education marketplace. Federal Student Aid (FSA) programs are regulated under the authority of Title IV of the United States Code and ensure that colleges and universities act as ethical stewards of federal funds. The federal government has taken a more involved role in the regulation of higher education over the past five years, has begun to fund alternative forms of higher education, including “competency-based” programs, and has indicated a desire to provide funding based on student outcomes. Further, the federal government is requiring colleges and universities to increase disclosures regarding student experiences and outcomes, is implementing a “score card” system that rates post-secondary schools, and is actively considering additional regulations that could limit the ability of certain schools to offer certain types of academic programs if they fail to provide a sufficient level of employment and income for students compared to the cost of the program. The increased scrutiny and results-based accountability initiatives may place additional regulatory burdens on colleges and universities and companies like us that provide services to them. Congress could also enact laws or regulations that require us to modify our practices in ways that could increase our costs. In addition, the USDOE is conducting an ongoing series of rulemakings to assure the integrity of the Title IV programs. The USDOE also has proposed implementing a ratings system by the 2015-16 academic year that would “rate” the effectiveness of every college and university in the United States that receives federal funding. The vast majority of colleges and universities are not selective schools and could be rated poorly. The USDOE has also proposed that colleges and universities with more favorable ratings might receive additional funding (including federally guaranteed student loans) from the federal government, whereas, schools that do not meet a certain minimum rating threshold, could find themselves at a disadvantage. Any of these, or other changes, implemented by the USDOE could hurt our ability to market and recruit for our university clients or adversely impact the viability of a significant number of clients in our market.
We are required to comply with The Family Educational Rights and Privacy Act (“FERPA”) and failure to do so could harm our reputation and negatively affect our business.
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FERPA generally prohibits an institution of higher education from disclosing personally identifiable information from a student’s education records without the student’s consent. Our clients and their students disclose to us certain information that originates from or comprises a student education record under FERPA. As an entity that provides services to institutions, we are indirectly subject to FERPA, and we may not transfer or otherwise disclose any personally identifiable information from a student record to another party other than in a manner permitted under the statute. If we violate FERPA, it could result in a material breach of contract with one or more of our clients and could harm our reputation. Further, in the event that we disclose student information in violation of FERPA, the USDOE could require a client to suspend our access to their student information for at least five years.
If we or our subcontractors or agents violate the Higher Education Act and corresponding regulations established by USDOE as it relates to the ban on incentive compensation and student enrollments, we could be liable to our clients for substantial fines, sanctions or other liabilities.
We are subject to other provisions of the Higher Education Act’s ban on incentive compensation that prohibit us from offering to our employees who are involved with or responsible for recruiting or admissions activities any bonus or incentive-based compensation based on the successful identification, admission or enrollment of students into any institution. If we or our subcontractors or agents violate the incentive compensation rule, we could be liable to our clients for substantial fines, sanctions or other liabilities, including liabilities related to “whistleblower” claims under the federal False Claims Act. Any such claims, even if without merit, could require us to incur significant costs to defend the claim, distract management’s attention and damage our reputation.
If we or our subcontractors or agents violate the misrepresentation rule, or similar federal and state regulatory requirements, we could face fines, sanctions and other liabilities.
We are required to comply with other regulations promulgated by the USDOE that affect our student recruitment activities, including the misrepresentation rule. The misrepresentation rule is broad in scope and applies to statements our employees, subcontractors or agents may make about the nature of a client’s program, a client’s financial charges or the employability of a client’s program graduates. A violation of this rule or other federal or state regulations applicable to our marketing activities by an employee, subcontractor or agent performing services for clients could hurt our reputation, result in the termination of client contracts, require us to pay fines or other monetary penalties and require us to pay the fees associated with indemnifying a client from private claims or government investigations.
If other colleges and universities, which outsource education management services and programs different from ours, experience poor or unsatisfactory results with their education management services and programs, it could tarnish the reputation of outsourcing education management services as a whole, which could impair our ability to grow our business.
Many colleges and universities, particularly for-profit institutions, are under intense regulatory and other scrutiny, which has led to media attention that has sometimes portrayed the use of online education and education services in an unflattering light. Some school operators have been subject to governmental investigations alleging the misuse of public funds, financial irregularities, and failure to achieve positive outcomes for students, including the inability to obtain gainful employment in their fields. These allegations have attracted significant adverse media coverage and have prompted legislative hearings and regulatory responses. These investigations have focused on specific companies and individuals, and even entire industries in the case of recruiting practices by for-profit higher education companies. Even though we are not an educational institution, this negative media attention may nevertheless add to skepticism about outsourcing recruiting and other online educational management services generally, including our programs. The precise impact of these negative public perceptions on our current and future business is difficult to discern. If these few situations, or any additional misconduct, cause all online provision of education management services to be viewed by the public or policymakers unfavorably, we may find it difficult to enter into or renew contracts with colleges and universities or attract additional clients. In addition, this perception could serve as the impetus for more restrictive legislation, which could limit our future business opportunities. Moreover, allegations of abuse of federal financial aid funds and other statutory violations against higher education companies could negatively impact our opportunity to succeed due to increased regulation and decreased demand. Any of these factors could negatively impact our ability to increase our client base and grow our clients’ programs, which would make it difficult to continue to grow our business.
We face a number of risks associated with the completed Merger because it was completed by means of a reverse merger.
On July 23, 2014, we completed the Merger. Completing the Merger increased our expenses, which could adversely affect our financial condition. In addition, there has been increased focus by government agencies on transactions such as the Merger in recent years, and we may be subject to increased scrutiny by the SEC and other government agencies and holders of our securities as a result of the completion of that transaction. Further, as a result of our existence as a “shell company” under applicable rules of the SEC prior to the closing of the Merger, we are subject to certain restrictions and limitations for certain specified periods of time relating to potential future issuances of our securities and compliance with applicable SEC rules and regulations. Additionally, our “going public” by means of a reverse merger transaction may make it more difficult for us to obtain coverage from securities analysts of major brokerage firms following the Merger. Securities analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger company. For these reasons, our stock price may suffer.
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The Company has just completed a major restructuring.
The Company has recently completed a comprehensive restructuring. Discontinued operations, new management personnel, new approaches, and new technologies could cause future challenges in the Company’s operations and financial performance in the near term. The restructuring effort was costly in terms of reduced revenue, associated expenditures, and opportunity costs. If the changes implemented during the restructuring are not as beneficial as we anticipated the Company’s financial performance may suffer and we may not be able to continue with our current business plan.
Risks Related to Ownership of Our Common Stock
There is not now, and there may never be, an active, liquid and orderly trading market for our Common Stock, which may make it difficult for you to sell your shares of our Common Stock.
There is not now, nor has there been since our inception, significant trading activity in our Common Stock or a market for shares of our Common Stock, and an active trading market for our shares may never develop or be sustained. As a result, investors in our Common Stock must bear the economic risk of holding those shares for an indefinite period of time. Although our Common Stock is quoted on the OTC Bulletin Board (“OTCBB”), an over-the-counter quotation system, trading of our common stock is extremely limited and sporadic and at very low volumes. We do not now, and may not in the future, meet the initial listing standards of any national securities exchange, and we presently anticipate that our Common Stock will continue to be quoted on the OTCBB or another over-the-counter quotation system in the foreseeable future. In those venues, our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our Common Stock, and may find few buyers to purchase their stock and few market makers to support its price. As a result of these and other factors, you may be unable to resell your shares of our Common Stock at or above the price for which you purchased them, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our Common Stock as consideration.
We have no plans to pay dividends.
To date, we have paid no cash dividends on our Common Stock. For the foreseeable future, earnings generated from our operations will be retained for use in our business and not to pay dividends. In addition, the terms of our existing credit facilities preclude, and the terms of any future debt agreements is likely to similarly preclude, us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole resource of gain for the foreseeable future. Investors seeking cash dividends should not purchase our common stock.
The application of the SEC’s “penny stock” rules to our Common Stock could limit trading activity in the market, and our stockholders may find it more difficult to sell their stock.
Our Common Stock is trading at less than $5.00 per share and is therefore subject to the SEC penny stock rules. Penny stocks generally are equity securities with a price of less than $5.00. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our Common Stock and may affect your ability to resell our Common Stock.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
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As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
We cannot assure you that we will, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
The market price of our Common Stock is volatile.
The market price of our Common Stock may be highly volatile. Some of the factors that may materially affect the market price of our Common Stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our Common Stock. These factors may materially adversely affect the market price of our Common Stock, regardless of our performance. In addition, public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our Common Stock.
Because our directors and executive officers are among our largest stockholders, they can exert significant control over our business and affairs, and have actual or potential interests that may depart from those of investors.
Certain of our executive officers and directors own a significant percentage of our outstanding capital stock. As of the date of this report, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially own over 53.51% of our outstanding voting stock. The holdings of our directors and executive officers may increase further in the future upon vesting or other maturation of exercise rights under any of the options or warrants they may hold or in the future be granted or if they otherwise acquire additional shares of Common Stock. The interests of such persons may differ from the interests of our other stockholders, including investors. As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how the Company’s other stockholders, including investors, may vote, including the following actions:
| □ | to elect or defeat the election of our directors; |
| □ | to amend or prevent amendment of our Certificate of Incorporation or By-laws; |
| □ | to effect or prevent a merger, sale of assets or other corporate transaction; and |
| □ | to control the outcome of any other matter submitted to our stockholders for vote. |
This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the Common Stock that in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
We may issue more shares in a future financing which could result in substantial dilution.
Our Certificate of Incorporation authorizes the issuance of a maximum of 937,500,000 shares of Common Stock and no shares of preferred stock. Any future merger or acquisition effected by us would result in the issuance of additional securities without stockholder approval and the substantial dilution in the percentage of our Common Stock held by our then existing stockholders. Moreover, the Common Stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of Common Stock held by our then existing stockholders. Additionally, we expect to seek additional financing in order to provide working capital to the operating business. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock or preferred stock are issued in connection with and following a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of Common Stock might be materially and adversely affected.
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Some provisions of our charter documents and Nevada law may discourage an acquisition of us by others, even if the acquisition may be beneficial to some of our stockholders.
Provisions in our Amended and Restated Articles of Incorporation and Bylaws as in effect upon the closing of the Merger, as well as certain provisions of Nevada law, could make it more difficult for a third-party to acquire us, even if doing so may benefit some of our stockholders. These provisions include the authorization of “blank check” preferred stock, the rights, preferences and privileges of which may be established and shares of which may be issued by our board of directors at its discretion from time to time and without stockholder approval.
Because we are incorporated in Nevada, we may be governed by Nevada’s statutes governing combinations with interested stockholders and control share acquisitions, which may discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by or beneficial to our stockholders. Pursuant to our Amended and Restated Articles of Incorporation and our Bylaws, we have elected not to be governed by Nevada’s laws governing combinations with interested stockholders, and as a result will only be subject to those laws upon a future amendment to the applicable provisions of the Amended and Restated Articles of Incorporation. Under Nevada’s laws governing combinations with interested stockholders, a corporation may not, in general, engage in certain types of business combinations with any beneficial owner of 10% or more of the corporation’s voting shares or an affiliate of the corporation who at any time within two years immediately prior to the date in question was the beneficial owner of 10% or more of the corporation’s voting shares, unless the holder has held the stock for two years or the board of directors approved the beneficial owner’s acquisition of its shares, the board of directors approved the transaction before the beneficial owner acquired its shares, or holders of at least a majority of the outstanding voting power approve the transaction after the beneficial owner acquired its shares. In addition, Nevada’s control share acquisition laws prohibit a purchaser of the shares of an “issuing corporation” from voting those shares, under certain circumstances and subject to certain limitations, after crossing specified threshold ownership percentages, unless the purchaser obtains the approval of the issuing corporation’s disinterested stockholders. As the control share acquisition law only applies to an “issuing corporation,” which is a corporation with 200 or more stockholders of record and at least 100 stockholders of record with addresses in Nevada appearing on the stock ledger of the corporation, we do not presently believe that the control share acquisition laws are applicable to us. However, such control share acquisition laws could become applicable to us in the future and could have an anti-takeover effect.
Any provision of our Amended and Restated Articles of Incorporation or Bylaws or of Nevada law that is applicable to us that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock in the event that a potentially beneficial acquisition is discouraged, and could also affect the price that some investors are willing to pay for our common stock.
The elimination of personal liability against our directors and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.
Our Amended and Restated Articles of Incorporation and our Bylaws limit the personal liability of our directors and officers for damages for breach of fiduciary duty as a director or officer to the extent permissible under Nevada law. Further, our Amended and Restated Articles of Incorporation and our Bylaws and individual indemnification agreements we have entered with each of our directors and executive officers provide that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders.
We do not intend to pay cash dividends on our capital stock in the foreseeable future.
We do not anticipate paying any dividends in the foreseeable future. Any future payment of cash dividends in the future would depend on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated cash requirements and other factors, and will be at the discretion of the our board of directors. Our stockholders should not expect that we will ever pay cash or other dividends on our outstanding capital stock.
We might not be able to utilize a significant portion of our net operating loss carry-forwards, which could adversely affect our profitability.
As of August 31, 2014, PCS Link had federal and state net operating loss carry-forwards due to prior period losses, which, if not utilized, will begin to expire in 2032 for federal and state purposes, respectively. These net operating loss carry-forwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed an analysis to determine what, if any, impact any prior ownership change has had on our ability to utilize our net operating loss carry-forwards. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. If we determine that an ownership change has occurred and our ability to use our historical net operating loss carry-forwards is materially limited, it would harm our future operating results by increasing our future tax obligations.
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Because we can issue additional shares of common stock, our stockholders may experience dilution in the future.
We have experienced negative cash flow from operations and may continued to do so in the future and expect to require working capital to fund our operations. We cannot be certain that financing will be available on favorable terms when required, or at all. If we are unable to raise sufficient capital, or are unable to repay our debt, then we may cease operations, become insolvent, declare bankruptcy or be otherwise wound up, all of which may result in the loss of all or substantially all of the investment capital of the shareholders. We are authorized to issue up to 937,500,000 common shares, and as of March 19, 2015 had 46,815,647 common shares outstanding. We have the authority to issue more shares without the consent of any of our shareholders. If we raise additional funds through the issuance of equity, equity-related or debt securities, the securities may have rights, preferences or privileges senior to those of the rights of our common stock and those shareholders may experience dilution in the net tangible book value per share of their investment in our common shares.
Trading on the OTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTC Markets Group’s OTCQB. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTCQB and other over the counter trading systems do not benefit from the same type of Market-Maker trading systems utilized by stock exchanges such as the NYSE and AMEX and quotation systems such as the NASDAQ in which trading of a security is enhanced by to the presence of Market-Maker(s) who are dedicated to the trading of a particular listed company’s shares. Rather, on the OTCQB and other over the counter markets, there is no assurance that a bid/ask will be posted to facilitate trading of an over the counter listed issue at any particular point in time. As a result, trading of securities on the OTCQB and other over the counter systems is often more sporadic than the trading of securities listed on the NYSE, AMEX, NASDAQ or similar large stock exchanges or stock markets. Accordingly, shareholders may have difficulty selling their shares at any particular point in time.
A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.
Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.
Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.
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Our stock is a penny stock. The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, including the risks in the section entitled “Risk Factors”, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholders. We will pay for expenses of this offering, except that the selling stockholders will pay any broker discounts or commissions or equivalent expenses and expenses of their legal counsels applicable to the sale of their shares.
Pareall Convertible Note Financing
On March 24, 2014, PCS Link entered into a convertible note with Pareall International Limited (“Pareall”), whereby Pareall provided PCS Link with a loan of $1,350,000 (“Pareall Loan”) on terms set out in a promissory note (“Pareall Note”) of the same date. The Pareall Loan was used by PCS Link for general working capital purposes. In connection with the closing of the Merger, the proceeds of the Pareall Loan and all accrued interest thereon converted into 1,386,450 Units (as defined below), which were issued to Pareall in full satisfaction of all amounts due and owing to Pareall under Pareall Note. The Pareall Note is filed as Exhibit 4.2(i) to the July 29, 2014 Form 8-K and is incorporated herein by reference.
Private Placement
On July 23, 2014, the Company completed a private placement of units (each, a “Unit”) at $1.00 per Unit (the “Financing Price”) for aggregate gross proceeds of $1,650,000 . Each Unit consisted of one share of our common stock and one immediately vested warrant, with each such warrant entitling the holder to acquire one additional share of our common stock on or before the date which is two years from the date of the Merger for a price of $1.30 per share. The Company neither has nor will be required to pay any other fees, issue additional stock/warrants other than described in this paragraph, or enter into any consulting agreements with any third parties in connection with the aforementioned private placement financing.
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CFG Convertible Note Financing
During the eight months ended August 31, 2014, the Company issued two convertible promissory notes to CFG, one in the amount of $175,000 and one in the amount of $200,000. In connection with these two convertible promissory notes, the Company issued 198,409 shares of common stock valued at $186,270 (the estimated fair value of the shares on the issuance date), which was recorded as interest expense during the eight months ended August 31, 2014. In addition, the Company incurred an aggregate of $80,000 in fixed loan fees / interest expense. The notes were paid in full during the eight months ended August 31, 2014.
Private Placement
In the fiscal quarter ended November 30, 2014, the Company sold 1,000,000 units, comprised of one share of common stock and one warrant to purchase common stock, at a price of $1.00 per unit, for total proceeds of $1,000,000. These equity securities were not registered under the Securities Act of 1933.
Loan Financing
In December 2014, the Company entered into a Loan Agreement with Colgan Financial Group, Inc. (“ CFG”) pursuant to which the Company issued a promissory note of $500,000. The note bears interest at 12% per year, the interest of which is payable monthly. This is a 3 year note and is secured by substantially all assets of the Company. This note is subordinate to the notes held by Opus Bank and California United Bank.
Private Placement
On February 27, 2015, the Company completed a private placement of shares of common stock at $1.00 per share for aggregate gross proceeds of $250,000.
Warrant Exchange
Between July 2014 and September 2014, in connection with a series of private placement transactions, the Company issued warrants to purchase up to an aggregate of 4,036,450 shares of the Company’s common stock (the “Warrants”) to the investors in such private placements. On February 27, 2015, the Company completed the exchange of such Warrants for 1,387,530 shares of the Company’s common stock.
These securities were issued to non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933) in an
offshore transaction relying on Regulation S and/or Section 4(a)(2) of the Securities Act of 1933.
The selling stockholders may offer and sell, from time to time, any or all of shares of our common stock that have been issued pursuant to the private placement subscription agreements and warrant exchange agreement.
The following table sets forth certain information regarding the beneficial ownership of shares of common stock by the selling stockholders as of March 10, 2015 and the number of shares of our common stock offered pursuant to this prospectus. Except as otherwise described below, we believe that the selling stockholders have sole voting and investment powers over their shares.
Because the selling stockholders may offer and sell all or only some portion of the 5,673,980 shares of our common stock being offered pursuant to this prospectus, the numbers in the table below representing the amount and percentage of these shares of our common stock that will be held by the selling stockholders upon termination of the offering are only estimates based on the assumption that each selling stockholder will sell all of its shares of our common stock being offered in the offering.
To our knowledge, none of the selling stockholders is a broker-dealer or an affiliate of a broker-dealer. We may require the selling stockholders to suspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading.
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Number of Shares to Be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares(1) | ||||||||||||||||||||
| Name of Selling Stockholder | Shares Owned by the Selling Stockholder before the Offering(1) | Total Shares Offered in the Offering | # of Shares(3) | % of Class(2),(3) | ||||||||||||||||
| 1 | Pareall International Limited | 1,386,450 | 1,386,450 | 0 | 0 | |||||||||||||||
| 2 | Byrne United S.A. | 1,215,655 | 1,215,655 | 0 | 0 | |||||||||||||||
| 3 | Labere Group Assets Inc. | 1,000,000 | 1,000,000 | 0 | 0 | |||||||||||||||
| 4 | Bonneval Ventures Inc. | 650,000 | 650,000 | 0 | 0 | |||||||||||||||
| 5 | Colgan Financial Group, Inc. | 671,875 | 671,875 | 0 | 0 | |||||||||||||||
| 6 | Neil Rogers | 750,000 | 750,000 | 0 | 0 | |||||||||||||||
| TOTALS | 5,673,980 | 5,673,980 | ||||||||||||||||||
Notes
| * | Less than 0.1%. |
| (1) | Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options and warrants currently exercisable, or exercisable within 60 days, are counted as outstanding for computing the percentage of the person holding such options or warrants but are not counted as outstanding for computing the percentage of any other person. |
| (2) | We have assumed that the selling stockholders will sell all of the shares being offered in this offering. |
| (3) | Based on 46,815,647 shares of our common stock issued and outstanding as of March 19, 2015. Shares of our common stock being offered pursuant to this prospectus by a selling stockholder are counted as outstanding for computing the percentage of that particular selling stockholder but are not counted as outstanding for computing the percentage of any other person. |
Each selling stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTC Markets Group’s OTCQB or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. A selling stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices. A selling stockholder may use any one or more of the following methods when selling securities:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | settlement of short sales; |
| · | in transactions through broker-dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated price per security; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell securities under Rule 144 under the Securities Act of 1933 (the “Securities Act”), if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
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In connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with person to distribute the securities.
We are required to pay certain fees and expenses incurred by us incident to the registration of the securities.
Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The selling stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the selling stockholders.
The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
General
Our authorized capital stock consists of 937,500,000 shares of common stock, with a par value of $0.001 per share. As of March 19, 2015, there were 46,815,647 shares of our common stock issued and outstanding held by approximately 9 stockholders of record of our common stock.
Voting Rights
Our common stock is entitled to one vote per share on all matters submitted to a vote of our stockholders, including the election of directors. Except as otherwise required by law, the holders of our common stock possess all voting power. The holders of a majority of the shares of stock, issued and outstanding and entitled to vote, present and being, or representing by proxy, will constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. When a quorum is present or represented at any meeting, the vote of the stockholders of a majority of the stock having voting power present in person or represented by proxy will be sufficient to elect members of our board of directors or to decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the articles of incorporation, a different vote is required in which case such express provision will govern and control the decision of such question. Except as otherwise required by law, any action required to be taken at a meeting of our stockholders, or any other action which may be taken at a meeting of our stockholders, may be taken without a meeting, without prior notice and without a vote if written consents are signed by our stockholders representing a majority of the shares entitled to vote at such a meeting.
Our board of directors has the power to amend our bylaws. As a result, our board of directors can change the quorum and voting requirements at a meeting of our stockholders, subject to the applicable laws.
Other Rights
The holders of our common stock are entitled to receive the dividends as may be declared by our board of directors out of funds legally available for dividends. Our board of directors is not obligated to declare a dividend. Any future dividends will be subject to the discretion of our board of directors and will depend upon, among other things, future earnings, the operating and financial condition of our company, its capital requirements, general business conditions and other pertinent factors. It is not anticipated that dividends will be paid in the foreseeable future.
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Anti-Takeover Provisions
Some features of the Nevada Revised Statutes, which are further described below, may have the effect of deterring third parties from making takeover bids for control of our company or may be used to hinder or delay a takeover bid. This would decrease the chance that our stockholders would realize a premium over market price for their shares of common stock as a result of a takeover bid.
Acquisition of Controlling Interest
The Nevada Revised Statutes contain provisions governing acquisition of controlling interest of a Nevada corporation. These provisions provide generally that any person or entity that acquires certain percentage of the outstanding voting shares of a Nevada corporation may be denied voting rights with respect to the acquired shares, unless the holders of a majority of the voting power of the corporation, excluding shares as to which any of such acquiring person or entity, an officer or a director of the corporation, and an employee of the corporation exercises voting rights, elect to restore such voting rights in whole or in part. These provisions apply whenever a person or entity acquires shares that, but for the operation of these provisions, would bring voting power of such person or entity in the election of directors within any of the following three ranges:
| · | 20% or more but less than 33 1/3%; |
| · | 33 1/3% or more but less than or equal to 50%; or |
| · | more than 50%. |
The stockholders or board of directors of a corporation may elect to exempt the stock of the corporation from these provisions through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from these provisions.
These provisions are applicable only to a Nevada corporation, which:
| · | has 200 or more stockholders of record, at least 100 of whom have addresses in Nevada appearing on the stock ledger of the corporation; and |
| · | does business in Nevada directly or through an affiliated corporation. |
At this time, we do not have 100 stockholders of record who have addresses in Nevada appearing on the stock ledger of our company nor do we believe that we do business in Nevada directly or through an affiliated corporation. Therefore, we believe that these provisions do not apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply to us, these provisions may discourage companies or persons interested in acquiring a significant interest in or control of our company, regardless of whether such acquisition may be in the interest of our stockholders.
Combination with Interested Stockholder
The Nevada Revised Statutes contain provisions governing combination of a Nevada corporation that has 200 or more stockholders of record with an interested stockholder. As of March 10, 2015, we had 9 stockholders of record. A corporation affected by these provisions may not engage in a combination within three years after the interested stockholder acquires his, her or its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired such shares. Generally, if approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the board of directors before the person became an interested stockholder or a majority of the voting power held by disinterested stockholders, or if the consideration to be received per share by disinterested stockholders is at least equal to the highest of:
| · | the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or within three years immediately before, or in, the transaction in which he, she or it became an interested stockholder, whichever is higher; |
| · | the market value per share on the date of announcement of the combination or the date the person became an interested stockholder, whichever is higher; or |
| · | if higher for the holders of preferred stock, the highest liquidation value of the preferred stock, if any. |
Generally, these provisions define an interested stockholder as a person who is the beneficial owner, directly or indirectly of 10% or more of the voting power of the outstanding voting shares of a corporation. Generally, these provisions define combination to include any merger or consolidation with an interested stockholder, or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an interested stockholder of assets of the corporation having:
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| · | an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation; |
| · | an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or |
| · | representing 10% or more of the earning power or net income of the corporation. |
Articles of Incorporation and Bylaws
There are no provisions in our articles of incorporation or our bylaws that would delay, defer or prevent a change in control of our company and that would operate only with respect to an extraordinary corporate transaction involving our company or any of our subsidiaries, such as merger, reorganization, tender offer, sale or transfer of substantially all of its assets, or liquidation.
The financial statements as of August 31, 2014 and December 31, 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the eight months ended August 31, 2014 and for the years ended December 31, 2013 and 2012 included in this prospectus and in the related registration statement have been so included in reliance on the report of Rose, Snyder & Jacobs LLP, an independent registered public accounting firm (the report on the financial statements contains an explanatory paragraph regarding our company’s ability to continue as a going concern) appearing elsewhere in this prospectus and the related registration statement, given on the authority of said firm as experts in auditing and accounting.
DLA Piper LLP (US), of 550 S Hope St #2300, Los Angeles, California 90071 has provided an opinion on the validity of the shares of our common stock being offered pursuant to this prospectus.
Interest of Named Experts and Counsel
No expert named in the registration statement of which this prospectus forms a part as having prepared or certified any part thereof (or is named as having prepared or certified a report or valuation for use in connection with such registration statement) or counsel named in this prospectus as having given an opinion upon the validity of the securities being offered pursuant to this prospectus or upon other legal matters in connection with the registration or offering such securities was employed for such purpose on a contingency basis. Also at the time of such preparation, certification or opinion or at any time thereafter, through the date of effectiveness of such registration statement or that part of such registration statement to which such preparation, certification or opinion relates, no such person had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in our company or any of its parents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.
Information With Respect To Our Company
Our corporate mission is to enable colleges and universities to remain relevant by helping them expand access to personalized educational opportunities that are flexible, affordable, and prepare students for career opportunities. We assist schools in maximizing student experience and driving successful student outcomes while leveraging technology to help reinvent their operating and financial models.
We provide colleges and universities with solutions that enable them to adapt and grow in a rapidly changing higher education marketplace. Our cloud-based platform provides schools with the turn-key operating infrastructure they need to recruit, enroll, engage, support, and create enduring relationships with students. By combining strategies, technology, and people resources, we are able to provide an unparalleled student experience that maximizes student outcomes while setting a new standard for the future of higher education. Our services are utilized by schools that need to enhance the student experience and are looking to expand into new markets such as online learning or international. All of our solutions are designed to help public and not-for-profit higher education institutions generate sustainable improvements in operating and financial results, while improving student success and satisfaction.
Our services include: (a) solutions that support the entire student lifecycle including lead generation/marketing, new student recruitment, enrollment counseling, financial aid advising, new student recruitment, retention counseling, career advising, student concierge, and help desk services; (b) consulting services, including market assessments and analysis of internal operational efficiency; and (c) various data and technology enabled solutions that enable school clients to better manage/analyze data, deliver instruction to students (online, hybrid, and classroom), and make certain institutional decisions. In addition to education management services, we provide donor lifecycle management services to various major non-profit organizations. The donor lifecycle management services are mainly related to legacy operations of our Company prior to entering the education marketplace in 2006.
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We believe that our end-to-end solutions that span the entire student lifecycle provide us with an advantage over competing providers that often address isolated segments of the student lifecycle spectrum, such as student retention, or student acquisition. We generally focus on small to medium-sized, private, not-for-profit, and medium-sized to large public institutions.
We have a demonstrated track record of helping higher education clients improve their operating and financial performance while improving student outcomes. Since 2006, we have helped colleges and universities generate in excess of $270 million in college tuition revenue by custom tailoring our solutions to each institution’s requirements and organizational structure.
The measured benefits of our clients include:
| · | Generated more than 31,000 new enrollments; |
| · | Secured more than 27,400 continuing enrollments; |
| · | Generated more than $9.1 million in marketing budget savings for one major client; |
| · | Reduced cost of student services by an average of 41% (excluding intangible costs); |
| · | Reduced cost of student acquisition by an average of more than 36%, or up to $8,500 per student; and |
| · | Produced an average client return on their investment using our solutions of 35%-50%. |
Our key achievements since 2006 include:
| · | Served more than 450,000 traditional and non-traditional students (adult learners/online students); |
| · | Processed more than 5.6 million student inquiries; and |
| · | Answered 95% of all inquiries for student service (admissions, financial aid, student services) compared to an average of fewer than 65% in some cases when institutions handled their own inquiries |
Our Company is built on a strong foundation of experience. We have a 17-year operating history in providing mission critical donor lifecycle management services to leading non-profits such as the American Red Cross and Stand Up to Cancer. During that time, we have generated more than $1.2 billion in aggregate donor contributions for non-profit clients. In 2006, we entered the higher education sector by leveraging our know-how in serving non-profits and our highly differentiated model, which combines strategy, people, processes and technology. We remain committed to providing services to the non-profit sector, but expect the majority of future revenue will continue to come from the education sector.
We have a growing list of clients that include many prestigious colleges and universities, most of which are non-profit institutions. As of November 30, 2014, we have served more than 40 education clients and more than 70 individual degree programs since entering the education sector. Among these notable institutions include the University of Alabama, Pepperdine University, University of Massachusetts, Texas Tech University, Saint Leo University, Concordia University, Simmons College, University of Mississippi, and the University of Maine. During 2014, we have added the following new clients: Florence-Darlington Technical College, Tennessee Temple University, Pepperdine University, Embry Riddle Aeronautical University, Woodbury University, Vermont Law School, St. Gregory’s University, Shorelight Education, Saint Mary’s University of Minnesota, and Stand Up To Cancer (2014) Telecast. Several of our service contracts are fixed-fee, annual or multi-year contracts that generate recurring monthly revenue. The remaining contracts are negotiated at an agreed-upon rate, based on the volume of services. Most have a one-year term and minimum revenue guarantees. Over the past three years, we have enjoyed a 100% renewal rate among our state school contracts that go through the formal renewal bid process.
We believe that our business is well positioned for growth. We have a multi-pronged growth strategy that includes adding new clients and expanding our service offerings to existing clients. To execute on our growth strategy, we are increasing our sales force and are extending our thought leadership through presentations at industry conferences to develop relationships that drive our business. We also plan to enhance our offerings through additional SaaS-technology offerings, including learning management, mobile course delivery, and other technologies aimed at supporting student engagement and success.
Our Company has a strong operational infrastructure to support continued growth. Our technology-enabled platform is capable of handling millions of inquiries per month, we operate state-of-the-art education service centers, and our cloud-based technology supports 24/7, multilingual inbound and outbound calls, email inquiries, web chat, click-to-chat, text messaging and instant messaging. Our platform is technology-agnostic and can be easily incorporated with any client technology that comes with a client engagement.
Our Company is headquartered in Santa Ana, California, and we have facilities and offices in Phoenix, Arizona; College Station, Texas..
We generate revenue by charging recurring and transactional fees associated with the specific services we provide to our customers. Our most significant expenses are compensating employees, sales/marketing, facilities/ technology and debt service.
Market Overview and Opportunities
We estimate the near-term addressable market for our current offering at more than $8.9 billion in the domestic higher education market alone. Currently, we have market penetration of less than 1% of the more than 4,700 not-for-profit colleges and universities in the United States. Our low-level of current market penetration creates a sizable opportunity for our Company and positions us for revenue growth.
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The market for higher education management services is currently ripe for disruption due to declining enrollment at many not-for-profit institutions, which has increased the cost per enrolled student for some institutions. Additionally, due to shifts in how students want their education delivered, many of institutions are facing new challenges in enrolling, engaging and retaining students. More students are seeking solutions that provide flexible access to education, meet affordability requirements, help in accomplishing education and career goals, and meet their return-on-investment expectations given tuition costs. Among the trends driving these changes include the proliferation of cost-effective mobile devices and social media, broad availability of data (including predictive analytics and more data-based decision making), greater flexibility in the delivery of education (online vs. on-campus plus mobile) and the desire by students for more personalized support. Most colleges and universities do not have the resources (human capital, technology or financial) or know-how to effectively meet these challenges.
Longer-term market trends for growth bode well for our Company due to increasing demand for postsecondary education. Additionally, it is expected that the economy will create 55 million job openings by 2020, 65% of which will require postsecondary education. (Source: Georgetown University Center on Education and the Workforce).
Our Solutions
We provide colleges and universities with solutions that enable them to adapt and grow in a rapidly changing higher education marketplace. Our cloud-based platform provides schools with the turn-key operating infrastructure they need to recruit, enroll, engage, support, and create enduring relationships with students. By combining strategies, technology, and people resources, we are able to provide an unparalleled student experience that maximizes student outcomes while setting a new standard for the future of higher education. Our solutions support new student enrollment, student retention, career preparation, career advising and job placement, and alumni relations. We have a demonstrated track record of generating results as well as financial and operational improvement for colleges and universities in multiple sectors, a proven and scalable operating model, and a clearly defined technology roadmap to expand our service offerings.
Our solutions have helped our clients to improve student recruitment and retention, increase revenue and reduce costs, enhance student satisfaction, better understand students’ needs, provide students with 24/7 support, launch online learning enterprises, and compete with larger or more well-known schools.
We have a competitive advantage in offering a unique, comprehensive student lifecycle management solution that combines technology, processes, strategy, and people. We take a flexible approach to developing customized programs for each client engagement with the ability to deliver solutions either bundled or unbundled. Additionally, we offer a proven fee-for-service model versus solely a “tuition sharing” approach that is only compatible with a handful of the marketplace.
Our Growth Strategy
Key initiatives of our growth strategy include 1) expanding current direct sales and marketing resources to generate growth from new and existing customers, 2) enhancing and developing new strategic partnerships to expand reach; 3) introducing new technology-based offerings that focus on student learning, increase student engagement, delivery of online and mobile instruction, maximize student success and enhanced experiences; 4) evaluating targeted acquisition opportunities; and 5) building on our industry and thought leadership position to create visibility and demand.
Our Services
Key components of our end-to-end student lifecycle management solutions are:
| · | Student Recruitment & Enrollment – Our Student Recruitment and Enrollment services include interactive and traditional lead-generation as well as end-to-end recruitment solutions for academic programs of all types including online degree programs. We help clients identify and reach out to qualified potential students, recruit prospective students, provide enrollment counseling and advice on financial aid options and eligibility, guide students through the enrollment process, and help to ensure that students have a great first week experience. From the first interaction with prospective students, our enrollment counselors act as an extension of the client, and establish and foster close, collaborative relationships with students. These close relationships, which begin in the recruitment process and extend through the entire student lifecycle, result in significantly improved leads to enrollment rates, increased persistence, enhanced student experience, and better student outcomes over the long term. |
| · | Student Success & Retention – Our student retention counselors and success coaches leverage web-based tools to monitor and assess student progress against their stated education and career goals, and provide student-specific counsel to keep them on track and navigate barriers to success. Counselors proactively contact assigned students each term to ensure students register for the next term, have all instructional materials/textbooks, have made any necessary payment arrangements, are up-to-date on any financial aid requirements, and any other obstacles to student persistence are handled. We also offers a student concierge service that provide students with professional support on a wide range of needs including financial aid, payments, registration, password resets and portal support. |
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| · | Career Advising and Job Placement – We offer proactive career advising services that coach and motivate students to persist and graduate, and help students plan for life after graduation. Our student retention counselors and success coaches collaborate with school-based academic advisors and students to develop customized career paths, including working with students to make sure they are fully utilizing all on-campus career services. Our career advice and job placement counselors also assist in determining career interests, arranging and preparing students for job interviews, providing support with interview preparation, resume building and garnering references. Additionally, this group tracks student success after graduation to help build career networks and job opportunities for future graduates and validate a school’s return on investment. |
| · | We also provide our education clients with strategic advisory services and analysis that help them manage their institutions more efficiently and effectively. These include strategic marketing assessments, financial and operating efficiency evaluations to aid in decision making, and data and IT services that enable clients to better analyze and manage data, and improving communications with students. |
Technology-Enabled Solutions: Our technology roadmap is aimed at providing solutions and developing data-driven business intelligence that enable school clients to create better learning outcomes, more efficiently and effectively engage students, and develop data-driven business intelligence offerings that help them better understand and support students. The company intends to leverage both internal resources and partnerships for development of SaaS- and cloud-based technology. These initiatives include:
| · | My 24/7 Campus – First-of-its-kind, interactive student services and support mobile app that connects students to all their student information, financial services, collaboration tools, tutoring, 24/7 student concierge, personalized alerts, career placement support and our virtual counseling – via text, voice, or video. |
| · | EduDrive – Success management with dashboard, cutting-edge analytics, artificial intelligence capabilities and seamless integration to all sources of student data (internal and external to a school). |
| · | HigherMastery – SaaS mobile learning platform that incorporates cutting-edge learning management and game-based learning tools, on-demand content development and incorporation; financial literacy programming; collaboration; data-driven career placement; and one-touch student support. |
Competition
The Company competes with a number of firms directly and indirectly. Key competitors include: 2U, Inc., Embanet-Pearson plc, Blackboard Inc., Ellucian, Inc., Xerox Higher Education Services, PlattForm Advertising, Inc., Royall & Company, Wiley & Company, Instructure, Inc., Desire2Learn, Ruffalo CODY, LLC, Academic Partnerships, LLC and Global Financial Aid Services, Inc. In many cases, companies serving the marketplace focus on specific services (e.g. enrollment, online programs, marketing, financial aid, etc.), different types of schools, etc. Companies may also differ based on their revenue and pricing model. Some companies generate revenue based on a percentage of tuition of programs they support for their school clients while other providers, such as Greenwood & Hall, employ a fee-for-service model. While the Company generally focuses on small to medium-sized, private, not-for-profit and medium-sized to large public institutions, the Company is also planning to focus more resources on conducting business with larger private-for-profit institutions and some select not-for-profit institutions.
Customers
The Company principally supports post-secondary colleges and universities, mainly in the not-for-profit and public sectors. Current and past education customers include: the University of Alabama, University of Mississippi, Pepperdine University, University of Massachusetts, Simmons College, Texas Tech University, University of Houston, and Shorelight Education. Our other customers include: the American Red Cross, Entertainment Industry Foundation, MarkeTouch Media, Inc. (“MarkeTouch”), and Patriot Communications, LLC. Currently, our two largest customers account for approximately one-third of our revenue.
Government Regulation
Higher education is a heavily regulated sector. The sector is regulated via governmental regulation (state and federal), market forces and through self-regulation in the form of private accreditation associations of universities, as recognized by the United States Department of Education (the “USDOE”). Accrediting bodies play a significant role in overseeing institutional financial health, operating practices, and academic quality. Essentially, the USDOE supervises these accrediting bodies. At the same time, the USDOE plays a major role in regulating the higher education marketplace due to the federal government’s involvement in higher education through the issuance and guarantee of student loans as well as direct grant funding. These programs, known as Federal Student Aid (FSA), are regulated under the authority of Title IV of the United States Code. Title IV’s design ensures colleges and universities act as ethical stewards of federal funds. Mainly, it regulates enrollment practices, accountability reporting, and, in the case of for-profit institutions, how much of a school’s revenue comes from federal student aid programs. Title IV and its funding is important as it relates to students’ ability to attend college and institutions to operate. The federal government has taken a more involved role in the regulation of higher education over the past six (6) years. With federal education policy focused on increasing college attainment, the likelihood of reduction of overall federal support of higher education is minimal; however, the federal government has begun to fund alternative forms of higher education including “competency-based” programs and has indicated a desire to provide funding based on student outcomes. Further, the federal government is requiring colleges and universities to increase disclosures regarding student experiences and outcomes, is implementing a “score card” system that rates post-secondary schools, and has enacted regulations that could limit the ability of certain schools to offer certain types of academic programs if they are deemed to not provide a sufficient level of employment and income for students compared to the cost of the program.
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Employees
As of the date of this report, we have134 employees, all of whom are employed full-time.
Trademarks
Greenwood Hall, Greenwood & Hall, and EduDrive and our corresponding logos are our trademarks.
Explanatory Note
On June 20 , 2014, Divio Holdings, Corp., a Nevada corporation (“DHC”), entered into an Agreement and Plan of Merger pursuant to which DHC merged with its newly formed, wholly owned subsidiary, Greenwood Hall, Inc. (“Merger Sub I”), a Nevada corporation (the “DHC Merger”). Upon consummation of the DHC Merger, the separate existence of Merger Sub I ceased and DHC, the surviving corporation in the DHC Merger, became known as Greenwood Hall, Inc.
Effective July 1, 2014, DHC completed the DHC Merger. As a result, DHC changed its name from “Divio Holdings, Corp.” to “Greenwood Hall, Inc.” Also effective July 1, 2014, DHC effected a 12.5 to one forward stock split of its authorized and issued and outstanding common stock. As a result, its authorized capital of common stock increased from 75,000,000 shares of common stock with a par value of $0.001 per share to 937,500,000 shares of common stock with a par value of $0.001 per share and its previously outstanding 4,320,000 shares of common stock increased to 54,000,000 shares of common stock outstanding.
On July 22, 2014, Greenwood Hall, Inc., a Nevada corporation (the “Company”), and its wholly owned subsidiary, Greenwood Hall Acquisition Inc., a California corporation (“Merger Sub”), entered into a Merger Agreement and Plan of Reorganization, dated June 20, 2014 (the “Merger Agreement”), by and among (i) the Company, (ii) PCS Link, Inc. d/b/a Greenwood & Hall (“PCS Link”), and (iii) Merger Sub. Pursuant to the terms of the Merger Agreement, PCS Link merged with Merger Sub on July 23, 2014, with PCS Link emerging as the surviving entity and with the stockholders of PCS Link receiving 25,250,000 shares of the Company’s $0.001 par value per share common stock (“Common Stock”) in exchange for all of the issued and outstanding shares of PCS Link’s $0.002 par value per share common stock (“PCS Link Common Stock”) (other than “dissenting shares” as defined in California Corporations Code Section 1300) as set forth in the Merger Agreement (the “Merger”).
The Merger
On July 23, 2014, the Company and its wholly owned subsidiary, Merger Sub, completed the Merger Agreement, dated July 22, 2014, by and among the Company, Merger Sub, and PCS Link. Pursuant to the Merger Agreement, Merger Sub merged with and into PCS Link with PCS Link remaining as the surviving corporation (the “Surviving Corporation”) in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub ceased, and PCS Link became a wholly-owned subsidiary of the Company. A copy of the Merger Agreement is attached as Exhibit 2.1 to the report on Form 8-K filed with the SEC on July 29, 2014 (“July 29, 2014 Form 8-K”) and is incorporated herein by reference. In connection with the Merger and at the Effective Time (as defined below), the holders of all of the issued and outstanding shares of PCS Link Common Stock exchanged all of such shares (other than “dissenting shares” as defined in California Corporations Code Section 1300) for a combined total of 25,250,000 shares of the Company’s Common Stock (the “Company Merger Consideration”).
Each share of capital stock of Merger Sub that was issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”), by virtue of the Merger and without further action on the part of PCS Link, Merger Sub, or the Company, was converted into one share of the Surviving Corporation at the Effective Time. After the Merger, each certificate evidencing ownership of shares of Merger Sub common stock evidenced ownership of such shares of common stock of the Surviving Corporation.
At the Effective Time, all shares of PCS Link Common Stock that were owned by PCS Link as treasury stock or reserved for issuance by PCS Link immediately prior to the Effective Time were cancelled and extinguished without any conversion thereof and no amount of the Company Merger Consideration was allocated or paid in connection therewith.
The Merger Agreement contains customary representations, warranties, and covenants of the Company, PCS Link, and Merger Sub for a reverse triangular merger (and accompanying transactions). Breaches of representations and warranties are secured by customary indemnification provisions. The Merger is treated as a recapitalization of the Company for financial accounting purposes. The historical financial statements of the Company before the Merger will be replaced with the historical financial statements of PCS Link before the Merger in all future filings with the Securities and Exchange Commission (the “SEC”).
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Convertible Note Financing
On March 24, 2014, PCS Link entered into a convertible note with Pareall, whereby Pareall provided PCS Link with the Pareall Loan on terms set out in the Pareall Note of the same date. The Pareall Loan was used by PCS Link for general working capital purposes. In connection with the closing of the Merger, the proceeds of the Pareall Loan and all accrued interest thereon converted into 1,386,450 Units (as defined above), which were issued to Pareall in full satisfaction of all amounts due and owing to Pareall under Pareall Note. The Pareall Note is filed as Exhibit 4.2(i) to the July 29, 2014 Form 8-K and is incorporated herein by reference.
Private Placement
On July 23, 2014, the Company completed a private placement of Units at $1.00 per Unit (referred to above as the “Financing Price”) for aggregate gross proceeds of $1,650,000 (referred to above as the “Private Placement Financing”). Each Unit consists of one share of Common Stock and one immediately vested warrant, with each such warrant entitling the holder to acquire one additional share of Common Stock on or before the date which is two years from the date of the Merger for a price of $1.30 per share. The Company neither has nor will be required to pay any other fees, issue additional stock/warrants other than described in this paragraph, or enter into any consulting agreements with any third parties in connection with the aforementioned Private Placement Financing.
Accounting Treatment; Change of Control
The Merger was accounted for as a “reverse merger” with PCS Link as the accounting acquirer and the Company as the legal acquirer. Although, from a legal perspective, the Company acquired PCS Link, from an accounting perspective, the transaction is viewed as a recapitalization of PCS Link accompanied by an issuance of stock by PCS Link for the net assets of Greenwood Hall, Inc. This is because Greenwood Hall, Inc. did not have operations immediately prior to the merger, and following the merger, PCS Link is the operating company. The board of directors of Greenwood Hall, Inc. immediately after the merger consisted of five directors, with four of the five directors nominated by PCS Link. Additionally, PCS Link’s stockholders owned 71% of the outstanding shares of Greenwood Hall, Inc. immediately after completion of the transaction. Except as described in the previous paragraphs, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our board of directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company. Furthermore, as a result of the issuance of the shares of Common Stock pursuant to the Merger, a change in control of the Company occurred as of the date of consummation of the Merger. Immediately following the Merger, the business of PCS Link became our business.
We do not own any real property. We lease our primary office space. Our primary office is located at 1936 East Deere Avenue, Suite 120, Santa Ana, California 92705. We also lease space located at 2504 Kent Street, Bryan, Texas 77802, and 2432 Peoria Avenue, Suite 1009, Phoenix, Arizona 85029.
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In the normal course of our business, the Company is periodically subject to various lawsuits, including contract and employment disputes. Additionally, the Company is currently a party (or its property is subject) to the following pending legal proceeding:
The Company is the subject of pending litigation, which could cause it to incur significant costs in defending such litigation or in resulting actions or judgments. The Robin Hood Foundation (“Robin Hood”) filed suit against Patriot Communications, LLC (“Patriot”), a client of the Company, in the Superior Court of the State of California for the County of Los Angeles (Central District) for breach of contract and failure to perform, including among other things an intentional tort claim, in the amount of not less than $5,000,000. On May 6, 2014, Patriot filed a cross-complaint naming PCS Link as a cross-defendant. Patriot denies the allegations set forth by Robin Hood. On August 22, 2014, Robin Hood filed a First Amended Complaint, naming the Company and John Hall, in his individual capacity, as defendants. The First Amended Complaint asserts claims against the Company and Hall for fraud, fraudulent concealment, negligent misrepresentation, negligence and violation of Business & Professions Code section 17200. The First Amended Complaint also alleges a cause of action for breach of contract solely against the Company. An adverse judgment against the Company could be detrimental to the Company’s financial standing. Additionally, in the event that Patriot is held liable, Patriot alleges that PCS Link is responsible to indemnify and/or contribute to the satisfaction of any damages because PCS Link acted as a sub-contractor on behalf of Patriot with regard to the filed incident. We believe that we have strong defenses and we are vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not be until May 2015, at the earliest. The outcome of this matter is inherently uncertain and could have a materially adverse effect on our business, financial condition and results of operations if decided unfavorably against the Company and John Hall.
The Company is the subject of pending litigation, which could cause it to incur significant costs in defending such litigation or in resulting actions or judgments. Finance 500, Inc. (“Finance 500”) filed suit against the Company, in the Superior Court of the State of California for the County of Orange (Central Justice) for breach of contract and unjust enrichment, among other things, in the amount of not less than $ 250,000. We believe that we have strong defenses and we are vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not resolved anytime in the near future. The outcome of this matter is inherently uncertain and could have a materially adverse effect on our business, financial condition and results of operations if decided unfavorably against the Company
Market Price of and Dividends on Our
Common Equity
and Related Stockholder Matters
Market information
Our common stock is currently quoted on the OTC Markets Group’s OTCQB under the symbol “ELRN”. Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects.
OTCQB securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTCQB issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
Prior to July 29, 2014, our stock traded under the symbol “DIVO.” As of the date of this report, there was no significant bid history for the Common Stock.
Our common stock is currently available for trading in the over-the-counter market and is quoted on the Over the Counter Quote Board (“OTCQB”) and the OTCBB under the symbol “ELRN.” Prior to July 29, 2014, our stock traded under the symbol “DIVO.”. Set forth below are the range of high and low prices for our common stock from Yahoo Finance for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions:
| Quarter Ended | High Bid | Low Bid | ||||||||
| 08/31/2014 | $ | 6.00 | $ | 0.50 | ||||||
| 11/30/2014 | $ | 3.00 | $ | 1.50 | ||||||
| 02/28/2015 | $ | 1.50 | $ | 0.37 | ||||||
On March 18, 2015, the closing price for our common stock as reported by the OTCQB was $0.75 per share.
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Transfer Agent
Our shares of common stock are issued in registered form. The transfer agent and registrar for our common stock is VStock Transfer, located at 18 Lafayette Place, Woodmere, New York 11598.
Holders of Common Stock
As of March 19, 2015, there were approximately 9 registered holders of record of our common stock. As of such date, 46,815,647 shares were issued and outstanding.
Dividends
We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Subject to compliance with applicable corporate laws, our directors will determine if and when dividends should be declared and paid in the future based on our financial position at the relevant time. All shares of our common stock are entitled to an equal share of any dividends declared and paid.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Greenwood Hall, Inc.
We have audited the accompanying consolidated balance sheets of Greenwood Hall, Inc. and Subsidiaries as of August 31, 2014 and December 31, 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the eight months ended August 31, 2014 and for the years ended December 31, 2013 and 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Greenwood Hall, Inc. and Subsidiaries at August 31, 2014 and December 31, 2013, and the consolidated results of their operations and their cash flows for the eight months ended August 31, 2014 and for the years ended December 31, 2013 and 2012, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company has an accumulated deficit, a working capital deficit, and has generated substantial losses during 2014 and 2013. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in note 1. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/ Rose, Snyder & Jacobs LLP
Encino, California
December 12, 2014
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AUDITED FINANCIAL STATEMENTS
GREENWOOD HALL, INC. AND SUBSIDIARIES
AS OF AUGUST 31, 2014 AND DECEMBER 31, 2013
| 08/31/2014 | 12/31/2013 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 367,286 | $ | 125,859 | ||||
| Accounts receivable, net of allowance of $0, and $0 | 1,039,065 | 1,001,773 | ||||||
| Prepaid expenses and other current assets | 305,691 | 64,865 | ||||||
| Current assets to be disposed of | 36,860 | 36,860 | ||||||
| Total Current Assets | 1,748,902 | 1,229,357 | ||||||
| Property and Equipment, net | 211,525 | 66,598 | ||||||
| Other Assets | ||||||||
| Deposits and other assets | 57,659 | 16,547 | ||||||
| Total Other Assets | 57,659 | 16,547 | ||||||
| Total Assets | $ | 2,018,086 | $ | 1,312,502 | ||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 835,423 | $ | 1,598,669 | ||||
| Accrued expenses | 284,362 | 385,128 | ||||||
| Accrued payroll and related expenses | 411,280 | 612,305 | ||||||
| Deferred revenue | 1,102,500 | 177,981 | ||||||
| Accrued interest | 35,773 | 25,431 | ||||||
| Due to shareholders / officer | 155,476 | 184,016 | ||||||
| Notes payable, net of discount of $71,758 and $298,417 | 2,053,134 | 3,762,381 | ||||||
| Line of credit | 1,500,000 | - | ||||||
| Derivative liability | 118,363 | - | ||||||
| Current liabilities to be disposed of | 335,857 | 335,857 | ||||||
| Total Current Liabilities | 6,832,168 | 7,081,768 | ||||||
| Notes payable, non-current | 1,297,988 | - | ||||||
| Total Liabilities | 8,130,156 | 7,081,768 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Common stock, $0.001 par value; 937,500,000 shares authorized, 38,536,450 and 25,051,591 shares issued and outstanding, respectively | 38,536 | 25,052 | ||||||
| Additional paid-in capital | 3,149,711 | (20,552 | ) | |||||
| Accumulated deficit | (9,300,317 | ) | (5,773,766 | ) | ||||
| Total Greenwood Hall Inc. Stockholders’ Equity (Deficit) | (6,112,070 | ) | (5,769,266 | ) | ||||
| Non-controlling interest | - | - | ||||||
| Total Stockholders’ Equity (Deficit) | (6,112,070 | ) | (5,769,266 | ) | ||||
| Total Liabilities And Stockholders’ Equity (Deficit) | $ | 2,018,086 | $ | 1,312,502 | ||||
See report of independent registered public accounting firm and notes to consolidated financial statements.
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GREENWOOD HALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 2014 AND THE YEARS ENDED DECEMBER 31, 2013 AND 2012
| 2014 | 2013 | 2012 | ||||||||||
| Revenues | $ | 5,291,511 | $ | 11,215,586 | $ | 15,358,376 | ||||||
| Operating Expenses | ||||||||||||
| Direct cost of services | 2,596,795 | 3,635,679 | 2,533,302 | |||||||||
| Personnel | 2,520,858 | 4,916,964 | 7,696,899 | |||||||||
| Selling, general and administrative | 2,501,662 | 3,100,450 | 2,692,276 | |||||||||
| Total Operating Expenses | 7,619,315 | 11,653,093 | 12,922,477 | |||||||||
| Income (Loss) From Operations | (2,327,804 | ) | (437,507 | ) | 2,435,899 | |||||||
| Other Income (Expense) | ||||||||||||
| Interest expense | (1,158,665 | ) | (379,987 | ) | (242,856 | ) | ||||||
| Change in value of derivatives | (40,082 | ) | - | - | ||||||||
| Miscellaneous income (expense), net | - | (24,027 | ) | 7,125 | ||||||||
| Total Other Income (Expense) | (1,198,747 | ) | (404,014 | ) | (235,731 | ) | ||||||
| Income (Loss) From Continuing Operations Before Provision For (Benefit From) Income Taxes | (3,526,551 | ) | (841,521 | ) | 2,200,168 | |||||||
| Provision for (benefit from) income taxes | - | - | 632,514 | |||||||||
| Income (Loss) From Continuing Operations | (3,526,551 | ) | (841,521 | ) | 1,567,654 | |||||||
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax | - | (2,079,729 | ) | (948,771 | ) | |||||||
| Net Income (Loss) | (3,526,551 | ) | (2,921,250 | ) | 618,883 | |||||||
| Net income (loss) attributable to non-controlling interests | - | - | - | |||||||||
| Net income (loss) attributable to Greenwood Hall, Inc. common stockholders | $ | (3,526,551 | ) | $ | (2,921,250 | ) | $ | 618,883 | ||||
| Earnings per share - basic and diluted | ||||||||||||
| Income (loss) from continuing operations attributable to Greenwood Hall, Inc. common stockholders | $ | (0.14 | ) | $ | (0.03 | ) | $ | 0.06 | ||||
| Income (loss) from discontinued operations attributable to Greenwood Hall, Inc. common stockholders | - | (0.09 | ) | (0.04 | ) | |||||||
| Net income (loss) attributable to Greenwood Hall Inc. common stockholders | $ | (0.14 | ) | $ | (0.12 | ) | 0.02 | |||||
| Weighted average common shares - basic and diluted | 25,119,360 | 25,051,591 | 25,051,591 | |||||||||
See report of independent registered public accounting firm and notes to consolidated financial statements.
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GREENWOOD HALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 2014 AND THE YEARS ENDED DECEMBER 31, 2013 AND 2012
| 2014 | 2013 | 2012 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income (loss) | $ | (3,526,551 | ) | $ | (2,921,250 | ) | $ | 618,883 | ||||
| Net (income) loss from discontinued operations | - | 2,079,729 | 948,771 | |||||||||
| Net income (loss) from continuing operations | (3,526,551 | ) | (841,521 | ) | 1,567,654 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by | ||||||||||||
| (used in) operating activities of continuing operations: | ||||||||||||
| Non-cash interest on convertible promissory notes | 491,210 | 31,583 | - | |||||||||
| Depreciation and amortization | 14,819 | 63,836 | 64,011 | |||||||||
| Change in value of derivatives | 40,082 | - | - | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (37,292 | ) | (296,855 | ) | 290,293 | |||||||
| Prepaid expenses and other current assets | (281,938 | ) | (40,609 | ) | 3,000 | |||||||
| Accounts payable | (777,831 | ) | 532,157 | (173,582 | ) | |||||||
| Accrued expenses | (77,764 | ) | 226,284 | 600,858 | ||||||||
| Accrued payroll and related | (201,025 | ) | 82,099 | 41,921 | ||||||||
| Deferred revenue | 924,519 | (314,343 | ) | 388,879 | ||||||||
| Accrued interest | 46,790 | 218,260 | 21,550 | |||||||||
| Advances from officers, net | (28,540 | ) | 67,761 | (79,119 | ) | |||||||
| Net cash provided by (used in) operating activities of continuing operations | (3,413,521 | ) | (271,348 | ) | 2,725,465 | |||||||
| Net cash provided by (used in) operating activities of discontinued operations | - | (1,826,422 | ) | (1,868,851 | ) | |||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (3,413,521 | ) | (2,097,770 | ) | 856,614 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchase of property and equipment | (159,746 | ) | - | - | ||||||||
| Net cash used in investing activities of continuing operations | (159,746 | ) | - | - | ||||||||
| Net cash used in investing activities of discontinued operations | - | - | (26,250 | ) | ||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (159,746 | ) | - | (26,250 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from issuance of notes payable | 5,711,110 | 3,573,650 | (23,125 | ) | ||||||||
| Payments on notes payable | (3,519,027 | ) | (1,432,862 | ) | (620,398 | ) | ||||||
| Repurchase of common stock | (23,000 | ) | (52,000 | ) | (52,000 | ) | ||||||
| Proceeds from sale of units | 1,645,611 | - | - | |||||||||
| Net cash provided by (used in) financing activities of continuing operations | 3,814,694 | 2,088,788 | (695,523 | ) | ||||||||
| Net cash provided by (used in) financing activities of discontinued operations | - | - | - | |||||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 3,814,694 | 2,088,788 | (695,523 | ) | ||||||||
| NET INCREASE (DECREASE) IN CASH FROM CONTINUING OPERATIONS | 241,427 | 1,817,440 | 2,029,942 | |||||||||
| NET INCREASE (DECREASE) IN CASH FROM DISCONTINUED OPERATIONS | - | (1,826,422 | ) | (1,895,101 | ) | |||||||
| NET INCREASE (DECREASE) IN CASH | 241,427 | (8,982 | ) | 134,841 | ||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 125,859 | 134,841 | - | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 367,286 | $ | 125,859 | $ | 134,841 | ||||||
| Supplemental disclosures: | ||||||||||||
| Interest paid in cash | $ | 1,156,066 | $ | 354,556 | $ | 242,856 | ||||||
| Income taxes paid in cash | $ | - | $ | - | $ | - | ||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||||||
| Conversion of convertible note and accrued interest into common stock | $ | 1,386,450 | $ | - | $ | - |
See report of independent registered public accounting firm and notes to consolidated financial statements.
| 35 |
GREENWOOD HALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE EIGHT MONTHS ENDED AUGUST 31, 2014 AND THE YEARS ENDED DECEMBER 31, 2013 AND 2012
| Common Stock | Total Greenwood |
|||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital |
Accumulated Deficit |
Hall, Inc. Stockholders’ Equity (Deficit) |
Non- controlling Interest |
Total Stockholders’ Equity (Deficit) |
||||||||||||||||||||||
| Balance, January 1, 2012 | 25,051,591 | $ | 25,052 | $ | (20,552 | ) | $ | (3,471,399 | ) | $ | (3,466,899 | ) | $ | - | $ | (3,466,899 | ) | |||||||||||
| Net income | - | - | - | 618,883 | 618,883 | - | 618,883 | |||||||||||||||||||||
| Balance, December 31, 2012 | 25,051,591 | $ | 25,052 | $ | (20,552 | ) | (2,852,516 | ) | (2,848,016 | ) | - | (2,848,016 | ) | |||||||||||||||
| Net loss | - | - | - | (2,921,250 | ) | (2,921,250 | ) | - | (2,921,250 | ) | ||||||||||||||||||
| Balance, December 31, 2013 | 25,051,591 | $ | 25,052 | $ | (20,552 | ) | $ | (5,773,766 | ) | $ | (5,769,266 | ) | $ | - | $ | (5,769,266 | ) | |||||||||||
| Recapitalization of Greenwood Hall, Inc. | 10,250,000 | 10,250 | (44,834 | ) | - | (34,584 | ) | - | (34,584 | ) | ||||||||||||||||||
| Issuance of units (1 share and 1 warrant) for cash, net of fees | 1,650,000 | 1,650 | 1,643,961 | - | 1,645,611 | - | 1,645,611 | |||||||||||||||||||||
| Conversion of debt into units (1 share and 1 warrant) | 1,386,450 | 1,386 | 1,385,064 | - | 1,386,450 | - | 1,386,450 | |||||||||||||||||||||
| Issuance of stock with debt | 198,409 | 198 | 186,072 | - | 186,270 | - | 186,270 | |||||||||||||||||||||
| Issuance of warrants with debt | - | - | 78,281 | - | 78,281 | - | 78,281 | |||||||||||||||||||||
| Reclassification of warrants to liabilities | - | - | (78,281 | ) | - | (78,281 | ) | - | (78,281 | ) | ||||||||||||||||||
| Net loss | - | - | - | (3,526,551 | ) | (3,526,551 | ) | - | (3,526,551 | ) | ||||||||||||||||||
| Balance, August 31, 2014 | 38,536,450 | $ | 38,536 | $ | 3,149,711 | $ | (9,300,317 | ) | $ | (6,112,070 | ) | $ | - | $ | (6,112,070 | ) | ||||||||||||
See report of independent registered public accounting firm and notes to consolidated financial statements.
| 36 |
GREENWOOD HALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 2014 AND THE YEARS ENDED DECEMBER 31, 2013 AND 2012
| 1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization
Greenwood Hall is an emerging education management solutions provider that delivers end-to-end services that support the entire student lifecycle including offerings that increase student enrollment, improve student experience, optimize student success and outcomes, and help schools maximize operating efficiencies. Since 2006, we have developed and customized turnkey solutions that combine strategy, personnel, proven processes and robust technology to help schools effectively and efficiently improve student outcomes, expand into new markets such as online learning, increase revenues, and deliver enhanced student experiences. Our Company currently has 141 employees and has served more than 40 education clients and over 70 degree programs.
Basis of Presentation
On July 23, 2014, Greenwood Hall, Inc. (formerly Divio Holdings, Corp. (“Divio”)) and its wholly owned subsidiary, Merger Sub, completed the Merger Agreement, dated July 22, 2014, by and among Divio, Merger Sub, and PCS Link, Inc. (“PCS Link”). Pursuant to the Merger Agreement, Merger Sub merged with and into PCS Link with PCS Link remaining as the surviving corporation (the “Surviving Corporation”) in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub ceased, and PCS Link became a wholly owned subsidiary of Divio. In connection with the Merger and at the Effective Time, the holders of all of the issued and outstanding shares of PCS Link Common Stock exchanged all of such shares (other than “dissenting shares” as defined in California Corporations Code Section 1300) for a combined total of 25,250,000 shares of Common Stock, representing approximately 71% of the total outstanding shares on the date of the Merger. In connection with the merger, Divio Holdings, Corp. changed its name to Greenwood Hall, Inc.
The Merger was accounted for as a “reverse merger” with PCS Link as the accounting acquirer and the Company as the legal acquirer. Although, from a legal perspective, the Company acquired PCS Link, from an accounting perspective, the transaction is viewed as a recapitalization of PCS Link accompanied by an issuance of stock by PCS Link for the net assets of Greenwood Hall, Inc. This is because Greenwood Hall, Inc. did not have operations immediately prior to the merger, and following the merger, PCS Link is the operating company. The board of directors of Greenwood Hall, Inc. immediately after the merger consisted of five directors, with four of the five directors nominated by PCS Link. Additionally, PCS Link’s stockholders owned 71% of the outstanding shares of Greenwood Hall, Inc. immediately after completion of the transaction. The results of Divio
The presentation of the consolidated statements of stockholders' deficit reflects the historical stockholders' deficit of PCS Link through July 23, 2014. The effect of the issuance of shares of Divio common stock in connection with the Merger and the inclusion of Divio’s outstanding shares of common stock at the time of the Merger on July 23, 2014 is reflected during the eight months ended August 31, 2014.
Principles of Consolidation
The consolidated financial statements include the accounts of Greenwood Hall, PCS Link, and University Financial Aid Solutions, LLC (“UFAS”), collectively referred to herein as the Company, we, us, our, and Greenwood Hall. All significant intercompany accounts and transactions have been eliminated in consolidation. Through our affiliate UFAS we provided complete financial aid solutions. During 2013, UFAS ceased operations and is presently winding down its affairs. As a result, it is presented in the accompanying consolidated financial statements as discontinued operations.
Going Concern
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates the continuation of the Company as a going concern. The Company has an accumulated deficit and a working capital deficit as of August 31, 2014 and has incurred a loss from continuing operations during 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company has historically funded its activities through cash generated from operations, debt financing, the issuance of equity for cash, and advances from shareholders. During the eight months ended August 31, 2014, the Company received a net amount of approximately $3.8 million from financing activities.
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Management intends to become profitable by continuing to grow its operations and customer base. If the Company is not successful in becoming profitable, it may have to further delay or reduce expenses, or curtail operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results may differ from these estimates.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments with an original maturity of three months or less.
Research and Development
Costs relating to designing and developing new products are expensed in the period incurred.
Revenue Recognition
The Company’s contracts are typically structured into two categories, i) fixed-fee service contracts that span a period of time, often in excess of one year, and ii) service contracts at agreed-upon rates based on the volume of service provided. Some of the Company’s service contracts are subject to guaranteed minimum amounts of service volume.
The Company recognizes revenue when all of the following have occurred: persuasive evidence of an agreement with the customer exists, services have been rendered, the selling price is fixed or determinable, and collectability of the selling price is reasonably assured. For fixed-fee service contracts, the Company recognizes revenue on a straight-line basis over the period of contract performance. Costs incurred under these service contracts are expensed as incurred.
Deferred Revenue
Deferred revenue primarily consists of prepayments received from customers for which the Company’s revenue recognition criteria have not been met. The deferred revenue will be recognized as revenue once the criteria for revenue recognition have been met.
Accounts Receivable
The Company extends credit to its customers. An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If the Company determines that the financial condition of any of its customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off. Based on the information available, management believes the Company’s accounts receivable, net of the allowance for doubtful accounts, are collectable.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated useful lives of the assets. The estimated useful lives used are as follows:
| Classification | Life | |
| Equipment | 5-7 Years | |
| Computer equipment | 7 Years |
Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
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Earnings (Loss) per Share
Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted- average number of common shares and dilutive potential common shares outstanding during the period. During 2013 and 2012, the Company had no instruments that could potentially dilute the number of common shares outstanding. Warrants to purchase common stock were excluded from the computation of diluted shares during the eight months ended August 31, 2014 as their effect is anti-dilutive.
Variable Interest Entities
Generally, an entity is defined as a variable interest entity (“VIE”) under current accounting rules if it has (a) equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (b) equity investors that cannot make significant decisions about the entity’s operations, or that do not absorb the expected losses or receive the expected returns of the entity. When determining whether an entity that is a business qualifies as a VIE, we also consider whether (i) we participated significantly in the design of the entity, (ii) we provided more than half of the total financial support to the entity, and (iii) substantially all of the activities of the VIE either involve us or are conducted on our behalf. A VIE is consolidated by its primary beneficiary, which is the party that absorbs or receives a majority of the entity’s expected losses or expected residual returns.
University Financial Aid Services, LLC is 60% owned by two individuals that hold a combined 92.5% of our common stock and serve as directors of the Company. The equity owners of UFAS have no equity at risk, Greenwood & Hall has funded UFAS’ operations since it was formed in 2010, and we have the ability to exercise control over UFAS through our two shareholders / directors.
Based on our assessment, we have determined that UFAS is a VIE and that we are the primary beneficiary, as defined in current accounting rules. Accordingly, we are required to consolidate the revenues and expenses of UFAS. To date, the Company has not allocated any income or loss of UFAS to noncontrolling interests as the noncontrolling interests never had any equity at risk. As previously discussed, UFAS ceased operations during 2013 and is presently winding down its affairs. The Company does not anticipate having any future involvement with UFAS after it is dissolved.
Marketing and Advertising
Marketing and advertising costs are expensed as incurred. Marketing and advertising amounted to $159,377, $920,830 and $812,474 for the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012, respectively, and are included in selling, general and administrative expenses.
Derivative Liabilities
We account for warrants as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded as additional paid-in capital on our Consolidated Balance Sheet and no further adjustments to their valuation are made. Some of our warrants were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our Consolidated Balance Sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. We estimate the fair value of these liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate.
As part of a debt financing during May 2014, the Company issued warrants to acquire 248,011 shares of Common Stock. These warrants contain a mechanism to increase the number of warrants upon the issuance of certain dilutive equity securities. If during the terms of the warrants, the Company issues additional shares of Common Stock or equivalents, the warrant holders are entitled to additional warrants with the same terms as the original warrants. As a result of these features, the warrants are subject to derivative accounting as prescribed under ASC 815. Accordingly, the fair value of the warrants on the date of issuance was estimated using an option pricing model and recorded on the Company’s Consolidated Balance Sheet as a derivative liability. The fair value of the Warrants is estimated at the end of each reporting period and the change in the fair value of the Warrants is recorded as a non-operating gain or loss as change in value of derivatives in the Company’s Consolidated Statement of Operations. During the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012, the Company recorded a non-cash loss from the change in fair value of the derivative liability of $40,082, $0, and $0, respectively.
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Fair Value of Financial Instruments
The Company groups financial assets and financial liabilities measured at fair value into three levels of hierarchy in accordance with ASC 820-10, “Fair Value Measurements and Disclosure”. Assets and liabilities recorded at fair value in the accompanying balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
| Level Input: | Input Definition: | |
| Level I | Observable quoted prices in active markets for identical assets and liabilities. | |
| Level II | Observable quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. | |
| Level III | Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques. |
For certain of our financial instruments, including working capital instruments, the carrying amounts are approximate fair value due to their short-term nature. Our notes payable approximate fair value based on prevailing interest rates.
The following table summarizes fair value measurements at August 31, 2014 for assets and liabilities measured at fair value on a recurring basis. There were no instruments subject to this classification at December 31, 2013.
August 31, 2014:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative Liabilities | $ | - | $ | - | $ | 118,363 | ||||||
The assumptions used in valuing warrants issued during the eight months ended August 31, 2014 were as follows:
| Risk free interest rate | 2.12 | % | ||
| Expected life | 7 Years | |||
| Dividend yield | None | |||
| Volatility | 30 | % |
The following is a reconciliation of the derivative liability related to these warrants for the eight months ended August 31, 2014:
| Value at December 31, 2013 | $ | — | ||
| Issuance of instruments | 78,281 | |||
| Change in value | 40,082 | |||
| Net settlements | — | |||
| Value at August 31, 2014 | $ | 118,363 |
The derivative liabilities are estimated using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate. Changes in the assumptions used could have a material impact on the resulting fair value. The primary input affecting the value of our derivatives liabilities is the Company’s stock price, term and volatility. Other inputs have a comparatively insignificant effect.
Effect of Recently Issued Accounting Standards
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which eliminates diversity in practice for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax payable that would result from disallowance of a tax position. ASU 2013-11 affects only the presentation of such amounts in an entity’s balance sheet and is effective for fiscal years beginning after December 15, 2013 and interim periods within those years. Early adoption is permitted. We adopted this standard during the first quarter of fiscal 2014 and believe that adoption did not have a material impact to our financial statements.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. We are evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
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| 2. | PROPERTY AND EQUIPMENT |
Depreciation and amortization of property and equipment amounted to $14,819 for 2014, $63,836 and $64,011 during the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012, respectively, and is included in the accompanying consolidated statements of operations in selling, general and administrative expenses.
At August 31, 2014 and December 31, 2013, property and equipment consists of the following:
| 2014 | 2013 | |||||||
| Computer equipment | $ | 567,196 | $ | 395,818 | ||||
| Software and Equipment | 39,400 | 51,032 | ||||||
| 606,596 | 446,850 | |||||||
| Accumulated depreciation | (395,071 | ) | (380,252 | ) | ||||
| Net property and equipment | $ | 211,525 | $ | 66,598 | ||||
| 3. | NOTES PAYABLE |
Bank
In May 2014, the Company entered into a Credit Agreement and related term loan and line of credit with Opus Bank (“Opus”). Pursuant to the terms of the agreement, the Company issued a promissory note in the amount of $2,000,000, the proceeds of which were required to be used to finance repayment of the amounts owed to TCA. Monthly payments of principal and interest are required through the maturity date in May 2017. The amounts owed to Colgan and CUB are subordinated to amounts owed to Opus under the Credit Agreement and related debt facilities. Amounts outstanding under the Credit Agreement are secured by substantially all assets of the Company.
The line of credit is for a maximum amount of $3,000,000. Payments of interest only will be due monthly with the unpaid balance due, in full, on the maturity date in May 2017.
As of August 31, 2014, the balance outstanding on the term loan and line of credit amounted to $1,939,394 and $1,500,000, respectively. At August 31, 2014, amounts owed pursuant to the Credit Agreement bear interest at a rate of 5.75% per annum.
In connection with the Credit Agreement, the Company issued 248,011 warrants to purchase common stock at an exercise price of $1.01 per share, which increased to 375,000 warrants due to dilutive issuances of equity by the Company during the eight months ended August 31, 2014. The warrants are exercisable immediately. In the event of future dilutive issuances, the number of warrants issuable shall be increased based on a specified formula. The warrants were valued at $78,281 on the date of issuance, which was recorded as a note discount. During the eight months ended August 31, 2014, the Company recognized $6,523 of amortization related to this discount, leaving a balance of $71,758 at August 31, 2014.
Bank
In October 2010, the Company issued two promissory notes to California United Bank (“CUB”). The first promissory note was for $500,000, bore interest at 5.75% per annum, and was secured by substantially all assets of the Company. This note was paid off by its terms during 2013.
The second promissory note is for $1,250,000 and has been amended several times since issuance. The note was last amended in May 2013. The note bears interest at a variable rate, subject to a minimum of 7.25% per annum. The interest rate at December 31, 2013 was 7.25%. Payments of interest are due monthly with one payment of all outstanding principal plus accrued interest due on March 5, 2014. The note is secured by substantially all assets of the Company and is guaranteed by one former shareholders/officer, by one shareholders/officer, a trust of one of the officers/shareholders, and UFAS. The balance outstanding amounted to $1,250,000 at December 31, 2013 and 2012.
In May 2014, the Company and CUB amended the promissory note of $1,250,000 to extend the maturity date to the earlier of i) October 2014 or ii) the completion of specified debt / equity funding. CUB also agreed to subordinate its security interest to another lender if certain criteria were met. As of August 31, 2014, the balance remaining is $876,250.
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During the eight months ended August 31, 2014, the Company borrowed $350,000 from CUB relating to overdraft protection. These advances bear interest at a rate of 18% per annum and are considered short-term liabilities. These advances, associated interest and fees were repaid in July 2014.
Credit Agreement
During 2013, the Company entered into a Credit Agreement with TCA Global Credit Master Fund, LP (“TCA”). Pursuant to the Credit Agreement, the Company was granted an initial revolving credit facility of $1,500,000, which was subsequently increased to $1,850,000 later in 2013, and may be increased up to $7,000,000 upon i) the written request of the Company and ii) approval by TCA.
In December 2013, the Company and TCA entered into the Second Amendment to Credit Agreement whereby the parties aggregated all amounts owed to TCA under the Credit Agreement, which totaled $2,210,798 inclusive of $330,000 of loan fees incurred in connection with the second amendment. In addition, TCA waived the Company’s default of the terms of the Credit Agreement as of December 2, 2013 in connection with the execution of Second Amendment to Credit Agreement.
Amounts outstanding under the Second Amendment to Credit Agreement bore interest at 15% per annum and are payable in monthly payments of principal and interest commencing in March 2014, with the final payment due in October 2014, and share first priority with California United Bank on a pari passu basis.
As of December 31, 2013, the amount of principal and accrued interest outstanding amounted to $2,210,798 and $25,431, respectively. The $330,000 of loan fees was recorded as a note discount on the date of the promissory note and is being amortized to interest expense over the term of the note. As of December 31, 2013, the unamortized note discount amounted to $298,417.
During the eight months ended August 31, 2014, in connection with the funding of the Opus Credit Agreement, all amounts owed to TCA were paid off and the note discount of $298,417 was recognized as interest expense.
Loan and Security Agreement
During 2013, the Company entered into a Loan and Security Agreement with Colgan Financial Group, Inc. (“Colgan”) pursuant to which the Company issued a promissory note of $600,000. The note bears interest at 2.5% per month, is payable in monthly installments of principal and interest through June 2014, is guaranteed by one shareholder of the Company and an advisor to the Company and is secured by substantially all assets of the Company. This note is subordinate to the notes held by California United Bank. In July 2014, a paydown of $144,000 was made in connection with an equity funding. As of August 31, 2014, the balance remaining is $456,000.
During the eight months ended August 31, 2014, the Company issued two convertible promissory notes to Colgan, one in the amount of $175,000 and one in the amount of $200,000. In connection with these two convertible promissory notes, the Company issued 198,409 shares of common stock valued at $186,270 (the estimated fair value of the shares on the issuance date), which was recorded as interest expense during the eight months ended August 31, 2014. In addition, the Company incurred an aggregate of $80,000 in fixed loan fees / interest expense. The notes were paid in full during the eight months ended August 31, 2014.
Unsecured Promissory Note
In March 2014, the Company issued an unsecured promissory note in the amount of $1,350,000. The note bore interest at a rate of 10% per annum and was due in September 2014. This note and related accrued interest was converted to units, comprised of one share of common stock and one warrant at an exercise price of $1.30, in July of 2014 (refer to note 5 for further discussion).
The Company also finances the purchases of small equipment. The amount of such notes is not significant at August 31, 2014. The following is a schedule, by year, of future minimum principal payments required under notes payable as of August 31, 2014:
| Years Ending August 31, |
||||
| 2015 | $ | 2,124,892 | ||
| 2016 | 772,643 | |||
| 2017 | 525,345 | |||
| 2018 | - | |||
| 2019 | - | |||
| Total | 3,422,880 | |||
| Note discount | (71,758 | ) | ||
| $ | 3,351,122 | |||
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| 4. | Related Party Transactions |
One of the Company’s customers, MarkeTouch Media, Inc. (“MarkeTouch”), held a 7.5% interest in our common stock during 2013 and 2012. Sales to MarkeTouch amounted to $124,328 and $137,924 during the years ended December 31, 2013 and 2012, respectively.
Pursuant to an agreement between the Company and MarkeTouch, the Company is repurchasing the shares held by MarkeTouch for $200,000. As of December 31, 2013, the Company owed $23,000 relating to this share repurchase obligation, which is recorded in accrued expenses. The shares of MarkeTouch were considered issued and outstanding as of December 31, 2013 and 2012 and were cancelled in 2014 upon payment in full of the share repurchase obligation.
| 5. | Stockholders’ Equity |
The Company is authorized to issue one class of stock, which represents 937,500,000 shares of common stock, par value $0.0001.
Pursuant to an agreement between the Company and MarkeTouch, the Company is repurchasing the shares held by MarkeTouch for $200,000. As of December 31, 2013, the Company owed $23,000 relating to this share repurchase obligation, which is recorded in accrued expenses. The shares of MarkeTouch are still considered issued and outstanding as of December 31, 2013 and 2012 and were cancelled in 2014 upon payment in full of the share repurchase obligation.
In July 2014, the Company sold 3,036,450 units, comprised of one share of common stock and one warrant to purchase common stock, at a price of $1.00 per unit. As a result, the Company raised $1,645,611 net of fees and converted $1,386,450 of debt and accrued interest. The warrants have an exercise price of $1.30 per share and expire 24 months from the date of closing of the Merger.
The following is a summary of warrants outstanding at August 31, 2014:
| Exercise Price | Number of Warrants | Expiration Date | ||||||
| $ | 1.01 | 375,000 | May 2021 | |||||
| $ | 1.30 | 1,386,450 | July 2016 | |||||
| 6. | Concentrations |
Concentration of Credit Risk
The Company maintains its cash and cash equivalents at a financial institution which may, at times, exceed federally insured limits. Historically, the Company has not experienced any losses in such accounts.
Major Customers
For the eight months ended August 31, 2014 and years ended December 31, 2013 and 2012, 2, 1 and 3 customers represented 34%, 30% and 48% of net revenues, respectively. For the eight months ended August 31, 2014 and December 31, 2013 and 2012, 2, 1 and 3 customers represented 29%, 71% and 43% of accounts receivable, respectively.
| 7. | Employee Benefit Plan |
The Company has established a 401(k) employee retirement savings plan that is available to all of its employees. Under the provisions of the plan, employees may make pre-tax contributions not to exceed the limit set by the Internal Revenue Service. The Company elected to terminate this plan effective May 2013.
| 8. | INCOME TAXES |
The difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to pre-tax income (loss) is mainly related to an increase in the valuation allowance, partially offset by state income taxes. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Deferred income tax assets are mainly related to net operating loss carryforwards. Management has chosen to take a 100% valuation allowance against the deferred income tax asset until such time as management believes that its projections of future profits make the realization of the deferred income tax assets more likely than not. Significant judgment is required in the evaluation of deferred income tax benefits and differences in future results from management’s estimates could result in material differences.
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A reconciliation of the expected income tax (benefit) from continuing operations computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012:
| 2014 | 2013 | 2012 | ||||||||||
| Income tax (benefit) computed at federal statutory tax rate | (34.00 | )% | (34.00 | )% | 34.00 | % | ||||||
| State taxes, net of federal | (5.83 | ) | (5.83 | ) | 5.83 | |||||||
| Permanent differences | 0.10 | 0.10 | 0.10 | |||||||||
| Change in valuation allowance | 39.73 | 39.73 | (11.18 | ) | ||||||||
| Effective income tax rate | - | % | - | % | 28.75 | % | ||||||
A majority of the Company’s deferred tax asset is comprised of net operating loss carryforwards, offset by a 100% valuation allowance at August 31, 2014 and December 31, 2013.
During 2014, 2013 and 2012, the breakdown of the provision for (benefit from) income taxes is as follows:
| 2014 | 2013 | 2012 | ||||||||||
| Continuing operations | $ | - | $ | - | $ | 632,514 | ||||||
| Discontinued operations | - | - | (632,514 | ) | ||||||||
| Total income tax expense | $ | - | $ | - | $ | - | ||||||
As of August 31, 2014, the Company is in process of determining the amount of Federal and State net operating loss carry forwards (“NOL”) available to offset future taxable income. The Company’s NOLs will begin expiring in 2032. These NOLs may be used to offset future taxable income, to the extent the Company generates any taxable income, and thereby reduce or eliminate future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation’s ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50% over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of the Company’s NOLs would be subject to an annual limitation under Section 382. Any unused annual limitation may be carried over to later years. The Company could experience an ownership change under Section 382 as a result of events in the past in combination with events in the future. If so, the use of the Company’s NOLs, or a portion thereof, against future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of the NOLs before utilization.
Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that expire prior to utilization as a result of such limitations will be removed, if applicable, from deferred tax assets with a corresponding reduction of the valuation allowance.
The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012. The Company files income tax returns with the Internal Revenue Service (“IRS”) and several states. The Company is no longer subject to examination by federal and state taxing authorities for tax years through 2009 and 2008, respectively. The Company’s net operating loss carryforwards are subject to examination until they are fully utilized and such tax years are closed.
The difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to pre-tax income (loss) is mainly related to an increase in the valuation allowance, partially offset by state income taxes. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Deferred income tax assets are mainly related to net operating loss carryforwards. Management has chosen to take a 100% valuation allowance against the deferred income tax asset until such time as management believes that its projections of future profits make the realization of the deferred income tax assets more likely than not. Significant judgment is required in the evaluation of deferred income tax benefits and differences in future results from management’s estimates could result in material differences.
| 44 |
| 9. | COMMITMENTS AND CONTINGENCIES |
Lease Commitments
The Company leases its operating facilities under non-cancelable operating leases that expire through 2024. Total rent expense for the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012 was $275,017, $370,460 and $433,720, respectively. The Company is responsible for certain operating expenses in connection with these leases. The following is a schedule, by year, of future minimum lease payments required under non-cancelable operating leases as of August 31, 2014:
| Years Ending August 31, |
||||
| 2015 | $ | 319,541 | ||
| 2016 | 336,356 | |||
| 2017 | 348,530 | |||
| 2018 | 358,015 | |||
| 2019 | 368,700 | |||
| Thereafter | 1,971,200 | |||
| $ | 3,702,342 | |||
Employment Agreements
At August 31, 2014, the Company maintained an employment agreement with an officer, the terms of which may require the payment of severance benefits upon termination.
Legal Matters
The Company is involved from time to time in various legal proceedings in the normal conduct of its business.
The Company is the subject of pending litigation, which could cause it to incur significant costs in defending such litigation or in resulting actions or judgments. The Robin Hood Foundation (“Robin Hood”) filed suit against Patriot Communications, LLC (“Patriot”), a client of the Company, in the Superior Court of the State of California for the County of Los Angeles (Central District) for breach of contract and failure to perform, including among other things an intentional tort claim, in the amount of not less than $5,000,000. On May 6, 2014, Patriot filed a cross-complaint naming PCS Link as a cross-defendant. Patriot denies the allegations set forth by Robin Hood. On August 22, 2014, Robin Hood filed a First Amended Complaint, naming the Company and John Hall, in his individual capacity, as defendants. The First Amended Complaint asserts claims against the Company and Hall for fraud, fraudulent concealment, negligent misrepresentation, negligence and violation of Business & Professions Code section 17200. The First Amended Complaint also alleges a cause of action for breach of contract solely against the Company. An adverse judgment against the Company could be detrimental to the Company’s financial standing. Additionally, in the event that Patriot is held liable, Patriot alleges that PCS Link is responsible to indemnify and/or contribute to the satisfaction of any damages because PCS Link acted as a sub-contractor on behalf of Patriot with regard to the filed incident. We believe that we have strong defenses and we are vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not be until May 2015, at the earliest. The outcome of this matter is inherently uncertain and could have a materially adverse effect on our business, financial condition and results of operations if decided unfavorably against the Company and John Hall.
| 10. | DISCONTINUED OPERATIONS |
During 2013, we ceased operations in our affiliated company, UFAS. The operations of UFAS are now presented as discontinued operations in the accompanying consolidated financial statements. The revenue and expenses of discontinued operations for the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012 are as follows:
| 2014 | 2013 | 2012 | ||||||||||
| Net sales | $ | - | $ | 1,017,932 | $ | 1,424,931 | ||||||
| Operating expenses | - | (3,097,661 | ) | (3,006,216 | ) | |||||||
| Benefit from (provision for) income taxes | - | - | 632,514 | |||||||||
| Income (loss) from discontinued operations | $ | - | $ | (2,079,729 | ) | $ | (948,771 | ) | ||||
| 11. | SUBSEQUENT EVENTS |
In September 2014, the Company sold 500,000 units at a price of $1.00 per unit, which comprised one share of common stock and one warrant to purchase common stock at an exercise price of $1.30 per share, resulting in gross proceeds of $500,000.
| 45 |
UNAUDITED FINANCIAL STATEMENTS
GREENWOOD HALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2014 AND AUGUST 31, 2014
| (Unaudited) | (Audited) | |||||||
| NOV 2014 | AUG 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 44,799 | $ | 367,286 | ||||
| Accounts receivable, net | 599,261 | 1,039,065 | ||||||
| Prepaid expenses and other current assets | 100,878 | 305,691 | ||||||
| Current assets to be disposed of | 36,860 | 36,860 | ||||||
| TOTAL CURRENT ASSETS | 781,798 | 1,748,902 | ||||||
| PROPERTY AND EQUIPMENT, net | 181,744 | 211,525 | ||||||
| OTHER ASSETS | ||||||||
| Deposits and other assets | 65,812 | 57,659 | ||||||
| TOTAL OTHER ASSETS | 65,812 | 57,659 | ||||||
| TOTAL ASSETS | $ | 1,029,354 | $ | 2,018,086 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 628,646 | $ | 835,423 | ||||
| Accrued expenses | 304,541 | 284,362 | ||||||
| Accrued payroll and related expenses | 427,933 | 411,280 | ||||||
| Deferred revenue | 108,603 | 1,102,500 | ||||||
| Accrued interest | 20,923 | 35,773 | ||||||
| Due to shareholders / officer | 112,586 | 155,476 | ||||||
| Notes payable, net of discount of $65,235 and $71,758, respectively | 1,395,609 | 2,053,134 | ||||||
| Line of credit | 1,500,000 | 1,500,000 | ||||||
| Derivative liability | 118,363 | 118,363 | ||||||
| Current liabilities to be disposed of | 335,857 | 335,857 | ||||||
| TOTAL CURRENT LIABILITIES | 4,953,061 | 6,832,168 | ||||||
| Notes payable, non-current | 1,757,576 | 1,297,988 | ||||||
| TOTAL LIABILITIES | 6,710,637 | 8,130,156 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Common stock, $0.001 par value; 75,000,000 shares authorized, 39,536,450 and 38,536,450 shares issued and outstanding, respectively | 39,536 | 38,536 | ||||||
| Additional paid-in capital | 4,148,711 | 3,149,711 | ||||||
| Accumulated deficit | (9,869,530 | ) | (9,300,317 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (5,681,283 | ) | (6,112,070 | ) | ||||
| Noncontrolling interest | - | - | ||||||
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (5,681,283 | ) | (6,112,070 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 1,029,354 | $ | 2,018,086 | ||||
See the unaudited notes to
consolidated financial statements.
| 46 |
GREENWOOD HALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2014 AND 2013
(UNAUDITED)
| 2014 | 2013 | |||||||
| REVENUES | $ | 2,664,968 | $ | 2,103,272 | ||||
| OPERATING EXPENSES | ||||||||
| Direct cost of services | 1,578,471 | 891,803 | ||||||
| Personnel | 858,960 | 1,510,740 | ||||||
| Selling, general and administrative | 769,449 | 1,234,588 | ||||||
| TOTAL OPERATING EXPENSES | 3,206,880 | 3,637,131 | ||||||
| INCOME (LOSS) FROM OPERATIONS | (541,912 | ) | (1,533,859 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense | (109,528 | ) | (89,328 | ) | ||||
| Change in value of derivatives | - | - | ||||||
| Miscellaneous income (expense), net | 82,227 | (2,677 | ) | |||||
| TOTAL OTHER INCOME (EXPENSE) | (27,301 | ) | (92,005 | ) | ||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS | ||||||||
| BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES | (569,213 | ) | (1,625,864 | ) | ||||
| Provision for (benefit from) income taxes | - | - | ||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS | (569,213 | ) | (1,625,864 | ) | ||||
| NET INCOME (LOSS) | (569,213 | ) | (1,625,864 | ) | ||||
| Net income (loss) attributable to noncontrolling interests | - | - | ||||||
| Net income (loss) attributable to PCS Link, Inc. common stockholders | $ | (569,213 | ) | $ | (1,625,864 | ) | ||
| Earnings per share - basic and diluted | ||||||||
| Income (loss) from continuing operations attributable to Greenwood Hall, Inc. common stockholders | $ | (0.01 | ) | $ | (0.06 | ) | ||
| Net income (loss) attributable to Greenwood Hall, Inc. common stockholders | $ | (0.01 | ) | $ | (0.06 | ) | ||
| Weighted average common shares - basic and diluted | 39,536,450 | 25,051,591 | ||||||
See the unaudited notes
to consolidated financial statements.
| 47 |
GREENWOOD HALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
| Total | ||||||||||||||||||||||||||||
| Greenwood | ||||||||||||||||||||||||||||
| Common Stock | Additional | Hall, Inc. Stockholders' |
Total Stockholders' | |||||||||||||||||||||||||
| Shares | Amount | Paid-in Capital |
Accumulated Deficit | Equity (Deficit) |
Noncontrolling Interest |
Equity (Deficit) | ||||||||||||||||||||||
| Balance, January 1, 2012 | 25,051,591 | $ | 25,052 | $ | (20,552 | ) | $ | (3,471,399 | ) | $ | (3,466,899 | ) | $ | - | $ | (3,466,899 | ) | |||||||||||
| Net income | - | - | - | 618,883 | 618,883 | - | 618,883 | |||||||||||||||||||||
| Balance, December 31, 2012 | 25,051,591 | 25,052 | (20,552 | ) | (2,852,516 | ) | (2,848,016 | ) | - | (2,848,016 | ) | |||||||||||||||||
| Net loss | - | - | - | (2,921,250 | ) | (2,921,250 | ) | - | (2,921,250 | ) | ||||||||||||||||||
| Balance, December 31, 2013 | 25,051,591 | 25,052 | (20,552 | ) | (5,773,766 | ) | (5,769,266 | ) | - | (5,769,266 | ) | |||||||||||||||||
| Recapitalization of Greenwood Hall, Inc. | 10,250,000 | 10,250 | (44,834 | ) | - | (34,584 | ) | - | (34,584 | ) | ||||||||||||||||||
| Issuance of units (1 share and 1 warrant) for cash, net of fees | 1,650,000 | 1,650 | 1,643,961 | - | 1,645,611 | - | 1,645,611 | |||||||||||||||||||||
| Conversion of debt into units (1 share and 1 warrant) | 1,386,450 | 1,386 | 1,385,064 | - | 1,386,450 | - | 1,386,450 | |||||||||||||||||||||
| Issuance of stock with debt | 198,409 | 198 | 186,072 | - | 186,270 | - | 186,270 | |||||||||||||||||||||
| Issuance of warrants with debt | - | - | 78,281 | - | 78,281 | - | 78,281 | |||||||||||||||||||||
| Reclassification of warrants to liabilities | - | - | (78,281 | ) | - | (78,281 | ) | - | (78,281 | ) | ||||||||||||||||||
| Net loss | - | - | - | (3,526,551 | ) | (3,526,551 | ) | - | (3,526,551 | ) | ||||||||||||||||||
| Balance, August 31, 2014 | 38,536,450 | 38,536 | 3,149,711 | (9,300,317 | ) | (6,112,070 | ) | - | (6,112,070 | ) | ||||||||||||||||||
| Issuance of units (1 share and 1 warrant) for cash, net of fees | 1,000,000 | 1,000 | 999,000 | - | 1,000,000 | - | 1,000,000 | |||||||||||||||||||||
| Net loss | - | - | - | (569,213 | ) | (569,213 | ) | - | (569,213 | ) | ||||||||||||||||||
| Balance, November 30, 2014 | 39,536,450 | $ | 39,536 | $ | 4,148,711 | $ | (9,869,530 | ) | $ | (5,681,283 | ) | $ | - | $ | (5,681,283 | ) | ||||||||||||
See report of independent registered public accounting firm
and notes to consolidated financial statements.
| 48 |
GREENWOOD HALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2014 AND 2013
(UNAUDITED)
| 2014 | 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | (569,213 | ) | $ | (1,625,864 | ) | ||
| Net (income) loss from discontinued operations | - | - | ||||||
| Net income (loss) from continuing operations | (569,213 | ) | (1,625,864 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations: | ||||||||
| Depreciation and amortization | 15,840 | - | ||||||
| Amortization of note discount | 6,523 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 439,804 | 389,555 | ||||||
| Prepaid expenses and other current assets | 196,660 | 75,806 | ||||||
| Accounts payable | (204,546 | ) | 486,546 | |||||
| Accrued expenses | 20,177 | 49,144 | ||||||
| Accrued payroll and related | 16,653 | - | ||||||
| Deferred revenue | (993,897 | ) | 50,000 | |||||
| Accrued interest | (14,848 | ) | 80,042 | |||||
| Advances from officers, net | (42,890 | ) | 141,301 | |||||
| Net cash provided by (used in) operating activities of continuing operations | (1,129,737 | ) | (353,470 | ) | ||||
| Net cash provided by (used in) operating activities of discontinued operations | - | - | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (1,129,737 | ) | (353,470 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of notes payable | - | 1,216,275 | ||||||
| Payments on notes payable | (192,750 | ) | (1,299,934 | ) | ||||
| Bank overdraft | - | 81,861 | ||||||
| Repurchase of common stock | - | (13,000 | ) | |||||
| Proceeds from the sale of units | 1,000,000 | - | ||||||
| Net cash provided by (used in) financing activities of continuing operations | 807,250 | (14,798 | ) | |||||
| Net cash provided by (used in) financing activities of discontinued operations | - | - | ||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 807,250 | (14,798 | ) | |||||
| NET INCREASE (DECREASE) IN CASH FROM CONTINUING OPERATIONS | (322,487 | ) | (368,268 | ) | ||||
| NET INCREASE (DECREASE) IN CASH FROM DISCONTINUED OPERATIONS | - | - | ||||||
| NET INCREASE (DECREASE) IN CASH | (322,487 | ) | (368,268 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 367,286 | 368,268 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 44,799 | $ | - | ||||
| Supplemental disclosures: | ||||||||
| Interest paid in cash | $ | 117,853 | $ | 39,502 | ||||
| Income taxes paid in cash | $ | - | $ | - | ||||
See unaudited notes to consolidated financial statements
| 49 |
GREENWOOD HALL, INC. AND SUBSIDIARIES
| Notes to Financial Statements |
| NOV 30, 2014 |
| (Unaudited) |
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Greenwood Hall is an emerging education management solutions provider that delivers end-to-end services that support the entire student lifecycle including offerings that increase student enrollment, improve student experience, optimize student success and outcomes, and help schools maximize operating efficiencies. Since 2006, we have developed and customized turnkey solutions that combine strategy, personnel, proven processes and robust technology to help schools effectively and efficiently improve student outcomes, expand into new markets such as online learning, increase revenues, and deliver enhanced student experiences. Our Company currently has 141 employees and has served more than 40 education clients and over 70 degree programs.
Basis of Presentation
On July 23, 2014, Greenwood Hall, Inc. (formerly Divio Holdings, Corp. (“Divio”)) and its wholly owned subsidiary, Merger Sub, completed the Merger Agreement, dated July 22, 2014, by and among Divio, Merger Sub, and PCS Link, Inc. (“PCS Link”). Pursuant to the Merger Agreement, Merger Sub merged with and into PCS Link with PCS Link remaining as the surviving corporation (the “Surviving Corporation”) in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub ceased, and PCS Link became a wholly owned subsidiary of Divio. In connection with the Merger and at the Effective Time, the holders of all of the issued and outstanding shares of PCS Link Common Stock exchanged all of such shares (other than “dissenting shares” as defined in California Corporations Code Section 1300) for a combined total of 25,250,000 shares of Common Stock, representing approximately 71% of the total outstanding shares on the date of the Merger. In connection with the merger, Divio Holdings, Corp. changed its name to Greenwood Hall, Inc.
The Merger was accounted for as a “reverse merger” with PCS Link as the accounting acquirer and the Company as the legal acquirer. Although, from a legal perspective, the Company acquired PCS Link, from an accounting perspective, the transaction is viewed as a recapitalization of PCS Link accompanied by an issuance of stock by PCS Link for the net assets of Greenwood Hall, Inc. This is because Greenwood Hall, Inc. did not have operations immediately prior to the merger, and following the merger, PCS Link is the operating company. The board of directors of Greenwood Hall, Inc. immediately after the merger consisted of five directors, with four of the five directors nominated by PCS Link. Additionally, PCS Link’s stockholders owned 71% of the outstanding shares of Greenwood Hall, Inc. immediately after completion of the transaction.
The presentation of the consolidated statements of stockholders' deficit reflects the historical stockholders' deficit of PCS Link through July 23, 2014. The effect of the issuance of shares of Divio common stock in connection with the Merger and the inclusion of Divio’s outstanding shares of common stock at the time of the Merger on July 23, 2014 is reflected during the eight months ended August 31, 2014.
Principles of Consolidation
The consolidated financial statements include the accounts of Greenwood Hall, PCS Link, and University Financial Aid Solutions, LLC (“UFAS”), collectively referred to herein as the Company, we, us, our, and Greenwood Hall. All significant intercompany accounts and transactions have been eliminated in consolidation. Through our affiliate UFAS we provided complete financial aid solutions. During 2013, UFAS ceased operations and is presently winding down its affairs. As a result, it is presented in the accompanying consolidated financial statements as discontinued operations.
Going Concern
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates the continuation of the Company as a going concern. The Company has an accumulated deficit and a working capital deficit as of November 30, 2014 and has incurred a loss from continuing operations during 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company has historically funded its activities through cash generated from operations, debt financing, the issuance of equity for cash, and advances from shareholders. During the three months ended November 30, 2014 the Company received a net amount of approximately $807,000 from financing activities.
| 50 |
Management intends to become profitable by continuing to grow its operations and customer base. If the Company is not successful in becoming profitable, it may have to further delay or reduce expenses, or curtail operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results may differ from these estimates.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments with an original maturity of three months or less.
Research and Development
Costs relating to designing and developing new products are expensed in the period incurred.
Revenue Recognition
The Company’s contracts are typically structured into two categories, i) fixed-fee service contracts that span a period of time, often in excess of one year, and ii) service contracts at agreed-upon rates based on the volume of service provided. Some of the Company’s service contracts are subject to guaranteed minimum amounts of service volume.
The Company recognizes revenue when all of the following have occurred: persuasive evidence of an agreement with the customer exists, services have been rendered, the selling price is fixed or determinable, and collectability of the selling price is reasonably assured. For fixed-fee service contracts, the Company recognizes revenue on a straight-line basis over the period of contract performance. Costs incurred under these service contracts are expensed as incurred.
Deferred Revenue
Deferred revenue primarily consists of prepayments received from customers for which the Company’s revenue recognition criteria have not been met. The deferred revenue will be recognized as revenue once the criteria for revenue recognition have been met.
Accounts Receivable
The Company extends credit to its customers. An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If the Company determines that the financial condition of any of its customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off. Based on the information available, management believes the Company’s accounts receivable, net of the allowance for doubtful accounts, are collectable.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated useful lives of the assets. The estimated useful lives used are as follows:
| Classification | Life | |
| Equipment | 5-7 Years | |
| Computer equipment | 7 Years |
Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
| 51 |
Earnings (Loss) per Share
Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted- average number of common shares and dilutive potential common shares outstanding during the period. During 2013, the Company had no instruments that could potentially dilute the number of common shares outstanding. Warrants to purchase common stock were excluded from the computation of diluted shares during the three months ended November 30, 2014 as their effect is anti-dilutive.
Variable Interest Entities
Generally, an entity is defined as a variable interest entity (“VIE”) under current accounting rules if it has (a) equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (b) equity investors that cannot make significant decisions about the entity’s operations, or that do not absorb the expected losses or receive the expected returns of the entity. When determining whether an entity that is a business qualifies as a VIE, we also consider whether (i) we participated significantly in the design of the entity, (ii) we provided more than half of the total financial support to the entity, and (iii) substantially all of the activities of the VIE either involve us or are conducted on our behalf. A VIE is consolidated by its primary beneficiary, which is the party that absorbs or receives a majority of the entity’s expected losses or expected residual returns.
University Financial Aid Services, LLC was 60% owned by John Hall and Zan Greenwood, who at the time held a combined 92.5% of our common stock and served as directors of PCS Link. John Hall is the CEO of the Company and Zan Greenwood served as the Company’s Chief Operating Officer through June 2013. The equity owners of UFAS have no equity at risk, Greenwood Hall has funded UFAS’ operations since it was formed in 2010, and we have the ability to exercise control over UFAS through our two shareholders / directors.
Based on our assessment, we have determined that UFAS is a VIE and that we are the primary beneficiary, as defined in current accounting rules. Accordingly, we are required to consolidate the revenues and expenses of UFAS. To date, the Company has not allocated any income or loss of UFAS to noncontrolling interests as the noncontrolling interests never had any equity at risk. As previously discussed, UFAS ceased operations during 2013 and is presently winding down its affairs. The Company does not anticipate having any future involvement with UFAS after it is dissolved.
Marketing and Advertising
Marketing and advertising costs are expensed as incurred. Marketing and advertising amounted to $29,685 and $375,932 for the three months ended November 30, 2014and the three months ended November 30, 2013 respectively, and are included in selling, general and administrative expenses.
Derivative Liabilities
We account for warrants as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded as additional paid-in capital on our Consolidated Balance Sheet and no further adjustments to their valuation are made. Some of our warrants were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our Consolidated Balance Sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. We estimate the fair value of these liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate.
As part of a debt financing during May 2014, the Company issued warrants to acquire 248,011 shares of Common Stock. These warrants contain a mechanism to increase the number of warrants upon the issuance of certain dilutive equity securities. If during the terms of the warrants, the Company issues additional shares of Common Stock or equivalents, the warrant holders are entitled to additional warrants with the same terms as the original warrants. As a result of these features, the warrants are subject to derivative accounting as prescribed under ASC 815. Accordingly, the fair value of the warrants on the date of issuance was estimated using an option pricing model and recorded on the Company’s Consolidated Balance Sheet as a derivative liability. The fair value of the Warrants is estimated at the end of each reporting period and the change in the fair value of the Warrants is recorded as a non-operating gain or loss as change in value of derivatives in the Company’s Consolidated Statement of Operations. During the three months ended November 30, 2014 and 2013, the Company recognized a change in value of the derivative liability of $0 and $0, respectively.
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Fair Value of Financial Instruments
The Company groups financial assets and financial liabilities measured at fair value into three levels of hierarchy in accordance with ASC 820-10, “Fair Value Measurements and Disclosure”. Assets and liabilities recorded at fair value in the accompanying balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
| Level Input: | Input Definition: | |
| Level I | Observable quoted prices in active markets for identical assets and liabilities. | |
| Level II | Observable quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. | |
| Level III | Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques. |
For certain of our financial instruments, including working capital instruments, the carrying amounts are approximate fair value due to their short-term nature. Our notes payable approximate fair value based on prevailing interest rates.
The following table summarizes fair value measurements at November 30, 2014 for assets and liabilities measured at fair value on a recurring basis.
November 30, 2014
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative Liabilities | $ | - | $ | - | $ | 118,363 | ||||||
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The assumptions used in valuing warrants issued during the three months ended November 30, 2014 were as follows:
| Risk free interest rate | 2.12 | % | ||
| Expected life | 6.5 Years | |||
| Dividend yield | None | |||
| Volatility | 30 | % |
The following is a reconciliation of the derivative liability related to these warrants for the three months ended November 30, 2014:
| Value at August 31, 2014 | $ | 118,363 | ||
| Issuance of instruments | - | |||
| Change in value | - | |||
| Net settlements | - | |||
| Value at November 30, 2014 | $ | 118,363 |
The derivative liabilities are estimated using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate. Changes in the assumptions used could have a material impact on the resulting fair value. The primary input affecting the value of our derivatives liabilities is the Company’s stock price, term and volatility. Other inputs have a comparatively insignificant effect.
Effect of Recently Issued Accounting Standards
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. We are evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
2. PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment amounted to $15,837 for the three months ended November 30, 2014, $0 during the three months ended November 30, 2013, and is included in the accompanying consolidated statements of operations in selling, general and administrative expenses.
At November 30, 2014, property and equipment consists of the following:
| NOV 2014 | ||||
| Computer equipment | $ | 553,255 | ||
| Software and Equipment | 39,400 | |||
| 592,655 | ||||
| Accumulated depreciation | (410,911 | ) | ||
| Net property and equipment | $ | 181,744 | ||
3. NOTES PAYABLE
Bank
In May 2014, the Company entered into a Credit Agreement and related term loan and line of credit with Opus Bank (“ Opus ”). Pursuant to the terms of the agreement, the Company issued a promissory note in the amount of $2,000,000, the proceeds of which were required to be used to finance repayment of the amounts owed to TCA. Monthly payments of principal and interest are required through the maturity date in May 2017. The amounts owed to Colgan and CUB are subordinated to amounts owed to Opus under the Credit Agreement and related debt facilities. Amounts outstanding under the Credit Agreement are secured by substantially all assets of the Company.
The line of credit is for a maximum amount of $3,000,000. Payments of interest only will be due monthly with the unpaid balance due, in full, on the maturity date in May 2017.
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As of November 30, 2014, the balance outstanding on the term loan and line of credit amounted to $1,757,576 and $1,500,000, respectively. At November 30, 2014, amounts owed pursuant to the Credit Agreement bear interest at a rate of 5.75% per annum.
In connection with the Credit Agreement, the Company issued 248,011 warrants to purchase common stock at an exercise price of $1.00 per share, which increased to 375,000 warrants due to dilutive issuances of equity by the Company during the eight months ended August 31, 2014. The warrants are exercisable immediately. In the event of future dilutive issuances, the number of warrants issuable shall be increased based on a specified formula. The warrants were valued at $78,281 on the date of issuance, which was recorded as a note discount. During the eight months ended August 31, 2014, the Company recognized $6,523 of amortization related to this discount, leaving a balance of $71,758 at August 31, 2014.
Bank
In October 2010, the Company issued a promissory note to California United Bank (“CUB”) for $1,250,000 and has been amended several times since issuance. The note was last amended in May 2013. The note bears interest at a variable rate, subject to a minimum of 7.25% per annum. The interest rate at December 31, 2013 was 7.25%. Payments of interest are due monthly with one payment of all outstanding principal plus accrued interest due on March 5, 2014. The note is secured by substantially all assets of the Company and is guaranteed by one former shareholders/officer, by one shareholders/officer, a trust of one of the officers/shareholders, and UFAS.
In May 2014, the Company and CUB amended the promissory note of $1,250,000 to extend the maturity date to the earlier of i) October 2014 or ii) the completion of specified debt / equity funding. CUB also agreed to subordinate its security interest to another lender if certain criteria were met. As of November 30, 2014, the balance remaining is $876,250.
Credit Agreement
During 2013, the Company entered into a Credit Agreement with TCA Global Credit Master Fund, LP (“TCA”). Pursuant to the Credit Agreement, the Company was granted an initial revolving credit facility of $1,500,000, which was subsequently increased to $1,850,000 later in 2013, and may be increased up to $7,000,000 upon i) the written request of the Company and ii) approval by TCA.
In December 2013, the Company and TCA entered into the Second Amendment to Credit Agreement whereby the parties aggregated all amounts owed to TCA under the Credit Agreement, which totaled $2,210,798 inclusive of $330,000 of loan fees incurred in connection with the second amendment. In addition, TCA waived the Company’s default of the terms of the Credit Agreement as of December 2, 2013 in connection with the execution of Second Amendment to Credit Agreement.
Amounts outstanding under the Second Amendment to Credit Agreement bore interest at 15% per annum and are payable in monthly payments of principal and interest commencing in March 2014, with the final payment due in October 2014, and share first priority with California United Bank on a pari passu basis.
As of December 31, 2013, the amount of principal and accrued interest outstanding amounted to $2,210,798 and $25,431, respectively. The $330,000 of loan fees was recorded as a note discount on the date of the promissory note and is being amortized to interest expense over the term of the note. As of December 31, 2013, the unamortized note discount amounted to $298,417.
During the eight months ended August 31, 2014, in connection with the funding of the Opus Credit Agreement, all amounts owed to TCA were paid off and the note discount of $298,417 was recognized as interest expense.
Loan and Security Agreement
During 2013, the Company entered into a Loan and Security Agreement with Colgan Financial Group, Inc. (“ Colgan ”) pursuant to which the Company issued a promissory note of $600,000. The note bears interest at 2.5% per month, is payable in monthly installments of principal and interest through June 2014, is guaranteed by one shareholder of the Company and an advisor to the Company and is secured by substantially all assets of the Company. This note is subordinate to the notes held by California United Bank. In July 2014, a paydown of $144,000 was made in connection with an equity funding. As of November 30, 2014, the balance remaining is $456,000.
During the eight months ended August 31, 2014, the Company issued two convertible promissory notes to Colgan, one in the amount of $175,000 and one in the amount of $200,000. In connection with these two convertible promissory notes, the Company issued 198,409 shares of common stock valued at $186,270 (the estimated fair value of the shares on the issuance date), which was recorded as interest expense during the eight months ended August 31, 2014. In addition, the Company incurred an aggregate of $80,000 in fixed loan fees / interest expense. The notes were paid in full during the eight months ended August 31, 2014.
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Unsecured Promissory Note
In March 2014, the Company issued an unsecured promissory note in the amount of $1,350,000. The note bore interest at a rate of 10% per annum and was due in September 2014. This note and related accrued interest was converted to units, comprised of one share of common stock and one warrant at an exercise price of $1.30, in July of 2014 (refer to note 5 for further discussion).
The Company also finances the purchases of small equipment. The amount of such notes is not significant at November 30, 2014. The following is a schedule, by year, of future minimum principal payments required under notes payable as of November 30, 2014:
| Years Ending August 31, |
||||
| 2015 (remainder of) | $ | 1,460,844 | ||
| 2016 | 1,228,643 | |||
| 2017 | 528,933 | |||
| 2018 | - | |||
| 2019 | - | |||
| Total | 3,218,420 | |||
| Note discount | (65,235 | ) | ||
| $ | 3,153,185 | |||
4. RELATED PARTY TRANSACTIONS
One of the Company’s customers, MarkeTouch Media, Inc. (“MarkeTouch”), held a 7.5% interest in our common stock during 2013. Pursuant to an agreement between the Company and MarkeTouch, the Company is repurchasing the shares held by MarkeTouch. As of November 30, 2014 and 2013, the Company owed $0 and $27,333, respectively, relating to this share repurchase obligation, which is recorded in accrued expenses.
5. STOCKHOLDERS’ EQUITY
The Company is authorized to issue one class of stock, which represents 937,500,000 shares of common stock, par value $0.0001.
Pursuant to an agreement between the Company and MarkeTouch, the Company is repurchasing the shares held by MarkeTouch. As of November 30, 2013, the Company owed $27,333 relating to this share repurchase obligation, which is recorded in accrued expenses. The shares of MarkeTouch are still considered issued and outstanding as of November 30, 2013 and were cancelled during the eight months ended August 31, 2014 upon payment in full of the share repurchase obligation.
In July 2014, the Company sold 3,036,450 units, comprised of one share of common stock and one warrant to purchase common stock, at a price of $1.00 per unit. As a result, the Company raised $1,645,611 net of fees and converted $1,386,450 of debt and accrued interest. The warrants have an exercise price of $1.30 per share and expire 24 months from the date of closing of the Merger.
In September 2014, the Company sold 1,000,000 units, comprised of one share of common stock and one warrant to purchase common stock, at a price of $1.00 per unit, for total proceeds of $1,000,000.
The following is a summary of warrants outstanding at November 30, 2014:
| Exercise Price | Number of Warrants | Expiration Date | ||||||
| $ | 1.00 | 375,000 | May 2021 | |||||
| $ | 1.30 | 3,036,450 | July 2016 | |||||
| $ | 1.30 | 1,000,000 | September 2016 | |||||
6. CONCENTRATIONS
Concentration of Credit Risk
The Company maintains its cash and cash equivalents at a financial institution which may, at times, exceed federally insured limits. Historically, the Company has not experienced any losses in such accounts.
Major Customers
For the three months ended November 30, 2014 and 2013 1 and 3 customers represented 57% and 48% of net revenues, respectively. For the three months ended November 30, 2014 and 2013 3 and2 customers represented 67% and 52% of accounts receivable, respectively.
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7. INCOME TAXES
The difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to pre-tax income (loss) is mainly related to an increase in the valuation allowance, partially offset by state income taxes. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Deferred income tax assets are mainly related to net operating loss carryforwards. Management has chosen to take a 100% valuation allowance against the deferred income tax asset until such time as management believes that its projections of future profits make the realization of the deferred income tax assets more likely than not. Significant judgment is required in the evaluation of deferred income tax benefits and differences in future results from management’s estimates could result in material differences.
A majority of the Company’s deferred tax asset is comprised of net operating loss carryforwards, offset by a 100% valuation allowance at November 30, 2014 and August 31, 2014.
As of November 30, 2014, the Company is in process of determining the amount of Federal and State net operating loss carry forwards (“NOL ”) available to offset future taxable income. The Company’s NOLs will begin expiring in 2032. These NOLs may be used to offset future taxable income, to the extent the Company generates any taxable income, and thereby reduce or eliminate future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation’s ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50% over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of the Company’s NOLs would be subject to an annual limitation under Section 382. Any unused annual limitation may be carried over to later years. The Company could experience an ownership change under Section 382 as a result of events in the past in combination with events in the future. If so, the use of the Company’s NOLs, or a portion thereof, against future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of the NOLs before utilization.
Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that expire prior to utilization as a result of such limitations will be removed, if applicable, from deferred tax assets with a corresponding reduction of the valuation allowance.
The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the three months ended November 30, 2014 and 2013. The Company files income tax returns with the Internal Revenue Service (“ IRS ”) and several states. The Company is no longer subject to examination by federal and state taxing authorities for tax years through 2009 and 2008, respectively. The Company’s net operating loss carryforwards are subject to examination until they are fully utilized and such tax years are closed.
The difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to pre-tax income (loss) is mainly related to an increase in the valuation allowance, partially offset by state income taxes. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Deferred income tax assets are mainly related to net operating loss carryforwards. Management has chosen to take a 100% valuation allowance against the deferred income tax asset until such time as management believes that its projections of future profits make the realization of the deferred income tax assets more likely than not. Significant judgment is required in the evaluation of deferred income tax benefits and differences in future results from management’s estimates could result in material differences.
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its operating facilities under non-cancelable operating leases that expire through 2024. Total rent expense for the three months ended November 30, 2014 and 2013 $80,068 and $123,445 respectively. The Company is responsible for certain operating expenses in connection with these leases. The following is a schedule, by year, of future minimum lease payments required under non-cancelable operating leases as of August 31, 2014:
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| Years Ending August 31, |
||||
| 2015 (remainder of) | $ | 239,656 | ||
| 2016 | 336,356 | |||
| 2017 | 348,530 | |||
| 2018 | 358,015 | |||
| 2019 | 368,700 | |||
| Thereafter | 1,971,200 | |||
| $ | 3,622,457 | |||
Employment Agreements
At November 30, 2014, the Company maintained an employment agreement with an officer, the terms of which may require the payment of severance benefits upon termination.
Legal Matters
The Company is involved from time to time in various legal proceedings in the normal conduct of its business.
The Company is the subject of pending litigation, which could cause it to incur significant costs in defending such litigation or in resulting actions or judgments. The Robin Hood Foundation (“ Robin Hood ”) filed suit against Patriot Communications, LLC (“ Patriot ”), a client of the Company, in the Superior Court of the State of California for the County of Los Angeles (Central District) for breach of contract and failure to perform, including among other things an intentional tort claim, in the amount of not less than $5,000,000. On May 6, 2014, Patriot filed a cross-complaint naming PCS Link as a cross-defendant. Patriot denies the allegations set forth by Robin Hood. On August 22, 2014, Robin Hood filed a First Amended Complaint, naming the Company and John Hall, in his individual capacity, as defendants. The First Amended Complaint asserts claims against the Company and Hall for fraud, fraudulent concealment, negligent misrepresentation, negligence and violation of Business & Professions Code section 17200. The First Amended Complaint also alleges a cause of action for breach of contract solely against the Company. An adverse judgment against the Company could be detrimental to the Company’s financial standing. Additionally, in the event that Patriot is held liable, Patriot alleges that PCS Link is responsible to indemnify and/or contribute to the satisfaction of any damages because PCS Link acted as a sub-contractor on behalf of Patriot with regard to the filed incident. We believe that we have strong defenses and we are vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not be until May 2015, at the earliest. The outcome of this matter is inherently uncertain and could have a materially adverse effect on our business, financial condition and results of operations if decided unfavorably against the Company and John Hall.
9. DISCONTINUED OPERATIONS
During 2013, we ceased operations in our affiliated company, UFAS. The operations of UFAS are now presented as discontinued operations in the accompanying consolidated financial statements. UFAS was inactive during the three months ended November 30, 2014 and 2013.
10. SUBSEQUENT EVENTS
In December 2014, the Company entered into a Loan Agreement with Colgan Financial Group, Inc. (“Colgan”) pursuant to which the Company issued a promissory note of $500,000. The note bears interest at 12% per year, the interest of which is payable monthly. This is a 3 year note and is secured by substantially all assets of the Company. This note is subordinate to the notes held by Opus Bank and California United Bank.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain information included herein contains forward-looking statements that involve risks and uncertainties within the meaning of Sections 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934. These statements are based on the Company’s (as hereinafter defined) current beliefs, expectations and assumptions about future events, conditions and results and on information currently available to them. All statements, other than statements of historical fact, included herein regarding the Company’s strategy, future operations, financial position, future revenues, projected costs, plans, prospects and objectives are forward-looking statements. Words such as “expect,” “may,” “anticipate,” “intend,” “would,” “plan,” “believe,” “estimate,” “should,” and similar words and expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements.
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Forward-looking statements in the report include express or implied statements concerning the Company’s future revenues, expenditures, capital or other funding requirements, the adequacy of the Company’s current cash and working capital to fund present and planned operations and financing needs, expansion of and demand for product offerings, and the growth of the Company’s business and operations through acquisitions or otherwise, as well as future economic and other conditions both generally and in the Company’s specific geographic and product markets. These statements are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements due to a number of factors including, but not limited to, those set forth below in the section entitled “Risk Factors and Special Considerations” in this report. Given those risks, uncertainties and other factors, many of which are beyond the Company’s control, you should not place undue reliance on these forward-looking statements.
As used in this Form 10-Q, the terms “we”, “us”, “our”, the “Company”, mean Greenwood Hall, Inc. (formerly Divio Holdings, Corp.), unless otherwise indicated.The forward-looking statements relate only to events as of the date on which the statements are made. Neither the Company nor PCS Link (as hereinafter defined) undertakes any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future changes make it clear that any projected results or events expressed or implied therein will not be realized. You are advised, however, to consult any further disclosures the Company makes in future public filings, statements and press releases.
All dollar amounts refer to US dollars unless otherwise indicated.
Corporate Overview
Greenwood Hall is an emerging education management solutions provider that delivers end-to-end services that support the entire student lifecycle including offerings that increase student enrollment, improve student experience, maximize student success and outcomes, and help schools maximize operating efficiencies. Since 2006, we have customized turnkey solutions that combine experienced strategy, personnel, proven processes and robust technology to help schools effectively and efficiently improve student outcomes, expand into new markets such as online learning, increase revenues, and deliver enhanced student experiences. Our Company currently has 166 employees and has served more than 40 education clients and over 70 degree programs.
Our services include: (a) solutions that support the entire student lifecycle including lead generation/marketing, new student recruitment, enrollment counseling, financial aid advising, new student recruitment, retention counseling, career advising, student concierge, and help desk services; (b) consulting services, including market assessments and analysis of internal operational efficiency; and (c) various data and technology enabled solutions that enable school clients to better manage/analyze data, deliver instruction to students (online, hybrid, and classroom), and make certain institutional decisions. In addition to education management services, we provide donor lifecycle management services to various major non-profit organizations. The donor lifecycle management services are mainly related to legacy operations of our Company prior to entering the education marketplace in 2006.
Our Services
Key components of our end-to-end student lifecycle management solution are:
| • | Student Recruitment & Enrollment – Our Student Recruitment and Enrollment services include interactive and traditional lead- generation as well as end-to-end recruitment solutions for academic programs of all types including online degree programs. We help clients identify and reach out to qualified potential students, recruit prospective students, provide enrollment counseling and advice on financial aid options and eligibility, guide students through the enrollment process, and help to ensure that students have a great first week experience. From the first interaction with prospective students, our enrollment counselors act as an extension of the client, and establish and foster close, collaborative relationships with students. These close relationships, which begin in the recruitment process and extend through the entire student lifecycle, result in significantly improved leads to enrollment rates, increased persistence, enhanced student experience, and better student outcomes over the long term. |
| • | Student Success & Retention –Our student retention counselors and success coaches leverage web-based tools to monitor and assess student progress against their stated education and career goals, and provide student-specific counsel to keep them on track and navigate barriers to success. Counselors proactively contact assigned students each term to ensure students register for the next term, have all instructional materials/textbooks, have made any necessary payment arrangements, are up-to-date on any financial aid requirements, and any other obstacles to student persistence are handled. We also offers a student concierge service that provide students with professional support on a wide range of needs including financial aid, payments, registration, password resets and portal support. |
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| • | Career Advising and Job Placement –We offer proactive career advising services that coach and motivate students to persist and graduate, and help students plan for life after graduation. Our student retention counselors and success coaches collaborate with school-based academic advisors and students to develop customized career paths, including working with students to make sure they are fully utilizing all on-campus career services. Our career advice and job placement counselors also assist in determining career interests, arranging and preparing students for job interviews, providing support with interview preparation, resume building and garnering references. Additionally, this group tracks student success after graduation to help build career networks and job opportunities for future graduates and validate a school’s return on investment. |
| • | We also provide our education clients with strategic advisory services and analysis that help them manage their institutions more efficiently and effectively. These include strategic marketing assessments, financial and operating efficiency evaluations to aid in decision making, and data and IT services that enable clients to better analyze and manage data, and improving communications with students. |
Subsequent Events
The following events occurred after November 30, 2014, through January 12, 2015, the date on which the financial statements for the year ended November 30, 2014 were issued:
| • | On December 22, 2014 PCS Link, Inc. dba Greenwood & Hall entered into a Change in Terms Agreement with California United Bank (“CUB”) in relation to the promissory note with outstanding balance of $876,250. The change in terms included an extention of the maturity date of the facility to April 30, 2015. Other specific terms were described in the 8-K filing of December 30, 2014. |
| • | On December 22, 2014, in consideration for funds in the amount of $500,000 received by Greenwood Hall, Inc. from Colgan Financial Group, Inc. and Robert Logan (“Logan,” and together with CFG, the “Holder”), the Company executed a secured convertible promissory note, the specific terms of which were described in the 8-K filing of December 30, 2014. |
Restructuring
The Company instituted a major restructuring effort in early 2013. The purposes of the restructuring were to (a) prepare the Company so it could scale its growth significantly in coming years, (b) improved efficiencies, (c) enhance its management team and (d) shed unprofitable elements of its operations. The restructuring included major changes to the Company’s executive team, discontinuing major segments of the Company’s operations that were deemed unprofitable, and substantially enhancing the Company’s operations and IT infrastructure. The restructuring effort was costly in terms of reduced revenue, associated expenditures, and opportunity costs. While the restructuring was substantially complete by the end of 2013, the efforts had a negative impact on the Company’s financial performance in 2014. We believe the Company has successfully completed its restructuring and will begin to see the benefits of the restructuring during the 2015 calendar year.
Going Concern
As more fully described in Note 1 to the financial statements related to the uncertainty of our ability to continue as a going concern appearing in this report for the three months ended November 30, 2014. The Company has an accumulated deficit and a working capital deficit as of November 30, 2014 and incurred a loss from continuing operations during the first quarter. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Management intends to restore profitability by continuing to grow our operations and customer base. If the Company is not successful in becoming profitable, it may have to further delay or reduce expenses, or curtail operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.
Lack of Working Capital
The Company has never been properly capitalized. As a result, the Company has at times suffered from costly cash flow challenges as well as associated costs, missed opportunities, and inability to fully scale its operations. The lack of working capital has caused the Company to have to rely heavily on operating revenue as well as other sources of capital, such as debt. The Company believes proper capital investment and less reliance on incurring new debt to finance the Company’s growth will enable the Company to improve its financial performance in the future.
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Results of Operations
The following summary of our results of operations should be read in conjunction with our financial statements for the Three Months ended Nov 30, 2014 and Nov 30, 2013.
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| Nov 30, 2014 | Nov 30, 2013 | |||||||
| Revenue | $ | 2,664,968 | $ | 2,103,272 | ||||
| Cost of goods sold | 1,578,471 | 891,803 | ||||||
| Gross margin | 1,086,497 | 1,211,469 | ||||||
| General & Administrative | ||||||||
| Expenses | 1,655,710 | 2,837,333 | ||||||
| Loss from operations | (569,213 | ) | (1,625,864 | ) | ||||
| Income tax provision | ||||||||
| NET INCOME (LOSS) | $ | (569,213 | ) | (1,625,864 | ) | |||
Three Months Ended Nov 30, 2014 Compared to Three Months Ended Nov 30, 2013
Comparison of the Three Months Ended November 30, 2014 (Unaudited) to the Three Months Ended November 30, 2013 (Unaudited)
Revenues: Revenues increased $561,696, or 26.7%, during the three months ended November 30, 2014, primarily due to new business obtained in 2014.
Direct Cost of Services: Direct cost of services increased $686,668, or 77%, during the three months ended November 30, 2014, primarily due to the increased revenues for the same time period, as well as a revised allocation of personnel to direct cost of services as opposed to general and administrative in 2014. Such allocations had not been previously made due to limited tracking and reporting available in relation to payroll and personnel costs.
Personnel: Personnel costs decreased $651,780 or 43%, during the three months ended November 30, 2014, primarily due to a reduction in the number of employees as a result of the operational restructuring and better health insurance rates during 2014.
Selling, General and Administrative: Selling, general and administrative expenses decreased $465,139, or 38%, during the three months ended November 30, 2014, primarily due to the a reduction in the number of management employees as a result of the operational restructuring and to directly allocating various employees to cost of services.
Income (Loss) From Continuing Operations: As a result of the restructuring efforts, cost cutting and the aforementioned items, we experienced a net loss of $569,213 from continuing operations during the three months ended November 30, 2014, compared with a net loss from continuing operations of $1,625,864 during the three months ended November 30, 2013, a decrease of $1,056,651, or 65%. We believe that this improvement is a clear indication that the Company is beginning to see the benefits of the restructuring initiated in 2013.
Liquidity and Capital Resources
Working Capital
| Nov 30, 2014 | Nov 30, 2013 | |||||||
| Total Current Assets | $ | 781,798 | 1,748,902 | |||||
| Total Current Liabilities | 4,953,061 | 6,832,168 | ||||||
| Working Capital Deficit | (4,171,263 | ) | (5,083,266 | ) | ||||
The decrease in the working capital deficit of $912,003 or 18% in the three months ended November 30, 2014, as compared to the three months ended November 30, 2013 was due to reduced accounts payable as a result of the restructuring, increased receivables as a result of new business; and fundraising activities resulting in increased cash and decreased debt.
Cash Flows
| Three Months Ended |
Three Months Ended |
|||||||
| Nov 30, 2014 | Nov 30, 2013 | |||||||
| Net Cash used by Operating Activities | $ | (1,129,737 | ) | (353,470 | ) | |||
| Net Cash provided by Financing Activities | 807,250 | (14,798 | ) | |||||
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The net decrease in cash in the three months ended November 30, 2014, as compared to the three months ended November 30, 2013, decreased by $45,781 or 12.4%. The increase in net cash used in operating activities was due to a decrease in accounts payables as well as a decrease in deferred revenue during the three months ended November 30, 2014. The increase in cash provided by financing activities in the three months ended November 30, 2014, as compared to the three months ended November 30, 2013 was due to the issuance of common shares during the three months ended November 30, 2014.
The following summary of our results of operations should be read in conjunction with our financial statements for the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012.
| Eight Months Ended 08/31/2014 |
(UNAUDITED) Eight Months Ended 08/31/2013 |
|||||||
| Revenues | $ | 5,291,511 | $ | 7,477,057 | ||||
| Operating Expenses | ||||||||
| Direct cost of services | 2,596,795 | 2,423,786 | ||||||
| Personnel | 2,520,858 | 3,277,976 | ||||||
| Selling, general and administrative | 2,501,662 | 2,066,967 | ||||||
| Total Operating Expenses | 7,619,315 | 7,768,729 | ||||||
| Income (Loss) From Operations | (2,327,804 | ) | (291,672 | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense | (1,158,665 | ) | (253,325 | ) | ||||
| Change in value of derivatives | (40,082 | ) | - | |||||
| Miscellaneous income (expense), net | - | (16,018 | ) | |||||
| Total Other Income (Expense) | (1,198,747 | ) | (269,343 | ) | ||||
| Income (Loss) From Continuing Operations Before Provision For (Benefit From) Income Taxes | (3,526,551 | ) | (561,015 | ) | ||||
| Provision for (benefit from) income taxes | - | - | ||||||
| Income (Loss) From Continuing Operations | (3,526,551 | ) | (561,015 | ) | ||||
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax | - | (2,079,729 | ) | |||||
| Net Income (Loss) | (3,526,551 | ) | (2,640,744 | ) | ||||
| Net income (loss) attributable to noncontrolling interests | - | - | ||||||
| Net income (loss) attributable to Greenwood Hall Inc., common stockholders | $ | (3,526,551 | ) | $ | (2,640,744 | ) | ||
Comparison of the Eight Months Ended August 31, 2014 to the Eight Months Ended August 31, 2013 (Unaudited)
Revenues: Revenues decreased $2,185,546, or 29.2%, during the period ended August 31, 2014, primarily due to restructuring, streamlining of operations and the shedding of unprofitable business accounts.
Direct Cost of Services: Direct cost of services increased $173,009, or 7.1%, during the period ended August 31, 2014, primarily due to the timing and cost of reducing the labor force in relation to reduced revenue.
Personnel: Personnel costs decreased $757,118, or 23.1%, during the period ended August 31, 2014, primarily due to a reduction in the number of employees and elimination of duplicative management during 2014.
Selling, General and Administrative: Selling, general and administrative expenses increased $434,695, or 21.0%, during the period ended August 31, 2014, primarily due to transactional costs related to the merger, debt and equity financings.
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Other Income (Expense): Other expense increased $929,404, or 345.1%, during the period ended August 31, 2014, due primarily to increased interest costs incurred with the promissory notes issued 2013 and early 2014.
Income (Loss) From Continuing Operations: As a result of the aforementioned items, we experienced a net loss of $3,526,511 from continuing operations during the period ended August 31, 2014, compared with a net loss from continuing operations of $561,015 during the period ended August 31, 2013, an increase of $2,965,536, or 528.6%.
Income (Loss) From Discontinued Operations: During the period ended August 31, 2014, our consolidated affiliate, UFAS, incurred a loss of $0 compared to $2,079,729 during the period ended August 31, 2013, a decrease of 100%. The loss from discontinued operations was primarily due to a fixed cost structure and declining revenues. UFAS ceased operations during 2013.
| Year Ended December 31, 2013 |
Year Ended December 31, 2012 |
|||||||
| Revenues | $ | 11,215,586 | $ | 15,358,376 | ||||
| Operating Expenses | ||||||||
| Direct cost of services | 3,635,679 | 2,533,302 | ||||||
| Personnel | 4,916,964 | 7,696,899 | ||||||
| Selling, general and administrative | 3,100,450 | 2,692,276 | ||||||
| Total Operating Expenses | 11,653,093 | 12,922,477 | ||||||
| Income (Loss) From Operations | (437,507 | ) | 2,435,899 | |||||
| Other Income (Expense) | ||||||||
| Interest expense | (379,987 | ) | (242,856 | ) | ||||
| Miscellaneous income (expense), net | (24,027 | ) | 7,125 | |||||
| Total Other Income (Expense) | (404,014 | ) | (235,731 | ) | ||||
| Income (loss) From Continuing Operations Before Provision for (Benefit From) Income Taxes | (841,521 | ) | 2,200,168 | |||||
| Provision for (benefit from) income taxes | - | 632,514 | ||||||
| Income (Loss) from Continuing Operations | (841,521 | ) | 1,567,654 | |||||
| Income (Loss) from Discontinued Operations, net of tax | (2,079,729 | ) | (948,771 | ) | ||||
| Net Income (Loss) | (2,921,250 | ) | 618,883 | |||||
| Net income (loss) attributable to noncontrolling interests | - | - | ||||||
| Net income (loss) attributable to PCS Link common Stockholders | $ | (2,921,250 | ) | $ | 618,883 | |||
Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012
Revenues: Revenues decreased $4,142,790, or 27.0%, during the year ended December 31, 2013 primarily due to a significant, one-time contract that was recognized during 2012 with no related revenue recorded during 2013.
Direct Cost of Services: Direct cost of services increased $1,102,377, or 43.5%, during the year ended December 31, 2013 primarily due to an increase in labor costs of $1.4 Million, offset by decreases in telephone costs of $0.25 Million.
Personnel: Personnel costs decreased $2,779,935, or 36.1%, during the year ended December 31, 2013 primarily due to a reduction in the number of employees during 2013.
Selling, General and Administrative: Selling, general and administrative expenses increased $408,174, or 15.2%, during the year ended December 31, 2013 primarily due to increases in travel and entertainment costs ($159,000), marketing expenses ($108,000), and professional fees ($259,000), offset by decreases in consulting expenses ($57,000) and rent ($47,000).
Other Income (Expense): Other expense increased $168,283, or 71.4%, during the year ended December 31, 2013 due primarily to increased interest costs incurred with new promissory notes issued 2013.
Income Tax Expense (Benefit): The provision for income taxes decreased $632,514, or 100%, during the year ended December 31, 2013 due primarily to the Company experiencing a loss during 2013 and recording a 100% valuation allowance against its deferred income tax assets.
Income (Loss) From Continuing Operations: As a result of the aforementioned items, we experienced a net loss of $841,521 from continuing operations during the year ended December 31, 2013, compared to net income from continuing operations of $1,567,654 during the year ended December 31, 2012, a decrease of $2,409,175, or 153.7%.
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Income (Loss) From Discontinued Operations: During 2013, our consolidated affiliate, University Financial Aid Solutions (“UFAS”), incurred a loss of $2,079,729 compared to $948,771 during 2012, an increase of $1,130,958 or 119.2%. The loss from discontinued operations increased primarily due to a fixed cost structure and declining revenues.
Debt of PCS Link
California United Bank Loan
During 2010, the Company issued a promissory note to California United Bank (“CUB”) in the amount of $1,250,000, which has been amended several times since issuance. The note was last amended in May 2014. The note bears interest at a variable rate, subject to a minimum of 7.25% per annum. The interest rate at November 30, 2014 was prime plus 4%. Payments of interest are due monthly with one payment of all outstanding principal plus accrued interest due on the earlier of i) October 2014 or ii) the completion of specified debt/equity funding. The note is secured by substantially all assets of the Company and is guaranteed by two shareholders/officers, a trust of one of the officers/shareholders, and University Financial Aid Services, LLC. As of November 30, 2014, the balance outstanding was $876,250.
Colgan Note
In December 2013, the Company entered into a Loan and Security Agreement with Colgan Financial Group, Inc. (“Colgan”) pursuant to which the Company issued a promissory note of $600,000. The note bears interest at 2.5% per month, is payable in monthly installments of principal and interest through June 2014, is guaranteed by one shareholder of the Company and is secured by substantially all assets of PCS Link, however, it is subordinated to the Opus Amended Credit Agreement (as defined below). As of November 30, 2014, the balance outstanding was $456,000.
Opus Facility
In May 2014, PCS Link entered into a Credit Agreement and related term loan and line of credit with Opus Bank (“Opus”). The Credit Agreement was amended on July 18, 2014 (the “Opus Amended Credit Agreement”). Pursuant to the terms of the agreement, PCS Link received $2,000,000 and issued a promissory note in that same amount to Opus. PCS Link used the funds received from Opus repay a loan that was outstanding to its then current lender. Monthly payments of principal and interest are required to be made by PCS Link through the maturity date in May 2017. The amounts outstanding under the Credit Agreement are secured by substantially all assets of PCS Link. PCS Link also received a line of credit for a maximum amount of $3,000,000. Payments of interest only will be due monthly with the unpaid balance due, in full, on the maturity date in May 2017. The first extension of credit under the line of credit was conditioned upon PCS Link successfully selling equity interests with gross cash proceeds of not less than $1.65 Million. On July 24, 2014, $1,500,000 was advanced to the Company under the line of credit. No other amounts have been advanced under the line of credit.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Changes in and Disagreements with
Accountants
on Accounting and Financial Disclosure
None.
Directors and Executive Officers
Directors and Executive Officers
Our directors hold office until the next annual meeting of stockholders or until their successors have been elected and qualified or until their death, resignation or removal. Our board of directors is to elect annually our officers at its first board meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be possible. Our officers hold office until their successors have been elected and qualified, or until their death, resignation or removal. The following table sets forth certain information regarding the Company’s directors and executive officers as of March 10, 2015:
| Name | Age | Position | Term Length | |||
| John Hall | 40 | Chief Executive Officer | 5 years | |||
| Chairman of the Board | 1 year | |||||
| Secretary and Treasurer | 1 year |
| Brett Johnson | 42 | President, Chief Relationship Officer and Director | 1 year | |||
| Tina J. Gentile | 44 | Interim Chief Financial Officer | 1 year | |||
| Lyle M. Green | 43 | Director | 1 year | |||
| Jonathan Newcomb | 68 | Director | 1 year | |||
| Mike Sims | 68 | Director | 1 year | |||
| Matt Toledo | 51 | Director | 1 year |
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John Hall, Ed. D., Chief Executive Officer, Chairman of the Board, Secretary and Treasurer
In 1998, Dr. Hall co-founded PCS Link. PCS Link has become a market leader in supporting universities throughout the United States in all areas of the student life cycle including recruitment, student experience, retention, learning outcomes, and financial aid advising. Dr. Hall is a sought-after leader in the education management space. He possesses an unparalleled knowledge of the marketplace coupled with an ability to innovate, extensive industry relationships, and a substantial educational background. Dr. Hall is also a respected business leader, successfully incubating and spinning off other well-known educational, high value companies, including enCircle Media, Inc. (now US Interactive Media), which Mr. Hall founded and served as a member of the board of directors from March 2007 through December 2010.
Dr. Hall is a trusted advisor to university presidents across the country in the areas of sustainability, the future of higher education, enrollment management, new markets, overcoming institutional resistance to change, and school turnarounds. He has also been a distinguished speaker for groups, including the Western Association of Schools and Colleges, United States Distance Learning Association, and The Education Alliance. Industry financial analysts, as well as leading authors who write about the higher education marketplace, have also relied upon Dr. Hall’s unique knowledge of the space. Further, Dr. Hall has published work in the area of higher education oversight as it relates to accreditation, federal, and market regulation.
Dr. Hall has served as PCS Link’s CEO since February 1998. In his role, Dr. Hall oversees the vision and strategic direction of the Company, provides thought leadership as it relates to higher education and the PCS Link’s opportunities in the education space, plays a prominent role in business development, has overseen the restructuring of the Company, and oversees investor relations. Dr. Hall was also a founder and board member of encircle Media, Inc. from March 2007 through December 2010.
Education is not only a profession for Dr. Hall, but also a lifelong passion. He has served on the Board of Trustees of Roosevelt University in Chicago since June 2011 and has mentored college-ready high school students at the Roybal Education Center in Downtown Los Angeles since 2010. Dr. Hall, a dedicated lifelong learner holds a B.A. in Political Science, an M.B.A. from Pepperdine University, and a Doctorate of Education from the University of Southern California.
Given Dr. Hall’s history of building and growing PCS Link, his extensive experience and well known reputation in the educational industry, the Company feels that Dr. Hall is well qualified to serve as chairman of the board of directors, chief executive officer, treasurer and secretary of the Company.
Brett Johnson, President, Chief Relationship Officer and Director
Brett Johnson brings more than 16 years of executive leadership in the high-tech and financial industries, both important components of the continued success of the Company. Mr. Johnson has served as PCS Link’s President since April 2013. As President, Mr. Johnson’s primary responsibility has been overseeing day-to-day business development activities, managing the sales force, and assisting the CEO and COO with day-to-day management of the business.
Prior to joining PCS Link, Mr. Johnson was CEO and President of Forward Industries (NASDAQ: FORD) (“FI”) from 2010 to August 2012. FI designs, sources, markets and distributes accessories for the handheld consumer electronic product industry, including smartphones, tablets, notebook computers and medical monitoring and diagnostic equipment. While at FI, Mr. Johnson’s primary responsibility was building its OEM business and launching a global retail strategy based off of a licensing model. Prior to joining FI, in 2005 Mr. Johnson founded Benevolent Capital Partners and Advisors (“Benevolent”), a private equity and consulting company with investments in real estate, manufacturing and consumer brands including Octagon Partners, Enzymatics, TerraCycle, and ClearPlex. Mr. Johnson has served as Benevolent’s CEO since 2005. Prior to founding Benevolent, Mr. Johnson served in numerous capacities at Targus, the leading global provider of mobile computing solutions with sales of $545 million, including serving as president from 2001 to 2004 and executive director of their board of directors from 1998 to 2009. Since April 2012, Mr. Johnson has served as a member of the board of directors of Blyth Inc. (NYSE: BTH), a $1 billion consumer sales company and leading designer and marketer of accessories for the home and health &wellness products. Mr. Johnson also currently serves on the board of directors of Digital Rights Corporation (OTC: RIHT), Early X Foundation and TerraCycle.
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Mr. Johnson has also had a lifelong commitment to education. He is currently a member of the Board of Trustees for Choate Rosemary Hall and is a Senior Fellow in Entrepreneurship and a member of the Board of Visitors for the Graziadio School of Business at Pepperdine University.
Mr. Johnson earned his B.S. at Brown University and an Executive Masters of Business Administration (EMBA) from Pepperdine University.
The Company believes that Mr. Johnson’s lifelong commitment to education, his extensive experience in executive leadership positions at other large companies and his experience as a director of several highly successful companies makes him well qualified to be the Company’s president, chief relationship officer and a member of the Company’s board of directors.
Tina J. Gentile, Interim Chief Financial Officer
Ms. Gentile has more than 17 years of experience in senior financial management and strategic advisory roles working with companies ranging from start-ups to mid to large size private and public companies. She has hands on experience in implementing strategic initiatives involving financial and operational management, business development, mergers and acquisitions, restructuring and capital markets issues.
At Greenwood Hall, Ms. Gentile is responsible for overseeing the company’s financial and accounting functions, investor relations, and legal compliance programs. Prior to joining Greenwood Hall, Ms. Gentile served as vice president of business development –program services for State National Insurance Companies. Earlier, she served as CFO of Univessence Digital Studios, a multinational company producing and distributing multimedia products, where she was involved in equity raising and M&A activities. Ms. Gentile also previously served as a senior financial advisory consultant with PricewaterhouseCoopers, Goldman Sachs and Insieme Consulting, specializing in credit, corporate planning, equity, restructuring and debt finance issues.
Ms. Gentile is a graduate of Claremont McKenna College with a Bachelor of Arts degree in government. In addition, she earned an MBA degree in finance and accounting from the Anderson School of Business at University of California Los Angeles. The Company believes that Ms. Gentile’s extensive experience in executive leadership positions, her numerous roles in finance and strategy and her experience as a senior level executive in high growth companies makes her well qualified to be a member of the Company’s management team.
Lyle M. Green, Director
Mr. Green has held executive management positions within the telecommunications and direct marketing industry since 1994. Mr. Green has been a partner at MarkeTouch Media since 2002 and currently serves as their Vice President of Sales/Marketing. Mr. Green oversees the sales marketing, clinical and account management departments at MarkeTouch Media and during his tenure, MarkeTouch has achieve double digit growth in sales growth year over year. Prior to joining MarkeTouch, Mr. Green held executive sales & marketing positions at Patriot Communications, Vista Telecom and WorldxChange. Mr. Green holds a Bachelor of Arts in communications from the University of Cincinnati.
The Company believes that Mr. Green’s experience in telecommunications and direct marketing makes him well qualified to be a member of the Company’s board of directors.
Jonathan Newcomb, Director
Mr. Newcomb has more than 40 years of leadership experience in the financial, education and publishing industries. Mr. Newcomb is managing director at Berenson & Company, LLC, a New York-based advisory and investment firm. Previously he served as Chief Executive Officer of Cambium Learning, an education services company that was sold to private equity firm Veronis Suhler in 2008. From 1994 to 2002, Mr. Newcomb was Chairman and Chief Executive Officer of Simon & Schuster, which was at that time the largest education, reference, professional and trade publisher in the U.S. Mr. Newcomb previously served as President and Chief Operating Officer of Simon & Shuster, and as President of McGraw-Hill’s Financial and Economic Information Group, which included the busses of Standard & Poor’s and Data Resources Inc. Newcomb began his career with the Dun & Bradstreet Corporation.
Newcomb currently serves on the boards of directors of United Business Media, Journal Communications and LearningExpress, LLC. Mr. Newcomb is a past member of the board of trustees of Dartmouth College, and also currently serves on the boards of the Columbia University School of Business and New School University in New York City. Mr. Newcomb holds a Bachelor’s Degree in economics from Dartmouth College and an MBA in finance from Columbia Graduate School of Business.
The Company believes that his extensive hands-on leadership and direct industry experience at top educational publishing firms make Mr. Newcomb a valuable member of the Company’s board of directors.
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Mike Sims, Director
Mr. Sims has held senior executive management positions in industries as diverse as commercial banking, publishing, graduate business education and high profile business federations.
Mr. Sims has served as Executive Officer, Corporate & External Relations for the Graziadio School of Business and Management at Pepperdine University from 2001 to 2014. During that time he has been responsible for market strategy, communications, public relations, MBA recruitment, alumni relations, career support services, advancement (fundraising), the Graziadio School Board of Visitors, Dean's Executive Leadership Series, the Annual Los Angeles Economic Forecast, Senior Fellows in Entrepreneurship, the 15X Project (Early X Foundation) and aiding in the development of the national Private Capital Markets Project. Prior to joining Pepperdine University, Mr. Sims was a member of the senior management team at Imperial Bank serving as the Senior Vice President in charge of marketing for the $8 billion commercial bank that merged with Comerica in 2000. Mr. Sims also co-founded and co-owned Siena Publishing Inc., a boutique publishing, marketing and sales company from 1992 to 2014. Additionally, he serves as co-founder, chairman of the board and chief executive officer of the Early X Foundation, an Intellectual Property monetization and education organization.
Mr. Sims has served as the chief paid executive for the Hollywood Chamber of Commerce, which included his leadership and management of the campaign to rebuild the Hollywood Sign, expand the development and promotion of the Hollywood Walk of Fame and the Hollywood Christmas Parade TV for syndication nationally. Mr. Sims has previously served as the chief paid executive for the Beverly Hills Chamber of Commerce & Visitors Bureau, the Rodeo Drive Merchants Association and written a weekly business column for the Beverly Hills Post newspaper.
Mr. Sims has served as a member of several boards of directors. He has served as Chairman of the Board of Ramona's Mexican Food Company, and as a director on the Hollywood Revitalization Committee, the Burbank/Hollywood/Glendale Airport Advisory Committee, Pan American Bank, and the SoCal Tech Group. He is former Chairman of the National Veterans Association and is also a founder and board director of Champion Technology Company, Inc. a big data analytical software company.
Mr. Sims has a Bachelor of Science Degree in Business Administration from the University of Nebraska.
The Company believes that Mr. Sims’ extensive experience in executive leadership positions, his extensive involvement in higher education and his experience as a director of several successful companies makes him well qualified to be a member of the Company’s board of directors.
Matt Toledo, Director
Mr. Toledo is Publisher and CEO of the Los Angeles Business Journal, the largest regional business media company in California. In this capacity, he oversees all operations of the media company including editorial, events, advertising and audience development. He is also Group Publisher of California Business Journals; which owns and operates the Orange County Business Journal, San Diego Business Journal, and the San Fernando Valley Business Journal. The Business Journal enjoys a loyal following by the region’s most dynamic entrepreneurs, corporate leaders, politicians, and philanthropists.
Under Mr. Toledo’s direction, the Los Angeles Business Journal has been recognized as the best regional business journal in the country for its compelling coverage and quality journalism. In addition to leading the Business Journal for the past 20 years, Mr. Toledo is a passionate civic leader; serving on numerous boards as a director and advisor. Mr. Toledo has served as a member of several boards of directors. He has served as Chairman of Los Angeles County Economic Development Corporation and the Alliance of Area Business Publications. He has served as a director for United Way of Greater LA, Junior Achievement and the Los Angeles Police Foundation. He is a former member of the Board of Visitors of Pepperdine University's George L. Graziadio School of Business and Management. The Company believes that Mr. Toledo's extensive experience in executive leadership positions, his extensive involvement in publishing and his experience as a director of several successful companies makes him well qualified to be a member of the Company’s board of directors.
Board of Directors and Corporate Governance
Our board of directors shall consist of nine (9) members. As of the filing date, John Hall, Brett Johnson, Lyle M. Green, Jonathan Newcomb, Mike Sims and Matt Toledo have been appointed as directors of the Company. The Company intends to seek appointment of three additional parties to fill the remaining positions as soon as possible.
Board Independence and Committees
We are not currently listed on the Nasdaq Stock Market. In evaluating the independence of our members and the composition of the committees of our board of directors, our Board utilizes the definition of “independence” as that term is defined by applicable listing standards of the Nasdaq Stock Market and SEC rules, including the rules relating to the independence standards of an audit committee and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.
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Our board of directors expects to continue to evaluate its independence standards and whether and to what extent the composition of the Board and its committees meets those standards. We ultimately intend to appoint such persons to our Board and committees of our Board as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange. Therefore, we intend that a majority of our directors will be independent directors of which at least one director will qualify as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by the SEC.
Additionally, our board of directors is expected to appoint an audit committee, governance committee and compensation committee and to adopt charters relative to each such committee.
Code of Ethics
We have not adopted a formal code of ethics within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act, that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that that establishes, among other things, procedures for handling actual or apparent conflicts of interest. Our board of directors intends to adopt such a formal code of ethics when it deems appropriate based on the size of our operations and personnel.
Indemnification Agreements
We have also entered into separate indemnification agreements, substantially in the form of Exhibit 10.9 to the July 29, 2014 Form 8-K, consistent with Nevada law and the form approved by our board of directors with each of our current directors and executive officers. We also contemplate entering into such indemnification agreements with directors and certain executive officers that may be elected or appointed in the future, as the case may be. The information set forth under the heading “Indemnification Agreements” in Item 1.01 of the July 29, 2014 Form 8-K is incorporated herein by reference.
PCS Link became our wholly owned subsidiary upon the closing of the Merger. The following table summarizes the compensation that PCS Link paid to its named executive officers during its fiscal years ending December 31, 2012 and 2013.
Summary Compensation Table for PCS Link
| Name and Principal Position |
Year | Salary | Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Deferred Compensation ($) |
All Other Compensation ($) |
Total Compensation ($) |
|||||||||||||||||||||||||||
| John Hall | 2012 | $ | 325,000 | $ | 35,000 | $ | 38,672 | |||||||||||||||||||||||||||||
| Chairman, Chief Executive Officer | 2013 | $ | 325,000 | $ | 7,000 | $ | 6,853 | |||||||||||||||||||||||||||||
| Frumi Barr | 2012 | $ | 209,200 | |||||||||||||||||||||||||||||||||
| Chief Financial Officer(1) | 2013 | $ | 51,630 | |||||||||||||||||||||||||||||||||
| David Wells Chief Financial Officer (2) |
2013 | $ | 240,000 | |||||||||||||||||||||||||||||||||
| Brett Johnson | 2013 | $ | 151,673 | |||||||||||||||||||||||||||||||||
| President (3) | ||||||||||||||||||||||||||||||||||||
| Zan Greenwood | 2012 | $ | 325,000 | $ | 54,809 | |||||||||||||||||||||||||||||||
| Chief Operating Officer (4) | 2013 | $ | 325,000 | $ | 6,471 | |||||||||||||||||||||||||||||||
| Kyle C. Murphy | 2013 | $ | 85,183 | |||||||||||||||||||||||||||||||||
| Chief Operating Officer (5) | ||||||||||||||||||||||||||||||||||||
| Harvey Ross | 2012 | $ | 225,000 | $ | 4,286 | |||||||||||||||||||||||||||||||
| Executive Vice President, Operations | 2013 | $ | 225,000 | $ | 20,681 | (6) | ||||||||||||||||||||||||||||||
| Dave Ruderman | 2012 | $ | 150,000 | |||||||||||||||||||||||||||||||||
| Chief Marketing Officer | 2013 | $ | ||||||||||||||||||||||||||||||||||
| (1) | In March 2013, Ms. Barr resigned as the Chief Financial Officer of PCS Link. |
| (2) | Prior to Ms. Barr’s resignation in 2013, PCS Link entered into a consulting agreement with StoryCorp whereby StoryCorp’s employee, Mr. Wells, fulfilled the duties and responsibilities of Chief Financial Officer for PCS Link. |
| (3) | In 2013, PCS Link entered into a consulting agreement with BMJ Enterprises whereby BMJ Enterprises’ employee, Mr. Johnson, fulfilled the duties and responsibilities of President for PCS Link. |
| (4) | Mr. Greenwood resigned as PCS Link’s day-to-day Chief Operating Officer in June 2013. Mr. Greenwood continued to provide consulting advice to PCS Link during 2013 and will continue to do so through June 15, 2017. |
| (5) | In 2013, PCS Link entered into a consulting agreement with Switchstream, LLC, whereby Switchstream, LLC’s employee, Mr. Murphy, fulfilled the duties and responsibilities of Chief Operating Officer for PCS Link. |
| (6) | This compensation consists of payments to Mr. Ross’ health insurance. |
The following table summarizes the compensation that Greenwood Hall (through its wholly owned subsidiary PCS Link) paid to its named executive officers during its fiscal year ending August 31, 2014.
Summary Compensation Table for Greenwood Hall
| Name and Principal Position |
Year | Salary | Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Deferred Compensation ($) |
All Other Compensation ($) |
Total Compensation ($) |
|||||||||||||||||||||||||||
| John Hall | 2014 | $ | 325,000 | |||||||||||||||||||||||||||||||||
| Chairman, Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
| Brett Johnson | 2014 | $ | 151,673 | |||||||||||||||||||||||||||||||||
| President | ||||||||||||||||||||||||||||||||||||
| Kyle C. Murphy | 2014 | $ | 85,183 | |||||||||||||||||||||||||||||||||
| Chief Operating Officer | ||||||||||||||||||||||||||||||||||||
| Dave Ruderman | 2014 | $ | 150,000 | |||||||||||||||||||||||||||||||||
| Chief Marketing Officer | ||||||||||||||||||||||||||||||||||||
Narrative for Compensation Summary
Company
No current director, named executive officer or member acting in a similar capacity of the Company received any compensation for the fiscal years ending August 31, 2012 and 2013. There are no understandings or agreements regarding compensation that our management will receive that is required to be included in this table, or otherwise. In addition, the Company has no option plans, pension or profit sharing plans for the benefit our officers or directors.
PCS Link
The Company’s now wholly owned subsidiary, PCS Link, provided no other compensation to its named executive offers or directors during its fiscal years ending December 31, 2012 and 2013, other than the base salary and other compensation information set forth in the chart above. Amounts designated in the column labeled “All Other Compensation” are for car allowances, home office allowances and health insurance.
In 2014, PCS Link entered into a consulting agreement with Opportunities In Education, LLC whereby Opportunities In Education, LLC’s employee, Dr. Hall, fulfilled the duties and responsibilities of CEO for PCS Link. Opportunities In Education, LLC received $145,007 prior to the closing of the Merger for Dr. Hall’s services as Chief Executive Officer of PCS Link. Immediately prior to the Merger, the consulting agreement with Opportunities In Education, LLC was terminated.
In 2014, BMJ Enterprises, received $50,000 prior to the closing of the Merger for Mr. Johnson’s services as President of PCS Link. Immediately prior to the Merger, the consulting agreement with BMJ Enterprises was terminated.
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In 2014, Switchstream, LLC, received $80,497 prior to the closing of the Merger for Mr. Murphy’s services as Chief Operating Officer of PCS Link. Immediately prior to the Merger, the consulting agreement with Switchstream, LLC was terminated.
In 2014, Concoursity, LLC, received $126,250 prior to the closing of the Merger for Mr. Greenwood’s services as a consultant to PCS Link. Immediately prior to the Merger, the consulting agreement with Concoursity, LLC was terminated.
In May 2014, the consulting agreement PCS Link had with StoryCorp, whereby StoryCorp’s employee, Mr. Wells, had fulfilled the duties and responsibilities of CFO for PCS Link, expired by its own terms and was not renewed by PCS Link.
Following termination of the StoryCorp agreement, the principal financial person for PCS Link in fiscal year 2014, has been its controller, Betty Pope.
Changes in Executive Compensation
Immediately following the Merger, our Company’s board of directors approved a compensation program for our named executive officers. Consistent with the size and nature of our Company, our executive compensation program is simple, consisting of a base salary, an annual performance-based cash award and an annual long-term equity award under our 2014 Stock Option Plan.
| ¨ | Base Salary: The Company’s base salaries are designed as a means to provide a fixed level of compensation in order to attract and retain talent. The base salaries of our named executive officers depend on their job responsibilities, the market rate of compensation paid by companies in our industry for similar positions, our financial position and the strength of our business. |
| ¨ | Performance-Based Cash Awards: As part of the Company’s executive compensation program, the board intends to establish an annual performance-based cash award program for our executive officers and other key employees based upon individual performance and the Company’s performance. The award program will also be designed to reinforce the Company’s goals and then current strategic initiatives. The annual performance-based cash awards will be based on the achievement of Company and individual performance metrics established at the beginning of each fiscal year by the compensation committee and our board of directors. Following the end of each fiscal year, the compensation committee will be responsible for determining the bonus amount payable to the executive officer based on the achievement of the Company’s performance and the individual performance metrics established for such executive. |
| ¨ | Long-Term Equity Awards: Our board of directors believes that equity ownership by our executive officers and key employees encourages them to create long-term value and aligns their interest with those of our stockholders. We intend to grant annual equity awards to our executive officers under our 2014 Stock Option Plan. Our board of directors adopted and approved the following 2014 Stock Option Plan and intends to submit it for approval by our stockholders. |
| ¨ | 2014 Stock Option Plan: 5,000,000 shares of our common stock have been initially authorized and reserved for issuance under our 2014 Stock Plan as option awards. This reserve will automatically increase on January 1, 2015 and each subsequent anniversary through January 1, 2024 by an amount equal to the smaller of 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or an amount determined by our board of directors. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in our 2014 Stock Option Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares subject to awards granted under our 2014 Stock Option Plan which expire, are repurchased or are cancelled or forfeited will again become available for issuance under our 2014 Stock Option Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy tax withholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under our 2014 Stock Option Plan. |
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Awards may be granted under our 2014 Stock Option Plan to our employees, including officers, director or consultants, and our present or future affiliated entities. While we may grant incentive stock options only to employees, we may grant non-statutory stock options, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock based awards to any eligible participant.
The 2014 Stock Option Plan will be administered by our compensation committee. Subject to the provisions of our 2014 Stock Option Plan, the compensation committee determines, in its discretion, the persons to whom, and the times at which, awards are granted, as well as the size, terms and conditions of each award. All awards are evidenced by a written agreement between us and the holder of the award. The compensation committee has the authority to construe and interpret the terms of our 2014 Stock Option Plan and awards granted under our 2014 Stock Option Plan.
Our board of directors approved the following compensation for our named officers:
John Hall, Ed. D., Chairman of the Board of Directors, CEO, Secretary and Treasurer:
Base Salary: Dr. Hall’s base salary will be $325,000.
Bonus: Dr. Hall shall receive a minimum bonus of $75,000 in 2014 and is eligible for an additional bonus amount based upon the Company’s performance and the Company’s adjusted EBITDA. If the adjusted EBITDA of the Company is in excess of 10% of the Company’s gross revenues, the total annual cash bonus awarded to Dr. Hall shall be no less than 1% of the Company’s gross revenues but not less than $ 75,000 for any calendar year. In the event that the adjusted EBITDA of the Company is in excess of 20% of the Company’s gross revenues, the total annual cash bonus awarded to Dr. Hall shall be no less than 2% of the Company’s gross revenues but no less than $ 100,000 for any calendar year. Any cash bonuses in excess of the above shall be payable subject to the reasonable discretion of the board of directors.
Stock Options: Dr. Hall shall receive minimum stock options equal to or greater than 500,000 shares of the Company’s common stock each calendar year. In the event that the adjusted EBITDA of the Company, in a calendar year, is in excess of 15% of the Company’s gross revenues, stock options awarded to Dr. Hall shall be no less than stock options equal to or greater than 750,000 shares of the Company’s common stock. In the event that the adjusted EBITDA of the Company, in a calendar year, is in excess of 20% of the Company’s gross revenues, stock options awarded to Dr. Hall shall be no less than stock options equal to or greater than 1,000,000 shares of the Company’s common stock. Any additional stock options award to Dr. Hall in excess of the above shall be at the discretion of the board of directors.
The board of directors believes that Dr. Hall’s compensation is in line with the Company’s goal of rapidly increasing its profitability and helps to ensure that Dr. Hall’s interests are aligned with those of the Company’s stockholders. The board of directors also believes that the compensation awarded to Dr. Hall provides appropriate incentives and provides for rewards appropriate for the level of difficulty in achieving the applicable metrics.
Brett Johnson, President and Chief Relationship Officer:
Base Salary: Mr. Johnson’s base salary shall be $250,000.
Bonus: Mr. Johnson shall be eligible for up to $75,000 in additional cash bonuses, at the reasonable discretion of the Chief Executive Officer, if the Company has a significant increase in profitable revenue that is related to the Company obtaining new clients, expanding relationships with existing clients and/or the Company makes strategic business acquisitions during 2014.
Stock Options and Warrants: Mr. Johnson shall receive options equal to 700,000 shares of the Company’s common stock in 2014. Mr. Johnson shall also be eligible to receive stock options equal to 350,000 shares of the Company’s common stock if the Company meets or exceeds its financial performance projections for fiscal year 2014. In addition, in the event that the adjusted EBITDA of the Company for the period from July 2014 through June 2015 is at least 10% and the Company has generated a minimum revenue level, which minimum level the board of directors believes will likely be achieved for this period, Mr. Johnson shall be entitled to receive additional stock options equal to 350,000 shares of the Company’s common stock. In the event that the adjusted EBITDA of the Company during the aforementioned period is at least 15% and the Company has generated a minimum revenue level, which minimum revenue level the board of directors believes will be more difficult to achieve for this period, Mr. Johnson shall be entitled to receive additional stock options equal to 350,000 shares of the Company’s common stock. Mr. Johnson shall also be entitled to receive additional stock options equal to 1,000,000 shares of the Company’s common stock, if by December 31, 2014, Mr. Johnson finds a prospective acquisition target for the Company that adds specified net market value to the company or has a minimum revenue level and a specified EBITDA, and the Company successfully closes such transaction. The board of directors believes it will be extremely difficult for Mr. Johnson to bring such a target to the Company by December 31, 2014.
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The board of directors believes that Mr. Johnson’s compensation aligns with the Company’s goal of expanding its client base and expanding the services and products that the Company offers to its clients. The board of directors also believes that Mr. Johnson’s compensation aligns his interests with those of the Company’s shareholders and provides rewards and incentives that will incentivize Mr. Johnson to help the Company move forward with its profitability goals as quickly as possible.
Compensation Committee
Going forward, we will be establishing a compensation committee which will be comprised of independent directors and the Company’s Chairman and Chief Executive Officer. The compensation committee will have the responsibility for evaluating and authorizing the compensation payable to our executive officers, including our named executive officers. The board of directors may also hire a compensation consultant to advise the compensation committee on how to best compensate our executive officers and directors. Generally, a compensation consultant would provide us with competitive market data and analysis regarding the compensation elements proposed to be offered to our Company’s executive officers and directors, including base salary, cash incentives and equity incentives. The compensation committee will also take into account the votes of the Company’s shareholders with respect to the compensation for our executive officers, including our named executive officers.
Potential Payments upon Termination of Change in Control
There were no payments or benefits due to any of the Company’s named executive officers upon termination of their employment or a change in control of the Company as of the end of its fiscal year on August 31, 2014.
The following payments were due to PCS Link’s named executive officers upon termination of their employment or a change in control of PCS Lind as of the end of its fiscal year on December 31, 2013.
Harvey Ross: Effective October 4, 2013, Mr. Ross’ fulltime employment with PCS Link was terminated. Mr. Ross thereafter began receiving his 16-week severance, which ended on January 31, 2014. Mr. Ross’ severance included the following benefits through January 31, 2014: (i) a weekly payment of $9,615.38, which was paid bi-weekly, (ii) continuation of his medical and dental benefits, (iii) a monthly automobile allowance of $750 per month, (iv) cell phone reimbursement of $75 per month and (v) life insurance coverage.
The payments to Mr. Ross were contingent upon Mr. Ross honoring the non-compete, confidentiality and non-solicitation provisions of his agreements with PCS Link. The confidentiality agreement was for period of two years following the termination of Mr. Ross’ employment with PCS Link and the non-compete and non-solicitation provisions covered a one year period following the termination of Mr. Ross’ employment with PCS Link. Mr. Ross was also required to comply with the terms of his severance agreement which included a waiver and release of claims.
Other than as set forth above, there were no payments or benefits due to any of PCS Link’s named executive officers upon termination of their employment or a change in control of PCS Link as of the end of its fiscal year on December 31, 2013.
Employment Agreements
The Company has entered into an employment agreement with John Hall as described below:
John Hall, Ed. D.: Immediately following the Merger, the Company entered into an employment agreement with Dr. Hall. Pursuant to the agreement, Dr. Hall will serve as the Company’s Chief Executive Officer and Chairman of the Board for a five-year period through May 31, 2019. Dr. Hall has the option to renew the agreement for a second five-year term by providing the Company with notice of intention to exercise such option at least 30 days prior to the expiration of the initial five-year term. If Dr. Hall, chooses to renew the agreement for a second five-year term he shall have the option to again renew the agreement for a third five-year term at the end of the second term. Dr. Hall’s base salary shall increase no less than 10% per year and Dr. Hall shall receive a minimum of that portion of $75,000 prorated over the number of completed months of service during the last calendar year of his service to the Company. Please see our discussion of Changes in Executive Compensation for further information regarding Dr. Hall’s compensation pursuant to his employment agreement with the Company. Please see our discussion of Potential Payments Upon Termination or Change in Control for information regarding any termination payments that may become due to Dr. Hall pursuant to his employment agreement with the Company.
If the Company terminates Dr. Hall’s employment for other than Cause, or if Dr. Hall terminates his employment due to a breach of his employment agreement by the Company, or if Dr. Hall terminates his employment agreement for Good Reason, the Company shall immediately pay to Dr. Hall in one lump sum all salary, unpaid vacation, outstanding reimbursements for business expenses, bonuses and stock options otherwise payable to Dr. Hall pursuant to his employment agreement, discounted to present value at the rate of eight percent (8%) per annum. In addition, all stock options owed to Dr. Hall shall be exercisable by Dr. Hall immediately or at any other time or times on or before the termination of the option as to any share or shares subject to such option for which the option has not yet been exercised. In no event shall the amount paid by the Company to Dr. Hall under in connection with the aforementioned termination be less than $1,250,000, which shall be payable immediately upon Dr. Hall’s termination.
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For purposes of Dr. Hall’s payments upon termination, “cause” and “good reason” shall have the following meanings:
“Cause” means (a) theft or embezzlement by Dr. Hall with respect to the Company or its subsidiaries; (b) malfeasance or gross negligence in the performance of Dr. Hall’s duties without the same being corrected within thirty (30) days after being given written notice thereof by the Company; (c) Dr. Hall being convicted of any felony; (d) willful or prolonged absence from work by Dr. Hall (other than by reason of disability due to physical or mental illness) or systemic failure or refusal by Dr. Hall to perform his duties and responsibilities without the same being corrected within thirty (30) days after being given written notice thereof by the Company; (e) continued and habitual use of alcohol by Dr. Hall to an extent which materially impairs Dr. Hall’s performance of his duties without the same being corrected within thirty (30) days after being given written notice thereof by the Company; (f) Dr. Hall’s use of illegal drugs without the same being corrected within thirty (30) days after being given written notice thereof; or (g) the willful material breach by the Dr. Hall of any of the covenants contained in his employment agreement without the same being corrected within thirty (30) days after being given written notice thereof by the Company.
“Good Reason” shall be defined as: (i) any material reduction in Dr. Hall’s duties that is inconsistent with Dr. Hall’s position as Chairman and Chief Executive Officer of Company or a change in Dr. Hall’s reporting relationship such that Dr. Hall no longer reports directly to the Board of Directors; (ii) Dr. Hall is no longer the Chairman and Chief Executive Officer of the Company; (iii) any reduction in Dr. Hall’s annual base salary, bonus compensation, or any other benefits/allowances granted by his employment agreement without Dr. Hall’s express written consent; (iv) material breach by the Company of any of its obligations under Dr. Hall’s employment agreement after providing the Company with written notice and an opportunity to cure within thirty (30) days; (v) a requirement by the Company or its board of directors that Dr. Hall relocate his principal office to a facility more than 50 miles from Dr. Hall’s principal office as of the date of the execution of employment agreement; (vi) the board of directors involve themselves in Dr. Hall’s day-to-day or usual business operations, or impair or impede the Chief Executive Officer’s sole authority over the hiring and firing of members of the Company’s employees or executives as well as entering into contracts with customers or vendors; (vii) direct Dr. Hall to do activities that are unlawful; and/or (viii) failure of the Company to pay Dr. Hall.
Grants of Plan-Based Awards
The Company did not grant any equity awards to our named executive officers during the fiscal year ended August 31, 2014. Additionally, PCS Link did not grant any equity awards to its named executive officers during its fiscal years ending August 31, 2014, December 31, 2013 or 2012.
Outstanding Equity Awards at Fiscal Year End
The Company had no outstanding equity awards owed to our named executive officers that were outstanding as of the end of our fiscal year on August 31, 2013. Additionally, our now wholly owned subsidiary, PCS Link had no outstanding equity awards owed to its named executive officers that were outstanding as of the end of its fiscal year on December 31, 2013.
Director Compensation
No compensation was paid to any of the Company’s directors for the fiscal years ending on August 31, 2014, December 31, 2012 and 2013.
No compensation was paid to any directors of the Company’s now wholly owned subsidiary, PCS Link, for the fiscal years ending August 31, 2014, December 31, 2012 and 2013.
Changes in Director Compensation
Immediately following the Merger, the board of directors of the Company entered employment agreements with and agreed to the following compensation for each new member of the Company’s board of directors, other than Dr. Hall’s compensation and Mr. Johnson’s proposed compensation, which are discussed above under Changes In Executive Compensation.
Lyle M. Green: Mr. Green shall serve as a director of the Company for a one-year term. Mr. Green shall receive compensation of $1,000 per meeting during his tenure as a board member. In addition, Mr. Green shall receive stock options equal to 150,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of every year of service as a board member for the Company.
Jonathan Newcomb: Mr. Newcomb shall serve as a director of the Company for a one-year term. Mr. Newcomb shall receive stock options equal to 150,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of every year of service as a board member for the Company.
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Mike Sims: Mr. Sims shall serve as a director of the Company for a one-year term. Mr. Sims shall receive compensation of $1,000 per meeting during his tenure as a board member. In addition, Mr. Sims shall receive stock options equal to 150,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of every year of service as a board member for the Company.
Matt Toledo: Mr. Toledo shall serve as a director of the Company for a one-year term. Mr. Toledo shall receive compensation of $1,000 per meeting during his tenure as a board member. In addition, Mr. Toledo shall receive stock options equal to 150,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of every year of service as a board member for the Company.
The Company’s board of directors are not entitled to any retirement, pension, profit sharing or other benefit plans. Further, the Company’s board of directors are not entitled to any payments, stock options or any other benefit or payment upon their resignation, retirement or termination as a board member or a change control of the Company.
Security Ownership of Certain Beneficial Owners and Management
Under SEC rules, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
The following table sets forth certain information as of August 31, 2014, regarding (i) each person known by Greenwood Hall to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each director, nominee and executive officer of Greenwood Hall, and (iii) all officers and directors as a group.
Greenwood Hall
| Name and Address | Title of Class | Amount and Nature of Beneficial Ownership |
Percentage of Class |
|||||||
|
John Hall(1) 1936 East Deere Avenue Suite 120 Santa Ana, CA 92705 |
Common Stock | 25,051,591 | 53.51 | % | ||||||
|
Brett Johnson 1936 East Deere Avenue Suite 120 Santa Ana, CA 92705 |
Warrants | 700,000 | 1.50% | % | ||||||
| All Officers and Directors as a group |
Common Stock | 25,051,591 | 55.01 | % | ||||||
| (1) | Executive Officer and/or Director |
Section 16(a) Beneficial Ownership reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Act”), requires our executive officers and directors and persons who beneficially own more than 10% of our Common Stock to file initial reports of beneficial ownership and reports of changes in beneficial ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such persons.
To the Company’s knowledge, no person who, during the fiscal year ended August 31, 2014, was a director or officer of the Company, or beneficial owner of more than ten percent of the Company’s Common Stock (which is the only class of securities of the Company registered under Section 12 of the Act), failed to file on a timely basis reports required by Section 16 of the Act during such fiscal year. The foregoing is based solely upon a review by the Company of Forms 3 and 4 relating to the most recent fiscal year as furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any representation received by the Company from any reporting person that no Form 5 is required.
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Change in Control
We are not aware of any arrangement that might result in a change in control in the future.
Transactions with Related Persons, Promoters and Certain Control Persons and Corporate Governance
Relationships and Related Party Transactions
Except as disclosed below, none of the following persons has any direct or indirect material interest in any transaction to which we are a party since our incorporation or in any proposed transaction to which we are proposed to be a party:
| ¨ | Any of our directors or officers; | |
| ¨ | Any proposed nominee for election as our director; | |
| ¨ | Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our Common Stock; or | |
| ¨ | Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who lives in the same house as such person or who is a director or officer of any parent or subsidiary of our Company. |
One of PCS Link’s customers, MarkeTouch, held a 7.5% interest in PCS Link’s common stock during 2013, 2012, and 2011. Sales to MarkeTouch amounted to $124,328, $137,924, and $211,969 during the years ended December 31, 2013, 2012, and 2011, respectively. Pursuant to an agreement between the Company and MarkeTouch, made in 2011, the Company repurchased all of the shares previously held by MarkeTouch for $147,333 through June 16, 2014.
As of December 31, 2013, the Company owed John Hall $173,892.81 and Zan Greenwood $10,123.17 related to non-interest bearing advances. These advances were due on demand. As of the date of the filing of this report, no amounts are owed pursuant to these advances.
Review, Approval or Ratification of Transactions with Related Persons
Due to the small size of our Company, we do not at this time have a formal written policy regarding the review of related party transactions, and rely on our full board of directors to review, approve or ratify such transactions and identify and prevent conflicts of interest. Our board of directors reviews any such transaction in light of the particular affiliation and interest of any involved director, officer or other employee or stockholder and, if applicable, any such person’s affiliates or immediate family members. Management aims to present transactions to our board of directors for approval before they are entered into or, if that is not possible, for ratification after the transaction has occurred. If our board of directors finds that a conflict of interest exists, then it will determine the appropriate action or remedial action, if any. Our board of directors approves or ratifies a transaction if it determines that the transaction is consistent with our best interests and the best interest of our stockholders.
Director Independence
In connection with the closing of the Merger, our board of directors undertook a review of the composition of our board of directors and independence of each director. Subsequent to the Merger, Matt Toledo joined our board of directors. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that Lyle M. Green, Jonathan Newcomb, Mike Sims and Matt Toledo (the “Independent Directors”) would qualify as “independent” as that term is defined by NASDAQ Listing Rule 5605(a)(2). Further, although we do not presently have separately standing audit, governance or compensation committees of our board of directors, our board of directors has determined that each of the independent directors would qualify as “independent” under NASDAQ Listing Rules applicable to such board committees. John Hall would not qualify as “independent” under applicable NASDAQ Listing Rules applicable to the board of directors generally or to separately designated board committees because he currently serves as our Chief Executive Officer. Brett Johnson would not qualify as “independent” under applicable NASDAQ Listing Rules applicable to the board of directors generally or to separately designated board committees because he currently serves as our Chief Executive Officer. In making such determinations, our board of directors considered the relationships that each of our nonemployee directors has with the Company and all other facts and circumstances deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Subject to some exceptions, NASDAQ Listing Rule 5605(a)(2) provides that a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that a director cannot be an “independent director” if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us within the preceding three years, other than for service as a director or benefits under a tax-qualified retirement plan or non-discretionary compensation (or, for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is a current partner of our independent public accounting firm, or has worked for such firm in any capacity on our audit at any time during the past three years; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer, partner or controlling shareholder of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during our past three fiscal years, exceeds the greater of 5% of the recipient’s consolidated gross revenues for that year or $200,000 (except for payments arising solely from investments in our securities or payments under non-discretionary charitable contribution matching programs). Additionally, in order to be considered an independent member of an audit committee under Rule 10A-3 of the Exchange Act, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other committee of the board of directors, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the applicable company or any of its subsidiaries or otherwise be an affiliated person of the applicable company or any of its subsidiaries.
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Where You Can Find More Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). Such filings are available to the public over the internet at the SEC’s website at http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 with respect to the securities offered under this prospectus. This prospectus, which forms a part of that registration statement, does not contain all information included in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits.
You may review a copy of the registration statement at the SEC’s public reference room at 100 F Street, N.E. Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. You may also read and copy any materials we file with the SEC at the SEC’s public reference room. Our filings and the registration statement can also be reviewed by accessing the SEC’s website at http://www.sec.gov.
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5,673,980 Shares
Greenwood Hall, Inc.
Common Stock
End of Prospectus
________________ , 2015
No finder, dealer, sales person or other person has been authorized to give any information or to make any representation in connection with this offering other than those contained in this prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by our company. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities. Our business, financial condition, results of operation and prospects may have changed after the date of this prospectus.
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Information Not Required in Prospectus
Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered hereunder. The selling stockholders will bear no expenses associated with this offering except for any broker discounts and commissions or equivalent applicable to the sale of their shares. All of the amounts shown are estimates, except for the SEC registration fees.
| SEC registration fees | $ | 494.49 |
| Accounting fees and expenses | $ | 10,000 |
| Legal fees and expenses | $ | 40,000 |
| Transfer agent and registrar fees | $ | 1,000 |
| Miscellaneous expenses | $ | 5,000 |
| Total | $ | 56,494.49 |
Indemnification of Directors and Officers
Nevada Revised Statutes provide that:
| · | a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; |
| · | a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him or her in connection with the defense or settlement of the action or suit if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper; and |
| · | to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation must indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense. |
Nevada Revised Statutes provide that we may make any discretionary indemnification only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made:
| · | by our stockholders; |
| · | by our board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; |
| · | if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; |
| · | if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion; or |
| · | by court order. |
| 77 |
Our bylaws provide that our company shall indemnify our directors or former directors, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him or them including an amount paid to settle an action or satisfy a judgment inactive criminal or administrative action or proceeding to which he is or they are made a party by reason of his or her being or having been our director or a director of such corporation, including an action brought by our company. Each of our directors on being elected or appointed is deemed to have contracted with our company on the terms of the foregoing indemnity.
At the discretion of our directors, our company may indemnify a director or former director of a corporation of which our company is or was a shareholder and the heirs and personal representatives of any such person.
At the discretion of our directors, our company may indemnify any of our officers, employees or agents, or of a corporation of which our company is or was a shareholder (notwithstanding that he is also a Director), and his or her heirs and personal representatives against all costs, charges and expenses incurred by him or them and resulting from his or her acting as an officer, employee or agent of our company. In addition our company shall indemnify the Secretary (notwithstanding that he is also a Director), and his or her respective heirs and legal representatives against all costs, charges and expenses incurred by him or them and arising out of the functions assigned to the Secretary by the Nevada corporate law or our Articles and each such Secretary, on being appointed is deemed to have contracted with our company on the terms of the foregoing indemnity.
At the discretion of our directors, our company may purchase and maintain insurance for the benefit of a person who is or was serving as a Director, officer, employee or agent of our or as a director, officer, employee or agent of a corporation of which our company is or was a shareholder and his or her heirs or personal representatives against a liability incurred by him as a Director, officer, employee or agent.
Recent Sales of Unregistered Securities
On March 24, 2014, PCS Link entered into a convertible note with Pareall, whereby Pareall provided PCS Link with a loan of $1,350,000 on terms set out in the Pareall Note of the same date. The proceeds of the Pareall Loan and all accrued interest thereon converted into 1,386,450 Units (each unit being one share of the Company’s common stock and one warrant for a right to acquire one additional share of Common Stock on or before the date which is two years from the date of the Merger for a price of $1.30 per share), which were issued to Pareall in full satisfaction of all amounts due and owing to Pareall under the Pareall Note. All warrants issued with respect to the Pareall Note contain a provision the prohibits the holder of those warrants from exercising any portion of those warrants if, after giving effect to such issuance after exercise of the warrants, the holder (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% of the number of shares of the common stock of the Company outstanding immediately after giving effect to the issuance of shares of common stock of the Company issuable upon exercise of the warrants.
On August 23, 2012, we offered and sold 3,000,000 pre-split shares of common stock to Evgeny Donskoy, our former President, Treasurer and sole director, at a purchase price of $0.001 per share, for aggregate proceeds of $3,000. We made the offering to Mr. Donskoy pursuant to the exclusion from registration provided by Rule 903(b)(3) of Regulation S of the Securities Act, where the offering was made to a non-U.S. persons, offshore of the U.S., with no directed selling efforts in the U.S., and where offering restrictions were implemented.
On September 18, 2012, we offered and sold 500,000 pre-split shares of common stock to Alexey Dindenko, our former Secretary,, at a purchase price of $0.001 per share, for aggregate proceeds of $500. We made the offering to Mr. Didenko pursuant to the exclusion from registration provided by Rule 903(b)(3) of Regulation S of the Securities Act, where the offering was made to a non-U.S. persons, offshore of the U.S., with no directed selling efforts in the U.S., and where offering restrictions were implemented.
The issuance of the securities pursuant to the transactions noted above was done in reliance upon exemptions from registration pursuant to, among others, Section 4(a)(2) under the Securities Act, Regulation S promulgated under the Securities Act, and Regulation D promulgated under the Securities Act.
Since the beginning of the fiscal quarter ended November 30, 2014, we sold 1,000,000 units, comprised of one share of common stock and one warrant to purchase common stock, at a price of $1.00 per unit, for total proceeds of $1,000,000. These equity securities were not registered under the Securities Act of 1933.
| 78 |
Exhibit |
Description | |
2.1 |
Merger Agreement and Plan of Reorganization, dated as of July 22, 2014, by and among Greenwood Hall, Inc., Greenwood Hall Acquisition, Inc. and PCS Link, Inc. d/b/a Greenwood & Hall.* | |
2.2 |
Articles of Merger with Divio Holdings, Corp and Greenwood Hall, Inc., as filed with the Nevada Secretary of State effective July 1, 2014.* | |
3.1(i) |
Articles of Incorporation of Greenwood Hall, Inc. previously known as Divio Holdings, Corp. as filed with the Nevada Secretary of State.* | |
3.1(ii) |
Certificate of Change of Greenwood Hall, Inc. previously Divio Holdings Corp.* | |
3.2 |
Bylaws of Greenwood Hall, Inc. (Nevada).* | |
4.1 |
Form of Investor Warrant by and between Greenwood Hall, Inc. and the investors in the Primary Financing.* | |
4.2 |
Warrant dated as of July 23, 2014, issued by Greenwood Hall, Inc. to Opus Bank .* | |
4.3 |
Return to Treasury Agreement.* | |
4.4 |
Form of Registration Rights Agreement, dated as of June 30, 2014, by and between Greenwood Hall, Inc. and the investors in the Private Placement Financing.* | |
| 5.1 | Opinion of DLA Piper LLP (US)** | |
10.1 |
Form of Subscription Agreement, by and between Greenwood Hall, Inc. and the investors in the Primary Financing.* | |
10.2 |
Employment Agreement by and between John Hall and Greenwood Hall, Inc.* | |
10.3 |
Greenwood Hall, Inc. 2014 Stock Option Plan.* | |
10.4 |
Form of Stock Option Award Agreement under the 2014 Stock Option Plan.* | |
10.5 |
Form of Indemnification Agreement.* | |
10.6 |
Business Loan Agreement, dated as of October 21, 2010, by and between PCS Link, Inc. d/b/a Greenwood & Hall and California United Bank as amended.* | |
10.7 |
Amended and Restated Credit Agreement, dated as of July 18, 2014, by and between Opus Bank, PCS Link, Inc. d/b/a Greenwood & Hall and Greenwood Hall, Inc.* | |
10.8 |
First Amendment, Waiver and Ratification dated as of December 12, 2014, of the Amended Credit Agreement and related term loan and line of credit, dated July 18, 2014, between PCS Link d/b/a/ Greenwood & Hall, Inc. and Opus Bank.* | |
| 23.1 | Consent of Rose, Snyder & Jacobs LLP * | |
| 23.2 | Consent of DLA Piper LLP (US) (included in Exhibit 5.1) |
| * | Filed herewith |
| ** | To be filed by amendment. |
| 79 |
The undersigned registrant hereby undertakes:
| 1. | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| i. | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee “ table in the effective registration statement; and |
| iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| 2. | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; |
| 3. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and |
| 4. | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| 5. | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 |
| ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser; |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
| 80 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREENWOOD HALL, INC.
(Registrant)
| By: | /s/ John Hall |
| Name: | John Hall |
| Title: | Chief Executive Officer |
| Date: | March 24, 2015 |
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints each of John Hall and Tina J. Gentile, such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ John Hall | Chief Executive Officer (Principal Executive Officer) |
March 24, 2015 | ||
| John Hall | ||||
| /s/ Tina J. Gentile | Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | March 24, 2015 | ||
| Tina Gentile | ||||
| /s/ Lyle M. Green |
Director |
March 24, 2015 | ||
| Lyle M. Green | ||||
| /s/ Jonathan Newcomb |
Director |
March 24, 2015 | ||
| Jonathan Newcomb | ||||
| /s/ Mike Sims |
Director |
March 24, 2015 | ||
| Mike Sims | ||||
| /s/ Matt Toledo |
Director |
March 24, 2015 | ||
| Matt Toledo | ||||
/s/ Brett Johnson |
Director | March 24, 2015 | ||
| Brett Johnson |
81
Exhibit 2.1 – Merger Agreement and Plan of Reorganization
MERGER AGREEMENT
AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made as of the 22nd day of July, 2014.
BETWEEN:
GREENWOOD HALL, INC., a corporation formed pursuant to the laws of the State of Nevada and having an office for business located at 55 A Cliff View Drive, Green Bay, Auckland, New Zealand
(the “Purchaser”)
AND:
GREENWOOD HALL ACQUISITION, INC., a corporation formed pursuant to the laws of the State of California and a wholly-owned subsidiary of the Purchaser
(the “Merger Sub”)
AND:
PCS LINK, INC. DBA GREENWOOD & HALL, a corporation formed pursuant to the laws of the State of California and having an office for business located at 1936 East Deere Avenue, Suite 120, Santa Ana, California 92705, U.S.A.
(the “Target”)
WHEREAS:
| A. | The Target is in the business of providing relationship management solutions to help organizations generate and retain more students and customers and executing large-scale fundraising and grand opening events; |
| B. | The Purchaser, a company whose common stock is quoted on the OTC Bulletin Board (the “OTC Bulletin Board”) operated by the Financial Industry Regulatory Authority and which has no active business, wishes to acquire all of the issued and outstanding shares of common stock in the capital of the Target; |
| C. | The respective boards of directors of the Purchaser, the Target and the Merger Sub deem it advisable and in the best interests of the Purchaser, the Target and the Merger Sub that the Merger Sub merge with and into the Target, with the Target remaining as the surviving entity after the Merger (as hereinafter defined) whereby the stockholders of the Target will receive common stock of the Purchaser in exchange for their capital stock of the Target; |
| D. | The respective board of directors of the Merger Sub and the Target have recommended approval of this Agreement by their respective shareholders; |
| E. | It is intended that the Merger shall qualify for United States federal income tax purposes as reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”) and not subject the holders of the equity securities of the Target to tax liability under the Code; and |
| F. | Effective as of July 1, 2014, the Purchaser increased the authorized common stock of the Purchaser from 75,000,000 shares of common stock, par value $0.001, to 937,500,000 shares of common stock, par value $0.001, effected a corresponding split of the Purchaser Common Shares (as hereinafter defined) on the basis of 12.5 new shares for each one old share (the “Stock Split”) and changed its name to “Greenwood Hall, Inc.”. |
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises and the mutual covenants, agreements, representations and warranties contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
| 1.1 | Definitions |
In this Agreement the following terms will have the following meanings:
| (a) | “Acquisition Proposal” means, other than the Merger, any bona fide offer, proposal or inquiry made by any person other than the Purchaser (or any affiliate of the Purchaser) with respect to: (a) any take-over bid, exchange offer, plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution, winding-up or exclusive license involving the Target; (b) any acquisition or purchase (or any lease, long-term supply agreement or other arrangement having the same economic effect as a sale), direct or indirect, in a single transaction or a series of related transactions, of all or a significant portion of the assets of, or more than 20% of any class of the share capital, voting securities or other equity interests in the Target; (c) any other similar transaction or series of transactions involving the Target; or (d) any other transaction, the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the transactions contemplated by this Agreement, or which could reasonably be expected to materially reduce the benefits to the Purchaser under this Agreement, provided that Acquisition Proposal will not include the Target’s refinancing of its current debt of $6,000,000 provided the Purchaser consents to the terms of such refinancing; |
| (b) | “Acquisition Shares” means the 25,250,000 post-Stock Split Purchaser Common Shares to be issued to the Target Shareholders at Closing pursuant to the terms of the Merger, subject to adjustment as provided for in Article 2 hereof; |
| (c) | “Agreement” means this agreement between the Purchaser, the Merger Sub and the Target; |
| - 2 - |
| (d) | “Agreement of Merger” has the meaning set forth in Section 8.1 hereto; |
| (e) | “Audited Target Financial Statements” means the audited financial statements of the Target for each of the last two fiscal years completed prior to the Closing and the auditor reviewed financial statements for the Target’s most recent interim financial period prior to the Closing, if any, all prepared in accordance with GAAP and audited or reviewed, as applicable, by an independent auditor registered with the Public Company Accounting Oversight Board in the United States; |
| (f) | “Bridge Loan” means collectively (a) the bridge loan of $1,350,000 advanced to the Target and all documents contemplated therein including the First Promissory Note, the personal guaranty and all such supporting certificates and other documents reasonably required by the Lender and (b) any other bridge loans advanced to the Target prior to the Closing Date; |
| (g) | “California Corporations Code” means the California General Corporation Law; |
| (h) | “Confidential Information” means any information about the Target or the Purchaser stamped “confidential” or identified in writing as such promptly following its disclosure, unless (i) such information is already known to the other party or its representatives or to others not bound by a duty of confidentiality; (ii) such information becomes publicly available through no fault of the other party or its representatives; (iii) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Merger; or (iv) the furnishing or use of such information is required by, or necessary or appropriate in connection with, legal proceedings; |
| (i) | “Copyrights” has the meaning set forth in Section 5.1(kk)(iii) hereto; |
| (j) | “Closing” has the meaning set forth in Section 8.1 hereto; |
| (k) | “Closing Date” has the meaning set forth in Section 8.1 hereto; |
| (l) | “Dissenters’ Rights Statute” has the meaning set forth in Section 2.4 hereto; |
| (m) | “Effective Time” has the meaning set forth in Section 8.1 hereto; |
| (n) | “First Promissory Note” means the promissory note, dated March 24, 2014, in the principal amount of $1,350,000 issued by the Target in favor of the Lender in connection with the Bridge Loan; |
| (o) | “GAAP” means United States generally accepted accounting principles, applied on a consistent basis with prior periods; |
| (p) | “Lender” means Pareall International Limited; |
| (q) | “Material Adverse Effect” in relation to any event or change, means an effect that is or would reasonably be expected to be materially adverse to the financial condition, operations, assets, liabilities, or business of the Purchaser or the Target, as applicable, considered as a whole, provided that a Material Adverse Effect will not include an adverse effect: |
| - 3 - |
| (i) | that relates to or arises out of a matter that has been publicly disclosed or otherwise disclosed in writing to the Purchaser or the Target, as applicable, prior to such party entering into this Agreement; |
| (ii) | that relates to or arises out of conditions affecting the relationship management solutions industry as a whole; |
| (iii) | that relates to or arises out of general economic, financial, currency exchange, securities or commodity market conditions in the United States or elsewhere; and |
| (iv) | that relates to any change the occurrence of which is reasonably attributable to this Agreement or the performance of any transaction contemplated herein; |
| (r) | “Marks” has the meaning set forth in Section 5.1(kk)(i) hereto; |
| (s) | “Merger” has the meaning set forth in Section 2.1 hereto; |
| (t) | “OTC Bulletin Board” has the meaning set forth in Recital B hereto; |
| (u) | “Parties” means collectively the Purchaser, the Merger Sub and the Target and “Party” means any one of them; |
| (v) | “Patents” has the meaning set forth in Section 5.1(kk)(ii) hereto; |
| (w) | “Payment” has the meaning set forth in Section 2.4 hereto; |
| (x) | “Person” includes an individual, corporation, body corporate, partnership, joint venture, association, trust or unincorporated organization or any trustee, executor, administrator or other legal representative thereof; |
| (y) | “Promissory Notes” means collectively (a) the First Promissory Note and (b) any other promissory notes issued by the Target prior to the Closing Date, which Promissory Notes were issued in connection with the Bridge Loan; |
| (z) | “Purchaser Accounts Payable and Liabilities” means all accounts payable and liabilities of the Purchaser due and owing or otherwise constituting a binding obligation of the Purchaser (other than a Purchaser Material Contract) as of May 31, 2014 as set forth in the Purchaser Disclosure Statement Schedule A; |
| (aa) | “Purchaser Assets” means the undertaking and all the property and assets of the Purchaser Business of every kind and description wheresoever situated including, without limitation, Purchaser Material Contracts, Purchaser Accounts Receivable, Purchaser Cash, Purchaser Intangible Assets and Purchaser Goodwill, and all credit cards, charge cards and banking cards issued to the Purchaser; |
| - 4 - |
| (bb) | “Purchaser Business” means all aspects of any business conducted by the Purchaser; |
| (cc) | “Purchaser Cash” means all cash on hand or on deposit to the credit of the Purchaser on the Closing Date; |
| (dd) | “Purchaser Common Shares” means the shares of common stock in the capital of the Purchaser; |
| (ee) | “Purchaser Disclosure Statement” means the statement of disclosure provided by the Purchaser to the Target concurrently with the execution of this Agreement; |
| (ff) | “Purchaser Financial Statements” means the financial statements of the Purchaser for the year ended August 31, 2013 and for the period from February 27, 2012 (inception) through August 31, 2012, together with the unqualified auditors report thereon, and quarterly auditor reviewed financial statements for the nine month period ended May 31, 2014 and for the period from February 27, 2012 (inception) through May 31, 2014, prepared in accordance with GAAP, each of which is filed on EDGAR; |
| (gg) | “Purchaser Goodwill” means the goodwill of the Purchaser Business including the right to all corporate, operating and trade names associated with the Purchaser Business, or any variations of such names as part of or in connection with the Purchaser Business, all books and records and other information relating to the Purchaser Business, all necessary licenses and authorizations and any other rights used in connection with the Purchaser Business; |
| (hh) | “Purchaser Intangible Assets” means all of the intangible assets of the Purchaser, including, without limitation, Purchaser Goodwill, all trademarks, logos, copyrights, designs, and other intellectual and industrial property of the Purchaser; |
| (ii) | “Purchaser Material Contracts” means the burden and benefit of and the right, title and interest of the Purchaser in, to and under all trade and non-trade contracts, engagements or commitments, whether written or oral, to which the Purchaser is entitled whereunder the Purchaser is obligated to pay or entitled to receive the sum of $2,000 or more including, without limitation, any pension plans, profit sharing plans, bonus plans, loan agreements, security agreements, indemnities and guarantees, any agreements with employees, lessees, licensees, managers, accountants, suppliers, agents, distributors, officers, directors, attorneys or others which cannot be terminated without liability on not more than one month’s notice, and those contracts listed in the Purchaser Disclosure Statement Schedule C; |
| (jj) | “Purchaser Note Conversion” means the conversion of all principal and accrued interest on the Promissory Notes into units of the Purchaser at a price $1.00 per unit, with each unit consisting of one Purchaser Common Share and one Purchaser Warrant; |
| (kk) | “Purchaser Warrant” means the Common Share purchase warrants, each of which will entitle the holder to purchase, for a period of two years from issuance, one additional Purchaser Common Share at an exercise price of $1.30 per Purchaser Common Share; |
| (ll) | “Representatives” has the meaning set forth in Section 10.1(a) hereto; |
| - 5 - |
| (mm) | “Securities Act” has the meaning set forth in Section 2.7 hereto; |
| (nn) | “SEC” means the Securities and Exchange Commission; |
| (oo) | “Share Cancellation” has the meaning set forth in Section 7.3(k) hereto; |
| (pp) | “Stock Split” has the meaning ascribed in Recital F hereto; |
| (qq) | “Surviving Corporation” means the Target after consummation of the Merger. |
| (rr) | “Target Accounts Payable and Liabilities” means all accounts payable and liabilities of the Target due and owing or otherwise constituting a binding obligation of the Target (other than a Target Material Contract) as of March 31, 2014 as set forth in the Target Disclosure Statement Schedule A; |
| (ss) | “Target Accounts Receivable” means all accounts receivable and other debts owing to the Target as of March 31, 2014 as set forth in Target Disclosure Statement Schedule B; |
| (tt) | “Target Assets” means the undertaking and all the property and assets of the Target Business of every kind and description wheresoever situated including, without limitation, Target Material Contracts, Target Cash, Target Intangible Assets, Target Intellectual Property Assets and Target Goodwill, and all credit cards, charge cards and banking cards issued to the Target; |
| (uu) | “Target Bank Accounts” means all of the bank accounts, lock boxes and safety deposit boxes of the Target or relating to the Target Business as set forth in the Target Disclosure Statement Schedule C; |
| (vv) | “Target Business” means the business of providing relationship management solutions to help organizations generate and retain more students and customers and executing large-scale fundraising and grand opening events and all aspects of the business conducted by the Target; |
| (ww) | “Target Cash” means all cash on hand or on deposit to the credit of the Target on the Closing Date; |
| (xx) | “Target Disclosure Statement” means the statement of disclosure provided by the Target to the Purchaser concurrently with the execution of this Agreement; |
| (yy) | “Target Goodwill” means the goodwill of the Target Business and the right to use any words indicating that the Target Business is so carried on including the right to use the name “PCS Link, Inc.” or “Greenwood & Hall” or any variation thereof as part of the name of or in connection with the Target Business or any part thereof carried on or to be carried on by the Target, the right to all corporate, operating and trade names associated with the Target Business, or any variations of such names as part of or in connection with the Target Business, all telephone listings and telephone advertising contracts, all lists of customers, books and records and other information relating to the Target Business, all necessary licenses and authorizations and any other rights used in connection with the Target Business; |
| - 6 - |
| (zz) | “Target Intangible Assets” means all of the intangible assets of the Target including, without limitation, the Target Goodwill and the Target Intellectual Property Assets; |
| (aaa) | “Target Intellectual Property Assets” has the meaning set forth in Section 5.1(kk) hereto; |
| (bbb) | “Target Material Contracts” means the burden and benefit of and the right, title and interest of the Target in, to and under all trade and non-trade contracts, engagements or commitments, whether written or oral, to which the Target is entitled in connection with the Target Business whereunder the Target is obligated to pay or entitled to receive the sum of $10,000 or more including, without limitation, any pension plans, profit sharing plans, bonus plans, loan agreements, security agreements, indemnities and guarantees, any agreements with employees, lessees, licensees, managers, accountants, suppliers, agents, distributors, officers, directors, attorneys or others which cannot be terminated without liability on not more than one month’s notice, and those contracts listed in the Target Disclosure Statement Schedule E; |
| (ccc) | “Target Shares” means all of the issued and outstanding shares of the Target’s capital stock; |
| (ddd) | “Target Shareholders” means those holders of the Target Shares as of the Effective Time as shown in the books and records of the Target; and |
| (eee) | “Trade Secrets” has the meaning set forth in Section 5.1(kk)(iv) hereto. |
Any other terms defined within the text of this Agreement will have the meanings so ascribed to them.
| 1.2 | Captions and Section Numbers |
The headings and section references in this Agreement are for convenience of reference only and do not form a part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof.
| 1.3 | Section References and Schedules |
Any reference to a particular “Article”, “section”, “paragraph”, “clause” or other subdivision is to the particular Article, section, clause or other subdivision of this Agreement and any reference to a Schedule by letter will mean the appropriate Schedule attached to this Agreement and by such reference the appropriate Schedule is incorporated into and made part of this Agreement. The Schedules to this Agreement are as follows:
| Schedule A | - | Agreement of Merger |
| Schedule B | - | Certificate of Accredited Investor |
| Schedule C | - | Certificate of Non-Accredited Investor |
The Purchaser Disclosure Statement Schedules are as follows:
| Schedule A | - | Purchaser Accounts Payable and Liabilities |
| Schedule B | - | Purchaser Debts to Related Parties |
| Schedule C | - | Purchaser Material Contracts |
| - 7 - |
The Target Disclosure Statement Schedules are as follows:
| Schedule A | - | Target Accounts Payable and Liabilities |
| Schedule B | - | Target Accounts Receivable |
| Schedule C | - | Target Bank Accounts |
| Schedule D | - | Target Debts to Related Parties |
| Schedule E | - | Target Material Contracts |
| Schedule F | - | Target Intellectual Property |
| Schedule G | - | Qualifications to Representations and Warranties |
| Schedule H | - | Options, Warrants and Other Rights |
| Schedule I | - | Adverse Events |
| Schedule J | - | Mortgages, Liens, and Other Interests |
| 1.4 | Currency |
Unless otherwise specifically noted, all references to currency in this Agreement and in the Audited Target Financial Statements are or will be to United States Dollars ($).
| 1.5 | Severability of Clauses |
If any part of this Agreement is declared or held to be invalid for any reason, such invalidity will not affect the validity of the remainder which will continue in full force and effect and be construed as if this Agreement had been executed without the invalid portion, and it is hereby declared the intention of the Parties that this Agreement would have been executed without reference to any portion which may, for any reason, be hereafter declared or held to be invalid.
ARTICLE 2
THE MERGER
| 2.1 | Agreement to Merge |
At the Effective Time, a merger shall take place (the “Merger”) by which the Merger Sub shall be merged with and into the Target, and the separate corporate existence of the Merger Sub shall cease and the Target shall be the Surviving Corporation. The Target’s corporate name, existence, and all its purposes, powers, and objectives shall continue unaffected and unimpaired by the Merger, and as the Surviving Corporation it shall be governed by the laws of the State of California and succeed to all of the Merger Sub’s rights, assets, liabilities, and obligations in accordance with the California Corporations Code.
| 2.2 | Effect of the Merger |
| (a) | Articles of Incorporation. The articles of incorporation of the Target in effect at the Effective Time shall become the articles of incorporation of the Surviving Corporation. From and after the Effective Time, those articles of incorporation, as they may be duly amended from time to time, shall be, and may be separately certified as, the articles of incorporation of the Surviving Corporation. |
| (b) | Bylaws. The bylaws of the Target in effect at the Effective Time shall be the bylaws of the Surviving Corporation until they are thereafter duly altered, amended, or repealed. |
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| (c) | Directors and Officers. The directors of the Target at the Effective Time shall be the directors of the Surviving Corporation, each to hold office in accordance with the provisions of applicable law and the articles of incorporation and bylaws of the Surviving Corporation, until their successors have been duly elected and qualified. The officers of the Target at the Effective Time shall be the officers of Surviving Corporation, each to hold office subject to the articles of incorporation and bylaws of the Surviving Corporation. |
| 2.3 | Conversion of Securities |
At the Effective Time:
| (a) | Capital Stock of the Merger Sub. Each share of the Merger Sub’s common stock, par value of $0.001 per share, issued and outstanding immediately before the Effective Time shall be converted into one share of common stock, par value of $0.002 per share, of the Surviving Corporation. |
| (b) | Conversion of Target Shares. Each share of the Target’s common stock, par value of $0.002 per share, issued and outstanding immediately before the Effective Time, other than “dissenting shares” as defined in the California Corporations Code §1300, shall by virtue of the Merger and without action on the part of the shareholder be converted into the right to receive from and to be paid by the Purchaser a number of Acquisition Shares equal to (i) the total number of Acquisition Shares divided by (ii) the number of shares of the Target’s common stock issued and outstanding immediately before the Effective Time. No fraction of an Acquisition Share will be issued pursuant to this Agreement. Any such fraction that would result from the Merger which is one half of one or greater than one half of one will be rounded up to the next whole number, and less than one half of one shall be rounded down to the lower whole number. |
| 2.4 | Dissenters’ Rights |
Despite anything in this Agreement to the contrary, a “dissenting shareholder” who holds any of Target’s “dissenting shares” (as those terms are defined in California Corporations Code §1300) outstanding immediately before the Effective Time and who has made and perfected a demand for payment of the value of the shares (the “Payment”) in accordance with California Corporations Code §§1300–1312 (the “Dissenters’ Rights Statute”) and who has not effectively withdrawn or lost the right to such Payment shall have, by virtue of the Merger and without further action on the dissenting shareholder’s part, the right to receive and be paid the Payment and no further rights other than those provided by the Dissenters’ Rights Statute. The Target shall give the Purchaser prompt written notice of all written demands for the Payment, withdrawals of demand, and other written communications received by the Target pursuant to the Dissenters’ Rights Statute. After the amount of the Payment has been agreed on or finally determined pursuant to the Dissenters’ Rights Statute, all dissenting shareholders entitled to the Payment pursuant to the Dissenters’ Rights Statute shall receive such payment from Target, and the dissenting shares shall thereupon be canceled.
| 2.5 | Closing of the Target’s Transfer Books |
At the Effective Time, the stock transfer books of the Target shall be closed, and thereafter no transfers of shares of Target’s common stock shall be made or consummated.
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| 2.6 | Exchange of Shares |
| (a) | As promptly as practicable after the Effective Time, but in no event more than five business days following the Effective Time, the Purchaser shall or cause its transfer agent to, mail or deliver to each person who was, as of immediately prior to the Effective Time, a holder of record of the Target’s common stock: |
| (i) | a letter of transmittal (which shall be in customary form and shall specify that delivery shall be effected, and risk of loss and title to the Target’s common stock shall pass, only upon proper delivery of the Target’s common stock to the Purchaser or the Purchaser’s transfer agent, as applicable); and |
| (ii) | instructions for effecting the surrender of the Target’s common stock in exchange for the Acquisition Shares. |
| (b) | Upon surrender to the Purchaser or its transfer agent, as applicable, of the Target’s common stock for cancellation, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Target’s common stock shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Acquisition Shares into which the shares of the Target’s common stock so surrendered shall have been converted pursuant to Section 2.3(b). The certificates so surrendered shall be cancelled. Until surrendered as contemplated by this Section 2.6(b), each share of the Target’s common stock shall be deemed at all times after the Effective Time to represent only the right to receive upon such surrender the Acquisition Shares. |
| (c) | Notwithstanding any other provisions of this Agreement, any portion of the Acquisition Shares remaining unclaimed five years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to, or become property of, any governmental authority) shall, to the extent permitted by law, become the property of the Purchaser free and clear of any claims or interest of any person previously entitled thereto. None of the Purchaser, the Purchaser’s transfer agent or the Surviving Corporation shall be liable to any holder of the Target’s common stock for any such shares (or dividends or distributions with respect thereto), or cash delivered to a public official pursuant to any abandoned property, escheat or similar law. |
| 2.7 | Securities Act Exemption |
The Acquisition Shares to be issued in the Merger is intended to be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated under the Securities Act and from applicable state securities laws. The Target shall use reasonable efforts to facilitate its shareholders taking all reasonable actions and executing all necessary documents to qualify the issuance of the Acquisition Shares for such exemptions. Without limiting the generality of the foregoing, the Target shall use reasonable efforts to obtain, on or before the Closing Date, a certificate of a Target Shareholder in the form attached hereto as Schedule B, if the Target Shareholder is an “accredited investor” as defined in Rule 501 promulgated under the Securities Act, or Schedule C, if the Target Shareholder is not an “accredited investor”, from each Target Shareholder in order to, among other things, evidence the availability of such exemptions.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
| 3.1 | Representations and Warranties |
The Purchaser hereby represents and warrants in all material respects to the Target with the intent that the Target will rely thereon in entering into this Agreement and in approving and completing the transactions contemplated hereby, that:
The Purchaser - Corporate Status and Capacity
| (a) | Incorporation. The Purchaser is a corporation duly incorporated and validly existing under the laws of the State of Nevada, and is in good standing with the office of the Secretary of State for the State of Nevada; |
| (b) | Carrying on Business. The Purchaser has no active business and is currently seeking out business opportunities; |
| (c) | Corporate Capacity. The Purchaser has the corporate power, capacity and authority to own the Purchaser Assets and to enter into and complete this Agreement; |
| (d) | Reporting Status; Listing. The Purchaser Common Shares are quoted on the OTC Bulletin Board, and all reports required to be filed by the Purchaser with the SEC or OTC Bulletin Board have been filed; |
Merger Sub - Corporate Status and Capacity
| (e) | Incorporation. The Merger Sub is a corporation duly incorporated and validly subsisting under the laws of the State of California, and is in good standing with the office of the Secretary of State for the State of California; |
| (f) | Carrying on Business. Other than corporate formation and organization, the Merger Sub has not carried on business activities of any nature whatsoever, other than the negotiation, authorization and execution of the Agreement; |
| (g) | Corporate Capacity. The Merger Sub has the corporate power, capacity and authority to enter into and complete this Agreement; |
The Purchaser - Capitalization
| (h) | Authorized Capital. The authorized capital of the Purchaser consists of 75,000,000 Purchaser Common Shares, $0.001 par value per share of which 4,320,000 Purchaser Common Shares are presently issued and outstanding. All of the issued and outstanding shares are validly issued, fully paid and non-assessable; |
| (i) | No Option, Warrant or Other Right. Other than as set out in this Agreement, no Person has any agreement, option, warrant, preemptive right or any other right capable of becoming an agreement, option, warrant or right for the acquisition of the Purchaser Common Shares or for the purchase, subscription or issuance of any of the unissued shares in the capital of the Purchaser; |
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Merger Sub Capitalization
| (j) | Authorized Capital. The authorized capital of the Merger Sub consists of 1,000 shares of common stock with no par value, of which one share of common stock is presently issued and outstanding. The issued and outstanding share is validly issued, fully paid and non-assessable; |
| (k) | No Option, Warrant or Other Right. No Person has any agreement, option, warrant, preemptive right or any other right capable of becoming an agreement, option, warrant or right for the acquisition of any shares in the capital of the Merger Sub or for the purchase, subscription or issuance of any of the unissued shares in the capital of Merger Sub; |
The Purchaser - Records and Financial Statements
| (l) | Charter Documents. The charter documents of the Purchaser and the Merger Sub have not been altered since the incorporation of each, respectively, except as filed in the record books of the Purchaser or the Merger Sub, as the case may be; |
| (m) | Corporate Minute Books. The corporate minute books of the Purchaser are substantially complete and each of the minutes contained therein accurately reflect the actions that were taken at a duly called and held meeting or by consent without a meeting. The Purchaser is not in violation or breach of, or in default with respect to, any term of its articles of incorporation (or other charter documents) or bylaws; |
| (n) | Purchaser Financial Statements. The Purchaser Financial Statements present fairly, in all material respects, the assets and liabilities (whether accrued, absolute, contingent or otherwise) of the Purchaser as of the respective dates thereof, and the sales and earnings of the Purchaser Business during the periods covered thereby, in all material respects, and have been prepared in substantial accordance with GAAP; |
| (o) | Purchaser Accounts Payable and Liabilities. There are no material liabilities, contingent or otherwise, of the Purchaser which are not disclosed in the Purchaser Disclosure Statement Schedule A or reflected in the Purchaser Financial Statements except those incurred in the ordinary course of business since the date of the said schedule and the Purchaser Financial Statements, and the Purchaser has not guaranteed or agreed to guarantee any debt, liability or other obligation of any Person. Without limiting the generality of the foregoing, all accounts payable and liabilities of the Purchaser as of May 31, 2014 are described in the Purchaser Disclosure Statement Schedule A; |
| (p) | No Debt to Related Parties. Except as disclosed in the Purchaser Disclosure Statement Schedule B the Purchaser is not, and on Closing will not be, indebted to any affiliate, director or officer of the Purchaser except accounts payable on account of bona fide business transactions of the Purchaser incurred in normal course of the Purchaser Business, including employment agreements, none of which are more than 30 days in arrears; |
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| (q) | No Related Party Debt to Purchaser. No director or officer or affiliate of the Purchaser is now indebted to or under any financial obligation to the Purchaser on any account whatsoever; |
| (r) | No Dividends. No dividends or other distributions on any shares in the capital of the Purchaser have been made, declared or authorized since the date of the Purchaser Financial Statements; |
| (s) | No Payments. No payments of any kind have been made or authorized since the date of the Purchaser Financial Statements to or on behalf of officers, directors, shareholders or employees of the Purchaser or under any management agreements with the Purchaser; |
| (t) | No Pension Plans. There are no pension, profit sharing, group insurance or similar plans or other deferred compensation plans affecting the Purchaser; |
| (u) | No Adverse Events. Since the date of the Purchaser Financial Statements: |
| (i) | there has not been any material adverse change in the financial position or condition of the Purchaser, its liabilities or the Purchaser Assets or any damage, loss or other change in circumstances materially affecting the Purchaser, the Purchaser Business or the Purchaser Assets or the Purchaser’s right to carry on the Purchaser Business, other than changes in the ordinary course of business, |
| (ii) | there has not been any damage, destruction, loss or other event (whether or not covered by insurance) materially and adversely affecting the Purchaser, the Purchaser Business or the Purchaser Assets, |
| (iii) | there has not been any material increase in the compensation payable or to become payable by the Purchaser to any of Purchaser’s officers, employees or agents or any bonus, payment or arrangement made to or with any of them, |
| (iv) | the Purchaser Business has been and continues to be carried on in the ordinary course, |
| (v) | the Purchaser has not waived or surrendered any right of material value, |
| (vi) | the Purchaser has not discharged or satisfied or paid any lien or encumbrance or obligation or liability other than current liabilities in the ordinary course of business, and |
| (vii) | no capital expenditures in excess of $2,000 individually or $5,000 in total have been authorized or made; |
Purchaser - Income Tax Matters
| (v) | Tax Returns. The Purchaser has not filed income tax returns, but has had losses in each year of its existence; |
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| (w) | Current Taxes. Adequate provisions have been made for taxes payable for the current period for which tax returns are not yet required to be filed and there are no agreements, waivers, or other arrangements providing for an extension of time with respect to the filing of any tax return by, or payment of, any tax, governmental charge or deficiency by the Purchaser. The Purchaser is not aware of any contingent tax liabilities or any grounds which would prompt a reassessment including aggressive treatment of income and expenses in filing earlier tax returns; |
The Purchaser - Applicable Laws and Legal Matters
| (x) | Licenses. The Purchaser holds no licenses and permits and represents that such failure to obtain or maintain such licenses or permits will not have a Material Adverse Effect; |
| (y) | Applicable Laws. The Purchaser has not been charged with or received notice of breach of any laws, ordinances, statutes, regulations, bylaws, orders or decrees to which it is subject or which apply to it the violation of which would have a Material Adverse Effect on the Purchaser Business, and to the Purchaser’s knowledge, the Purchaser is not in breach of any laws, ordinances, statutes, regulations, bylaws, orders or decrees the contravention of which would result in a material adverse impact on the Purchaser Business; |
| (z) | Pending or Threatened Litigation. There is no litigation or administrative or governmental proceeding pending or threatened against or relating to the Purchaser, the Purchaser Business, or any of the Purchaser Assets nor does the Purchaser have any knowledge of any deliberate act or omission of the Purchaser that would form any basis for any such action or proceeding; |
| (aa) | No Bankruptcy. The Purchaser has not made any voluntary assignment or proposal under applicable laws relating to insolvency and bankruptcy and no bankruptcy petition has been filed or presented against the Purchaser and no order has been made or a resolution passed for the winding-up, dissolution or liquidation of the Purchaser; |
| (bb) | Labour Matters. The Purchaser is not party to any collective agreement relating to the Purchaser Business with any labor union or other association of employees and no part of the Purchaser Business has been certified as a unit appropriate for collective bargaining or, to the knowledge of the Purchaser, has made any attempt in that regard; |
| (cc) | Finder’s Fees. The Purchaser is not party to any agreement which provides for the payment of finder’s fees, brokerage fees, commissions or other fees or amounts which are or may become payable to any third party in connection with the execution and delivery of this Agreement and the transactions contemplated herein; |
Execution and Performance of Agreement
| (dd) | Authorization. The execution and delivery of this Agreement, and the completion of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of the Purchaser and the Merger Sub; |
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| (ee) | Enforceability. The Purchaser has all requisite power and authority to execute and deliver the Agreement and any other transaction documents to be signed by the Purchaser and to perform its respective obligations thereunder and to consummate the transactions contemplated hereby. The execution and delivery of the Agreement by the Purchaser and the consummation of the transactions contemplated hereby have been duly authorized by the board of directors of the Purchaser. No other corporate or shareholder proceedings on the part of the Purchaser are necessary to authorize such documents or to consummate the transactions contemplated hereby. This Agreement has been, and the other transaction documents when executed and delivered by the Purchaser as contemplated by this Agreement will be, duly executed and delivered by the Purchaser, and this Agreement is, and the other transaction documents when executed and delivered by the Purchaser as contemplated hereby will be, valid and binding obligations of the Purchaser, enforceable in accordance with their respective terms except: |
| (i) | as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, |
| (ii) | as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and |
| (iii) | as limited by public policy; |
| (ff) | No Violation or Breach. The execution and performance of this Agreement will not: |
| (i) | violate the charter documents of the Purchaser or the Merger Sub or result in any breach of, or default under, any loan agreement, mortgage, deed of trust, or any other agreement to which the Purchaser is party, |
| (ii) | give any person any right to terminate or cancel any agreement including, without limitation, the Purchaser Material Contracts, or any right or rights enjoyed by the Purchaser, |
| (iii) | result in any alteration of the Purchaser’s obligations under any agreement to which the Purchaser is party including, without limitation, the Purchaser Material Contracts, |
| (iv) | result in the creation or imposition of any lien, encumbrance or restriction of any nature whatsoever in favor of a third party upon or against the Purchaser Assets, |
| (v) | result in the imposition of any tax liability to the Purchaser relating to the Purchaser Assets, or |
| (vi) | violate any court order or decree to which the Purchaser is subject; |
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The Purchaser Assets - Ownership and Condition
| (gg) | Business Assets. The Purchaser Assets comprise all of the property and assets of the Purchaser Business, and no other Person owns any assets used by the Purchaser in operating the Purchaser Business, whether under a lease, rental agreement or other arrangement, other than as disclosed in the Purchaser Disclosure Statement Schedule C; |
| (hh) | Title. The Purchaser is the legal and beneficial owner of the Purchaser Assets, free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except as disclosed in the Purchaser Disclosure Statement Schedule C; |
| (ii) | No Option. No Person has any agreement or option or a right capable of becoming an agreement for the purchase of any of the Purchaser Assets; |
| (jj) | Purchaser Material Contracts. The Purchaser Material Contracts listed in the Purchaser Disclosure Statement Schedule C constitute all of the material contracts of the Purchaser; |
| (kk) | No Default. There has not been any default in any material obligation of the Purchaser or any other party to be performed under any of the Purchaser Material Contracts, each of which is in good standing and in full force and effect and unamended (except as disclosed in the Purchaser Disclosure Statement Schedule C), and the Purchaser is not aware of any default in the obligations of any other party to any of the Purchaser Material Contracts; |
| (ll) | No Compensation on Termination. There are no agreements, commitments or understandings relating to severance pay or separation allowances on termination of employment of any employee of the Purchaser. The Purchaser is not obliged to pay benefits or share profits with any employee after termination of employment except as required by law; |
The Purchaser Assets – the Purchaser Goodwill and Other Assets
| (mm) | Purchaser Goodwill. Purchaser does not carry on the Purchaser Business under any other business or trade names. The Purchaser does not have any knowledge of any infringement by the Purchaser of any patent, trademarks, copyright or trade secret; |
The Purchaser Business
| (nn) | Maintenance of Business. Since the date of the Purchaser Financial Statements, the Purchaser has not entered into any material agreement or commitment except in the ordinary course and as disclosed herein; |
| (oo) | Subsidiaries. Except for the Merger Sub, the Purchaser does not own any subsidiaries and does not otherwise own, directly or indirectly, any shares or interest in any other corporation, partnership, joint venture or firm; and |
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The Purchaser - Acquisition Shares
| (pp) | Acquisition Shares. The Acquisition Shares when delivered to the holders of the Target Shares pursuant to the Merger shall be validly issued and outstanding as fully paid and non-assessable shares and the Acquisition Shares shall be transferable upon the books of the Purchaser, in all cases subject to the provisions and restrictions of all applicable securities laws. |
| 3.2 | Non-Merger and Survival |
The representations and warranties of the Purchaser contained herein will be true at and as of Closing in all material respects as though such representations and warranties were made as of such time. Notwithstanding the completion of the transactions contemplated hereby, the waiver of any condition contained herein (unless such waiver expressly releases a party from any such representation or warranty) or any investigation made by the Target, the representations and warranties of the Purchaser shall survive the Closing for a period of two years.
| 3.3 | Indemnity |
The Purchaser agrees to indemnify and save harmless the Target from and against any and all claims, demands, actions, suits, proceedings, assessments, judgments, damages, costs, losses and expenses, including any payment made in good faith in settlement of any claim, resulting from the breach by it of any representation or warranty made under this Agreement or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished by the Purchaser to the Target.
ARTICLE 4
COVENANTS OF THE PURCHASER
| 4.1 | Covenants |
The Purchaser covenants and agrees with the Target that it will:
| (a) | Conduct of Business. Until the Closing, conduct the Purchaser Business diligently and in the ordinary course consistent with the manner in which the Purchaser Business generally has been operated up to the date of execution of this Agreement; |
| (b) | Access. Until the Closing, give the Target and its representatives full access to all of the properties, books, contracts, commitments and records of the Purchaser, and furnish to the Target and its representatives all such information as they may reasonably request; |
| (c) | Procure Consents. Until the Closing, take all reasonable steps required to obtain, prior to Closing, any and all third party consents required to permit the Merger and to preserve and maintain the Purchaser Assets notwithstanding the change in control of the Purchaser arising from the Merger; |
| (d) | Maintain Listing. From and after the Closing Date, maintain the quotation of the Purchaser Common Shares on the OTC Bulletin Board, unless and until the Purchaser Common Shares are listed or quoted on another, more senior exchange or quotation system; |
| - 17 - |
| (e) | Board of Directors. On or prior to the Closing Date, the current board of directors of the Purchaser will adopt resolutions setting the number of directors at five (5) and appointing five (5) nominees of the Target and accepting the resignation of James Grant from the board of directors of the Purchaser, which appointments and resignation will be effective on the later of (1) the Closing Date or (2) ten days after the filing of a Schedule 14f-1 in connection with the Merger, if applicable; |
| (f) | Officers. On or prior to the Closing Date, the current board of directors of the Purchaser will adopt resolutions appointing John Hall as Chairman, Chief Executive Officer, Secretary, and Treasurer of the Purchaser and appointing nominees of the Target to all other offices of the Purchaser and remove or obtain resignation from the officers of the Purchaser as requested by the Target, which appointments, removals and resignations will be effective as of the Closing Date; |
| (g) | John Hall’s Employment Agreement. On or prior to the Closing Date, the current board of directors of the Purchaser will adopt a resolution approving the Employment Agreement for John Hall to serve as Chairman and Chief Executive Officer of the Purchaser, which will be effective as of the Closing Date; and |
| (h) | Equity Incentive Plan. On or prior to the Closing Date, the Purchaser will adopt an equity incentive plan with provisions that are acceptable to the Purchaser and the Target. |
| 4.2 | Authorization |
The Purchaser hereby agrees to authorize and direct any and all federal, provincial, state, municipal, foreign and international governments and regulatory authorities having jurisdiction respecting the Purchaser to release any and all information in their possession respecting the Purchaser to the Target. The Purchaser shall promptly execute and deliver to the Target any and all consents to the release of information and specific authorizations which the Target reasonably requires to gain access to any and all such information.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE TARGET
| 5.1 | Representations and Warranties |
The Target hereby represent and warrant in all material respects to the Purchaser, with the intent that it will rely thereon in entering into this Agreement and in approving and completing the transactions contemplated hereby, that:
The Target - Corporate Status and Capacity
| (a) | Incorporation. The Target is a corporation duly incorporated and validly existing under the laws of the State of California, and is in good standing with the office of the Secretary of State for the State of California; |
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| (b) | Carrying on Business. The Target has been carrying on the Target Business. Since the date of its inception, other than in connection with this Agreement, the Target has conducted no business or operations other than as set forth above. The Target is registered, licensed or otherwise qualified as to carry on business in each jurisdiction where the nature of the Target Business or the location or character of the property and assets owned or leased by it requires it to be so registered, licensed or otherwise qualified, except where the failure to be so registered, licensed or otherwise qualified does not, nor is reasonably expected to, have a Material Adverse Effect; |
| (c) | Corporate Capacity. The Target has the corporate power, capacity and authority to enter into and complete this Agreement; |
The Target - Capitalization
| (d) | Authorized Capital. The authorized capital of the Target consists of 2,000,000 shares of common stock, $0.002 par value per share; |
| (e) | Ownership of the Target Shares. The issued and outstanding share capital of the Target will on Closing consist of 1,007,920 Target Shares, which shares on Closing shall be validly issued and outstanding as fully paid and non-assessable shares; |
| (f) | No Option, Warrant or Other Right. Except as set forth on Schedule H of the Target Disclosure Statement, no Person has any agreement, option, warrant, preemptive right or any other right capable of becoming an agreement, option, warrant or right for the purchase, subscription or issuance of any of the unissued shares in the capital of the Target; |
The Target - Records and Financial Statements
| (g) | Charter Documents. The charter documents of the Target have not been altered since its incorporation date, except as filed in the record books of the Target; |
| (h) | Corporate Minute Book. The corporate minute books of the Target are complete and each of the minutes contained therein accurately reflect the actions that were taken at a duly called and held meeting or by consent without a meeting. All actions by the Target which required director or shareholder approval are reflected on the corporate minute books of the Target. The Target is not in violation or breach of, or in default with respect to, any term of its articles of incorporation (or other charter documents) or bylaws; |
| (i) | Target Financial Statements. The Audited Target Financial Statements, present fairly, in all material respects, the assets and liabilities (whether accrued, absolute, contingent or otherwise) of the Target as of the respective dates thereof, and the expenses of the Target Business during the period covered thereby, in all material respects, and will have been prepared in substantial accordance with GAAP; |
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| (j) | Target Accounts Payable and Liabilities. Other than the Bridge Loan, there are no material liabilities, contingent or otherwise, of the Target which are not disclosed in the Target Disclosure Statement Schedule A or reflected in the Target Financial Statements except those incurred in the ordinary course of business since the date of the said schedule and financial statements, and the Target has not guaranteed or agreed to guarantee any debt, liability or other obligation of any Person. Without limiting the generality of the foregoing, all accounts payable and liabilities of the Target as of March 31, 2014 are described in the Target Disclosure Statement Schedule A; |
| (k) | Target Accounts Receivable. All the Target Accounts Receivable result from bona fide business transactions and services actually rendered without, to the knowledge and belief of the Target, any claim by the obligor for set-off or counterclaim. Without limiting the generality of the foregoing, all accounts receivable of the Target as of March 31, 2014 are described in the Target Disclosure Statement Schedule B; |
| (l) | Target Bank Accounts. All of the Target Bank Accounts, their location, numbers and the authorized signatories thereof, as well as their balances as at the date hereof, are as set forth in the Target Disclosure Statement Schedule C; |
| (m) | No Debt to Related Parties. Except as disclosed in the Target Disclosure Statement Schedule D, the Target will on Closing not be indebted to any affiliate, director, officer or shareholder of the Target except accounts payable on account of bona fide business transactions of the Target incurred in normal course of the Target Business, including employment agreements, none of which are more than 30 days in arrears; |
| (n) | No Related Party Debt to the Target. No director, officer or affiliate of the Target is now indebted to or under any financial obligation to the Target on any account whatsoever, except for advances on account of travel and other expenses not exceeding $10,000 in total; |
| (o) | No Dividends. No dividends or other distributions on any shares in the capital of the Target have been made, declared or authorized since the date of the Target Financial Statements; |
| (p) | No Payments. No payments of any kind have been made or authorized since the date of the Target Financial Statements to or on behalf of officers, directors, shareholders or employees of the Target or under any management agreements with the Target, except payments made in the ordinary course of business and at the regular rates of salary or other remuneration payable to them; |
| (q) | No Pension Plans. There are no pension, profit sharing, group insurance or similar plans or other deferred compensation plans affecting the Target; |
| (r) | No Adverse Events. Except as set forth on Schedule I of the Target Disclosure Statement, since the date of the Target Financial Statements: |
| (i) | there has not been any material adverse change in the consolidated financial position or condition of the Target, its liabilities or the Target Assets or any damage, loss or other change in circumstances materially affecting the Target, the Target Business or the Target Assets or the Target’s right to carry on the Target Business, other than changes in the ordinary course of business, |
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| (ii) | there has not been any damage, destruction, loss or other event (whether or not covered by insurance) materially and adversely affecting the Target, the Target Business or the Target Assets, |
| (iii) | there has not been any material increase in the compensation payable or to become payable by the Target to any of the Target’s officers, employees or agents or any bonus, payment or arrangement made to or with any of them, |
| (iv) | the Target Business has been and continues to be carried on in the ordinary course, |
| (v) | the Target has not waived or surrendered any right of material value, |
| (vi) | the Target has not discharged or satisfied or paid any lien or encumbrance or obligation or liability other than current liabilities in the ordinary course of business, and |
| (vii) | no capital expenditures in excess of $10,000 individually or $50,000 in total have been authorized or made; |
The Target - Income Tax Matters
| (s) | Tax Returns. The Target has filed or caused to be filed all tax returns that are or were required to be filed by or with respect to it, either separately or as a member of a group of corporations, pursuant to all applicable statutes and other legal requirements. The Target has made available to the Purchaser copies of all such tax returns filed by the Target. The Target has not given or been requested to give waivers or extensions (or is or would be subject to a waiver or extension given by any other Person) of any statute of limitations relating to the payment by the Target or for which the Target may be liable; |
| (t) | Current Taxes. Adequate provisions have been made for taxes payable for the current period for which tax returns are not yet required to be filed and there are no agreements, waivers, or other arrangements providing for an extension of time with respect to the filing of any tax return by, or payment of, any tax, governmental charge or deficiency by the Target. The Target is not aware of any contingent tax liabilities; |
The Target - Applicable Laws and Legal Matters
| (u) | Licenses. The Target holds all licenses and permits as may be requisite for carrying on the Target Business in the manner in which it has heretofore been carried on, which licenses and permits have been maintained and continue to be in good standing except where the failure to obtain or maintain such licenses or permits would not have a Material Adverse Effect on the Target Business; |
| (v) | Applicable Laws. The Target has not been charged with or received notice of breach of any laws, ordinances, statutes, regulations, bylaws, orders or decrees to which it is subject or which applies to it the violation of which would have a Material Adverse Effect on the Target Business. The Target is not in breach of any laws, ordinances, statutes, regulations, bylaws, orders or decrees the contravention of which would result in a Material Adverse Effect on the Target Business except as set forth on Target Disclosure Statement Schedule G; |
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| (w) | Pending or Threatened Litigation. Other than as set forth in Target Disclosure Statement Schedule G there is no litigation or administrative or governmental proceeding pending or threatened against or relating to the Target, the Target Business, or any of the Target Assets, nor does the Target have any knowledge of any deliberate act or omission of the Target that would form any basis for any such action or proceeding; |
| (x) | No Bankruptcy. The Target has not made any voluntary assignment or proposal under applicable laws relating to insolvency and bankruptcy and no bankruptcy petition has been filed or presented against the Target and no order has been made or a resolution passed for the winding-up, dissolution or liquidation of the Target; |
| (y) | Labor Matters. The Target is not party to any collective agreement relating to the Target Business with any labor union or other association of employees and no part of the Target Business has been certified as a unit appropriate for collective bargaining or, to the knowledge of the Target, has made any attempt in that regard; |
| (z) | Finder’s Fees. The Target is not party to any agreement which provides for the payment of finder’s fees, brokerage fees, commissions or other fees or amounts which are or may become payable to any third party in connection with the execution and delivery of this Agreement and the transactions contemplated herein; |
Execution and Performance of Agreement
| (aa) | Authorization. The execution and delivery of this Agreement, and the completion of the transactions contemplated hereby, have been, or at or prior to the Effective Time will be, duly and validly authorized by all necessary corporate action on the part of the Target; |
| (bb) | Enforceability. The Target has all requisite power and authority to execute and deliver the Agreement and any other transaction documents to be signed by the Target and to perform its respective obligations thereunder and to consummate the transactions contemplated hereby. The execution and delivery of the Agreement by the Target and the consummation of the transactions contemplated hereby have been duly authorized by the board of directors of the Target. No other corporate or shareholder proceedings on the part of the Target are necessary to authorize such documents or to consummate the transactions contemplated hereby. This Agreement has been, and the other transaction documents when executed and delivered by the Target as contemplated by this Agreement will be, duly executed and delivered by the Target, and this Agreement is, and the other transaction documents when executed and delivered by the Target as contemplated hereby will be, valid and binding obligations of the Target, enforceable in accordance with their respective terms except: |
| (i) | as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, |
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| (ii) | as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and |
| (iii) | as limited by public policy; |
| (cc) | No Violation or Breach. The execution and performance of this Agreement will not |
| (i) | violate the charter documents of the Target or result in any breach of, or default under, any loan agreement, mortgage, deed of trust, or any other agreement to which the Target is a party, |
| (ii) | give any person any right to terminate or cancel any agreement including, without limitation, the Target Material Contracts, or any right or rights enjoyed by the Target, provided that this Agreement is subject to consent by Opus Bank and California United Bank, |
| (iii) | result in any alteration of the Target’s obligations under any agreement to which the Target is a party including, without limitation, the Target Material Contracts, |
| (iv) | result in the creation or imposition of any lien, encumbrance or restriction of any nature whatsoever in favor of a third party upon or against the Target Assets, |
| (v) | result in the imposition of any tax liability to the Target relating to the Target Assets or the Target Shares, or |
| (vi) | violate any court order or decree to which the Target is subject; |
The Target Assets - Ownership and Condition
| (dd) | Business Assets. The Target Assets comprise all of the property and assets of the Target Business, and no other Person owns any assets used by the Target in operating the Target Business, whether under a lease, rental agreement or other arrangement, other than as disclosed in the Target Disclosure Statement Schedule G; |
| (ee) | Title. The Target is the legal and beneficial owner of the Target Assets, free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except as disclosed in the Target Disclosure Statement Schedule G; |
| (ff) | No Option. No Person has any agreement or option or a right capable of becoming an agreement for the purchase of any of the Target Assets; |
| (gg) | Target Material Contracts. The Target Material Contracts listed in the Target Disclosure Statement Schedule E constitute all of the material contracts of the Target; |
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| (hh) | No Default. There has not been any default in any material obligation of the Target or any other party to be performed under any of the Target Material Contracts, each of which is in good standing and in full force and effect and unamended (except as disclosed in the Target Disclosure Statement Schedule G), and the Target is not aware of any default in the obligations of any other party to any of the Target Material Contracts; |
| (ii) | No Compensation on Termination. There are no agreements, commitments or understandings relating to severance pay or separation allowances on termination of employment of any employee, director or officer of the Target. The Target is not obliged to pay benefits or share profits with any employee after termination of employment except as required by law; |
The Target Assets – The Target Goodwill and Other Assets
| (jj) | Target Goodwill. The Target carries on the Target Business only under the name “PCS Link, Inc.” or “Greenwood & Hall” and variations thereof and under no other business or trade names. The Target does not have any knowledge of any infringement by the Target of any patent, trademark, copyright or trade secret; |
The Target Assets – Intellectual Property
| (kk) | Intellectual Property Assets. The Target owns or holds an interest in all intellectual property assets necessary for the operation of the businesses of the Target as its businesses are currently conducted (collectively, the “Target Intellectual Property Assets”), including: |
| (i) | all functional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, the “Marks”), |
| (ii) | all patents, patent applications and inventions, methods, processes and discoveries that may be patentable (collectively, the “Patents”), |
| (iii) | all copyrights in both published works and unpublished works (collectively, the “Copyrights”), and |
| (iv) | all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints owned, used, or licensed by the Target as licensee or licensor (collectively, the “Trade Secrets”); |
| (ll) | Intellectual Property and Know-How Necessary for the Business. Except as disclosed in the Target Disclosure Statement Schedule F, the Target is the owner of all right, title, and interest in and to each of the Target Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances and other adverse claims, and have the right to use, without payment to a third party, all of the Target Intellectual Property Assets. Except as disclosed in the Target Disclosure Statement Schedule F, all former and current employees and contractors of the Target have executed written contracts, agreements or other undertakings with the Target that assign all rights to any inventions, improvements, discoveries or information relating to the Target Business to the Target. No employee, director, officer or shareholder of the Target owns, directly or indirectly, in whole or in part, any Target Intellectual Property Asset which the Target is presently using or which is necessary for the conduct of the Target Business. To the best knowledge of the Target, no employee or contractor of the Target has entered into any contract or agreement that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign or disclose information concerning his or her work to anyone other than the Target; |
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| (mm) | Patents. Except as disclosed in the Target Disclosure Statement Schedule F, the Target does not hold any right, title or interest in or to any Patent and the Target has not filed any patent application with any third party. To the best knowledge of the Target, none of the products manufactured and sold, nor any process or know-how used, by the Target infringes or is alleged to infringe any patent or other proprietary night of any other Person; |
| (nn) | Trademarks. Except as disclosed in the Target Disclosure Statement Schedule F, the Target does not hold any right, title or interest in or to any Mark and the Target has not registered or filed any application to register any Mark with any third party. To the best knowledge of the Target, none of the Marks, if any, used by the Target infringes or is alleged to infringe any trade name, trademark or service mark of any third party; |
| (oo) | Copyrights. The Target is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all liens, security interests, charges, encumbrances and other adverse claims. If applicable, all registered Copyrights are currently in compliance with formal legal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. To the best knowledge of the Target, no Copyright is infringed or has been challenged or threatened in any way and none of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. All works encompassed by the Copyrights have been marked with the proper copyright notice; |
| (pp) | Trade Secrets. The Target has taken all reasonable precautions to protect the secrecy, confidentiality and value of their Trade Secrets. The Target has good title and an absolute right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and to the best knowledge of the Target, have not been used, divulged or appropriated, either for the benefit of any Person or to the detriment of the Target. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way; |
The Business of the Target
| (qq) | Maintenance of Business. Since the date of the Target Financial Statements, the Target Business has been carried on in the ordinary course and the Target has not entered into any material agreement or commitment except in the ordinary course; and |
| (rr) | Subsidiaries. The Target has no subsidiary and does not own, directly or indirectly, any shares or interest in any corporation, partnership, joint venture or firm. |
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| 5.2 | Non-Merger and Survival |
The representations and warranties of the Target contained herein will be true at and as of Closing in all material respects as though such representations and warranties were made as of such time. Notwithstanding the completion of the transactions contemplated hereby, the waiver of any condition contained herein (unless such waiver expressly releases a party from any such representation or warranty) or any investigation made by the Purchaser, the representations and warranties of the Target shall survive the Closing for a period of one year.
| 5.3 | Indemnity |
The Target agrees to indemnify and save harmless the Purchaser from and against any and all claims, demands, actions, suits, proceedings, assessments, judgments, damages, costs, losses and expenses resulting from the breach by the Target of any representation or warranty made under this Agreement or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished by the Target to the Purchaser hereunder.
ARTICLE 6
COVENANTS OF THE TARGET
| 6.1 | Covenants |
The Target covenants and agrees with the Purchaser that the Target will:
| (a) | Conduct of Business. Until the Closing, conduct the Target Business diligently and in the ordinary course consistent with the manner in which the Target Business generally has been operated up to the date of execution of this Agreement; |
| (b) | Preservation of Business. Until the Closing, use their best efforts to preserve the Target Business and the Target Assets and, without limitation, preserve for the Purchaser the Target’s relationships with its suppliers, customers and others having business relations with them; |
| (c) | Access. Until the Closing, give the Purchaser and its representatives full access to all of the properties, books, contracts, commitments and records of the Target relating to the Target, the Target Business and the Target Assets, and furnish to the Purchaser and its representatives all such information as they may reasonably request; |
| (d) | Procure Consents. Until the Closing, take all reasonable steps required to obtain, prior to Closing, any and all third party consents required to permit the Merger and to preserve and maintain the Target Assets, including the Target Material Contracts, notwithstanding the change in control of the Target arising from the Merger; and |
| (e) | Shareholder Approval. The Target shall have called a meeting of the Target Shareholders to consider and vote approval of the Merger on or before the date of this Agreement, or shall have obtained the unanimous written consent of the Target Shareholders. |
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ARTICLE 7
CONDITIONS PRECEDENT
| 7.1 | Conditions Precedent in favor of the Purchaser |
The Purchaser’s obligations to carry out the transactions contemplated hereby are subject to the fulfillment (or waiver by the Purchaser in writing) of each of the following conditions precedent on or before the Closing:
| (a) | the Purchaser and its advisors will have had a reasonable opportunity to perform the searches and other due diligence reasonable or customary in a transaction of a similar nature to that contemplated herein and both the Purchaser and its advisors will be satisfied with the results of such due diligence; |
| (b) | the representations and warranties made by the Target in or pursuant to this Agreement as of the date hereof shall be true and correct in all material respects at and as of the Closing Date (as qualified by the disclosures in the disclosure schedules hereto), with the same effect as though such representations and warranties had been made or given at and as of the Closing Date; |
| (c) | no legal requirement shall prohibit the consummation of the transaction, and no proceeding shall have been commenced or threatened by any governmental body or person (other than the Purchaser and its affiliates) on any grounds to restrain, enjoin or hinder, or to seek material damages on account of, the consummation of the transactions contemplated herein and no judgment, decree, restraining order or injunction shall have been entered which would prohibit the contemplated transactions; |
| (d) | all documents or copies of documents required to be executed and delivered to the Purchaser hereunder will have been so executed and delivered; |
| (e) | all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Target at or prior to the Closing will have been complied with or performed; |
| (f) | title to the Target Shares held by the Target Shareholders and to the Target Assets will be free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever, save and except as set forth in Schedule J of the Target Disclosure Statement; |
| (g) | the Purchaser will have received a legal opinion from counsel for the Target with respect to the Target and the Target Shares, in a form reasonably satisfactory to counsel for the Purchaser; |
| (h) | the Target will have furnished the Purchaser with a copy of the Audited Target Financial Statements and the Purchaser and its accountants will be reasonably satisfied with their review of the Audited Target Financial Statements; |
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| (i) | there will not have occurred: |
| (i) | any material adverse change in the financial position or condition of the Target, its liabilities or the Target Assets or any damage, loss or other change in circumstances materially and adversely affecting the Target, the Target Business or the Target Assets or the Target’s right to carry on the Target Business, other than changes in the ordinary course of business, none of which has been materially adverse, or |
| (ii) | any damage, destruction, loss or other event, including changes to any laws or statutes applicable to the Target or the Target Business (whether or not covered by insurance) materially and adversely affecting the Target, the Target Business or the Target Assets; |
| (j) | on the Closing Date, the Target’s secured liabilities determined in accordance with the GAAP shall not exceed $6,000,000 excluding the Bridge Loan; |
| (k) | the Purchaser shall have approved, in its sole discretion, any debt financing by the Target obtained to refinance its current debt; |
| (l) | the board of directors of the Purchaser has authorized and approved this Agreement and approved the Merger; |
| (m) | at least a majority of the outstanding Target Shares have been voted for the approval of the Merger; |
| (n) | none of the outstanding Target Shares are, or are eligible to become, “dissenting shares” within the definition of California Corporations Code §1300; |
| (o) | an exemption from the registration requirements of the Securities Act will be available regarding the issuance of the Acquisition Shares for each Target Shareholder and the Purchaser will have received a certificate of a Target Shareholder in the form attached hereto as Schedule B, if the Target Shareholder is an “accredited investor”, or Schedule C, if the Target Shareholder is not an “accredited investor” as defined in Rule 501 promulgated under the Securities Act, from each Target Shareholder in order to, among other things, evidence the availability of such exemption; and |
| (p) | the transactions contemplated hereby shall have been approved by all other regulatory authorities having jurisdiction over the subject matter hereof, if any. |
| 7.2 | Waiver by the Purchaser |
The conditions precedent set out in the preceding section are inserted for the exclusive benefit of the Purchaser and any such condition may be waived in whole or in part by the Purchaser at or prior to the Closing by delivering to the Target a written waiver to that effect signed by the Purchaser. The conditions precedent set out in the preceding section shall be conclusively deemed to have been satisfied, waived or released at the Effective Time.
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| 7.3 | Conditions Precedent in Favor of the Target |
The obligations of the Target to carry out the transactions contemplated hereby are subject to the fulfillment (or waiver by the Target in writing) of each of the following conditions precedent on or before the Closing:
| (a) | the Target will have reviewed and approved all materials in the possession and control of the Purchaser which are germane to the decision of the Target to proceed with the Merger; |
| (b) | the Target and its advisors will have had a reasonable opportunity to perform the searches and other due diligence reasonable or customary in a transaction of a similar nature to that contemplated herein and the Target and its advisors will be satisfied with the results of such due diligence; |
| (c) | the Target and its accountant will have had a reasonable opportunity to review the Purchaser Financial Statements, and the Target and its accountant will be satisfied with the content of such financial statements; |
| (d) | the representations and warranties made by the Purchaser in or pursuant to this Agreement as of the date hereof shall be true and correct in all material respects at and as of the Closing Date (as qualified by the disclosures in the disclosure schedules hereto), with the same effect as though such representations and warranties had been made or given at and as of the Closing Date; |
| (e) | no legal requirement shall prohibit the consummation of the transaction, and no proceeding shall have been commenced or threatened by any governmental body or person (other than the Target and its affiliates or shareholders) on any grounds to restrain, enjoin or hinder, or to seek material damages on account of, the consummation of the transactions contemplated herein and no judgment, decree, restraining order or injunction shall have been entered which would prohibit the contemplated transactions; |
| (f) | all documents or copies of documents required to be executed and delivered to the Target hereunder will have been so executed and delivered; |
| (g) | all of the terms, covenants and conditions of this Agreement to be complied with or performed by the Purchaser at or prior to the Closing will have been complied with or performed; |
| (h) | the Acquisition Shares will be registered on the books of the Purchaser in the names of the Target Shareholders at the Effective Time; |
| (i) | title to the Acquisition Shares will be free and clear of all mortgages, liens, charges, pledges, security interests, encumbrances or other claims whatsoever; |
| (j) | the Target will have received a legal opinion from counsel for the Purchaser with respect to the Purchaser and the Acquisition Shares, in a form reasonably satisfactory to counsel for the Target; |
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| (k) | 3,500,000 pre-Stock Split Purchaser Common Shares owned by James Grant will have been cancelled for no consideration (the “Share Cancellation”); |
| (l) | the board of directors of the Target has authorized and approved this Agreement and approved the Merger; |
| (m) | at least a majority of the outstanding Target Shares have been voted for the approval of the Merger; |
| (n) | none of the outstanding Target Shares are, or are eligible to become, “dissenting shares” within the definition of California Corporations Code §1300; |
| (o) | John Hall, the Target’s Chief Executive Officer, has entered into an employment agreement with the Purchaser on terms satisfactory to the Target and the Purchaser and which shall replace any current employment agreements in force between the Target and John Hall; |
| (p) | there will not have occurred: |
| (i) | any material adverse change in the financial position or condition of the Purchaser, its liabilities or the Purchaser Assets or any damage, loss or other change in circumstances materially and adversely affecting the Purchaser, the Purchaser Business or the Purchaser Assets or the Purchaser’s right to carry on the Purchaser Business, other than changes in the ordinary course of business, none of which has been materially adverse, or |
| (ii) | any damage, destruction, loss or other event, including changes to any laws or statutes applicable to the Purchaser or the Purchaser Business (whether or not covered by insurance) materially and adversely affecting the Purchaser, the Purchaser Business or the Purchaser Assets; |
| (q) | the transactions contemplated hereby shall have been approved by all other regulatory authorities having jurisdiction over the subject matter hereof, if any; |
| (r) | the Target shall have received proceeds in connection with the Bridge Loan of at least $3,000,000, including conversion of the Promissory Notes for liquidity; |
| (s) | the holders of the Promissory Notes will have converted all of the principal amount of the Promissory Notes and applicable interest thereon into units pursuant to the terms of the Purchaser Note Conversion; and |
| (t) | the Purchaser shall have no more than 10,250,000 post-Stock Split Purchaser Shares outstanding as of the Closing Date: |
| (i) | excluding the Acquisition Shares to be issued pursuant to this Agreement, |
| (ii) | excluding the Purchaser Common Shares to be issued in the Purchaser Note Conversion, and |
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| (iii) | any securities issued in connection with the Purchaser Note Conversion and securities convertible or exercisable thereunder). |
| 7.4 | Waiver by the Target |
The conditions precedent set out in the preceding section are inserted for the exclusive benefit of the Target and any such condition may be waived in whole or in part by the Target at or prior to the Closing by delivering to the Purchaser a written waiver to that effect signed by the Target. The conditions precedent set out in the preceding section shall be conclusively deemed to have been satisfied, waived or released at the Effective Time.
| 7.5 | Nature of Conditions Precedent |
The conditions precedent set forth in this Article are conditions of completion of the transactions contemplated by this Agreement and are not conditions precedent to the existence of a binding agreement. Each party acknowledges receipt of the sum of $1.00 and other good and valuable consideration as separate and distinct consideration for agreeing to the conditions of precedent in favor of the other party or parties set forth in this Article.
| 7.6 | Confidentiality |
Except as and to the extent required by law, neither the Purchaser nor the Target will disclose or use, and will direct its respective representatives not to disclose or use to the detriment of the other party, any Confidential Information with respect to such other Party furnished, or to be furnished, by either the Purchaser or the Target or their respective representatives to such other Party or its representatives at any time or in any manner other than as may be agreed to by such other party. Upon the written request of the Purchaser or the Target, as applicable, the other Party will promptly return or destroy any Confidential Information in its possession and certify in writing to the other party that it has done so.
ARTICLE 8
CLOSING
| 8.1 | Closing |
Unless this Agreement is earlier terminated in accordance with its terms, the Merger shall be consummated as soon as practicable after all the conditions established in Article 7 of this Agreement have been satisfied or waived. Closing of the Merger (the “Closing”) shall be held at 10:00 a.m. local time, at the offices of DLA Piper LLP (US) in Los Angeles, CA, United States, or at such other time and place as the parties may agree, promptly but in no event later than July 25, 2014 or such other date as is mutually agreed to by the Purchaser and the Target. The time and date of Closing are called the “Closing Date”, and shall be the same day as the effective date of the Merger. On the Closing Date, the Parties shall cause the Merger to be consummated by filing an agreement of merger (the “Agreement of Merger”), substantially in the form of Schedule A hereto, with the Secretary of State of California in accordance with the provisions of the California Corporations Code (the time of acceptance by the Secretary of State of California of such filing, or such later time as specified in the Agreement of Merger, shall be referred to in this Agreement as the “Effective Time”).
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| 8.2 | Documents to be delivered by the Target |
On or before the Closing, the Target will deliver or cause to be delivered to the Purchaser:
| (a) | the original or certified copies of the charter documents of the Target and all corporate records documents and instruments of the Target and all books and accounts of the Target; |
| (b) | all reasonable consents or approvals required to be obtained by the Target for the purposes of completing the Merger and preserving and maintaining the interests of the Target under any and all Target Material Contracts and in relation to Target Assets; |
| (c) | certified copies of such resolutions of the shareholders and directors of the Target as are required to be passed to authorize the execution, delivery and implementation of this Agreement; |
| (d) | an acknowledgement from the Target of the satisfaction of the conditions precedent set forth in section 7.3 hereof; |
| (e) | the Audited Target Financial Statements; |
| (f) | a legal opinion from counsel for the Target with respect to the Target and the Target Shares, in a form reasonably satisfactory to counsel for the Purchaser; and |
| (g) | such other documents as the Purchaser may reasonably require to give effect to the terms and intention of this Agreement. |
| 8.3 | Documents to be Delivered by the Purchaser |
On or before the Closing, the Purchaser shall deliver or cause to be delivered to the Target:
| (a) | the original or certified copies of the charter documents of the Purchaser and all corporate records documents and instruments of the Target and all books and accounts of the Purchaser; |
| (b) | all reasonable consents or approvals required to be obtained by the Purchaser for the purposes of completing the Merger and preserving and maintaining the interests of the Purchaser under any and all Purchaser Material Contracts and in relation to Purchaser Assets; |
| (c) | a shareholder list of the Purchaser maintained by the Purchaser’s transfer agent showing the Acquisition Shares registered in the names of the Target Shareholders; |
| (d) | certified copies of such resolutions of the directors of the Purchaser and the directors and sole shareholder of the Merger Sub as are required to be passed to authorize the execution, delivery and implementation of this Agreement; |
| (e) | a certified copy of a resolution of the board of directors of the Purchaser dated as of the Closing Date appointing the nominees of the Target as officers of the Purchaser; |
| - 32 - |
| (f) | a certified copy of a resolution of the board of directors of the Purchaser setting the number of directors at five and appointing five nominees of the Target and accepting the resignation of James Grant from the board of directors of the Purchaser; |
| (g) | an acknowledgement from the Purchaser of the satisfaction of the conditions precedent set forth in section 7.1 hereof; |
| (h) | evidence that the Share Cancellation has been effected; |
| (i) | a legal opinion from counsel for the Purchaser with respect to the Purchaser and the Acquisition Shares, in a form reasonably satisfactory to counsel for the Target; and |
| (j) | such other documents as the Target may reasonably require to give effect to the terms and intention of this Agreement. |
ARTICLE 9
DISCLOSURE
| 9.1 | Disclosure |
Except as and to the extent required by law, without the prior written consent of the other Parties, neither the Purchaser, the Merger Sub, nor the Target will, and each will direct its representatives not to, make, directly or indirectly, any public comment, statement or communication with respect to, or otherwise to disclose or to permit the disclosure of the existence of discussions regarding, a possible transaction between the Parties or any of the terms, conditions or other aspects of the transactions proposed in this Agreement. If a Party is required by law to make any such disclosure, it must first provide to the other parties the content of the proposed disclosure, the reasons that such disclosure is required by law, and the time and place that the disclosure will be made. The Target acknowledges and agrees that the Purchaser will be required to file a Current Report on Form 8-K with the Securities and Exchange Commission respecting the proposed Merger contemplated hereby together with such other documents as are required to maintain the currency of the Purchaser’s filings with the Securities and Exchange Commission.
ARTICLE 10
STANDSTILL
| 10.1 | Standstill |
| (a) | Until December 31, 2014 unless the date is extended by mutual agreement of the Parties, the Target shall not, directly or indirectly, through any officer, director, employee, representative (including any financial or other adviser) or agent of the Target (collectively, the “Representatives”), or otherwise, and shall not permit any such Representative to: |
| (i) | solicit, initiate, encourage or otherwise facilitate (including by way of furnishing or providing copies of, access to, or disclosure of, any information, properties, facilities, books or records of the Target or entering into any form of agreement, arrangement or understanding), any inquiry, proposal or offer that constitutes, or may reasonably be expected to constitute or lead to, an Acquisition Proposal or potential Acquisition Proposal; |
| - 33 - |
| (ii) | enter into or otherwise engage or participate in any discussions or negotiations with any person (other than the Purchaser and its affiliates) regarding any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to an Acquisition Proposal or potential Acquisition Proposal; or |
| (iii) | accept or approve, or propose to accept or approve any Acquisition Proposal. |
| (b) | The Target shall, and shall cause its Representatives to, immediately cease and terminate, and cause to be terminated, any solicitation, encouragement, discussion, negotiations, or other activities commenced prior to the date of this Agreement with any Person (other than the Purchaser and its affiliates) with respect to any inquiry, proposal or offer that constitutes, or may reasonably be expected to constitute or lead to, an Acquisition Proposal or potential Acquisition Proposal, and in connection therewith shall: |
| (i) | discontinue access to and disclosure of all information, including any data room and any non-public or confidential information, properties, facilities, books and records of the Target; and |
| (ii) | request, and exercise all rights it has to require: (i) the return or destruction of all copies of any information regarding the Target provided to any person other than the Purchaser, and (ii) the destruction of all material including or incorporating or otherwise reflecting such information regarding the Target, using all necessary efforts to ensure that such requests are fully complied with in accordance with the terms of such rights or entitlements. |
| 10.2 | The Target represents and warrants that it has not waived any confidentiality, standstill or similar agreement or restriction to which it is a party, except to permit submissions of expressions of interest prior to the date of this Agreement, and further covenants and agrees: (i) that the Target shall take all necessary action to enforce each confidentiality, standstill or similar agreement or restriction to which it is a party, and (ii) that neither the Target, nor any of its Representatives have or will, without the prior written consent of the Purchaser (which may be withheld or delayed in the Purchaser’s sole and absolute discretion), release any person from, or waive, amend, suspend or otherwise modify such person’s obligations respecting the Target under any confidentiality, standstill or similar agreement or restriction to which the Target is a party. |
| 10.3 | Notification of Acquisition Proposals: |
| (a) | If the Target or any of its Representatives, receives or otherwise become aware of any inquiry, proposal or offer that constitutes, or may reasonably be expected to constitute or lead to, an Acquisition Proposal, or any request for copies of, access to, or disclosure of, information relating to the Target, including but not limited to information, access, or disclosure relating to the properties, facilities, books or records of the Target, the Target shall immediately notify the Purchaser, at first orally, and then promptly, and in any event within 24 hours, in writing, of: |
| - 34 - |
| (i) | such Acquisition Proposal, inquiry, proposal, offer or request, including a description of its material terms and conditions; the identity of all persons making the Acquisition Proposal, inquiry, proposal, offer or request; and copies of all documents, correspondence or other material received in respect of, from or on behalf of any such person; and |
| (ii) | the status of developments and negotiations with respect to such Acquisition Proposal, inquiry, proposal, offer or request, including any changes, modifications or other amendments to any such Acquisition Proposal, inquiry, proposal, offer or request. |
ARTICLE 11
Termination
| 11.1 | Termination |
This Agreement may be terminated at any time prior to the Closing Date by:
| (a) | mutual agreement of the Purchaser and the Target; |
| (b) | the Purchaser, if there has been a material breach by the Target of any material representation, warranty, covenant or agreement set forth in this Agreement on the part of the Target that is not cured, to the reasonable satisfaction of the Purchaser, within ten business days after notice of such breach is given by the Purchaser (except that no cure period will be provided for a breach by the Target that, by its nature, cannot be cured); |
| (c) | the Target, if there has been a material breach by the Purchaser of any material representation, warranty, covenant or agreement set forth in this Agreement on the part of the Purchaser that is not cured, to the reasonable satisfaction of the Target within ten business days after notice of such breach is given by the Target (except that no cure period will be provided for a breach by the Purchaser that by its nature cannot be cured); |
| (d) | the Purchaser or the Target if there shall be any statute, rule or regulation that renders consummation of the transactions contemplated this Agreement illegal or otherwise prohibited; |
| (e) | the Purchaser or the Target if any permanent injunction or other order of a governmental body of competent authority preventing the consummation of the transaction contemplated by this Agreement has become final and non-appealable; or |
| (f) | the Purchaser or the Target if the Merger will not have been consummated by July 31, 2014 or such other date as is mutually agreed to by the Purchaser and the Target; provided that the Party seeking to terminate this Agreement pursuant to this clause (d) has not caused such failure to close by any action or inaction constituting a breach of any of the representations, warranties, covenants, or agreements contained in this Agreement. |
| - 35 - |
| 11.2 | Effect of Termination |
In the event of the termination of this Agreement as provided in Section 11.1, this Agreement will be of no further force or effect, provided, however, that no termination of this Agreement will relieve any Party of liability for any breaches of this Agreement that are based on a wrongful refusal or failure to perform any obligations under this Agreement. In the event of the termination of this Agreement, each Party shall bear its own costs and expenses, including attorney fees.
ARTICLE 12
POST-CLOSING MATTERS
| 12.1 | Forthwith after the Closing, the Purchaser shall file a Form 8-K with the Securities and Exchange Commission disclosing the terms of this Agreement and such other information as is required, all within four business days of the Closing. |
ARTICLE 13
GENERAL PROVISIONS
| 13.1 | Notice |
Any notice required or permitted to be given by any party will be deemed to be given when in writing and delivered to the address for notice of the intended recipient by personal delivery, prepaid single certified or registered mail, or electronic mail. Any notice delivered by mail shall be deemed to have been received on the fourth business day after and excluding the date of mailing, except in the event of a disruption in regular postal service in which event such notice shall be deemed to be delivered on the actual date of receipt. Any notice delivered personally shall be deemed to have been received on the actual date of delivery. Any notice delivered by electronic mail shall be deemed to have been received on the date sent if sent during normal business hours of the recipient and, if not, then on the next business day
| 13.2 | Addresses for Service |
The address for service of notice of each of the parties hereto is as follows:
| (a) | The Purchaser or the Merger Sub: |
Greenwood Hall, Inc.
55 A Cliff View Drive
Green Bay, Auckland, New Zealand
Attn: Chief Executive Officer
Email: james@divioholdings.com
| - 36 - |
With a copy to:
Clark Wilson LLP
900 – 885 West Georgia Street
Vancouver, British Columbia V6C 3H1, Canada
Attention: Virgil Z. Hlus
Email: VZH@cwilson.com
| (b) | The Target: |
PCS Link, Inc. dba Greenwood & Hall
1936 East Deere Avenue, Suite 120
Santa Ana, California 92705, U.S.A.
Attn: Chief Executive Officer
Email: jhall@edugaged.com
With a copy to:
DLA Piper LLP (US)
550 South Hope Street, Suite 2300
Los Angeles, CA 90071
Attention: Ann Lawrence, Esq.
Email: Ann.Lawrence@dlapiper.com
| 13.3 | Change of Address |
Any party may, by notice to the other parties change its address for notice to some other address. A post office box may not be used as an address for service.
| 13.4 | Further Assurances |
Each of the parties will execute and deliver such further and other documents and do and perform such further and other acts as any other party may reasonably require to carry out and give effect to the terms and intention of this Agreement.
| 13.5 | Time of the Essence |
Time is expressly declared to be the essence of this Agreement.
| - 37 - |
| 13.6 | Entire Agreement |
The provisions contained herein constitute the entire agreement among the Target, the Merger Sub and the Purchaser respecting the subject matter hereof and supersede all previous communications, representations and agreements, whether verbal or written, between the Target, the Merger Sub and the Purchaser with respect to the subject matter hereof, including the letter of intent dated March 19, 2014 between the Purchaser and the Target.
| 13.7 | Enurement |
This Agreement will enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
| 13.8 | Assignment |
This Agreement is not assignable without the prior written consent of the parties hereto.
| 13.9 | Counterparts |
This Agreement may be executed in two or more counterparts and such counterparts together shall constitute a single instrument. Delivery of an executed counterpart of this Agreement by electronic means, including by facsimile transmission or by other means of electronic delivery including in portable document format (“.pdf”), shall be equally effective as delivery of a manually executed counterpart hereof. The Parties acknowledge and agree that in any legal proceedings between them respecting or in any way relating to this Agreement, each waives the right to raise any defense based on the execution hereof in counterparts or the delivery of such executed counterparts by electronic means.
| 13.10 | Applicable Law |
This Agreement is subject to the laws of the State of California and the federal law of the United States applicable therein. The Parties hereto irrevocably attorn to the exclusive jurisdiction of the Courts of the State of California for the resolution of all disputes in relation of this Agreement.
| 13.11 | Amendments |
This Agreement may be amended only by the written agreement of all parties; provided, however, that if amended after the meeting of the shareholders of the Target referred to in Section 6.1(e), the terms regarding the conversion of the Target’s stock contained in Section 2.3(b) shall not be amended without the further approval of the Target’s shareholders as required by law.
| - 38 - |
IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written.
| GREENWOOD HALL, INC. | ||
| Per: | /s/ James Grant | |
| James Grant, President and Chief Executive Officer | ||
| GREENWOOD HALL ACQUISITION, INC. | ||
| Per: | /s/ James Grant | |
| James Grant, President | ||
| PCS LINK, INC. DBA GREENWOOD & HALL | ||
| Per: | /s/ John Hall | |
| John Hall, Chief Executive Officer | ||
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
Articles of Merger
(Pursuant to NRS Chapter 92A)
1) Name and jurisdiction of organization of each constituent entity (NRS 92A.200):
¨ If there are more than four merging entities, check box and attach an 81/2” x 11” blank sheet containing the required information for each additional entity from article one.
| DIVIO HOLDINGS, CORP. | |
| Name of merging entity | |
| Nevada | Corporation |
| Jurisdiction | Entity type * |
| Greenwood Hall, Inc. | |
| Name of merging entity | |
| Nevada | Corporation |
| Jurisdiction | Entity type * |
| [____________________] | |
| Name of merging entity | |
| [____________________] | [____________________] |
| Jurisdiction | Entity type * |
| Name of merging entity | |
| [____________________] | [____________________] |
| Jurisdiction | Entity type * |
| and, | |
| DIVIO HOLDINGS, CORP. | |
| Name of surviving entity | |
| Nevada | Corporation |
| Jurisdiction | Entity type * |
* Corporation, non-profit corporation, limited partnership, limited-liability company or business trust.
2) Forwarding address where copies of process may be sent by the Secretary of State of Nevada (if a foreign entity is the survivor in the merger - NRS 92A.190):
Attn: [____________________]
c/o: [____________________]
3) Choose one:
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
¨ The undersigned declares that a plan of merger has been adopted by each constituent entity (NRS 92A.200).
¨ The undersigned declares that a plan of merger has been adopted by the parent domestic entity (NRS 92A.180).
4) Owner’s approval (NRS 92A.200) (options a, b or c must be used, as applicable, for each entity):
¨ If there are more than four merging entities, check box and attach an 81/2” x 11” blank sheet containing the required information for each additional entity from the appropriate section of article four.
(a) Owner’s approval was not required from
DIVIO HOLDINGS, CORP.
Name of merging entity, if applicable
Greenwood Hall, Inc.
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable and, or;
and, or;
DIVIO HOLDINGS, CORP.
Name of surviving entity, if applicable
(b) The plan was approved by the required consent of the owners of *:
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
and, or;
[____________________]
Name of surviving entity, if applicable
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
* Unless otherwise provided in the certificate of trust or governing instrument of a business trust, a merger must be approved by all the trustees and beneficial owners of each business trust that is a constituent entity in the merger.
(c) Approval of plan of merger for Nevada non-profit corporation (NRS 92A. 160):
The plan of merger has been approved by the directors of the corporation and by each public officer or other person whose approval of the plan of merger is required by the articles of incorporation of the domestic corporation.
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
and, or;
[____________________]
Name of surviving entity, if applicable
5) Amendments, if any, to the articles or certificate of the surviving entity. Provide article numbers, if available. (NRS 92A.200)*:
Article 1 of the Articles of Incorporation of DIVIO HOLDINGS, CORP., a surviving corporation, is hereby amended to change the name of DIVIO HOLDINGS, CORP. to Greenwood Hall, Inc.
6) Location of Plan of Merger (check a or b):
x (a) The entire plan of merger is attached; or,
¨ (b) The entire plan of merger is on file at the registered office of the surviving corporation, limited-liability company or business trust, or at the records office address if a limited partnership, or other place of business of the surviving entity (NRS 92A.200).
7) Effective date and time of filing: (optional) (must not be later than 90 days after the certificate is filed)
| Date: July 1, 2014 | Time: 12:01 am |
* Amended and restated articles may be attached as an exhibit or integrated into the articles of merger. Please entitle them "Restated" or "Amended and Restated," accordingly. The form to accompany restated articles prescribed by the secretary of state must accompany the amended and/or restated articles. Pursuant to NRS 92A. 180 (merger of subsidiary into parent - Nevada parent owning 90% or more of subsidiary), the articles of merger may not contain amendments to the constituent documents of the surviving entity except that the name of the surviving entity may be changed.
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
8) Signatures - Must be signed by: An officer of each Nevada corporation; All general partners of each Nevada limited partnership; Ail general partners of each Nevada limited-liability limited partnership; A manager of each Nevada limited-liability company with managers or one member if there are no managers; A trustee of each Nevada business trust (NRS 92A.230)
¨ If there are more than four merging entities, check box and attach an 81/2” x 11” blank sheet containing the required information for each additional entity from article eight.
| Name of merging entity | ||
| DIVIO HOLDINGS, CORP. | President | 06-27-14 |
| Signature | Title | Date |
| Name of merging entity | ||
| Greenwood Hall, Inc. | President | 06-27-14 |
| Signature | Title | Date |
| [____________________] | ||
| Name of merging entity | ||
| [____________________] | _______ | _______ |
| Signature | Title | Date |
| [____________________] | ||
| Name of merging entity | ||
| [____________________] | _______ | _______ |
| Signature | Title | Date |
| and, | ||
| Name of surviving entity | ||
| DIVIO HOLDINGS, CORP. | President | 06-27-14 |
| Signature | Title | Date |
*The articles of merger must be signed by each foreign constituent entity in the manner provided by the law governing it (NRS 92A.230). Additional signature blocks may be added to this page or as an attachment, as needed.
IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT dated as of June 20,2014.
BETWEEN:
DIVIO HOLDINGS, CORP., a Nevada corporation, having its office at 55 A Cliff View Drive, Green Bay, Auckland, NZ
(“Divio”)
AND:
GREENWOOD HALL, INC., a Nevada corporation, having its office at 55 A Cliff View Drive, Green Bay, Auckland, NZ
(“Greenwood”)
WHEREAS:
A. Greenwood is a wholly-owned subsidiary of Divio;
B. The boards of directors of Divio and Greenwood deem it advisable and in the best interests of their respective companies and shareholders that Greenwood be merged with and into Divio, with Divio remaining as the surviving corporation under the name “Greenwood Hall, Inc.”;
C. The board of directors of Greenwood has adopted and approved the plan of merger embodied in this Agreement; and
D. The board of directors of Divio has adopted and approved the plan of merger embodied in this Agreement.
THEREFORE, in consideration of the mutual agreements and covenants set forth herein, the parties hereto do hereby agree to merge on the terms and conditions herein provided, as follows:
1. THE MERGER
1.1 The Merger
Upon the terms and subject to the conditions hereof, on the Effective Date (as hereinafter defined), Greenwood shall be merged with and into Divio in accordance with the applicable laws of the State of Nevada (the “Merger”). The separate existence of Greenwood shall cease, and Divio shall be the surviving corporation under the name “Greenwood Hall, Inc.” (the “Surviving Corporation”) and shall be governed by the laws of the State of Nevada.
1.2 Effective Date
The Merger shall become effective on the date and at the time (the “Effective Date”) that
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
(a) the Articles of Merger, in substantially the form annexed hereto as Appendix A, that the parties hereto intend to deliver to the Secretary of State of the State of Nevada, are accepted and declared effective by the Secretary of State of the State of Nevada; and
(b) after satisfaction of the requirements of the laws of the State of Nevada.
1.3 Articles of Incorporation
On the Effective Date, the Articles of Incorporation of Divio, as in effect immediately prior to the Effective Date, shall continue in full force and effect as the Articles of Incorporation of the Surviving Corporation except that Article 1 of the Articles of Incorporation of Divio, as the Surviving Corporation, shall be amended to state that the name of the corporation is “Greenwood Hall, Inc.”.
1.4 Bylaws
On the Effective Date, the Bylaws of Divio, as in effect immediately prior to the Effective Date, shall continue in full force and effect as the Bylaws of the Surviving Corporation.
1.5 Directors and Officers
The directors and officers of Divio immediately prior to the Effective Date shall be the directors and officers of the Surviving Corporation, until their successors shall have been duly elected and qualified or until otherwise provided by law, the Articles of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation.
2. CONVERSION OF SHARES
2.1 Common Stock of Divio
Upon the Effective Date, by virtue of the Merger and without any action on the part of any holder thereof, each share of common stock of Divio, par value of $0,001 per share, issued and outstanding immediately prior to the Effective Date shall be changed and converted into one fully paid and non-assessable share of the common stock of the Surviving Corporation, par value of $0,001 per share (the “Survivor Stock”).
2.2 Common Stock of Greenwood
Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, each share of common stock of Greenwood, par value of $0,001 per share, issued and outstanding immediately prior to the Effective Date shall be cancelled.
2.3 Exchange of Certificates
Each person who becomes entitled to receive any Survivor Stock by virtue of the Merger shall be entitled to receive from the Surviving Corporation a certificate or certificates representing the number of Survivor Stock to which such person is entitled as provided herein.
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
3. EFFECT OF THE MERGER
3.1 Rights, Privileges, etc.
On the Effective Date of the Merger, the Surviving Corporation, without further act, deed or other transfer, shall retain or succeed to, as the case may be, and possess and be vested with all the rights, privileges, immunities, powers, franchises and authority, of a public as well as of a private nature, of Divio and Greenwood; all property of every description and every interest therein, and all debts and other obligations of or belonging to or due to each of Divio and Greenwood on whatever account shall thereafter be taken and deemed to be held by or transferred to, as the case may be, or invested in the Surviving Corporation without further act or deed, title to any real estate, or any interest therein vested in Divio or Greenwood, shall not revert or in any way be impaired by reason of the Merger; and all of the rights of creditors of Divio and Greenwood shall be preserved unimpaired, and all liens upon the property of Divio or Greenwood shall be preserved unimpaired, and all debts, liabilities, obligations and duties of the respective corporations shall thenceforth remain with or be attached to, as the case may be, the Surviving Corporation and may be enforced against it to the same extent as if all of said debts, liabilities, obligations and duties had been incurred or contracted by it
3.2 FURTHER ASSURANCES
From time to time, as and when required by the Surviving Corporation or by its successors and assigns, there shall be executed and delivered on behalf of Greenwood such deeds and other instruments, and there shall be taken or caused to be taken by it such further other action, as shall be appropriate or necessary in order to vest or perfect in or to confirm of record or otherwise in the Surviving Corporation the title to and possession of all the property, interest, assets, rights, privileges, immunities, powers, franchises and authority of Greenwood and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are fully authorized in the name and on behalf of Greenwood or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments.
4. GENERAL
4.1 Abandonment
Notwithstanding any approval of the Merger or this Agreement by the shareholders of Divio or Greenwood or both, this Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, by mutual written agreement of Divio and Greenwood.
4.2 Amendment
At any time prior to the Effective Date, this Agreement may be amended or modified in writing by the boards of directors of both Divio and Greenwood.
4.3 Governing Law
This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Nevada.
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
4.4 Counterparts
In order to facilitate the filing and recording of this Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have entered into and signed this Agreement as of the date set forth above.
| DIVIO HOLDINGS, CORP | ||
| Per: | /s/ James Grant | |
| Authorized Signatory - James Grant | ||
| GREENWOOD HALL, INC. | ||
| Per: | /s/ James Grant | |
| Authorized Signatory - James Grant | ||
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
APPENDIX A
To the Agreement and Plan of Merger between Divio and Greenwood
Articles of Merger
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
Articles of Merger
(Pursuant to NRS Chapter 92A)
1) Name and jurisdiction of organization of each constituent entity (NRS 92A.200):
¨ If there are more than four merging entities, check box and attach an 81/2” x 11” blank sheet containing the required information for each additional entity from article one.
| DIVIO HOLDINGS, CORP. | |
| Name of merging entity | |
| Nevada | Corporation |
| Jurisdiction | Entity type * |
| Greenwood Hall, Inc. | |
| Name of merging entity | |
| Nevada | Corporation |
| Jurisdiction | Entity type * |
| [____________________] | |
| Name of merging entity | |
| [____________________] | [____________________] |
| Jurisdiction | Entity type * |
| Name of merging entity | |
| [____________________] | [____________________] |
| Jurisdiction | Entity type * |
| and, | |
| DIVIO HOLDINGS, CORP. | |
| Name of surviving entity | |
| Nevada | Corporation |
| Jurisdiction | Entity type * |
* Corporation, non-profit corporation, limited partnership, limited-liability company or business trust.
2) Forwarding address where copies of process may be sent by the Secretary of State of Nevada (if a foreign entity is the survivor in the merger - NRS 92A.190):
Attn: [____________________]
c/o: [____________________]
3) Choose one:
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
¨ The undersigned declares that a plan of merger has been adopted by each constituent entity (NRS 92A.200).
x The undersigned declares that a plan of merger has been adopted by the parent domestic entity (NRS 92A.180).
4) Owner’s approval (NRS 92A.200) (options a, b or c must be used, as applicable, for each entity):
¨ If there are more than four merging entities, check box and attach an 81/2” x 11” blank sheet containing the required information for each additional entity from the appropriate section of article four.
(a) Owner’s approval was not required from
DIVIO HOLDINGS, CORP.
Name of merging entity, if applicable
Greenwood Hall, Inc.
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable and, or;
and, or;
DIVIO HOLDINGS, CORP.
Name of surviving entity, if applicable
(b) The plan was approved by the required consent of the owners of *:
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
and, or;
[____________________]
Name of surviving entity, if applicable
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
* Unless otherwise provided in the certificate of trust or governing instrument of a business trust, a merger must be approved by all the trustees and beneficial owners of each business trust that is a constituent entity in the merger.
(c) Approval of plan of merger for Nevada non-profit corporation (NRS 92A. 160):
The plan of merger has been approved by the directors of the corporation and by each public officer or other person whose approval of the plan of merger is required by the articles of incorporation of the domestic corporation.
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
[____________________]
Name of merging entity, if applicable
and, or;
[____________________]
Name of surviving entity, if applicable
5) Amendments, if any, to the articles or certificate of the surviving entity. Provide article numbers, if available. (NRS 92A.200)*:
Article 1 of the Articles of Incorporation of DIVIO HOLDINGS, CORP., a surviving corporation, is hereby amended to change the name of DIVIO HOLDINGS, CORP. to Greenwood Hall, Inc.
6) Location of Plan of Merger (check a or b):
x (a) The entire plan of merger is attached; or,
¨ (b) The entire plan of merger is on file at the registered office of the surviving corporation, limited-liability company or business trust, or at the records office address if a limited partnership, or other place of business of the surviving entity (NRS 92A.200).
7) Effective date and time of filing: (optional) (must not be later than 90 days after the certificate is filed)
| Date: | Time: |
Exhibit 2.2 Articles of Merger Divio Holdings, Corp
* Amended and restated articles may be attached as an exhibit or integrated into the articles of merger. Please entitle them "Restated" or "Amended and Restated," accordingly. The form to accompany restated articles prescribed by the secretary of state must accompany the amended and/or restated articles. Pursuant to NRS 92A. 180 (merger of subsidiary into parent - Nevada parent owning 90% or more of subsidiary), the articles of merger may not contain amendments to the constituent documents of the surviving entity except that the name of the surviving entity may be changed.
8) Signatures - Must be signed by: An officer of each Nevada corporation; All general partners of each Nevada limited partnership; Ail general partners of each Nevada limited-liability limited partnership; A manager of each Nevada limited-liability company with managers or one member if there are no managers; A trustee of each Nevada business trust (NRS 92A.230)
¨ If there are more than four merging entities, check box and attach an 81/2” x 11” blank sheet containing the required information for each additional entity from article eight.
| DIVIO HOLDINGS, CORP | ||
| Name of merging entity | ||
| President | 06-27-14 | |
| Signature | Title | Date |
| Greenwood Hall, Inc. | ||
| Name of merging entity | ||
| President | 06-27-14 | |
| Signature | Title | Date |
| [____________________] | ||
| Name of merging entity | ||
| [____________________] | _______ | _______ |
| Signature | Title | Date |
| [____________________] | ||
| Name of merging entity | ||
| [____________________] | _______ | _______ |
| Signature | Title | Date |
| and, | ||
| Name of surviving entity | ||
| DIVIO HOLDINGS, CORP. | President | 06-27-14 |
| Signature | Title | Date |
*The articles of merger must be signed by each foreign constituent entity in the manner provided by the law governing it (NRS 92A.230). Additional signature blocks may be added to this page or as an attachment, as needed.
IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
Exhibit 3.1.1 Articles of Incorporation Greenwood Hall, Inc. previously Divio Holdings, Corp.
Articles
of Incorporation
(Pursiant to NRS Chapter 78)
| Filed in the Office of | Document Number: 20120133875-52 |
| Ross Miller | Filing Date and Time: 02/27/2012 12:29 PM |
| Secretary of State | Entity Number: E0109262012-8 |
| State of Nevada |
| Use Black Ink Only – Do Not Highlight |
(This document was filed electronically.) Above Space is for Office Use Only |
| 1. Name of Corporation: | DIVIO HOLDINGS, CORP. | ||
| 2. Registered Agent for Service of | x Commercial Registered Agent | INCORP SERVICES, INC. Name | |
| Process: (check only one box) | ¨ Noncommercial Registered Agent (name and address below) |
OR
|
¨ Office or Position with Entity (name and address below) |
| Name of Noncommercial Registered Agent OR Name of Title of Office or Other Position with Entity | ||||||
| NEVADA | ||||||
| Street Address | City | Zip Code | ||||
| NEVADA | ||||||
| Mailing Address (if different from street address) | City | Zip Code | ||||
| 3. Authorized Stock: (number of shares corporation is authorized to issue) | Number of Shares with par value: | 75000000 | Par Value per share: | $ 0.0010 | Number of shares without par value: | 0 |
| 4. Names and Addresses of the Board of Directors/Trustees: (each Director/Trustee must be a natural person at least 18 | 1) EVGENY DONSKOY – SEE ATTACHED Name |
HENDERSON City |
NV State |
89074-7722 Zip Code | ||
| years of age; attach additional page if | 2360 CORPORATE CIRCLE – S Street Address |
|||||
| more than two directors/trustees) | 2) Name Street Address |
City |
State |
Zip Code | ||
| 5. Purpose: (optional; see instructions) | The purpose of the corporation shall be: ANY LEGAL PURPOSE |
| 6. Name, Address and Signature of | x INCORP SERVICES, INC. | |||
| Incorporator: (attach additional |
INCORP SERVI-SEE ATTACHED Name |
Incorporator Signature | ||
| page if more than one incorporator) |
2360 CORPORATE CIRCLE – S Address |
HENDERSON City |
NV State |
89074-7722 Zip Code |
| 7. Certificate of Acceptance of | I hereby accept appointment as Registered Agent for the above named Entity. | 2/27/2012 | ||
| Appointment of | x INCORP SERVICES, INC. | Date | ||
| Registered Agent: | Authorized Signature of Registered Agent or on Behalf of Registered Agent Entity | |||
Articles
of Incorporation
(Pursuant to NRS Chapter 78)
Continued
Includes data that is too long to fit in the fields on the NRS 78 Form and all additional director/trustees and incorporators
| ENTITY NAME: | DIVIO HOLDINGS, CORP. | |
| FOREIGN NAME TRANSLATION: |
Not Applicable | |
| PURPOSE: | ANY LEGAL PURPOSE | |
| REGISTERED AGENT NAME: |
INCORP SERVICES, INC. | |
| STREET ADDRESS: |
Not Applicable | |
| MAILING ADDRESS: | Not Applicable | |
| ADDITIONAL | Directors/Trustees | |
| Name: EVGENY DONSKOY | ||
| Address: 2360 CORPORATE CIRCLE – SUITE 400 | ||
| City: HENDERSON | ||
| State: NV | ||
| Zip Code: 89074-7722 | ||
| ADDITIONAL | Incorporators | |
| Name: INCORP SERVICES, INC. | ||
| Address: 2360 CORPORATE CIRCLE – SUITE 400 | ||
| City: HENDERSON | ||
| State: NV | ||
| Zip Code: 89074-7722 | ||
SECRETARY OF STATE
STATE OF NEVADA
CORPORATE CHARTER
I, ROSS MILLER, the duly elected and qualified Nevada Secretary of State, do hereby certify that DIVIO HOLDINGS< CORP., did on February 27, 2012, file in this office the original Articles of Incorporation; that said Articles of Incorporation are now on file and of record in the office of the Secretary of State of the State of Nevada, and further, that said Articles contain all the provisions required by the law of said State of Nevada.
|
Certified by: Electronic Filing Certificate Number: C20120227-2266 You may verify this certificate online at http://www.nvsos.gov/ |
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Great Seal of State, at my office on February 27, 2012.
ROSS MILLER Secretary of State
|
Exhibit 3.1.2 Certificate of Change
Certificate of Change filed Pursuant to
NRS 78.209
For Nevada Profit Corporations
1. Name of corporation:
DIVIO HOLDINGS, CORP.
2. The board of directors have adopted a resolution pursuant to NRS 78.209 and have obtained any required approval of the stockholders.
3. The current number of authorized shares and the par value, if any, of each class or series, if any, of shares before the change:
75,000,000 shares of common stock at $0,001 par value
4. The number of authorized shares and the par value, if any, of each class or series, if any, of shares after the change:
937,500,000 shares of common stock at $0.001 par value
5. The number of shares of each affected class or series, if any, to be issued after the change in exchange for each issued share of the same class or series:
The corporation will issue 12.5 shares of common stock for every one share of common stock issued and outstanding after the effective date of the forward stock split.
6. The provisions, if any, for the issuance of fractional shares, or for the payment of money or the issuance of scrip to stockholders otherwise entitled to a fraction of a share and the percentage of outstanding shares affected thereby: _
No fractional shares will be issued. Fractional shares will be rounded up to the next nearest whole number.
7. Effective date and time of filing: (optional)
| Date: July 1, 2014 | Time: 12:00 am | |
| (must not be later than 90 days after the certificate is filed) | ||
8 Signature- (required)
| /s/ James Grant | President | |
| Signature of Officer | Title |
IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
Exhibit 3.2 – Bylaws of Greenwood Hall, Inc.
BYLAWS
OF
GREENWOOD HALL, INC.
(a Nevada corporation)
Article I
Meetings of Stockholders and Other Stockholder Matters
Section 1. Annual Meeting. An annual meeting of the stockholders of Greenwood Hall, Inc., a Nevada corporation (hereinafter, the “Corporation”) shall be held for the election of directors and for the transaction of such other proper business at such time, date and place, either within or without the State of Nevada, as shall be designated by resolution of the Board of Directors from time to time.
Section 2. Special Meetings. Special meetings of stockholders for any purpose or purposes may be called by the Board of Directors, or by a committee of the Board of Directors that has been designated by the Board of Directors and whose powers and authority, as expressly provided in a resolution of the Board of Directors, include the power to call such meetings, and shall be held at such time, date and place, either within or without the State of Nevada, as shall be designated by resolution of the Board of Directors or such committee. Special meetings of stockholders may not be called by any other person or persons.
Section 3. Notice of Meetings. Written notice of each meeting of the stockholders, which shall state the time, date and place of the meeting and in the case of a special meeting, the purpose or purposes for which it is called, shall, unless otherwise provided by applicable law, the Articles of Incorporation or these bylaws, be given not less than ten (10) nor more than sixty (60) days before the date of such meeting to each stockholder entitled to vote at such meeting, and, if mailed, it shall be deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Whenever notice is required to be given, a written waiver thereof signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
Section 4. Adjournments. Any meeting of the stockholders may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At any such adjourned meeting at which a quorum may be present, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 5. Quorum. Except as otherwise provided by Nevada law, the Articles of Incorporation or these bylaws, at any meeting of the stockholders the holders of a majority of the shares of stock, issued and outstanding and entitled to vote, shall be present in person or represented by proxy in order to constitute a quorum for the transaction of any business. In the absence of a quorum, the holders of a majority of the shares present in person or represented by proxy and entitled to vote may adjourn the meeting from time to time in the manner described in Section 4 of this Article I.
Section 6. Organization. At each meeting of the stockholders, the Chairman of the Board, or in his absence or inability to act, the President or, in his absence or inability to act, a Vice President or, in the absence or inability to act of such persons, any person designated by the Board of Directors, or in the absence of such designation, any person chosen by a majority of those stockholders present in person or represented by proxy, shall act as chairman of the meeting. The Secretary or, in his absence or inability to act, any person appointed by the chairman of the meeting shall act as secretary of the meeting and keep the minutes thereof.
Section 7. Notice of Business. At any annual meeting of the stockholders of the Corporation, only such business shall be conducted as shall have been brought before the meeting. To be properly brought before an annual meeting, such business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors; (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (iii) otherwise properly brought before the meeting by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 7, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 7. For business to be properly brought before an annual meeting of the stockholders by a stockholder, the stockholder shall have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received by the Secretary at the principal executive office of the Corporation not less than 60 days nor more than 90 days prior to the annual meeting; provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder’s notice to the Secretary of the Corporation shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and, in the event that such business includes a proposal to amend any document, including these bylaws, the language of the proposed amendment, (b) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (c) the class and number of shares of capital stock of the Corporation which are beneficially owned by such stockholder and (d) any material interest of such stockholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting of the stockholders except in accordance with the procedures set forth in this Section 7. The chairman of the annual meeting of the stockholders shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 7, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 7, a stockholder shall also comply with all applicable requirements of the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder with respect to matters set forth in this Section 7.
Section 8. Order of Business; Conduct of Meetings. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting.
| - 2 - |
Section 9. Voting; Proxies. Unless otherwise provided by Nevada law or in the Articles of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock which has voting power upon the matter in question held by such stockholder either (i) on the date fixed pursuant to the provisions of Section 10 of Article I of these bylaws as the record date for the determination of the stockholders to be entitled to notice of or to vote at such meeting; or (ii) if no record date is fixed, then at the close of business on the day next preceding the day on which notice is given. Each stockholder entitled to vote at any meeting of the stockholders may authorize another person or persons to act for him by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. At all meetings of the stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect. On all other matters, except as otherwise required by Nevada law or the Articles of Incorporation, a majority of the votes cast at a meeting of the stockholders shall be necessary to authorize any corporate action to be taken by vote of the stockholders. Unless required by Nevada law, or determined by the chairman of the meeting to be advisable, the vote on any question other than the election of directors need not be by written ballot. On a vote by written ballot, each written ballot shall be signed by the stockholder voting, or by his proxy if there be such proxy, and shall state the number of shares voted.
Section 10. Fixing of Record Date for Stockholder Meetings. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 11. Fixing a Record Date for Other Purposes. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 12. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.
Section 13. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting shall appoint inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders.
| - 3 - |
Section 14. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 12 of this Article I, the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders.
Article II
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not, by Nevada law or the Articles of Incorporation, directed or required to be exercised or done by the stockholders.
Section 2. Number, Qualification. Except as otherwise fixed by or pursuant to provisions of the Articles of Incorporation relating to the rights of the holders of any class or series of stock having a preference over common stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time by affirmative vote of a majority of the directors then in office.
Section 3. Elections and Terms. The Board of Directors, other than those who may be elected by the holders of any classes or series of stock having a preference over the common stock as to dividends or upon liquidation, shall be elected for a term ending at the next following Annual Meeting of Stockholders and until their successors have been duly elected and qualified.
Section 4. Newly Created Directorships and Vacancies. Except as otherwise fixed by or pursuant to provisions of the Articles of Incorporation relating to the rights of the holders of any class or series of stock having a preference over common stock as to dividends or upon liquidation to elect additional directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Except as otherwise provided under Nevada law, newly created directorships and vacancies resulting from any cause may not be filled by any other person or persons. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term and until such director’s successor shall have been duly elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any director then in office.
Section 5. Removal and Resignation. Except as otherwise fixed by or pursuant to provisions of the Articles of Incorporation relating to the rights of the holders of any class or series of stock having a preference over common stock as to dividends or upon liquidation to elect additional directors under specified circumstances, any director may be removed from office only for cause and only by the affirmative vote of the holders of two-thirds of the outstanding shares of stock entitled to vote generally in the election of directors. Any director may resign at any time upon written notice to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
| - 4 - |
Section 6. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election by the stockholders as directors of the Corporation. Nominations of persons for election as directors of the Corporation may be made at an annual meeting of stockholders (i) by or at the direction of the Board of Directors; (ii) by any nominating committee or persons appointed by the Board of Directors; or (iii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 6. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive office of the Corporation not less than 60 days nor more than 90 days prior to the annual meeting; provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder’s notice to the Secretary of the Corporation shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as now or hereafter amended; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election by the stockholders as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The chairman of the annual meeting of the stockholders shall, if the facts warrant, determine and declare to the meeting that nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
Section 7. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Nevada and at such times as the Board of Directors may from time to time determine. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by Nevada law or these bylaws.
Section 8. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Nevada whenever called by the Chairman of the Board of Directors, the President or by a majority of the entire Board of Directors.
| - 5 - |
Section 9. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 9, in which notice shall be stated the time and place of the meeting. Except as otherwise required by Nevada law or these bylaws, such notice need not state the purpose(s) of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to such director at such director’s residence or usual place of business, by registered mail, return receipt requested delivered at least two (2) days before the day on which such meeting is to be held, or shall be sent addressed to such director at such place by electronic mail, telegraph, telex, cable or wireless, or be delivered to such director personally, by facsimile or by telephone, at least 24 hours before the time at which such meeting is to be held. A written waiver of notice, signed by the director entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him.
Section 10. Quorum and Manner of Acting. Except as hereinafter provided, a majority of the whole Board of Directors shall be present in person or by means of a conference telephone or similar communications equipment which allows all persons participating in the meeting to hear each other at the same time at any meeting of the Board of Directors in order to constitute a quorum for the transaction of business at such meeting; and, except as otherwise required by Nevada law, the Articles of Incorporation or these bylaws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such.
Section 11. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors.
Section 12. Telephonic Participation. Members of the Board of Directors may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation in such a meeting shall constitute presence in person at such meeting.
Section 13. Organization. At each meeting of the Board, the Chairman of the Board or, in his absence or inability to act, the Chief Executive Officer or, in his absence or inability to act, another director chosen by a majority of the directors present shall act as chairman of the meeting and preside thereat. The Secretary or, in his absence or inability to act, any person appointed by the chairman shall act as secretary of the meeting and keep the minutes thereof.
Section 14. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.
| - 6 - |
Article III
Committees
Section 1. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board of Directors may fill vacancies in, change the membership of, or dissolve any such committee. The Board of Directors may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of such absent or disqualified member. Any such committee, to the extent provided by Nevada law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep written minutes of its proceedings and shall report such minutes to the Board of Directors when required. All such proceedings shall be subject to revision or alteration by the Board of Directors; provided, however, that third parties shall not be prejudiced by such revision or alteration.
Section 2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules, each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these bylaws.
Section 3. Standing Committees. Notwithstanding anything contained in this Article III to the contrary, the Board of Directors shall maintain two (2) standing committees consisting of (i) a Corporate Governance Committee; and (2) an Audit Committee. The Corporate Governance Committee shall consist of at least three (3) members of the Board of Directors who are “non-employee directors” within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and who are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Corporate Governance Committee shall have the power and authority to recommend general compensation polices to the full Board of Directors, oversee the Corporation’s compensation plans, establish the compensation levels for the Corporation’s Chief Executive Officer and other Executive Officers and advise the full Board of Directors on general compensation policies for the Company’s Executive Officers. The Audit Committee shall consist of at least three (3) members of the Board of Directors, none of which shall also serve as an Executive Officer of the Corporation. The Audit Committee shall have the power and authority to review and report to the full Board of Directors with respect to the selection, retention, termination and terms of engagement of the Corporation’s independent public accountants and maintain communications among the Board of Directors, the independent public accountants and the Corporation’s internal accounting staff with respect to accounting and audit procedures. The Audit Committee shall also have the power and authority to review the Corporation’s processes, internal accounting and control procedures and policies and related matters with the Corporation’s management.
Article IV
Officers
Section 1. Number. The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person. In its discretion, the Board of Directors may choose not to fill any office for any period that it may deem advisable unless otherwise required by Nevada law.
Section 2. Election and Term of Office. The officers of the Corporation shall be elected annually by the Board of Directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be. The Chief Executive Officer shall appoint persons to other officers as he or she deems desirable and such appointments, if any, shall serve at the pleasure of the Board of Directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.
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Section 3. Resignations. Any officer may resign at any time upon written notice to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 4. Removal. Any officer or agent of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting of the Board of Directors or, except in the case of an officer or agent elected or appointed by the Board of Directors, by the Chief Executive Officer, but any such removal shall be without prejudice to the contract rights, if any, of the person so removed.
Section 5. Vacancies. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, may be filled for the unexpired portion of the term of the office which shall be vacant by the Board of Directors at any special or regular meeting.
Section 6. Powers and Duties of Executive Officers. The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties.
Section 7. The Chairman of the Board. The Chairman of the Board shall be an officer of the Corporation for the purpose of executing agreements and other instruments on behalf of the Corporation but shall not be an employee of the Corporation. He shall, if present, preside at each meeting of the stockholders and of the Board of Directors and shall be an ex-officio member of all committees of the Board of Directors. Such person shall perform all duties incident to the office of Chairman of the Board and such other duties as may from time to time be assigned to such person by the Board of Directors.
Section 8. The Chief Executive Officer. The Chief Executive Officer shall have the general and active supervision and direction over the business operations and affairs of the Corporation and over the other officers, agents and employees and shall see that their duties are properly performed. At the request of the Chairman of the Board, or in the case of his absence or inability to act, the Chief Executive Officer shall perform the duties of the Chairman of the Board and when so acting shall have all the powers of, and be subject to all the restrictions upon the Chairman of the Board. Such person shall perform all duties incident to the office of Chief Executive Officer and such other duties as may from time to time be assigned to such person by the Board of Directors.
Section 9. The President. The President shall have general and active supervision and direction over the business operations and affairs of the Corporation and over its several officers, agents and employees, subject, however, to the direction of the Chief Executive Officer and the control of the Board of Directors. In general, the President shall have such other powers and shall perform such other duties as usually pertain to the office of President or as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.
Section 10. Vice Presidents. Each Vice President shall have such powers and perform such duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.
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Section 11. The Treasurer. The Treasurer shall (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) cause all monies and other valuables to be deposited to the credit of the Corporation in such depositories as may be designated by the Board; (d) receive, and give receipts for, monies due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor; and (f) in general, have all the powers and perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.
Section 12. The Secretary. The Secretary shall (a) record the proceedings of the meetings of the stockholders and directors in a minute book to be kept for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, have all the powers and perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.
Section 13. Officers’ Bonds or Other Security. The Board of Directors may secure the fidelity of any or all of its officers or agents by bond or otherwise, in such amount and with such surety or sureties as the Board of Directors may require.
Section 14. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors; provided, however, that the Board of Directors may delegate to the Chief Executive Officer or the President the power to fix the compensation of officers and agents appointed by the Chairman of the Board or the President, as the case may be. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that such person is also a director of the Corporation.
Article V
Shares of Stock
Section 1. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares owned by such holder in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 2. Books of Account and Record of Stockholders. The books and records of the Corporation may be kept at such places, within or without the State of Nevada, as the Board of Directors may from time to time determine. The stock record books and the blank stock certificate books shall be kept by the Secretary or by any other officer or agent designated by the Board of Directors.
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Section 3. Transfer of Shares. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only upon authorization by the registered holder thereof, or by his attorney hereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by Nevada law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation may hold any such stockholder of record liable for calls and assessments and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person whether or not it shall have express or other notice thereof. Whenever any transfers of shares shall be made for collateral security and not absolutely, and both the transferor and transferee request the Corporation to do so, such fact shall be stated in the entry of the transfer.
Section 4. Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these bylaws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them.
Section 5. Lost, Stolen or Destroyed Stock Certificates. The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient, as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Anything herein to the contrary notwithstanding, the Board of Directors, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to judicial proceedings under the laws of the State of Nevada.
Article VI
Contracts, Checks, Drafts, Bank Accounts, Etc.
Section 1. Execution of Contracts. Except as otherwise required by statute, the Articles of Incorporation or these bylaws, any contract or other instrument may be executed and delivered in the name and on behalf of the Corporation by such officer or officers (including any assistant officer) of the Corporation as the Board of Directors may from time to time direct. Such authority may be general or confined to specific instances as the Board of Directors may determine. Unless authorized by the Board of Directors or expressly permitted by these bylaws, no officer or agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it pecuniary liable for any purpose or to any amount.
Section 2. Loans. Unless the Board of Directors shall otherwise determine, the President or any Vice-President may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation other than in connection with the purchase of chattels for use in the Corporation’s operations, except when authorized by the Board of Directors.
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Section 3. Checks, Drafts, Bank Accounts, etc. All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidence of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors may from time to time designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board of Directors. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer or agent of the Corporation.
Section 5. General and Special Bank Accounts. The Board of Directors may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositaries as the Board of Directors may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board of Directors. The Board of Directors may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these bylaws, as it may deem expedient.
Article VII
Indemnification
Section 1. Right To Indemnification. The Corporation shall indemnify and hold harmless to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is a party or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, or by or in the right of the Corporation to procure a judgment in its favor (a “Proceeding”), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity, including serving with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, with respect to a Proceeding involving the right of the Corporation to procure judgment in its favor, such indemnification shall only cover expenses (including attorney fees) and shall only be made if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation and shall not be made with respect to any Proceeding as to which such person has been adjudged to be liable to the Corporation unless and only to the extent that a court of the State of Nevada or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which a court of the State of Nevada or such other court shall deem proper. The Corporation shall be required to indemnify a person in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
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Section 2. Prepayment of Expenses. Expenses incurred in defending any Proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it should be ultimately determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VII or otherwise.
Section 3. Claims. If a claim for indemnification or payment of expenses under this Article VII is not paid in full within 60 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable Nevada law.
Section 4. Non-Exclusivity of Rights. The indemnification provided by this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under these bylaws or any agreement or vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 5. Other Indemnification. The Corporation’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.
Section 6. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of Nevada law, the Articles of Incorporation or of this Article VII.
Section 7. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VII shall not adversely affect any right or protection hereunder of any person respect of any act or omission occurring prior to the time of such repeal or modification.
Article VIII
General Provisions
Section 1. Registered Office . The registered office and registered agent of the Corporation will be as specified in the Articles of Incorporation of the Corporation.
Section 2. Other Offices. The Corporation may also have such offices, both within or without the State of Nevada, as the Board of Directors may from time to time determine or the business of the Corporation may require.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be so determined by the Board of Directors.
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Section 4. Seal. The seal of the Corporation shall be circular in form, shall bear the name of the Corporation and shall include the words and numbers “Corporate Seal”, “Nevada” and the year of incorporation.
Section 5. Voting Securities Owned By Corporation. Voting securities in any other corporation held by the Corporation shall be voted by the Chief Executive Officer, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution.
Section 6. Inspection of Books and Records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation’s stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in the State of Nevada or at its principal place of business.
Section 7. Section Headings. Section headings in these bylaws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.
Section 8. Inconsistent Provisions. In the event that any provision of these bylaws is or becomes inconsistent with any provision of the Articles of Incorporation, the general corporation law of the State of Nevada or any other applicable law, the provision of these bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
Article IX
Amendments
These bylaws, may be adopted, amended or repealed, and new bylaws made, by the Board of Directors of the Corporation, but the stockholders of the Corporation may make additional bylaws and may alter and repeal any bylaws, whether adopted by them or otherwise, by affirmative vote of the holders of two-thirds of the outstanding shares of stock entitled to vote upon the election of directors.
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Exhibit 4.1 – Form of Investor Warrant of Greenwood Hall, Inc.
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE ARE NON-TRANSFERABLE.
THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). ACCORDINGLY, NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED HEREIN) OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.
Warrant No.
THESE WARRANTS WILL EXPIRE AND BECOME NULL
AND VOID
AT 5:00 P.M. (PACIFIC TIME) ON JULY 23, 2016.
SHARE PURCHASE WARRANTS TO PURCHASE
SHARES OF COMMON STOCK OF
GREENWOOD HALL, INC.
THIS IS TO CERTIFY THAT [Insert Name of the Holder], (the “Holder”) of [Insert the Holder’s Address], has the right to purchase, upon and subject to the terms and conditions hereinafter referred to, up to [Insert Amount in Words] ([Insert Amount in Numbers]) fully paid and non-assessable shares (the “Shares”) of common stock in the capital of Greenwood Hall, Inc. (the “Company”) on or before 5:00 p.m. (Pacific time) on July 23, 2016 (the “Expiry Date”) at a price per Share of US$1.30 (the “Exercise Price”) on the terms and conditions attached hereto as Appendix A (the “Terms and Conditions”).
| 1. | ONE (1) WARRANT AND THE EXERCISE PRICE ARE REQUIRED TO PURCHASE ONE SHARE. THIS CERTIFICATE REPRESENTS [INSERT AMOUNT IN WORDS] ([INSERT AMOUNT IN NUMBERS]) WARRANTS. |
| 2. | These Warrants are issued subject to the Terms and Conditions, and the Warrant Holder may exercise the right to purchase Shares only in accordance with those Terms and Conditions. |
| 3. | Nothing contained herein or in the Terms and Conditions will confer any right upon the Holder hereof or any other person to subscribe for or purchase any Shares at any time subsequent to the Expiry Date, and from and after such time, this Warrant and all rights hereunder will be void and of no value. |
IN WITNESS WHEREOF the Company has executed this Warrant Certificate this ____ day of July, 2014.
GREENWOOD HALL, INC.
| Per: | ||
| Authorized Signatory – James Grant |
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APPENDIX A
TERMS AND CONDITIONS dated July 23, 2014, attached to the Warrants issued by Greenwood Hall, Inc.
| 1. | INTERPRETATION |
| 1.1 | Definitions |
In these Terms and Conditions, unless there is something in the subject matter or context inconsistent therewith:
| (a) | “Company” means Greenwood Hall, Inc., until a successor corporation will have become such as a result of consolidation, amalgamation or merger with or into any other corporation or corporations, or as a result of the conveyance or transfer of all or substantially all of the properties and estates of the Company as an entirety to any other corporation and thereafter “Company” will mean such successor corporation; |
| (b) | “Company’s Auditors” means an independent firm of accountants duly appointed as auditors of the Company; |
| (c) | “Director” means a director of the Company for the time being, and reference, without more, to action by the directors means action by the directors of the Company as a Board, or whenever duly empowered, action by an executive committee of the Board; |
| (d) | “herein”, “hereby” and similar expressions refer to these Terms and Conditions as the same may be amended or modified from time to time; and the expression “Article” and “Section,” followed by a number refer to the specified Article or Section of these Terms and Conditions; |
| (e) | “person” means an individual, corporation, partnership, trustee or any unincorporated organization and words importing persons have a similar meaning; |
| (f) | “shares” means the common shares in the capital of the Company as constituted at the date hereof and any shares resulting from any subdivision or consolidation of the shares; |
| (g) | “Warrant Holders” or “Holders” means the holders of the Warrants; and |
| (h) | “Warrants” means the warrants of the Company issued and presently authorized and for the time being outstanding. |
| 1.2 | Gender |
Words importing the singular number include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders.
| 1.3 | Interpretation not affected by Headings |
The division of these Terms and Conditions into Articles and Sections, and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation thereof.
| 1.4 | Applicable Law |
The Warrant and the terms hereof are governed by the laws of the State of Nevada. The Holder, in its personal or corporate capacity and, if applicable, on behalf of each beneficial purchaser for whom it is acting, irrevocably attorns to the jurisdiction of the courts of the State of California.
| 2. | ISSUE OF WARRANTS |
| 2.1 | Additional Warrants |
The Company may at any time and from time to time issue additional warrants or grant options or similar rights to purchase shares of its capital stock.
| 2.2 | Warrants to Rank Pari Passu |
All Warrants and additional warrants, options or similar rights to purchase shares from time to time issued or granted by the Company, will rank pari passu whatever may be the actual dates of issue or grant thereof, or of the dates of the certificates by which they are evidenced.
| 2.3 | Issue in substitution for Lost Warrants |
| (a) | In case a Warrant becomes mutilated, lost, destroyed or stolen, the Company, at its sole discretion, may issue and deliver a new Warrant of like date and tenor as the one mutilated, lost, destroyed or stolen, in exchange for and in place of and upon cancellation of such mutilated Warrant, or in lieu of, and in substitution for such lost, destroyed or stolen Warrant and the substituted Warrant will be entitled to the benefit hereof and rank equally in accordance with its terms with all other Warrants issued or to be issued by the Company. |
| (b) | The applicant for the issue of a new Warrant pursuant hereto will bear the cost of the issue thereof and in case of loss, destruction or theft furnish to the Company such evidence of ownership and of loss, destruction, or theft of the Warrant so lost, destroyed or stolen as will be satisfactory to the Company in its discretion and such applicant may also be required to furnish indemnity in amount and form satisfactory to the Company in its sole discretion, and will pay the reasonable charges of the Company in connection therewith. |
| 2.4 | Warrant Holder Not a Shareholder |
The holding of a Warrant will not constitute the Holder thereof as a shareholder of the Company, nor entitle him to any right or interest in respect thereof except as in the Warrant expressly provided.
| 3. | NOTICE |
| 3.1 | Notice to Warrant Holders |
Any notice required or permitted to be given to the Holders will be in writing and may be given by prepaid registered post, electronic facsimile transmission or other means of electronic communication capable of producing a printed copy to the address of the Holder appearing on the Holder’s Warrant or to such other address as any Holder may specify by notice in writing to the Company, and any such notice will be deemed to have been given and received by the Holder to whom it was addressed if mailed, on the third day following the mailing thereof, if by facsimile or other electronic communication, on successful transmission, or, if delivered, on delivery; but if at the time or mailing or between the time of mailing and the third business day thereafter there is a strike, lockout, or other labour disturbance affecting postal service, then the notice will not be effectively given until actually delivered.
| 3.2 | Notice to the Company |
Any notice required or permitted to be given to the Company will be in writing and may be given by prepaid registered post, electronic facsimile transmission or other means of electronic communication capable of producing a printed copy to the address of the Company set forth below or such other address as the Company may specify by notice in writing to the Holder, and any such notice will be deemed to have been given and received by the Company to whom it was addressed if mailed, on the third day following the mailing thereof, if by facsimile or other electronic communication, on successful transmission, or, if delivered, on delivery; but if at the time or mailing or between the time of mailing and the third business day thereafter there is a strike, lockout, or other labour disturbance affecting postal service, then the notice will not be effectively given until actually delivered:
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Greenwood Hall, Inc.
1936 East Deere Avenue
Suite 120
Santa Ana, California
92705, U.S.A.
Attention: President
Fax No. (604) 687-6314 c/o Virgil Z. Hlus
| 4. | EXERCISE OF WARRANTS |
| 4.1 | Method of Exercise of Warrants |
The right to purchase shares conferred by the Warrants may be exercised by the Holder surrendering the Warrant Certificate representing same, with a duly completed and executed subscription in the form attached hereto and a bank draft or certified cheque payable to the Company for the purchase price applicable at the time of surrender in respect of the shares subscribed for in lawful money of the United States of America, to the Company at the address set forth in, or from time to time specified by the Company pursuant to, Section 3.2.
| 4.2 | Effect of Exercise of Warrants |
| (a) | Upon surrender and payment as aforesaid the shares so subscribed for will be deemed to have been issued and such person or persons will be deemed to have become the Holder or Holders of record of such shares on the date of such surrender and payment, and such shares will be issued at the subscription price in effect on the date of such surrender and payment. |
| (b) | Within ten business days after surrender and payment as aforesaid, the Company will forthwith cause to be delivered to the person or persons in whose name or names the shares so subscribed for are to be issued as specified in such subscription or mailed to him or them at his or their respective addresses specified in such subscription, a certificate or certificates for the appropriate number of shares not exceeding those which the Warrant Holder is entitled to purchase pursuant to the Warrant surrendered. |
| 4.3 | Subscription for Less Than Entitlement |
The Holder of any Warrant may subscribe for and purchase a number of shares less than the number which he is entitled to purchase pursuant to the surrendered Warrant. In the event of any purchase of a number of shares less than the number which can be purchased pursuant to a Warrant, the Holder thereof upon exercise thereof will in addition be entitled to receive a new Warrant in respect of the balance of the shares which he was entitled to purchase pursuant to the surrendered Warrant and which were not then purchased.
| 4.4 | Warrants for Fractions of Shares |
To the extent that the Holder of any Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a share, such right may be exercised in respect of such fraction only in combination with another Warrant or other Warrants which in the aggregate entitle the Holder to receive a whole number of such shares.
| 4.5 | Expiration of Warrants |
After the expiration of the period within which a Warrant is exercisable, all rights thereunder will wholly cease and terminate and such Warrant will be void and of no effect.
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| 4.6 | Time of Essence |
Time will be of the essence hereof.
| 4.7 | Subscription Price |
Each Warrant is exercisable at a price per share (the “Exercise Price”) of US$1.30. One (1) Warrant and the Exercise Price are required to subscribe for each share during the term of the Warrants.
| 4.8 | Adjustment of Exercise Price |
| (a) | The Exercise Price and the number of shares deliverable upon the exercise of the Warrants will be subject to adjustment in the event and in the manner following: |
| (i) | if and whenever the shares at any time outstanding are subdivided into a greater or consolidated into a lesser number of shares the Exercise Price will be decreased or increased proportionately as the case may be; upon any such subdivision or consolidation the number of shares deliverable upon the exercise of the Warrants will be increased or decreased proportionately as the case may be; |
| (ii) | in case of any capital reorganization or of any reclassification of the capital of the Company or in the case of the consolidation, merger or amalgamation of the Company with or into any other Company (hereinafter collectively referred to as a “Reorganization”), each Warrant will after such Reorganization confer the right to purchase the number of shares or other securities of the Company (or of the Company’s resulting from such Reorganization) which the Warrant Holder would have been entitled to upon Reorganization if the Warrant Holder had been a shareholder at the time of such Reorganization. |
In any such case, if necessary, appropriate adjustments will be made in the application of the provisions of this Section 4.8 relating to the rights and interest thereafter of the Holders of the Warrants so that the provisions of this Section 4.8 will be made applicable as nearly as reasonably possible to any shares or other securities deliverable after the Reorganization on the exercise of the Warrants.
The subdivision or consolidation of shares at any time outstanding into a greater or lesser number of shares (whether with or without par value) will not be deemed to be a Reorganization for the purposes of this clause 4.8(a)(ii).
| (b) | The adjustments provided for in this Section 4.8 are cumulative and will become effective immediately after the record date or, if no record date is fixed, the effective date of the event which results in such adjustments. |
| 4.9 | Determination of Adjustments |
If any questions will at any time arise with respect to the Exercise Price or any adjustment provided for in Section 4.8, such questions will be conclusively determined by the Company’s Auditors, or, if they decline to so act any other firm of certified public accountants in the United States of America that the Company may designate and who will have access to all appropriate records and such determination will be binding upon the Company and the Holders of the Warrants.
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| 4.10 | Limitation on Exercise of Warrants |
Notwithstanding anything contained herein to the contrary, the Company shall not effect any exercise of the Warrants, and the Holder shall not have the right to exercise any portion of the Warrants, to the extent that after giving effect to such issuance after exercise of the Warrants, the Holder (together with the Holder’s affiliates, and any other persons acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of common stock of the Company beneficially owned by the Holder and its affiliates shall include the number of shares of common stock of the Company issuable upon exercise of the Warrants with respect to which such determination is being made, but shall exclude the number of shares of common stock of the Company which would be issuable upon (i) exercise of the remaining, nonexercised portion of the Warrants beneficially owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4.10, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 4.10 applies, the determination of whether the Warrants are exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of the Warrants are exercisable shall be in the sole discretion of the Holder, and the submission of a subscription form shall be deemed to be the Holder’s determination of whether the Warrants are exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of the Warrants are exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination and shall have no liability for exercises of the Warrants that are not in compliance with the Beneficial Ownership Limitation. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4.10, in determining the number of outstanding shares of common stock of the Company, the Holder may rely on the number of outstanding shares of common stock of the Company as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities and Exchange Commission (the “Commission”), as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of common stock of the Company outstanding. In any case, the number of outstanding shares of common stock of the Company shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Warrants, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the common stock of the Company outstanding immediately after giving effect to the issuance of shares of common stock of the Company issuable upon exercise of the Warrants. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4.10 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of the Warrants.
| 5. | WAIVER OF CERTAIN RIGHTS |
| 5.1 | Immunity of Shareholders, etc. |
The Warrant Holder, as part of the consideration for the issue of the Warrants, waives and will not have any right, cause of action or remedy now or hereafter existing in any jurisdiction against any past, present or future incorporator, shareholder, Director or officer (as such) of the Company for the issue of shares pursuant to any Warrant or on any covenant, agreement, representation or warranty by the Company herein contained or in the Warrant.
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| 6. | MODIFICATION OF TERMS, ETC. |
| 6.1 | Modification of Terms and Conditions for Certain Purposes |
From time to time the Company may, subject to the provisions of these presents, modify the Terms and Conditions hereof, for the purpose of correction or rectification of any ambiguities, defective provisions, errors or omissions herein.
| 7. | WARRANTS NOT TRANSFERABLE |
The Warrant and all rights attached to it are not transferable.
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FORM OF SUBSCRIPTION
| TO: | Greenwood Hall, Inc. 1936 East Deere Avenue Suite 120 Santa Ana, California 92705, U.S.A. Attention: President Fax No. (604) 687-6314 c/o Virgil Z. Hlus |
The undersigned Holder of the within Warrants hereby subscribes for __________ shares (the “Shares”) of common stock of Greenwood Hall, Inc. (the “Company”) pursuant to the within Warrants at US$1.30 per Share on the terms specified in the said Warrants. This subscription is accompanied by a certified cheque or bank draft payable to or to the order of the Company for the whole amount of the purchase price of the Shares.
The undersigned represents that, at the time of the exercise of these Warrants, all of the representations and warranties contained in the subscription agreement(s) between the Company and the undersigned pursuant to which these Warrants were issued are true and accurate.
The undersigned hereby directs that the Shares be registered as follows:
| NAME(S) IN FULL | ADDRESS(ES) | NUMBER OF SHARES | ||
| TOTAL: |
(Please print full name in which share certificates are to be issued, stating whether Mr., Mrs. or Miss is applicable).
DATED this ______ day of_________________ , ______.
In the presence of:
| Signature of Witness | Signature of Warrant Holder |
Please print below your name and address in full.
| Name (Mr./Mrs./Miss) | ||
| Address | ||
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LEGENDS
The certificates representing the Shares acquired on the exercise of the Warrants will bear the following legends, if and as applicable:
THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). ACCORDINGLY, NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED HEREIN) OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.
INSTRUCTIONS FOR SUBSCRIPTION
The signature to the subscription must correspond in every particular with the name written upon the face of the Warrant without alteration or enlargement or any change whatever. If there is more than one subscriber, all must sign. In the case of persons signing by agent or attorney or by personal representative(s), the authority of such agent, attorney or representative(s) to sign must be proven to the satisfaction of the Company. If the Warrant certificate and the form of subscription are being forwarded by mail, registered mail must be employed.
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Exhibit 4.2 – Warrant Issued to Opus Bank
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS (THE “LAWS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT OR QUALIFICATION UNDER THE LAWS UNLESS THE COMPANY AND ITS COUNSEL ARE SATISFIED THAT SUCH REGISTRATION AND QUALIFICATION IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION.
No. WC-838
Date of Issuance: July 23, 2014
WARRANT TO PURCHASE COMMON STOCK
OF
GREENWOOD HALL, INC.
This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, Opus Bank, a California commercial bank (the “Holder”), or the Holder’s registered assigns are entitled, subject to the terms and conditions set forth below to purchase from Greenwood Hall, Inc., a Nevada corporation (the “Company”), that number of shares of the Company’s Common Stock (the “Common Stock”), at a purchase price per share as provided for in Section 2.2. The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein. This Warrant is being issued in consideration of the surrender by the Holder and cancellation of the Warrant originally issued to the Holder by PCS Link, Inc. d/b/a Greenwood & Hall, which, after giving effect to the Merger (as defined below), is a subsidiary of the Company.
1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on the date of the issuance of this Warrant and ending on the earlier of (a) seven years from the date of the issuance of this Warrant or (b) the consummation of a Change of Control (as defined below) (excluding, for the avoidance of doubt, the Merger, as defined below), and shall be void thereafter (the “Exercise Period”). The term “Change of Control” shall mean (i) the consummation of the acquisition of a majority of the outstanding stock of the Company pursuant to a tender offer validly made under any federal or state law (other than a tender offer by the Company); (ii) the consummation of a merger, consolidation or other reorganization of the Company (other than a reincorporation of the Company), if after giving effect to such merger, consolidation or other reorganization of the Company, the stockholders of the Company immediately prior to such merger, consolidation or other reorganization do not represent at least a fifty percent (50%) interest of the holders of voting securities (on a fully diluted basis) of the surviving or resulting entity after such merger, consolidation or other reorganization; (iii) the sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company to a third party who is not an affiliate of the Company; or (iv) the dissolution of the Company pursuant to action validly taken by the stockholders of the Company in accordance with applicable state law.
2. Number of Shares, Exercise Price.
2.1 The exercise price per share (the “Exercise Price”) shall be equal to the lesser of (i) $1.00 or (ii) the VWAP for the 120 day long period commencing on the effective date of the Merger. The “Merger” means that certain merger occurring pursuant to that certain Merger Agreement and Plan of Reorganization, dated July 11, 2014, by and among the Company, Greenwood Hall Acquisition, Inc., a California corporation, and PCS Link, Inc. d/b/a Greenwood & Hall, a California corporation. The term “VWAP” means the dollar volume-weighted average price for the Common Stock on the principal securities exchange or securities market on which such security is then traded during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc.; if the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. The Exercise Price shall be subject to adjustment as provided in Section 3.5.
2.2 The Warrant shall be exercisable for 375,000 shares of Common Stock, subject to adjustment as provided herein.
2.3 The shares of Common Stock for which this Warrant is exercisable and which are issued upon exercise of this Warrant shall hereinafter be referred to collectively as the “Warrant Shares.”
3. Exercise of Warrant.
3.1 Cash Exercise. This Warrant may be exercised in whole or in part by the Holder during the Exercise Period by (i) the surrender of this Warrant to the Company, with the Notice of Exercise attached as Exhibit A hereto (the “Notice of Exercise”) duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), and (ii) the delivery of payment to the Company, for the account of the Company, by (A) cash, (B) wire transfer of immediately available funds to a bank account specified by the Company, (C) certified or bank cashier’s check, (D) the cancellation by the Holder of indebtedness or other obligations of the Company to the Holder, or (E) a combination of any of the above, of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise in lawful money of the United States of America.
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3.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 3.1 hereof, this Warrant may be exercised, in whole or in part, by the Holder by (i) the surrender of this Warrant to the Company, with a duly executed Notice of Exercise marked to reflect Net Issue Exercise and specifying the number of Warrant Shares to be purchased, during normal business hours on any business day during the Exercise Period and (ii) compliance with this Section 3.2. Upon such exercise, the Holder shall be entitled to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant to the Company together with notice of such election in which event the Company shall issue to the Holder a number of Warrant Shares, computed as of the date of surrender of this Warrant to the Company using the following formula:
| X = | Y(A-B) | ||
| A |
| Where X | = | the number of shares of Common Stock to be issued to the Holder under this Section 3.2; |
| Where Y | = | the number of shares of Common Stock requested to be exercised under this Warrant; |
| Where A | = | the fair market value of one share of the Company’s Common Stock, at the date of such calculation; |
| Where B | = | the Exercise Price. |
3.3 Fair Market Value. For purposes of this Warrant, the “fair market value” per share of the Company’s Common Stock shall have the following meanings:
(a) If the Common Stock is not listed for trading on a national securities exchange or admitted for trading on a national market system, then the fair market value of the Common Stock shall be deemed to be the fair market value of the Common Stock as determined in good faith by the disinterested members of the Board of Directors of the Company from time to time, provided that such determination shall be reasonably acceptable to the Holder, and provided further that if the Company shall become subject to a Significant Transaction (as defined below), the fair market value of the Common Stock shall be deemed to be the per share value received by the holders of the Common Stock in or pursuant to such Significant Transaction.
(b) If the Common Stock is listed for trading on a national securities exchange or admitted for trading on a national market system, then the per share fair market value of the Common Stock shall be deemed to be the closing price quoted on such exchange or system on which the Common Stock is listed for trading, or if not so listed, the average of the closing bid and asked prices for the Common Stock quoted on the Over-the-Counter Summary, each as published in the Western Edition of The Wall Street Journal, for the ten (10) trading days prior to the date of determination of fair market value in accordance herewith.
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3.4 Delivery of Stock Certificates. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Warrant Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. Notwithstanding the foregoing, if an exercise of all or any portion of this Warrant is being made in connection with (i) a proposed public offering of any capital stock (or other securities) of the Company, (ii) a proposed Significant Transaction, (iii) a proposed issuance or sale of capital stock or any other securities of the Company, or (iv) a proposed transfer of capital stock or other securities of the Company, then, at the election of the Holder, such exercise may be conditioned upon the consummation of such public offering, Significant Transaction, or issuance, sale or transfer of capital stock or other securities, in which case (A) such exercise shall be effective concurrently with the consummation of such public offering, Significant Transaction, or issuance, sale or transfer of capital stock or other securities, and (B) appropriate modifications will be made to the Notice of Exercise to reflect the conditionality specified in this sentence. As promptly as practicable on or after such effective date and in any event within ten business days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same, a certificate or certificates for the number of shares issuable upon such exercise. In the event that this Warrant is exercised in part, the Company at its expense will execute and deliver a new warrant of like tenor exercisable for the number of shares for which this Warrant may then be exercised. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of the Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares.
3.5 Adjustment.
(a) Splits, Combinations, Reclassifications. In the event the Company (i) splits, subdivides, or combines the Common Stock into a different number of securities of the same class, (ii) pays a stock dividend on the Common Stock, (iii) reclassifies the Common Stock into the same or a different number of securities (each, an “Adjustment Event”) then the Exercise Price shall be appropriately adjusted and this Warrant shall represent the right to acquire such number and the kind of securities that would have been issued had the Holder exercised this Warrant immediately prior to such an Adjustment Event.
(b) Reorganizations, Mergers, Consolidations or Sales of Assets. In the event of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with another corporation (other than a consolidation or merger in which the outstanding shares of the Common Stock are not converted into or exchanged for other rights or interests), or in the case of any sale, transfer or other disposition to another corporation of all or substantially all the properties and assets of the Company (any of the events described in this sentence, a “Significant Transaction”), the Holder shall thereafter be entitled to purchase the kind and amount of shares of stock and other securities and property (including cash) which the Holder would have been entitled to receive had this Warrant been exercised immediately prior to the effective date of such Significant Transaction.
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(c) Certificates of Adjustments. Whenever the Exercise Price or the number of Warrant Shares issuable hereunder shall be adjusted pursuant to this Section or pursuant to Section 13, the Company shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Exercise Price and the number of Warrant Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed as soon as practicable, by first class mail, postage prepaid, to the Holder.
4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in substitution of this Warrant, a new warrant of like tenor and amount.
6. Rights as Stockholder. Except as otherwise provided herein, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised as provided herein.
7. Transfer of Warrant.
7.1 Warrant Register. The Company will maintain a register (the “Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change such Holder’s address as shown on the Warrant Register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until this Warrant is transferred on the Warrant Register of the Company, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary.
7.2 Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 7.1 hereof, issuing the Warrant Shares or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent.
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7.3 Transferability of Warrant. This Warrant may only be transferred with the Company’s written consent, which consent shall not be unreasonably withheld or delayed, and which consent shall not in any event be required for any transfer to an affiliate (as defined below) of the Holder. For the purposes of this section “affiliate” means, with respect to any person or entity, any entity controlling, controlled by or under common control with such designated person or entity, and “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise.
7.4 Exchange of Warrant Upon a Transfer. On surrender of this Warrant for exchange, properly endorsed on the Assignment Form attached as Exhibit B hereto and subject to the provisions of this Warrant with respect to the limitations on assignments and transfers, the Company at its expense shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.
7.5 Compliance with Securities Laws.
(a) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof or conversion thereof are being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof or conversion thereof except under circumstances that will not result in a violation of the Securities Act or any applicable state securities laws. Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant Shares so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale in violation of federal or state securities laws.
(b) This Warrant and all certificates representing the Warrant Shares issued upon exercise hereof or conversion thereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS (THE “LAWS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT OR QUALIFICATION UNDER THE LAWS UNLESS THE COMPANY AND ITS COUNSEL ARE SATISFIED THAT SUCH REGISTRATION AND QUALIFICATION IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION.
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8. Notices.
8.1 In case:
(a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right;
(b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, any conveyance of all or substantially all of the assets of the Company to another corporation, or any other Significant Transaction;
(c) of any voluntary dissolution, liquidation or winding-up of the Company;
(d) of any redemption or conversion of all outstanding Common Stock; or
(e) of the filing of a Company registration statement with the U.S. Securities and Exchange Commission (the “SEC”);
then, and in each such case, the Company will mail or cause to be mailed to the Holder or Holders a notice specifying, as the case may be, (A) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (B) the date on which such reorganization, reclassification, consolidation, merger, conveyance, other Significant Transaction, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, other Significant Transaction, dissolution, liquidation or winding-up, or (C) the anticipated date on which the Company expects a Company registration statement filed with the SEC to become effective. Such notice shall be mailed at least twenty (20) days prior to the date therein specified.
8.2 All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given (i) upon actual delivery to the party to be notified, (ii) 24 hours after confirmed facsimile transmission, (iii) one (1) business day after deposit with a recognized overnight courier, or (iv) three (3) business days after deposit with the U.S. Postal Service by first class certified or registered mail, postage prepaid, return receipt requested, addressed or sent:
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| If to the Holder: | Opus Bank |
| 19900 MacArthur Blvd. | |
| 12th Floor | |
| Irvine, CA 92612 | |
| Attn: Douglas Stewart | |
| E-mail: dstewart@opusbank.com | |
| Phone: (949) 250-9800 | |
| Facsimile: (949) 250-9988 | |
| or at such other address as the Holder shall have furnished to the Company in writing upon ten (10) days’ notice. |
| If to the Company: | Greenwood Hall, Inc. |
| 1936 East Deere Avenue | |
| Suite 120 | |
| Santa Ana, CA 92705 | |
| Attn: John Hall | |
| E-mail: jhall@greenwoodhall.com | |
| Phone: 949-655-5000 | |
| Facsimile: 949-655-5095 | |
| or at such other address as the Company shall have furnished to the Holder in writing upon ten (10) days’ notice. |
9. Amendments. Any provision of this Warrant may be amended, waived or modified (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), upon the written consent of the Company and the holders of a majority in interest of the Warrant and the warrants delivered in substitution or exchange therefor (the “Holders”), and shall be binding upon the Company and the Holders.
10. Representations and Covenants of the Holder. This Warrant has been entered into by the Company in reliance upon the following representations and covenants of the Holder:
10.1 Purchase Entirely for Own Account. The Holder acknowledges that this Warrant is given to the Holder in reliance upon the Holder’s representation to the Company, which by its acceptance of this Warrant the Holder hereby confirms, that the Warrant and the Warrant Shares (collectively, the “Securities”) being acquired by the Holder are being acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act or applicable state securities laws, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same except under circumstances that will not result in a violation of the Securities Act or any other federal or state securities laws. By executing this Warrant, the Holder further represents that the Holder does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Holder represents that it has full power and authority to execute this Warrant. The Holder has not been formed for the specific purpose of acquiring any of the Securities.
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10.2 Disclosure of Information. The Holder has had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company’s management. The Holder understands that such discussions, as well as any written information issued by the Company, were intended to describe the aspects of the Company’s business which it believes to be material.
10.3 Restricted Securities. The Holder understands that the Securities have not been, and, except as provided in Section 14 below, will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depend upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein. The Holder understands that the Securities are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Holder must hold the Securities indefinitely unless they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Holder acknowledges that the Company has no obligation to register or qualify the Securities for resale, except as provided in Section 14 below. The Holder further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Holder’s control, and which the Company is under no obligation and may not be able to satisfy.
10.4 No Public Market. The Holder understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Securities.
10.5 Legends. The Holder understands that the Securities, and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends:
(i) “THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS (THE “LAWS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT OR QUALIFICATION UNDER THE LAWS UNLESS THE COMPANY AND ITS COUNSEL ARE SATISFIED THAT SUCH REGISTRATION AND QUALIFICATION IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION”; and
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(ii) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended.
10.6 Accredited Investor. The Holder is either an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act or has such knowledge and experience (or is relying on a purchaser representative who has such knowledge and experience) in financial and business matters that the Holder is capable of evaluating the merits and risks of acquiring the Securities.
10.7 Speculative Nature of Investment. The Holder acknowledges that its investment in the Company is highly speculative and entails a substantial degree of risk and the Holder is in a position to lose the entire amount of such investment.
10.8 Company Representations. The Holder acknowledges that any information provided to the Holder by the Company reflects the Company’s current intentions and estimates at the current time, and the precise elements of the Company’s plans can be expected to change from time to time.
10.9 Investment Experience. The Holder is able to bear the economic risk of the Holder’s investment, including the complete loss thereof. The Holder has a preexisting personal or business relationship with the Company or one or more of its officers, directors or other persons in control of the Company, or the Holder has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this Warrant.
10.10 Residency. The Holder is a resident of (or, in the case of a partnership, corporation, limited liability company or other entity other than an individual, such entity has its principal place of business in) the state given in the Holder’s address listed in Section 8.2.
10.11 Further Limitations on Disposition. Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Securities (other than the valid exercise or conversion thereof in accordance with their respective terms) unless and until:
(a) There is then in effect a registration Statement under the Securities Act (“Registration Statement”) covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or
(b) (x) the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a reasonably detailed statement of the circumstances surrounding the proposed disposition, and (y) if requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act or registration or qualification under any state securities laws; and
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(c) all transferees agree in writing to be subject to the terms of this Agreement, and any other agreements to which such Securities may be subject, to the same extent as if they were the Holder hereunder or a party thereunder.
11. Representations and Warranties of the Company.
11.1 Reservation of Common Stock. The Common Stock issuable upon exercise of the Holder’s rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever, and free from statutory and contractual equityholders’ preemptive rights and rights of first refusal; provided, that the Common Stock issuable pursuant to this Warrant may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Holder true, correct and complete copies of its Articles of Incorporation and current Bylaws. The issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock; provided, that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Holder.
11.2 Due Authority. The execution and delivery by the Company of this Warrant and the performance of all obligations of the Company hereunder, including the issuance to the Holder of the right to acquire the shares of Common Stock and the Common Stock into which it may be converted, have been duly authorized by all necessary corporate action on the part of the Company. This Warrant and the transactions contemplated hereby do not contravene any law or governmental rule, regulation or order applicable to it and do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. This Warrant and the transactions contemplated hereby do not and will not in any way contravene the Company’s Articles of Incorporation or Bylaws. This Warrant constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.
11.3 Organization, Good Standing, and Qualification. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.
12. Reservation of Shares. Commencing the date of the execution of this Warrant by the Company and continuing until the end of the Exercise Period, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.
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13. Anti-Dilution Adjustment.
13.1 Definitions for this Section 13.
(a) "Dilutive Transaction" means any transaction (other than an Exempt Transaction) where the Company does any of the following, based on a per share price which is less than the Non-Dilutive Price:
(i) issues or sells any Common Stock or any Common Stock Equivalents;
(ii) issues or sells any options, warrants or other rights to purchase or otherwise acquire any Common Stock or any Common Stock Equivalent; or
(iii) decreases the subscription, exercise, conversion or exchange price of the securities described in (i) or (ii).
(b) "Employee Options" means options to purchase shares of Common Stock issued by the Company pursuant to a stock option plan approved by the shareholders of the Company to employees of, consultants to, contractors with, or members of the board of directors of the Company, in connection with or as compensation for the performance of services to the Company.
(c) "Employee Option Shares" means shares of Common Stock into which Employee Options are exercisable.
(d) "Exempt Transaction" means any transaction where the Company:
(i) issues any Common Stock upon conversion or exercise of securities outstanding or issued as of the date hereof (including shares of Common Stock issuable upon the exercise of warrants outstanding on the date hereof and the Employee Option Shares issuable upon exercise of the Employee Options outstanding on the date hereof);
(ii) issues such number of Employee Options which, when combined with the Employee Options referred to in clause (i) above, does not exceed 10% of the Common Stock Deemed Outstanding as of the date of such issue;
(iii) issues Employee Option Shares upon exercise of the Employee Options contemplated in clause (ii); or
(iv) issues any Common Stock upon exercise of this Warrant.
(e) "Non-Dilutive Price" means the fair market value of a share of Common Stock on the date of the Dilutive Transaction.
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(f) "Common Stock Deemed Outstanding" means, at any given time, the sum of:
(i) the number of shares of Common Stock outstanding at such time, plus
(ii) the number of shares of Common Stock issuable upon conversion, exercise, or exchange of any Common Stock Equivalents outstanding at such time.
(g) "Common Stock Equivalent" means any security of the Company that is directly or indirectly convertible, exercisable, or exchangeable into Common Stock at any time.
(h) "Weighted Average Per Share Value" means the amount determined by performing the following calculation and rounding the resulting number to the nearest whole cent: Divide:
(i) the sum of:
a) the Non-Dilutive Price of a Warrant Share multiplied by the number of shares of Common Stock Deemed Outstanding immediately prior to the Dilutive Transaction, plus
b) the aggregate consideration, if any, received or to be received by the Company in connection with the Dilutive Transaction, by
(ii) the number of shares of Common Stock Deemed Outstanding immediately after the Dilutive Transaction.
13.2 Dilutive Transactions. Each time the Company enters into a Dilutive Transaction, the number of Warrant Shares issuable hereunder shall be increased to the number determined by performing the following calculation and rounding the resulting number to the nearest whole share: Divide:
(a) the Non-Dilutive Price then in effect of a Warrant Share multiplied by the number of Warrant Shares then issuable hereunder, by:
(b) the Weighted Average Per Share Value.
13.3 Readjustment.
(a) Expiration of Option or Right to Subscribe For or Purchase. If any option or right issued in connection with a Dilutive Transaction expires without having been exercised prior to the exercise by the Holder of its rights hereunder, the number of Warrant Shares then issuable hereunder shall forthwith be readjusted to such lesser number as would have been issuable had the option or right never been issued.
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(b) Expiration of Right to Convert or Exchange. If any right to convert or exchange any Common Stock Equivalent issued in connection with a Dilutive Transaction expires without having been exercised prior to the exercise by the Holder of its rights hereunder, the number of Warrant Shares then issuable hereunder shall forthwith be readjusted to such lesser number as would have been issuable had the Common Stock Equivalent never been issued.
14. Piggyback Registrations
14.1 Right to Piggyback. Whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant to a registration on Form S-8 or Form S-4 or any successor forms, a registration covering only an employee benefit plan (as defined in Rule 405 of the Securities Act) or a registration covering only securities proposed to be issued in exchange for securities or assets of another corporation) and the registration form to be used may be used for the registration of Warrant Shares (a “Piggyback Registration”), the Company will give prompt written notice to all holders of the Warrant and the Warrant Shares and (subject to subsection 14.2 below) shall include in such registration all Warrant Shares (including, for the avoidance of doubt and for all purposes of this Section 14, Warrant Shares not then outstanding but issuable upon exercise of the Warrant) with respect to which the Company has received written requests for inclusion therein within 15 Business Days after the day on which the Company’s notice is deemed delivered under the terms hereof.
14.2 Priority on Registration. If a Piggyback Registration is an underwritten registration, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration only the amount of securities which the managing underwriters have advised can be sold and will allocate such amount, first, pro rata among the amount of securities the Company proposes to sell and the Warrant Shares requested to be included in such registrations, and second, pro rata among all other securities requested to be included in such registration pursuant to the exercise of other piggyback registration rights granted by the Company.
15. Miscellaneous.
15.1 This Warrant shall be governed by and construed in accordance with California law, without regard to the conflict of laws provisions thereof.
15.2 In any litigation, arbitration or court proceeding between the Company and the Holder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Warrant. For the purposes of this Section 15.2, attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.
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15.3 All judicial proceedings arising in or under or related to this Warrant may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Warrant, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Orange County, State of California; (b) waives any objection as to jurisdiction or venue in Orange County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Warrant. Service of process on any party hereto in any action arising out of or relating to this Warrant shall be effective if given in accordance with the requirements for notice set forth in Section 8.2, and shall be deemed effective and received as set forth in Section 8.2. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.
15.4 Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND THE HOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY THE COMPANY AGAINST HOLDER OR ITS ASSIGNEE OR BY HOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve persons other than the Company and Holder; Claims that arise out of or are in any way connected to the relationship between the Company and Holder; and any Claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind, arising out of this Warrant.
15.5 This Warrant and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts (and facsimile copies of signatures or signatures contained in a .pdf file transmitted via email shall be deemed original for all purposes), and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.
15.6 This Warrant shall be exercisable as provided herein, except that in the event that the expiration date of this Warrant shall fall on a Saturday, Sunday and or United States federally recognized Holiday, such expiration date for this Warrant shall be extended to 5:00 p.m. Pacific standard time on the business day following such Saturday, Sunday or recognized Holiday.
15.7 All headings used herein are used for convenience only and shall not be used to continue or interpret this Warrant. Except as otherwise indicated, all references herein to Sections refer to Sections hereof.
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15.8 The provisions of this Warrant shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof.
15.9 In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the non-defaulting party will not have an adequate remedy at law and where damages will not be readily ascertainable.
15.10 In the event any one or more of the provisions of this Warrant shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.
15.11 This Warrant constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof.
15.12 Each of the parties represents to each other party hereto that it has discussed (or had an opportunity to discuss) with its counsel this Warrant.
15.13 The parties hereto have participated jointly in the negotiation and drafting of this Warrant. In the event an ambiguity or question of intent or interpretation arises, this Warrant shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Warrant.
15.14 Except and to the extent waived or consented to in writing by the Holder, the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, intentionally avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized.
Dated: July 23, 2014
| Greenwood Hall, Inc.: | ||
| By | /S/ John Hall | |
| John Hall, Chief Executive Officer and Chairman of the Board of Directors | ||
| Address: | 1936 East Deere Avenue, Suite 120, Santa Ana, California 92705 | |
| Acknowledged and Agreed: | ||
| OPUS BANK | ||
| By: | /S/ Douglas Stewart | |
| Douglas Stewart, Managing Director – Technology Banking | ||
[Signature Page to Warrant]
EXHIBIT A
NOTICE OF EXERCISE
To: Greenwood Hall, Inc.
(1) The undersigned hereby elects to purchase _________ shares of Common Stock (the “Common Stock”) of Greenwood Hall, Inc., a Nevada corporation (the “Company”), pursuant to the terms of the attached warrant (the “Warrant”), and either:
¨ tenders herewith payment of the purchase price for such shares in full; or
¨ elects the Net Issue Exercise option, as described in Section 3.2 of the Warrant.
(2) The undersigned represents that (i) the Common Stock is being acquired solely for the account of the undersigned and not as a nominee for any other party, for investment and not with a view to, or for resale in connection with, the distribution thereof in violation of federal or state securities laws and that the undersigned has no present intention of distributing or reselling such shares in violation of federal or state securities laws; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the undersigned understands that the Common Stock issuable upon exercise of this Warrant has not been registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; and (v) the undersigned is aware that the aforesaid Common Stock may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the period of time prescribed by Rule 144.
(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
| (Name) |
(4) Please issue a new warrant for the unexercised portion of the Warrant in the name of the undersigned or in such other name as is specified below:
| (Name) | ||
| (Date) | (Signature) |
| 2 |
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of the attached warrant (the “Warrant”) hereby sells, assigns and transfers unto the assignee named below all of the rights of the undersigned under the Warrant, with respect to the number of shares of Common Stock of Greenwood Hall, Inc., a Nevada corporation, set forth below and does irrevocably relinquish all rights thereunder solely with respect to such shares of Common Stock so sold, assigned or transferred:
| Name of Assignee | Address | No. of Shares | ||
| (print name): | ||
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Exhibit 4.3 – Return to Treasury Agreement
RETURN TO TREASURY AGREEMENT
THIS AGREEMENT is made as of the 27th day of June, 2014.
BETWEEN:
DIVIO HOLDINGS, CORP., a company incorporated under the laws of the State of Nevada and having an address at 55 A Cliff View Drive, Green Bay, Auckland, NZ
(the “Company”)
AND:
JAMES GRANT, Businessperson, of 55 A Cliff View Drive, Green Bay, Auckland, NZ
(the “Shareholder”)
WHEREAS:
A. The Shareholder is the registered and beneficial owner of 3,500,000 shares (the “Shares”) of the Company’s common stock (prior to a 12.5 new for one old forward stock split of the Company’s common stock); and
B. In connection with and in order to facilitate the acquisition (the “Acquisition”) of PCS Link Inc., dba Greenwood & Hall by the Company, the Shareholder has agreed to return the Shares held by him to the treasury of the Company for the sole purpose of the Company retiring the Shares without any consideration.
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
Surrender of Shares
1. Subject only to the closing of the Acquisition, the Shareholder hereby surrenders to the Company the Shares and delivers to the Company herewith share certificates representing the Shares, duly endorsed for transfer in blank, signatures guaranteed. The Company hereby acknowledges receipt from the Shareholder of the certificate(s) for the sole purpose of retiring the Shares pursuant to this Agreement.
Retirement of Shares
2. Concurrent with or immediately following the closing of the Acquisition, the Company shall forthwith retire the Shares pursuant to §78.283 of Chapter 78 of the Nevada Revised Statutes.
Representations and Warranties
3. The Shareholder represents and warrants to the Company that he is the owner of the Shares and that he has good and marketable title to the Shares and that the Shares are free and clear of all liens, security interests or pledges of any kind whatsoever.
| -1- |
Release
4. The Shareholder, together with the Shareholder’s heirs, executors, administrators, and assigns, does hereby remise, release and forever discharge the Company, its directors, officers, shareholders, employees and agents, and their respective successors and assigns, of and from all claims, causes of action, suits and demands whatsoever which the Shareholder ever had, now has or may have, howsoever arising: (i) out of the original grant and the retirement of the Shares, or (ii) in connection with the Shareholder’s involvement with the Company as a director and officer.
General
5. Each of the parties will execute and deliver such further and other documents and do and perform such further and other acts as any other party may reasonably require to carry out and give effect to the terms and intention of this Agreement.
6. Time is expressly declared to be the essence of this Agreement.
7. The provisions contained herein constitute the entire agreement among the Company and the Shareholder respecting the subject matter hereof and supersede all previous communications, representations and agreements, whether verbal or written, among the Company and the Shareholder with respect to the subject matter hereof.
8. This Agreement will enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
9. This Agreement is not assignable without the prior written consent of the parties hereto.
10. This Agreement may be executed in counterparts, each of which when executed by any party will be deemed to be an original and all of which counterparts will together constitute one and the same Agreement. Delivery of executed copies of this Agreement by telecopier will constitute proper delivery, provided that originally executed counterparts are delivered to the parties within a reasonable time thereafter.
11. The Company has obtained legal advice concerning this Agreement and has requested that the Shareholder obtain independent legal advice with respect to same before executing it. In executing this Agreement, the Shareholder represents and warrants to the Company that he has been advised to obtain independent legal advice, and that prior to the execution of this Agreement he has obtained independent legal advice or has, in his discretion, knowingly and willingly elected not to do so.
[THE REMAINDER OF THIS PAGE HAS BEEN INTESTINALLY LEFT BLANK.]
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IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written.
DIVIO
HOLDINGS, CORP.
| Per: | /S/__James Grant_______________ | |
| Authorized Signatory – James Grant |
| -3- |
Exhibit 4.4 – Form of Registration Rights Agreement
DIVIO HOLDINGS, CORP.
(to be renamed greenwood Hall, inc.)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”), dated as of June 30, 2014, is made by and between Divio Holdings, Corp. (to be renamed Greenwood Hall, Inc.), a Nevada corporation (the “Company”) and the undersigned investor (the “Investor”).
R E C I T A L S
WHEREAS, in connection with that certain Subscription Agreement dated June 30, 2014 by and between the Company and the Investor (the “Subscription Agreement”), the Investor purchased from the Company, certain units (the “Units”), each Unit consisting of (a) one share of common stock (the “Unit Share”), and (b) a two-year warrant (the “Warrants”) to purchase one share of common stock of the Company (“Warrant Share”) exercisable at US$1.30 per share; and
WHEREAS, to induce the Investor to purchase the Units, the Company has agreed to grant the Investor certain rights with respect to registration of Registrable Securities under the Securities Act pursuant to the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, the Company and the Investor hereby covenant and agree as follows:
1. Recitals. The recitals set forth above are true and correct and are incorporated herein by reference.
2. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings:
“Agreement” shall have the meaning set forth in the Preamble hereof;
“Automatic Registration Statement” shall have the meaning set forth in Section 3(a) of this Agreement;
“Closing” shall mean the closing of the sale of the Units in which the Investor Purchased the Units;
“Closing Date” means the date on which the Closing occurred;
“Commission” shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act;
“Company” shall have the meaning set forth in the Preamble hereof;
“Effectiveness Date” shall mean that date which is sixty (60) days following the Filing Date;
“Effectiveness Period” shall have the meaning set forth in Section 3(a) of this Agreement;
Exhibit C – Form of Registration Rights Agreement
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect;;
“Filing Date” shall mean that date which is thirty (30) days following the Final Closing Date;
“Final Closing Date” means closing date of the Offering after which the Company ceases to offer for sale the Units;
“Investor” shall have the meaning set forth in the Preamble hereof;
“Offering” shall refer to the Company’s offering of the Units;
“Register,” “registered” and “registration” each shall refer to a registration of the Registrable Securities effected by preparing and filing a registration statement or statements or similar documents in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document by the Commission;
“Registrable Securities” shall mean the Unit Shares and Warrant Shares issued to Investor in connection with the Offering; provided, however, that Unit Shares and Warrant Shares that are Registrable Securities shall cease to be Registrable Securities (i) when subject to an effective registration statement under the Securities Act as provided for hereunder, (ii) upon any sale pursuant to a registration statement or Rule 144 under the Securities Act or (iii) at such time as they become eligible for sale without volume limitations or other restrictions pursuant to Rule 144 under the Securities Act or another similar exemption under the Securities Act; provided, further, that the maximum amount of Registrable Securities at any one time shall be subject to any limits imposed by the Commission pursuant to Rule 415;
“Securities Act” shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect;
“Subscription Agreement” shall have the meaning set forth in the Preamble hereof;
“Unit Shares” shall have the meaning set forth in the definition of Registrable Securities herein;
“Warrant” shall have the meaning set forth in the Preamble hereof; and
“Warrant Shares” shall have the meaning set forth in the Preamble hereof.
Capitalized terms used but not defined herein shall have the meanings set forth in the Subscription Agreement.
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3. Automatic Registration.
(a) On or prior to the Filing Date, the Company shall prepare and file with the Commission a registration statement (the “Automatic Registration Statement”) covering the resale of all of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Automatic Registration Statement required hereunder shall be on Form S-1 or Form S-3 (or any successor forms thereto), as applicable. Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause the Automatic Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event not later than the Effectiveness Date, and shall use its commercially reasonable efforts to keep the Automatic Registration Statement continuously effective under the Securities Act until the date when all Registrable Securities covered by the Registration Statement have been sold or may be sold without volume or other restrictions pursuant to Rule 144 under the Securities Act as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the Investor (the “Effectiveness Period”). The maximum amount of Registrable Securities that may be included in the Automatic Registration Statement at any one time shall be limited by Rule 415 as required by the Commission. In the event that there is a limitation by the Commission on the number of Registrable Securities that may be included for registration at one time, the Company shall promptly so advise the Investor and use its reasonable best efforts to file an additional Automatic Registration Statement covering such ineligible Registrable Securities, on a pro-rata basis, within 30 days of the date such securities become eligible and cause such Automatic Registration Statement to be declared effective by the Commission as soon as reasonably practicable. Any reduction in the number of Registrable Securities shall be deducted from the Unit Shares.
(b) At any time after the Automatic Registration Statement has become effective, the Company may, upon giving prompt written notice of such action to the Investor, suspend the use of any such Automatic Registration Statement if, in the good faith judgment of the Company, the use of the Automatic Registration Statement covering the Registrable Securities would be detrimental to the Company or its stockholders at such time and the Company concludes, as a result, that it is in the best interests of the Company or its stockholders to suspend the use of such Automatic Registration Statement at such time. The Company shall have the right to suspend such Automatic Registration Statement for a period of not more than thirty (30) consecutive days from the date the Company notifies the Investor of such suspension, with such suspension not exceed an aggregate of seventy-five (75) days (whether or not consecutive) during any 12-month period. In the case of the suspension of any effective Automatic Registration Statement, the Investor, immediately upon receipt of notice thereof from the Company, will discontinue any sales of Registrable Securities pursuant to such Registration Statement until advised in writing by the Company that the use of such Automatic Registration Statement may be resumed.
4. Registration Procedures. If and whenever the Company is required by the provisions of Section 3 hereof to use its commercially reasonable efforts to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission the registration statement with respect to such securities and use its commercially reasonable efforts to cause such registration statement to become effective in an expeditious manner;
(b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement continuously effective during the Effectiveness Period and comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement in accordance with the intended method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Registrable Securities such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) in conformity with the requirements of the Securities Act, and such other documents as such persons reasonably may request in order to facilitate the intended disposition of the Registrable Securities covered by such registration statement;
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(d) promptly notify each seller of Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and promptly amend or supplement such registration statement to correct any such untrue statement or omission;
(e) promptly notify each seller of Registrable Securities of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time;
(f) take all actions reasonably necessary to facilitate the timely preparation and delivery of certificates (not bearing any legend restricting the sale or transfer of such securities) representing the Registrable Securities to be sold pursuant to the registration statement and to enable such certificates to be in such denominations and registered in such names as the Investor may reasonably request; and
(g) take all other reasonable actions necessary to expedite and facilitate the registration of the Registrable Securities pursuant to the registration statement.
5. Obligations of Investor. The Investor shall furnish to the Company such information regarding such Investor, the number of Registrable Securities owned and proposed to be sold by it, the intended method of disposition of such securities and any other reasonable information as shall be required to effect the registration of the Registrable Securities, and cooperate with the Company in preparing the registration statement and in complying with the requirements of the Securities Act.
6. Expenses.
(a) All expenses incurred by the Company in complying with Section 3 including, without limitation, all registration and filing fees (including the fees of the Commission and any other regulatory body with which the Company is required to file), printing expenses, fees and disbursements of counsel and independent public accountants for the Company and fees of transfer agents and registrars are called “Registration Expenses.” All underwriting discounts and selling commissions applicable to the sale of Registrable Securities are called “Selling Expenses.”
(b) The Company will pay all Registration Expenses in connection with any registration statement filed hereunder, and the Selling Expenses in connection with each such registration statement shall be borne by the participating sellers in proportion to the number of Registrable Securities sold by each or as they may otherwise agree.
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7. Indemnification and Contribution.
(a) In the event of a registration of any of the Registrable Securities under the Securities Act pursuant hereto, each seller of such Registrable Securities thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities, “blue sky” laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon reliance on any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the Securities Act pursuant hereto or any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, 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 will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus; and provided, further, that the liability of each seller hereunder shall be limited to the net proceeds received by such seller from the sale of Registrable Securities covered by such Registration Statement. Notwithstanding the foregoing, the indemnity provided in this Section 7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of such indemnified party and provided further, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in such Registration Statement, which untrue statement or alleged untrue statement or omission or alleged omission is completely corrected in an amendment or supplement to the registration statement and the undersigned indemnitees thereafter fail to deliver or cause to be delivered such registration statement as so amended or supplemented prior to or concurrently with the sale of the Registrable Securities to the person asserting such loss, claim, damage or liability (or actions in respect thereof) or expense after the Company has furnished the undersigned with the same.
(b) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 7 and shall only relieve it from any liability which it may have to such indemnified party under this Section 7 if and to the extent the indemnifying party is materially prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded based upon written advice of its counsel that there may be reasonable defenses available to it that are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred.
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(c) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Registrable Securities exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 7 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 7 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 7; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by the Registration statement bears to the public offering price of all securities offered by such Registration statement, and the Company is responsible for the remaining portion; provided, that, in any such case, (A) no such holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered by it pursuant to such Registration statement and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.
8. Changes in Capital Stock. If, and as often as, there is any change in the capital stock of the Company by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue as so changed.
9. Termination. All of the Company’s obligations to register Registrable Shares under Section 3 and 4 hereof shall terminate upon the date on which the Investor holds no Registrable Securities or all of the Registrable Securities are eligible for resale without volume or other restrictions pursuant to Rule 144 under the Securities Act.
10. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Registrable Securities), whether so expressed or not.
(b) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by electronic mail; or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Divio Holdings, Corp.
55 A Cliff View Drive
Green Bay, Auckland, New Zealand
Attention: Chief Executive Officer
If to the Investor:
In accordance with the address on
the signature page of this Agreement
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or at such other address and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) electronically generated by the sender's email containing the time, date, recipient or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively
(c) This Agreement shall be governed by and construed under the laws of the State of California, without giving effect to principles of conflicts of laws. The Company and Investor (i) agree that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in any federal or state court located in the State of California, (ii) waive any objection which the Company or Investor may have now or hereafter to the venue of any such suit, action or proceeding, and (iii) irrevocably consent to the jurisdiction of any federal or state court located in the State of California in any such suit, action or proceeding. The Company and Investor further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in any federal or state court located in the State of California and agree that service of process upon the Company or Investor mailed by certified mail, return receipt requested, postage prepaid, to, in the case of the Company, the Company’s address, and in the case of the Investor, to the Investor’s address as set forth on the Company’s books and records, shall be deemed in every respect effective service of process upon the Company, in any such suit, action or proceeding. THE PARTIES HERETO AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
(d) In the event of a breach by the Company or by the Investor, of any of their obligations under this Agreement, the Investor or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and the Investor agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.
(e) This Agreement may not be amended or modified without the written consent of the Company and the Investor.
(f) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. No waiver shall be effective unless and until it is in writing and signed by the party granting the waiver.
(g) This Agreement may be executed in two or more counterparts (including by facsimile or .pdf transmission) each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
(h) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein.
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(i) This Agreement constitutes the entire agreement among the Company and the Investor relative to the subject matter hereof and supersedes in its entirety any and all prior agreements, understandings and discussions with respect thereto.
(j) The headings of the sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement.
[Signature Page Follows]
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Signature Page to the Registration Rights Agreement
IN WITNESS WHEREOF, this Registration Rights Agreement has been executed by Subscriber and by the Company on the respective dates set forth below.
| Subscriber Signature(s): | Print Names of Subscriber(s): | |
| Address of Subscriber(s): | Facsimile number of Subscriber(s): |
[Insert Subscriber’s Address]
Dated June 30, 2014
Names must conform to signature page of the Subscription Agreement.
THE COMPANY:
DIVIO HOLDINGS, CORP.
| By: | ||
| Name: James Grant | ||
| Title: President and Director |
Dated: June 30, 2014
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Exhibit 10.1 – Form of Subscription Agreement of Greenwood Hall, Inc.
(NON-U.S. AND NON-CANADIAN SUBSCRIBERS ONLY)
DIVIO HOLDINGS, CORP.
(to be renamed GREENWOOD HALL, INC.)
PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
(UNITS – US$1.00 PER UNIT)
INSTRUCTIONS TO PURCHASER
| 1. | All purchasers must complete all of the information in the boxes on page 2 and sign where indicated with an “X”. |
| 2. | Return this Subscription Agreement together with the subscription proceeds paid by certified cheque or bank draft to Divio Holdings, Corp., 55 A Cliff View Drive, Green Bay, Auckland, New Zealand. The subscription proceeds may also be wired to Divio Holdings, Corp. pursuant to wiring instructions that will be provided upon request. |
DIVIO HOLDINGS, CORP.
(to be renamed GREENWOOD HALL, INC.)
PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
The undersigned (the “Subscriber”) hereby irrevocably subscribes for and agrees to purchase from Divio Holdings, Corp. (to be renamed Greenwood Hall, Inc.) (the “Company”) that number of units of the Company (each, a “Unit”) set out below at a price of US$1.00 per Unit. Each Unit is comprised of one share of common stock of the Company (each, a “Share”) and one non-transferable common stock purchase warrant (each, a “Warrant”). Each Warrant shall entitle the holder thereof to acquire one share of common stock of the Company (each, a “Warrant Share”) at a price of US$1.30 per Warrant Share until 5:00 p.m. (Pacific time) on the date of expiration of the Warrant, which is 24 months following the Closing Date (as defined herein). The Subscriber agrees to be bound by the terms and conditions set forth in the attached “Terms and Conditions of Subscription for Units”.
|
Subscriber Information
|
Units to be Purchased Number of Units: x US$1.00 | |||
| (Name of Subscriber) | = | |||
|
x |
Aggregate Subscription Price: US$ (the “Subscription Amount”) | |||
| (Signature of Subscriber – if the Subscriber is an Individual) | ||||
|
x |
||||
| (Signature of Authorized Signatory – if the Subscriber is not an Individual) | Please complete if purchasing as agent or trustee for a principal (beneficial purchaser) (a “Disclosed Principal”) and not purchasing as trustee or agent for accounts fully managed by it. | |||
| (Name and Title of Authorized Signatory – if the Subscriber is not an Individual) | (Name of Disclosed Principal) | |||
| (SIN, SSN, or other Tax Identification Number of the Subscriber) | (Address of Disclosed Principal) | |||
| (Subscriber’s Address, including city and province or state of residence) | ||||
| (SIN, SSN, or other Tax Identification Number of Disclosed Principal) | ||||
| (Telephone Number) (Email Address) | ||||
| Register the Shares and Warrants as set forth below: | Deliver the Shares and Warrants as set forth below: | |||
| (Name to Appear on Share and Warrant Certificate) | (Name) | |||
| (Address) | ||||
| (Address, including Postal Code) | ||||
| (Contact Name) (Telephone Number) | ||||
| Number and kind of securities of the Company held, directly or indirectly, or over which control or direction is exercised by the Subscriber, if any: |
State whether the Subscriber or the Disclosed Principal is an insider of the Company: Yes ¨ No ¨ | |
| _______________________________________ | ||
| _______________________________________ | ||
| -2- |
ACCEPTANCE
The Company hereby accepts the subscription as set forth above on the terms and conditions contained in this Subscription Agreement as of _____ day of __________________, 2014.
| DIVIO HOLDINGS, CORP. | ||
| Per: | ||
| Authorized Signatory | ||
| -3- |
TERMS AND CONDITIONS OF SUBSCRIPTION FOR UNITS
| 1. | Subscription |
1.1 On the basis of the representations and warranties and subject to the terms and conditions set forth herein, the Subscriber hereby irrevocably subscribes for and agrees to purchase Units of the Company at a price of US$1.00 per Unit (such subscription and agreement to purchase being the “Subscription”), for the Subscription Amount, as set forth on page 2 of this subscription agreement (the “Agreement”), which is tendered herewith.
1.2 Each Unit will consist of one Share and one Warrant. The Warrants shall be non-transferable. Each Warrant shall entitle the holder thereof to purchase one Warrant Share for a period of 24 months commencing from the Closing Date (as defined herein) at an exercise price of US$1.30 per Warrant Share. The Units, Shares, Warrants and Warrant Shares are referred to herein as the “Securities”.
1.3 The Securities referred to herein are the Securities subsequent to a 12.5 new for one old forward stock split of the Company’s common stock, which is expected to occur just prior to the time of issuance of the Units.
1.4 The Company hereby agrees to sell the Units to the Subscriber on the basis of the representations and warranties and subject to the terms and conditions set forth in this Agreement. Subject to the terms of this Agreement, this Agreement will be effective upon its acceptance by the Company.
1.5 The Subscriber acknowledges that the Units have been offered as part of an offer by the Company of up to 2,350,000 Units at a price of US$1.00 per Unit, or such other number or price of securities as may be determined by the board of directors of the Company in its sole discretion (the “Offering”).
1.6 Unless otherwise provided, all dollar amounts referred to in this Agreement are in lawful money of the United States.
| 2. | Payment |
2.1 The Subscription Amount must accompany this Subscription and shall be paid by certified cheque or bank draft drawn on a bank in the United States reasonably acceptable to the Company, and made payable and delivered to the Company. Alternatively, the Subscription Amount may be wired to the Company or its lawyers pursuant to wiring instructions provided by the Company or its lawyers. If the funds are wired to the Company’s lawyers, the Subscriber authorizes such lawyers to immediately deliver the funds to the Company upon receipt of the funds from the Subscriber. The Subscriber authorizes the Company to treat the Subscription Amount as an interest free loan until the closing of the Offering (the “Closing”).
2.2 The Subscriber acknowledges and agrees that this Agreement, the Subscription Amount and any other documents delivered in connection herewith will be held on behalf of the Company. In the event that this Agreement is not accepted by the Company for whatever reason, which the Company expressly reserves the right to do, the Subscription Amount (without interest thereon) and any other documents delivered in connection herewith will be returned to the Subscriber at the address of the Subscriber as set forth on page 2 of this Agreement.
| 3. | Documents Required from Subscriber |
3.1 The Subscriber must complete, sign and return to the Company an executed copy of this Agreement.
3.2 The Subscriber shall complete, sign and return to the Company as soon as possible, on request by the Company, any additional documents, questionnaires, notices and undertakings as may be required by any regulatory authorities and applicable law.
| -4- |
3.3 Both parties to this Agreement acknowledge and agree that Clark Wilson LLP has acted as counsel only to the Company and is not protecting the rights and interests of the Subscriber. The Subscriber acknowledges and agrees that the Company and Clark Wilson LLP have given the Subscriber the opportunity to seek, and have recommended that the Subscriber obtain, independent legal advice with respect to the subject matter of this Agreement and, further, the Subscriber hereby represents and warrants to the Company and Clark Wilson LLP that the Subscriber has sought independent legal advice or waives such advice.
| 4. | Conditions and Closing |
4.1 The Closing shall occur on a date to be determined by the Company in its sole discretion (the “Closing Date”). The Company may, at its discretion, elect to close the Offering in one or more closings, in which event the Company may agree with one or more subscribers (including the Subscriber to this Agreement) to complete delivery of the Shares and the Warrants to such subscriber(s) against payment therefor at any time on or prior to the Closing Date.
4.2 The Closing is conditional upon the issue and sale of the Units being exempt from the requirement to file a prospectus and the requirement to deliver an offering memorandum under applicable securities laws relating to the sale of the Units, or the Company having received such orders, consents or approvals as may be required to permit such sale without the requirement to file a prospectus or deliver an offering memorandum.
4.3 The Subscriber acknowledges that the certificates representing the Shares and the Warrants will be available for delivery upon Closing provided that the Subscriber has satisfied the requirements of Section 3 hereof and the Company has accepted this Agreement.
| 5. | Acknowledgements and Agreements of Subscriber |
5.1 The Subscriber acknowledges and agrees that:
| (a) | none of the Securities have been or will be registered under the United States Securities Act of 1933, as amended, (the “1933 Act”), or under any state securities or “blue sky” laws of any state of the United States, and, unless so registered, may not be offered or sold in the United States or, directly or indirectly, to U.S. Persons, as that term is defined in Regulation S under the 1933 Act (“Regulation S”), except in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act and in each case only in accordance with applicable state and provincial securities laws; |
| (b) | the Company has not undertaken, and will have no obligation, to register any of the Securities under the 1933 Act or any other securities laws; |
| (c) | the Subscriber understands and agrees that offers and sales of any of the Securities prior to the expiration of the period specified in Regulation S (such period hereinafter referred to as the “Distribution Compliance Period”) shall only be made in compliance with the safe harbor provisions set forth in Regulation S, pursuant to the registration provisions of the 1933 Act or an exemption therefrom, and that all offers and sales after the Distribution Compliance Period shall be made only in compliance with the registration provisions of the 1933 Act or an exemption therefrom and in each case only in accordance with applicable state, provincial and foreign securities laws; |
| (d) | the statutory and regulatory basis for the exemption claimed for the sale of the Securities, although in technical compliance with Regulation S, would not be available if the offering is part of a plan or scheme to evade the registration provisions of the 1933 Act or any applicable securities laws; |
| -5- |
| (e) | the decision to acquire the Securities will not be based upon any oral or written representation as to fact or otherwise made by or on behalf of the Company and such decision will be based entirely upon a review of any public information (the “Public Record”) which has been filed by the Company with the United States Securities and Exchange Commission (the “SEC”); |
| (f) | the Company may complete additional financings in the future in order to develop the business of the Company and fund its ongoing development, and such future financings may have a dilutive effect on the Subscriber but there is no assurance that such financing will be available, on reasonable terms or at all, and if not available, the Company may be unable to fund its ongoing development; |
| (g) | there are risks associated with an investment in the Securities; |
| (h) | the Subscriber and the Subscriber’s advisor(s) have had a reasonable opportunity to ask questions of and receive answers from the Company in connection with the distribution of the Securities hereunder, and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the accuracy of the information about the Company; |
| (i) | a portion of the Offering may be sold pursuant to an agreement between the Company and one or more agent or agents registered in accordance with applicable securities laws, in which case the Company will pay a fee and/or compensation securities on commercially reasonable terms. In addition, a finder’s fee may be payable by the Company to finders who introduce purchasers to the Company if such persons’ subscription agreements are accepted by the Company; |
| (j) | the books and records of the Company were available upon reasonable notice for inspection, subject to certain confidentiality restrictions, by the Subscriber during reasonable business hours at its principal place of business, and all documents, records and books in connection with the distribution of the Securities hereunder have been made available for inspection by the Subscriber, the Subscriber’s lawyer and/or advisor(s); |
| (k) | all of the information which the Subscriber has provided to the Company is correct and complete as of the date this Agreement is signed, and if there should be any change in such information prior to this Agreement being executed by the Company, the Subscriber will immediately provide the Company with such information; |
| (l) | the Company is entitled to rely on the representations and warranties of the Subscriber contained in this Agreement, and the Subscriber will hold harmless the Company from any loss or damage it or they may suffer as a result of the Subscriber’s failure to correctly complete this Agreement; |
| (m) | the Subscriber will indemnify and hold harmless the Company and, where applicable, its directors, officers, employees, agents, advisors and shareholders, from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation or warranty of the Subscriber contained in this Agreement or in any document furnished by the Subscriber to the Company in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber to the Company in connection therewith; |
| (n) | the Subscriber has been advised to consult the Subscriber’s own legal, tax and other advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions, and it is solely responsible (and the Company is not in any way responsible) for compliance with: |
| (i) | any applicable laws of the jurisdiction in which the Subscriber is resident in connection with the distribution of the Securities hereunder, and |
| -6- |
| (ii) | applicable resale restrictions; |
| (o) | the Company will refuse to register the transfer of any of the Securities not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from the registration requirements of the 1933 Act and in each case in accordance with applicable securities laws; |
| (p) | the Subscriber consents to the placement of a legend or legends on any certificate or other document evidencing any of the Securities setting forth or referring to the restrictions on transferability and sale thereof contained in this Agreement, with such legend(s) to be substantially as follows: |
THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). ACCORDINGLY, NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED HEREIN) OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.
| (q) | the Company has advised the Subscriber that the Company is relying on an exemption from the requirements to provide the Subscriber with a prospectus to issue the Securities and, as a consequence of acquiring the Securities pursuant to such exemption, certain protections, rights and remedies provided by the applicable securities laws including statutory rights of rescission or damages, will not be available to the Subscriber; |
| (r) | no securities commission or similar regulatory authority has reviewed or passed on the merits of any of the Securities; |
| (s) | there is no government or other insurance covering any of the Securities; |
| (t) | by execution hereof, the Subscriber has waived the need for the Company to communicate its acceptance of the purchase of the Securities pursuant to this Agreement; and |
| (u) | this Agreement is not enforceable by the Subscriber unless it has been accepted by the Company, and the Subscriber acknowledges and agrees that the Company reserves the right to reject any Subscription for any reason whatsoever. |
| 6. | Representations, Warranties and Covenants of the Subscriber |
6.1 The Subscriber hereby represents and warrants to and covenants with the Company (which representations, warranties and covenants shall survive the Closing) that:
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| (a) | the Subscriber is not resident in the United States or Canada and: |
| (i) | the Subscriber is knowledgeable of, or has been independently advised as to, the applicable securities laws of the securities regulators having application in the jurisdiction in which the Subscriber is resident (the “International Jurisdiction”) which would apply to the acquisition of the Securities, |
| (ii) | the Subscriber is purchasing the Securities pursuant to exemptions from prospectus or equivalent requirements under applicable securities laws or, if such is not applicable, the Subscriber is permitted to purchase the Securities under the applicable securities laws of the securities regulators in the International Jurisdiction without the need to rely on any exemptions, |
| (iii) | the applicable securities laws of the authorities in the International Jurisdiction do not require the Company to make any filings or seek any approvals of any kind whatsoever from any securities regulator of any kind whatsoever in the International Jurisdiction in connection with the issue and sale or resale of any of the Securities, |
| (iv) | the purchase of the Securies by the Subscriber does not trigger: |
| A. | any obligation to prepare and file a prospectus or similar document, or any other report with respect to such purchase in the International Jurisdiction, or |
| B. | any continuous disclosure reporting obligation of the Company in the International Jurisdiction, and |
| (v) | the Subscriber will, if requested by the Company, deliver to the Company a certificate or opinion of local counsel from the International Jurisdiction which will confirm the matters referred to in subparagraphs (ii), (iii) and (iv) above to the satisfaction of the Company, acting reasonably; |
| (b) | the Subscriber is not a “U.S. Person” as such term is defined by Rule 902 of Regulation S (the definition of which includes, but is not limited to, an individual resident in the United States and an estate or trust of which any executor or administrator or trust, respectively is a U.S. Person and any partnership or corporation organized or incorporated under the laws of the United States); |
| (c) | the Subscriber shall not engage in any hedging transactions involving any of the Securities unless such transactions are in compliance with the provisions of the 1933 Act and in each case only in accordance with applicable securities laws; |
| (d) | the Subscriber is acquiring the Securities for investment only and not with a view to resale or distribution and, in particular, it has no intention to distribute either directly or indirectly any of the Securities in the United States or to U.S. Persons; |
| (e) | the Subscriber has not acquired the Securities as a result of, and will not itself engage in, any directed selling efforts (as defined in Regulation S) in the United States in respect of the Securities which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of any of the Securities; provided, however, that the Subscriber may sell or otherwise dispose of the Securities pursuant to registration thereof under the 1933 Act and any applicable securities laws or under an exemption from such registration requirements; |
| (f) | the Subscriber is outside the United States when receiving and executing this Agreement and is acquiring the Securities as principal for the Subscriber’s own account, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof, in whole or in part, and no other person has a direct or indirect beneficial interest in the Securities; |
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| (g) | the sale of the Securities to the Subscriber as contemplated by the delivery of this Agreement, the acceptance of it by the Company and the issuance of the Securities to the Subscriber complies with all applicable laws of the Subscriber’s jurisdiction of residence or domicile and will not cause the Company to become subject to or comply with any disclosure, prospectus or reporting requirements under any such applicable laws; |
| (h) | the Subscriber has the legal capacity and competence to enter into and execute this Agreement and to take all actions required pursuant hereto and, if the Subscriber is a corporate entity, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been obtained to authorize execution and performance of this Agreement on behalf of the Subscriber; |
| (i) | the entering into of this Agreement and the transactions contemplated hereby do not result in the violation of any of the terms and provisions of any law applicable to, or the constating documents of, the Subscriber or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber is or may be bound; |
| (j) | the Subscriber has duly executed and delivered this Agreement and it constitutes a valid and binding agreement of the Subscriber enforceable against the Subscriber; |
| (k) | the Subscriber has received and carefully read this Agreement; |
| (l) | the Subscriber is aware that an investment in the Company is speculative and involves certain risks (including those risks disclosed in the Public Record), including the possible loss of the entire investment; |
| (m) | the Subscriber has made an independent examination and investigation of an investment in the Securities and the Company and has depended on the advice of its legal and financial advisors and agrees that the Company will not be responsible in any way whatsoever for the Subscriber’s decision to invest in the Securities and the Company; |
| (n) | the Subscriber (i) has adequate net worth and means of providing for its current financial needs and possible personal contingencies, (ii) has no need for liquidity in this investment, and (iii) is able to bear the economic risks of an investment in the Securities for an indefinite period of time; |
| (o) | the Subscriber (i) is able to fend for him/her/itself in the Subscription; (ii) has such knowledge and experience in business matters as to be capable of evaluating the merits and risks of its prospective investment in the Securities; and (iii) can afford the complete loss of this investment; |
| (p) | the Subscriber understands and agrees that the Company and others will rely upon the truth and accuracy of the acknowledgements, representations, warranties, covenants and agreements contained in this Agreement and agrees that if any of such acknowledgements, representations and agreements are no longer accurate or have been breached, the Subscriber shall promptly notify the Company; |
| (q) | the Subscriber is not an underwriter of, or dealer in, the Securities, nor is the Subscriber participating, pursuant to a contractual agreement or otherwise, in the distribution of the Securities; |
| (r) | the Subscriber understands and agrees that there may be material tax consequences to the Subscriber of an acquisition or disposition of the Securities. The Company gives no opinion and makes no representation with respect to the tax consequences to the Subscriber under federal, state, provincial, local or foreign tax law of the Subscriber’s acquisition or disposition of the Securities; |
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| (s) | the Subscriber has a pre-existing, substantive relationship with the Company (or a person acting on its behalf) that is sufficient to enable the Company (or a person acting on its behalf) to be aware of the Subscriber’s financial circumstances or sophistication. This substantive relationship with the Company (or a person acting on its behalf) through which the Subscriber is subscribing the Securities predates the contact between the Company (or a person acting on its behalf) and the Subscriber regarding an investment in the Securities; |
| (t) | the Subscriber is not aware of any advertisement of any of the Securities and is not acquiring the Securities as a result of any form of general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media, or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; |
| (u) | no person has made to the Subscriber any written or oral representations: |
| (i) | that any person will resell or repurchase any of the Securities, |
| (ii) | that any person will refund the purchase price of any of the Securities, or |
| (iii) | as to the future price or value of any of the Securities, or |
| (iv) | that any of the Securities will be listed and posted for trading on any stock exchange or automated dealer quotation system or that application has been made to list and post any of the Securities on any stock exchange or automated dealer quotation system, except that certain market makers make market in the Company’s shares of common stock on the OTC Bulletin Board operated by the Financial Industry Regulatory Authority, and |
| (v) | the Subscriber acknowledges and agrees that the Company shall not consider the Subscriber’s Subscription for acceptance unless the Subscriber provides to the Company, along with an executed copy of this Agreement, such other supporting documentation that the Company or its legal counsel may request to establish the Subscriber’s qualification as a qualified investor. |
6.2 In this Agreement, the term “U.S. Person” shall have the meaning ascribed thereto in Regulation S promulgated under the 1933 Act and for the purpose of this Agreement includes any person in the United States.
| 7. | Representations and Warranties will be Relied Upon by the Company |
7.1 The Subscriber acknowledges that the representations and warranties contained herein are made by it with the intention that such representations and warranties may be relied upon by the Company and its legal counsel in determining the Subscriber’s eligibility to purchase the Securities under applicable securities laws, or (if applicable) the eligibility of others on whose behalf it is contracting hereunder to purchase the Securities under applicable securities laws. The Subscriber further agrees that by accepting delivery of the certificates representing the Shares and Warrants on the Closing Date, it will be representing and warranting that the representations and warranties contained herein are true and correct as at the Closing Date with the same force and effect as if they had been made by the Subscriber on the Closing Date and that they will survive the purchase by the Subscriber of the Securities and will continue in full force and effect notwithstanding any subsequent disposition by the Subscriber of such Securities.
| 8. | Resale Restrictions |
8.1 The Subscriber acknowledges that any resale of the Securities will be subject to resale restrictions contained in or required by the securities laws applicable to the Subscriber or proposed transferee.
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8.2 The Subscriber acknowledges that the Securities may be subject to an indefinite “hold period” under the applicable securities laws and that the Subscriber will not be able to resell the Securities until expiration of the applicable “hold period” except in accordance with limited exemptions under applicable securities laws.
| 9. | Legending and Registration of Subject Securities |
9.1 The Subscriber hereby acknowledges that a legend may be placed on the certificates representing the Securities to the effect that the securities represented by such certificates are subject to a hold period and may not be traded until the expiry of such hold period except as permitted by applicable securities laws.
9.2 The Subscriber hereby acknowledges and agrees to the Company making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described in this Agreement.
| 10. | Waiver |
10.1 The Subscriber hereby waives, to the fullest extent permitted by law, any rights of withdrawal, rescission or compensation for damages to which the Subscriber might be entitled in connection with the distribution of any of the Securities.
| 11. | Collection of Personal Information |
11.1 The Subscriber acknowledges and consents to the fact that the Company is collecting the Subscriber’s personal information for the purpose of fulfilling this Agreement and completing the Offering. The Subscriber’s personal information (and, if applicable, the personal information of those on whose behalf the Subscriber is contracting hereunder) may be disclosed by the Company to (a) stock exchanges or securities regulatory authorities, (b) the Company’s registrar and transfer agent, (c) tax authorities and any other governmental authorities and (d) any of the other parties involved in the Offering, including legal counsel, and may be included in record books in connection with the Offering. By executing this Agreement, the Subscriber is deemed to be consenting to the collection, use and disclosure of the Subscriber’s personal information (and, if applicable, the personal information of those on whose behalf the Subscriber is contracting hereunder) for the foregoing purposes, and to the retention of such personal information for as long as permitted or required by law or business practice. Notwithstanding that the Subscriber may be purchasing Units as agent on behalf of an undisclosed principal, the Subscriber agrees to provide, on request, particulars as to the identity of such undisclosed principal as may be required by the Company in order to comply with the foregoing.
| 12. | Costs |
12.1 The Subscriber acknowledges and agrees that all costs and expenses incurred by the Subscriber (including any fees and disbursements of any special counsel retained by the Subscriber) relating to the purchase of the Units shall be borne by the Subscriber.
| 13. | Execution of Subscription Agreement |
13.1 The Company shall be entitled to rely on delivery by facsimile machine or e-mail of an executed copy of this Agreement, and acceptance by the Company of such facsimile or e-mail copy shall be equally effective to create a valid and binding agreement between the Subscriber and the Company in accordance with the terms hereof. If less than a complete copy of this Agreement is delivered to the Company at Closing, the Company and its counsel are entitled to assume that the Subscriber accepts and agrees to all of the terms and conditions of the pages not delivered at Closing unaltered. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same Agreement.
13.2 The Subscriber hereby authorizes the Company to correct any minor errors in, or complete any minor information missing from any part of this Agreement and any other acknowledgements, provisions, forms, certificates or documents executed by the Subscriber and delivered to the Company in connection with the Subscription.
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| 14. | Beneficial Subscribers |
14.1 Whether or not explicitly stated in this Agreement, any acknowledgement, representation, warranty, covenant or agreement made by the Subscriber in this Subscription Agreement, including the exhibits hereto, will be treated as if made by the disclosed beneficial subscriber, if any.
| 15. | Governing Law |
15.1 This Agreement is governed by the laws of the State of Nevada and the federal laws of the United States applicable therein. The Subscriber, in its personal or corporate capacity and, if applicable, on behalf of each beneficial purchaser for whom it is acting, irrevocably attorns to the jurisdiction of the courts of the State of California.
| 16. | Survival |
16.1 This Agreement, including, without limitation, the representations, warranties and covenants contained herein, shall survive and continue in full force and effect and be binding upon the parties hereto notwithstanding the completion of the purchase of the Units by the Subscriber pursuant hereto.
| 17. | Assignment |
17.1 This Agreement is not transferable or assignable.
| 18. | Severability |
18.1 The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement.
| 19. | Entire Agreement |
19.1 Except as expressly provided in this Agreement and in the agreements, instruments and other documents contemplated or provided for herein, this Agreement contains the entire agreement between the parties with respect to the sale of the Units and there are no other terms, conditions, representations or warranties, whether expressed, implied, oral or written, by statute or common law, by the Company or by anyone else.
| 20. | Notices |
20.1 All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Subscriber shall be directed to the address of the Subscriber set forth on page 2 of this Agreement and notices to the Company shall be directed to it at Divio Holdings, Corp., 55 A Cliff View Drive, Green Bay, Auckland, New Zealand, Attention, Chief Executive Officer.
| 21. | Counterparts and Electronic Means |
21.1 This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall constitute an original and all of which together shall constitute one instrument. Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the date hereinafter set forth.
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Exhibit 10.2 – Employment Agreement John Hall
EMPLOYMENT AGREEMENT
This Employment Agreement (this “Agreement”) is made, effective as of July 1, 2014, by and between PCS Link, Inc., d/b/a/ Greenwood & Hall, Inc., a corporation organized and existing under the laws of the State of California (“Employer”), and John Hall, an individual residing in the State of California (“Employee”).
SECTION I
EMPLOYMENT
A. Employer agrees to employ Employee, and Employee agrees to serve as an employee of Employer during the period of employment, as defined in Section Two, and in the capacity of Chairman of the Board of Directors of Employer’s parent company, Greenwood Hall, Inc., a Nevada corporation (“GH”), (the “Chairman”) and Chief Executive Officer (the “Chief Executive Officer”) of Employer and GH.
1. The Chairman and Chief Executive Officer shall serve as the highest ranking executive of Employer whose main responsibilities include developing high-level strategies, making major corporate decisions, managing the overall operations and resources of Employer, overseeing budgeting of Employer, and acting as the main point of communication between the Board of Directors of GH (the “Board”) and the corporate operations of Employer. The Chairman and Chief Executive Officer shall also be responsible for presiding over the Board, dealing with external funding sources (investors and lenders), joint venture pursuits and relations, overseeing compensation practices, management development, and strategic planning. Finally, the Chairman and Chief Executive Officer shall have the sole authority to hire and fire corporate officers, executives, and other employees of Employer.
2. During the period of employment, Employee also agrees to serve on the Board. Employer agrees to take the steps necessary to facilitate the reelection or reappointment of Employee to the Board and to elect or appoint Employee Chairman and Chief Executive Officer of Employer as soon as possible after the execution of this Agreement. It is the intention of the Board to reelect Employee to such positions during the balance of the period of employment.
SECTION II
PERIOD OF EMPLOYMENT
The “period of employment” shall be five (5) years commencing on July 1, 2014 and ending on June 30, 2019. Upon expiration, Employee shall have the option to renew this Agreement for an additional five (5) year term under the provisions contained herein. Notice of intent to exercise such option shall be delivered by Employee to Employer no later than 30 days prior to the date the period of employment is to expire. If Employee exercises his option to renew this Agreement, he shall again have the option to renew this Agreement under the provisions contained herein for a third five (5) year term upon the expiration of the second term. Notice of intent to exercise such second option shall be delivered to Employer no later than 30 days prior to the date the second period of employment is to expire.
SECTION III
DUTIES DURING THE PERIOD OF EMPLOYMENT
Employee shall devote his reasonable business time, attention and best efforts to the affairs of Employer and its subsidiaries during the period of employment, provided, however, that Employee may engage in other activities, such as consulting, activities involving charitable, educational, religious and similar types of organizations, speaking engagements, membership on the board of directors of other organizations, and similar activities.
SECTION IV
COMPENSATION OF EMPLOYEE
A. Base Annual Salary. Employer will pay to Employee during the period of employment, commencing on the date of this Agreement, a base annual salary of $325,000.00, payable in substantially equal semi-monthly installments during each calendar year, or portion of a year, of the period of employment; provided, however, it is agreed between the parties that the Employer shall review annually, and in light of such review may, in the discretion of the Board, increase such base annual salary taking into account Employee’s then responsibilities, increase in the cost of living, increases in compensation of other executives of Employer and its subsidiaries, increases in salaries of executives of other corporations, performance by Employee, and other pertinent factors. In no event, shall increases in Employee’s base annual salary be less than 10% of the base annual salary received in a previous year.
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B. Cash Bonuses. During the period of employment, Employer will award Employee bonuses based on his performance, overall Employer performance, and other factors, provided, however, that employer will pay employee a minimum annual bonus in respect of his services for each calendar year of $ 75,000 (“Minimum Bonus”), within the reasonable discretion of the Board. The Minimum Bonus may be paid in quarterly or monthly increments at the discretion of the Employee. If the period of employment should terminate other than at the end of a calendar year, Employer will pay Employee as his last bonus a minimum of that portion of $ 75,000 prorated over the number of complete months of service during the last calendar year of service, provided, however, that the minimum bonus for 2014 shall be $ 75,000 regardless of whether the period of employment shall terminate during 2014. Employee shall be eligible for an additional bonus in excess of the Minimum Bonus based on Employer achieving certain financial performance milestones. In the event that the adjusted EBITDA of Employer is in excess of 10% of Employer’s gross revenues, the total annual cash bonus awarded to Employer shall be no less than 1% of Employer’s gross revenues but not less than $ 75,000 for any calendar year. In the event that the adjusted EBITDA of Employer is in excess of 20% of Employer’s gross revenues, the total annual cash bonus awarded to Employer shall be no less than 2% of Employer’s gross revenues but no less than $ 100,000 for any calendar year. Any bonuses paid to Employee in excess of those described above will be paid subject to the reasonable discretion of the Board.
B. Stock Options. During the period of employment, Employer will award Employee stock options based on his performance, overall Employer performance, and other factors, provided, however, that employer will award employee minimum stock options equal to or greater than 500,000 shares of Employer’s common stock, at the end of each calendar year. In the event that the adjusted EBITDA of Employer, in a calendar year, is in excess of 15% of Employer’s gross revenues, stock options awarded to Employer shall be no less than stock options equal to or greater than 750,000 shares of Employer’s common stock. In the event that the adjusted EBITDA of Employer, in a calendar year, is in excess of 20% of Employer’s gross revenues, stock options awarded to Employer shall be no less than stock options equal to or greater than 1,000,000 shares of Employer’s common stock. The Board may elect to award Employee additional stock options at any time.
SECTION V
OTHER EMPLOYEE BENEFITS
A. Vacation. Employee shall be entitled to thirty (30) days of paid vacation each year during the term of this Agreement.
B. Personal Time Off & Sick Leave. Employee shall be entitled to thirty (30) days paid time off each year during the term of this Agreement.
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C. Car Allowance. Employer shall reimburse Employee for the lease of his primary automobile, which Employee utilizes at least partially for business purposes. The car allowance shall not exceed $ 2,500 per month and can be utilized for Employee’s car lease or payment; auto insurance; and maintenance.
D. Life Insurance. Within one year of the execution of this Agreement, Employer shall procure a life insurance policy with a face value of at least $ 7,500,000 for the benefit of a beneficiary designated by Employee. After obtaining such policy, Employer shall pay all premiums on such policy during the term of this Agreement. Within one year of the execution of this Agreement, an additional $ 2,500,000 in insurance coverage will be procured with Employer being the beneficiary.
E. Employer’s Benefit Plans or Arrangements. Employee will be provided with Employer sponsored health benefits consistent with what other Employer executives receive. This shall include but not be limited to Employer paying for all premiums associated with Preferred Provider (PPO) medical, dental, and vision insurance coverage.
F. Employee Expenses. During the term of this Agreement and any extensions of it, Employer will reimburse Employee for all expenses incurred in furtherance of or connection with the business of Employer, including but not limited to, travel (including gasoline) and entertainment expenses. Employee shall be provided a credit card or other suitable account for purposes of paying the expenses described above.
G. Permanent Disability. If during the period of employment, Employee shall become permanently disabled, Employer shall continue to pay Employee his annual base salary for each year from the date of disability through May 31, 2019, less any amounts paid or payable to Employee under any long-term disability plan or pension plan maintained by the Employer providing for disability benefits. Amounts payable to Employee pursuant to this paragraph shall be paid in substantially equal monthly installments. In the event of permanent disability, Employee shall also retain his stock ownership.
H. Support Staff. Employer shall continue to provide Employee with a Personal Assistant as well as an Executive Coordinator to the Chief Executive Officer, as currently provided to Employee.
J. Los Angeles Presence. Employer shall continue to provide Employee with use of a combined private executive office/living space in the Los Angeles basin as is currently provided by his current employer. The allowance for this presence shall not exceed $ 4,000 per month. This allowance shall increase by 10% on the 1st of August of each calendar year of the term of this Agreement.
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For the purposes of Paragraph H and this Agreement, “permanent disability” means inability to perform the employment duties described in this Agreement due to physical or mental disability which continues for thirty (30) consecutive days in any period of three (3) months, and “date of disability” means the day following the close of such 30 day period. Evidence of such disability shall be certified by a physician acceptable to both Employer and Employee. Evidence of such disability, as so certified, shall be conclusive notwithstanding that a disability policy, or clause in an insurance policy, covering Employee shall contain a different definition of “permanent disability”. If Employer and Employee cannot agree on such a physician, or if Employee feels that he is able to perform his duties under this Agreement, the question of whether Employee is “permanently disabled” within the meaning of this Agreement, shall be submitted to a panel of three impartial and reputable physicians, one selected by Employer, one selected by Employee and the third to be selected by the then president of the Medical Society for Orange County, State of California. The panel’s determination of Employee’s ability to perform shall be binding on the parties.
For purposes of this Agreement, the period of employment will be deemed to terminate on the day immediately preceding the date of disability.
SECTION VI
TERMINATION
A. Termination by Employer Other Than for Cause; Resignation for Good Reason or Breach By Employer. If Employer should terminate the period of employment for other than Cause, as defined below, if Employee should voluntarily terminate the period of employment due to a breach of this Agreement by Employer, or if Employee should terminate this Agreement for Good Reason, as defined below, then in addition to all other benefits payable as provided for, Employer shall immediately pay to Employee in one lump sum the amount otherwise payable to Employee pursuant to Paragraphs A and B of Section Four, discounted to present value at the rate of eight percent (8%) per annum. In addition, the option described in Paragraph C of Section Four shall be exercisable by Employee immediately or at any other time or times on or before the termination of the option pursuant to such paragraph as to any share or shares subject to such option for which the option has not yet been exercised. In no event shall the amount paid by Employer to Employee under this section be less than $ 1,250,000, which shall be payable immediately upon termination.
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1. If the Employee experiences a “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the “Code”), and Treasury Regulation Section 1.409A-1(h)) (a “Separation from Service”) due to the termination of the Employee’s employment by Employer without Cause (other than by reason of death or Disability) or the Employee’s termination of the Employee’s employment for Good Reason, Employer shall promptly or, in the case of obligations described in clause (iv) below, as such obligations become due, pay or provide to the Employee, (i) the Employee’s earned but unpaid Base Salary accrued through the date of such Separation from Service (the “Termination Date”), (ii) accrued but unpaid vacation time through the Termination Date, (iii) reimbursement of any business expenses incurred by the Employee prior to the Termination Date that are reimbursable under Section V.F. above, and (iv) any vested benefits and other amounts due to the Employee under any plan, program or policy of the Employer (together, the “Accrued Obligations”).
2. “Cause” means (a) theft or embezzlement by the Employee with respect to Employer or its Subsidiaries; (b) malfeasance or gross negligence in the performance of the Employee’s duties without the same being corrected within thirty (30) days after being given written notice thereof by Employer; (c) Employee being convicted of any felony; (d) willful or prolonged absence from work by the Employee (other than by reason of disability due to physical or mental illness) or systemic failure or refusal by Employee to perform his duties and responsibilities without the same being corrected within thirty (30) days after being given written notice thereof by Employer; (e) continued and habitual use of alcohol by the Employee to an extent which materially impairs the Employee’s performance of his duties without the same being corrected within thirty (30) days after being given written notice thereof by Employer; (f) the Employee’s use of illegal drugs without the same being corrected within thirty (30) days after being given written notice thereof; or (g) the willful material breach by the Employee of any of the covenants contained in this Agreement without the same being corrected within thirty (30) days after being given written notice thereof by Employer.
3. "Good Reason" shall be defined as: (i) any material reduction in Employee’s duties that is inconsistent with Employee’s position as Chairman and Chief Executive Officer of Company or a change in Employee’s reporting relationship such that Employee no longer reports directly to the Board of Directors; (ii) Employee is no longer the Chairman and Chief Executive Officer of Employer; (iii) any reduction in Employee’s annual base salary, bonus compensation, or any other benefits/allowances granted by this Agreement without Employee’s express written consent; (iv) material breach by Employer of any of its obligations hereunder after providing Employer with written notice and an opportunity to cure within thirty (30) days; (v) a requirement by Employer or its Board that Employee relocate Employer’s principal office to a facility more than 50 miles from Employer’s current principal office as of the date of the execution of this Agreement; (vi) the Board of Directors involve themselves in the Employer’s day-to-day or usual business operations, or impair or impede the Chief Executive Officer’s sole authority over the hiring and firing of members of the Employer’s employees or executives as well as entering into contracts with customers or vendors; (vii) direct Employee to do activities that are unlawful; and/or (viii) failure of Employer to pay Employee.
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B. Resignation by Employee Without Good Reason. If during the period of employment, Employee shall exercise his right of termination under Paragraph B of Section One, he shall resign voluntarily as a director and as an employee of Employer upon the notice set forth in such Paragraph B.
SECTION VIi
CONFIDENTIAL INFORMATION
A. The Employee will not disclose or use at any time during or after the Employment Period any Confidential Information of which the Employee is or becomes aware, whether or not such information is developed by him, except to the extent that such disclosure or use is directly related to and required by the Employee’s performance of duties assigned to the Employee pursuant to this Agreement. Under all circumstances and at all times, the Employee will take all reasonable steps to safeguard Confidential Information in his possession and to protect it against disclosure, misuse, espionage, loss and theft.
SECTION VIii
INTELLECTUAL PROPERTY
A. In the event that during the Employment Period the Employee generates, authors or contributes to the creation or improvement of any new or existing invention, design, development, device, product, method of process (whether or not patentable or reduced to practice), any copyrightable or other tangible original work, any trademark, service mark, logo, or trade dress, and any packaging, promotional, or marketing concept, style, or design (whether or not any of the foregoing constitutes Confidential Information in whole or in part), or any other form of Confidential Information relating directly or indirectly to the business of Employer as now conducted (collectively, “Intellectual Property”), the Employee acknowledges and agrees that such Intellectual Property is the sole and exclusive property of the Employer and hereby assigns all right title and interest in and to such Intellectual Property to Employer. Any copyrightable work prepared in whole or in part by the Employee during the Employment Period will be deemed “a work made for hire” under Section 201(b) of the Copyright Act of 1976, as amended, and Employer will own all of the rights comprised in the copyright therein for the full term, including all renewals thereof, throughout the world. The Employee will promptly and fully disclose all Intellectual Property and will cooperate with Employer to protect Employer’s interests in and rights to such Intellectual Property (including providing reasonable assistance in securing patent protection and copyright and trademark registrations and executing all documents as reasonably requested by Employer to transfer full ownership therein to Employer, and/or to enable Employer fully to exercise and enforce its rights therein, whether such requests occur prior to or after termination of Employee’s employment hereunder).
| Page 7 of 10 |
SECTION ix
DELIVERY OF MATERIALS UPON TERMINATION OF EMPLOYMENT
A. As requested by Employer, from time to time and upon the termination of the Employee’s employment with Employer for any reason, the Employee will promptly destroy or deliver to Employer all copies and embodiments, in whatever form or medium, of all Confidential Information or Intellectual Property in the Employee’s possession or within his control (including written records, notes, photographs, manuals, notebooks, documentation, program listings, flow charts, magnetic media, disks, diskettes, tapes and all other materials containing any Confidential Information or Intellectual Property) irrespective of the location or form of such material and, if requested by Employer, will provide Employer with written confirmation that all such materials have been destroyed or delivered to Employer.
SECTION X
GOVERNING LAW
This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of California. If under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, or ordinance, such portion shall be deemed to be modified or altered to conform to such provisions, or, if that is not possible, to be omitted from this Agreement; and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion of this Agreement.
SECTION XI
NOTICES
All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person (in the Employer’s case, to its secretary) or seven (7) days after deposit in the United Stated mails, postage prepaid, for delivery as registered or certified mail, addressed, in the case of Employee, to the Employee’s residential address, and in the case of Employer, to its corporate headquarters, attention of the secretary, or to such other address as Employee or Employer may designate in writing at any time or from time to time to the other party. In lieu of personal notice or notice by deposit in the United States mail, a party may give notice by telegram or telex.
| Page 8 of 10 |
SECTION XII
SECTION 409A.
To the fullest extent applicable, the compensation and benefits payable under this Agreement are intended to be exempt from the definition of “nonqualified deferred compensation” under Section 409A in accordance with one or more of the exemptions available under the final Treasury Regulations promulgated under Section 409A (the “Treasury Regulations”). To the extent that any such compensation or benefit under this Agreement is or becomes subject to Section 409A due to a failure to qualify for an exemption from the definition of nonqualified deferred compensation in accordance with the Treasury Regulations, this Agreement is intended to comply with the applicable requirements of Section 409A with respect to the payment of such compensation or benefits. This Agreement shall be interpreted and administered to the extent possible in a manner consistent with the foregoing statement of intent. Notwithstanding anything herein to the contrary, the Employee expressly agrees and acknowledges that in the event that any taxes are imposed under Section 409A in respect of any compensation or benefits payable to the Employee, whether in connection with a Separation from Service under this Agreement or otherwise, then (i) the payment of such taxes shall be solely the Employee’s responsibility, (ii) neither Employer, its Affiliates nor any of their respective past or present directors, officers, employees or agents shall have any liability for any such taxes and (iii) the Employee shall indemnify and hold harmless, to the greatest extent permitted under law, each of the foregoing from and against any claims or liabilities that may arise in respect of any such taxes.
SECTION XIII
REPRESENTATIONS AND WARRANTIES OF EMPLOYER
Employer represents and warrants that the execution of this Agreement has been duly authorized by resolution of the Board, and that this Agreement constitutes a valid and binding obligation of Employer in accordance with its terms.
| Page 9 of 10 |
SECTION XIV
MISCELLANEOUS
This Agreement constitutes the entire understanding between Employer and Employee relating to employment of Employee by Employer and its subsidiaries and supersedes and cancels all prior written and oral agreements and understandings with respect to the subject matter of this Agreement. This Agreement may be amended but only by a subsequent written agreement of the parties. This Agreement shall be binding upon and shall inure to the benefit of Employee, his heirs, executors, administrators and beneficiaries and to the benefit of Employer and its successors.
SECTION XV
ARBITRATION DISPUTES
The parties agree that any dispute, controversy or claim, whether based on contract, tort, statute, discrimination, retaliation or otherwise, relating to, arising from or connected in any manner to this Agreement, or to any alleged breach of this Agreement, or arising out of or relating to the Employee’s employment or termination of employment, shall, upon the timely written request of either party be submitted to and resolved by binding arbitration. The Employee may only bring claims under this Agreement in his or her individual capacity and not as a plaintiff or class member in any purported class, collective or representative proceeding. Further, the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class, collective or representative proceeding. The arbitration shall be conducted in Los Angeles, California. Any arbitration proceeding shall be conducted in accordance with the Judicial Arbitration and Mediation Services Employment Arbitration Rules and Procedures (the “JAMS Rules”), which can be found at http://www.jamsadr.com, a copy of which will be provided to the Employee upon the Employee’s request. Unless otherwise agreed to by the parties in writing, the arbitration shall be conducted by one arbitrator who is a member of the JAMS and who is selected pursuant to the methods set out in the Employment Arbitration Rules and Procedures of JAMS. Any claims received after the applicable/relevant statute of limitations period has passed shall be deemed null and void. The award of the arbitrator shall be a reasoned award with findings of fact and conclusions of law. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement, to enforce an arbitration award and to vacate an arbitration award. However, in actions seeking to vacate an award, the standard of review to be applied by said court to the arbitrator’s findings of fact and conclusions of law will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury. Employer will pay the actual costs of arbitration excluding attorneys’ fees, to the extent required by law. Each party will pay its own attorneys’ fees and other costs incurred by their respective attorneys. The parties understand and agree that this Agreement constitutes a waiver of their right to a trial by jury of any claims or controversies covered by this Agreement or to participate in a class, collective or representative action. The parties agree that, to the fullest extent allowed by law, none of those claims or controversies shall be resolved by a jury trial or in a class, collective or representative action.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
| Page 10 of 10 |
In witness of the above, each party to this Agreement has caused it to be executed at Irvine, California on the dated indicated below.
SIGNATURES
| “EMPLOYER” | PCS LINK, INC. |
| Dated this 23rd day of July, 2014. | /s/ Brett Johnson |
| Name: Brett Johnson | |
| Title: Chief Relationship Officer, and Director | |
| “GH” | GREENWOOD HALL, INC. |
| Dated this 23rd day of July, 2014. | /s/ Brett Johnson |
| Name: Brett Johnson | |
|
Title: President, Chief Relationship Officer, and Director | |
| “EMPLOYEE” | |
| Dated this 23rd day of July, 2014. | /s/ John Hall |
| John Hall |
[Signature Page to Employment Agreement – John Hall]
Exhibit 10.3 – 2014 Stock Option Plan of Greenwood Hall, Inc.
GREENWOOD HALL, INC.
2014 STOCK PLAN
Exhibit 10.3 – 2014 Stock Option Plan of Greenwood Hall, Inc.
GREENWOOD HALL, INC.
2014 Stock Plan
| 1. | Establishment, Purpose and Term of Plan. |
1.1 Establishment. The Greenwood Hall, Inc. 2014 Stock Plan (the “Plan”) was approved by the Board on July 28, 2014, and shall be subject to approval by the shareholders of the Company at which time it shall become effective (the “Effective Date”).
1.2 Purpose. The purpose of the Plan is to advance the interests of the Participating Company Group and its shareholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights, Restricted Stock Purchase Rights, Restricted Stock Bonuses, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards, Other Stock-Based Awards, and Deferred Compensation Awards.
1.3 Term of Plan. The Plan shall continue in effect until its termination by the Committee; provided, however, that all Awards shall be granted, if at all, on or before ten (10) years from the earlier of the Plan’s adoption by the Board and its approval by the shareholders of the Company.
| 2. | Definitions and Construction. |
2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) “Affiliate” means (i) a parent entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) a subsidiary entity, other than a Subsidiary Corporation, that is controlled by the Company directly or indirectly through one or more intermediary entities. For this purpose, the terms “parent,” “subsidiary,” “control” and “controlled by” shall have the meanings assigned such terms for the purposes of registration of securities on Form S-8 under the Securities Act.
(b) “Award” means any Option, Stock Appreciation Right, Restricted Stock Purchase Right, Restricted Stock Bonus, Restricted Stock Unit, Performance Share, Performance Unit, Cash-Based Award, Other Stock-Based Award or Deferred Compensation Award granted under the Plan.
(c) “Award Agreement” means a written or electronic agreement between the Company and a Participant setting forth the terms, conditions and restrictions applicable to an Award.
(d) “Board” means the Board of Directors of the Company.
(e) “Cash-Based Award” means an Award denominated in cash and granted pursuant to Section 11.
(f) “Cashless Exercise” means a Cashless Exercise as defined in Section 6.3(b)(i).
(g) “Cause” means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between a Participant and a Participating Company applicable to an Award, any of the following: (i) the Participant’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participant’s material failure to abide by a Participating Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Company’s reputation or business; (v) the Participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by the Participant of any employment, service, non-disclosure, non-competition, non-solicitation or other similar agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a Participating Company.
(h) “Change in Control” means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between the Participant and a Participating Company applicable to an Award, the occurrence of any one or a combination of the following:
(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total Fair Market Value or total combined voting power of the Company’s then-outstanding securities entitled to vote generally in the election of Directors; provided, however, that a Change in Control shall not be deemed to have occurred if such degree of beneficial ownership results from any of the following: (A) an acquisition by any person who on the Effective Date is the beneficial owner of more than fifty percent (50%) of such voting power, (B) any acquisition directly from the Company, including, without limitation, pursuant to or in connection with a public offering of securities, (C) any acquisition by the Company, (D) any acquisition by a trustee or other fiduciary under an employee benefit plan of a Participating Company or (E) any acquisition by an entity owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or
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(ii) an Ownership Change Event or series of related Ownership Change Events (collectively, a “Transaction”) in which the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of Directors or, in the case of an Ownership Change Event described in Section 2.1(ff)(iii), the entity to which the assets of the Company were transferred (the “Transferee”), as the case may be; or
(iii) approval by the shareholders of a plan of complete liquidation or dissolution of the Company;
provided, however, that a Change in Control shall be deemed not to include a transaction described in subsections (i) or (ii) of this Section 2.1(h) in which a majority of the members of the board of directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of Incumbent Directors.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Committee shall determine whether multiple acquisitions of the voting securities of the Company and/or multiple Ownership Change Events are related and to be treated in the aggregate as a single Change in Control, and its determination shall be final, binding and conclusive.
(i) “Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations or administrative guidelines promulgated thereunder.
(j) “Committee” means the Compensation Committee and such other committee or subcommittee of the Board, if any, duly appointed to administer the Plan and having such powers in each instance as shall be specified by the Board. If, at any time, there is no committee of the Board then authorized or properly constituted to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.
(k) “Company” means Greenwood Hall, Inc., a Nevada corporation, or any successor corporation thereto.
(l) “Consultant” means a person engaged to provide consulting or advisory services (other than as an Employee or a member of the Board) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on registration on Form S-8 under the Securities Act.
(m) “Covered Employee” means, at any time the Plan is subject to Section 162(m), any Employee who is or may reasonably be expected to become a “covered employee” as defined in Section 162(m), or any successor statute, and who is designated, either as an individual Employee or a member of a class of Employees, by the Committee no later than the earlier of (i) the date that is ninety (90) days after the beginning of the Performance Period, or (ii) the date on which twenty-five percent (25%) of the Performance Period has elapsed, as a “Covered Employee” under this Plan for such applicable Performance Period.
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(n) “Deferred Compensation Award” means an Award granted to a Participant pursuant to Section 12.
(o) “Director” means a member of the Board.
(p) “Disability” means the permanent and total disability of the Participant, within the meaning of Section 22(e)(3) of the Code.
(q) “Dividend Equivalent Right” means the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.
(r) “Employee” means any person treated as an employee (including an Officer or a member of the Board who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a member of the Board nor payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion, whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be. For purposes of an individual’s rights, if any, under the terms of the Plan as of the time of the Company’s determination of whether or not the individual is an Employee, all such determinations by the Company shall be final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination as to such individual’s status as an Employee.
(s) “ERISA” means the Employee Retirement Income Security Act of 1974 and any applicable regulations or administrative guidelines promulgated thereunder.
(t) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(u) “Fair Market Value” means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
(i) Except as otherwise determined by the Committee, if, on such date, the Stock is listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock as quoted on the national or regional securities exchange or quotation system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or quotation system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded or quoted prior to the relevant date, or such other appropriate day as shall be determined by the Committee, in its discretion.
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(ii) Notwithstanding the foregoing, the Committee may, in its discretion, determine the Fair Market Value of a share of Stock on the basis of the opening, closing, or average of the high and low sale prices of a share of Stock on such date or the preceding trading day, the actual sale price of a share of Stock received by a Participant, any other reasonable basis using actual transactions in the Stock as reported on a national or regional securities exchange or quotation system, or on any other basis consistent with the requirements of Section 409A. The Committee may vary its method of determination of the Fair Market Value as provided in this Section for different purposes under the Plan to the extent consistent with the requirements of Section 409A.
(iii) If, on such date, the Stock is not listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value of a share of Stock shall be as determined by the Committee in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse, and in a manner consistent with the requirements of Section 409A.
(v) “Incentive Stock Option” means an Option intended to be (as set forth in the Award Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.
(w) “Incumbent Director” means a director who either (i) is a member of the Board as of the Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but excluding a director who was elected or nominated in connection with an actual or threatened proxy contest relating to the election of directors of the Company).
(x) “Insider” means an Officer, Director or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
(y) “Net Exercise” means a Net Exercise as defined in Section 6.3(b)(iii).
(z) “Nonemployee Director” means a Director who is not an Employee.
(aa) “Nonemployee Director Award” means any Award granted to a Nonemployee Director.
(bb) “Nonstatutory Stock Option” means an Option not intended to be (as set forth in the Award Agreement) or which does not qualify as an incentive stock option within the meaning of Section 422(b) of the Code.
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(cc) “Officer” means any person designated by the Board as an officer of the Company.
(dd) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(ee) “Other Stock-Based Award” means an Award denominated in shares of Stock and granted pursuant to Section 11.
(ff) “Ownership Change Event” means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of securities of the Company representing more than fifty percent (50%) of the total combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of Directors; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
(gg) “Parent Corporation” means any present or future “parent corporation” of the Company, as defined in Section 424(e) of the Code.
(hh) “Participant” means any eligible person who has been granted one or more Awards.
(ii) “Participating Company” means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.
(jj) “Participating Company Group” means, at any point in time, the Company and all other entities collectively which are then Participating Companies.
(kk) “Performance Award” means an Award of Performance Shares or Performance Units.
(ll) “Performance Award Formula” means, for any Performance Award, a formula or table established by the Committee pursuant to Section 10.3 which provides the basis for computing the value of a Performance Award at one or more levels of attainment of the applicable Performance Goal(s) measured as of the end of the applicable Performance Period.
(mm) “Performance-Based Compensation” means compensation under an Award that satisfies the requirements of Section 162(m) for certain performance-based compensation paid to Covered Employees.
(nn) “Performance Goal” means a performance goal established by the Committee pursuant to Section 10.3.
(oo) “Performance Period” means a period established by the Committee pursuant to Section 10.3 at the end of which one or more Performance Goals are to be measured.
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(pp) “Performance Share” means a right granted to a Participant pursuant to Section 10 to receive a payment equal to the value of a Performance Share, as determined by the Committee, based upon attainment of applicable Performance Goal(s).
(qq) “Performance Unit” means a right granted to a Participant pursuant to Section 10 to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon attainment of applicable Performance Goal(s).
(rr) “Restricted Stock Award” means an Award of a Restricted Stock Bonus or a Restricted Stock Purchase Right.
(ss) “Restricted Stock Bonus” means Stock granted to a Participant pursuant to Section 8.
(tt) “Restricted Stock Purchase Right” means a right to purchase Stock granted to a Participant pursuant to Section 8.
(uu) “Restricted Stock Unit” means a right granted to a Participant pursuant to Section 9 to receive on a future date or event a share of Stock or cash in lieu thereof, as determined by the Committee.
(vv) “Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
(ww) “SAR” or “Stock Appreciation Right” means a right granted to a Participant pursuant to Section 7 to receive payment, for each share of Stock subject to such Award, of an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the Award over the exercise price thereof.
(xx) “Section 162(m)” means Section 162(m) of the Code.
(yy) “Section 409A” means Section 409A of the Code.
(zz) “Section 409A Deferred Compensation” means compensation provided pursuant to an Award that constitutes nonqualified deferred compensation within the meaning of Section 409A.
(aaa) “Securities Act” means the Securities Act of 1933, as amended.
(bbb) “Service” means a Participant’s employment or service with the Participating Company Group, whether as an Employee, a Director or a Consultant. Unless otherwise provided by the Committee, a Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders such Service or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participant’s Service. Furthermore, a Participant’s Service shall not be deemed to have been interrupted or terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. However, unless otherwise provided by the Committee, if any such leave taken by a Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the commencement of such leave the Participant’s Service shall be deemed to have terminated, unless the Participant’s right to return to Service is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, an unpaid leave of absence shall not be treated as Service for purposes of determining vesting under the Participant’s Award Agreement. A Participant’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the business entity for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Participant’s Service has terminated and the effective date of such termination.
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(ccc) “Stock” means the common stock of the Company, as adjusted from time to time in accordance with Section 4.3.
(ddd) “Stock Tender Exercise” means a Stock Tender Exercise as defined in Section 6.3(b)(ii).
(eee) “Subsidiary Corporation” means any present or future “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.
(fff) “Ten Percent Owner” means a Participant who, at the time an Option is granted to the Participant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company (other than an Affiliate) within the meaning of Section 422(b)(6) of the Code.
(ggg) “Trading Compliance Policy” means the written policy of the Company pertaining to the purchase, sale, transfer or other disposition of the Company’s equity securities by Directors, Officers, Employees or other service providers who may possess material, nonpublic information regarding the Company or its securities.
(hhh) “Vesting Conditions” mean those conditions established in accordance with the Plan prior to the satisfaction of which an Award or shares subject to an Award remain subject to forfeiture or a repurchase option in favor of the Company exercisable for the Participant’s monetary purchase price, if any, for such shares upon the Participant’s termination of Service.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
| 3. | Administration. |
3.1 Administration by the Committee. The Plan shall be administered by the Committee. All questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other document employed by the Company in the administration of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest therein. All expenses incurred in the administration of the Plan shall be paid by the Company.
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3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided that the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
3.3 Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
3.4 Committee Complying with Section 162(m). If the Company is a “publicly held corporation” within the meaning of Section 162(m), the Board may establish a Committee of “outside directors” within the meaning of Section 162(m) to approve the grant of any Award intended to result in the payment of Performance-Based Compensation.
3.5 Powers of the Committee. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock, units or monetary value to be subject to each Award;
(b) to determine the type of Award granted;
(c) to determine the Fair Market Value of shares of Stock or other property;
(d) to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with any Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the Performance Measures, Performance Period, Performance Award Formula and Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the effect of the Participant’s termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
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(e) to determine whether an Award will be settled in shares of Stock, cash, other property or in any combination thereof;
(f) to approve one or more forms of Award Agreement;
(g) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;
(h) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participant’s termination of Service;
(i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards; and
(j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.
3.6 Option or SAR Repricing. Without the affirmative vote of holders of a majority of the shares of Stock cast in person or by proxy at a meeting of the shareholders of the Company at which a quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Committee shall not approve a program providing for either (a) the cancellation of outstanding Options or SARs having exercise prices per share greater than the then Fair Market Value of a share of Stock (“Underwater Awards”) and the grant in substitution therefore of new Options or SARs having a lower exercise price, Full Value Awards, or payments in cash, or (b) the amendment of outstanding Underwater Awards to reduce the exercise price thereof. This Section shall not apply to adjustments pursuant to the assumption of or substitution for an Option or SAR in a manner that would comply with Section 424(a) or Section 409A of the Code or to an adjustment pursuant to Section 4.3.
3.7 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, to the extent permitted by applicable law, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
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| 4. | Shares Subject to Plan. |
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to Awards shall be equal to 5,000,000 and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.
4.2 Annual Increase in Maximum Number of Shares Issuable. Subject to adjustment as provided in Section 4.4, the maximum aggregate number of shares of Stock that may be issued under the Plan as set forth in Section 4.1 shall be cumulatively increased on January 1, 2015 and on each subsequent January 1 through and including January 1, 2024, by a number of shares (the “Annual Increase”) equal to the smaller of (a) five percent (5%) of the number of shares of Stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Board.
4.3 Share Counting. If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company for an amount not greater than the Participant’s purchase price, the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash. Shares withheld or reacquired by the Company in satisfaction of tax withholding obligations applicable to SARs and Options pursuant to Section 17.2 shall not again be available for issuance under the Plan. Upon payment in shares of Stock pursuant to the exercise of an SAR, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the SAR is exercised. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net-Exercise, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the Option is exercised.
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4.4 Adjustments for Changes in Capital Structure. Subject to any required action by the shareholders of the Company and the requirements of Sections 409A and 424 of the Code to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the shareholders of the Company in a form other than Stock (excepting regular, periodic cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and kind of shares subject to the Plan and to any outstanding Awards, the Award limits set forth in Section 5.3, and in the exercise or purchase price per share under any outstanding Award in order to prevent dilution or enlargement of Participants’ rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the “New Shares”), the Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise or purchase price per share of, the outstanding Awards shall be adjusted in a fair and equitable manner as determined by the Committee, in its discretion. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number, and in no event may the exercise or purchase price under any Award be decreased to an amount less than the par value, if any, of the stock subject to such Award. The Committee in its discretion, may also make such adjustments in the terms of any Award to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate, including modification of Performance Goals, Performance Award Formulas and Performance Periods. The adjustments determined by the Committee pursuant to this Section shall be final, binding and conclusive.
4.5 Assumption or Substitution of Awards. The Committee may, without affecting the number of shares of Stock reserved or available hereunder, authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with Section 409A and any other applicable provisions of the Code.
| 5. | Eligibility, Participation and Award Limitations. |
5.1 Persons Eligible for Awards. Awards may be granted only to Employees, Consultants and Directors.
5.2 Participation in the Plan. Awards are granted solely at the discretion of the Committee. Eligible persons may be granted more than one Award. However, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
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5.3 Award Limitations.
(a) Incentive Stock Option Limitations.
(i) Maximum Number of Shares Issuable Pursuant to Incentive Stock Options. Subject to adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed 5,000,000.
(ii) Persons Eligible. An Incentive Stock Option may be granted only to a person who, on the effective date of grant, is an Employee of the Company, a Parent Corporation or a Subsidiary Corporation (each being an “ISO-Qualifying Corporation”). Any person who is not an Employee of an ISO-Qualifying Corporation on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option.
(iii) Fair Market Value Limitation. To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by a Participant for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a limitation different from that set forth in this Section, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate which portion of such Option the Participant is exercising. In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Upon exercise, shares issued pursuant to each such portion shall be separately identified.
(b) Section 162(m) Award Limits. Subject to adjustment as provided in Section 4.3, no Employee shall be granted within any fiscal year of the Company one or more Awards intended to qualify for treatment as Performance-Based Compensation which in the aggregate are for more than 1,000,000 shares or, if applicable, which could result in such Employee receiving more than 1,000,000 for each full fiscal year of the Company contained in the Performance Period for such Award. Notwithstanding the foregoing, with respect to a newly hired Participant, the share limit set forth above shall be 1,000,000. With respect to an Award of Performance Based Compensation payable in cash, the maximum amount shall be $1,000,000 for each fiscal year contained in the Performance Period.
| 6. | Stock Options. |
Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Committee shall from time to time establish. Award Agreements evidencing Options may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
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6.1 Exercise Price. The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Section 409A or 424(a) of the Code.
6.2 Exercisability and Term of Options. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option and (c) no Option granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable until at least six (6) months following the date of grant of such Option (except in the event of such Employee’s death, disability or retirement, upon a Change in Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, each Option shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or in cash equivalent; (ii) if permitted by the Committee and subject to the limitations contained in Section 6.3(b), by means of (1) a Cashless Exercise, (2) a Stock Tender Exercise or (3) a Net Exercise; (iii) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (iv) by any combination thereof. The Committee may at any time or from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.
(b) Limitations on Forms of Consideration.
(i) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.
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(ii) Stock Tender Exercise. A “Stock Tender Exercise” means the delivery of a properly executed exercise notice accompanies by a Participant’s tender to the Company, or attestation to the ownership, in a form acceptable to the Company of whole shares of Stock owned by the Participant having a Fair Market Value that does not exceed the aggregate exercise price for the shares with respect to which the Option is exercised. A Stock Tender Exercise shall not be permitted if it would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock. If required by the Company, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for a period of time required by the Company (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
(iii) Net Exercise. A “Net Exercise” means the delivery of a properly executed exercise notice followed by a procedure pursuant to which (1) the Company will reduce the number of shares otherwise issuable to a Participant upon the exercise of an Option by the largest whole number of shares having a Fair Market Value that does not exceed the aggregate exercise price for the shares with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in cash the remaining balance of such aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued.
6.4 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided by this Plan and unless otherwise provided by the Committee, an Option shall terminate immediately upon the Participant’s termination of Service to the extent that it is then unvested and shall be exercisable after the Participant’s termination of Service to the extent it is then vested only during the applicable time period determined in accordance with this Section and thereafter shall terminate. Except as otherwise provided in the Award Agreement, or other agreement governing the Option, vested Options shall remain exercisable following a termination of Service as follows:
(i) Disability. If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such Option (the “Option Expiration Date”).
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(ii) Death. If the Participant’s Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date. The Participant’s Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participant’s termination of Service.
(iii) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary, if the Participant’s Service is terminated for Cause or if, following the Participant’s termination of Service and during any period in which the Option otherwise would remain exercisable, the Participant engages in any act that would constitute Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service or act.
(iv) Other Termination of Service. If the Participant’s Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of ninety (90) days after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the foregoing, other than termination of Service for Cause, if the exercise of an Option within the applicable time periods set forth in Section 6.4(a) is prevented by the provisions of Section 15 below, the Option shall remain exercisable until the later of (i) thirty (30) days after the date such exercise first would no longer be prevented by such provisions or (ii) the end of the applicable time period under Section 6.4(a), but in any event no later than the Option Expiration Date.
6.5 Transferability of Options. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative. An Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option, a Nonstatutory Stock Option may be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 under the Securities Act. An Incentive Stock Option shall not be assignable or transferable in any manner.
| 7. | Stock Appreciation Rights. |
Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing SARs may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
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7.1 Types of SARs Authorized. SARs may be granted in tandem with all or any portion of a related Option (a “Tandem SAR”) or may be granted independently of any Option (a “Freestanding SAR”). A Tandem SAR may only be granted concurrently with the grant of the related Option.
7.2 Exercise Price. The exercise price for each SAR shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share subject to a Tandem SAR shall be the exercise price per share under the related Option and (b) the exercise price per share subject to a Freestanding SAR shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the SAR. Notwithstanding the foregoing, a SAR may be granted with an exercise price lower than the minimum exercise price set forth above if such SAR is granted pursuant to an assumption or substitution for another stock appreciation right in a manner that would qualify under the provisions of Section 409A of the Code.
7.3 Exercisability and Term of SARs.
(a) Tandem SARs. Tandem SARs shall be exercisable only at the time and to the extent, and only to the extent, that the related Option is exercisable, subject to such provisions as the Committee may specify where the Tandem SAR is granted with respect to less than the full number of shares of Stock subject to the related Option. The Committee may, in its discretion, provide in any Award Agreement evidencing a Tandem SAR that such SAR may not be exercised without the advance approval of the Company and, if such approval is not given, then the Option shall nevertheless remain exercisable in accordance with its terms. A Tandem SAR shall terminate and cease to be exercisable no later than the date on which the related Option expires or is terminated or canceled. Upon the exercise of a Tandem SAR with respect to some or all of the shares subject to such SAR, the related Option shall be canceled automatically as to the number of shares with respect to which the Tandem SAR was exercised. Upon the exercise of an Option related to a Tandem SAR as to some or all of the shares subject to such Option, the related Tandem SAR shall be canceled automatically as to the number of shares with respect to which the related Option was exercised.
(b) Freestanding SARs. Freestanding SARs shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such SAR; provided, however, that (i) no Freestanding SAR shall be exercisable after the expiration of ten (10) years after the effective date of grant of such SAR, and (ii) no Freestanding SAR granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable until at least six (6) months following the date of grant of such SAR (except in the event of such Employee’s death, disability or retirement, upon a Change in Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless otherwise specified by the Committee in the grant of a Freestanding SAR, each Freestanding SAR shall terminate ten (10) years after the effective date of grant of the SAR, unless earlier terminated in accordance with its provisions.
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7.4 Exercise of SARs. Upon the exercise (or deemed exercise pursuant to Section 7.5) of an SAR, the Participant (or the Participant’s legal representative or other person who acquired the right to exercise the SAR by reason of the Participant’s death) shall be entitled to receive payment of an amount for each share with respect to which the SAR is exercised equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the exercise price. Payment of such amount shall be made (a) in the case of a Tandem SAR, solely in shares of Stock in a lump sum upon the date of exercise of the SAR and (b) in the case of a Freestanding SAR, in cash, shares of Stock, or any combination thereof as determined by the Committee, in a lump sum upon the date of exercise of the SAR. When payment is to be made in shares of Stock, the number of shares to be issued shall be determined on the basis of the Fair Market Value of a share of Stock on the date of exercise of the SAR. For purposes of Section 7, an SAR shall be deemed exercised on the date on which the Company receives notice of exercise from the Participant or as otherwise provided in Section 7.5.
7.5 Deemed Exercise of SARs. If, on the date on which an SAR would otherwise terminate or expire, the SAR by its terms remains exercisable immediately prior to such termination or expiration and, if so exercised, would result in a payment to the holder of such SAR, then any portion of such SAR which has not previously been exercised shall automatically be deemed to be exercised as of such date with respect to such portion pursuant to a Net Exercise procedure and withholding of Shares as described in Section 17.2.
7.6 Effect of Termination of Service. Subject to earlier termination of the SAR as otherwise provided herein and unless otherwise provided by the Committee, an SAR shall be exercisable after a Participant’s termination of Service only to the extent and during the applicable time period determined in accordance with Section 6.4 (treating the SAR as if it were an Option) and thereafter shall terminate.
7.7 Transferability of SARs. During the lifetime of the Participant, an SAR shall be exercisable only by the Participant or the Participant’s guardian or legal representative. An SAR shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Award, a Tandem SAR related to a Nonstatutory Stock Option or a Freestanding SAR may be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 under the Securities Act.
| 8. | Restricted Stock Awards. |
Restricted Stock Awards shall be evidenced by Award Agreements specifying whether the Award is a Restricted Stock Bonus or a Restricted Stock Purchase Right and the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
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8.1 Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted in the form of either a Restricted Stock Bonus or a Restricted Stock Purchase Right. Restricted Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If either the grant of or satisfaction of Vesting Conditions applicable to a Restricted Stock Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
8.2 Purchase Price. The purchase price for shares of Stock issuable under each Restricted Stock Purchase Right shall be established by the Committee in its discretion. No monetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares of Stock pursuant to a Restricted Stock Bonus, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to a Restricted Stock Award.
8.3 Purchase Period. A Restricted Stock Purchase Right shall be exercisable within a period established by the Committee, which shall in no event exceed thirty (30) days from the effective date of the grant of the Restricted Stock Purchase Right.
8.4 Payment of Purchase Price. Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to any Restricted Stock Purchase Right shall be made (a) in cash, by check or in cash equivalent, (b) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (c) by any combination thereof.
8.5 Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock Award may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. During any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event or as provided in Section 8.8. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such Restricted Stock Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Trading Compliance Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the next trading day on which the sale of such shares would not violate the Trading Compliance Policy. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
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8.6 Voting Rights; Dividends and Distributions. Except as provided in this Section, Section 8.5 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a shareholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares; provided, however, unless otherwise determined by the Committee and provided by the Award Agreement, such dividends and distributions shall be subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid, and otherwise shall be paid no later than the end of the calendar year in which such dividends or distributions are paid to shareholders (or, if later, the 15th day of the third month following the date such dividends or distributions are paid to shareholders). In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant is entitled by reason of the Participant’s Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
8.7 Effect of Termination of Service. Unless otherwise provided by the Committee in the Award Agreement evidencing a Restricted Stock Award, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then (a) the Company shall have the option to repurchase for the purchase price paid by the Participant any shares acquired by the Participant pursuant to a Restricted Stock Purchase Right which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service and (b) the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a Restricted Stock Bonus which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.
8.8 Nontransferability of Restricted Stock Award Rights. Rights to acquire shares of Stock pursuant to a Restricted Stock Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or the laws of descent and distribution. All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
9. Restricted Stock Unit Awards. Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
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9.1 Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If either the grant of a Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
9.2 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock issued upon settlement of the Restricted Stock Unit Award.
9.3 Vesting. Restricted Stock Unit Awards may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Unit Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to the Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Trading Compliance Policy, then the satisfaction of the Vesting Conditions automatically shall be determined on the first to occur of (a) the next trading day on which the sale of such shares would not violate the Trading Compliance Policy or (b) the later of (i) last day of the calendar year in which the original vesting date occurred or (ii) the last day of the Company’s taxable year in which the original vesting date occurred.
9.4 Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid by crediting the Participant with a cash amount with additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock as determined by the Committee. The number of additional Restricted Stock Units (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Such additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.
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9.5 Effect of Termination of Service. Unless otherwise provided by the Committee and set forth in the Award Agreement evidencing a Restricted Stock Unit Award, if a Participant’s Service terminates for any reason, whether voluntary or involuntary (including the Participant’s death or disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant to the Award which remain subject to Vesting Conditions as of the date of the Participant’s termination of Service.
9.6 Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award vest or on such other date determined by the Committee, in its discretion, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 9.4) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes, if any. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section, and such deferred issuance date(s) and amount(s) elected by the Participant shall be set forth in the Award Agreement. Notwithstanding the foregoing, the Committee, in its discretion, may provide for settlement of any Restricted Stock Unit Award by payment to the Participant in cash of an amount equal to the Fair Market Value on the payment date of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.
9.7 Nontransferability of Restricted Stock Unit Awards. The right to receive shares pursuant to a Restricted Stock Unit Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
10. Performance Awards. Performance Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish. Award Agreements evidencing Performance Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
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10.1 Types of Performance Awards Authorized. Performance Awards may be granted in the form of either Performance Shares or Performance Units. Each Award Agreement evidencing a Performance Award shall specify the number of Performance Shares or Performance Units subject thereto, the Performance Award Formula, the Performance Goal(s) and Performance Period applicable to the Award, and the other terms, conditions and restrictions of the Award.
10.2 Initial Value of Performance Shares and Performance Units. Unless otherwise provided by the Committee in granting a Performance Award, each Performance Share shall have an initial monetary value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as provided in Section 4.3, on the effective date of grant of the Performance Share, and each Performance Unit shall have an initial monetary value established by the Committee at the time of grant. The final value payable to the Participant in settlement of a Performance Award determined on the basis of the applicable Performance Award Formula will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee.
10.3 Establishment of Performance Period, Performance Goals and Performance Award Formula. In granting each Performance Award, the Committee shall establish in writing the applicable Performance Period, Performance Award Formula and one or more Performance Goals which, when measured at the end of the Performance Period, shall determine on the basis of the Performance Award Formula the final value of the Performance Award to be paid to the Participant. Unless otherwise permitted in compliance with the requirements under Section 162(m) with respect to each Performance Award intended to result in the payment of Performance-Based Compensation, the Committee shall establish the Performance Goal(s) and Performance Award Formula applicable to each Performance Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain. Once established, the Performance Goals and Performance Award Formula applicable to a Covered Employee shall not be changed during the Performance Period. The Company shall notify each Participant granted a Performance Award of the terms of such Award, including the Performance Period, Performance Goal(s) and Performance Award Formula.
10.4 Measurement of Performance Goals. Performance Goals shall be established by the Committee on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial performance (each, a “Performance Measure”), subject to the following:
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(a) Performance Measures. Performance Measures shall be calculated in accordance with the Company’s financial statements, or, if such terms are not used in the Company’s financial statements, they shall be calculated in accordance with generally accepted accounting principles, a method used generally in the Company’s industry, or in accordance with a methodology established by the Committee prior to the grant of the Performance Award. Performance Measures shall be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit as may be selected by the Committee. Unless otherwise determined by the Committee prior to the grant of the Performance Award, the Performance Measures applicable to the Performance Award shall be calculated prior to the accrual of expense for any Performance Award for the same Performance Period and excluding the effect (whether positive or negative) on the Performance Measures of any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Performance Goals applicable to the Performance Award. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Performance Measures in order to prevent the dilution or enlargement of the Participant’s rights with respect to a Performance Award. Performance Measures may be one or more of the following, as determined by the Committee:
| (i) | revenue; |
| (ii) | sales; |
| (iii) | expenses; |
| (iv) | operating income; |
| (v) | gross margin; |
| (vi) | operating margin; |
| (vii) | earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; |
| (viii) | pre-tax profit; |
| (ix) | net operating income; |
| (x) | net income; |
| (xi) | economic value added; |
| (xii) | free cash flow; |
| (xiii) | operating cash flow; |
| (xiv) | balance of cash, cash equivalents and marketable securities; |
| (xv) | stock price; |
| (xvi) | earnings per share; |
| (xvii) | return on shareholder equity; |
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| (xviii) | return on capital; |
| (xix) | return on assets; |
| (xx) | return on investment; |
| (xxi) | total shareholder return; |
| (xxii) | employee satisfaction; |
| (xxiii) | employee retention; |
| (xxiv) | market share; |
| (xxv) | customer satisfaction; |
| (xxvi) | product development; |
| (xxvii) | research and development expenses; |
| (xxviii) | completion of an identified special project; and |
| (xxix) | completion of a joint venture or other corporate transaction. |
(b) Performance Targets. Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final value of a Performance Award determined under the applicable Performance Award Formula by the level attained during the applicable Performance Period. A Performance Target may be stated as an absolute value, an increase or decrease in a value, or as a value determined relative to an index, budget or other standard selected by the Committee.
10.5 Settlement of Performance Awards.
(a) Determination of Final Value. As soon as practicable following the completion of the Performance Period applicable to a Performance Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement in accordance with the applicable Performance Award Formula.
(b) Discretionary Adjustment of Award Formula. In its discretion, the Committee may, either at the time it grants a Performance Award or at any time thereafter, provide for the positive or negative adjustment of the Performance Award Formula applicable to a Performance Award granted to any Participant who is not a Covered Employee to reflect such Participant’s individual performance in his or her position with the Company or such other factors as the Committee may determine. If permitted under a Covered Employee’s Award Agreement, the Committee shall have the discretion, on the basis of such criteria as may be established by the Committee, to reduce some or all of the value of the Performance Award that would otherwise be paid to the Covered Employee upon its settlement notwithstanding the attainment of any Performance Goal and the resulting value of the Performance Award determined in accordance with the Performance Award Formula. No such reduction may result in an increase in the amount payable upon settlement of another Participant’s Performance Award that is intended to result in Performance-Based Compensation.
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(c) Effect of Leaves of Absence. Unless otherwise required by law or a Participant’s Award Agreement, payment of the final value, if any, of a Performance Award held by a Participant who has taken in excess of thirty (30) days in unpaid leaves of absence during a Performance Period shall be prorated on the basis of the number of days of the Participant’s Service during the Performance Period during which the Participant was not on an unpaid leave of absence.
(d) Notice to Participants. As soon as practicable following the Committee’s determination and certification in accordance with Sections 10.5(a) and (b), the Company shall notify each Participant of the determination of the Committee.
(e) Payment in Settlement of Performance Awards. As soon as practicable following the Committee’s determination and certification in accordance with Sections 10.5(a) and (b), but in any event within the Short-Term Deferral Period described in Section 16.1 (except as otherwise provided below or consistent with the requirements of Section 409A), payment shall be made to each eligible Participant (or such Participant’s legal representative or other person who acquired the right to receive such payment by reason of the Participant’s death) of the final value of the Participant’s Performance Award. Payment of such amount shall be made in cash, shares of Stock, or a combination thereof as determined by the Committee. Unless otherwise provided in the Award Agreement evidencing a Performance Award, payment shall be made in a lump sum. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the payment to be made to the Participant pursuant to this Section, and such deferred payment date(s) elected by the Participant shall be set forth in the Award Agreement. If any payment is to be made on a deferred basis, the Committee may, but shall not be obligated to, provide for the payment during the deferral period of Dividend Equivalent Rights or interest.
(f) Provisions Applicable to Payment in Shares. If payment is to be made in shares of Stock, the number of such shares shall be determined by dividing the final value of the Performance Award by the Fair Market Value of a share of Stock determined by the method specified in the Award Agreement. Shares of Stock issued in payment of any Performance Award may be fully vested and freely transferable shares or may be shares of Stock subject to Vesting Conditions as provided in Section 8.5. Any shares subject to Vesting Conditions shall be evidenced by an appropriate Award Agreement and shall be subject to the provisions of Sections 8.5 through 8.8 above.
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10.6 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Performance Share Awards until the date of the issuance of such shares, if any (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Performance Share Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date the Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date on which the Performance Shares are settled or the date on which they are forfeited. Such Dividend Equivalent Rights, if any, shall be credited to the Participant either in cash or in the form of additional whole Performance Shares as of the date of payment of such cash dividends on Stock. The number of additional Performance Shares (rounded down to the nearest whole number); if any, as determined by the Committee to be so credited shall be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of shares of Stock represented by the Performance Shares previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Dividend Equivalent Rights shall be accumulated and paid to the extent that Performance Shares become nonforfeitable, as determined by the Committee. Settlement of Dividend Equivalent Rights may be made in cash, shares of Stock, or a combination thereof as determined by the Committee, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 10.5. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments shall be made in the Participant’s Performance Share Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Performance Share Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Performance Goals as are applicable to the Award.
10.7 Effect of Termination of Service. Unless otherwise provided by the Committee and set forth in the Award Agreement evidencing a Performance Award or in the Participant’s employment agreement, if any, referencing such Awards, the effect of a Participant’s termination of Service on the Performance Award shall be as follows:
(a) Death or Disability. If the Participant’s Service terminates because of the death or Disability of the Participant before the completion of the Performance Period applicable to the Performance Award, the final value of the Participant’s Performance Award shall be determined by the extent to which the applicable Performance Goals have been attained with respect to the entire Performance Period and shall be prorated based on the number of months of the Participant’s Service during the Performance Period. Payment shall be made following the end of the Performance Period in any manner permitted by Section 10.5.
(b) Other Termination of Service. If the Participant’s Service terminates for any reason except death or Disability before the completion of the Performance Period applicable to the Performance Award, such Award shall be forfeited in its entirety.
10.8 Nontransferability of Performance Awards. Prior to settlement in accordance with the provisions of the Plan, no Performance Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Performance Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participant’s guardian or legal representative.
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11. Cash-Based Awards and Other Stock-Based Awards. Cash-Based Awards and Other Stock-Based Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish. Award Agreements evidencing Cash-Based Awards and Other Stock-Based Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
11.1 Grant of Cash-Based Awards. Subject to the provisions of the Plan, the Committee, at any time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon such terms and conditions, including the achievement of performance criteria, as the Committee may determine.
11.2 Grant of Other Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted securities, stock-equivalent units, stock appreciation units, securities or debentures convertible into common stock or other forms determined by the Committee) in such amounts and subject to such terms and conditions as the Committee shall determine. Other Stock-Based Awards may be made available as a form of payment in the settlement of other Awards or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may involve the transfer of actual shares of Stock to Participants, or payment in cash or otherwise of amounts based on the value of Stock and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
11.3 Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a monetary payment amount or payment range as determined by the Committee. Each Other Stock-Based Award shall be expressed in terms of shares of Stock or units based on such shares of Stock, as determined by the Committee. The Committee may require the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. If the Committee exercises its discretion to establish performance criteria, the final value of Cash-Based Awards or Other Stock-Based Awards that will be paid to the Participant will depend on the extent to which the performance criteria are met. The establishment of performance criteria with respect to the grant or vesting of any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall follow procedures substantially equivalent to those applicable to Performance Awards set forth in Section 10.
11.4 Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards. Payment or settlement, if any, with respect to a Cash-Based Award or an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash, shares of Stock or other securities or any combination thereof as the Committee determines. The determination and certification of the final value with respect to any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall comply with the requirements applicable to Performance Awards set forth in Section 10. To the extent applicable, payment or settlement with respect to each Cash-Based Award and Other Stock-Based Award shall be made in compliance with the requirements of Section 409A.
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11.5 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Other Stock-Based Awards until the date of the issuance of such shares of Stock (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), if any, in settlement of such Award. However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Other Stock-Based Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid in accordance with the provisions set forth in Section 9.4. Dividend Equivalent Rights shall not be granted with respect to Cash-Based Awards. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, appropriate adjustments shall be made in the Participant’s Other Stock-Based Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of such Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions and performance criteria, if any, as are applicable to the Award.
11.6 Effect of Termination of Service. Each Award Agreement evidencing a Cash-Based Award or Other Stock-Based Award shall set forth the extent to which the Participant shall have the right to retain such Award following termination of the Participant’s Service. Such provisions shall be determined in the discretion of the Committee, need not be uniform among all Cash-Based Awards or Other Stock-Based Awards, and may reflect distinctions based on the reasons for termination, subject to the requirements of Section 409A, if applicable.
11.7 Nontransferability of Cash-Based Awards and Other Stock-Based Awards. Prior to the payment or settlement of a Cash-Based Award or Other Stock-Based Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. The Committee may impose such additional restrictions on any shares of Stock issued in settlement of Cash-Based Awards and Other Stock-Based Awards as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares of Stock are then listed and/or traded, or under any state securities laws or foreign law applicable to such shares of Stock.
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| 12. | Deferred Compensation Awards. |
12.1 Establishment of Deferred Compensation Award Programs. This Section 12 shall not be effective unless and until the Committee determines to establish a program pursuant to this Section. If the Committee determines that any such program may constitute an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA, the Committee shall adopt and implement such program through a separate subplan to this Plan. Eligibility to participate in such subplan shall be limited to Directors and a select group of management or highly compensated employees, and the Committee shall take all additional actions required to qualify such subplan as a “top-hat” unfunded deferred compensation plan, including filing with the U.S. Department of Labor within 120 days following the adoption of such subplan a notice pursuant to Department of Labor Regulations Section 2520.104-23.
12.2 Terms and Conditions of Deferred Compensation Awards. Deferred Compensation Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish. Award Agreements evidencing Deferred Compensation Awards may incorporate all or any of the terms of the Plan by reference and, except as provided below, shall comply with and be subject to the terms and conditions applicable to the appropriate form of Award as set forth in the applicable section of this Plan.
(a) Limitation on Elections. Notwithstanding any Participant’s prior election to reduce cash compensation pursuant to a program established in accordance with this Section 12, no Deferred Compensation Award may be granted to the Participant after termination of the Plan or termination of the Participant’s Service, and any such cash compensation shall be paid at the normal time and in accordance with the terms of the applicable cash compensation arrangement.
(b) Election Irrevocable. A Participant’s election to reduce cash compensation pursuant to a program established in accordance with this Section 12 shall become irrevocable on the last day of the calendar year prior to the year in which the services are to be rendered with respect to which such cash compensation would otherwise become payable, or at the time otherwise required by Section 409A.
(c) Vesting. Deferred Compensation Awards may be fully vested at grant or may be subject to such Vesting Conditions as the Committee determines.
| 13. | Standard Forms of Award Agreement. |
13.1 Award Agreements. Each Award shall comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Committee and as amended from time to time. No Award or purported Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement, which execution may be evidenced by electronic means.
13.2 Authority to Vary Terms. The Committee shall have the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.
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| 14. | Change in Control. |
14.1 Effect of Change in Control on Awards. Subject to the requirements and limitations of Section 409A, if applicable, the Committee may provide for any one or more of the following:
(a) Accelerated Vesting. In its discretion, the Committee may provide in the grant of any Award or at any other time may take such action as it deems appropriate to provide for acceleration of the exercisability, vesting and/or settlement in connection with a Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions, including termination of the Participant’s Service prior to, upon, or following such Change in Control, and to such extent as the Committee shall determine.
(b) Assumption, Continuation or Substitution. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant, assume or continue the Company’s rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially equivalent award with respect to the Acquiror’s stock, as applicable. For purposes of this Section, if so determined by the Committee in its discretion, an Award denominated in shares of Stock shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise or settlement of the Award, for each share of Stock subject to the Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. Any Award or portion thereof which is neither assumed, substituted for, or otherwise continued by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.
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(c) Cash-Out of Outstanding Stock-Based Awards. The Committee may, in its discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Award denominated in shares of Stock or portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Committee) of Stock subject to such canceled Award in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control, reduced (but not below zero) by the exercise or purchase price per share, if any, under such Award. In the event such determination is made by the Committee, an Award having an exercise or purchase price per share equal to or greater than the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control may be canceled without payment of consideration to the holder thereof. Payment pursuant to this Section (reduced by applicable withholding taxes, if any) shall be made to Participants in respect of the vested portions of their canceled Awards as soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards.
14.2 Effect of Change in Control on Nonemployee Director Awards. Subject to the requirements and limitations of Section 409A, if applicable, including as provided by Section 16.4(f), in the event of a Change in Control, each outstanding Nonemployee Director Award shall become immediately exercisable and vested in full and, except to the extent assumed, continued or substituted for pursuant to Section 14.1(b), shall be settled effective immediately prior to the time of consummation of the Change in Control.
14.3 Federal Excise Tax Under Section 4999 of the Code.
(a) Excess Parachute Payment. In the event that any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section 280G of the Code, the Participant may elect to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.
(b) Determination by Independent Accountants. To aid the Participant in making any election called for under Section 14.3(a), no later than the date of the occurrence of any event that might reasonably be anticipated to result in an “excess parachute payment” to the Participant as described in Section 14.3(a), the Company shall request a determination in writing by independent public accountants selected by the Company (the “Accountants”). As soon as practicable thereafter, the Accountants shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination. The Company shall bear all fees and expenses the Accountants charge in connection with their services contemplated by this Section.
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| 15. | Compliance with Securities Law. |
The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award, or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares under the Plan shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
| 16. | Compliance with Section 409A. |
16.1 Awards Subject to Section 409A. The Company intends that Awards granted pursuant to the Plan shall either be exempt from or comply with Section 409A, and the Plan shall be so construed. The provisions of this Section 16 shall apply to any Award or portion thereof that constitutes or provides for payment of Section 409A Deferred Compensation. Such Awards may include, without limitation:
(a) A Nonstatutory Stock Option or SAR that includes any feature for the deferral of compensation other than the deferral of recognition of income until the later of (i) the exercise or disposition of the Award or (ii) the time the stock acquired pursuant to the exercise of the Award first becomes substantially vested.
(b) Any Restricted Stock Unit Award, Performance Award, Cash-Based Award or Other Stock-Based Award that either (i) provides by its terms for settlement of all or any portion of the Award at a time or upon an event that will or may occur later than the end of the Short-Term Deferral Period (as defined below) or (ii) permits the Participant granted the Award to elect one or more dates or events upon which the Award will be settled after the end of the Short-Term Deferral Period.
Subject to the provisions of Section 409A, the term “Short-Term Deferral Period” means the 2½ month period ending on the later of (i) the 15th day of the third month following the end of the Participant’s taxable year in which the right to payment under the applicable portion of the Award is no longer subject to a substantial risk of forfeiture or (ii) the 15th day of the third month following the end of the Company’s taxable year in which the right to payment under the applicable portion of the Award is no longer subject to a substantial risk of forfeiture. For this purpose, the term “substantial risk of forfeiture” shall have the meaning provided by Section 409A.
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16.2 Deferral and/or Distribution Elections. Except as otherwise permitted or required by Section 409A, the following rules shall apply to any compensation deferral and/or payment elections (each, an “Election”) that may be permitted or required by the Committee pursuant to an Award providing Section 409A Deferred Compensation:
(a) Elections must be in writing and specify the amount of the payment in settlement of an Award being deferred, as well as the time and form of payment as permitted by this Plan.
(b) Elections shall be made by the end of the Participant’s taxable year prior to the year in which services commence for which an Award may be granted to such Participant.
(c) Elections shall continue in effect until a written revocation or change in Election is received by the Company, except that a written revocation or change in Election must be received by the Company prior to the last day for making the Election determined in accordance with paragraph (b) above or as permitted by Section 16.3.
16.3 Subsequent Elections. Except as otherwise permitted or required by Section 409A, any Award providing Section 409A Deferred Compensation which permits a subsequent Election to delay the payment or change the form of payment in settlement of such Award shall comply with the following requirements:
(a) No subsequent Election may take effect until at least twelve (12) months after the date on which the subsequent Election is made.
(b) Each subsequent Election related to a payment in settlement of an Award not described in Section 16.4(a)(ii), 16.4(a)(iii) or 16.4(a)(vi) must result in a delay of the payment for a period of not less than five (5) years from the date on which such payment would otherwise have been made.
(c) No subsequent Election related to a payment pursuant to Section 16.4(a)(iv) shall be made less than twelve (12) months before the date on which such payment would otherwise have been made.
(d) Subsequent Elections shall continue in effect until a written revocation or change in the subsequent Election is received by the Company, except that a written revocation or change in a subsequent Election must be received by the Company prior to the last day for making the subsequent Election determined in accordance the preceding paragraphs of this Section 16.3.
16.4 Payment of Section 409A Deferred Compensation.
(a) Permissible Payments. Except as otherwise permitted or required by Section 409A, an Award providing Section 409A Deferred Compensation must provide for payment in settlement of the Award only upon one or more of the following:
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(i) The Participant’s “separation from service” (as defined by Section 409A);
(ii) The Participant’s becoming “disabled” (as defined by Section 409A);
(iii) The Participant’s death;
(iv) A time or fixed schedule that is either (i) specified by the Committee upon the grant of an Award and set forth in the Award Agreement evidencing such Award or (ii) specified by the Participant in an Election complying with the requirements of Section 16.2 or 16.3, as applicable;
(v) A change in the ownership or effective control or the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 409A; or
(vi) The occurrence of an “unforeseeable emergency” (as defined by Section 409A).
(b) Installment Payments. It is the intent of this Plan that any right of a Participant to receive installment payments (within the meaning of Section 409A) shall, for all purposes of Section 409A, be treated as a right to a series of separate payments.
(c) Required Delay in Payment to Specified Employee Pursuant to Separation from Service. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, except as otherwise permitted by Section 409A, no payment pursuant to Section 16.4(a)(i) in settlement of an Award providing for Section 409A Deferred Compensation may be made to a Participant who is a “specified employee” (as defined by Section 409A) as of the date of the Participant’s separation from service before the date (the “Delayed Payment Date”) that is six (6) months after the date of such Participant’s separation from service, or, if earlier, the date of the Participant’s death. All such amounts that would, but for this paragraph, become payable prior to the Delayed Payment Date shall be accumulated and paid on the Delayed Payment Date.
(d) Payment Upon Disability. All distributions of Section 409A Deferred Compensation payable by reason of a Participant becoming disabled shall be paid in a lump sum or in periodic installments as established by the Participant’s Election. If the Participant has made no Election with respect to distributions of Section 409A Deferred Compensation upon becoming disabled, all such distributions shall be paid in a lump sum upon the determination that the Participant has become disabled.
(e) Payment Upon Death. If a Participant dies before complete distribution of amounts payable upon settlement of an Award subject to Section 409A, such undistributed amounts shall be distributed to his or her beneficiary under the distribution method for death established by the Participant’s Election upon receipt by the Committee of satisfactory notice and confirmation of the Participant’s death. If the Participant has made no Election with respect to distributions of Section 409A Deferred Compensation upon death, all such distributions shall be paid in a lump sum upon receipt by the Committee of satisfactory notice and confirmation of the Participant’s death.
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(f) Payment Upon Change in Control. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, to the extent that any amount constituting Section 409A Deferred Compensation would become payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A. Any Award which constitutes Section 409A Deferred Compensation and which would vest and otherwise become payable upon a Change in Control as a result of the failure of the Acquiror to assume, continue or substitute for such Award in accordance with Section 14.1(b) shall vest to the extent provided by such Award but shall be converted automatically at the effective time of such Change in Control into a right to receive, in cash on the date or dates such award would have been settled in accordance with its then existing settlement schedule (or as required by Section 16.4(c)), an amount or amounts equal in the aggregate to the intrinsic value of the Award at the time of the Change in Control.
(g) Payment Upon Unforeseeable Emergency. The Committee shall have the authority to provide in the Award Agreement evidencing any Award providing for Section 409A Deferred Compensation for payment in settlement of all or a portion of such Award in the event that a Participant establishes, to the satisfaction of the Committee, the occurrence of an unforeseeable emergency. In such event, the amount(s) distributed with respect to such unforeseeable emergency cannot exceed the amounts reasonably necessary to satisfy the emergency need plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution(s), after taking into account the extent to which such emergency need is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Award. All distributions with respect to an unforeseeable emergency shall be made in a lump sum upon the Committee’s determination that an unforeseeable emergency has occurred. The Committee’s decision with respect to whether an unforeseeable emergency has occurred and the manner in which, if at all, the payment in settlement of an Award shall be altered or modified, shall be final, conclusive, and not subject to approval or appeal.
(h) Prohibition of Acceleration of Payments. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, this Plan does not permit the acceleration of the time or schedule of any payment under an Award providing Section 409A Deferred Compensation, except as permitted by Section 409A.
(i) No Representation Regarding Section 409A Compliance. Notwithstanding any other provision of the Plan, the Company makes no representation that Awards shall be exempt from or comply with Section 409A. No Participating Company shall be liable for any tax, penalty or interest imposed on a Participant by Section 409A.
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| 17. | Tax Withholding. |
17.1 Tax Withholding in General. The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes (including social insurance), if any, required by law to be withheld by any Participating Company with respect to an Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Group’s tax withholding obligations have been satisfied by the Participant.
17.2 Withholding in or Directed Sale of Shares. The Committee shall have the right, but not the obligation to cause the Company, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of any Participating Company. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Company may require a Participant to direct a broker, upon the vesting, exercise or settlement of an Award, to sell a portion of the shares subject to the Award determined by the Company in its discretion to be sufficient to cover the tax withholding obligations of any Participating Company and to remit an amount equal to such tax withholding obligations to such Participating Company in cash.
18. Amendment, Suspension or Termination of Plan. The Committee may amend, suspend or terminate the Plan at any time. However, without the approval of the Company’s shareholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.3), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company’s shareholders under any applicable law, regulation or rule, including the rules of any stock exchange or quotation system upon which the Stock may then be listed or quoted. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Committee. Except as provided by the next sentence, no amendment, suspension or termination of the Plan may adversely affect any then outstanding Award without the consent of the Participant. Notwithstanding any other provision of the Plan to the contrary, the Committee may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A.
| 19. | Miscellaneous Provisions. |
19.1 Repurchase Rights. Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Committee in its discretion at the time the Award is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
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19.2 Forfeiture Events.
(a) The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of Service for Cause or any act by a Participant, whether before or after termination of Service, that would constitute Cause for termination of Service.
(b) If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, any Participant who knowingly or through gross negligence engaged in the misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, shall reimburse the Company for (i) the amount of any payment in settlement of an Award received by such Participant during the twelve- (12-) month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement, and (ii) any profits realized by such Participant from the sale of securities of the Company during such twelve- (12-) month period.
19.3 Provision of Information. Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common shareholders.
19.4 Rights as Employee, Consultant or Director. No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee, Consultant or Director or interfere with or limit in any way any right of a Participating Company to terminate the Participant’s Service at any time. To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean that the Company is the Employee’s employer or that the Employee has an employment relationship with the Company.
19.5 Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.3 or another provision of the Plan.
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19.6 Delivery of Title to Shares. Subject to any governing rules or regulations, the Company shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall deliver such shares to or for the benefit of the Participant by means of one or more of the following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to the account of the Participant, (b) by depositing such shares of Stock for the benefit of the Participant with any broker with which the Participant has an account relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.
19.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
19.8 Retirement and Welfare Plans. Neither Awards made under this Plan nor shares of Stock or cash paid pursuant to such Awards may be included as “compensation” for purposes of computing the benefits payable to any Participant under any Participating Company’s retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant’s benefit.
19.9 Beneficiary Designation. Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participant’s death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. If a married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse. If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal representative.
19.10 Severability. If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
19.11 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Company’s or another Participating Company’s right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or another Participating Company to take any action which such entity deems to be necessary or appropriate.
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19.12 Unfunded Obligation. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan shall be considered unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of any Participating Company. The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.
19.13 Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of Nevada, without regard to its conflict of law rules.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the Greenwood Hall, Inc. 2014 Stock Plan as duly adopted by the Board on July 28, 2014.
| /s/ John Hall | |
| John Hall, President and Secretary |
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Table of Contents
| Page | |||
| 1. | Establishment, Purpose and Term of Plan | 1 | |
| 1.1 | Establishment | 1 | |
| 1.2 | Purpose | 1 | |
| 1.3 | Term of Plan | 1 | |
| 2. | Definitions and Construction | 1 | |
| 2.1 | Definitions | 1 | |
| 2.2 | Construction | 8 | |
| 3. | Administration | 8 | |
| 3.1 | Administration by the Committee | 8 | |
| 3.2 | Authority of Officers | 9 | |
| 3.3 | Administration with Respect to Insiders | 9 | |
| 3.4 | Committee Complying with Section 162(m) | 9 | |
| 3.5 | Powers of the Committee | 9 | |
| 3.6 | Option or SAR Repricing | 10 | |
| 3.7 | Indemnification | 10 | |
| 4. | Shares Subject to Plan | 11 | |
| 4.1 | Maximum Number of Shares Issuable | 11 | |
| 4.2 | Annual Increase in Maximum Number of Shares Issuable | 11 | |
| 4.3 | Share Counting | 11 | |
| 4.4 | Adjustments for Changes in Capital Structure | 12 | |
| 4.5 | Assumption or Substitution of Awards | 12 | |
| 5. | Eligibility, Participation and Award Limitations | 12 | |
| 5.1 | Persons Eligible for Awards | 12 | |
| 5.2 | Participation in the Plan | 12 | |
| 5.3 | Award Limitations | 13 | |
| 6. | Stock Options | 13 | |
| 6.1 | Exercise Price | 14 | |
| 6.2 | Exercisability and Term of Options | 14 | |
| 6.3 | Payment of Exercise Price | 14 | |
| 6.4 | Effect of Termination of Service | 15 | |
| 6.5 | Transferability of Options | 16 | |
| 7. | Stock Appreciation Rights | 16 | |
| -i- |
Table of Contents
(continued)
| Page | |||
| 7.1 | Types of SARs Authorized | 17 | |
| 7.2 | Exercise Price | 17 | |
| 7.3 | Exercisability and Term of SARs | 17 | |
| 7.4 | Exercise of SARs | 18 | |
| 7.5 | Deemed Exercise of SARs | 18 | |
| 7.6 | Effect of Termination of Service | 18 | |
| 7.7 | Transferability of SARs | 18 | |
| 8. | Restricted Stock Awards | 18 | |
| 8.1 | Types of Restricted Stock Awards Authorized | 19 | |
| 8.2 | Purchase Price | 19 | |
| 8.3 | Purchase Period | 19 | |
| 8.4 | Payment of Purchase Price | 19 | |
| 8.5 | Vesting and Restrictions on Transfer | 19 | |
| 8.6 | Voting Rights; Dividends and Distributions | 20 | |
| 8.7 | Effect of Termination of Service | 20 | |
| 8.8 | Nontransferability of Restricted Stock Award Rights | 20 | |
| 9. | Restricted Stock Unit Awards | 20 | |
| 9.1 | Grant of Restricted Stock Unit Awards | 21 | |
| 9.2 | Purchase Price | 21 | |
| 9.3 | Vesting | 21 | |
| 9.4 | Voting Rights, Dividend Equivalent Rights and Distributions | 21 | |
| 9.5 | Effect of Termination of Service | 22 | |
| 9.6 | Settlement of Restricted Stock Unit Awards | 22 | |
| 9.7 | Nontransferability of Restricted Stock Unit Awards | 22 | |
| 10. | Performance Awards | 22 | |
| 10.1 | Types of Performance Awards Authorized | 23 | |
| 10.2 | Initial Value of Performance Shares and Performance Units | 23 | |
| 10.3 | Establishment of Performance Period, Performance Goals and Performance Award Formula | 23 | |
| 10.4 | Measurement of Performance Goals | 23 | |
| 10.5 | Settlement of Performance Awards | 25 | |
| 10.6 | Voting Rights; Dividend Equivalent Rights and Distributions | 27 | |
| 10.7 | Effect of Termination of Service | 27 | |
| 10.8 | Nontransferability of Performance Awards | 27 | |
| 11. | Cash-Based Awards and Other Stock-Based Awards | 28 | |
| 11.1 | Grant of Cash-Based Awards | 28 | |
| -ii- |
Table of Contents
(continued)
| Page | |||
| 11.2 | Grant of Other Stock-Based Awards | 28 | |
| 11.3 | Value of Cash-Based and Other Stock-Based Awards | 28 | |
| 11.4 | Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards | 28 | |
| 11.5 | Voting Rights; Dividend Equivalent Rights and Distributions | 29 | |
| 11.6 | Effect of Termination of Service | 29 | |
| 11.7 | Nontransferability of Cash-Based Awards and Other Stock-Based Awards | 29 | |
| 12. | Deferred Compensation Awards | 30 | |
| 12.1 | Establishment of Deferred Compensation Award Programs | 30 | |
| 12.2 | Terms and Conditions of Deferred Compensation Awards | 30 | |
| 13. | Standard Forms of Award Agreement | 30 | |
| 13.1 | Award Agreements | 30 | |
| 13.2 | Authority to Vary Terms | 30 | |
| 14. | Change in Control | 31 | |
| 14.1 | Effect of Change in Control on Awards | 31 | |
| 14.2 | Effect of Change in Control on Nonemployee Director Awards | 32 | |
| 14.3 | Federal Excise Tax Under Section 4999 of the Code | 32 | |
| 15. | Compliance with Securities Law | 33 | |
| 16. | Compliance with Section 409A | 33 | |
| 16.1 | Awards Subject to Section 409A | 33 | |
| 16.2 | Deferral and/or Distribution Elections | 34 | |
| 16.3 | Subsequent Elections | 34 | |
| 16.4 | Payment of Section 409A Deferred Compensation | 34 | |
| 17. | Tax Withholding | 37 | |
| 17.1 | Tax Withholding in General | 37 | |
| 17.2 | Withholding in or Directed Sale of Shares | 37 | |
| 18. | Amendment, Suspension or Termination of Plan | 37 | |
| 19. | Miscellaneous Provisions | 37 | |
| 19.1 | Repurchase Rights | 37 | |
| 19.2 | Forfeiture Events | 38 | |
| 19.3 | Provision of Information | 38 | |
| -iii- |
Table of Contents
(continued)
| Page | |||
| 19.4 | Rights as Employee, Consultant or Director | 38 | |
| 19.5 | Rights as a Shareholder | 38 | |
| 19.6 | Delivery of Title to Shares | 39 | |
| 19.7 | Fractional Shares | 39 | |
| 19.8 | Retirement and Welfare Plans | 39 | |
| 19.9 | Beneficiary Designation | 39 | |
| 19.10 | Severability | 39 | |
| 19.11 | No Constraint on Corporate Action | 39 | |
| 19.12 | Unfunded Obligation | 40 | |
| 19.13 | Choice of Law | 40 |
| -iv- |
Exhibit 10.4 - Form of Stock Option Award Agreement under the 2014 Stock Option Plan
GREENWOOD HALL, INC.
NOTICE OF GRANT OF STOCK OPTION
Greenwood Hall, Inc. (the “Company”) has granted to the Participant an option (the “Option”) to purchase certain shares of Stock (the “Option Shares”) pursuant to the Greenwood Hall, Inc. 2014 Stock Plan (the “Plan”), as follows:
| Participant: | ___________ | Award No.: | ___________ | |
| Date of Grant: | ___________ | |||
| Number of Option Shares: | ___________, subject to adjustment as provided by the Option Agreement. | |||
| Exercise Price per Share: | $__________ | |||
| Vesting Start Date: | ___________ | |||
| Option Expiration Date: | The tenth anniversary of the Date of Grant | |||
| Tax Status of Option: | ___________ Stock Option. (Enter “Incentive” or “Nonstatutory.” If blank, this Option will be a Nonstatutory Stock Option.) | |||
| Vested Shares: | Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Shares (disregarding any resulting fractional share) as of any date is determined by multiplying the Number of Option Shares by the “Vested Ratio” determined as of such date, as follows: | |||
| Vested Ratio | ||
| Prior to first anniversary of Vesting Start Date | 0 | |
| On first anniversary of Vesting Start Date (the “Initial Vesting Date”) | 1/4 | |
| Plus | ||
| For each additional [one year] of the Participant’s Service from the Initial Vesting Date until the Vested Ratio equals 1/1, an additional | [1/4] |
| Accelerated Vesting: |
[Notwithstanding any other provision contained in this Notice of Grant or the Option Agreement, the total Number of Option Shares shall become Vested Shares immediately prior to, but conditioned upon, the consummation of a Change in Control, provided that the Participant’s Service has not terminated prior to the date of the Change in Control.]
[Notwithstanding any other provision contained in this Notice of Grant or the Option Agreement, the Total Number of Option Shares shall become Vested Shares upon the termination of Participant’s Service without Cause [(as defined in the Superseding Agreement)] by the Participating Company Group (or its successor) [or by the Participant for Good Reason (as defined in the Superseding Agreement)] within [ten] days prior to, or during the [one-year] period from and after, the date a Change in Control is consummated.] |
| Suspension of Vesting: | During any authorized leave of absence, the vesting of the Option as provided by this Notice of Grant shall be suspended after the leave of absence exceeds a period of ninety (90) days. Vesting of the Option shall resume upon the Participant’s termination of the leave of absence and return to Service. The period of Service required for each subsequent Vested Share installment determined in accordance with the vesting schedule above shall be extended by the length of the suspension. Any extension of the vesting schedule shall not defer the Option Expiration Date. |
| Superseding Agreement: | [Employment Agreement, dated , between the Company and the Participant.] |
By their signatures below or by electronic acceptance or authentication in a form authorized by the Company, the Company and the Participant agree that the Option is governed by this Notice of Grant and by the provisions of the Option Agreement and the Plan, both of which are made a part of this document, and by the Superseding Agreement, if any. The Participant acknowledges that copies of the Plan, the Option Agreement and the prospectus for the Plan are available on the Company’s internal web site and may be viewed and printed by the Participant for attachment to the Participant’s copy of this Notice of Grant. The Participant represents that the Participant has read and is familiar with the provisions of the Option Agreement and the Plan, and hereby accepts the Option subject to all of their terms and conditions.
| GREENWOOD HALL, INC. | PARTICIPANT | ||
| By: | |||
| [Name] | Signature | ||
| [Title] | |||
| Date | |||
| Address: 1936 East Deere Ave., Suite 120 | |||
| Santa Ana, California 92705 | Address | ||
| ATTACHMENTS: | 2014 Stock Plan, as amended to the Date of Grant; Stock Option Agreement; Exercise Notice; and Plan Prospectus |
| 2 |
Exhibit 10.4 - Form of Stock Option Award Agreement under the 2014 Stock Option Plan
GREENWOOD HALL, INC.
STOCK OPTION AGREEMENT
Greenwood Hall, Inc. (the “Company”) has granted to the Participant named in the Notice of Grant of Stock Option (the “Notice of Grant”) to which this Stock Option Agreement (the “Option Agreement”) is attached an option (the “Option”) to purchase certain shares of Stock upon the terms and conditions set forth in the Notice of Grant and this Option Agreement. The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Greenwood Hall, Inc. 2014 Stock Plan (the “Plan”), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing the Notice of Grant, the Participant: (a) acknowledges receipt of, and represents that the Participant has read and is familiar with, the Notice of Grant, this Option Agreement, the Plan and a prospectus for the Plan prepared in connection with the registration with the Securities and Exchange Commission of shares issuable pursuant to the Option (the “Plan Prospectus”), (b) accepts the Option subject to all of the terms and conditions of the Notice of Grant, this Option Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Notice of Grant, this Option Agreement or the Plan.
| 1. | Definitions and Construction. |
1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice of Grant or the Plan.
1.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
| 2. | Tax Consequences. |
2.1 Tax Status of Option. This Option is intended to have the tax status designated in the Notice of Grant.
(a) Incentive Stock Option. If the Notice of Grant so designates, this Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does not represent or warrant that this Option qualifies as such. The Participant should consult with the Participant’s own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE TO PARTICIPANT: If the Option is exercised more than three (3) months after the date on which you cease to be an Employee (other than by reason of your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code.)
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(b) Nonstatutory Stock Option. If the Notice of Grant so designates, this Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code.
2.2 ISO Fair Market Value Limitation. If the Notice of Grant designates this Option as an Incentive Stock Option, then to the extent that the Option (together with all Incentive Stock Options granted to the Participant under all stock option plans of the Participating Company Group, including the Plan) becomes exercisable for the first time during any calendar year for shares having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount will be treated as Nonstatutory Stock Options. For purposes of this Section 2.2, options designated as Incentive Stock Options are taken into account in the order in which they were granted, and the Fair Market Value of Stock is determined as of the time the option with respect to such Stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 2.2, such different limitation shall be deemed incorporated herein effective as of the date required or permitted by such amendment to the Code. If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 2.2, the Participant may designate which portion of such Option the Participant is exercising. In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. (NOTE TO PARTICIPANT: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than $100,000, you should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.)
| 3. | Administration. |
All questions of interpretation concerning the Notice of Grant, this Option Agreement, the Plan or any other form of agreement or other document employed by the Company in the administration of the Plan or the Option shall be determined by the Committee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an interest in the Option, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or the Option or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest in the Option. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
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| 4. | Exercise of the Option. |
4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares, as adjusted pursuant to Section 9.
4.2 Method of Exercise. Exercise of the Option shall be by means of electronic or written notice (the “Exercise Notice”) in a form authorized by the Company. An electronic Exercise Notice must be digitally signed or authenticated by the Participant in such manner as required by the notice and transmitted to the Company or an authorized representative of the Company (including a third-party administrator designated by the Company). In the event that the Participant is not authorized or is unable to provide an electronic Exercise Notice, the Option shall be exercised by a written Exercise Notice addressed to the Company, which shall be signed by the Participant and delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Company, or an authorized representative of the Company (including a third-party administrator designated by the Company). Each Exercise Notice, whether electronic or written, must state the Participant’s election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Participant’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. Further, each Exercise Notice must be received by the Company prior to the termination of the Option as set forth in Section 6 and must be accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased. The Option shall be deemed to be exercised upon receipt by the Company of such electronic or written Exercise Notice and the aggregate Exercise Price.
| 4.3 | Payment of Exercise Price. |
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check or in cash equivalent; (ii) if permitted by the Company and subject to the limitations contained in Section 4.3(b), by means of (1) a Cashless Exercise, (2) a Net-Exercise, or (3) a Stock Tender Exercise; or (iii) by any combination of the foregoing.
(b) Limitations on Forms of Consideration. The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to establish, decline to approve or terminate any program or procedure providing for payment of the Exercise Price through any of the means described below, including with respect to the Participant notwithstanding that such program or procedures may be available to others.
(i) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed Exercise Notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to shares of Stock acquired upon the exercise of the Option in an amount not less than the aggregate Exercise Price for such shares (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System).
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(ii) Net-Exercise. A “Net-Exercise” means the delivery of a properly executed Exercise Notice electing a procedure pursuant to which (1) the Company will reduce the number of shares otherwise issuable to the Participant upon the exercise of the Option by the largest whole number of shares having a Fair Market Value that does not exceed the aggregate Exercise Price for the shares with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in cash the remaining balance of such aggregate Exercise Price not satisfied by such reduction in the number of whole shares to be issued. Following a Net-Exercise, the number of shares remaining subject to the Option, if any, shall be reduced by the sum of (1) the net number of shares issued to the Participant upon such exercise, and (2) the number of shares deducted by the Company for payment of the aggregate Exercise Price.
(iii) Stock Tender Exercise. A “Stock Tender Exercise” means the delivery of a properly executed Exercise Notice accompanied by (1) the Participant’s tender to the Company, or attestation to the ownership, in a form acceptable to the Company of whole shares of Stock having a Fair Market Value that does not exceed the aggregate Exercise Price for the shares with respect to which the Option is exercised, and (2) the Participant’s payment to the Company in cash of the remaining balance of such aggregate Exercise Price not satisfied by such shares’ Fair Market Value. A Stock Tender Exercise shall not be permitted if it would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s Stock. If required by the Company, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for a period of time required by the Company (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
| 4.4 | Tax Withholding. |
(a) In General. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by a Participating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax (including any social insurance) withholding obligations of the Participating Company Group, if any, which arise in connection with the Option. The Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company Group have been satisfied by the Participant.
(b) Withholding in Shares. The Company shall have the right, but not the obligation, to require the Participant to satisfy all or any portion of a Participating Company’s tax withholding obligations upon exercise of the Option by deducting from the shares of Stock otherwise issuable to the Participant upon such exercise a number of whole shares having a fair market value, as determined by the Company as of the date of exercise, not in excess of the amount of such tax withholding obligations determined by the applicable minimum statutory withholding rates.
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4.5 Beneficial Ownership of Shares; Certificate Registration. The Participant hereby authorizes the Company, in its sole discretion, to deposit for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all shares acquired by the Participant pursuant to the exercise of the Option. Except as provided by the preceding sentence, a certificate for the shares as to which the Option is exercised shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise of the Option.
| 5. | Nontransferability of the Option. |
During the lifetime of the Participant, the Option shall be exercisable only by the Participant or the Participant’s guardian or legal representative. The Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. Following the death of the Participant, the Option, to the extent provided in Section 7, may be exercised by the Participant’s legal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.
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| 6. | Termination of the Option. |
The Option shall terminate and may no longer be exercised after the first to occur of (a) the close of business on the Option Expiration Date, (b) the close of business on the last date for exercising the Option following termination of the Participant’s Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8.
| 7. | Effect of Termination of Service. |
7.1 Option Exercisability. The Option shall terminate immediately upon the Participant’s termination of Service to the extent that it is then unvested and shall be exercisable after the Participant’s termination of Service to the extent it is then vested only during the applicable time period as determined below and thereafter shall terminate.
(a) Disability. If the Participant’s Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date. Notwithstanding the foregoing, if the Participant’s Service terminates because of the Disability of the Participant after the Participant achieves Retirement Eligibility, the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the Option Expiration Date.
(b) Death. If the Participant’s Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date. Notwithstanding the foregoing, (i) if the Participant dies during the three-month period provided by Section 7.1(e) or during the twelve-month period provided by Section 7.1(b), the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the expiration of twelve (12) months after the date of the Participant’s death, but in any event no later than the Option Expiration Date; or (ii) if the Participant’s Service terminates because of the death of the Participant after the Participant achieves Retirement Eligibility, the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the Participant’s Service terminated, may be exercised by the Participant’s legal representative or other person who acquired the right to exercise the Option by reason of the Participant’s death at any time prior to the Option Expiration Date.
(c) Termination for Cause. Notwithstanding any other provision of this Option Agreement to the contrary, if the Participant’s Service is terminated for Cause or if, following the Participant’s termination of Service and during any period in which the Option otherwise would remain exercisable, the Participant engages in any act that would constitute Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service or act.
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(d) Other Termination of Service. If the Participant’s Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for Vested Shares by the Participant on the date on which the Participant’s Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months after the date on which the Participant’s Service terminated, but in any event no later than the Option Expiration Date.
7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing, other than termination of the Participant’s Service for Cause, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until the later of (a) thirty (30) days after the date such exercise first would no longer be prevented by such provisions, or (b) the end of the applicable time period under Section 7.1, but in any event no later than the Option Expiration Date.
| 8. | Effect of Change in Control. |
In the event of a Change in Control, except to the extent that the Committee determines to cash out the Option in accordance with Section 13.1(c) of the Plan, the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of the Participant, assume or continue in full force and effect the Company’s rights and obligations under all or any portion of the Option or substitute for all or any portion of the Option a substantially equivalent option for the Acquiror’s stock. For purposes of this Section, the Option or any portion thereof shall be deemed assumed if, following the Change in Control, the Option confers the right to receive, subject to the terms and conditions of the Plan and this Option Agreement, for each share of Stock subject to such portion of the Option immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise of the Option, for each share of Stock subject to the Option, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. The Option shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control to the extent that the Option is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised as of the time of the Change in Control.
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| 9. | Adjustments for Changes in Capital Structure. |
Subject to any required action by the stockholders of the Company and the requirements of Sections 409A and 424 of the Code to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number, Exercise Price and kind of shares subject to the Option, in order to prevent dilution or enlargement of the Participant’s rights under the Option. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number and the Exercise Price shall be rounded up to the nearest whole cent. In no event may the Exercise Price be decreased to an amount less than the par value, if any, of the Stock subject to the Option. The Committee in its sole discretion, may also make such adjustments in the terms of the Option to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate. All adjustments pursuant to this Section shall be determined by the Committee, and its determination shall be final, binding and conclusive.
| 10. | Rights as a Stockholder, Director, Employee or Consultant. |
The Participant shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date the shares are issued, except as provided in Section 9. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participant’s employment is “at will” and is for no specified term. Nothing in this Option Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participant’s Service as a Director, an Employee or Consultant, as the case may be, at any time.
| 11. | Notice of Sales Upon Disqualifying Disposition. |
The Participant shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, if the Notice of Grant designates this Option as an Incentive Stock Option, the Participant shall (a) promptly notify the Chief Financial Officer of the Company if the Participant disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Participant exercises all or part of the Option or within two (2) years after the Date of Grant and (b) provide the Company with a description of the circumstances of such disposition. Until such time as the Participant disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Participant shall hold all shares acquired pursuant to the Option in the Participant’s name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company’s Stock to notify the Company of any such transfers. The obligation of the Participant to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence.
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| 12. | Legends. |
The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of Stock subject to the provisions of this Option Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (“ISO”). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO [INSERT DISQUALIFYING DISPOSITION DATE HERE]. SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.
| 13. | Miscellaneous Provisions. |
13.1 Termination or Amendment. The Committee may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such termination or amendment may have a materially adverse effect on the Option or any unexercised portion hereof without the consent of the Participant unless such termination or amendment is necessary to comply with any applicable law or government regulation. No amendment or addition to this Option Agreement shall be effective unless in writing.
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13.2 Further Instruments. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Option Agreement.
13.3 Binding Effect. This Option Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participant’s heirs, executors, administrators, successors and assigns.
13.4 Delivery of Documents and Notices. Any document relating to participation in the Plan or any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address of such party set forth in the Notice of Grant or at such other address as such party may designate in writing from time to time to the other party.
(a) Description of Electronic Delivery. The Plan documents, which may include but do not necessarily include: the Plan, the Notice of Grant, this Option Agreement, the Plan Prospectus, and any reports of the Company provided generally to the Company’s stockholders, may be delivered to the Participant electronically. In addition, if permitted by the Company, the Participant may deliver electronically the Notice of Grant and Exercise Notice called for by Section 4.2 to the Company or to such third party involved in administering the Plan as the Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company.
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has read Section 13.4(a) of this Option Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the Company, the delivery of the Notice of Grant and Exercise Notice, as described in Section 13.4(a). The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 13.4(a) or may change the electronic mail address to which such documents are to be delivered (if the Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 13.4(a).
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13.5 Integrated Agreement. The Notice of Grant, this Option Agreement and the Plan, together with the Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein and supersede any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter. To the extent contemplated herein, the provisions of the Notice of Grant, the Option Agreement and the Plan shall survive any exercise of the Option and shall remain in full force and effect.
13.6 Applicable Law. This Option Agreement shall be governed by the laws of the State of Nevada as such laws are applied to agreements between Nevada residents entered into and to be performed entirely within the State of Nevada.
13.7 Counterparts. The Notice of Grant may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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Exhibit 10.5 – Form of Indemnification Agreement
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (this “Agreement”) is entered into, effective as of [Insert Date], by and between Greenwood Hall, Inc., a Nevada corporation (the “Company”), and [Insert Name of Director or Officer] (“Indemnitee”).
WHEREAS, it is essential to the Company to retain and attract qualified directors and officers;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims currently being asserted against directors and officers of public companies;
WHEREAS, the amended and restated articles of incorporation of the Company (the “Articles of Incorporation”) and the bylaws of the Company (the “Bylaws”) permit the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted under Nevada law;
WHEREAS, Indemnitee agreed to serve as a director and/or officer of the Company in part in reliance on the Articles of Incorporation and Bylaws;
WHEREAS, in recognition of Indemnitee’s need for (i) substantial protection against personal liability based on Indemnitee’s reliance on the Articles of Incorporation and Bylaws, (ii) specific contractual assurance that the protection promised by the Articles of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Articles of Incorporation and Bylaws or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), and (iii) an inducement to provide effective services to the Company as a director and/or officer, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted under Nevada law and as set forth in this Agreement, and, to the extent insurance is maintained by the Company, to provide for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies; and
WHEREAS, Indemnitee is relying upon the rights afforded under this Agreement in accepting Indemnitee’s position as a director and/or officer of the Company.
NOW, THEREFORE, in consideration of the premises and covenants contained herein and of Indemnitee agreeing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties agree as follows:
1. Certain Definitions:
(a) Affiliate: any corporation or other person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
(b) Change in Control: shall be deemed to have occurred if: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than (1) a trustee or other fiduciary holding securities under an employee benefit plan of the Company), (2) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (3) any person holding shares of the Company on the date that the Company first registers under the Securities Act of 1933, as amended, or any transferee of such individual if such transferee is a spouse or lineal descendant of the transferee or a trust for the benefit of the individual, his spouse or lineal descendants, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the total voting power represented by the Company’s then outstanding Voting Securities; (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (iii) the Company’s stockholders approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) a majority of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (iv) one or more of the Company’s stockholders agree to directly sell Voting Securities to a “person” (as such term is used in Section 13(d) and 14(d) of the Exchange Act), who before such sale held Voting Securities representing less than a majority of the total voting power represented by all of the outstanding Voting Securities of the Company, and who after such sale will hold Voting Securities representing a majority of the total voting power represented by all of the outstanding Voting Securities of the Company; or (v) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.
(c) Expenses: without limitation, any expense, liability, or loss, including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, any federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, and all other costs and obligations, paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, including without limitation any of the Company’s Affiliates, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by Indemnitee in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company, as described above.
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(e) Independent Counsel: except as provided in Section 3 (in the event of a Change in Control), independent legal counsel who has not otherwise performed services for the Company or Indemnitee (other than in connection with indemnification matters) within the last five (5) years. Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
(f) Proceeding: any threatened, pending, or completed action, suit, alternative dispute mechanism, or proceeding (including an action by or in the right of the Company), and any appeal thereof or any inquiry, hearing, or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other.
(g) Reviewing Party: except as provided in Section 3 (in the event of a Change in Control), the Reviewing Party must (i) be a majority of a quorum of the Board consisting of directors who are not parties to the Proceeding, (ii) if a majority of a quorum of the Board consisting of directors who are not parties to the Proceeding so orders, be Independent Counsel, whom shall provide a written opinion, or (iii) if a quorum of the Board consisting of directors who are not parties to the Proceeding cannot be obtained, be Independent Counsel, whom shall provide a written opinion.
(h) Voting Securities: any securities of the Company that vote generally in the election of directors.
2. Agreement to Indemnify.
(a) General Agreement. In the event Indemnitee was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses to the fullest extent permitted by law, as the same exists or may hereafter be amended or interpreted (but in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the Company to provide broader indemnification rights than were permitted prior thereto). The parties hereto intend that this Agreement shall provide for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Articles of Incorporation, the Bylaws, vote of the Company’s stockholders or disinterested directors, or applicable law. The Company shall provide indemnification pursuant to this Section 2(a) as soon as practicable, but in no event later than thirty (30) days after it receives written demand from Indemnitee. By written notice to Indemnitee, the thirty (30) day period may be extended for a reasonable time, not to exceed fifteen (15) days if the Reviewing Party making the determination requires additional time for obtaining or evaluating documents or information.
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(b) Initiation of Proceeding. Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless (i) the Company has joined in or the Board has consented to the initiation of such Proceeding; (ii) the Proceeding is one to enforce indemnification rights under Section 4(b); or (iii) the Proceeding is instituted after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) and Independent Counsel has approved its initiation.
(c) Expense Advances. If so requested by Indemnitee, the Company shall advance (within ten (10) business days of such request) any and all Expenses to Indemnitee (an “Expense Advance”); provided that (i) such an Expense Advance shall be made only upon delivery to the Company of an undertaking by or on behalf of Indemnitee to repay the amount thereof if it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, and (ii) if and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid. If Indemnitee has commenced or commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, as provided in Section 4, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding, and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have lapsed). Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon.
(d) Mandatory Indemnification. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.
(e) Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification pursuant to this Agreement shall be paid by the Company on account of any Proceeding in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state, or local laws.
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3. Change in Control. After a Change in Control, Independent Counsel, as selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld) shall become the Reviewing Party. With respect to all matters arising after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under applicable law or the Articles of Incorporation or Bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, the Company shall seek legal advice only from Independent Counsel. Independent Counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee should be permitted to be indemnified under applicable law.
If there has not been a Change in Control, the Reviewing Party shall be selected as set forth in Section 1(g).
Whether Independent Counsel is appointed by the Board in accordance with Section 1(g) or is appointed in circumstances involving a Change in Control in accordance with this Section 3, the Company agrees to pay the reasonable fees of Independent Counsel and to indemnify fully Independent Counsel against any and all expenses (including attorneys’ fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the engagement of Independent Counsel pursuant hereto.
4. Indemnification Process and Appeal.
(a) Indemnification Payment. Indemnitee shall be entitled to indemnification of Expenses and shall receive payment thereof, from the Company in accordance with this Agreement as soon as practicable after Indemnitee has made written demand on the Company for indemnification, unless the Reviewing Party has given a written opinion to the Company that Indemnitee is not entitled to indemnification under applicable law.
(b) Suit to Enforce Rights. Regardless of any action by the Reviewing Party, if Indemnitee has not received full indemnification within thirty (30) days after making a demand in accordance with Section 4(a), Indemnitee shall have the right to enforce its indemnification rights under this Agreement by commencing litigation in any court in the State of Nevada having subject matter jurisdiction thereof seeking an initial determination by the court or challenging any determination by the Reviewing Party or any aspect thereof. The Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party not challenged by Indemnitee shall be otherwise conclusive and binding on the Company and Indemnitee. The remedy provided for in this Section 4 shall be in addition to any other remedies available to Indemnitee at law or in equity.
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(c) Defense to Indemnification, Burden of Proof, and Presumptions. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense or determination shall be on the Company. Neither the failure of the Reviewing Party or the Company (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action by Indemnitee that indemnification of the claimant is proper under the circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor an actual determination by the Reviewing Party or Company (including its Board, independent legal counsel, or its stockholders) that Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, the termination of any claim, action, suit, or proceeding, by judgment, order, settlement (whether with or without court approval), conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.
5. Indemnification for Expenses Incurred in Enforcing Rights. The Company shall indemnify Indemnitee against any and all Expenses that are incurred by Indemnitee in connection with any action brought by Indemnitee for:
(i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under applicable law or the Articles of Incorporation or Bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events; and/or
(ii) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, but only in the event that Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. In addition, the Company shall, if so requested by Indemnitee, advance the foregoing Expenses to Indemnitee, subject to and in accordance with Section 2(c).
6. Notification and Defense of Proceeding.
(a) Notice. Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee, except as provided in Section 6(c).
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(b) Defense. With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof, the Company will be entitled to participate in the Proceeding at its own expense and except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any Proceeding, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ legal counsel in such Proceeding, but all Expenses related thereto incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s expense unless: (i) the employment of legal counsel by Indemnitee has been authorized by the Company; (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of the Proceeding; (iii) after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the employment of counsel by Indemnitee has been approved by Independent Counsel; or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases all Expenses of the Proceeding shall be borne by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the determination provided for in (ii), (iii) and (iv) above.
(c) Settlement of Claims. The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent, such consent not to be unreasonably withheld; provided, however, that if a Change in Control has occurred (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if Independent Counsel has approved the settlement. The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. The Company shall not be liable to indemnify Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; the Company’s liability hereunder shall not be excused if participation in the Proceeding by the Company was barred by this Agreement.
7. Establishment of Trust. In the event of a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) the Company shall, upon written request by Indemnitee, create a Trust for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in, and/or defending any Proceeding relating to an Indemnifiable Event. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by Independent Counsel. The terms of the Trust shall provide that (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of Indemnitee, (ii) the Trustee shall advance, within ten (10) business days of a request by Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the same circumstances for which Indemnitee would be required to reimburse the Company under Section 2(c) of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by Independent Counsel or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its obligations under this Agreement. All income earned on the assets held in the Trust shall be reported as income by the Company for federal, state, local, and foreign tax purposes. The Company shall pay all costs of establishing and maintaining the Trust and shall indemnify the Trustee against any and all expenses (including attorneys’ fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the establishment and maintenance of the Trust.
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8. Non-Exclusivity. The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Articles of Incorporation, Bylaws, applicable law, or otherwise; provided, however, that this Agreement shall supersede any prior indemnification agreement between the Company and Indemnitee. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification than would be afforded currently under the Articles of Incorporation, Bylaws, applicable law, or this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change.
9. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing general and/or directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.
10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any Affiliate of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors, or personal or legal representatives after the expiration of two (2) years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances. Any claim or cause of action of the Company or its Affiliate shall be extinguished and deemed released unless asserted by the timely filing and notice of a legal action within such period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, the shorter period shall govern.
11. Amendment of this Agreement. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.
12. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder.
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13. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable Event even though he may have ceased to serve in such capacity at the time of any Proceeding.
14. Severability. If any provision (or portion thereof) of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void, or otherwise unenforceable, that is not itself invalid, void, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, void, or unenforceable.
15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Nevada applicable to contracts made and to be performed in such State without giving effect to its principles of conflicts of laws.
16. Notices. All notices, demands, and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and addressed to the Company at:
Greenwood Hall, Inc.
1936 East Deere Avenue, Suite 120
Santa Ana, CA 92705
Attention: Chief Executive Officer
and to Indemnitee at:
[Insert Indemnitee’s Address]
Notice of change of address shall be effective only when given in accordance with this Section 16. All notices complying with this Section 16 shall be deemed to have been received on the date of hand delivery or on the third business day after mailing.
17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterpart signature pages to this Agreement may be delivered by facsimile or electronic delivery (i.e., by email of a PDF signature page) and each such counterpart signature page will constitute an original for all purposes.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day specified above.
| GREENWOOD HALL, INC., | ||
| a Nevada corporation: | ||
| By: | ||
| Name: | ||
| Title: | ||
| INDEMNITEE: | ||
| [Print Indemnitee’s Name] | ||
[Signature Page to Indemnification Agreement]
Exhibit 10.6 Business Loan Agreement with California United Bank
Exhibit 10.6 BUSINESS LOAN AGREEMENT with California United Bank
| Borrower: | PCS
LINK, INC. |
Lender: |
CALIFORNIA UNITED BANK
|
THIS BUSINESS LOAN AGREEMENT dated October 21, 2010, is made and executed between PCS LINK, INC. (“Borrower”) and CALIFORNIA UNITED BANK (“Lender”) on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of October 21, 2010, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.
ADVANCE AUTHORITY. The following person or persons are authorized, except as provided in this paragraph, to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender’s address shown above, written notice of revocation of such authority: JOHN R. HALL III, CHIEF EXECUTIVE OFFICER OR ZANTINE GREENWOOD, CHIEF OPERATING OFFICER. Each Advance under the line of credit must be requested by 12:00 PM Pacific Standard Time, subject to a minimum Advance of $1,000.00 with subsequent Advances in increments of at least $1,000.00.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the Initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender’s satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender’s Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.
Borrower’s Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of California. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duty qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 1936 E DEERE AVE STE 120, SANTA ANA, CA 92705-5732. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower’s state of organization or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower’s business activities.
| BUSINESS LOAN AGREEMENT | ||
| Loan No. 010800807 | (Continued) | Page 2 |
Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business:
|
Borrower |
Assumed Business Name | Filing Location | Date | |||
| PCS LINK, INC. | GREENWOOD & HALL | ORANGE COUNTY | 07-02-2008 |
Authorization. Borrower’s execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower’s articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower’s properties.
Financial Information. Each of Borrower’s financial statements supplied to Lender truly and completely disclosed Borrower’s financial condition as of the date of the statement, and there has been no material adverse change in Borrower’s financial condition subsequent to the date at the most recent financial statement supplied to Lender, Borrower has no material contingent obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower’s financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower’s properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower’s properties are titled in Borrower’s legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower’s ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower’s expense and for Lender’s purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower’s due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender’s acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely effect Borrower’s financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower’s knowledge, all of Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower’s Loan and Note, that would be prior or that may in any way be superior to Lender’s Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.
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| Loan No. 010800807 | (Continued) | Page 3 |
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower’s financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower’s books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
Annual Statements. As soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower’s balance sheet and income statement for the year ended, reviewed by a certified public accountant satisfactory to Lender.
Interim Statements. As soon as available, but in no event later than sixty (60) days after the end of each fiscal quarter, Borrower’s balance sheet and profit and loss statement for the period ended, prepared by Borrower.
Tax Returns. As soon as available, but in no event later than thirty (30) days after the applicable filing date for the tax reporting period ended, Federal and other governmental tax returns, prepared by Borrower.
Additional Requirements. Accounts Receivable and Accounts Payable Aging Reports. As soon as available, but in no event later than sixty (60) days after the end of each fiscal quarter, (a) a current detailed aging, by total and by customer, of Borrower’s accounts receivable, and (b) a current detailed aging, by total and by vendor, of Borrower’s accounts payable, both of which shall be set forth in a form and shall contain such information as is acceptable to Lender.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and ratios:
Additional Requirements. Current Ratio. Borrower shall maintain a Current Ratio (defined as total current assets divided by total current liabilities) of not less than 1.00 to 1.00, to be determined as of the end of each fiscal quarter.
Ratio of Total Debt to Effective Tangible Net Worth. Borrower shall maintain a Ratio of Total Debt to Effective Tangible Net Worth (defined as the sum of current liabilities and non-current liabilities divided by Effective Tangible Net Worth) of not more than 2.50 to 1.00, to be determined as of the end of each fiscal quarter. For purposes of calculating the above ratio, Effective Tangible Net Worth is defined as the aggregate net worth, less intangible assets, less investments in affiliates, and less any amount due from employees, shareholders, officers, guarantors and affiliates of Borrower, shareholders, officers, or guarantors.
Debt Service Coverage Ratio. Borrower shall maintain a Debt Service Coverage Ratio (defined as earnings before interest, taxes, depreciation and amortization [“EBITDA”] minus distributions divided by the sum of aggregate current portion of long-term debt plus interest expense) of not less than 1.25 to 1.00, to be determined as of the end of each fiscal quarter.
Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower’s properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender’s loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantors named below, on Lender’s forms, and in the amounts and under the conditions set forth in those guaranties.
| BUSINESS LOAN AGREEMENT | ||
| Loan No. 010800807 | (Continued) | Page 4 |
| Names of Guarantors | Amounts | |
| JOHN R. HALL III | Unlimited | |
| ZANTINE GREENWOOD | Unlimited | |
| HALL 2007 FAMILY TRUST | Unlimited |
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower’s business operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower’s books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.
Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.
Environmental Studies. Promptly conduct and complete, at Borrower’s expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in affect, of all governmental authorities applicable to the conduct of Borrower’s properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.
Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower’s other properties and to examine or audit Borrower’s books, accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower’s expense.
Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower’s part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy at any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower’s part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
Required Deposit Accounts. Maintain its principal deposit relationship with Lender, including but not limited to a demand deposit account.
Guarantor’s Financial Statements. Borrower shall cause each Guarantor to furnish Lender with the following: (A) Financial Statements. As soon as available, but in no event later than ninety (90) days prior to the maturity date of the line of credit or if the Indebtedness is renewed or extended no later than such other date as specified by Lender in writing (but in any case no more frequently than annually, providing there has been no Event of Default under the Loan), a copy of each Guarantor’s current financial statements, together with a copy of each such Guarantor’s bank account statements and brokerage statements, which shall present fairly and thoroughly the financial condition of each such Guarantor as of the date shown on the statements. (B) Tax Returns. As soon as available, but in no event later than thirty (30) days after the applicable filing date for the tax reporting period ended, a copy of each Guarantor’s federal tax returns and any amendments thereto, together with a copy of Schedule K-1 statements. Notwithstanding anything to the contrary under this Agreement, the financial reports of each Guarantor required to be furnished to Lender need not be prepared in accordance with GAAP and shall be certified by each such Guarantor as being true and correct.
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| Loan No. 010800807 | (Continued) | Page 5 |
Right to Audit and Inspect. Permit Lender to conduct an audit of books and records of Borrower (including books and records maintained with any third party), business operations and inventory and to check and test the same as to quality, quantity, value and condition, as Lender may reasonably require, at intervals to be determined by Lender. Borrower shall pay all audit fees, costs and expenses incurred by Lender in connection with each audit and the amount charged shall be deemed included in the “Indebtedness” when incurred. Lender will debit the account of Borrower for such audit charges.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (A) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (B) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (C) reduce the rate of return on Lender’s capital as a consequence of Lender’s obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender’s written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error.
LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower’s failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable al the Note’s maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and Indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower’s assets (except as allowed as permitted Liens), or (3) sell with recourse any of Borrower’s accounts, except to Lender.
Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower’s stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a “Subchapter S Corporation” (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower’s stock, or purchase or retire any of Borrower’s outstanding shares or alter or amend Borrower’s capital structure.
Loans, Acquisitions and Guaranties. (1) Loan. Invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.
Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower’s obligations under this Agreement or in connection herewith.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, flies a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor’s guaranty of the Loan or any other loan with Lender.
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| Loan No. 010800807 | (Continued) | Page 6 |
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Defaults. Borrower falls to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor or any other creditor or person that may materially affect any of Borrower’s or any Grantor’s property or Borrower’s or any Grantor’s ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower’s existence as a going business, the Insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or Insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (Including failure of any collateral document to create a valid and perfected security interest or lien) at anytime and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by Judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes Incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
Change in Ownership. Any Change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.
Right to Cure. If any default, other than a default on indebtedness, is curable and If Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after Lender sends written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately Initiate steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.
Adverse Change in Guarantor’s Financial Condition. A material adverse change occurs in Guarantor’s financial condition, or Lender believes the prospect of payment or performance of the Guaranty is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this is Agreement or the Related Documents or any other agreement Immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender’s option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the “insolvency” subsection above, such acceleration shall be automatic and not optional. in addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise, Except as may be prohibited by applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender’s right to declare a default and to exercise its rights and remedies.
IMAGING. Lender may create microfilms or optical disks or other electronic Images of this Agreement and any Related Documents that are authoritative copies as defined in applicable law relating to electronic transactions. Lender may store the authoritative copies of such Agreement end any Related Documents in their electronic forms and then destroy the paper originals as part of Lender’s normal business practices. Lender may control and transfer such authoritative copies as permitted by such law.
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| Loan No. 010800807 | (Continued) | Page 7 |
TERMINATION AND ACCELERATION OF THIS CREDIT FACILITY UPON TERMINATION OR ACCELERATION OF ANY OTHER CREDIT FACILITY. Borrower (which, as used in this paragraph, means each Borrower if more than one) hereby acknowledges that Lender may have extended or may hereafter extend other credit facilities to Borrower or any Guarantor (hereinafter collectively referred to as “Other Credit Facilities”) which are or will be evidenced, secured and guaranteed by certain loan agreements, letter of credit agreements, promissory notes, security agreements, deeds of trust, guaranties and other similar or related agreements (hereinafter collectively referred to as “Other Loan Documents”). Notwithstanding anything to the contrary in this Agreement, any other documents or agreements from time to time evidencing, securing, guaranteeing or otherwise relating to the credit facility provided hereunder (hereinafter, together with this Agreement, collectively referred to as the “Loan Documents”) or the Other Loan Documents, Borrower hereby agrees that if at any time any of the Other Credit Facilities is for any reason terminated, repaid in full, refinanced or accelerated, then (a) Lender’s obligation or commitment, if any, to extend any further additional credit hereunder shall immediately terminate, without notice, and (b) all Indebtedness (including all outstanding principal, interest, fees, coats and expenses) of Borrower to Lender under this Agreement and the other Loan Documents shall become immediately due and payable without notice and Borrower agrees to immediately repay to Lender all such Indebtedness and to cash-collateralize (the “Cash Collateral”) any outstanding letters of credit issued by Lender for the account of Borrower hereunder. Borrower hereby agrees to deposit such Cash Collateral in a suspense account held by Lender or another financial institution selected by Lender. Borrower hereby grants to Lender a security interest in such Cash Collateral and all other funds in such suspense account from time to time. Borrower hereby authorizes Lender to use the Cash Collateral and such other funds to reimburse it for any amounts drawn under or otherwise due with respect to any letters of credit issued and outstanding hereunder. Failure by Borrower to comply with the provisions set forth above shall constitute an Event of Default under this Agreement and shall entitle Lender to exercise any and all rights and remedies available to it.
TERMINATION AND ACCELERATION OF THE LOANS UPON TERMINATION OF ANY PRINCIPAL DEPOSIT ACCOUNTS. Borrower agrees that If at any time any of the principal deposit accounts with Lender is for any reason terminated, then (a) Lender’s obligation or commitment, if any, to extend any further or additional credit hereunder shall immediately terminate, without notice, end (b) all Indebtedness (including all outstanding principal, interest, fees, costs and expenses) of Borrower to Lender under this Agreement and the Related Documents shall become immediately due and payable without notice and Borrower agrees to immediately repay to Lender all such indebtedness. Failure by Borrower to comply with the provisions set forth above shall constitute an Event of Default under this Agreement and shall entitle Lender to exercise any and all rights and remedies available to it.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Arbitration. Lender and Borrower agree that ell disputes, claims and controversies between them whether individual, joint) or class in nature, arising from this Agreement or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the financial services rules of J.A.M.S. or its successor in effect at the time the claim is filed, upon request of either party. No act to take or dispose of any Collateral shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This Includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without Judicial process pursuant Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any Collateral, including any claim to rescind, reform, or otherwise modify any agreement relating to the Collateral, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Borrower and Lander agree that in the event of an action for judicial foreclosure pursuant to California Code of Civil Procedure Section 726, or any similar provision in any other state, the commencement of such an action will not constitute a waiver of the right to arbitrate and the court shall refer to arbitration as much of such action, including counterclaims, as lawfully may be referred to arbitration. Judgment upon any award rendered by any arbitrator may be entered in any court having Jurisdiction. Nothing in this Agreement shall preclude any party from seeking equitable relief from a court of competent Jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any Arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision.
Attorneys’ Fees; Expenses. Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expanses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs end expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, Including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services, Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
| BUSINESS LOAN AGREEMENT | ||
| Loan No. 010800807 | (Continued) | Page 8 |
Consent to Loan Participation. Borrower agrees and consents to Lender’s sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any Information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests, Borrower also agrees that the purchasers of any such participation Interests will be considered as the absolute owners of such Interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the Bale of such participation Interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation Interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower’s obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation Interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of California.
Choice of Venue. If there is a lawsuit. Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of LOS ANGELES County, State of California.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender’s rights or of any of Borrower’s or any Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mall postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as lo any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement, unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of tills Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word “Borrower” as used in this Agreement shall include all of Borrower’s subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower’s subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower’s successors and assigns and shall inure to the benefit of Lender and its successors and assigns, Borrower shall not, however, have the right to assign Borrower’s rights under this Agreement or any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower’s Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
Waive Jury. To the extent permitted by applicable law, all parties to this Agreement hereby waive the right to any Jury trial in any action, proceeding, or counterclaim brought by any party against any other party.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:
| BUSINESS LOAN AGREEMENT | ||
| Loan No. 010800807 | (Continued) | Page 9 |
Advance. The word “Advance” means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower’s behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word “Agreement” means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
Borrower. The word “Borrower” means PCS LINK, INC. and includes all co-signers end co-makers signing the Note and all their successors and assigns.
Collateral. The word “Collateral” means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment Intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Environmental Laws. The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments arid Reauthorization Act of 1986, Pub. L. No, 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP. The word “GAAP” means generally accepted accounting principles.
Grantor. The word “Grantor” means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.
Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Loan.
Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.
Hazardous Substances. The words “Hazardous Substances” means materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.
Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.
Lender. The word “Lender” means CALIFORNIA UNITED BANK, its successors and assigns.
Loan. The word “Loan” means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.
Note. The word “Note” means Borrower’s promissory notes or credit agreements, if any, evidencing Borrower’s Indebtedness to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory notes or credit agreements-
Permitted Liens. The words “Permitted Liens” mean (1) liens and security Interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either net yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money Hens or purchase money security Interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure Indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled “Indebtedness and Liens”; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower’s assets.
Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.
| BUSINESS LOAN AGREEMENT | ||
| Loan No. 010800807 | (Continued) | Page 10 |
Security Agreement. The words “Security Agreement” mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED OCTOBER 21, 2010.
| BORROWER: | ||||
| PCS LINK, INC. | ||||
| By: | /S/ John R. Hall | By: | /S/Zantine Greenwood | |
| John R. HALL III, CHIEF EXECUTIVE OFFICER of PCS LINK, INC. | ZANTINE GREENWOOD, CHIEF OPERATING OFFICER of PCS LINK, INC. | |||
| LENDER: | ||||
| CALIFORNIA UNITED BANK | ||||
| By: | /S/Stephanie A. Juneau | |||
| STEPHANIE A. JUNEAU, VICE PRESIDENT | ||||
AMENDMENT NUMBER ONE
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER ONE TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of September 16, 2011, is entered into between PCS LINK, INC., a California corporation, and CALIFORNIA UNITED BANK, a California banking corporation, (“Lender”), in light of the following facts:
RECITALS
WHEREAS, Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, (the “Agreement”).
WHEREAS, Borrower and Lender have agreed to amend certain terms and conditions of the Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and is incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENTS. The Agreement is amended as follows: |
| (a) | Change in Requirements Regarding Financial Covenants and Ratios. The requirements regarding Financial Covenants and Ratios are deleted in their entireties and are replaced with new requirements as follows: |
Financial Covenants and Ratios. Comply with the following covenants and ratios:
Current Ratio. Borrower shall maintain a Current Ratio (defined as total current assets divided by total current liabilities) of not less than 1.00 to 1.00, to be determined as of the end of each fiscal year.
Ratio of Total Debt to Effective Tangible Net Worth. Borrower shall maintain a Ratio of Total Debt to Effective Tangible Net Worth defined as the sum of current liabilities and non-current liabilities divided by Effective Tangible Net Worth) of not more than 3.25 to 1.00, to be determined as of the end of each fiscal year. For purposes of calculating the above ratio, Effective Tangible Net Worth is defined as the aggregate net worth, less intangible assets, less investments in affiliates, and less any amount due from employees, shareholders, officers, guarantors and affiliates of Borrower, shareholders, officers, or guarantors.
Debt Service Coverage Ratio. Borrower shall maintain a Debt Service Coverage Ratio (defined as Borrower’s earnings, before interest, taxes, depreciation, and amortization [“EBITDA”] minus distributions divided by the sum of Borrower’s aggregate current portion of long-term debt plus interest expense) of 1.00 to 1.00 as of fiscal quarter ending December 31, 2011 and each and every fiscal quarter thereafter.
Profitability. Borrower shall generate a net profit after tax from operations of not less than $1.00 at the end of each fiscal year.
Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copy of this Amendment. |
| 5. | LIMITED EFFECT. Except for the specific amendment contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 6. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
| 7. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment.
| BORROWER: | ||
| PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| By: | /S/ Zantine Greenwood | |
| Zantine Greenwood, Chief Operating Officer | ||
| 2 |
| LENDER: | ||
| California United Bank | ||
| By: | /S/ Daniel M. Palmquist | |
| Daniel M. Palmquist, Senior Vice President | ||
| 3 |
THIS AMENDMENT NUMBER
TWO TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER TWO TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of November 7, 2011, is entered into between PCS Link, Inc, a California corporation, and California United Bank, a California banking corporation, (“Lender”), in light of the following facts:
RECITALS
WHEREAS, Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by that certain Amended Number One to Business Loan Agreement, dated as of September 16, 2011, (collectively, the “Agreement”).
WHEREAS, Borrower and Lender have agreed to amend certain terms and conditions of the Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and is incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENTS. The Agreement is amended as follows: |
| (a) | Change in Requirements Regarding Interim Statements and Accounts Receivable and Accounts Payable Aging Reports. The requirements regarding Interim Statements and Accounts Receivable and Accounts Payable Aging Reports are deleted in their entireties and are replaced with new requirements as follows: |
Interim Statements. As soon as available, but in no event later than twenty (20) days after the end of each month, Borrower’s balance sheet and income statement for the period ended, prepared by Borrower.
Accounts Receivable and Accounts Payable Aging Reports. As soon as available, but in no event later than twenty (20) days after the end of each month, (a) a current detailed aging, by total and by customer, of Borrower’s accounts receivable listing both the invoice date and the due date, and (b) a current detailed aging, by total and by vendor, of Borrower’s accounts payable, both of which shall be set forth in a form and shall contain such information as is acceptable to Lender.
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copies of this Amendment, Promissory Note, Acknowledgment of Guarantors and Disbursement Request and Authorization. |
| 5. | LIMITED EFFECT. Except for the specific amendment contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 6. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
| 7. | COUNTERPARTS: EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
[Signature page follows]
| 2 |
IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment. BORROWER:
| BORROWER: | ||
| PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| By: | /S/ Zantine Greenwood | |
| Zantine Greenwood, Chief Operating Officer | ||
| LENDER: | ||
| California United Bank | ||
| By: | /S/ Daniel M. Palmquist | |
| Daniel M. Palmquist, Senior Vice President | ||
AMENDMENT NUMBER THREE
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER THREE TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of February 13, 2012, is entered into between PCS Link, Inc, a California coloration, and California United Bank, a California banking corporation, (“Lender”), in light of the following facts:
RECITALS
WHEREAS, Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by those certain Amended Number One to Business Loan Agreement, dated as of September 16, 2011, and Amended Number Two to Business Loan Agreement, dated as of November 7, 2011, (collectively, the “Agreement”).
WHEREAS, Borrower and Lender have agreed to amend certain terms and conditions of the Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and is incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENTS. The Agreement is amended as follows: |
| (a) | Additional Requirements Regarding Cash Flow Projections. The following requirements regarding Cash Flow Projections is added to the subsection entitled Financial Statements: |
Cash Flow Projections. As soon as available, but in no event later than every Tuesday of each week, commencing February 14, 2012, Borrower’s weekly cash flow projections presented in comparison to actual cash flows.
| (b) | Loan Fee. Borrower agrees that upon the execution of this Amendment, the Note and any Related Documents, Borrower shall be obligated to pay to Lender a loan fee in the amount of $30,000.00. The loan fee shall be payable on the maturity date of the $350,000.00 line of credit; provided, however, that if the balance on the Note is zero and the commitment is canceled on or prior to March 30, 2012 such fee will be reduced to $25,000.00. |
| (c) | Term Sheet or Primitive Agreement. As soon as available, but in no event later than March 5, 2012, Borrower shall furnish Lender with a term sheet of a definitive agreement for a new equity. |
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copies of this Amendment, Promissory Note, Acknowledgment of Guarantors and Disbursement Request and Authorization. |
| 5. | LIMITED EFFECT. Except for the specific amendment contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 6. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
| 7. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
[Signature page follows]
| 2 |
IN WITNESS WHEREOF, Lender and, Borrower have executed this Amendment:
| BORROWER: | ||
| PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| By: | /S/ Zantine Greenwood | |
| Zantine Greenwood, Chief Operating Officer | ||
| LENDER: | ||
| California United Bank | ||
| By: | /S/ Daniel M. Palmquist | |
| Daniel M. Palmquist, Senior Vice President | ||
AMENDMENT NUMBER FOUR
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER FOUR TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of April 30, 2012, is entered into between PCS Link, Inc, a California corporation, and California United Bank, a California banking corporation, (“Lender”), in light of the following facts:
RECITALS
WHEREAS, Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by those certain Amended Number One to Business Loan Agreement, dated as of September 16, 2011, Amended Number Two to Business Loan Agreement, dated as of November 7, 2011, and Amended Number Three to Business Loan Agreement, dated as of February 13, 2012, (collectively, the “Agreement”).
WHEREAS, Borrower and Lender have agreed to amend certain terms and conditions of the Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and is incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENTS. The Agreement is amended as follows: |
| (a) | Loan Fee. Borrower agrees that upon the execution of this Amendment, the Note and any Related Documents, Borrower shall be obligated to pay to Lender a loan fee in the amount of $30,000.00 for overdraft protection revolving line of credit. The loan fee shall be payable in three installments of $10,000.00 on the fifteenth (15th) day of each month, beginning May 15, 2012, by an automatic debit from DDA #80000789. |
| (b) | Term Sheet or Definitive Agreement. As soon as available, but in no event later than May 15, 2012, Borrower shall furnish Lender with a term sheet or a definitive agreement for new equity of not less than $2,000,000.00. |
| (c) | Change in Requirement Regarding “Change in Ownership”. The requirement regarding Change in Ownership under the section entitled EVENT OF DEAFULT in the Agreement and any Related Documents is deleted in its entirety and is replaced with a new requirement as follows: |
Change in Ownership. Any change in ownership of twenty-five percent (25%) percent or more of the common stock of Borrower. Notwithstanding the foregoing, Borrower shall obtain Lender’s approval if any such change in ownership will occur.
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copies of this Amendment, Promissory Note, Acknowledgment of Guarantors, and Disbursement Request and Authorization. |
| 5. | LIMITED EFFECT. Except for the specific amendment contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 6. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
| 7. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
[Signature page follows]
| 2 |
IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment.
| BORROWER: | ||
| PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| By: | /S/ Zantine Greenwood | |
| Zantine Greenwood, Chief Operating Officer | ||
| LENDER: | ||
| California United Bank | ||
| By: | /S/ Leticia F. Hernandez | |
| Leticia F. Hernandez, Vice President | ||
AMENDMENT NUMBER FIVE
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER FOUR TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of September 25, 2012, is entered into between PCS Link, Inc, a California corporation, and California United Bank, a California banking corporation, (“Lender”), in light of the following facts:
RECITALS
WHEREAS, Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by those certain Amended Number One to Business Loan Agreement, dated as of September 16, 2011, and Amended Number Two to Business Loan Agreement, dated as of November 7, 2011, and Amended Number Three to Business Loan Agreement, dated as of February 13, 2012, (collectively, the “Agreement”),
WHEREAS, Borrower and Lender have agreed to amend certain terms and conditions of the Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and is incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENTS. The Agreement is amended as follows: |
| (a) | Change in Requirements Regarding Financial Statements. The subsection entitled Financial Statements is deleted in its entirety and is replaced with a new subsection as follows: |
Annual Statements. As soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower’s balance sheet and profit and loss statement for the year ended, reviewed by a certified public accountant satisfactory to Lender.
Interim Statements. As soon as available, but in no event later than thirty (30) days after the end of each month, Borrower’s balance sheet and income statement for the period ended, prepared by Borrower.
Annual Projections. As soon as available, but in no event later than thirty (30) days after the end of each fiscal year, Borrower’s complete financial projections for the succeeding fiscal year, including but not limited to a balance sheet, an income statement and a statement of cash flows.
Cash Flow Projections. As soon as available, but in no event later than every Wednesday of each week, commencing October 3, 2012, Borrower’s weekly cash flow projections presented in comparison to actual cash flows.
Tax Returns. As soon as available, but in no event later than thirty (30) calendar days after the applicable filing date for the tax reporting period ended, a copy of Borrower’s federal tax returns and any amendments thereto.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
| (b) | Elimination of Requirements Regarding Financial Covenants and Ratios. The subsection entitled Financial Covenants and Ratios is deleted in its entirety and is replaced as new subsection as follows: |
[Intentionally Omitted]
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copies of this Amendment, Promissory Note (2), Acknowledgment of Guarantors and Disbursement Request and Authorization (2). |
| 5. | LIMITED EFFECT. Except for the specific amendment contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 6. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
| 7. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
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IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment.
| BORROWER: | ||
| PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| By: | /S/ Zantine Greenwood | |
| Zantine Greenwood, Chief Operating Officer | ||
| LENDER: | ||
| California United Bank | ||
| By: | /S/ Shirley E. Wentzel | |
| Shirley E. Wentzel, Senior Vice President | ||
| 3 |
AMENDMENT NUMBER SIX
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER SIX TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of December 19, 2012, is entered into between PCS Link, Inc, a California corporation, and California United Bank, a California banking corporation, (“Lender”), in light of the following facts:
RECITALS
WHEREAS, Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by those certain Amendment Number One to Business Loan Agreement, dated as of September 16, 2011, Amendment Number Two to Business Loan Agreement, dated as of November 7, 2011, Amendment Number Three to Business Loan Agreement, dated as of February 13,2012, Amendment Number Four to Business Loan Agreement, dated as of April 30, 2012, and Amendment Number Five to Business Loan Agreement, dated as of September 25, 2012, (collectively, the “Agreement”).
WHEREAS, Borrower and Lender have previously entered into that certain Amendment Number Four to Business Loan Agreement, dated as of September 25, 2012, Such Amendment should have been named as Amendment Number Five to Business Loan Agreement and is hereby referred as such on the first paragraph of these Recitals. Amendment Number Four to Business Loan Agreement, dated as of April 30, 2012 was also omitted per amendment dated as of September 25, 2012 and is also hereby referred on the first paragraph of these Recitals.
WHEREAS, Borrower and Lender have agreed to amend certain terms and conditions of the Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and is incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENT. The Agreement is amended as follows: |
| (a) | Change in Requirements Regarding Financial Statements. The subsection entitled Financial Statements is deleted in its entirety and is replaced with a new subsection as follows: |
Financial Statements. Furnish Lender with the following:
Annual Statements. As soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower’s balance sheet and profit and loss statement for the year ended, reviewed by a certified public accountant satisfactory to Lender.
Interim Statements. As soon as available, but in no event later than twenty (20) days after the end of each month, Borrower’s balance sheet and income statement for the period ended, prepared by Borrower.
Annual Projections. As soon as available, but in no event later than thirty (30) days after the end of each fiscal year, Borrower’s complete financial projections for the succeeding fiscal year, including but not limited to a balance sheet, an income statement and a statement of cash flows.
Fifteen-Week Cash Flow Projections. As soon as available, but in no event later than every Tuesday of each week, commencing January 2, 2013, Borrower’s weekly cash flow projections presented in comparison to actual cash flows.
Accounts Receivable and Accounts Payable Aging Reports. As soon as available, but in no event later than twenty (20) days after the end of each month, (a) a current detailed aging, by total and by customer, of Borrower’s Accounts listing both the invoice date and the due date, and (b) a current detailed aging, by total and by vendor, of Borrower’s accounts payable, both of which shall be set forth in a form and shall contain such information as is acceptable to Lender.
Tax Returns. As soon as available, but in no event later than thirty (30) calendar days after the applicable filing date for the tax reporting period ended, a copy of Borrower’s federal tax returns and any amendments thereto.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copies of this Amendment, Promissory Note, Acknowledgment of Guarantors and Disbursement Request and Authorization. |
| 5. | LIMITED EFFECT. Except for the specific amendment contained in this Amendment, the Agreement shall remain unchanged and in full force and effect |
| 6. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
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| 7. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original, All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment.
| BORROWER: | ||
| PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| By: | /S/ Zantine Greenwood | |
| Zantine Greenwood, Chief Operating Officer | ||
| LENDER: | ||
| California United Bank | ||
| By: | /S/ Leticia F. Hernandez | |
| Leticia F. Hernandez, Vice President | ||
| 3 |
AMENDMENT NUMBER SEVEN
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER SEVEN TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of May 28, 2013, is entered into between PCS Link, Inc, a California corporation, and California United Bank, a California banking corporation, (“Lender”), in light of the following facts:
RECITALS
WHEREAS, Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by those certain Amendment Number One to Business Loan Agreement, dated as of September 16, 2011, Amendment Number Two to Business Loan Agreement, dated as of November 7, 2011, Amendment Number Three to Business Loan Agreement, dated as of February 13, 2012, Amendment Number Four to Business Loan Agreement, dated as of April 30, 2012, Amendment Number Five to Business Loan Agreement, dated as of September 25, 2012, and Amendment Number Six to Business Loan Agreement, dated as of December 19, 2012, (collectively, the “Agreement”).
WHEREAS, Borrower and Lender have agreed to amend certain terms and conditions of the Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and is incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENTS. The Agreement is amended as follows: |
| (a) | Change in Requirements Regarding Financial Statements. The subsection entitled Financial Statements is deleted in its entirety and is replaced with a new subsection as follows: |
Financial Statements. Furnish Lender with the following:
Annual Statements. As soon as available, but in no event later than one hundred twenty (120) days after the end of each fiscal year, Borrower and University Financial Aid Solutions, LLC’s (“UFAS”) consolidated balance sheet and profit and loss statement for the year ended, audited by a certified public accountant satisfactory to Lender.
Interim Statements. As soon as available, but in no event later than thirty (30) days after the end of each quarter, Borrower and UFAS’ consolidated balance sheet and income statement for the period ended, prepared by Borrower.
Annual Projections. As soon as available, but in no event later than sixty (60) days after the end of each fiscal year, Borrower’s complete financial projections for the succeeding fiscal year, including but not limited to a balance sheet, an income statement and a statement of cash flows.
Accounts Receivable and Accounts Payable Aging Reports. As soon as available, but in no event later than thirty (30) days after the end of each quarter, (a) a current detailed aging, by total and by customer, of Borrower’s Accounts listing both the invoice date and the due date, and (b) a current detailed aging, by total and by vendor, of Borrower’s accounts payable, both of which shall be set forth in a form and shall contain such information as is acceptable to Lender.
Tax Returns. As soon as available, but in no event later than thirty (30) calendar days after the applicable filing date for the tax reporting period ended, a copy of Borrower and UFAS’s federal tax returns and any amendments thereto.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
| (b) | Additional Guaranty. The following Guarantor is added to the Guaranties subsection: |
| Name of Guarantor | Amount | |
| UFAS | Unlimited |
UFAS shall furnish executed guaranty of the Loans in favor of Lender, executed by the guarantor named above, on Lender’s form, and in the amount and under the conditions set forth in that guaranty.
| (c) | Loan Fee. Borrower agrees that upon the execution of this Amendment, the Note and any Related Documents, Borrower shall be obligated to pay to Lender a loan fee in the amount of $12,500 for the renewal of the revolving line of credit. The loan fee shall be payable in two (2) installments of $6,250.00 on the execution of this Amendment and any Related Documents and on July 5, 2013, by an automatic debit from DDA #80000789. |
| (d) | Change in Requirements Regarding Right to Audit and Inspect. The subsection entitled Right to Audit and Inspect is deleted in its entirety and is replaced with a new subsection as follows: |
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Right to Audit and Inspect. Permit Lender to conduct an audit of books and records of Borrower (including books and records maintained with any third party), business operations and inventory and to check and test the same as to quality, quantity, value and condition, once a year, commencing June 10, 2013 and annually thereafter, or as Lender may reasonably require, at intervals to be determined by Lender. Borrower shall pay all audit fees, costs and expenses incurred by Lender in connection with each audit and the amount charged shall be deemed included in the “Indebtedness” when incurred. Lender will debit the account of Borrower for such audit charges.
| (e) | Cross Default; Notice of Default. The following provisions are added as follows: |
Cross Default and Notice of Default shall be governed by the following provisions set forth in the Intercreditor Agreement, dated as of March 18, 2013, by and between California United Bank (“CUB”) and TCA Global Credit Master Fund, LP (“TCA”), which states as follows “The Creditors and the Company agree that a default by the Company not cured within any applicable cure period under any of the Creditor Loan Documents shall be a default under all of the Creditor Loan Documents. In that regard: (i) upon the occurrence of a default by the Company not cured within any applicable cure period under the CUB Loan Documents, CUB shall use best efforts to notify TCA in writing of the occurrence of any such default within five (5) business days after the occurrence thereof, or earlier if practicable; and (ii) upon the occurrence of a default by the Company not cured within any applicable cure period under the TCA Loan Documents, TCA shall use best efforts to notify CUB in writing of the occurrence of any such default within five (5) business days after the occurrence thereof, or earlier if practicable.”
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copies of this Amendment, Promissory Note, Limited Liability Company Resolution to Grant Collateral/Guarantee, Commercial Guaranty, Acknowledgment of Guarantors, Commercial Security Agreement, Agreement to Provide Insurance, Notice of Insurance Requirements, Disbursement Request and Authorization, and Notice of Final Agreement. |
| 5. | LIMITED EFFECT. Except for the specific amendment contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 6. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
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| 7. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment.
| BORROWER: | ||
| PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| By: | /S/ Zantine Greenwood | |
| Zantine Greenwood, Chief Operating Officer | ||
| LENDER: | ||
| California United Bank | ||
| By: | /S/ Leticia F. Hernandez | |
| Leticia F. Hernandez, Vice President | ||
| 4 |
AMENDMENT NUMBER EIGHT
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER EIGHT TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as of May 22, 2014, is entered into between PCS Link, Inc, a California corporation (“Borrower”), and California United Bank, a California banking corporation, (“Lender”), with regard to the following facts:
RECITALS
| A. | Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by those certain Amendment Number One to Business Loan Agreement, dated as of September 16, 2011, Amendment Number Two to Business Loan Agreement, dated as of November 7, 2011, Amendment Number Three to Business Loan Agreement, dated as of February 13, 2012, Amendment Number Four to Business Loan Agreement, dated as of April 30, 2012, Amendment Number Five to Business Loan Agreement, dated as of September 25, 2012, Amendment Number Six to Business Loan Agreement, dated as of December 19, 2012, and Amendment Number Seven to Business Loan Agreement, dated as of May 28, 2013 (collectively, the “Agreement”). |
| B. | The September 25, 2012 amendment erroneously titled “Amendment Number Four to Business Loan Agreement” should have been titled “Amendment Number Five to Business Loan Agreement” and is hereby referred to herein as such. |
| C. | Borrower and Lender have agreed to amend certain terms and conditions of the Agreement as described herein, and therefore enter into this Amendment. |
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and are incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENT. The Agreement is amended as follows: |
| (a) | Lender agrees that upon satisfaction of the following conditions, and to the extent provided below, Lender will subordinate its security interest to the lien of a new lender, whether Opus Bank or other lender (“Opus”), conditioned upon the following: |
| (i) | The funding from Opus is not less than Five Million Dollars ($5,000,000.00), which funding shall include a Two Million Dollars ($2,000,000.00) term loan component (the “Opus Term Loan”) which will be funded at the closing on May 22, 2014 and a Three Million Dollars ($3,000,000.00) revolving line of credit component (the “Opus RLOC”) which will not be funded at the original closing on May 22, 2014; |
| (ii) | The Subordination Agreement between Lender and Opus shall provide that Lender retains its security interest in the assets of Borrower, but that such security interest is subordinated to the security interests of Opus; provided, however, that both the Subordination Agreement, and the Credit Agreement entered into by Opus and Borrower, shall provide that there shall be no funding of the Opus RLOC until and unless the Promissory Note in favor of Lender in the sum of Three Hundred Fifty Thousand Dollars ($350,000.00) dated February 8, 2013, as amended, replaced and modified from time to time (the “ODP Note”) and the October 21, 2010 Promissory Note in favor of Lender in the sum of $1,250,000.00, as amended, replaced and modified from time to time (the CUB RLOC”) have been paid in full, or are paid in full by such funding of the Opus RLOC; |
| (iii) | The Opus Term Loan funds shall be applied to pay off Borrower’s obligations and obtain a release of all security interests held by TCA Global Credit Master Fund, LP. |
| 4. | CONDITIONS PRECEDENT. Each of the following is a condition precedent to the effectiveness of this Amendment: |
| (a) | Lender shall have received fully executed original copies of this Amendment, Change in Terms Agreement, Acknowledgment of Guarantors and Disbursement Request and Authorization; and |
| (b) | Lender shall have received all payments to be made by Borrower concurrently with the execution of this Amendment, and concurrently with execution of the Change in Terms Agreement relating to the ODP Note. |
| 5. | LIMITED EFFECT. Except for the specific modifications contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 6. | WAIVER OF PRIOR DEFAULT. Lender and Borrower hereby acknowledge and agree that the Maturity Date of the CUB RLOC and ODP Note occurred on March 5, 2014, at which time all indebtedness thereunder was due and payable (the “Loan Payment Event”). Lender hereby unconditionally waives the Event of Default resulting from the Loan Payment Event. This waiver is not a continuing waiver with respect to any failure by Borrower to perform any obligation under the CUB RLOC or the ODP Note after the date of this Amendment. |
| 7. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
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| 8. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment.
| BORROWER: PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| LENDER: California United Bank | ||
| By: | /S/ Leticia F. Hernandez | |
| Leticia F. Hernandez, Senior Vice President | ||
| 3 |
AMENDMENT NUMBER NINE
TO BUSINESS LOAN
AGREEMENT
THIS AMENDMENT NUMBER NINE TO BUSINESS LOAN AGREEMENT (this “Amendment”), dated as July 2014, is entered into between PCS Link, Inc, a California corporation (“Borrower”), and California United Bank, a California banking corporation, (“Lender”), with regard to the following facts:
RECITALS
| A. | Borrower and Lender have previously entered into that certain Business Loan Agreement, dated as of October 21, 2010, as amended by those certain Amendment Number One to Business Loan Agreement, dated as of September 16, 2011, Amendment Number Two to Business Loan Agreement, dated as of November 7, 2011, Amendment Number Three to Business Loan Agreement, dated as of February 13, 2012, Amendment Number Four to Business Loan Agreement, dated as of April 30, 2012, Amendment Number Five to Business Loan Agreement, dated as of September 25, 2012, Amendment Number Six to Business Loan Agreement, dated as of December 19, 2012, Amendment Number Seven to Business Loan Agreement, dated as of May 28, 2013, and Amendment Number Eight to Business Loan Agreement dated as of May 22, 2014 (collectively, the “Agreement”), The September 25, 2012 amendment erroneously titled “Amendment Number Four to Business Loan Agreement” should have been titled “Amendment Number Five to Business Loan Agreement” and is hereby referred to herein as such. |
| B. | Borrower and Lender have agreed to amend certain terms and conditions of the Agreement as described herein, and therefore enter into this Amendment. |
NOW, THEREFORE, the parties agree as follows:
| 1. | RECITALS. Each of the Recitals set forth above are true and correct and are incorporated by reference and made a part hereof. |
| 2. | DEFINITIONS. All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. |
| 3. | AMENDMENT. The Agreement is amended as follows: |
| (a) | Lender consents to a change in ownership of Borrower as follows: Borrower may be acquired by Divio Holdings Corporation, or a wholly-owned subsidiary (“Divio”) with the owners of Borrower owning not less than sixty percent (60%) of the then outstanding shares of the surviving corporation (Divio to be renamed Greenwood & Hall Inc) immediately following the consummation of the merger; provided however, that such consent is conditioned upon Lender having received payment in full of the Promissory Note in favor of Lender in the sum of Three Hundred Fifty Thousand Dollars ($350,000,00) dated February 8, 2013, as amended, replaced and modified from time to time (the “ODP Note”), including all principal, interest, fees and costs no later than ten business days after the filing of the Form 8-K with the Securities and Exchange Commission following consummation of the merger transaction between Borrower and Divio. |
| 4. | LIMITED EFFECT. Except for the specific modifications contained in this Amendment, the Agreement shall remain unchanged and in full force and effect. |
| 5. | REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lender that all of Borrower’s representations and warranties set forth in the Agreement are true, complete and accurate in all respects as of the date hereof. |
| 6. | COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of this Amendment by each of the parties hereto. |
IN WITNESS WHEREOF, Lender and Borrower have executed this Amendment.
| BORROWER: PCS Link, Inc. | ||
| By: | /S/ John R. Hall | |
| John R. Hall, III, Chief Executive Officer | ||
| LENDER: California United Bank | ||
| By: | /S/ Leticia F. Hernandez | |
| Leticia F. Hernandez, Senior Vice President | ||
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Exhibit 10.7 - Amended and Restated Credit Agreement with Opus Bank
Amended and Restated Credit Agreement
This Amended and Restated Credit Agreement (the “Agreement”) dated as of July 18, 2014, is hereby entered into by and Among Opus Bank (the “Bank”), and its successors and assigns, whose address is 19900 MacArthur Boulevard, Irvine, California 92612, PCS Link, Inc. d/b/a Greenwood & Hall, a California corporation (“Borrower”), whose address is 1936 East Deere Avenue, #120, Santa Ana, California 92705 and Greenwood Hall, Inc., a Nevada corporation (formerly known as Divio Holdings Corp., a Nevada corporation) (“Guarantor” and together with the Borrower, the “Credit Parties”) whose address is 1936 East Deere Avenue, #120, Santa Ana, California 92705.
WITNESSETH:
WHEREAS, the Borrower and the Lender are parties to that certain Credit Agreement dated as of May 28, 2014 (the “Existing Credit Agreement”) pursuant to which, among other things, the Lender agreed to enter, subject to the terms and conditions set forth therein, into a term loan and revolving credit facility; and
WHEREAS, the parties hereto have agreed to amend and restate the Existing Credit Agreement pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows
| 1. | Amendment and Restatement of Existing Credit Agreement. The parties to this Agreement agree that, upon (i) the execution and delivery by each of the parties hereto of this Agreement and (ii) satisfaction of the conditions set forth in Section 4.1, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement. This Agreement is not intended to and shall not constitute a novation. All Loans made and obligations incurred under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as Loans and obligations under (and shall be governed by the terms of) this Agreement and the other Loan Documents. Without limiting the foregoing, upon the effectiveness hereof: (a) all references in the “Loan Documents” (as defined in the Existing Credit Agreement) to the “Agreement” and the “Loan Documents” shall be deemed to refer to this Agreement and the Loan Documents, (c) all obligations constituting “Liabilities” to Bank which are outstanding under the Existing Credit Agreement on the Effective Date shall continue as Liabilities under this Agreement and the other Loan Documents. |
| 2. | Credit Facilities. |
| 2.1 | Scope. This Agreement governs Facility A and Facility B, and, unless otherwise agreed to in writing by the Bank and Borrower or prohibited by applicable law, governs the Credit Facilities. Advances under the Credit Facilities will be subject to the procedures established from time to time by the Bank. Any procedures agreed to by the Bank with respect to obtaining advances including automatic loan sweeps shall not vary the terms or conditions of this Agreement or the Loan Documents regarding the Credit Facilities. |
| 2.2 | Facility A (Term Loan). The Bank agreed to extend credit to Borrower in the form of a term loan in the original principal sum of Two Million Dollars and No Cents ($2,000,000.00) (“Facility A”, or the “Term Loan”). Credit under Facility A shall be evidenced by and repayable as set forth in a promissory note payable to the order of the Bank executed concurrently with this Agreement, and with renewals, modifications or extensions thereof, if any (the “Term Note”). The proceeds of Facility A were used to finance repayment of certain senior indebtedness owing to TCA Global Credit Master Fund, LP (in the amount of $1,880,619.00) and California United Bank (in the amount of $47,214.20). |
The Term Loan is evidenced by and repayable with interest in accordance with the terms of this Agreement and the Term Note. Borrower shall make monthly principal payments of $60,606.06 plus a payment for all accrued and unpaid interest, beginning on August 1, 2014, and continuing monthly thereafter (on the first day of each month) until May 1, 2017, at which time all then remaining accrued principal and interest shall be paid in full. Borrower’s obligations under the Term Loan will be secured by Borrower as provided in Section 7 hereof.
Signature Page to Credit Agreement
| 2.3 | Facility B (Line of Credit). Subject at all times to the terms and limitations set forth herein (including without limitation, Section 4.3 below), the Bank agrees to extend credit to Borrower in the principal sum not to exceed Three Million Dollars and No Cents ($3,000,000.00) in the aggregate at any one time outstanding (“Facility B” and together with Facility A, the “Facility”) (the “Maximum Revolving Commitment Amount”). Credit under Facility B shall be evidenced by and repayable as set forth in a promissory note payable to the order of the Bank executed concurrently with this Agreement, and with renewals, modifications or extensions thereof, if any (the “Line of Credit Note”). The proceeds of Facility B shall be used to (a) first pay all fees pursuant to Section 4.1(I) below, (b) then (after payment of all amounts set forth in (a) above) pay concurrently (to the extent funds are available to be drawn) (i) the sum of $665,000, to pay in full that certain Convertible Promissory Note issued by Borrower to Colgan Financial Group, Inc. (“Colgan”), dated as of May 29, 2014, in the original principal amount of $225,000 (the “Colgan Convertible”) and that certain Promissory Note issued by Borrower to Colgan, dated as of July 8, 2014 in the original principal amount of $230,000 (the “Colgan Promissory Note”), with the remaining balance to be applied to the indebtedness owed by Borrower to Colgan under that certain Loan and Security Agreement dated as of December 23, 2013 by and among Borrower and Colgan, including, without limitation, that certain Secured Promissory Note dated as of December 23, 2013, issued by Borrower to Colgan in the original principal amount of $600,000 (the “Colgan LSA” and, together with the Colgan Convertible and the Colgan Promissory Note, the “Colgan Facility”), and (ii) the sum of $750,000 to pay in full that certain secured Promissory Note dated February 8, 2013, issued by Borrower to California United Bank in the original principal amount of $350,000 (the “CUB ODP Debt”), with the remaining balance to be applied to that certain secured Promissory Note dated October 21, 2010 issued by Borrower to California United Bank in the original principal amount of $1,250,000 (the “CUB RLOC Debt” and together with the CUB ODP Debt, the “CUB Facility”), (c) then (after payment of all amounts set forth in (a) and (b) above) payoff the remaining balance of the CUB RLOC Debt to the extent funds are available to be drawn, (d) then (after payment of all amounts set forth in (a), (b) and (c) above) payoff all remaining indebtedness owed to Colgan under the Colgan LSA to the extent funds are available to be drawn, and (e) then for general corporate purposes. Subject to and upon the terms and conditions set forth herein, at any time or from time to time, on or after the date hereof and on or before May 1, 2017 (“Expiration Date”), the Bank agrees to lend to Borrower such amounts (each such loan and all such loans, collectively, as the context requires being herein referred to as the “Line of Credit”) as may be requested by Borrower, so long as Borrower is not in default under this Agreement or any of the Loan Documents. |
Borrower may irrevocably request a borrowing under Facility B in a minimum amount of $250,000 or a higher integral multiple of $100,000 by delivering a Notice of Borrowing as set forth in Section 4.2.C hereof.
Within the limits and subject to and upon the terms and conditions herein set forth, amounts under the Line of Credit may be borrowed and repaid and re-borrowed from time to time. The aggregate unpaid principal amount of the Line of Credit outstanding at any time shall not exceed $3,000,000. Borrower’s obligations under the Line of Credit Note will be secured as provided in Section 7 hereof.
Upon the satisfaction of the conditions set forth herein and provided further that the aggregate amount of Advances on the Line of Credit outstanding at any time do not exceed the Maximum Revolving Commitment Amount, the Bank agrees to make Advances to Borrower, from time to time, from the date hereof and until the Expiration Date. Whenever Borrower desires to take an Advance on the Line of Credit, Borrower shall give the Bank notice as provided for by the Line of Credit Note. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower when it is credited to any deposit account of Borrower maintained at the Bank or when an Advance is made in accordance with the instructions of a person duly authorized by Borrower. If, at any time, the aggregate principal amount of the outstanding Advances exceeds the Maximum Revolving Commitment Amount, Borrower shall immediately, upon written or oral notice from the Bank, pay to the Bank an amount equal to the difference between the oustanding principal balance of the Advances and the Revolving Commitment Amount.
Borrower shall make monthly payments of accrued and unpaid interest, beginning on August 1, 2014, and continuing monthly thereafter (on the first day of each month) until May 1, 2017, at which time all then remaining accrued principal and interest shall be paid in full
| 3. | Definitions. As used in this Agreement, the following terms have the following respective meanings: |
| 3.1 | “Account” means a trade account, account receivable, other receivable, or other right to payment for goods sold or leased or services rendered owing to Borrower (or to a third party grantor acceptable to the Bank). |
| 3.2 | “Account Debtor” means the person or entity obligated upon an Account. |
| 3.3 | “Advance” means a disbursement of loan funds from Bank. |
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| 3.4 | “Affiliate” means any person, corporation, or other entity directly or indirectly Controlling, Controlled by, or under common Control with Borrower or Guarantor and any member or manager of Borrower or Guarantor or any subsidiary of Borrower. |
| 3.5 | “Asset Coverage Ratio” means, for any date of determination, for Borrower, the ratio of (a) the sum of (i) Cash held in a Designated Deposit Account and (ii) Eligible Receivables, in each case as of such date to (b) Indebtedness outstanding under this Agreement as of such date. |
| 3.6 | “Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in New York, New York, San Francisco, California or Irvine, California are generally authorized or obligated, by law or executive order, to close. |
| 3.7 | “Cash” or “Cash Equivalents” means assets properly classified as “marketable securities”, “cash”, “cash equivalents” or “short term investments” under GAAP. |
| 3.8 | “Change of Control” means the direct or indirect acquisition by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act, but excluding any employee benefit plan of Guarantor, Borrower or its subsidiaries, or any person or entity acting it its capacity as trustee, agent or other fiduciary or administrator of any such plan) or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (a) ownership of the issued and outstanding shares of voting stock or similar equity interest of Guarantor or Borrower, the result of which acquisition is that such person or group possesses in excess of 50% of the combined voting power of all then-issued and outstanding voting stock of Guarantor or Borrower, or (b) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the board of directors of Guarantor or Borrower. |
| 3.9 | “Closing Date” means May 28, 2014, the Closing Date set forth in the Existing Credit Agreement. |
| 3.10 | “Collateral” shall have that meaning ascribed to it in Section 7.1 below. |
| 3.11 | “Control” as used with respect to any Person, means the power to direct or cause the direction of, the management and policies of that Person, directly or indirectly, whether through the ownership of Equity Interests, by contract, or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. |
| 3.12 | “Credit Facilities” means all extensions of credit from the Bank to Borrower, whether now existing or hereafter arising, including but not limited to those described in Section 2 above. |
| 3.13 | “Designated Deposit Account” means a deposit account maintained by Borrower with the Bank, as from time to time designated by Borrower to Bank. |
| 3.14 | “Discretionary Excess Cash Flow Distributions” means annual Distributions beginning June 30, 2014 and annually thereafter, as determined by Credit Parties which are limited to amounts: (a) not to exceed fifty percent (50%) of Borrower’s or Guarantor’s net income for the immediately preceding fiscal year; and (b) which will not cause Borrower to fail to comply with its financial covenants in Section 6.3 on a pro forma basis after giving effect to such Distribution, however, no such Distributions shall be made prior to the Credit Parties’ receipt of Bank’s written notice evidencing satisfaction of Section 5.20 of this Agreement. |
| 3.15 | “Distributions” means all dividends and other distributions made by Borrower to its owners of Equity Interests, including without limitation shareholders, partners, owners or members, as the case may be, other than salary, bonuses, and other compensation for services expended in the current accounting period. |
| 3.16 | “Divio Merger Agreement” means that certain Merger Agreement and Plan of Reorganization dated as of the date hereof among Guarantor, Borrower and Greenwood Hall Acquisition, Inc. |
| 3.17 | “EBITDA” means, for any period, net income before taxes, plus interest expense, plus depreciation expense, plus amortization expense, plus all non-cash charges and expenses, including expenses related to the impairment of goodwill, exercise of employee stock option plans and any incremental non-cash charges or reduction in revenue as a result of any purchase accounting adjustments recorded as a result of acquisitions, plus all losses during such period resulting from the disposition of any asset of Borrower or any Subsidiary outside the ordinary course of business, to the extent permitted by this Agreement, plus all expenses and losses that are properly classified as extraordinary in accordance with GAAP or are unusual or non-recurring, plus, to the extent not capitalized, all fees and expenses incurred in connection with the Loan Documents for such period. |
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| 3.18 | “Effective Date” means the date on which this Agreement has been executed and delivered by each of the Borrower, the Guarantor, and the Bank. |
| 3.19 | “Eligible Receivables” means with respect to the Borrower, as of any date of determination, subject to modification by the Bank in its reasonable discretion based upon the results of a field audit, the face value of each account (as used in this definition, each such account, an “Account”) arising out of any contract or agreement which is a bona fide, non-contingent, existing obligation of the named account debtor thereunder (as used in this definition, and with respect to each individual contract or agreement, an “Account Debtor”, and includes, without limitation, to the extent the same constitute an asset under GAAP, amounts due from credit card processors, regardless of whether the same are otherwise not broken out by Account Debtor) actually and absolutely owing to the Borrower and arising from the sale and delivery of merchandise or the rendering of services to such Account Debtor in the ordinary course of the Borrower’s business as presently conducted for which the Account Debtor has been billed and such Account satisfies and continues to satisfy the following requirements: |
(i) the Account is evidenced by an invoice that has not remained unpaid for a period exceeding one hundred twenty (120) days or more beyond the invoice date of the invoice;
(ii) the Account is not due from an Account Debtor whose debt on Accounts that are unpaid for a period exceeding one hundred twenty (120) days or more after the invoice date of the respective invoices exceeds twenty-five percent (25%) of such Account Debtor’s total debt to the Borrower;
(iii) the Account is a valid, legally enforceable obligation of the Account Debtor and no offset (including, without limitation, discounts, advertising allowances, counterclaims or contra accounts) or other defense on the part of such Account Debtor or any claim on the part of such Account Debtor denying liability thereunder has been asserted; provided, however, that if the Account is subject to any such offset, defense or claim, or any inventory related thereto has been returned, such account shall not be an Eligible Receivable only to the extent of the maximum amount of such offset, defense, claim or return and the balance of such Account, if it otherwise represents a valid, uncontested and legally enforceable obligation of the Account Debtor and meets all of the other criteria for eligibility set forth herein, shall be considered an Eligible Receivable;
(iv) the services have been performed or the subject merchandise has been shipped or delivered on open Account to the named Account Debtor on an absolute sale basis and not on a bill-and-hold, consignment, on approval or subject to any other repurchase or return agreement and no material part of the subject goods has been returned;
(v) the Account does not represent a pre-billing, prepaid deposit, retention billing or progress billing;
(vi) other than pursuant to the Security Documents, the Account is not subject to any Lien or security interest whatsoever other than Permitted Liens;
(vii) the Account is not evidenced by chattel paper or an instrument of any kind;
(viii) the Account has not been turned over to any Person for collection;
(ix) the Account is not owing by an Account Debtor that shall have failed to pay twenty-five percent (25%) or more of all Accounts owed by such Account Debtor to the Borrower within the period set forth in (ii) above or who has become insolvent or is the subject of any bankruptcy, arrangement, reorganization proceedings or other proceedings for relief of debtors;
(x) the Account is not owing by an Account Debtor that (A) is an Affiliate of the Borrower, (B) is a Governmental Authority (except to the extent that Borrower has complied with the Federal Assignment of Claims Act of 1940, as amended, or analogous state statutes, in a manner reasonably satisfactory to Bank), or (C) except to the extent approved by Bank in its sole discretion, is organized under the laws of, or has its principal place of business outside, the United States of America or Canada or any state or any province thereof; and
(xi) unless previously agreed to by the Bank in writing, the aggregate amount of Accounts payable by the Account Debtor of the Account does not constitute more than 30% of all Accounts of Borrower.
| 3.20 | “Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest. |
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| 3.21 | “Expiration Date” shall have that meaning ascribed to it in Section 2.3 above. |
| 3.22 | “GAAP” means generally accepted accounting principles. |
| 3.23 | “Liabilities” means all obligations, indebtedness and liabilities of Credit Parties to any one or more of the Bank and any of its subsidiaries, affiliates or successors, now existing or later arising, including, without limitation, all loans, advances, interest, costs, overdraft indebtedness, credit card indebtedness, lease obligations, or obligations relating to any Rate Management Transaction, all monetary obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceedings, regardless of whether allowed or allowable in such proceeding, and all renewals, extensions, modifications, consolidations or substitutions of any of the foregoing, whether Credit Parties may be liable jointly with others or individually liable as a debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and whether voluntarily or involuntarily incurred, due or not due, absolute or contingent, direct or indirect, liquidated or unliquidated. The term “Rate Management Transaction” in this Agreement means any agreement between the Credit Parties and the Bank, any of its subsidiaries, affiliates or successors, now existing or hereafter arising, with respect to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, or any other similar transaction (including any option with respect to these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures. |
| 3.24 | “Lien” means any mortgage, deed of trust, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restriction of any kind. |
| 3.25 | “Line of Credit” and “Line of Credit Note” shall have those meanings ascribed to them in Section 2.3 above. |
| 3.26 | “Loan Documents” means this Agreement and all the loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with this Agreement executed by Borrower and each other Obligor in favor of the Bank or in connection with any of the Liabilities, including without limitation the Notes and Security Agreement. |
| 3.27 | “Material Adverse Effect” means a material adverse effect on any of (a) the operations, assets, liabilities, financial condition or prospects of the Borrower taken as a whole, (b) the operations, assets, liabilities, financial condition or prospects of the Guarantor taken as a whole, (c) the ability of the Borrower taken as a whole to perform any of its payment or other material obligations under the Loan Documents, (d) the ability of the Guarantor taken as a whole to perform any of its payment or other material obligations under the Loan Documents, (e) the legality, validity or enforceability of this Agreement or any other Loan Document, or (f) the rights and remedies of the Bank under any Transaction Document. |
| 3.28 | “Material Contract” means each contract or agreement as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect |
| 3.29 | “Maturity Date” shall have the meanings ascribed to it in each of the Term Note and the Line of Credit Note. |
| 3.30 | “Nevada UCC” means the Uniform Commercial code as in effect on the Effective Date in the State of Nevada. |
| 3.31 | “Note” and “Notes” means the Line of Credit Note and the Term Note described in Section 2 above, and all promissory notes, instruments and/or contracts evidencing the terms and conditions of the Liabilities. |
| 3.32 | “Notice of Borrowing” shall have that meaning ascribed to it in Section 4.2.C below. |
| 3.33 | “Obligor” or “Obligors” means any Borrower, guarantor, surety, co-signer, endorser, general partner, or other Person who may now or in the future be obligated to pay any of the Liabilities. |
| 3.34 | “Permitted Dispositions” means: |
| A. | dispositions of inventory in the ordinary course of business; |
| B. | dispositions of damaged, obsolete, surplus or worn out property in the ordinary course of business; |
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| C. | dispositions of non-exclusive licenses and similar arrangements for the use of property of Borrower or any subsidiary in the ordinary course of business and other licenses that may be exclusive in one or more respects but do not result in a legal transfer of title to the licensed property; |
| D. | dispositions which constitute the making or liquidating of Permitted Investments or the granting of Permitted Liens; |
| E. | dispositions permitted under Section 6.2K; and |
| F. | dispositions not otherwise prohibited hereunder, provided that the aggregate book value of the property so disposed in any fiscal year shall not exceed $50,000 in the aggregate. |
| 3.35 | “Permitted Distributions” means (a) Discretionary Excess Cash Flow Distributions, and (b) Distributions payable exclusively in Equity Interests of Borrower. |
| 3.36 | “Permitted Indebtedness” shall have that meaning ascribed to it in Section 6.2.C below. |
| 3.37 | “Permitted Investments” shall have that meaning ascribed to it in Section 6.2.B below. |
| 3.38 | “Permitted Liens” shall have that meaning ascribed to it in Section 6.2.E below. |
| 3.39 | “Person” means any individual, corporation, partnership, limited liability company, joint venture, joint stock association, association, bank, business trust, trust, unincorporated organization, any foreign governmental authority, the United States of America, any state of the United States and any political subdivision of any of the foregoing or any other form of entity. |
| 3.40 | “Premises” means the locations at which Borrower currently conducts business and located including, without limitation, 1936 East Deere Avenue, #120, Santa Ana, California 92705. |
| 3.41 | “Property” means any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. |
| 3.42 | “Security Agreement” means each security agreement entered into between (a) Bank and Borrower evidencing Bank’ security interest in all of the assets of Borrower (other than the Premises and other real property, if any) and (b) Bank and Guarantor evidencing Bank’ security interest in all of the assets of Guarantor (other than the Premises and other real property, if any), including, without limitation, that certain Amended and Restated Security Agreement dated as of the date hereof among Borrower, Guarantor and Bank. |
| 3.43 | “Senior Funded Debt” means all unsubordinated interest bearing debt for borrowed money. |
| 4. | Conditions Precedent. |
| 4.1 | Conditions Precedent to Initial Extension of Credit. Before the first extension of credit governed by this Agreement (which, for the avoidance of doubt, does not include the Term Loan which was extended on the Closing Date), whether by disbursement of a loan, or otherwise, Credit Parties shall deliver to the Bank, in form and substance satisfactory to the Bank: |
A. Credit Party Loan Documents. This Agreement, the Notes and the Security Agreement, the security agreements, financing statements, warrants and any other loan documents which the Bank may reasonably require to give effect to the transactions described in this Agreement;
B. Evidence of Due Organization and Good Standing. Evidence, satisfactory to the Bank, of the due organization and good standing of each Credit Party in each state in which such Credit Party is doing business during the term of the Credit Facilities, including without limitation California and Nevada;
C. Evidence of Authority to Enter into Loan Documents. Evidence that (i) each Credit Party is authorized to enter into the transactions described in this Agreement and the other loan documents, and (ii) the person signing on behalf of each Credit Party is authorized to do so.
D. Liens on Property. Evidence, satisfactory to the Bank, that all personal property, fixtures and equipment, etc., in which the Bank is taking a security interest is free and clear of all Liens and encumbrances of every nature and description other than Permitted Liens.
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E. Other Due Diligence. Satisfactory completion of Bank’s due diligence, including satisfactory completion by Bank of a collateral field audit
F. Insurance. Insurance policies with premiums prepaid, with issuing companies, coverages and amounts as are ordinarily carried by other companies similarly situated in operating like business and properties, including products liability insurance, and insuring the Collateral against loss or damage by fire and such other hazards, including, but not limited to, extended coverage, vandalism, malicious mischief, and comprehensive public liability insurance complying with Section 5.1. All policies shall name Bank as additional insured and loss payee with endorsements acceptable to the Bank.
G. Authority. (1) A copy of the articles of incorporation of Borrower, certified by the California Secretary of State (or California Franchise Tax Board, as the case may be); (2) a Certificate of Good Standing from the California Secretary of State for the Borrower (or California Franchise Tax Board, as the case may be) for the Borrower; (3) a certified copy of Borrower’s by-laws and all amendments thereto; (4) certified resolutions of Borrower’s board of directors/unanimous written consent of shareholders, authorizing the transactions described herein; (5) an incumbency certificate for Borrower; (6) a certification that no event of dissolution with respect to Borrower has occurred; (7) A copy of the articles of incorporation of Guarantor, certified by the Nevada Secretary of State (or any additional governmental office, if applicable); (8) a Certificate of Good Standing from the Nevada Secretary of State (or any additional governmental office, if applicable) for the Guarantor; (9) a certified copy of Guarantor’s by-laws and all amendments thereto; (10) certified resolutions of Guarantor’s board of directors/unanimous written consent of shareholders, authorizing the transactions described herein; (11) an incumbency certificate for Guarantor; and (12) a certification that no event of dissolution with respect to Guarantor has occurred.
H. Accounts. Evidence that Guarantor’s and the Borrower’s deposit and operating account(s) (including the Designated Deposit Account) are with the Bank and Borrower shall have completed all necessary documentation to authorize Bank to make ACH withdrawals from the Designated Deposit Account for all principal and interest payments due under the Loan Documents.
I. Payment of Fees. Borrower shall have paid Bank all of its costs of providing the Credit Facilities, including without limitation all costs of insurance, filings and recordings, and the reasonable fees of the attorneys for the Bank with respect to preparation and review of the Loan Documents. In addition, Borrower shall have paid to Bank an amendment fee in an aggregate amount of $15,000.
J. Reports and Appraisals. The Bank shall have received copies of all inspection reports and appraisals related to the Collateral as it deems necessary in its sole discretion.
K. Replacement Warrants. The Bank shall have received a common stock purchase warrant or warrants (such common stock purchase warrants issued to the Bank, together with each common stock purchase warrant delivered in substitution or exchange for any such common stock purchase warrant, herein called the “Warrants”), in the form of Exhibit B hereto, initially exercisable for a number of shares of preferred stock as set forth in the Warrant attached hereto as Exhibit B, duly executed and delivered by the authorized officers of the Guarantor in replacement of the warrants delivered pursuant to the Existing Credit Agreement.
L. Opinion of Credit Parties’ Counsel. A written opinion of the Guarantor’s and Borrower’s legal counsel in the form and substance reasonably acceptable to the Bank.
M. Subordination Agreements. (i) Executed ratification agreement regarding the subordination agreement executed in connection with the Existing Credit Agreement from California United Bank and (ii) executed Amended and Restated Subordination Agreement by and among Colgan, Borrower and Bank, each in form and substance reasonably acceptable to the Bank.
N. Certifications. A certificate of the Credit Parties certifying that (a) the representations and warranties made by Credit Parties in Section 8 of this Agreement are and will be correct in all material respects on and as of the date hereof, except to the extent that such representations and warranties specifically refer to any earlier date, (b) no Default or Event of Default has occurred and is continuing on the date hereof or after giving effect to the loans, (c) attached thereto are true, correct and complete copies of all documents evidencing indebtedness under the CUB Facility and all instruments, documents and agreements related thereto, (d) attached thereto are true, correct and complete copies of all documents evidencing indebtedness under the Colgan Facility and all instruments, documents and agreements related thereto, and (e) attached thereto is a true ,correct and complete copy of the Divio Merger Agreement.
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O. Payoff Letters. Executed payoff letters from (a) California United Bank with respect to the CUB ODP Debt and (b) Colgan with respect to the Colgan Convertible and the Colgan Promissory Note, each providing for, among other things, (x) the automatic release of liens under each respective facility upon the receipt of the payoff amount and (y) the authorization of Borrower and/or Bank to prepare and file Uniform Commercial Code financing statement amendments or terminations evidencing the release and termination of the liens under each such facility.
P. Divio Merger Agreement. Executed Divio Merger Agreement, which shall be fully effective and binding, together with evidence satisfactory to Bank that the merger transactions contemplated in the Divio Merger Agreement have been completed.
| 4.2 | Conditions Precedent to Each Extension of Credit. Before any extension of credit governed by this Agreement, whether by disbursement of a loan, or otherwise, the following conditions must be satisfied in a manner acceptable to the Bank: |
A. Representations. The representations of each Credit Party in this Agreement and the other Loan Documents are true in all material respects on and as of the date of any extension of credit (other than those representations and warranties made as a specific earlier date, which shall remain true and correct as of such earlier date); and
B. No Event of Default. No default has occurred in any provision of this Agreement, the Notes or any agreement related to the Credit Facilities and is continuing or would result from the extension of credit, and no event has occurred which would constitute the occurrence of any default but for the lapse of time until the end of any grace or cure period (such event, a “Default”).
C. Notice of Borrowing. The Bank shall have received a Notice of Borrowing (in a minimum amount of $250,000 or a higher integral multiple of $100,000) in the form of Exhibit A attached hereto (a “Notice of Borrowing”) not less than 1 Business Day prior to the date of such requested funding.
D. Additional Documents. Within ten (10) days of written request to Credit Parties, the Bank has received any other documents as it may reasonably request, which may include, but will not be limited to, those items to be provided to the Bank pursuant to Section 4.1A through Section 4.1G current as of the extension of credit.
E. Payoff Letters. To the extent the extension of credit will be used to payoff indebtedness owed to Colgan or California United Bank pursuant to Section 2.3 above, the Bank shall have received payoff letters from Colgan or California United Bank, as applicable, with respect to the indebtedness being paid off, providing for, among other things, (x) the automatic release of liens under such facility upon the receipt of the payoff amount and (y) the authorization of Borrower and/or Bank to prepare and file Uniform Commercial Code financing statement amendments or terminations evidencing the release and termination of the liens under each such facility.
| 4.3 | Conditions Precedent to First Extension of Credit Under Line of Credit/Facility B. Before any extension of credit under the Line of Credit/Facility B governed by this Agreement, whether by disbursement of a loan, or otherwise, the Borrower shall provide to the Bank evidence acceptable to Bank (in Bank’s sole discretion) that Guarantor has completed the sale of additional Equity Interests with gross Cash proceeds of not less than $1,650,000 (in addition to the $1,350,000 raised prior to the Closing Date) and deposited such $1,650,000 into the Designated Deposit Account. |
| 5. | Affirmative Covenants. Each Credit Party shall: |
| 5.1 | Insurance. Maintain insurance, reasonably satisfactory to the Bank, with financially sound and reputable insurers covering its properties and business against those casualties and contingencies and in the types and amounts as are in accordance with sound business and industry practices, including products liability coverage with limits of at least $2,000,000.00 per claim; showing the Bank as a loss payee with respect to each policy of property or casualty insurance and naming the Bank as an additional insured with respect to each policy of liability insurance, and furnished to the Bank, providing that thirty (30) days’ notice will be given to the Bank prior to any cancellation of, material reduction or change in coverage provided or other material modification of any such policy, and upon request of the Bank, reports on each existing insurance policy showing such information as the Bank may reasonably request. |
| 5.2 | Existence. Maintain its existence and business operations in accordance with all applicable laws and regulations, pay its debts and obligations when due under normal terms except as would not reasonably be expected to have a material adverse effect on the financial condition of Guarantor or Borrower. |
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| 5.3 | Financial Records. Maintain proper books and records of account, in accordance with GAAP. |
| 5.4 | Inspection. Each Credit Party shall permit Bank to perform an annual collateral field audit of Borrower’s Accounts/accounts receivable, inventory and equipment during regular business hours and upon reasonable notice. In addition, at any time during regular business hours and as often as reasonably requested upon reasonable notice (but not more often than twice in a calendar year unless an Event of Default exists), permit Bank, or any employee, agent or representative thereof, to examine, audit and make copies and abstracts from Borrower’s records and books of account and to visit and inspect its properties, including, but not limited to, an annual collateral field audit on Borrower’s Accounts/accounts receivable and inventory, and to discuss its affairs, finances and accounts with any of its officers and key employees, and, upon request, furnish promptly to Bank true copies of all financial information and internal management reports made available to their board of directors (or any committee thereof). Borrower shall furnish to Bank such information concerning Borrower’s intellectual property (including, without limitation, application and registration numbers for any filings in connection with such intellectual property) as is reasonably necessary to permit Bank to perfect a security interest in such intellectual property. |
| 5.5 | Financial Reports. Credit Parties will maintain a standard and modern system of accounting in accordance with generally accepted accounting principles (“GAAP”) and will furnish to the Bank whatever information, books and records the Bank may reasonably request, including at a minimum: |
A. Within twenty (20) days after each monthly period, a copy of Guarantor and Borrower’s interim balance sheets, profit and loss statements for the current period and year-to-date, accounts payable aging report, accounts receivable aging report, and retained earnings, from the beginning of that fiscal year to the end of that period, prepared by Guarantor and Borrower in accordance with GAAP and (for the first two (2) months of each fiscal quarter) accompanied by a covenant compliance certificate executed by each of Guarantor and Borrower’s chief executive officer, or other officer or person acceptable to the Bank, certifying compliance with the Asset Coverage Ratio covenant herein as of the date of the certificate.
B. as soon as available, but in any event within 45 days after the end of each of the first three (3) fiscal quarters of each fiscal year of Guarantor and Borrower, a balance sheet of each of Guarantor and Borrower as at the end of such fiscal quarter, and the related statements of income and cash flows for such fiscal quarter and for the portion of Guarantor’s and Borrower’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and accompanied by a covenant compliance certificate executed by Guarantor’s and Borrower’s chief executive officer, or other officer or person acceptable to the Bank, certifying compliance with the covenants herein and that no default exists under any provisions of this Agreement as of the date of the certificate.
C. Within one hundred twenty (120) days after and as of the end of each of its fiscal years of Guarantor, detailed consolidated and consolidating, if applicable, financial statements including a balance sheet and statements of income, cash flow and retained earnings, such financial statement to be audited by Rose, Snyder and Jacobs or audited by another independent Certified Public Accountant of recognized standing acceptable to the Bank in the Bank’s sole discretion and accompanied by a covenant compliance certificate executed by each of Guarantor’s and Borrower’s chief executive officer, or other officer or person acceptable to the Bank, certifying compliance with the covenants herein and that no default exists under any provisions of this Agreement as of the date of the certificate.
D. Such other financial reports as Bank may reasonably request from Guarantor or Borrower, including without limitation, annual projections, as approved by the Boards of Directors of Credit Parties, for the Credit Parties’ next fiscal year to be delivered within 60 days after the end of each fiscal year of Credit Parties.
All compiled, reviewed or audited (as applicable) financial statements of Guarantor and Borrower specified in the preceding clauses shall be furnished in consolidated form for Guarantor and all subsidiaries that Guarantor may at any time have. Together with each delivery of financial statements required by Section 5.5A, Credit Parties will deliver to the Bank a certificate of a principal officer of each of Guarantor and Borrower on behalf of Guarantor and Borrower certifying that such financial statements fairly present, in all material respects, the financial position of the Guarantor and Borrower and its results of operations and cash flows, subject to changes resulting from year-end adjustments and the absence of footnotes and stating that there exists no Event of Default under the Loan Documents or any event or condition that, with notice or lapse of time, or both, would constitute an Event of Default under the Loan Documents, or, if any such Event of Default under the Loan Documents or event or condition exists, specifying the nature thereof, the period of existence thereof, and what action Guarantor and Borrower propose to take with respect thereto. Guarantor and Borrower will permit any person designated by the Bank to visit and inspect any of the properties, corporate books, and financial records of Guarantor and Borrower, and to discuss the affairs, finances, and accounts of Guarantor and Borrower, all at such reasonable times during normal business hours and as often as the Bank may reasonably request and upon reasonable notice.
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| 5.6 | Taxes. Credit Parties shall cause to be paid on a timely basis (other than Borrower’s taxes for fiscal years 2012 and 2013 which are to be filed or refiled by not later than July 31, 2014), or before they become delinquent all taxes and assessments, special or otherwise, and any other such charges relating to the Collateral which become due and payable from time to time, except as they may be contested in good faith if they have been properly reflected on its books and at the Bank’s request, adequate funds or security has been pledged to ensure payment. Credit Parties shall provide to Bank satisfactory evidence of timely payment of real estate taxes on the Premises either by furnishing a copy of the paid tax receipt or of the cancelled check issued to the County Collector. |
| 5.7 | Maintenance of Properties. Each Credit Party will maintain, keep, and preserve all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. Each Credit Party shall from time to time make or cause to be made all necessary and proper repairs, renewals, replacements, additions, and improvements to its properties so that the business carried on by each Credit Party may be properly and advantageously conducted at all times in accordance with prudent business management. |
| 5.8 | Location of Collateral. Except as to Collateral located at a facility for which the Bank has been provided a processor’s waiver in form satisfactory to the Bank, all Collateral now owned by any Credit Party is and will be, and all Collateral hereafter acquired by a Credit Party will be, and to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral will be kept at the Premises and such additional locations as are disclosed in writing to the Bank and approved by the Bank, which approval shall not be unreasonably withheld. Except in the ordinary course of its business, Credit Parties shall not remove the Collateral from its existing location. To the extent the Collateral consists of vehicles or other property, the ownership of which is evidenced by a certificate of title, Credit Parties shall not take or permit any action that would require registration of such Collateral outside the State of California. |
| 5.9 | Notices of Claims, Litigation, Defaults, etc. Promptly inform the Bank in writing of (1) all existing and all threatened in writing litigation, claims, investigations, administrative proceedings and similar actions affecting any Credit Party which could materially affect the financial condition of any Credit Party; (2) the occurrence of any event which gives rise to the Bank’s option to terminate the Credit Facilities; (3) the institution of steps by any Credit Party to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which a Credit Party may have liability; (4) any additions to or changes in the locations of any Credit Party’s businesses; and (5) any alleged breach of any provision of this Agreement or of any other agreement related to the Credit Facilities by the Bank. |
| 5.10 | Additional Information. Furnish such additional information and statements, as the Bank may reasonably request, from time to time. |
| 5.11 | Insurance Reports. Furnish to the Bank, upon the reasonable request of the Bank, reports on each existing insurance policy showing such information as the Bank may reasonably request. |
| 5.12 | Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between any Credit Party and any other party where the failure to so comply could reasonably be expected to have a material adverse effect on the financial condition of any Credit Party. |
| 5.13 | Title to Assets and Property. Maintain good title to all of each Credit Party’s assets and properties subject to Permitted Liens, and defend such assets and properties against all claims and demands of all persons at any time claiming any interest in them. |
| 5.14 | Additional Assurances. Make, execute and deliver to the Bank such other agreements as the Bank may reasonably request to evidence the Credit Facilities and to perfect any security interests. |
| 5.15 | Employee Benefit Plans. Maintain each employee benefit plan as to which any Credit Party may have any liability, in compliance in all material respects with all applicable requirements of law and regulations. |
| 5.16 | Depository Relationship. Maintain all of its banking depository and disbursement relationships with the Bank and establish such accounts and maintain balances therein with the Bank sufficient to cover the cost of all the Bank’s services; provided, however, that the Bank in its sole discretion may permit Borrower to maintain ancillary depository and disbursement relationships on such terms and conditions, and with such limitations, as the Bank may establish in its sole discretion. |
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| 5.17 | Remittance Account. At all times maintain its primary deposit accounts, including the Designated Deposit Account, with Opus Bank. |
| 5.18 | New Contracts. On or prior to September 15, 2014, Borrower shall have entered into new written customer contracts providing for projected aggregate payments to the Credit Parties of not less than $2,800,000 for the 12-month period following the execution of such contracts; provided that contracts representing $2,000,000 of the $2,800,000 referenced above shall be entered into on or prior to August 31, 2014; further provided that in each case such contracts shall be in form and substance acceptable to Bank as evidenced by Bank providing its express written acknowledgment of the satisfaction of this Section 5.18. The Credit Parties shall deliver executed copies of such contracts to Bank promptly following their execution. |
| 5.19 | Equity Raise. Credit Parties shall cause the following sales of additional Equity Interests of Guarantor to be funded into the Designated Deposit Account on or before: |
(a) the Effective Date with gross proceeds thereof (consisting of Cash and amounts converted pursuant to existing convertible promissory notes) of not less than $1,650,000 (in addition to the $1,350,000 raised prior to the Closing Date), and
(b) October 31, 2014 with gross proceeds thereof (consisting of Cash and amounts converted pursuant to existing convertible promissory notes) of not less than an additional $2,000,000.
| 5.20 | Opinion of Guarantor’s Counsel. Within thirty (30) days of the Effective Date, the Credit Parties shall deliver to Bank a written opinion of the Guarantor’s legal counsel in the form and substance reasonably acceptable to the Bank, which shall include, without limitation, each of the opinions listed on the Form of Opinion of Guarantor’s Counsel included in Exhibit D attached hereto, subject to customary exceptions and assumptions. If Guarantor does not deliver such opinion to Bank on or prior to thirty (30) days after the Effective Date, the Credit Parties shall pay to Bank three hundred seventy five thousand dollars ($375,000) on the thirty-first (31st) day following the Effective Date in immediately available funds. For the avoidance of doubt, no Discretionary Excess Cash Flow Distributions shall be made until this Section 5.20 has been satisfied in form and substance acceptable to Bank. |
| 5.21 | Post-Closing Deliveries. Within ten (10) days of the Effective Date, the Credit Parties shall deliver to Bank (i) a landlord lien waiver executed by and among PRIM Alton Deere, LLC, a Delaware limited liability company (“Landlord”), Borrower and Bank regarding the Borrower’s lease of the premises at 1936 E. Deere Ave., #120, Santa Ana, CA 92705, (ii) a written consent of the Landlord to the transactions contemplated by the Divio Merger Agreement and the change in ownership of Equity Interests of Borrower in connection therewith and prior thereto, and (iii) evidence that the UCC Financing Statement noting Canon Financial Services Inc. as Judgment Creditor and Borrower as Judgment Debtor (file number 13-7373671301 08/12/2013) has been terminated and any and all judgments and/or liens thereunder have been released, each in form and substance satisfactory to Bank. |
| 6. | Negative Covenants. |
| 6.1 | Unless otherwise noted, the requirements set forth in this section will be computed in accordance with GAAP applied on a basis consistent with financial statements previously submitted by Borrower to the Bank. |
| 6.2 | Without the written consent of the Bank, the Credit Parties will not: |
A. Sale of Equity Interests. Issue, sell, or otherwise dispose of any of its Equity Interests, without the prior written consent of the Bank, except as would not cause a Change of Control of the Borrower or the Guarantor; provided, however, that transactions contemplated by the Divio Merger Agreement and in compliance with Section 5.19 shall not be deemed to be a violation of this Section 6.2A.
B. Loans and Extensions of Credit. Loan or extend credit to anyone, other than (i) extensions of credit in the ordinary course of its business; (ii) temporary extensions of credit to a Borrower Affiliate that are consistent with Borrower’s historical practices, (iii) extensions of credit in the ordinary course of business consisting of cash-in-advance payments, prepaid royalties, notes receivable, and other deposits or credit obligations required by or to customers, suppliers, vendors and service providers that are not Affiliates of Borrower and any investments received in satisfaction or partial satisfaction thereof; (iv) investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s or its subsidiaries’ business, (v) loans and investments existing as of the date hereof that have been disclosed to the Bank in writing on Schedule 6.2.B hereto, (vi) loans and investments permitted by Section 6.2.K; and (vii) other loans and investments not otherwise permitted hereunder, provided that the aggregate amount of such other loans and investments does not at any time exceed $100,000 (all of the foregoing collectively referred to as “Permitted Investments”).
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C. Debt. Incur, contract for, assume, or permit to remain outstanding, indebtedness for borrowed money, installment obligations, or obligations under capital leases, other than, with respect to Borrower only (1) unsecured trade debt incurred in the ordinary course of business, (2) indebtedness owing to the Bank, (3) indebtedness reflected in the latest financial statement of Borrower furnished to the Bank prior to execution of this Agreement and that is not to be paid with proceeds of borrowings under the Credit Facilities, (4) indebtedness outstanding as of the date hereof that has been disclosed to the Bank in writing on Schedule 6.2.C hereto and that is not to be paid with proceeds of borrowings under the Credit Facilities (provided, however, that in no event will Borrower allow the outstanding amounts owed to Colgan Financial and California United Bank to exceed amounts to be available under the Facility B (so that such outstanding amounts owed to Colgan Financial and California United Bank will be capable of being paid in full from amounts available under Facility B when Facility B is available pursuant to Section 4.3), (5) capital lease obligations and obligations incurred to finance the purchase of equipment and related software secured by purchase money liens on such equipment and related software, (6) indebtedness arising from the honoring of a check, draft or similar instrument against insufficient funds or from the endorsement of instruments for collection in the ordinary course of Borrower’s or any subsidiary’s business, (7) indebtedness with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business, (8) reimbursement obligations in connection with letters of credit that are secured by cash or cash equivalents and issued on behalf of Borrower or a subsidiary thereof in an amount not to exceed $500,000 at any time outstanding, (9) the CUB Facility and the Colgan Facility, (10) other unsecured indebtedness not exceeding, in the aggregate outstanding principal amount at any time, $100,000, and (11) any refinancings, refundings, renewals or extensions of any of the foregoing, other than the CUB Facility and the Colgan Facility, provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to accrued but unpaid interest plus the premium or other amount paid, and fees and expenses incurred, in connection with such refinancing and by an amount equal to any utilized commitments thereunder (all of the foregoing collectively referred to as “Permitted Indebtedness”).
D. Guaranties. Guarantee or otherwise become or remain secondarily liable on the undertaking of another, except for endorsement of drafts for deposit and collection in the ordinary course of business.
E. Liens. Create or permit to exist any Lien on any of its property, real or personal, except: (1) existing Liens known to the Bank on the Closing Date; (2) Liens to the Bank; (3) Liens for taxes not yet delinquent or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable person in accordance with GAAP; (4) carriers’, warehousemen’s, mechanics’, materialman’s, repairmen’s, landlord’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than sixty (60) days or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; (5) pledges or deposits in connection with worker’s compensation, unemployment insurance and other social security legislation; (6) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (7) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of any Person; (8) attachment, judgment or other similar Liens arising in connection with litigation or other legal proceedings (and not otherwise constituting an Event of Default hereunder) in the ordinary course of business that is currently being contested in good faith by appropriate proceedings, adequate reserves have been set aside therefor, and no material property is subject to a material risk of loss or forfeiture; (9) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the applicable Credit Party in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (ii) such deposit account is not intended by such Credit Party or any subsidiary to provide collateral to the depository institution; (10) purported Liens evidenced by the filing of UCC precautionary financing statements relating to operating leases entered into in the ordinary course of business and not otherwise prohibited under this Agreement; (11) Liens (i) upon or in any equipment and related software acquired (in either case that was not financed by the Bank) or held by Borrower or any subsidiary to secure the purchase price of such equipment and software or Indebtedness incurred solely for the purpose of financing the acquisition of such equipment and related software (including soft costs), (ii) existing on equipment of Borrower or any subsidiary at the time of its acquisition, provided that such Lien is limited solely to the property so acquired and improvements thereon, and the proceeds of such equipment and (iii) or rights of a lessor under a capital lease; and (12) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described above, provided that the property covered thereby is not increased and the principal amount of the indebtedness being extended, renewed or refinanced does not increase (all of the foregoing collectively referred to as “Permitted Liens”).
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F. Use of Proceeds. Use, or permit any proceeds of the Credit Facilities to be used, directly or indirectly, for the purpose of “purchasing or carrying any margin stock” within the meaning of Federal Reserve Board Regulation U. At the Bank’s request, Borrower will furnish a completed Federal Reserve Board Form U-1.
G. Continuity of Operations. (1) Engage in any business activities substantially different from those in which Borrower is presently engaged; (2) sell any assets out of the ordinary course of business other than Permitted Dispositions; or (3) without ten (10) Business Days’ prior written notice to the Bank, change its business organization, the jurisdiction under which its business organization is formed or organized, or its chief executive office, or any place of its businesses where Collateral with a value in excess of $100,000 is located.
H. Limitation on Negative Pledge Clauses. Except for this Agreement and the other Loan Documents (and except for documents governing Permitted Indebtedness of the types described in paragraphs (4) and (5) of the definition of “Permitted Indebtedness” or Liens of the types described in paragraphs (1) and (11) of the definition of “Permitted Liens”), enter into any agreement with any person other than the Bank which prohibits or limits the ability of Guarantor, Borrower or any of their subsidiaries to create or permit to exist any lien on any of its property, assets or revenues, whether now owned or hereafter acquired.
I. Conflicting Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance of Credit Parties’ obligations under this Agreement.
J. Government Regulation. (1) Be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Bank from making any advance or extension of credit to Guarantor or Borrower or from otherwise conducting business with Guarantor or Borrower, or (2) fail to provide documentary and other evidence of Guarantor’s or Borrower’s identity as may be requested by Bank at any time to enable Bank to verify Guarantor’s or Borrower’s identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.
K. Mergers, Sales of Assets. Other than as contemplated by the Divio Merger Agreement, merge or consolidate with any other corporation, sell, lease, transfer, or otherwise dispose of all or any substantial part of the assets of any Credit Party or enter into any sale and leaseback transaction or arrangement with respect to any properties of any Credit Party, (without ten (10) Business Days’ prior written notice to the Bank) change the name of Guarantor or Borrower, or wind up, liquidate, or dissolve, except that Borrower may (i) sell inventory in the ordinary course of business, (ii) grant Permitted Liens, (iii) make loans and investments permitted hereunder, and (iv) dispose of assets or properties no longer necessary for the proper conduct of the business of Borrower having a value accounting, in any single transaction, to not more than $100,000. Without the prior consent of the Bank (which will not be unreasonably withheld or delayed, provided, however, that in connection with any such consent, the Bank specifically reserves the right to require such subsidiary to become a guarantor of the Liabilities hereunder), Borrower shall not create any subsidiaries.
L. Distributions. Make any Distributions other than Discretionary Excess Cash Flow Distributions which may be made so long as (i) no Event of Default has occurred and is continuing and (ii) Section 5.20 of this Agreement has been satisfied.
M. Holding Company. Guarantor shall not incur or have any liabilities (other than hereunder and liabilities in connection with the maintenance of its existence in the ordinary course of business) or, own any assets or engage in any operations or business, other than (i) ownership of the Equity Interests in Borrower, (ii) activities incidental to the maintenance of its corporate existence, or (iii) performance of its obligations under this Agreement and the other Loan Documents.
| 6.3 | Financial Covenants. Credit Parties will not: |
A. Senior Funded Debt to EBITDA Ratio. permit Borrower’s ratio of (a) total Senior Funded Debt, to (b) EBITDA (in each case measured quarterly for the twelve (12) month period ending with such fiscal quarter) to be greater than (i) 3.00 to 1.00 (for the period up to and including December 31, 2014) and thereafter (ii) 2.75 to 1.00.
Within thirty (30) days after the close of each fiscal quarter, Credit Parties shall provide to the Bank a certificate showing the current Senior Funded Debt to EBITDA Ratio.
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B. Minimum Asset Coverage Ratio. permit the Asset Coverage Ratio (measured monthly beginning at the end of the first full month after the Closing Date) to be less than (i) up to and including August 31, 2014, 0.90 to 1.00 at all times, (ii) up to and including October 31, 2014, 1.00 to 1.00 at all times, and (iii) thereafter, 1.30 to 1.00 at all times.
| 7. | Collateral. In order to secure the timely and full performance of the Liabilities, Guarantor and Borrower each hereby grants to the Bank, as further evidenced by the Security Agreement: |
| 7.1 | Security Interest. A first position security interest in all assets of Guarantor and Borrower, including, but not limited to, the following property (collectively, the “Collateral”): |
A. All present and future accounts, accounts receivable, other receivables and claims for money due, instruments, documents, chattel paper, contract rights, and general intangibles;
B. All raw materials, supplies, work-in-process, finished goods, and all other inventory of whatsoever kind or nature, wherever located, whether now owned or hereafter acquired;
C. All machinery, equipment, vehicles, furniture, tools and trade fixtures and all substitutions and replacements thereof wherever located, and all attachments, accessions, parts, and additions thereto, whether now owned or hereafter acquired;
D. All of Guarantor’s and Borrower’s deposit accounts (whether checking, savings, or otherwise) with the Bank or any other depository institution, whether now or hereafter existing and including accounts held jointly with others;
E. All monies, securities, drafts, notes, and other property of Guarantor and Borrower and the proceeds thereof, now or hereafter held or received by or on behalf of the Bank from or for Guarantor or Borrower, whether for custody, pledge, transmission or otherwise;
F. All general intangibles, whether now owned or hereafter acquired;
G. All investment property whether now owned or hereafter acquired;
H. All books and records evidencing or relating to any of the foregoing; and
I. Any and all proceeds and products of the foregoing (“Proceeds”).
Notwithstanding the foregoing, the security interest granted herein and/or in the Security Agreement shall not extend to and the term "Collateral" shall not include the following (“Excluded Property”) (i) any general intangibles (whether owned or held as licensee or lessee or otherwise including, for the avoidance of doubt, leasehold interests as lessee or sublessee under real property leases and subleases) to the extent that the granting of a security interest therein would be contrary to applicable law or create a default under any agreement governing such property, right or license (but only if such restrictions are enforceable as a matter of law); (ii) any equipment financed by another lender or lessor under documentation that prohibits the granting of a second lien thereon executed prior to the date of this Agreement or which is subject to a Permitted Lien; (iii) any intent-to-use trademarks, prior to the filing of a “Statement of Use” with respect thereto if and solely to the extent that (and so long as) any such intent-to-use trademark application would be rendered void by the attachment or creation of a security interest in the right, title or interest of Borrower therein); provided, however, that the foregoing exclusions shall not apply in any case if (x) such prohibition has been waived or such other Person has otherwise consented to the creation hereunder of a Lien and security interest in such assigned contract, General Intangible, instrument, license, chattel paper, property or asset, or (y) such prohibition, or the term that relates or gives rise thereto, would be rendered ineffective pursuant to any of Sections 9-406, 9-407, 9-408 or 9-409 of Article 9 of the Uniform Commercial Code, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code) or principles of equity; provided, further, that Excluded Property shall not include (1) Proceeds (as such term is defined in the UCC), substitutions or replacements of any Excluded Property referred to in the foregoing clauses (i), (ii) and (iii), unless such Proceeds, substitutions or replacements would otherwise constitute Excluded Property referred to in the foregoing clauses (i), (ii) and (iii), and (2) any Account, Inventory or interest in any deposit account.
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| 7.2 | Filing and Recording; Perfection. Each of Guarantor and Borrower authorizes the Bank to file financing statements and acknowledges that the Bank has filed financing statements describing the Collateral in appropriate offices in the State of California, and such other jurisdictions (including the State of Nevada) as the Bank deems appropriate. Guarantor and Borrower shall take whatever other actions are reasonably requested by the Bank to perfect and continue the Bank’s security interest in the Collateral. Upon the reasonable request of the Bank, Guarantor and Borrower will deliver to the Bank any and all of the documents and instruments evidencing or constituting the Collateral or any part thereof, together with an appropriate endorsement or assignment thereof satisfactory to the Bank, and Borrower will note the Bank’s security interest upon and all chattel paper included in the Collateral. Guarantor and Borrower each irrevocably appoints the Bank as the agent and attorney-in-fact of Guarantor and Borrower to execute such documents and take such actions as the Bank deems necessary to preserve and perfect the Bank’s security interest in the Collateral. |
| 7.3 | Cross Collateral Provision. All of the Collateral given or granted to the Bank by Guarantor and Borrower pursuant to this Agreement, shall stand as security for and shall secure the payment of all of the Liabilities and none of the Collateral shall be subject to release by the Bank until all respective obligations have been paid or otherwise satisfied. In addition, an Event of Default under the Notes, the Security Agreement and other Loan Documents shall constitute an Event of Default under all instruments evidencing Guarantor’s and Borrower’s Liabilities, which Event of Default shall entitle the Bank to exercise the remedies granted by Section 9 below or by law with respect to any or all of the Collateral as the Bank may deem appropriate. |
| 8. | Representations. |
| 8.1 | Representations by Credit Parties. Guarantor and Borrower each represents that: (a) the execution and delivery of this Agreement and the Notes and other Loan Documents, and the performance of the obligations they impose, do not violate any law, conflict with any agreement by which it is bound, or require the consent or approval of any governmental authority or other third party; (b) this Agreement and the Notes and other Loan Documents are valid and binding agreements, enforceable according to their terms, subject to bankruptcy, insolvency and similar laws affecting the rights of creditors generally and general principles of equity; (c) all balance sheets, profit and loss statements, and other financial statements and other information furnished to the Bank in connection with the Liabilities fairly reflect, in all material respects, the financial condition of the Guarantor and Borrower on their effective dates; (d) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against either Guarantor or Borrower is pending or threatened in writing, and no other event has occurred which may in any one case or in the aggregate materially adversely affect either Guarantor’s or Borrower’s financial condition and properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by the Bank in writing; (e) except as disclosed to the Bank in Section 5.6, all of Guarantor’s and Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being contested by Borrower in good faith and for which adequate reserves have been provided; (f) neither Guarantor nor Borrower is a “holding company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended; (g) attached hereto as Schedule 8.1(g) is a complete and accurate list as of the date hereof of all Material Contracts of the Credit Parties, showing the parties and subject matter thereof and amendments and modifications thereto, and each Material Contract is not in default due to the action of any Credit Party; (h) Borrower owns, or is licensed to use, all trademarks, trade names, copyrights, technology, know-how and processes necessary for the conduct of its business; (i) Borrower is a wholly owned Subsidiary of Guarantor; and (j) no part of the proceeds of the Credit Facilities will be used for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System of the United States (the “Board”) as now and from time to time hereafter in effect or for any purpose which violates the provisions of any regulations of the Board. Guarantor and Borrower each further represents that: (a) it is duly organized, existing and in good standing pursuant to the laws under which it is organized, and (b) the execution and delivery of this Agreement and the Notes and the performance of the obligations they impose (i) are within its powers, (ii) have been duly authorized by all necessary action of its governing body, and (iii) do not contravene the terms of its articles of incorporation or organization, its by-laws, or any partnership, operating or other agreement governing its affairs. |
| 8.2 | Representations Regarding Assets. With respect to any asset of Borrower utilized in the calculation of the Asset Coverage Ratio set forth in this Agreement, Guarantor and Borrower each represents and warrants to the Bank: (1) each asset represented by Borrower to be eligible for Asset Coverage Ratio purposes of this Agreement conforms to the eligibility definitions set forth in this Agreement; (2) all asset values delivered to the Bank will be true and correct, subject to immaterial variance; and be determined on a consistent accounting basis; (3) except as agreed to the contrary by the Bank in writing, each asset is now and at all times hereafter will be in Borrower’s physical possession and shall not be held by others on consignment, sale or approval, or sale or return; (4) except as reflected in schedules delivered to the Bank, each asset which constitutes inventory is now and at all times hereafter will be of good and merchantable quality, free from defects; (5) assets with an aggregate value in excess of $100,000 are not now and will not at any time hereafter be stored with a bailee, warehouseman, or similar party unless Borrower provides prompt written notice thereof to Bank, and in such event, Borrower will use its commercially reasonable efforts to either obtain a bailee waiver agreement or if the bailee has issued negotiable receipts, request that any such bailee, warehouseman, or similar party to issue and deliver to the Bank, warehouseman receipts in the Bank’s name evidencing the storage of such assets; and (6) the Bank, its assigns, or agents shall have the right at any reasonable time during normal business hours and upon reasonable notice and at Borrower’s expense to inspect, examine and audit Guarantor’s and Borrower’s records, and if Accounts are included in the calculation of Asset Coverage Ratio, confirm with Account Debtors the accuracy of such Accounts, and inspect and examine the assets and to check and test the same as to quality, quantity, value, and condition. |
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| 9. | Default and Remedies. |
| 9.1 | Events of Default. Each of the following shall constitute an “Event of Default” under this Agreement: |
A. Borrower fails to pay, (i) on the date when payment thereof is due, any principal on any one or more of the Notes, or (ii) within five (5) days after the date when payment thereof is due, any interest under any one or more of the Notes or any other fixed monetary amount due and payable under this Agreement, or any of the Notes; or
B. Any default occurs in the observance or performance of any agreement contained in Section 6; or
C. Guarantor or Borrower fails to keep or perform any other agreement, undertaking, obligation, covenant or condition set forth in this Agreement or any of the Loan Documents, other than a payment default, and such failure is not cured within thirty (30) days after the earlier of (i) Guarantor’s or Borrower’s becoming aware of such failure, or (ii) Bank’s sending written notice to Credit Parties of such failure; or
D. If default shall occur in the payment of any principal, interest, or premium with respect to any indebtedness of any Credit Party for borrowed money in excess of $100,000 and such default shall continue for more than the period of grace, if any, therein specified and shall not have been effectively waived, or if any such indebtedness shall be declared due and payable prior to the stated maturity thereof; or
E. Any representation, warranty or certification, made or given in or pursuant to this Agreement by any Credit Party or otherwise made by a Credit Party in writing in connection with this Agreement, proves to be untrue in any material respect when such representation, warranty or certification is made or given hereunder; or
F. The Collateral, or any material part thereof, is damaged or destroyed by fire or other casualty and the cost to rebuild or reconstruct exceeds the face amount of insurance actually collected or in the process of collection through diligent efforts of Borrower, and if Borrower fails to deposit or to cause to be deposited with the Bank the deficiency within thirty (30) days after the Bank’s written request therefore, unless such deficiency is less than $100,000; or
G. An order of condemnation by eminent domain proceedings is entered with respect to the Premises or any part thereof and is not dismissed or stayed within sixty (60) days after such order is entered; or
H. Any petition is filed or proceeding is commenced for any attachment, levy, or seizure of any property of any Credit Party subject to a lien in favor of the Bank; or any judgment or judgments, writ or writs, warrant or warrants of attachment, or any similar process or processes in an aggregate amount in excess of $100,000 shall be entered or filed against any Credit Party or against any property or assets of any Credit Party and remains unvacated, unbonded or unstayed for a period of thirty (30) days; or
I. If any Credit Party: shall be unable to pay its debts as they become due; files a petition to take advantage of any insolvency act; makes an assignment for the benefit of its creditors; commences a proceeding for or consents to the appointment of a receiver, trustee, liquidator, or conservator of itself or of the whole or any substantial part of its property; files a petition or answer to a petition under any chapter of the United States Bankruptcy Code, as amended, or files a petition or seeks relief under or takes advantage of any other reorganization, arrangement or readjustment of debt, insolvency, or receivership law or statute of the United States of America or any state thereof; or if there is commenced against any Credit Party any proceeding for any of the foregoing relief and such proceeding is not dismissed or stayed within thirty (30) days after the commencement thereof; or if Borrower by any act indicates its consent to, or approval or authorization of, any such proceeding or petition;
J. If, prior to the Bank’s filing of the financing statements showing a Credit Party as debtor, any other financing statement showing a Credit Party as debtor and describing any of the Collateral shall be filed by a third party that is not a holder of a Permitted Lien; or
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K. Any Credit Party opens and/or maintains any of its banking depository and disbursement relationships with any bank or other financial institution other than the Bank unless that the Bank, in its sole discretion, has permitted such relationship on such terms and conditions, and with such limitations, as the Bank may establish in its sole discretion.
| 9.2 | Bank Remedies. After the occurrence and during the continuance of any Event of Default, after any applicable cure period has expired, the Bank shall have the right in addition to all the remedies conferred upon the Bank by law or equity or the terms of any of the Loan Documents, to do any or all of the following, concurrently or successively, without notice to Borrower (except as provided in the Security Agreement): |
A. Declare the Notes to be, and those notes shall thereupon become, immediately due and payable without prior notice to Borrower; and
B. Terminate the Bank’s obligations under this Agreement to extend credit of any kind or to make any disbursement, whereupon the commitment and obligations of the Bank to extend credit or to make disbursements hereunder shall terminate; and
C. Exercise on behalf of itself all or any of its rights and remedies of a secured party under this Agreement, under any of the Loan Documents, under the Uniform Commercial Code, and otherwise, including, without limitation, the right to foreclose the security interest granted herein by any available judicial or other procedure and/or to take possession of any or all of the Collateral and the books and records relating thereto with or without judicial process, for which purpose the Bank may enter on any or all of the Premises where any of the Collateral or books or records may be situated and take possession and remove the same therefrom in accordance with applicable law; proceed to protect and enforce its rights or remedies either by suit in equity or by action at law, or both; require Borrower to assemble any or all of the Collateral and any or all certificates of title and other documents relating to the Collateral at a place designated by the Bank; charge or set off all sums owing to the Bank by Borrower against any and all of Borrower’s accounts (including accounts held jointly with others) and credit balances at the Bank, regardless of the stated maturity thereof; exercise in Borrower’s name all rights with respect to the Collateral, including the right to collect any and all money due or to become due, endorse checks, notes, drafts, instruments, or other evidences of payment, receive and open mail addressed to Borrower, and settle, adjust, or compromise any dispute with respect to any item of Collateral; and to cause all or any part of the Collateral to be transferred to or registered in its name or in the name of any other Person, with or without designating the capacity of that nominee.
D. Without limiting any other available remedy, Borrower is liable for any deficiency remaining after disposition of any Collateral. Borrower is liable to the Bank for all reasonable costs and expenses of every kind incurred (or charged by internal allocation) in connection with the negotiation, preparation, execution, filing, recording, modification, supplementing and waiver of any Loan Documents and the making, servicing and collection of the Note or the other Loan Documents and any other amounts owed under the Note or the other Loan Documents, including without limitation reasonable attorneys’ fees and court costs. These costs and expenses include without limitation any costs or expenses incurred by the Bank in any bankruptcy, reorganization, insolvency or other similar proceeding.
E. The order and manner in which Bank’s rights and remedies are to be exercised shall be determined by Bank in its sole and absolute discretion. Regardless of how Bank may treat payments for the purpose of its own accounting, for the purpose of computing the Liabilities under each Loan Document, payments shall be applied first, to costs and expenses (including attorney costs) incurred by Bank, second, to the payment of accrued and unpaid interest on the Notes to and including the date of such application, third, to the payment of the unpaid principal of the Notes, and fourth, to the payment of all other amounts (including fees) then owing to Bank under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of Bank hereunder or thereunder or at Law or in equity.
| 9.3 | Waivers. Each Obligor waives: (a) to the extent not prohibited by law, all rights and benefits under any laws or statutes regarding sureties, as may be amended; (b) any right to receive notice of the following matters before the Bank enforces any of its rights: (i) the Bank’s acceptance of this Note, (ii) any credit that the Bank extends to Borrower, (iii) Borrower’s default, (iv) any demand, diligence, presentment, dishonor and protest, or (v) any action that the Bank takes regarding Borrower, anyone else, any Collateral, or any of the Liabilities, that it might be entitled to by law, under any other agreement, in equity or otherwise; (c) any right to require the Bank to proceed against Borrower, any other Obligor, or any Collateral, or pursue any remedy in the Bank’s power to pursue; (d) any defense based on any claim that any endorser’s or other Obligor’s obligations exceed or are more burdensome than those of Borrower; (e) the benefit of any statute of limitations affecting liability of any endorser or other Obligor or the enforcement hereof; (f) any defense arising by reason of any disability or other defense of Borrower or by reason of the cessation from any cause whatsoever (other than payment in full) of the obligation of Borrower for the Liabilities; and (g) any defense based on or arising out of any defense that Borrower may have to the payment or performance of the Liabilities or any portion thereof. Each Obligor consents to any extension or postponement of time of its payment without limit as to the number or period, to any substitution, exchange or release of all or any part of the Collateral, to the addition of any other Person, and to the release or discharge of, or suspension of any rights and remedies against, any Obligor. The Bank may waive or delay enforcing any of its rights without losing them. Any waiver affects only the specific terms and time period stated in the waiver. No modification or waiver of any provision of this Note is effective unless it is in writing and signed by the Person against whom it is being enforced. |
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| 9.4 | Cooperation. Borrower agrees to fully cooperate with the Bank and not to delay, impede or otherwise interfere with the efforts of the Bank to secure payment from the Collateral including actions, proceedings, motions, orders, agreements or other matters relating to relief from automatic stay, abandonment of Property, use of cash Collateral and sale of the Collateral free and clear of all Liens. |
| 9.5 | Rights and Remedies Cumulative. All of the Bank’s rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by the Bank to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower under this Agreement, after the failure of Borrower to perform, shall not affect the Bank’s right to declare a default and to exercise its remedies. |
| 9.6 | Prior Events of Default. Bank hereby waives any Default or Event of Default under the Existing Credit Agreement relating to any of the following: (i) the failure to disclose the Unsecured Convertible Note, dated as of March 24, 2014, issued by the Borrower to Pareall International Limited, (ii) the failure to disclose the Letter of Intent, dated March 19, 2014, between Borrower and Guarantor, (iii) Borrower’s issuance of its Convertible Promissory Note to Colgan on May 29, 2014 in the original principal amount of $175,000, (iv) Borrower’s failure to timely deliver a copy of its financial reports as of May 31, 2014 and as of June 30, 2014 pursuant to Section 4.5A of the Existing Credit Agreement, (v) Borrower’s failure to timely file taxes by June 1, 2014 or otherwise comply with Section 5.6 of the Existing Credit Agreement and (vi) Borrower’s non-compliance with Section 5.3B of the Existing Credit Agreement as of June 30, 2014 due to its Asset Coverage Ratio being reported as .87 to 1 on July 22, 2014. |
For the avoidance of doubt, Bank reserves all rights under the Existing Credit Agreement with respect to any other Default or Event of Default which may have occurred at any time prior to the effectiveness of this Agreement or hereafter, including, without limitation, any violation or potential prior or future violation of the Financial Covenants contained in Section 5.3 of the Existing Credit Agreement or Section 6.3 of this Agreement, regardless of any written or oral disclosure delivered to Bank prior to the date hereof. The execution of this Agreement shall not constitute a waiver of any rights and/or remedies which Bank may be entitled to pursue under the Existing Credit Agreement other than those specifically listed in this Section 9.6.
| 10. | Guaranty. |
| 10.1 | The Guaranty. |
(a) The Guarantor, as primary obligor and not merely as a surety, hereby irrevocably, absolutely and unconditionally guarantees to the bank and each of its successors, endorsees, transferees and assigns (each a “Beneficiary” and collectively, the “Beneficiaries”) the prompt and complete payment by the Borrower, as and when due and payable, of the Liabilities, in accordance with the terms of the Loan Documents. The provisions of this Section 10 are sometimes referred to hereinafter as the “Guaranty”.
(b) The Guarantor hereby guarantees that the Liabilities now or hereafter acquired will be paid and payable strictly in accordance with the terms of the Loan Documents, regardless of any law now or hereafter in effect in any jurisdiction affecting any such terms or the rights of the Beneficiaries with respect thereto. The obligations and liabilities of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any of the Liabilities or any Loan Document, or any delay, failure or omission to enforce or agreement not to enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise of any right with respect to the foregoing (including, in each case, without limitation, as a result of the insolvency, bankruptcy or reorganization of any Beneficiary, the Borrower or any other Person); (ii) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Liabilities, or any other amendment or waiver of or consent to any departure from the Loan Documents or any agreement or instrument relating thereto; (iii) any fully or partial release of Borrower or any other Person liable to repay the Liabilities as a guarantor, surety or co-borrower; (iv) any exchange or release of, or non-perfection of any Lien on or in any collateral, or any release, amendment or waiver of, or consent to any departure from, any other guaranty of, or agreement granting security for, all or any of the Liabilities; (v) any claim, set-off, counterclaim, defense or other rights that the Guarantor may have at any time and from time to time against any Beneficiary or any other Person, whether in connection with this transaction or any unrelated transaction; or (vi) all rights and defenses relevant to Section 2856(a) of the California Civil Code and any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any other guarantor or surety in respect of the Liabilities or the Guarantor in respect hereof.
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(c) The Guaranty provided for herein (i) is a guaranty of payment and not of collection; (ii) is a continuing guaranty and shall remain in full force and effect until the Credit Facilities have been terminated and the Liabilities have been paid in full in cash; and (iii) shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment, or any part thereof, of any of the Liabilities is rescinded or must otherwise be returned by any Beneficiary upon or as a result of the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or otherwise, all as though such payment had not been made.
(d) The obligations and liabilities of the Guarantor hereunder shall not be conditioned or contingent upon the pursuit by any Beneficiary or any other Person at any time of any right or remedy against the Borrower or any other Person that may be or become liable in respect of all or any part of the Liabilities or against any collateral security or guaranty therefor or right of setoff with respect thereto.
(e) The Guarantor hereby consents that, without the necessity of any reservation of rights against the Guarantor and without notice to or further assent by the Guarantor, any demand for payment of any of the Liabilities made by any Beneficiary may be rescinded by such Beneficiary and any of the Liabilities continued after such rescission.
(f) The Guarantor’s obligations under this Guaranty shall be unconditional, irrespective of any lack of capacity of the Borrower or any lack of validity or enforceability of any other provision of this Agreement or any other Loan Document, and this Guaranty shall not be affected in any way by any variation, extension, waiver, election of remedies, compromise or release of any or all of the Liabilities or of any security or guaranty from time to time therefor.
(g) The obligations of the Guarantor under this Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding or action, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, marshalling of assets, assignment for the benefit of creditors, composition with creditors, readjustment, liquidation or arrangement of the Borrower or any similar proceedings or actions, or by any defense the Borrower may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding or action. Without limiting the generality of the foregoing, the Guarantor’s liability shall extend to all amounts and obligations that constitute the Liabilities and would be owed by the Borrower, but for the fact that they are unenforceable or not allowable due to the existence of any such proceeding or action.
| 10.2 | Waivers. |
(a) The Guarantor hereby unconditionally waives: (i) promptness and diligence; (ii) notice of or proof of reliance by the Bank upon this Guaranty or acceptance of this Guaranty; (iii) notice of the incurrence of any Liabilities by the Borrower or the renewal, extension or accrual of any Liabilities or of any circumstances affecting the Borrower’s financial condition or ability to perform the Liabilities; (iv) notice of any actions taken by the Beneficiaries or the Borrower or any other Person under any Loan Document or any other agreement or instrument relating thereto; (v) notice or proof of nonpayment of the Liabilities and all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Liabilities, of the obligations of the Guarantor hereunder or under any other Loan Document, the omission of or delay in which, but for the provisions of this Section 10 might constitute grounds for relieving the Guarantor of its obligations hereunder; (vi) any requirement that the Beneficiaries protect, secure, perfect or insure any Lien or any property subject thereto, or exhaust any right or take any action against the Borrower or any other Person to collect the Liabilities or realize upon any collateral or join any such Person in any action to enforce this Guaranty; and (vii) each other suretyship defense that at any time may be available in respect of Guarantor’s obligations hereunder by virtue of any statute or law, including any statute of limitations, valuation, stay, moratorium, bankruptcy or similar law affecting Guarantor’s obligations hereunder, including any duty, obligation or defense arising or available under California Civil Code Sections 2839, 2845, 2849 and 2850.
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(b) No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder or under any Loan Document or any other agreement or instrument relating thereto shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any Loan Document or any other agreement or instrument relating thereto preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. This Guaranty is in addition to and not in limitation of any other rights, remedies, powers and privileges the Beneficiaries may have by virtue of any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by the Guarantor or any other Person or by applicable law or otherwise. All rights, remedies, powers and privileges of the Beneficiaries shall be cumulative and may be exercised singly or concurrently. The rights, remedies, powers and privileges of the Beneficiaries under this Guaranty against the Guarantor are not conditional or contingent on any attempt by the Beneficiaries to exercise any of their rights, remedies, powers or privileges against any other guarantor or surety or under the Loan Documents or any other agreement or instrument relating thereto against the Borrower or against any other Person.
(c) The Guarantor hereby acknowledges and agrees that, until the Credit Facilities (including all obligations to make advances under the Line of Credit) have been terminated and all of the Liabilities have been paid in full in cash, under no circumstances shall it be entitled to be subrogated to any rights of any Beneficiary in respect of the Liabilities performed by it hereunder or otherwise, and the Guarantor hereby expressly and irrevocably waives, until the Credit Facilities (including all obligations to make advances under the Line of Credit) have been terminated and all of the Liabilities have been paid in full in cash, (i) each and every such right of subrogation and any claims, reimbursements, right or right of action relating thereto (howsoever arising), and (ii) each and every right to contribution, indemnification, set-off or reimbursement, whether from the Borrower or any other Person now or hereafter primarily or secondarily liable for any of the Liabilities, and whether arising by contract or operation of law or otherwise by reason of the Guarantor’s execution, delivery or performance of this Guaranty.
(d) The Guarantor represents and warrants that it has established adequate means of keeping itself informed of the Borrower’s financial condition and of other circumstances affecting the Borrower’s ability to perform the Liabilities, and agrees that Bank shall not have any obligation to provide to the Guarantor any information it may have, or hereafter receive, in respect of the Borrower.
(e) In the event that Guarantor shall breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Bank, pay Bank all reasonable and actual, out-of-pocket third party costs and expenses (including court costs and attorneys’ fees) incurred by Bank in the enforcement hereof or the preservation of Bank’s rights hereunder, together with interest thereon at then applicable Note Rate (as defined in each Note) from the date requested by Bank until the date of payment to Bank. The covenant contained in this Section shall survive the payment and performance of the guaranteed obligations.
(f) In the event that pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or decision thereunder, Bank must rescind or restore any payment or any part thereof received by Bank in satisfaction of the guaranteed obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Bank shall be without effect and this Guaranty shall remain (or shall be reinstated to be) in full force and effect. It is the intention of Borrower and Guarantor that Guarantor’s obligations hereunder shall not be discharged except by Guarantor’s performance of such obligations and then only to the extent of such performance.
| 11. | Miscellaneous. |
| 11.1 | Notice. Any communications, requests or notices required or appropriate to be given under this Agreement shall be in writing and addressed to the party from the notice intended as follows: |
| ANY CREDIT PARTY: | c/o Greenwood & Hall |
| 1936 East Deere Avenue | |
| #120 | |
| Santa Ana, California 92705 | |
| Attn: John Hall | |
| Email: jhall@greenwoodhall.com | |
| with a copy to: | DLA Piper LLP (US) |
| 2000 University Avenue | |
| East Palo Alto, CA 94303-2215 | |
| Attn: Michael Standlee | |
| Email: Michael.Standlee@dlapiper.com |
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| BANK: | Opus Bank |
| 303 Twin Dolphin Drive | |
| #6006 | |
| Redwood City, California 94065 | |
| Attn: Douglas Stewart, Managing Director | |
| Telephone: (650) 632-4256 | |
| E-mail: dstewart@opusbank.com | |
| and: | |
| Schiff Hardin LLP | |
| 233 South Wacker Drive, Suite 6600 | |
| Chicago, Illinois 60606-6473 | |
| Attn: Sean T. Maloney | |
| Email: smaloney@schiffhardin.com |
Any notices and demands required under this Agreement shall be in writing and delivered to the intended party at its address above by one of the following means: (a) by hand, (b) by a nationally recognized overnight courier service, (c) by email or (d) by certified mail, postage prepaid, with return receipt requested. Notice shall be deemed given: (a) upon receipt if delivered by hand, (b) on the Delivery Day after the day of deposit with a nationally recognized courier service, (c) on the Delivery Day sent if sent by email, or (d) on the third Delivery Day after the notice is deposited in the mail. “Delivery Day” means a day other than a Saturday, a Sunday or any other day on which national banking associations are authorized to be closed. Any party may change its address for purposes of the receipt of notices and demands by giving notice of such change in the manner provided in this provision.
| 11.2 | No Waiver. No delay on the part of the Bank in the exercise of any right or remedy waives that right or remedy. No single or partial exercise by the Bank of any right or remedy precludes any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by the Bank of any default is effective unless it is in writing and signed by the Bank, nor shall a waiver on one occasion bar or waive that right on any future occasion. |
| 11.3 | Integration. This Agreement, the Notes, the Loan Documents embody the entire agreement and understanding between Credit Parties and the Bank and supersede all prior agreements and understandings relating to their subject matter. If any one or more of the obligations of Guarantor or Borrower under this Agreement or the Notes is invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of Guarantor and Borrower shall not in any way be affected or impaired, and the invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the obligations of Guarantor or Borrower under this Agreement or the Notes in any other jurisdiction. |
| 11.4 | Governing Law and Venue. This Agreement is delivered in the State of California and governed by California law (without giving effect to its laws of conflicts). Guarantor and Borrower each agrees that any legal action or proceeding with respect to any of its obligations under this Agreement may be brought by the Bank in any state or federal court located in the State of California, as the Bank in its sole discretion may elect. By the execution and delivery of this Agreement, Guarantor and Borrower each submits to and accepts, for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of those courts. Guarantor and Borrower each waives any claim that the State of California is not a convenient forum or the proper venue for any such suit, action or proceeding. |
| 11.5 | Captions. Section headings are for convenience of reference only and do not affect the interpretation of this Agreement. |
| 11.6 | Subsidiaries of Credit Parties. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the words “Guarantor” and “Borrower” as used in this Agreement shall include all of such Credit Party’s subsidiaries. Notwithstanding the foregoing, however, under no circumstances shall this Agreement be construed to require the Bank to make any loan or other financial accommodation to any of such Credit Party’s subsidiaries. |
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| 11.7 | Survival of Representations and Warranties. Each Credit Party understands and agrees that in extending the Credit Facilities, the Bank is relying on all representations, warranties, and covenants made by each Credit Party in this Agreement or in any certificate or other instrument delivered by any Credit Party to the Bank under this Agreement. Each Credit Party further agrees that regardless of any investigation made by the Bank, all such representations, warranties and covenants will survive the making of the Credit Facilities and delivery to the Bank of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as each Credit Party’s indebtedness to the Bank shall be paid in full. |
| 11.8 | Non-Liability of the Bank. The relationship between the Credit Parties and the Bank created by this Agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between the Bank and any Credit Party. Each Credit Party is exercising its own judgment with respect to Borrower’s business. All information supplied to the Bank is for the Bank’s protection only and no other party is entitled to rely on such information. There is no duty for Bank to review, inspect, supervise or inform any Credit Party of any matter with respect to Borrower’s business. The Bank and each Credit Party intend that the Bank may reasonably rely on all information supplied by each Credit Party to the Bank, together with all representations and warranties given by each Credit Party to the Bank, without investigation or confirmation by the Bank and that any investigation or failure to investigate will not diminish the Bank’s right to so rely. |
| 11.9 | Indemnification of the Bank. Each Credit Party agrees to indemnify, defend and hold the Bank and any of its subsidiaries or affiliates or their successors, and each of their respective shareholders, directors, officers, employees and agents (collectively, the “Indemnified Persons”) harmless from any and all obligations, claims, liabilities, losses, damages, penalties, fines, forfeitures, actions, judgments, suits, costs, expenses and disbursements of any kind or nature (including, without limitation, any Indemnified Person’s reasonable attorneys’ fees) (collectively, the “Claims”) which may be imposed upon, incurred by or assessed against any Indemnified Person arising out of or relating to this Agreement; the exercise of the rights and remedies granted under this Agreement (including, without limitation, the enforcement of this Agreement and the defense of any Indemnified Person’s action or inaction in connection with this Agreement); and in connection with Borrower’s failure to perform all of Borrower’s obligations under this Agreement, except to the limited extent that the Claims against any such Indemnified Person are proximately caused by such Indemnified Person’s negligence or willful misconduct. The indemnification provided for in this section shall survive the termination of this Agreement and shall extend to and continue to benefit each individual or entity who is or has at any time been an Indemnified Person. |
Each Credit Party’s indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting any Credit Party’s assets or Credit Party’s business activities. Should any Claim be made or brought against any Indemnified Person by reason of any event as to which Borrower’s indemnification obligations apply, then, upon any Indemnified Person’s demand, each Credit Party, at its sole cost and expense, shall defend such Claim in such Credit Party’s name, if necessary, by the attorneys for such Credit Party’s insurance carrier (if such Claim is covered by insurance), or otherwise by such attorneys as any Indemnified Person shall approve. Any Indemnified Person may also engage its own attorneys at its reasonable discretion to defend any Credit Party and to assist in its defense and each Credit Party agrees to pay the fees and disbursements of such attorneys.
| 11.10 | Counterparts. This Agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement. |
| 11.11 | Sole Discretion of the Bank; Exclusive Right of the Bank to Take Action. Whenever any consent, determination, approval or other action of the Bank is required or permitted under this Agreement, any such determination and the decision as to whether or not to consent or approve or take such other action shall be in the sole and exclusive reasonable discretion of the Bank, and only the Bank, and the Bank’s decision shall be final and conclusive and no other action, consent, determination or approval shall be required. |
| 11.12 | Advice of Counsel. Each Credit Party acknowledges that it has been advised by counsel, or had the opportunity to be advised by counsel, in the negotiation, execution and delivery of this Agreement and any documents executed and delivered in connection with the Credit Facilities. |
| 11.13 | [Reserved]. |
| 11.14 | Conflicting Terms. If this Agreement is inconsistent with any provision in any agreement related to the Credit Facilities, the Bank shall determine, in the Bank’s sole and absolute discretion, which of the provisions shall control any such inconsistency. |
| 22 |
| 11.15 | Fees Expenses. Credit Parties shall promptly pay or reimburse the Bank for all reasonable expenses, regardless of whether the loans are disbursed in whole or in part, incurred in connection with the issuance of the Bank’s commitment letter and the making of the loans, including, but not limited to, preparation and review of all Loan Documents by the Bank’s outside counsel, taxes of any kind, appraisal, recording costs, inspection costs and attorney’s fees. Borrower shall pay promptly to the Bank on demand reasonable attorneys’ fees and all costs and other expenses paid or incurred by the Bank in duly enforcing or exercising its rights or remedies created by, connected with or provided in this Agreement, the Notes, or the other Loan Documents or as a result of any litigation or threatened litigation or the preparation therefore in which the Bank is a party or threatened to be made a party and which in any way whatsoever relates to this Agreement. These costs and expenses include without limitation any costs or expenses incurred by the Bank in any bankruptcy, reorganization, insolvency or other similar proceeding. |
| 11.16 | Indemnity Agreement. Borrower agrees to indemnify, defend, and hold the Bank harmless from and against any and all losses, damages, liabilities, and expenses (including reasonable attorneys’ fees) the Bank may sustain as a consequence of the occurrence of any Event of Default or the breach or inaccuracy of any representation and warranty made by Borrower in this Agreement or any document, financial statement, credit information, certificate, or statement furnished to the Bank. Borrower agrees to indemnify, defend, and hold the Bank harmless from and against any and all losses, damages, liabilities, and expenses (including reasonable attorneys’ fees) that at any time or from time to time may be paid, incurred, or suffered by, or asserted against, the Bank for, with respect to, or as a direct or indirect result of the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, or release from, the Premises or any part thereof, into or upon any land, the atmosphere, or any water course, body of water, or wet lands, of any Hazardous Material occurring during or prior to the period of ownership of the Premises or any part thereof by Borrower or as a result of conditions existing during such period (including, without limitation, any losses, liabilities, damages, or expenses asserted or arising under any applicable law or regulation). The provisions of and undertakings and indemnification set forth in this section shall survive the payment of the Notes and the other obligations of Borrower to the Bank |
| 12. | USA PATRIOT ACT NOTIFICATION. The following notification is provided to each Credit Party pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318: |
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for Borrower: When Borrower opens an account, if Borrower is an individual Bank will ask for Borrower’s name, taxpayer identification number, residential address, date of birth, and other information that will allow Bank to identify Borrower, and if Borrower is not an individual Bank will ask for Borrower’s name, taxpayer identification number, business address, and other information that will allow Bank to identify Borrower. Bank may also ask, if Borrower is an individual to see Borrower’s driver’s license or other identifying documents, and if Borrower is not an individual to see Borrower’s legal organizational documents or other identifying documents.
| 13. | Judicial Reference Waiver of Jury Trial. In all the Loan Documents the sections regarding “Jury Trial Waiver” are hereby deleted in their entirety and all claims in connection with the Loan Documents shall be determined by a consensual general judicial reference, pursuant to the provisions of California Code of Civil Procedure §§ 638 et seq., as such statutes may be amended or modified from time to time, and as more fully set forth in Exhibit C. |
| 14. | WAIVER OF SPECIAL DAMAGES. EACH CREDIT PARTY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. |
[Rest of Page Intentionally Blank; Signatures Appear on Following Page]
| 23 |
| PCS Link, Inc., d/b/a Greenwood & Hall, a California Corporation | ||
| By: | /S/ John Hall | |
| Printed Name: John Hall | ||
| Its: Chief Executive Officer | ||
| Date Signed: | 7/23/14 |
| Greenwood Hall, Inc., a Nevada corporation (formerly | ||
| known as Divio Holdings Corp., a Nevada corporation) | ||
| By: | /S/ John Hall | |
| Printed Name: John Hall | ||
| Its: Chief Executive Officer | ||
| Date Signed: | 7/23/14 |
| Opus Bank | ||
| By: | /S/ Douglas Stewart | |
| Printed Name: Douglas Stewart | ||
| Its: Managing Director – Technology Banking | ||
| Date Signed: | 7/18/14 |
Exhibit 10.8
First Amendment, Waiver and Ratification
dated as of December 12, 2014
Among
PCS Link, Inc. d/b/a Greenwood & Hall,
as the Borrower,
Greenwood Hall, Inc.,
as the Guarantor,
and
Opus Bank
as Bank
Re Amended and Restated Credit Agreement dated as of July 18, 2014
First Amendment, Waiver and Ratification
This First Amendment, Waiver and Ratification dated as of December 12, 2014 (this “Amendment”) is by and among (a) PCS Link, Inc. d/b/a Greenwood & Hall, a California corporation (the “Borrower”), (b) Greenwood Hall, Inc., a Nevada corporation (the “Guarantor” and together with the Borrower, the “Credit Parties”), and (c) Opus Bank, a California commercial bank, as Bank (“Bank”). All capitalized terms used herein without definition shall have the same meanings herein as such terms are defined in the below defined Loan Agreement.
Witnesseth:
Whereas, the Credit Parties and Bank entered into that certain Amended and Restated Credit Agreement dated as of July 18, 2014 (as amended, the “Loan Agreement”).
Whereas, the parties hereto wish to (a) amend the financial covenants contained in Section 6.3 of the Loan Agreement, (b) amend the requirements for extensions of credit under Facility B, and the required use of the proceeds thereunder, pursuant to Section 2.3 of the Loan Agreement and (c) waive certain Events of Default relating to the Credit Parties’ failure to comply with certain Financial Covenants contained in Section 6.3 of the Loan Agreement, provided that certain conditions are met by the Credit Parties.
Whereas, concurrently herewith, the parties hereto are entering into that certain Omnibus Amendment, Reaffirmation and Ratification with California United Bank and Colgan to, among other things, permit certain payments to California United Bank and Colgan, as described therein.
Now, Therefore, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:
Section 1. Amendments. From and after the Effective Date, the Loan Agreement is hereby amended as follows:
(a) Section 2.3 of the Loan Agreement is hereby amended by deleting the reference to “Section 4.3” in the first clause thereof and replacing the same in its entirety with “Sections 4.3 and 4.4”:
(b) Section 4 of the Loan Agreement is hereby amended by inserting a new Section 4.4 at the end thereof as follows:
“4.4 Conditions Precedent to Extensions of Credit after the Amendment No. 1 Effective Date. Before any extension of credit under the Line of Credit/Facility B governed by this Agreement after the Amendment No. 1 Effective Date, whether by disbursement of a loan, or otherwise, the Credit Parties shall provide to the Bank evidence acceptable to Bank that the Asset Coverage Ratio exceeds 1.00 to 1.00 and can demonstrate to Bank that the Asset Coverage Ratio will remain in excess of 1.00 to 1.00 for the foreseeable future, provided that (i) the first such extension of credit shall not occur until after December 31, 2014 and be no greater than $300,000 (which shall be used to payoff the remaining balance of the CUB RLOC Debt pursuant to Section 2.3) and (ii) no additional extension of credit shall occur until after all indebtedness owed by the Credit Parties to Colgan and/or California United Bank has been paid in full. If the Bank determines that any evidence is not satisfactory to it in its sole discretion, the Bank shall be entitled to request and receive additional information and documentation to its satisfaction prior to any such extension of credit.”
| -1- |
(c) Section 6.3 of the Loan Agreement is hereby amended by deleting the same in its entirety and inserting the following in lieu thereof:
“6.3 Financial Covenants. Credit Parties will not:
A. Senior Funded Debt to EBITDA Ratio. permit Borrower’s ratio of (a) total Senior Funded Debt (measured quarterly for the twelve (12) month period ending with such fiscal quarter), to (b) EBITDA to be greater than 3.00 to 1.00. For purposes of this Section 6.3, EBITDA shall be measured quarterly using (i) for the fiscal quarter ending March 31, 2015, annualized EBITDA based on actual EBITDA for the fiscal quarter ending March 31, 2015, and (ii) for each fiscal quarter thereafter, annualized EBITDA for the immediately preceding period of four (4) fiscal quarters.
Within thirty (30) days after the close of each fiscal quarter, Credit Parties shall provide to the Bank a certificate showing the current Senior Funded Debt to EBITDA Ratio.
B. Minimum Asset Coverage Ratio. permit the Asset Coverage Ratio (measured monthly beginning at the end of the first full month after the Closing Date) to be less than (i) for the period beginning up to and including August 31, 2014, 0.90 to 1.00 at all times, (ii) for the period beginning up to and including June 30, 2015, 1.00 to 1.00 at all times, and (iii) thereafter, 1.10 to 1.00 at all times.”
Section 2. Waiver. From and after the Effective Date (as defined below), the Bank hereby waives any Default or Event of Default arising under the Loan Agreement due to the failure of the Credit Parties to comply with (a) the requirements of Section 6.3A of the Loan Agreement (Senior Funded Debt to EBITDA Ratio) for the fiscal quarters ending June 30, 2014 and September 30, 2014 and (b) the requirements of Section 6.3B of the Loan Agreement (Minimum Asset Coverage Ratio) for the months of August 2014, September 2014 and October 2014.
Notwithstanding the above waivers, such Defaults or Events of Default shall not be considered waived for the purposes of Sections 6.2L (Distributions) or 4.2B (No Default) of the Loan Agreement.
Section 3. Representations and Warranties. Each Credit Party hereby represents and warrants to Bank as follows:
| -2- |
(a) After giving effect to this Amendment , no Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by each Credit Party of this Amendment has been duly authorized by all necessary corporate and other action, no registration with, consent or approval of, or notice to or action by, any Person (including any governmental authority) is required in order to be effective and enforceable.
(c) This Amendment and each of the other Loan Documents constitute the legal, valid and binding respective obligations of each Credit Party, enforceable against it in accordance with their respective terms.
(d) All representations and warranties of each Credit Party in the Loan Documents are true and correct in all material respects as of the date hereof (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct in all material respects as of such earlier date).
(e) Each Credit Party is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon Bank or any other Person.
(f) Each Credit Party’s respective obligations under the Loan Agreement and under the other Loan Documents, as applicable, are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim.
Section 4. Continuing Effectiveness; Ratification of Loan Documents. Each of the Loan Documents shall remain in full force and effect and each of the agreements, guarantees and obligations contained therein (as amended hereby) is hereby ratified and confirmed in all respects.
Section 5. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment.
Section 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
Section 7. Successors and Assigns. This Amendment shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the benefit of the parties hereto, and their respective successors and assigns.
| -3- |
Section 8. Effectiveness. The amendments and waivers set forth herein shall become effective on the date (the “Effective Date”) when the Bank shall have (a) executed this Amendment, (b) received counterparts of this Amendment executed by each Credit Party, (c) received, prior to 5:00pm Pacific Standard Time on December 12, 2014, evidence that Colgan has purchased a $500,000 convertible note issued by the Guarantor, in form and substance satisfactory to Bank and its legal counsel, and that such $500,000 has been received by the Credit Parties and the proceeds thereof deposited into the Designated Deposit Account, (d) received, prior to 5:00pm Pacific Standard Time on December 12, 2014, in form and substance satisfactory to Bank and its legal counsel, an executed Subscription Agreement providing for, among other things, a $500,000 purchase of the capital stock of the Guarantor on or prior to December 31, 2014, (d) received, on or prior to December 31, 2014, in form and substance satisfactory to Bank and its legal counsel, evidence that the $500,000 referred to in clause (c) above has been received by the Credit Parties and the proceeds thereof deposited into the Designated Deposit Account, and (e) received payment of all fees and expenses of Bank as required by Section 11.15 of the Loan Agreement.
Section 9. Entire Agreement. This Amendment constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.
[signature pages follow]
| -4- |
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first set forth above.
| PCS Link, Inc., d/b/a Greenwood & Hall, as the Borrower | ||
| By: | /s/ John Hall | |
| Printed Name: John Hall | ||
| Its: Chief Executive Officer | ||
| Greenwood Hall, Inc., as the Guarantor | ||
| By: | /s/ John Hall | |
| Printed Name: John Hall | ||
| Its: Chief Executive Officer | ||
| Opus Bank, as Bank | ||
| By: | /s/ Douglas Stewart | |
| Printed Name: Douglas Stewart | ||
| Its: Managing Director – Technology Banking | ||
Exhibit 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONSENT
We hereby consent to the use in this Registration Statement on Form S-1 of our report dated December 12, 2014, with respect to the consolidated financial statements of Greenwood Hall, Inc. and Subsidiaries as of and for the eight months ended August 31, 2014 and as of and for the years ended December 31, 2013 and 2012. Our report relating to the consolidated financial statements contains an explanatory paragraph regarding the Company’s ability to continue as a going concern. We also consent to the reference of our firm under the caption “Experts” in the Registration Statement.
Rose, Snyder & Jacobs LLP
|
/s/ Rose, Snyder & Jacobs LLP Encino, California March 20, 2015 |
|
CONCENTRATIONS (Details Narratives) (Customer Concentration Risk [Member])
|
3 Months Ended | 8 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
|
Nov. 30, 2014
|
Nov. 30, 2013
|
Aug. 31, 2014
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
|
Accounts Receivable [Member]
|
|||||
| Concentration Risk [Line Items] | |||||
| Concentration Risk, Percentage | 57.00% | 48.00% | 29.00% | 71.00% | 43.00% |
|
Sales Revenue, Services, Net [Member]
|
|||||
| Concentration Risk [Line Items] | |||||
| Concentration Risk, Percentage | 67.00% | 52.00% | 34.00% | 30.00% | 48.00% |