ASNB EKIMAS Corporation (PK)

PROPOSAL 1: ASSET SALE PROPOSAL

Information about the Parties

The Company

AdvanSource Biomaterials Corporation develops advanced polymer materials which provide critical characteristics in the design and development of medical devices. Our biomaterials are used in devices that are designed for treating a broad range of anatomical sites and disease states. Our business model leverages our proprietary materials science technology and manufacturing expertise in order to expand product sales and royalty and license fee income.

Our technology, notably products such as ChronoFlex®, HydroMed™, and HydroThane™, which have been developed to overcome a wide range of design and functional challenges, such as the need for dimensional stability, ease of manufacture and demanding physical properties to overcoming environmental stress cracking and providing heightened lubricity for ease of insertion. Our new product extensions customize proprietary polymers for specific customer applications in a wide range of device categories.

Our corporate, development and manufacturing operations are located in our leased facility in Wilmington, Massachusetts. Our common stock is quoted on the OTCQB tier of The OTC Markets under the ticker symbol “ASNB.”

Buyer

Buyer is a specialty chemical company and direct subsidiary of Mitsubishi Chemical America, Inc., the regional headquarters in North America of Mitsubishi Chemical Corporation. The Mitsubishi Chemical group of companies operate over 350 affiliates in more than 30 countries, with annual revenue in excess of $24 billion. Leveraging its affiliates’ manufacturing capabilities and expertise in R&D, sales, and marketing, Buyer seeks to innovate in compounding polymerization and polymer modification technologies for the 21^st century, with a view towards sustainability practices in a circular economy.

Buyer operates facilities in Bellevue, Ohio, Warren, Michigan, Greer, South Carolina, and Brazil. Buyer’s product portfolio includes: Tefabloc™, Thermorun™, Trexprene™ and Zelas™ thermoplastic elastomers; Modic™ functional polyolefins; Linklon™ cross-linked polyolefins; Olefista™ non-halogenated fire retardant polyolefins; Marfyflo™, Sunprene™, and Vinika™ polyvinylchloride elastomers; and BIOPBS™, DURABIO™, and Forzeas™ bio-sustainable thermoplastic resins.

Buyer’s products and expertise are used in a wide variety of specialized commercial applications in the packaging, construction, wire & cable, consumer, medical, 3D printing, and automotive industries.

The mailing address of Buyer’s principal executive office is 2001 Hood Road, Greer, South Carolina 29650 and its telephone number is (866) 955-1660.

General Description of the Asset Sale Transaction 

Subject to the terms and conditions of the Asset Purchase Agreement, including the approval of the Asset Sale Proposal by our stockholders, we have agreed to sell to Buyer substantially all of our assets and Buyer has agreed to assume certain of our liabilities.

For more information on the above, please see “Asset Purchase Agreement – Transfer and Sale of Assets” beginning on page 36.

A copy of the Asset Purchase Agreement is attached to this proxy statement as Annex A. You are encouraged to read the Asset Purchase Agreement carefully and in its entirety.

Consideration for the Asset Sale Transaction

As consideration for the Asset Sale Transaction, Buyer has agreed to pay us cash consideration of $7.25 million in cash, less any amount that Buyer may (i) be required to deduct under the terms of the Asset Purchase Agreement and (ii) withhold under any provision of any applicable tax laws.

Buyer intends to fund the cash consideration through cash on hand.

For more information on the above, please see “Asset Purchase Agreement – Consideration” beginning on page 40.

Background of the Asset Sale Transaction 

The Board and the Company’s management regularly review and assess the Company’s performance, future growth prospects, business strategies and opportunities and challenges as part of its evaluation of the Company’s prospects and strategies for enhancing long-term stockholder value. As part of that review process, the Board and management regularly review and consider the Company’s strategic direction and business objectives, including strategic opportunities that might be available to the Company, such as possible acquisitions, divestitures and business combination transactions.

The Asset Sale Transaction and the terms of the Asset Purchase Agreement are the result of arm’s length negotiations conducted between representatives of Buyer, the Company and their respective legal and financial advisors. The following is a summary of the principal events, meetings, negotiations and actions among the parties leading to the execution and public announcement of the Asset Purchase Agreement.

During the course of these negotiations, the Company, through its financial advisor, Mirus had detailed discussions with five other potential acquirers, in addition to Buyer, under non-disclosure agreements. Four of these did not make an offer and one made an informal verbal offer that was meaningfully below that presented by Buyer.

During the fall and early winter of 2017, Mr. Michael Adams, the Chief Executive Officer of the Company, had telephone and in-person meetings with Mr. Michael Gragtmans, the President of Buyer’s Business Unit, in which the two explored a potential acquisition of the Company. During this period, representatives of Buyer and the Company shared diligence materials with respect to the Company under a non-disclosure agreement.

On February 6, 2018, Mr. Gragtmans reported to Mirus that, after an internal review, Buyer wanted to progress to a deeper level of diligence, with a goal of signing a letter of intent. It was also indicated that Buyer would consider a purchase price greater than $5 million (on a cash-free, debt-free basis).

On February 7, 2018, Mirus informed Mr. Gragtmans that Mr. Adams would take this offer to the Board. Further, as per the Board’s advice, the Company informed Mr. Gragtmans that to be compelling, any offer would need to include the assumption of the Company’s existing lease for its facility. Mr. Gragtmans responded the same day that an assumption of the lease was possible, but would have to be explored further.

On February 8, 2018, Mr. Gragtmans spoke with Mirus and indicated that Buyer would offer $5.3 million (on a cash-free, debt-free basis) and continued to be equivocal on the assumption of the lease.

In mid-February 2018, upon review by the Board and the Company’s management, it was decided and communicated to Mr. Gragtmans that, based on this valuation and lack of commitment to assume the lease, the Company would not proceed in negotiating with Buyer.

In mid-May, 2018, Mr. Gragtmans reached out to Mr. Adams to inquire if the Company remained interested in exploring an acquisition.

On May 19, 2018, Mr. Adams discussed the potential acquisition with William J. O’Neill, the chairman of our Board. Mr. O’Neill believed that an offer in excess of $6 million would be worth considering, as long as any offer included an assumption of the lease. Mr. O’Neill approved Mr. Adams re-engaging with Buyer.

During the week of May 28, 2018, Mr. Adams met with Mr. Gragtmans and Mr. David Shupe, Global Director of Buyer, who helped lead Buyer’s medical business strategy. At this meeting, Mr. Gragtmans expressed that Buyer continued to be interested in acquiring the Company. Mr. Adams indicated that the Company remained open to the possibility as long as the terms were acceptable.

On June 1, 2018, Mr. Gragtmans communicated with Mr. Adams that he would like Mr. Shupe and Mr. Steve Gregory, President of the Buyer’s American division, and its strategic advisor, Health Advances, LLC (“Health Advances”), to visit the Company’s facility for a one-day diligence effort and to review the Company’s strategy. Mr. Gragtmans indicated that this effort was meant to confirm Buyer’s assumptions under which they would make a non-binding offer and to “insure our major assumptions remain feasible.” Further, he indicated that, moving forward, Mr. Shupe would be the “project leader” on Buyer’s behalf.

On June 6, 2018, Mr. Adams met with Mr. O’Neill and Mirus to plan for the upcoming meeting. Mr. O’Neill express his position that an offer should be in excess of $6 million dollars and, ideally, closer to $7 million.

On July 11, 2018, Mr. Shupe, Mr. Gregory and a representative from Health Advances visited the Company’s facility for a tour, and detailed review of the Company’s business and strategy. During this meeting, the Company shared with Buyer that the business had received meaningful new contracts and that additional contracts were anticipated during the remainder of 2018.

On July 16, 2018, Mirus followed up with Mr. Shupe stating that, if Buyer remained interested, it should provide an indication of interest with a valuation range that took into account the Company’s new business and that this would be considered by the Board.

On July 24, 2018, Mr. Shupe was provided access to the Company’s data room that contained updated detailed pro forma financial projections. Additionally, Buyer’s diligence team was provided access to the Company’s data room over the ensuing months.

On August 30, 2018, Mr. Shupe indicated that he had met with Buyer’s management team, including Mr. Gragtmans, and that he would be meeting that week with the leadership in Japan for approval to issue a revised offer.

On September 16, 2018, Mr. Shupe indicated that the approval process was moving forward but taking more time than anticipated.

On October 22, 2018, Mr. Shupe and Mr. Gregory met with Mr. Adams and Mirus at the Company’s facilities. Mr. Shupe and Mr. Gregory indicated that they were prepared to make an offer between $5 million and $7 million for the Company, in addition to the assumption of the lease. Mr. Shupe and Mr. Gregory were advised that the Board was unlikely to consider an offer at the low end of the range, but may consider something at the high end.

On October 24, 2018, Mr. Shupe contacted Mr. Adams and informed him that Mr. Gragtmans had approved making an offer at or closer to $7 million, assuming confirmatory diligence, and Mr. Adams indicated that he would review this proposal with the Board.

During the week of October 29, 2018, Mr. Adams presented this verbal offer to Mr. O’Neill and other members of the Board, who approved moving forward with negotiations under the terms as presented.

Mr. Shupe was informed of the positive reaction of the Board and indicated that based on this, Buyer would move forward with further due diligence of the Company.

Throughout the fall of 2018 and winter and spring of 2019, Buyer performed additional diligence on the Company.

On January 30, 2019, in consultation with the Company’s counsel and Mirus, the Company decided that structuring the deal as an asset purchase would allow it to take advantage of meaningful net operating losses and that this would offer the best deal structure for the Company’s stockholders. Mirus spoke with Mr. Shupe to indicate that the Company was willing to structure the transaction as an asset deal and requested that Buyer agree to cover a portion of the transaction expenses in exchange. Mr. Shupe indicated that he believed this was reasonable, but that he would need to present the concept to management for approval.

On April 3, 2019, Mr. Shupe reported to the Company that its due diligence was progressing slowly. Mr. Shupe was pressed for a timeline, to confirm that there was no move off of the proposed $7 million purchase price and to confirm that Buyer would cover a portion of the Company’s transaction expenses.

During the week of April 8, 2019, Mr. Shupe spoke with Mirus and confirmed the $7 million purchase price and assumption of the lease. He further indicated that the Asset Purchase Agreement was being drafted by Buyer’s counsel.

On May 1, 2019, Mr. Shupe spoke with Mirus indicating that initial Buyer’s due diligence was complete and satisfactory and that further diligence, environmental and confirmatory financial, would need to be performed. It was also indicated that efforts were being made to schedule a review and approval of the Asset Purchase Agreement in late July 2019.

On May 10, 2019, the Company received an initial draft of the Asset Purchase Agreement. Over the ensuing weeks this was negotiated to confirm a purchase price of $7 million, assumption of the lease and an additional $250,000 in deal value to cover a portion of the Company’s transaction expenses.

On October 28, 2019, Mirus provided an in-person update to the Board, including a review of the general history of the negotiations and a financial analysis of the proposed aggregate purchase price. Further a draft Asset Purchase Agreement was shared with the Board for their review.

On November 12 2019, the terms of the most recent draft of the Asset Purchase Agreement were approved by Buyer’s management at their “domain” meeting.

On November 21, 2019, a special meeting of the Board was held, at which Mirus delivered its oral opinion (which oral opinion was subsequently confirmed on such date by delivery of its written opinion dated November 21, 2019) that, as of November 21, 2019, and based on and subject to the assumptions made, matters considered and qualifications and limitations on the scope of the review undertaken by Mirus, as described in its opinion, the aggregate purchase price to be paid to the Company was fair, from a financial point of view, to the Company. Thereafter, the Board, absent Mr. Adams who recused himself from the meeting, unanimously approved the Asset Purchase Agreement and the transactions, terms, and conditions set forth therein, and authorized the officers of the Company to execute and deliver the Asset Purchase Agreement to Buyer.

On November 25, 2019, Buyer’s executive management voted to approve the Asset Purchase Agreement and Buyer’s board of directors unanimously voted by written consent to approve the Asset Purchase Agreement.

On November 25, 2019, Buyer and the Company executed the Asset Purchase Agreement and issued a press release regarding the Asset Sale Transaction.

Reasons for the Asset Sale Transaction and Recommendation of our Board

In reaching its decision to approve the Asset Purchase Agreement and the Asset Sale Transaction, and to recommend that our stockholders vote to approve the Asset Sale Proposal, our Board of Directors consulted with management and outside financial and legal advisors. Our Board considered a number of factors relating to the Asset Purchase Agreement and the proposed Asset Sale Transaction, including, without limitation, the following factors (many of which were discussed in detail at numerous prior meetings of the Board) but without assigning specific numerical weight, emphasis, or relative priority among those factors:

The foregoing discussion of the factors considered by our Board is not intended to be exhaustive. Our Board collectively reached the conclusion to approve the Asset Purchase Agreement and the Asset Sale Transaction in light of the various factors described above, as well as other factors that our Board felt were appropriate. In view of the wide variety of factors considered by our Board in connection with its evaluation of the Asset Sale Transaction and the complexity of these matters, our Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, our Board made its recommendation based on the totality of the information presented to, and the investigation conducted by, the Board. In considering the factors discussed above, individual members of the Board may have valued certain factors more or less than others.

After evaluating these factors and consulting with its outside legal counsel and financial advisor, our Board, absent Mr. Adams, who recused himself from the meeting of the Board, unanimously approved and declared advisable the Asset Purchase Agreement and the Asset Sale Transaction and determined that the Asset Purchase Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company’s stockholders.

The approval of this proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock outstanding as of the close of business on the record date.

Failure to attend the special meeting in person or by proxy will have the same effect as a vote “AGAINST” this proposal. Abstentions will also have the same effect as a vote “AGAINST” this proposal.

The members of the Board voting on the matter unanimously recommend that stockholders vote “FOR” the Asset Sale Proposal.  Michael Adams, a director and the Company’s President and Chief Executive Officer, recused himself from the vote.

Opinion of our Financial Advisor

To assist the Company in reaching its decision to approve the Asset Purchase Agreement and the Asset Sale Transaction, the Company retained Mirus Securities, Inc. (“Mirus”) to act as its financial advisor and prepare a fairness opinion with respect to the Asset Purchase Agreement and the Asset Sale Transaction. Mirus is an investment bank which among other things provides advisory services for mergers & acquisitions, financings and valuations to private and public companies. The Company selected Mirus to act as its financial advisor and provide its fairness opinion in connection with the Asset Purchase Agreement and the Asset Sale Transaction on the basis of Mirus’s experience in transactions similar to the Asset Sale Transaction, its reputation in the investment community and its familiarity with the Company and its business.

The preparation of the fairness opinion was a complex process and is not necessarily susceptible to partial analysis or summary description. Nevertheless, following is a brief summary of the fairness opinion, subject to the assumptions, qualifications, and limitations set forth therein, that the Asset Sale Transaction is fair, from a financial point of view, to the Company. The opinion of Mirus addresses only the fairness, from a financial point of view, of the Asset Sale Transaction to the Company. Mirus was not requested to opine as to, and its opinion does not address:

Furthermore, no opinion, counsel, or interpretation was intended with respect to matters that require legal, regulatory, accounting, insurance, tax, or other similar professional advice.

In connection with its opinion, Mirus made such reviews, analyses, and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Mirus:

(1) reviewed the financial terms and conditions of the Asset Sale Transaction as documented in the draft Asset Purchase Agreement, dated November 17, 2019;

(2) reviewed a draft, dated November 14, 2019 of the disclosure schedules to the draft Asset Purchase Agreement;

(3) reviewed certain publicly available business and financial information relating to the Company that we deemed to be relevant, including the annual reports on Form 10-K filed by the Company for the fiscal years ended March 31, 2017, 2018, and 2019 and the quarterly reports on Form 10-Q filed by the Company for each of the three month periods ended June 30, 2019 and September 30, 2019;

(3) reviewed certain historical financial and operating data relating to the Company prepared and furnished to Mirus by the management of the Company; 

(4) reviewed certain non-public projected financial and operating data relating to the Company prepared and furnished to Mirus by the management of the Company;

(5) discussed the past and current operations, the current financial conditions, and the financial projections and prospects of the Company with its management, including their views on the risks and uncertainties of achieving such projections; 

(6) visited certain business offices of the Company; 

(7) observed the reported prices and historical trading activity of the Company’s common stock and the Company’s implied enterprise value and multiples; 

(8) compared the financial performance of the Company and its trading multiples with those of certain other publicly traded companies that Mirus deemed relevant;

(9) compared the financial performance of the Company and its valuation multiples relating to the Asset Sale Transaction with those, to the extent publicly available, of certain other business combinations that Mirus deemed relevant; and 

(10) performed other such analyses and considered such other factors as Mirus deemed appropriate.

In rendering its opinion, Mirus assumed and relied upon, without independent verification, the accuracy and completeness of all data, materials, and financial, legal, tax, operating and other information (including, without limitation, the financial statements and related notes thereto of the Company) furnished or otherwise made available to them, discussed with them or reviewed by them, and did not assume responsibility for such information. Mirus did not assume any responsibility to perform, and did not perform, an independent evaluation, physical inspection, or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company, and was not furnished with any such valuations or appraisals. With respect to the data and discussions relating to the business prospects and financial outlook of the Company, Mirus assumed that the financial analyses and forecasts provided to it were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company, and that the Company will perform substantially in accordance with such financial analyses and forecasts. Mirus further relied on the assurances of members of senior management of the Company that they would advise Mirus promptly if any information previously provided became inaccurate or was required to be updated during the period of review. Additionally, Mirus did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims, or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation or any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject. Mirus also assumed that the Asset Sale Transaction will be consummated in a timely manner and in accordance with applicable corporate law and the terms described in the draft Asset Purchase Agreement, without any regulatory restrictions, conditions, amendments, or modifications. Mirus also assumed in its opinion that the final terms of the Asset Purchase Agreement will be identical in all material respects to the latest available draft reviewed by Mirus, that the Asset Sale Transaction will be consummated in accordance with the terms set forth in the Asset Purchase Agreement without waiver, modification, or amendment of any material term, condition, or agreement, and that all governmental, regulatory, and other consents and approvals necessary for the consummation of the Asset Sale Transaction will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on the Company or the consummation of the Asset Sale Transaction or materially reduce the benefits of the Asset Sale Transaction to the Company.

Mirus’s opinion was necessarily based upon market, economic, financial, and other circumstances and conditions existing and disclosed to Mirus as of November 20, 2019. Mirus did not undertake, and is under no obligation, to update, revise, reaffirm, or withdraw its opinion, or otherwise comment on or consider events occurring after the date of its opinion.

Summary of Financial Analyses Performed by Mirus   

For purposes of the financial analyses, adjustments were made to the Company’s reported financial metrics. On December 22, 2011, the Company entered into an agreement with an independent third-party under which the Company sold and leased back its land and building. The transaction is accounted for using the financing method, under which the building, building improvements and land are reported as assets, the sales proceeds are reported as a financing obligation, and lease payments are reported as interest payments. In its analyses, Mirus excluded the net carrying value of the leased land and building from the Company’s asset total, excluded the Long-Term Financing Obligation (representing the land and building lease obligation) from the Company’s debt total, and reclassified interest payments pertaining to the Long-Term Financing Obligation as non-interest operating expenses.

The key inputs used in calculating implied Enterprise Value (“EV”) are as follows:

Other key financial metrics are as follows:

Among other things, Mirus based its analyses on the financial forecasts provided by the Company’s management. Mirus assumed that the forecasts provided to it were reasonably prepared on a basis representing the best currently available estimates and judgments of management as to the future financial performance of the Company.

In arriving at its opinion, in addition to reviewing the matters listed above, Mirus used the following approaches to evaluate the fairness, from a financial point of view, of the Asset Sale Transaction to the Company:

In addition, Mirus observed the historical market prices and trading activity of the Company’s common stock, the Company’s implied historical EV, and the Company’s implied EV/TTM EBITDA and EV/TTM Revenue multiples. Mirus calculated the Company’s implied equity value as of November 20, 2019 by multiplying the closing stock price of $0.12 per share by the fully diluted common shares outstanding of 25,878,637 and determined the implied equity market value to be $3.105 million. Then Mirus calculated the implied enterprise value of the Company, defined as current equity market value plus book value of debt (excluding $1.986 million Long-Term Financing Obligation pertaining to the land and building lease) minus cash and equivalents as of September 30, 2019, to be approximately $2.774 million.

No company or transaction used in the analyses described below is identical to the Company or the Asset Sale Transaction. Accordingly, an analysis of the results thereof necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the Transaction or the public trading or other values of us or companies to which they are being compared. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using selected acquisition or company data.

Observed Historical Enterprise Value and Enterprise Value Multiples

Because the Company’s common stock is publicly traded, Mirus observed the historical common stock prices, trading volume, and ownership, and the implied historical EV and the implied EV/TTM EBITDA and EV/TTM Revenue multiples ascribed to it by public markets. On November 20, 2019, the Company's common stock closed at a price of $0.12 per share, resulting in an EV of $2.774 million pursuant to the calculation described herein. Over the two years ending November 20, 2019, the Company’s common stock price ranged from a closing price of $0.03 per share to $0.18 per share, and the Company’s implied EV ranged from $0.7 million to $4.6 million. The historical Enterprise Values were divided by the Company’s TTM EBITDA and TTM Revenue (not taking into account the timing of financial filings) to determine the Company’s historical EV/EBITDA and EV/Revenue multiples, respectively. Over the two years ending November 20, 2019 the Company’s EV/EBITDA ranged from not meaningful (given the Company’s negative TTM EBITDA for the periods ending September 30, 2017 and December 31, 2017) to 15.5x, and the Company’s EV/Revenue ranged from 0.2x to 1.3x. The Company’s historical EV/EBITDA and EV/Revenue multiples were multiplied by the Company’s TTM EBITDA and TTM Revenue as of September 30, 2019 to determine a range of enterprise values implied by the Company’s historical multiples. The Company is not actively followed by securities analysts. Ownership is concentrated with management and board members (approximately 31% of the fully diluted total as of November 20, 2019). Mirus observed that the Purchase Price of $7.25 million was greater than the Company’s highest historical EV over the two-year period ending November 20, 2019. Mirus also observed that the Purchase Price of $7.25 million was in the fourth quartile of Enterprise Values implied by the Company’s historical EV/EBITDA multiple and TTM EBITDA, and greater than the highest Enterprise Value implied by the Company’s historical EV/Revenue multiple and TTM Revenue.

The Company’s Historical Enterprise Value Multiples (2 Years ending November 20, 2019)

The Company’s Enterprise Value Implied by Historical Multiples and TTM EBITDA and TTM Revenue

Selected Comparable Public Companies Approach

This analysis provides an indication of Enterprise Value expressed as a multiple of trailing twelve-month revenue or trailing twelve-month earnings before interest, taxes, depreciation and amortization and stock-based compensation of comparable publicly traded companies. Given the niche and scale of the Company’s business, neither Mirus nor management were able to identify any public companies that provide an exact set of products and services that the Company provides. Thus, the comparable companies were selected by Mirus from a broader sector of publicly traded companies, including diversified, commodity and specialty chemicals. Mirus recognized that many of the selected comparable public companies are of significantly greater scale than the Company, but opted to include them to enhance the overlap of business operations between the comparable public companies and the Company. Mirus noted that there was a material range of valuation multiples within the group of selected comparable companies. Mirus analyzed, among other things, the EV/EBITDA and EV/Revenue multiples of the Company relative to the companies, as identified below, that Mirus considered to be somewhat comparable.

In its analysis, Mirus derived and compared EV/EBITDA and EV/Revenue multiples for the Company and a range of multiples for the selected companies (based on Enterprise Values as of November 20, 2019). Mirus multiplied the Company’s TTM EBITDA and TTM Revenue by the range of selected comparable company EV/EBITDA and EV/Revenue multiples to derive the Company’s implied enterprise value. The table below summarizes the results of this analysis:

Mirus viewed this analysis as supporting fairness because the Purchase Price of $7.25 million is in the fourth quartile of the Enterprise Values implied by the selected comparable public company EV/EBITDA multiples and is in the third quartile of the Enterprise Values implied by the selected comparable public company EV/Revenue multiples, despite the limitations discussed above.

Selected Precedent Transactions Approach

Using publicly available information, Mirus reviewed the purchase prices and EV/EBITDA and EV/Revenue multiples paid in the following selected mergers and acquisitions involving target companies doing business in diversified, commodity, and specialty chemicals. For this analysis, the EBITDA of the precedent transaction targets and the Company are after stock-based compensation expenses. The table below lists the transactions analyzed:

Mirus noted that the comparability of the Asset Sale Transaction to any of these selected transactions may be limited given the differing scale and exact business operations of the target companies relative to the Company. Additionally, Mirus noted that the relevance of these historical transactions to current valuation may be limited due to changing market conditions, as several transactions occurred three or more years ago. Mirus noted that the number of relevant transactions with available data was relatively small and there was a material range of transaction multiples.

Mirus multiplied the Company’s TTM EBITDA and TTM Revenue by the range of selected transaction EV/EBITDA and EV/Revenue multiples to derive the Company’s implied Enterprise Value. The table below summarizes the results of this analysis:

Mirus viewed this analysis as supporting fairness because the Purchase Price of $7.25 million is greater than the highest Enterprise Value implied by the selected precedent transaction EV/EBITDA multiples, and in the third quartile of the Enterprise Values implied by the selected precedent transaction EV/Revenue multiples, despite the limitations discussed above.

Precedent Premia Paid Approach

Using publicly available information, Mirus reviewed the premia paid across 284 merger and acquisition transactions that closed between January 1, 2016 and November 20, 2019 for transactions valued under $250 million. The analysis compares the price paid per share relative to the closing price level as of the day prior to announcement, as of 1-week prior to announcement, and as of 1-month prior to announcement. The analysis excluded outlier transactions with premiums either above 300% or below negative 20%, and merger and acquisition transactions in which less than 90% of business was acquired. Sectors, sizes, and profitability of the target companies were not considered. The table below summarizes the premia paid in precedent transactions relative to different time periods:

Mirus noted that the reviewed merger and acquisition transactions are transactions in which over 90% of the target stock was acquired, rather than substantially all of the assets and liabilities, which Mirus noted may limit the comparability of the Asset Sale Transaction to the sample of premia paid transactions. To determine the Company’s implied EV, Mirus multiplied the premia paid statistic to the Company’s fully diluted market capitalization on the corresponding date (i.e. 1-Month prior, 1-Week prior, or 1-Day prior to November 21, 2019) to determine the Company’s implied equity value in a transaction, added the Company’s debt (excluding the Long-Term Financing Obligation) and subtracted the Company’s cash as of September 30, 2019. The table below summarizes the results of this analysis:

Mirus viewed this analysis as supporting fairness because the Purchase Price of $7.25 million is in the fourth quartile of Enterprise Values implied by precedent 1-Month prior, 1-Week prior, and 1-Day prior premia paid, despite the limitations discussed above.

Discounted Cash Flow Approach

Using certain forecasted financial information provided by the Company’s senior management for calendar years 2020 through 2023, Mirus calculated the discounted present value of the Company’s cash flows. Mirus’s estimate of the appropriate discount rate was based on Mirus’s estimate of the Company’s current cost of capital and scenario risk. A range of Terminal EV/Revenue multiples were considered, informed by the Company’s historical trading multiples. This analysis resulted in a range of Enterprise Values indicated in the table below:

Inherent in any discounted cash flow analysis is the use of several assumptions, including the accuracy of management’s forecasts, the terminal year valuation, and the discount rate applied to the projected cash flows. Variations in any of these assumptions or judgments could significantly alter the results of a discounted present value analysis.

Mirus viewed this analysis as supporting fairness because the Purchase Price of $7.25 million is within the range of Enterprise Values implied by the discounted cash flow analysis, despite the limitations discussed above.

Miscellaneous

Mirus, a Financial Industry Regulatory Authority (“FINRA”) member, is actively engaged in the investment banking business and regularly undertakes the valuation of investment securities in connection with mergers and acquisitions, private placements and similar transactions. Mirus has acted as financial advisor to the Company with respect to the proposed Transaction and will receive compensation for its advisory services, a significant portion of which is contingent upon the successful completion of the Asset Sale Transaction. Mirus’s affiliate Mirus Capital Advisors, Inc. received non-contingent compensation in the form of warrants on the Company’s common stock, pursuant to the Warrant Agreement Amendment executed July 23, 2015. Mirus also received a non-contingent fee upon its engagement to provide a fairness opinion and became entitled to receive an additional fee upon notification Mirus was prepared to deliver its fairness opinion. In addition, the Company has agreed to reimburse Mirus for its reasonable and documented out-of-pocket expenses (including attorneys’ fees, expenses and disbursements) incurred in connection with, and to indemnify Mirus and related persons against certain liabilities arising out of, its engagement, including liabilities arising under Federal securities laws. Mirus may provide financial or other services to the Company in the future and in connection with any such services Mirus may receive compensation.

Other than with respect to the Asset Sale Transaction, there are no material relationships that existed during the two years prior to the date of this opinion or that are mutually understood to be contemplated in which any compensation was received or is intended to be received as a result of the relationship between Mirus any party to the Asset Sale Transaction.

Use of Proceeds and Future Operations

The Company does not plan on having future operations following the close of the Asset Purchase Agreement beyond maintaining itself as a reporting shell. Proceeds therefor will be utilized to satisfy any outstanding liabilities and obligations and retain such funds as is necessary to maintain itself as a reporting shell and satisfy any long-term obligations. The Board currently anticipates it will use a portion of the proceeds from the consummation of the Asset Sale Transaction after the satisfaction of such obligations, expenses and liabilities and the future of the Company, for the payment of a dividend to its stockholders.

Interests of our Directors and Executive Officers in the Asset Sale Transaction

In considering the recommendation of our Board to vote “FOR” the Asset Sale Proposal, you should be aware that, aside from their interests as Company stockholders, our directors and executive officers may have interests in the Asset Sale Transaction that are different from, or in addition to, the interests of our stockholders generally. Michael Adams (a director and the Company’s President and Chief Executive Officer) may, at the discretion of the Board, receive a bonus upon the consummation of the Asset Sale Transaction. Khristine Carroll (the Company’s Vice President of Commercial Operations) is entitled to receive a retention bonus upon the consummation of the Asset Sale Transaction pursuant to the terms of a retention agreement dated May 18, 2019. Both Mr. Adams and Ms. Carroll shall also enter into employment agreements with the Buyer upon the consummation of the Asset Sale Transaction. As a result of Mr. Adams’ financial interest in the Asset Sale Transaction, he recused himself and did not participate in the vote of the Board of Directors which approved the Asset Sale Transaction and the Asset Purchase Agreement.

Members of our Board of Directors were aware of and considered these interests, among other matters, in evaluating and negotiating the Asset Sale Transaction, and in recommending to our stockholders that the Asset Sale Proposal be approved. For more information, see the sections entitled “Proposal 1: Asset Sale Proposal—Background of the Asset Sale Transaction” and “Proposal 1: Asset Sale Proposal—Reasons for the Asset Sale Transaction and Recommendation of our Board” above. These interests are described in more detail below, and certain of them are quantified in the narrative below.

Additional information concerning these potential payments and the vesting of outstanding equity awards held by our directors and executive officers is provided in the discussion and table below.

No Appraisal or Dissenters’ Rights

None of the Delaware General Corporation law, our certificate of incorporation, as amended, or our bylaws provide for appraisal or other similar rights for dissenting stockholders in connection with the Asset Sale Transaction. Accordingly, our stockholders will have no right to dissent and obtain payment for their shares.

Material U.S. Federal Income Tax Consequences

The following discussion is a general summary of the anticipated material U.S. federal income tax consequences of the Asset Sale Transaction. The following discussion is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), its legislative history, currently applicable and proposed Treasury Regulations under the Code and published rulings and decisions, all as currently in effect as of the date of this proxy statement, and all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and non-U.S. laws, or federal laws other than those pertaining to income tax, are not addressed in this proxy statement. No rulings have been requested or received from the IRS as to the tax consequences of the Asset Sale Transaction and there is no intent to seek any such ruling. Accordingly, no assurance can be given that the IRS will not challenge the tax treatment of the Asset Sale Transaction discussed below or, if it does challenge the tax treatment, that it will not be successful.

The Asset Sale Transaction will be treated for U.S. federal income tax purposes as a taxable transaction upon which we will recognize gain or loss. The amount of gain or loss we recognize with respect to the sale of a particular asset (including any deemed sale of a particular asset) will be measured by the difference between the amount realized by us on the sale of that asset and our tax basis in that asset. The amount realized by us on the Asset Sale Transaction will include the amount of cash received, the fair market value of any other property received, and total liabilities assumed or taken by Buyer. For purposes of determining the amount realized by us with respect to specific assets, the total amount realized by us will generally be allocated among the assets according to the rules set forth in Section 1060(a) of the Code. Our basis in our assets is generally equal to their cost, as adjusted for certain items, such as depreciation. The determination of whether we will recognize gain or loss will be made with respect to each of the assets to be sold.

Accordingly, we may recognize gain on the sale of certain assets and loss on the sale of certain others, depending on the amount of consideration allocated to an asset as compared with the basis of that asset.

To the extent the Asset Sale Transaction results in us recognizing a net gain for U.S. federal income tax purposes, we expect that our available net operating loss carryforwards will offset all or a substantial part of such gain.

Anticipated Accounting Treatment

Under generally accepted accounting principles, upon completion of the Asset Sale Transaction, we will remove the net assets sold and liabilities assumed from our consolidated balance sheet and we anticipate recording a gain from the Asset Sale Transaction.

Effects on our Company if the Asset Sale Transaction is Completed and the Nature of our Business following the Asset Sale Transaction

If the Asset Sale Transaction is completed, we will no longer have an operating business. If the Asset Sale Transaction has been consummated, it is expected that the Board will approve, declare and pay a dividend or distribution, to the Company stockholders in accordance with Delaware law after payment of the Company’s indebtedness and expenses relating to the Asset Sale Transaction, taking into account any other obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time, such as remaining a reporting shell company. The Board has not yet definitively determined the future operations of the Company following the consummation of the Asset Sale Transaction.

The Board currently anticipates that the Company will remain as a reporting shell company and will use a portion of the proceeds from the consummation of the Asset Sale Transaction after the satisfaction of such obligations, expenses and liabilities and the future of the Company, for the payment of a dividend to its stockholders. However, the Board has not yet definitively determined the future operations of the Company following the consummation of the Asset Sale Transaction.

The Asset Sale Transaction will not alter the rights, privileges or nature of the issued and outstanding shares of our common stock. A stockholder who owns shares of our common stock immediately prior to the closing of the Asset Sale Transaction will continue to hold the same number of shares immediately following the closing.

Executive Officers following Completion of the Asset Sale Transaction

The Board has not made a determination as to the status of the executive officers of the Company following the consummation of the Asset Sale Transaction.

ASSET PURCHASE AGREEMENT

The following discussion sets forth the principal terms of the Asset Purchase Agreement, a copy of which is attached as Annex A to this proxy statement and is incorporated herein by reference. The rights and obligations of the parties are governed by the express terms and conditions of the Asset Purchase Agreement and not by this discussion, which is summary in nature. This discussion is not complete and is qualified in its entirety by reference to the complete text of the Asset Purchase Agreement. You are encouraged to read the Asset Purchase Agreement carefully and in its entirety, as well as this proxy statement and any documents incorporated by reference herein, before making any decisions regarding the proposals being brought before the special meeting. 

Transfer and Sale of Assets

Transferred Assets

Upon the terms and subject to the conditions of the Asset Purchase Agreement, the Company has agreed to sell to Buyer all of the Company’s title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether now existing or hereafter acquired, except for the specific excluded assets, which relate to, or are used or held for use in connection with, the Company’s business, including, but not limited to the following (the “Transferred Assets”):

Excluded Assets

Under the terms of the Asset Purchase Agreement, the following assets (the “Excluded Assets”) will not be transferred to Buyer and will be retained by the Company following the closing:

Assumption and Transfer of Liabilities

Assumed Liabilities

Upon the terms and subject to the conditions of the Asset Purchase Agreement, Buyer has agreed to assume and pay, perform and discharge only the following liabilities and obligations of the Company (the “Assumed Liabilities”), and no other liabilities or obligations:

Excluded Liabilities

Under the terms of the Asset Purchase Agreement, Buyer shall not assume and shall not be responsible to pay, perform or discharge any liabilities of the Company or any of its affiliates of any kind or nature whatsoever other than the Assumed Liabilities (the “Excluded Liabilities”). The Company shall pay and satisfy in due course all Excluded Liabilities, which include, but are not limited to, the following:

Consideration

As consideration for the Asset Sale Transaction, Buyer has agreed to pay us $7.25 million in cash less any amount that Buyer may (i) be required to deduct under the terms of the Asset Purchase Agreement and (ii) withhold under any provision of any applicable tax laws.

Representations and Warranties

The Asset Purchase Agreement contains representations and warranties that the Company, on the one hand, and Buyer, on the other hand, have made to each other as of specific dates relating to our respective businesses. The assertions embodied in these representations and warranties were made solely for purposes of the Asset Purchase Agreement and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Asset Purchase Agreement. Accordingly, the Company’s stockholders should not rely on the representations and warranties as characterizations of the actual state of facts or circumstances, and should bear in mind that the representations and warranties were made solely for the benefit of the parties to the Asset Purchase Agreement, were negotiated for purposes of allocating contractual risk among the parties to the Asset Purchase Agreement rather than to establish matters as facts, may be subject to contractual standards of materiality different from those generally applicable to stockholders, and may be qualified by publicly filed reports and documents filed with the SEC and matters contained in the disclosure letter that the Company delivered to Buyer in connection with the Asset Purchase Agreement, which are not reflected in the Asset Purchase Agreement. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Asset Purchase Agreement, which subsequent information may or may not be reflected in the Company’s public disclosures. This description of the representations and warranties is included solely to provide stockholders with information regarding the terms of the Asset Purchase Agreement. The representations and warranties in the Asset Purchase Agreement and their description in this proxy statement should be read in conjunction with the other information contained in the reports, statements and filings that we publicly file with the SEC.

Company Representations and Warranties

The Company’s representations and warranties relate to, among other things:

Buyer Representations and Warranties

Buyer’s representations and warranties relate to, among other things, the following:

Many of the representations and warranties contained in the Asset Purchase Agreement are qualified by a knowledge standard, a general material standard, or a “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct would have a material adverse effect on the Company). A “material adverse effect” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Company’s business, taken as a whole, or (b) the ability of the Company to consummate the transactions contemplated by the Asset Purchase Agreement on a timely basis; provided, however, that for the purposes of clause (a), “material adverse effect” shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from (i) general economic or political conditions; (ii) changes in financial, banking or securities markets in general; (iii) the announcement, pendency or completion of the transactions contemplated by the Asset Purchase Agreement; (iv) any outbreak or escalation of war or any act of terrorism; (v) general conditions in the industry in which the Company operates; (vi) any changes in applicable laws or accounting rules (including United States generally accepted accounting principles in effect from time to time (“GAAP”)) or the enforcement, implementation or interpretation thereof; (vii) any natural or man-made disaster or acts of God; or (viii) any failure by the Company’s business to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded); provided further that any event, change or effect referred to in clauses (i), (ii) and (iv) through (vii) immediately above shall be taken into account in determining whether a “material adverse effect” has occurred or would reasonably be expected to occur to the extent that such event, change or effect has a disproportionate effect on the Company compared to other participants in the industries in which the Company conducts its business.

Upon the consummation of the Asset Sale Transaction, the representations and warranties of the Company and Buyer will terminate.

Covenants

Conduct of Business and Restrictions on Business Prior to Closing

The Company has agreed to, until the earlier to occur of the closing and the valid termination of the Asset Purchase Agreement in accordance to its terms (the “Interim Period”) (except as expressly contemplated by the Asset Purchase Agreement, as required by applicable law, or as otherwise consented to by Buyer in writing):

In addition, the Company agreed that, during the Interim Period, it will not take certain actions with respect to its business, the Transferred Assets, or the Assumed Liabilities (except as expressly contemplated by the Asset Purchase Agreement, as required by applicable law, or as otherwise consented to by Buyer in writing), including forbearing from the following:

Meeting of Stockholders

The Company is required to take all action necessary in accordance with Delaware law, the rules of the OTCQB, the Company’s organizational documents and its agreements with stockholders to, as promptly as reasonably practicable following the mailing of this proxy statement, give notice of, convene and hold a stockholders’ meeting for the purpose of considering and taking action with respect to the Asset Sale Proposal. The Company must use reasonable best efforts to solicit from its stockholders’ proxies in favor of the approval of the Asset Sale Proposal and to take all other action necessary or advisable to secure the vote or consent of its stockholders to approve the Asset Sale Proposal.

Board Recommendation

Subject to any Superior Proposal (as defined herein) or Alternative Acquisition Agreement (as defined herein), the Board of Directors must recommend that the Company’s stockholders vote in favor of the adoption of the Asset Purchase Agreement at the stockholder meeting. The Asset Purchase Agreement also requires that this proxy statement include a statement to the effect that the members of the Board voting on the matter have unanimously recommended that the stockholders of the Company vote in favor of the adoption of the Asset Purchase Agreement. Subject to certain exceptions set forth in the Asset Purchase Agreement, the Board of Directors may not withdraw, amend or modify, or publicly propose to withdraw, amend or modify, in a manner adverse to Buyer, the recommendation of the Board of Directors that the Company’s stockholders vote in favor of the adoption of the Asset Purchase Agreement.

No Solicitation and Change of Recommendation

During the Interim Period, the Company shall not, and shall not authorize or permit its directors, officers, employees, investment bankers, attorneys, accountants, consultants, other agents or advisors (with respect to any Person (as defined herein), the foregoing Persons are referred to herein as such Person’s “Representatives”) to, directly or indirectly, solicit, initiate or knowingly take any action to facilitate or encourage the submission of any Takeover Proposal (as defined herein) or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or, subject to certain terms in the Asset Purchase Agreement: (i) other than clarifying the terms of the Takeover Proposal in accordance with the Asset Purchase Agreement or to disclose to such Person the existence of these terms in the Asset Purchase Agreement, conduct or engage in any discussions or negotiations with, disclose any non-public information relating to the Company, afford access to the business, properties, assets, books, or records of the Company, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party that is seeking to make, or has made, any Takeover Proposal; (ii) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company; or (iii) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any Takeover Proposal (each, an “Alternative Acquisition Agreement”). Except as expressly permitted by the Asset Purchase Agreement, the Board shall not effect an Adverse Recommendation Change (as defined herein). The Company shall cease immediately and cause to be terminated, and shall not authorize or knowingly permit any of its Representatives to continue, any and all existing activities, discussions, or negotiations, if any, with any third party conducted prior to the date hereof with respect to any Takeover Proposal and shall use its commercially reasonable efforts to cause any such third party (or its agents or advisors) in possession of non-public information in respect of the Company that was furnished by or on behalf of the Company to return or destroy (and confirm destruction of) all such information.

Notwithstanding anything to the contrary, prior to the receipt of the Requisite Seller Vote (as defined herein), the Board, directly or indirectly through any Representative, may, subject certain terms in the Asset Purchase Agreement: (i) participate in negotiations or discussions with any third party that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal in writing that the Board believes in good faith, after consultation with outside legal counsel and Mirus, its financial adviser, constitutes or is reasonably expected to lead to a Superior Proposal; (ii) following receipt of and on account of a Superior Proposal, make an Adverse Recommendation Change; and/or (iii) take any action that any court of competent jurisdiction orders the Company to take (which order remains unstayed), but in each case referred to in the foregoing clauses (i) through (iii), only if the Board determines in good faith, after consultation with outside legal counsel, that the failure to take such action would cause the Board to be inconsistent with its fiduciary duties under applicable Law. Nothing contained herein shall prevent the Board from (x) disclosing to the Company’s stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act or (y) making any “stop, look and listen” communication to the Company’s stockholders pursuant to Rule 14d-9(f) under the Exchange Act with regard to a Takeover Proposal, if the Company determines, after consultation with outside legal counsel, that failure to disclose such position would reasonably be expected to constitute a violation of any applicable law.

The Board shall not take any of the actions referred to in clauses (i) through (iii) of the immediately foregoing paragraph unless the Company shall have delivered to Buyer a prior written notice advising Buyer that it intends to take such action. The Company shall notify Buyer promptly (but in no event later than twenty-four (24) hours) after it obtains knowledge of the receipt by the Company (or any of its Representatives) of any Takeover Proposal, any inquiry that could reasonably be expected to lead to a Takeover Proposal, any request for non-public information relating to the Company or for access to the business, properties, assets, books or records of the Company by any third party. In such notice, the Company shall identify the third party making, and details of the material terms and conditions of, any such Takeover Proposal, indication or request. The Company shall keep Buyer fully informed, on a current basis, of the status and material terms of any such Takeover Proposal, indication or request, including any material amendments or proposed amendments as to price and other material terms thereof. The Company shall provide Buyer with at least forty-eight (48) hours’ prior notice of any meeting of the Board (or such lesser notice as is provided to the members of the Board) at which the Company is reasonably expected to consider any Takeover Proposal. The Company shall promptly provide buyer with a list of any non-public information concerning the Company’s business, present or future performance, financial condition or results of operations, provided to any third party, and, to the extent such information has not been previously provided to Buyer, copies of such information.

Notwithstanding the foregoing, at any time prior to the receipt of the Requisite Seller Vote (as defined herein), the Board may effect an Adverse Recommendation Change or enter into (or permit any affiliate to enter into) an Alternative Acquisition Agreement (as defined herein), if: (i) the Company promptly notifies Buyer, in writing, at least five (5) Business Days (the “Superior Proposal Notice Period”) before making an Adverse Recommendation Change or entering into an Alternative Acquisition Agreement, of its intention to take such action with respect to a Superior Proposal, which notice shall state expressly that the Company has received a Takeover Proposal that the Board intends to declare a Superior Proposal and that the Board intends to effect an Adverse Recommendation Change and/or the Company intends to enter into an Alternative Acquisition Agreement; (ii) the Company attaches to such notice the most current version of the proposed agreement (which version shall be updated on a prompt basis) and the identity of the third party making such Superior Proposal; (iii) the Company shall, and shall cause its Representatives to, during the Superior Proposal Notice Period, negotiate with Buyer in good faith to make such adjustments in the terms and conditions of the Asset Purchase Agreement so that such Takeover Proposal ceases to constitute a Superior Proposal, if Buyer, in its discretion, proposes to make such adjustments (it being agreed that in the event that, after commencement of the Superior Proposal Notice Period, there is any material revision to the terms of a Superior Proposal, including any revision in price, the Superior Proposal Notice Period shall be extended, if applicable, to ensure that at least three (3) business days remain in the Superior Proposal Notice Period subsequent to the time the Company notifies Buyer of any such material revision (it being understood that there may be multiple extensions)); and (iv) the Board determines in good faith, after consulting with outside legal counsel and Mirus Securities Inc., that such Takeover Proposal continues to constitute a Superior Proposal after taking into account any adjustments made by Buyer during the Superior Proposal Notice Period in the terms and conditions of the Asset Purchase Agreement.

Notwithstanding anything to the contrary in the foregoing, in response to an Intervening Event (as defined herein) that has occurred after the date of the Asset Purchase Agreement but prior to the receipt of the Requisite Seller Vote, the Board may effect an Adverse Recommendation Change, if: (i) prior to effecting the Adverse Recommendation Change, the Company promptly notifies Buyer, in writing, at least five (5) business days (the “Intervening Event Notice Period”) before taking such action of its intent to consider such action (which notice shall not, by itself, constitute an Adverse Recommendation Change), and which notice shall include a reasonably detailed description of the underlying facts giving rise to, and the reasons for taking, such action; (ii) the Company shall, and shall cause its Representatives to, during the Intervening Event Notice Period, negotiate with Buyer in good faith to make such adjustments in the terms and conditions of the Asset Purchase Agreement so that the underlying facts giving rise to, and the reasons for taking such action, ceases to constitute an Intervening Event, if Buyer, in its discretion, proposes to make such adjustments (it being agreed that in the event that, after commencement of the Intervening Event Notice Period, there is any material development in an Intervening Event, the Intervening Event Notice Period shall be extended, if applicable, to ensure that at least three (3) business days remain in the Intervening Event Notice Period subsequent to the time the Company notifies Buyer of any such material development (it being understood that there may be multiple extensions)); and (iii) the Board determines in good faith, after consulting with outside legal counsel and Mirus Securities, Inc., that the failure to effect such Adverse Recommendation Change, after taking into account any adjustments made by Buyer during the Intervening Event Notice Period, would continue be inconsistent with its fiduciary duties under any applicable law. The Company acknowledges and agrees that any Adverse Recommendation Change effected (or proposed to be effected) in response to or in connection with any Takeover Proposal may be made solely and exclusively pursuant to the Asset Purchase Agreement only, and may not be made pursuant to this the terms in this paragraph, and any Adverse Recommendation Change may only be made pursuant to certain terms in the Asset Purchase Agreement and no other provisions of the Asset Purchase Agreement.

“Adverse Recommendation Change” means the Board (a) failing to make, withdraw, amend, modify, or materially qualify, in a manner adverse to Buyer, the Seller Board Recommendation, (b) failing to include the Seller Board Recommendation in this proxy statement that is mailed to the Company’s stockholders, (c) recommending a Takeover Proposal, (d) failing to recommend against acceptance of any tender offer or exchange offer for the shares of the Company’s stock that constitutes a Takeover Proposal within ten (10) business days after the commencement of such offer, (e) failing to reaffirm (publicly, if so requested by Buyer) the Seller Board Recommendation within ten (10) business days after the date of any Takeover Proposal (or material modification thereto) is first publicly disclosed by the Company or the Person making such Takeover Proposal, or, if the special meeting is scheduled to be held within ten (10) business days of such request, within one  (1) business day after such request and in any event, prior to the date of the special meeting, (f) making any public statement inconsistent with the Seller Board Recommendation or (g) resolving or agreeing to take any of the foregoing actions.

“Alternative Acquisition Agreement” means any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any Takeover Proposal.

“Intervening Event” means, with respect to the Company, any material event, circumstance, change, effect, development or condition occurring or arising after the date hereof that was not known nor reasonably foreseeable to the Board as of the date hereof and did not result from or arise out of the announcement or pendency of, or any actions required to be taken by the Company (or to be refrained from being taken by the Company) pursuant to, the Asset Purchase Agreement; provided that in no event shall the following events, circumstances, or changes in circumstances constitute an Intervening Event: (a) the receipt, existence, or terms of a Takeover Proposal or any matter relating thereto or consequence thereof or any inquiry, proposal, offer or transaction from any third party relating to or in connection with a transaction of the nature described in the definition of “Takeover Proposal” (which, for the purposes of the Intervening Event definition, shall be read without reference to the percentage thresholds set forth in the definition thereof); or (b) any change in the price, or change in trading volume, of the Company’s stock as listed on the OTCQB; provided further that the exception to this clause (b) shall not apply to the underlying causes giving rise to or contributing to such change or prevent any of such underlying causes from being taken into account in determining whether an Intervening Event has occurred.

“Person” means an individual, corporation, partnership, joint venture, limited liability company, governmental authority, unincorporated organization, trust, association or other entity.

“Requisite Seller Vote” means the approval by the holders of a majority of the issued and outstanding stock of the Company entitled to vote at the special meeting.

“Seller Board Recommendation” means the Board, by resolutions duly adopted by a unanimous vote of the directors voting at a meeting of the directors of the Company duly called and held and, not subsequently rescinded or modified in any way, has: (i) resolved to recommend that the Company’s stockholders adopt the Asset Purchase Agreement at the special meeting, (ii) declared the Asset Purchase Agreement advisable under Section 271 of the Delaware General Corporation Law, (iii) determined that the Asset Purchase Agreement is in the best interests of the Company and its stockholders, (iv) approved the Asset Purchase Agreement and (v) directed that the approval of the Asset Purchase Agreement be submitted for consideration by the Company’s stockholders at the special meeting.

“Superior Proposal” means a bona fide written Takeover Proposal (except that, for purposes of this definition, each reference in the definition of “Takeover Proposal” to “15%” shall be “50%”) that the Board determines in good faith (after consultation with outside legal counsel and Mirus Securities, Inc.) is more favorable from a financial point of view to the Company’s stockholders than the transactions contemplated by the Asset Purchase Agreement, taking into account (a) all financial considerations, (b) the identity of the third party making such Takeover Proposal, (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for completion of such Takeover Proposal and (d) the other terms and conditions of such Takeover Proposal and the implications thereof on the Company, including relevant legal, regulatory and other aspects of such Takeover Proposal deemed relevant by the Board.

“Takeover Proposal” means an inquiry, proposal, or offer from, or indication of interest in making a proposal or offer by, any Person or group (other than Buyer and its affiliates), relating to any transaction or series of related transactions (other than the transactions contemplated by the Asset Purchase Agreement), involving any (a) direct or indirect acquisition of assets of the Company equal to 15% or more of the fair market value of the Company’s consolidated assets or that generate 15% or more of the Company’s net revenues or net income (for the 12-month period ending on the last day of the Company’s most recently completed fiscal quarter), (b) direct or indirect acquisition of 15% or more of the voting equity interests of the Company, (c) tender offer or exchange offer that if consummated would result in any Person or group (as defined in Section 13(d) of the Exchange Act) beneficially owning (within the meaning of Section 13(d) of the Exchange Act) 15% or more of the voting power of the Company, (d) merger, consolidation, other business combination, liquidation, dissolution or other corporate reorganization or similar transaction involving the Company, pursuant to which such Person or group (as defined in Section 13(d) of the Exchange Act) would own 15% or more of the assets of the Company, or (e) any combination of the foregoing.

Employee Matters

Buyer shall make offers of “at will” employment to any active Company employee on or after the closing date. Such offers of employment shall include (i) at least the same base salary or hourly wage rate, as applicable, as such Company employees received immediately prior to the closing date; and (ii) employee benefits (excluding equity, phantom equity, retention bonuses, change in control bonuses, deferred compensation plans or arrangements, defined benefit pension plans, retiree medical insurance benefits, and/or retiree life insurance benefits) that are substantially similar in the aggregate to those employee benefits (excluding equity, phantom equity, retention bonuses, change in control bonuses, deferred compensation plans or arrangements, defined benefit pension plans, retiree medical insurance benefits, and/or retiree life insurance benefits) that are offered to similarly situated employees of Buyer. The Company shall immediately terminate the employment of any Company employee who is offered employment with Buyer, and upon such Company employees’ acceptance of the offer of employment with Buyer, such Company employee shall be deemed a Continuing Employee (as defined herein). The Company shall remain responsible for any liabilities related to any Company employee who does not become a Continuing Employee, including any Company employee who does not accept Buyer’s offer of employment. A “Continuing Employee” means any employee of the Company who accepts an offer of employment with Buyer on or following the closing date.

The Company shall be responsible for the payment to all current and former Company employees, including the Continuing Employees, and any current or former independent contractors, temporary employees, or consultants, all salaries, wages, fees, and benefits due or accrued for periods prior to the closing date, irrespective of whether such amounts are payable prior to, on or after the closing date. The Company shall be responsible for the payment of any transaction bonus, change in control bonus, retention bonus, severance, or other payments that are payable to current or former Company employees, including for the Continuing Employees, or current or former independent contractors in connection with the transactions contemplated by the Asset Purchase Agreement. Without limiting the foregoing, the Company shall pay at the closing or immediately thereafter all bonuses or target bonuses and commissions that are related to the period prior to the closing, including any target bonuses or commissions related to the period from the beginning of the current performance period through the closing date, for all Continuing Employees.

The Company shall remain solely responsible for all liabilities under the Company employee plans, including all claims for medical, dental, life, health, accident, or disability benefits that are brought by any current or former Company employee, or the beneficiaries thereof, including any of the Continuing Employees, which claims relate to events occurring prior to, on, or in the case of the Company employees other than the Continuing Employees after the closing date. The Company shall pay, or cause to be paid, all such amounts to the appropriate persons as and when due. The Company also shall remain solely responsible for all workers’ compensation claims of any current or former Company employees, including for the Continuing Employees as it relates to events that occur prior to the closing date. The Company shall remain responsible for any liabilities under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Section 4980B of the United States Internal Revenue Code of 1986, as amended and Section 601 et seq. of Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder (“COBRA”) with respect to any Company employee who was a participant in a Company employee plan, irrespective of when such Liabilities arise under COBRA.

If the Company or an affiliate of the Company must make a payment to a Continuing Employee with respect to his or her unused vacation, personal days, or sick days related to the pre-closing period, then the Company shall be responsible for any such payment and Buyer shall not be required to honor such unused vacation, personal days, or sick days.

The Company shall provide Buyer with a schedule which shall, as of the closing date, set forth a list of each former employee of the Company’s business whose employment was involuntarily terminated within the ninety (90) day period immediately preceding the closing date. The Company shall be responsible for, and shall assume all Liabilities in connection with, compliance with the WARN Act and any similar state or local Law in connection with any Company employee for terminations that occur prior to or on the closing. Buyer shall assume responsibility for compliance with the WARN Act and any similar state of local law in connection with the termination of any Continuing Employee that takes place after the closing date.

The Company shall assign to Buyer all confidentiality, intellectual property assignment, non-competition, non-solicitation, and non-disparagement agreements with the Company and any Continuing Employee on the closing date.

Other Covenants and Agreements

The Asset Purchase Agreement contains other covenants and agreements, including, among other things, the following covenants and agreements:

Closing Conditions

Conditions to Each Party’s Obligation

The obligation of each party to consummate the Asset Sale Transaction is subject to the satisfaction at or prior to the closing of the following conditions:

Conditions to the Obligation of Buyer

The obligation of Buyer to consummate the Asset Sale Transaction is subject to the satisfaction or waiver of the following conditions at closing:

Conditions to the Obligation of the Company

The Company’s obligation to consummate the Asset Sale Transaction is subject to the satisfaction or waiver of the following conditions at closing:

Termination

The Asset Purchase Agreement may be terminated prior to closing as follows:

Upon a valid termination of the Asset Purchase Agreement, there will be no further liability or obligation on the part of Buyer, the Company or their respective affiliates or representatives except that no such termination will relieve any party from liability with respect to certain terms in the Asset Purchase Agreement.

Other Agreements and Instruments

Voting and Support Agreements

In connection with the Asset Sale Transaction, each officer and director of the Company, each of whom are also stockholders, entered into Voting and Support Agreements. Pursuant to the Voting and Support Agreements, the stockholders agreed to (i) vote all of their shares of the Company’s common stock in favor of the Asset Sale Proposal, (ii) take certain other actions in support of the Asset Purchase Agreement and related transactions and (iii) refrain from taking actions that would adversely affect such stockholder’s ability to perform its obligations under the Voting and Support Agreements. The Voting and Support Agreements prevent transfers of the Company’s common stock held by the stockholder party thereto between the date of the Voting and Support Agreement and the date of the Company’s special meeting of stockholders, except for certain permitted transfers.

Employment Agreements

Former employees of the Company who accept employment with Buyer will enter into Buyer’s standard form of employment agreement, confidentially agreement, and assignment of inventions agreement. Among other covenants contained in the employment agreement, the form of employment agreement provides that (i) the employee will assign their right to any intellectual property conceived or created during the term of their employment with Buyer to Buyer, and (ii) the employee will not disclose Buyer’s confirmation information during or after the term of employment with Buyer.

Bill of Sale

At the closing, the Company and Buyer will enter into a Bill of Sale, pursuant to which the Company will, sell, transfer and convey the Transferred Assets to Buyer.

Assignment and Assumption Agreement

At the closing, the Company and Buyer will enter into an Assignment and Assumption Agreement, pursuant to which the Company will, sell, transfer and convey the assigned contracts under the Asset Purchase Agreement to Buyer and Buyer will assume and agree to pay, perform and discharge the Assumed Liabilities under the Asset Purchase Agreement.

Intellectual Property Assignments

At the closing, the Company and Buyer will enter into an Intellectual Property Assignment Agreement, a Patent Assignment Agreement, and a Trademark Assignment. Pursuant to such intellectual property assignment agreements the Company will assign to Buyer all of its rights, title and interest in and to the Company’s intellectual property assets, including without limitation, specified patents and trademarks.

Assignment and Assumption of Lease

At the closing, the Company and Buyer will enter into an Assignment and Assumption of Lease, pursuant to which the Company will assign all of its rights as a tenant under the lease for its corporate headquarters to Buyer and Buyer will assume the obligations under lease arising from and after such assumption date.