(ii) relating to certain pending litigation against
Alta, Mr. Lee and David Topper (the Special Litigation). Pursuant to the
Merger Agreement, (i) the Issuer has limited periods of time in which to make
claims, depending on the event that gives rise to the indemnification
obligation; and (ii) subject to certain exceptions (including those
provisions relating to the Special Litigation), the Shareholders are obligated
to pay only those losses which exceed $800,000 in the aggregate, and the
Shareholders have a maximum aggregate liability of (A) 10% of the total
consideration received by the Shareholders (the Merger Consideration) with
respect to claims asserted on or before January 2, 2008 and (B) 5% of the
Merger Consideration with respect to claims asserted after January 2, 2008.
Under the Merger
Agreement, the Shareholders may satisfy their indemnification obligation by
payment half in cash and half by returning shares of the Common Stock. With
respect to any shares of the Common Stock returned for cancellation, such
shares will be assigned a value of $5.00 per share.
The Merger Agreement
also includes certain non-competition provisions that are binding on Mr. Lee.
At the closing of the
Merger (the Closing), Mr. Lee and the Trust entered into a Registration
Rights Agreement with the Issuer, dated as of August 8, 2007 (the
Registration Rights Agreement), which contains provisions that, among other
things, (i) restrict transfers of a certain percentage of shares of the
Common Stock for a period of three years; and (ii) obligate the Issuer to
prepare and file a registration statement to register such shares under the
U.S. securities laws upon the request of any holder of such shares (as well
as grants such holder so-called piggyback registration rights). A copy of
the Registration Rights Agreement has previously been filed as Exhibit 3 to
this Statement and is incorporated herein by reference. In addition, at the
Closing of the Merger the Survivor entered into an Executive Employment
Agreement, dated as of August 8, 2007 (the Employment Agreement), with Mr.
Lee. The Employment Agreement provides, among other things, that Mr. Lee will
serve as the Chief Executive Officer of the Survivor for a term of five
years, on the terms and subject to the conditions set forth therein. A copy
of the Employment Agreement has previously been filed as Exhibit 4 to this
Statement and is incorporated herein by reference. The Employment Agreement was later amended
on April 16,2008, and made effective as of March 19, 2008 (the First Amended
Employment Agreement), to reflect Mr. Lees promotion to the position of
Chief Executive Officer of the Issuer. A copy of the First Amended Employment
Agreement has previously been filed as Exhibit 7 to this Statement and is
incorporated herein by reference. The Employment Agreement was further
amended on July 8, 2008, and made effective as of March 19, 2008 (the Second
Amended Employment Agreement), to effectuate a salary increase and bonus
approved by the Issuers Compensation Committee on April 23, 2008. The
amendment provides for an increase in Mr. Lee's base annual salary,
retroactive to March 19, 2008 (the date on which Mr. Lee became Chief
Executive Officer of the Issuer), from $610,000 to $650,000, and payment to
Mr. Lee of a one-time bonus of $425,000 in recognition of his extraordinary
services in implementing the Issuers turnaround plan. A copy of the Second
Amended Employment Agreement is attached hereto as Exhibit 8 to this
Statement and is incorporated herein by reference.
With respect to current
plans or proposals of Mr. Lee which relate to or would result in the
acquisition by any person of additional securities of the Issuer, or the
disposition of securities of the Issuer, (i) Mr. Lee may in the future seek
to acquire additional shares of the Common Stock; (ii) Mr. Lees Employment
Agreement, as amended, provides that he shall be eligible to participate in
any executive equity incentive plan adopted by the Board of Directors of the
Issuer; and (iii) subject to the terms of the Registration Rights Agreement,
Mr. Lee may in the future seek to dispose of some or all
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