Document:

exhibit42_021011.htm

Exhibit 4.2

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT, dated February 7, 2011 (this “Agreement”), is entered into by and among SM Energy Company, a Delaware corporation (the “Company”), and the several Initial Purchasers listed in Schedule A to the Purchase Agreement (defined below) (collectively, the “Initial Purchasers”) for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC are acting as representatives (the “Representatives”).

 

The Company and the Initial Purchasers are parties to the Purchase Agreement, dated January 31, 2011 (the “Purchase Agreement”), by and among the Company and the Initial Purchasers, which provides for the sale by the Company to the Initial Purchasers of $350,000,000 aggregate principal amount of the Company’s 65⁄8% Senior Notes due 2019 (the “Securities”).  As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement.  The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement.

 

In consideration of the foregoing, the parties hereto agree as follows:

 

1. Definitions.  As used in this Agreement, the following terms shall have the following meanings:

 

“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.

 

“Company” shall have the meaning set forth in the preamble and shall also include the Company’s successors.

 

“DTC” shall mean the Depository Trust Company.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

“Exchange Dates” shall have the meaning set forth in Section 2(a)(ii) hereof.

 

“Exchange Offer” shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.

 

“Exchange Offer Registration” shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof.

 

“Exchange Offer Registration Statement” shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein.

 

“Exchange Securities” shall mean the Company’s 65⁄8% Senior Notes due 2019 and, to the extent the Securities are guaranteed by any of the Company’s subsidiaries under the Indenture, the guarantees of such subsidiaries in respect of such 65⁄8% Senior Notes due 2019, containing terms identical to the Securities (except that the Exchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with this Agreement) and to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer.

 

“Free Writing Prospectus” means each free writing prospectus (as defined in Rule 405 under the Securities Act).

 

“Holders” shall mean the Initial Purchasers, for so long as they own any Registrable Securities, and each of their successors, assigns and direct and indirect transferees who become owners of Registrable Securities under the Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the term “Holders” shall include Participating Broker-Dealers.

 

“Indemnified Person” shall have the meaning set forth in Section 5(c) hereof.

 

“Indemnifying Person” shall have the meaning set forth in Section 5(c) hereof.

 

“Indenture” shall mean the Indenture, dated as of February 7, 2011, by and among the Company and U.S. Bank National Association, as trustee, pursuant to which the Securities and the Exchange Securities are to be issued, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof.

 

“Initial Purchasers” shall have the meaning set forth in the preamble.

 

“Inspector” shall have the meaning set forth in Section 3(a)(xiii) hereof.

 

“Issuer Information” shall have the meaning set forth in Section 5(a) hereof.

 

“Majority Holders” shall mean the Holders of a majority of the aggregate principal amount of the outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, any Registrable Securities owned directly or indirectly by the Company or any of its affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage or amount; and provided, further, that if the Company shall issue any additional Securities under the Indenture prior to consummation of the Exchange Offer or, if applicable, the effectiveness of any Shelf Registration Statement, such additional Securities and the Registrable Securities to which this Agreement relates shall be treated together as one class for purposes of determining whether the consent or approval of Holders of a specified percentage of Registrable Securities has been obtained.

 

“Participating Broker-Dealers” shall have the meaning set forth in Section 4(a) hereof.

 

“Person” shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof.

 

“Prospectus” shall mean the prospectus included in, or deemed a part of, a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to such prospectus, and in each case including any document incorporated by reference therein.

 

“Purchase Agreement” shall have the meaning set forth in the recital.

 

“Registrable Securities” shall mean the Securities; provided that the Securities shall cease to be Registrable Securities on the earliest of (i) when a Registration Statement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged or disposed of pursuant to such Registration Statement, (ii) if an Exchange Offer is completed, on or after the Exchange Date with respect to the Holders that are eligible to participate in the Exchange Offer but fail to tender such Securities in the Exchange Offer, (iii) the date that is two years from the original issue date of the Securities or (iv) when such Securities cease to be outstanding.

 

“Registration Expenses” shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or Financial Industry Regulatory Authority, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters or Holders in connection with blue sky qualification of any Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, any underwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws, including the Trust Indenture Act, (vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Company and, in the case of a Shelf Registration Statement, the fees and disbursements of one counsel for the Holders (which counsel shall be selected by the Majority Holders and which counsel may also be counsel for the Initial Purchasers) and (viii) the fees and disbursements of the independent public accountants and independent petroleum engineers of the Company, including the expenses of any special audits or “comfort” letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to the Underwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder.

 

“Registration Statement” shall mean any registration statement filed under the Securities Act of the Company that covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein.

 

“Representatives” shall have the meaning set forth in the preamble.

 

“SEC” shall mean the United States Securities and Exchange Commission.

 

“Securities” shall have the meaning set forth in the recital.

 

“Securities Act” shall mean the Securities Act of 1933, as amended from time to time.

 

“Shelf Effectiveness Period” shall have the meaning set forth in Section 2(b) hereof.

 

“Shelf Registration” shall mean a registration effected pursuant to Section 2(b) hereof.

 

“Shelf Registration Statement” shall mean a “shelf” registration statement of the Company that covers all or a portion of the Registrable Securities (but no other securities unless approved by the Holders of a majority of the Registrable Securities to be covered by such Shelf Registration Statement) on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and any document incorporated by reference therein.

 

“Shelf Request” shall have the meaning set forth in Section 2(b) hereof.

 

“Staff” shall mean the staff of the SEC.

 

“Target Registration Date” shall have the meaning set forth in Section 2(d) hereof.

 

“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended from time to time.

 

“Trustee” shall mean the trustee with respect to the Securities under the Indenture.

 

“Underwriter” shall have the meaning set forth in Section 3(e) hereof.

 

“Underwritten Offering” shall mean an offering in which Registrable Securities are sold to an Underwriter for reoffering to the public.

 

2. Registration Under the Securities Act.  (a)  To the extent not prohibited by any applicable law or applicable interpretations of the Staff, the Company shall (i) cause to be filed an Exchange Offer Registration Statement covering an offer to the Holders to exchange all the Registrable Securities for Exchange Securities, (ii) use its reasonable best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act by February 7, 2012 and (iii) have such Registration Statement remain effective until 180 days after the last Exchange Date for use by one or more Participating Broker-Dealers.  The Company shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement is declared effective by the SEC and use its reasonable best efforts to complete the Exchange Offer not later than 60 days after such effective date.

 

The Company shall commence the Exchange Offer by mailing the related Prospectus, appropriate letters of transmittal and other accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law, substantially the following:

 

	
(i)  

	
that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Securities validly tendered and not properly withdrawn will be accepted for exchange;

 

	
(ii)  

	
the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the “Exchange Dates”);

 

	
(iii)  

	
that any Registrable Security not tendered will remain outstanding and continue to accrue interest but will not retain any rights under this Agreement;

 

	
(iv)  

	
that any Holder electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to (x) in the case of a Holder electing to exchange a Registrable Security in global form, to comply with the applicable procedures of DTC for book-entry tenders, and, (y) in the case of a Holder electing to exchange a Registrable Security in certificated form, to surrender such Registrable Security, together with the appropriate letters of transmittal, to the institution and at the address (located in the Borough of Manhattan, The City of New York) and in the manner specified in the notice, prior to the close of business on the last Exchange Date; and

 

	
(v)  

	
that any Holder will be entitled to withdraw its election, not later than the close of business on the last Exchange Date, by (x) in the case of a Holder withdrawing its election to exchange a Registrable Security in global form, complying with the applicable procedures of DTC for withdrawal of tenders, and, (y) in the case of a Holder withdrawing its election to exchange a Registrable Security in certificated form, sending to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing its election to have such Registrable Securities exchanged.

 

As a condition to participating in the Exchange Offer, a Holder will be required to represent to the Company that (i) any Exchange Securities to be received by it will be acquired in the ordinary course of its business, (ii) at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions of the Securities Act, (iii) it is not an “affiliate” (within the meaning of Rule 405 under the Securities Act) of the Company and (iv) if such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities that were acquired as a result of market-making or other trading activities, then such Holder will deliver a Prospectus (or, to the extent permitted by law, make available a Prospectus to purchasers) in connection with any resale of such Exchange Securities.

 

As soon as practicable after the last Exchange Date, the Company shall:

 

	
(i)  

	
accept for exchange Registrable Securities or portions thereof validly tendered and not properly withdrawn pursuant to the Exchange Offer; and

 

	
(ii)  

	
deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Company and issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principal amount of the Registrable Securities surrendered by such Holder.

 

The Company shall use its reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer.  The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate any applicable law or applicable interpretations of the Staff.

 

(b) In the event that (i) the Company determines that the Exchange Offer Registration provided for in Section 2(a) above is not available or may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or applicable interpretations of the Staff, (ii) the Exchange Offer is not for any other reason completed by February 7, 2012, or (iii) upon receipt of a request by any Holder of Registrable Securities that (A) is prohibited by applicable law or SEC policy from participating in the Exchange Offer or (B) may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (iv) any Initial Purchaser shall so request (a “Shelf Request”) in connection with any offer or sale of Registrable Securities that are ineligible to be exchanged in the Exchange Offer, the Company shall use its reasonable best efforts to cause to be filed as soon as practicable after such determination, date or Shelf Request, as the case may be, a Shelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statement become effective under the Securities Act.

 

In the event that the Company is required to file a Shelf Registration Statement pursuant to clause (iv) of the preceding sentence, the Company shall use its reasonable best efforts to file and have become effective under the Securities Act both an Exchange Offer Registration Statement pursuant to Section 2(a) with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Securities held by the Initial Purchasers after completion of the Exchange Offer.

 

The Company agrees to use its reasonable best efforts to keep the Shelf Registration Statement continuously effective for one year or such shorter period that will terminate when all the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement (the “Shelf Effectiveness Period”).  The Company further agrees to supplement or amend the Shelf Registration Statement and the related Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registration or if reasonably requested by a Holder of Registrable Securities with respect to information relating to such Holder, and to use its reasonable best efforts to cause any such amendment to become effective under the Securities Act, if required, and such Shelf Registration Statement and Prospectus to become usable as soon as practicable thereafter.  The Company agrees to furnish to the Holders of Registrable Securities copies of any such supplement or amendment  promptly after its being used or filed with the SEC.

 

(c) The Company shall pay all Registration Expenses in connection with any registration pursuant to Section 2(a) or Section 2(b) hereof.  Each Holder shall pay all underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’s Registrable Securities pursuant to the Shelf Registration Statement.

 

(d) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof will not be deemed to have become effective unless it has been declared effective by the SEC. A Shelf Registration Statement pursuant to Section 2(b) will not be deemed to have become effective unless it has been declared effective by the SEC or is automatically effective upon filing with the SEC as provided by Rule 462 under the Securities Act.

 

In the event that (i) either the Exchange Offer is not completed or the Shelf Registration Statement, if required pursuant to Section 2(b)(i) or 2(b)(ii) hereof, is not declared effective on or prior to February 7, 2012 (the “Target Registration Date”), or (ii) the Company receives a Shelf Request pursuant to Section 2(b)(iii) or 2(b)(iv) hereof, and the Shelf Registration Statement required to be filed thereby is not declared effective by the SEC by the later of (x) July 7, 2011 or (y) 90 days after the delivery of such Shelf Request (such later date, the “Shelf Additional Interest Date”), then the interest rate on the Registrable Securities will be increased by (A) 0.25% per annum for the first 90-day period immediately following the Target Registration Date or the Shelf Additional Interest Date, as applicable, and (B) an additional 0.25% per annum with respect to each subsequent 90-day period, in each case until the Exchange Offer is completed or the Shelf Registration Statement, if required hereby, has become effective under the Securities Act or the Securities no longer qualify as Registrable Securities, up to a maximum of 1.00% per annum of additional interest.

 

If the Shelf Registration Statement, if required hereby, has become effective under the Securities Act and thereafter either ceases to be effective or the Prospectus contained therein ceases to be usable at any time during the Shelf Effectiveness Period, and such failure to remain effective or usable exists for more than 30 days (whether or not consecutive) in any 12-month period, then the interest rate on the Registrable Securities will be increased by (i) 0.25% per annum commencing on the 31st day in such 12-month period and (ii) an additional 0.25% per annum with respect to each subsequent 90-day period (whether or not consecutive) and ending on such date that the Shelf Registration Statement has again become effective under the Securities Act or the Prospectus again becomes usable, up to a maximum of 1.00% per annum of additional interest.

 

(e) Any additional interest paid in accordance with this Section 2 shall be liquidated damages and shall be the sole and exclusive remedy available to Holders due to a failure by the Company to comply with its obligations under Section 2(a) and Section 2(b).

 

3. Registration Procedures.  (a) In connection with any registration pursuant to Section 2(a) and Section 2(b) hereof, the Company shall as expeditiously as possible:

 

(i) prepare and file with the SEC a Registration Statement on the appropriate form under the Securities Act, which form (x) shall be selected by the Company, (y) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the Holders thereof and (z) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use its reasonable best efforts to cause such Registration Statement to become effective under the Securities Act and remain effective for the applicable period in accordance with Section 2 hereof;

 

(ii) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and keep each Prospectus current during the period described in Section 4(3) of and Rule 174 under the Securities Act that is applicable to transactions by brokers or dealers with respect to the Registrable Securities or Exchange Securities;

 

(iii) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, to counsel for the Initial Purchasers, to counsel for such Holders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus or preliminary prospectus, and any amendment or supplement thereto, as such Holder, counsel or Underwriter may reasonably request in order to facilitate the sale or other disposition of the Registrable Securities thereunder; and the Company consents to the use of such Prospectus, preliminary prospectus and any amendment or supplement thereto in accordance with applicable law by each of the Holders of Registrable Securities and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus, preliminary prospectus or any amendment or supplement thereto in accordance with applicable law;

 

(iv) use its reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement shall reasonably request in writing by the time the applicable Registration Statement becomes effective; cooperate with such Holders in connection with any filings required to be made with the Financial Industry Regulatory Authority, Inc.; and do any and all other acts and things that may be reasonably necessary or advisable to enable each Holder to complete the disposition in each such jurisdiction of the Registrable Securities owned by such Holder; provided that the Company shall not be required to (1) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (2) file any general consent to service of process in any such jurisdiction or (3) subject itself to taxation in any such jurisdiction if it is not so subject;

 

(v) in the case of a Shelf Registration, notify each Holder of Registrable Securities and counsel for such Holders promptly and, if requested by any such Holder or counsel, confirm such advice in writing (1) when a Registration Statement has become effective, when any post-effective amendment thereto has been filed and becomes effective and when any amendment or supplement to the Prospectus has been filed, (2) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (3) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, including the receipt by the Company of any notice of objection of the SEC to the use of a Shelf Registration Statement or any post-effective amendment thereto pursuant to Rule 401(g)(2) under the Securities Act, (4) if, between the applicable effective date of a Shelf Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to an offering of such Registrable Securities cease to be true and correct in all material respects or if the Company receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (5) of the happening of any event during the period a Registration Statement is effective that makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or that requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading and (6) of any determination by the Company that a post-effective amendment to a Registration Statement or any amendment or supplement to the Prospectus would be appropriate;

 

(vi) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or, in the case of a Shelf Registration, the resolution of any objection of the SEC pursuant to Rule 401(g)(2), including by filing an amendment to such Shelf Registration Statement on the proper form, at the earliest possible moment and provide immediate notice to each Holder of the withdrawal of any such order or such resolution;

 

(vii) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without any documents incorporated therein by reference or exhibits thereto, unless requested);

 

(viii) in the case of a Shelf Registration, cooperate with the Holders of Registrable Securities in certificated form to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in such denominations and registered in such names (consistent with the provisions of the Indenture) as such Holders may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities in certificated form;

 

(ix) in the case of a Shelf Registration, upon the occurrence of any event contemplated by Section 3(a)(v)(5) hereof, use its reasonable best efforts to prepare and file with the SEC a supplement or post-effective amendment to such Shelf Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered (or, to the extent permitted by law, made available) to purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company shall notify the Holders of Registrable Securities to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and such Holders hereby agree to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission;

 

(x) in the case of a Shelf Registration, a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or of any document that is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, to the Holders of Registrable Securities and their counsel) and make such of the representatives of the Company as shall be reasonably requested by the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Holders of Registrable Securities or their counsel) available for discussion of such document; and the Company shall not, at any time after the initial filing of a Registration Statement, use or file any Prospectus, any amendment of or supplement to a Registration Statement or a Prospectus, any Free Writing Prospectus, or any document that is to be incorporated by reference into a Registration Statement or a Prospectus, of which the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Holders of Registrable Securities and their counsel) shall not have previously been advised and furnished a copy or to which the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Holders of Registrable Securities or their counsel) shall reasonably object; provided, that this clause shall not apply to any filing by the Company of any Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K with respect to matters unrelated to the Securities and the offering or exchange therefor;

 

(xi) obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the initial effective date of a Registration Statement;

 

(xii) cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be; cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and execute, and use its reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner;

 

(xiii) in the case of a Shelf Registration, make available for inspection by a representative (an “Inspector”) of the Holders of the Registrable Securities, any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, any attorneys and accountants designated by a majority of the Holders of Registrable Securities to be included in such Shelf Registration and any attorneys and accountants designated by such Underwriter, at reasonable times and in a reasonable manner, all pertinent financial and other records, documents and properties of the Company and its subsidiaries, and cause the respective officers, directors and employees of the Company to supply all information reasonably requested by any such Inspector, Underwriter, attorney or accountant in connection with a Shelf Registration Statement, in each case as is customary for “due diligence” examinations in the context of underwritten offerings; provided that if any such information is identified by the Company as being confidential or proprietary, each Person receiving such information shall take such actions as are reasonably necessary to protect the confidentiality of such information to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of any Inspector, Holder or Underwriter;

 

(xiv) in the case of a Shelf Registration, use its reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange or any automated quotation system on which similar securities issued or guaranteed by the Company are then listed if requested by the Majority Holders, to the extent such Registrable Securities satisfy applicable listing requirements;

 

(xv) if reasonably requested by any Holder of Registrable Securities covered by a Shelf Registration Statement, promptly include in a Prospectus supplement or post-effective amendment such information with respect to such Holder as such Holder reasonably requests to be included therein and make all required filings of such Prospectus supplement or such post-effective amendment as soon as the Company has received notification of the matters to be so included in such filing; and

 

(xvi) in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including those requested by the Holders of a majority in principal amount of the Registrable Securities covered by the Shelf Registration Statement) in order to expedite or facilitate the disposition of such Registrable Securities including, but not limited to, an Underwritten Offering and in such connection, (1) to the extent possible, make such representations and warranties to the Holders and any Underwriters of such Registrable Securities with respect to the business of the Company and its subsidiaries and the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested, (2) obtain opinions of counsel to the Company (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Holders and such Underwriters and their respective counsel) addressed to each selling Holder and Underwriter of Registrable Securities, covering the matters customarily covered in opinions requested in underwritten offerings, (3) obtain “comfort” letters from the independent registered public accounting firm of the Company (and, if necessary, any other certified public accountant of any subsidiary of the Company, or of any business acquired by the Company for which financial statements and financial data are or are required to be included in the Registration Statement) addressed to each selling Holder (to the extent permitted by applicable professional standards) and Underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings, including but not limited to financial information contained in any preliminary prospectus or Prospectus and (4) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold or the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the Company made pursuant to clause (1) above and to evidence compliance with any customary conditions contained in an underwriting agreement.

 

(b) In the case of a Shelf Registration Statement, the Company may require each Holder of Registrable Securities to furnish to the Company such information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing.

 

(c) In the case of a Shelf Registration Statement, each Holder of Registrable Securities covered in such Shelf Registration Statement agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(a)(v)(3) or 3(a)(v)(5) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(a)(ix) hereof and, if so directed by the Company, such Holder will deliver to the Company all copies in its possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities that is current at the time of receipt of such notice.

 

(d) If the Company shall give any notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders of such Registrable Securities shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions. The Company may give any such notice only twice during any 365-day period and any such suspensions shall not exceed 30 days for each suspension and there shall not be more than two suspensions in effect during any 365-day period.

 

(e) The Holders of Registrable Securities covered by a Shelf Registration Statement who desire to do so may sell such Registrable Securities in an Underwritten Offering.  In any such Underwritten Offering, the investment bank or investment banks and manager or managers (each an “Underwriter”) that will administer the offering will be selected by the Holders of a majority in principal amount of the Registrable Securities included in such offering; provided that, with respect to any Underwriter other than the Representatives, such selections shall be subject to the approval of the Company, which approval shall not be unreasonably withheld.

 

4. Participation of Broker-Dealers in Exchange Offer.  (a)  The Staff has taken the position that any broker-dealer that receives Exchange Securities for its own account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities (a “Participating Broker-Dealer”) may be deemed to be an “underwriter” within the meaning of the Securities Act and must deliver a prospectus  meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities.

 

The Company understands that it is the Staff’s position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers (or, to the extent permitted by law, made available to purchasers) to satisfy their prospectus delivery obligation under the Securities Act in connection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act.

 

(b) In light of the above, and notwithstanding the other provisions of this Agreement, the Company agrees, upon request of any Participating Broker-Dealer, to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement for a period of up to 180 days after the last Exchange Date (as such period may be extended pursuant to Section 3(d) of this Agreement), in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions of the Staff recited in Section 4(a) above.  The Company further agrees that Participating Broker-Dealers shall be authorized to deliver such Prospectus (or, to the extent permitted by law, make available) during such period in connection with the resales contemplated by this Section 4.

 

(c) The Initial Purchasers shall have no liability to the Company or any Holder with respect to any request that they may make pursuant to Section 4(b) above.

 

5. Indemnification and Contribution.  (a)  The Company agrees to indemnify and hold harmless each Initial Purchaser and each Holder, their respective affiliates, directors, officers and employees and each Person, if any, who controls any Initial Purchaser or any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which such Initial Purchaser, Holder, affiliate, director, officer, employee or controlling Person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon: (1) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or (2) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, any Free Writing Prospectus or any “issuer information” (“Issuer Information”) filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case except insofar as such loss, claim, damage, liability or expense arises out of, or is based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser or information relating to any Holder furnished to the Company in writing through the Representatives or any selling Holder, respectively, expressly for use therein.  In connection with any Underwritten Offering permitted by Section 3, the Company will also indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates and each Person who controls such Persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders, if requested in connection with any Registration Statement, any Prospectus, any Free Writing Prospectus or any Issuer Information.

 

(b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Initial Purchasers and the other selling Holders, the directors of the Company, each officer of the Company who signed the Registration Statement and each Person, if any, who controls the Company, any Initial Purchaser and any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages, liabilities or expenses that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement and any Prospectus.

 

(c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, such Person (the “Indemnified Person”) will, if a claim in respect thereof is to be made against such Indemnified Person under this Section 5, notify the Person against whom such indemnification may be sought (the “Indemnifying Person”) in writing of the commencement thereof; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under this Section 5 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under this Section 5.  If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person will be entitled to participate in and, to the extent that it shall elect, jointly with all other Indemnifying Persons similarly notified, by written notice delivered to the Indemnified Person promptly after receiving the aforesaid notice from such Indemnified Person, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Person; provided, however, if the defendants in any such action include both the Indemnified Person and the Indemnifying Person and the Indemnified Person shall have reasonably concluded that a conflict may arise between the positions of the Indemnifying Person and the Indemnified Person in conducting the defense of any such action or that there may be legal defenses available to it and/or other Indemnified Persons which are different from or additional to those available to the Indemnifying Person, the Indemnified Person or Persons shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Person or Persons.  Upon receipt of notice from the Indemnifying Person to such Indemnified Person of such Indemnifying Person’s election so to assume the defense of such action and approval by the Indemnified Person of counsel, the Indemnifying Person will not be liable to such Indemnified Person under this Section 5 for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof unless (i) the Indemnified Person shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that the Indemnifying Person shall not be liable for the expenses of more than one separate counsel (together with local counsel (in each jurisdiction)), which shall be selected (A) by Merrill Lynch, Pierce, Fenner & Smith Incorporated in the case of counsel representing the Initial Purchasers or their related persons), (B) by the Majority Holders in the case of any Holder, its directors and officers and any control Persons of such Holder representing the Indemnified Persons who are parties to such action), and (C) by the Company in all other cases; or (ii) the Indemnifying Person shall not have employed counsel satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the Indemnifying Person.  The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, which will not be unreasonably withheld, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment.  No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any Indemnified Person is or could have been a party and indemnification was or could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such action, suit or proceeding and (B) does not include any statement as to or findings of fault, culpability or failure to act by or on behalf of any Indemnified Person.

 

(d) If the indemnification provided for in paragraphs (a) and (b) above is for any reason held to be unavailable to or otherwise insufficient to hold harmless an Indemnified Person in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each Indemnifying Person under such paragraph, shall contribute to the aggregate amount paid or payable by such Indemnified Person, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company from the offering of the Securities and the Exchange Securities, on the one hand, and by the Holders from receiving Securities or Exchange Securities registered under the Securities Act, on the other hand, or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Holders, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations.  The relative fault of the Company, on the one hand, and the Holders, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Holders and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, liabilities and expenses referred to in this paragraph (d) shall be deemed to include, subject to the limitations set forth above, any legal or other fees or expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim.

 

(e) The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above.    Notwithstanding the provisions of this Section 5, in no event shall a Holder be required to contribute any amount in excess of the amount by which the total price at which the Securities or Exchange Securities sold by such Holder exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.  The Holders’ obligations to contribute pursuant to this Section 5 are several and not joint.

 

(f) The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity.

 

(g) The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers or any Holder or any Person controlling any Initial Purchaser or any Holder, or by or on behalf of the Company or the officers or directors of or any Person controlling the Company, (iii) acceptance of any of the Exchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement.

 

6. General.

 

(a) No Inconsistent Agreements.   The Company represents, warrants and agrees that (i) the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Company under any other agreement and (ii) the Company has not entered into, or on or after the date of this Agreement will enter into, any agreement that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof.

 

(b) Amendments and Waivers.   The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder.  Any amendments, modifications, supplements, waivers or consents pursuant to this Section 6(b) shall be by a writing executed by each of the parties hereto.

 

(c) Notices.  All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Initial Purchasers, the address set forth in the Purchase Agreement; (ii) if to the Company, initially at the Company’s address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c); and (iii) to such other persons at their respective addresses as provided in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c).  All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery.  Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture.

 

(d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture.  If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof.  The Initial Purchasers (in their capacity as Initial Purchasers) shall have no liability or obligation to the Company with respect to any failure by a Holder to comply with, or any breach by any Holder of, any of the obligations of such Holder under this Agreement.

 

(e) Third Party Beneficiaries.  Each Holder shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of other Holders hereunder.

 

(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

(g) Headings.  The headings in this Agreement are for convenience of reference only, are not a part of this Agreement and shall not limit or otherwise affect the meaning hereof.

 

(h) Governing Law.  This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

(i) Entire Agreement; Severability.  This Agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto.  If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated.  The Company and the Initial Purchasers shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, void or unenforceable provisions.

 

 

[Signature pages follow.]

 

  

  

 

  

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first above written.

 

 

                         SM ENERGY COMPANY

 

 

                        By:       /s/ DAVID W. COPELAND                                                          

                          Name: David W. Copeland

                          Title:   Senior Vice President and General Counsel

  

  

 

  

Confirmed and accepted as of the date first above written:

 

MERRILL LYNCH, PIERCE, FENNER & SMITH

      INCORPORATED

WELLS FARGO SECURITIES, LLC

Acting on behalf of themselves and as the

Representatives of the several Initial Purchasers

 

 

MERRILL LYNCH, PIERCE, FENNER & SMITH

      INCORPORATED

 

By:       /s/ J. LEX MAULTSBY

Name: J. Lex Maultsby

Title:  Managing Director

 

 

WELLS FARGO SECURITIES, LLC

By:       /s/ ROBERT H. JOHNSON JR.

Name: Robert H. Johnson, Jr.

Title:  Managing Directorex101to8k04162_02072011.htm

Exhibit 10.1

 

 

 

AGREEMENT AND PLAN OF RECAPITALIZATION

BY AND AMONG

GATEWAY INDUSTRIES, INC.

AND

SILLERMAN INVESTMENT COMPANY LLC

AND

EMH HOWARD LLC

February 7, 2011

 

 

  

  

 

 

 

  

	
TABLE OF CONTENTS

	  	  
	  	
Page

	  	  
	
ARTICLE I THE RECAPITALIZATION

	
1

	
1.1

	
Investment in Gateway.

	
1

	
1.2

	
Closing.

	
1

	
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SILLERMAN

	
2

	
2.1

	
Organization, Standing and Power.

	
2

	
2.2

	
Authority.

	
2

	
2.3

	
Litigation

	
2

	
2.4

	
Interested Party Transactions.

	
3

	
2.5

	
Compliance With Laws

	
3

	
ARTICLE III REPRESENTATIONS AND WARRANTIES OF GATEWAY

	
3

	
3.1

	
Organization, Standing and Power.

	
3

	
3.2

	
Capital Structure.

	
4

	
3.3

	
Authority.

	
4

	
3.4

	
SEC Documents; Financial Statements.

	
5

	
3.5

	
Absence of Certain Changes

	
5

	
3.6

	
Absence of Undisclosed Liabilities.

	
6

	
3.7

	
Litigation

	
6

	
3.8

	
Restrictions on Business Activities

	
6

	
3.9

	
Title to Property.

	
6

	
3.10

	
Taxes.

	
6

	
3.11

	
Employee Benefit Plans.

	
7

	
3.12

	
Labor Matters

	
8

	
3.13

	
Interested Party Transactions.

	
8

 

  

  

  

 

	
3.14

	
Compliance With Laws

	
8

	
3.15

	
Broker’s and Finders’ Fees.

	
8

	
3.16

	
Minute Books

	
8

	
3.17

	
Votes Required

	
8

	
3.18

	
Board Approval

	
8

	
3.19

	
Over-the-Counter Bulletin Board Quotation.

	
8

	
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PRIMARY STOCKHOLDER

	
9

	
4.1

	
Authority.

	
9

	
4.2

	
Ownership of the Common Stock of Gateway.

	
9

	
4.3

	
Gateway’s Representations and Warranties

	
9

	
ARTICLE V CONDUCT PRIOR TO THE CLOSING DATE

	
10

	
5.1

	
Conduct of Business.

	
10

	
5.2

	
Restrictions on Conduct of Business.

	
10

	
ARTICLE VI ADDITIONAL AGREEMENTS

	
12

	
6.1

	
Access to Information.

	
12

	
6.2

	
Public Disclosure.

	
12

	
6.3

	
Consents; Cooperation.

	
13

	
6.4

	
Legal Requirements.

	
13

	
6.5

	
Blue Sky Laws.

	
13

	
6.6

	
Press Release

	
13

	
6.7

	
Form 10-K

	
14

	
6.8

	
Best Efforts and Further Assurances

	
14

	
6.9

	
FINRA Notification.

	
14

	
6.10

	
Post-Closing Date Fees and Expenses.

	
14

	
6.11

	
Confidentiality.

	
14

 

  

  

  

 

	
6.12

	
Other Placements.

	
15

	
6.13

	
J. Howard Debt.

	
15

	
ARTICLE VII CONDITIONS TO THE TRANSACTION

	
15

	
7.1

	
Conditions to Obligations of Each Party to Effect the Transaction.

	
15

	
7.2

	
Additional Conditions to Obligations of Sillerman.

	
15

	
7.3

	
Additional Conditions to the Obligations of Gateway

	
17

	
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER

	
17

	
8.1

	
Termination

	
17

	
8.2

	
Effect of Termination

	
18

	
8.3

	
Expenses.

	
18

	
8.4

	
Amendment

	
19

	
8.5

	
Extension; Waiver

	
19

	
ARTICLE IX GENERAL PROVISIONS

	
19

	
9.1

	
Non-Survival at Closing Date.

	
19

	
9.2

	
Notices.

	
19

	
9.3

	
Interpretation.

	
21

	
9.4

	
Counterparts.

	
21

	
9.5

	
Entire Agreement; Nonassignability; Parties in Interest

	
21

	
9.6

	
Severability.

	
21

	
9.7

	
Remedies Cumulative.

	
21

	
9.8

	
Governing Law.

	
22

	
9.9

	
Rules of Construction.

	
22

 

  

  

  

 

EXHIBITS

 

A – Certificate of Amendment of the Certificate of Incorporation

 

B – Form of Subscription Agreement

 

SCHEDULES

 

Sillerman Disclosure Schedule

Gateway Disclosure Schedule

 

  

  

  

 

AGREEMENT AND PLAN OF RECAPITALIZATION

 

This AGREEMENT AND PLAN OF RECAPITALIZATION (the “Agreement”) is made and entered into as of February 7, 2011, by and among Gateway Industries, Inc., a Delaware corporation (“Gateway”), Sillerman Investment Company LLC, a Delaware limited liability company (“Sillerman”), and EMH Howard LLC, a New York limited liability company (“Primary Stockholder”).

 

R E C I T A L S

 

The parties to this Agreement believe that the recapitalization described in this Agreement is in the best interests of Gateway and the other parties.

 

NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I

THE RECAPITALIZATION

 

1.1           Investment in Gateway. At the Closing (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and in accordance with the applicable provisions of the Delaware General Corporation Law, Sillerman (together with investors who it has approved to acquire shares) will invest in Gateway by acquiring 120,000,000 newly issued shares of common stock of Gateway in a private placement transaction at a price of $0.03 per share (the “Placement”) as a result of which Sillerman (together with Robert F.X. Sillerman personally) will directly or indirectly beneficially own more than a majority of all of the outstanding shares of common stock of Gateway. Prior to the Placement, Gateway will amend its Certificate of Incorporation as set forth in Section 5.2(a) to increase its authorized shares of common stock and to implement a 1 for 10 reverse split of its issued and outstanding common stock (such amendment, together with the Placement, shall constitute the “Transaction”). As a result of the Placement, Sillerman (together with investors who it has approved to acquire shares) shall own 120,000,000 out of 120,419,210 outstanding shares of the common stock of Gateway. The Placement will be subscribed for pursuant to a subscription agreement substantially in the form of Exhibit B hereof.

 

1.2           Closing. The closing of the transactions contemplated hereby (the “Closing”) shall take place as soon as practicable after the satisfaction or waiver of each of the conditions set forth in Article VII hereof or at such other time as the parties hereto agree (the “Closing Date”). The Closing shall take place at the offices of Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York, New York 10036, or at such other location as the parties hereto agree.

 

  

  

  

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF SILLERMAN

 

In this Agreement, any reference to Sillerman’s “knowledge” means Sillerman’s actual knowledge after reasonable inquiry of Sillerman’s directors and executive officers (within the meaning of Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”)).

 

Except as disclosed in that section of the document of even date herewith delivered by Sillerman to Gateway prior to the execution and delivery of this Agreement (the “Sillerman Disclosure Schedule”) corresponding to the Section of this Agreement to which any of the following representations and warranties specifically relate or as disclosed in another section of the Sillerman Disclosure Schedule if it is reasonably apparent from the nature of the disclosure that it is applicable to another Section of this Agreement, Sillerman represents and warrants to Gateway as follows:

 

2.1           Organization, Standing and Power. Sillerman is a limited liability company duly organized, validly existing and in good standing, and no certificate of dissolution has been filed under the laws of its jurisdiction of organization. Sillerman has the power to own its properties and to carry on its business as now being conducted and as presently proposed to be conducted. Sillerman is not in violation of any of the provisions of its Certificate of Formation or Operating Agreement.

 

2.2           Authority. Sillerman has all requisite limited liability company power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action on the part of Sillerman. This Agreement has been duly executed and delivered by Sillerman and constitutes the valid and binding obligation of Sillerman enforceable against Sillerman in accordance with its terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity. The execution and delivery of this Agreement by Sillerman does not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (i) any provision of the Certificate of Formation or Operating Agreement of Sillerman or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Sillerman or any of its properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality (“Governmental Entity”) is required by or with respect to Sillerman in connection with the execution and delivery of this Agreement, or the consummation of the transactions contemplated hereby and thereby.

 

2.3           Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration, audit or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of Sillerman, threatened against Sillerman or any of its properties or any of its officers or directors (in their capacities as such). There is no injunction, judgment, decree, order or regulatory restriction imposed upon Sillerman or any of its assets or business, or, to the knowledge of Sillerman, any of its directors or officers (in their capacities as such), that would prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. There are no actions, suits, proceedings, claims, arbitrations, audits and investigations pending before any agency, court or tribunal that involve Sillerman or any of its subsidiaries.

 

  

2

  

 

2.4           Interested Party Transactions. Sillerman is not indebted to any director or officer of Sillerman (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses), and no such person is indebted to Sillerman, and there are no other related party transactions of the type required to be disclosed pursuant to Items 402 or 404 of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than (a) expenses up to $2,000,000 to be reimbursed to Sillerman Investment Corporation and affiliates by Gateway after the Closing and (b) Sillerman Investment Corporation’s contribution of intellectual property to Gateway.

 

2.5           Compliance With Laws. To Sillerman’s knowledge, Sillerman has complied with, is not in violation of, and has not received any notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business or the ownership or operation of its business.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF GATEWAY

 

In this Agreement, any reference to Gateway’s and/or its subsidiaries’ knowledge means such party’s actual knowledge after reasonable inquiry of such party’s executive officers and directors (within the meaning of Rule 405 under the Securities Act).

 

Except as disclosed in that section of the document of even date herewith delivered by Gateway to Sillerman prior to the execution and delivery of this Agreement (the “Gateway Disclosure Schedule”) corresponding to the Section of this Agreement to which any of the following representations and warranties specifically relate or as disclosed in another section of the Gateway Disclosure Schedule if it is reasonably apparent on the face of the disclosure that it is applicable to another Section of this Agreement, Gateway represents and warrants to Sillerman as follows:

 

3.1           Organization, Standing and Power. Gateway is a corporation duly organized, validly existing and in good standing, and no certificate of dissolution has been filed under the laws of its jurisdiction of organization. Each of Gateway and its subsidiaries has the corporate power to own its properties and to carry on its business as now being conducted and as proposed to be conducted. Gateway has delivered or made available to Sillerman a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date. Gateway is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws or equivalent organizational documents. Gateway does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.Gateway’s Board of Directors has no committees and no code of conduct or similar policy has been adopted by Gateway.

 

  

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3.2           Capital Structure. The authorized capital stock of Gateway consists of 10,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share, of which there were issued and outstanding as of the close of business on the date hereof, 4,192,106 shares of common stock and no shares of preferred stock. Upon compliance by Gateway with Section 5.2(a), the authorized capital stock of Gateway shall be 300,000,000 shares of common stock, and 1,000,000 shares of preferred stock. Subject to Gateway’s compliance with Section 5.2(a), the 120,000,000 shares of common stock of Gateway to be issued pursuant to the Placement have been duly authorized by all necessary corporate action and, when issued in accordance with the terms hereof, shall be validly issued and outstanding, and nonassessable. There are no other outstanding shares of capital stock or voting securities and no outstanding commitments to issue any shares of capital stock or voting securities after the date hereof. All outstanding shares of the common stock of Gateway are duly authorized, validly issued, fully paid and nonassessable and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof, and are not subject to preemptive rights or rights of first refusal created by statute, the Certificate of Incorporation or Bylaws of Gateway or any agreement to which Gateway is a party or by which it is bound. Except for the rights created pursuant to this Agreement, there are no other options, warrants, calls, rights, commitments or agreements of any character to which Gateway is a party or by which it is bound obligating Gateway to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of capital stock of Gateway or obligating Gateway to grant, extend, accelerate the vesting and/or repurchase rights of, change the price of, or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no contracts, commitments or agreements relating to voting, purchase or sale of Gateway’s capital stock (i) between or among Gateway and any of its stockholders and (ii) to the best of Gateway’s knowledge, between or among any of Gateway’s stockholders.

 

3.3           Authority. Gateway has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Gateway, other than the approval by the stockholders of Gateway. This Agreement has been duly executed and delivered by Gateway and constitutes the valid and binding obligations of Gateway enforceable against Gateway in accordance with its terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (i) any provision of the Certificate of Incorporation or Bylaws of Gateway or any of its subsidiaries, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Gateway or any of its subsidiaries or their properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, is required by or with respect to Gateway or any of its subsidiaries in connection with the execution and delivery of this Agreement by Gateway or the consummation by Gateway of the transactions contemplated hereby, except for (i) the filing of the Certificate of Amendment as provided in Section 5.2(a), (ii) any filings as may be required under applicable state securities laws and the securities laws of any foreign country, and (iii) any filings required with the Financial Industry Regulatory Authority, Inc. (“FINRA”).

 

  

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3.4           SEC Documents; Financial Statements. Gateway has made available to Sillerman a true and complete copy of each statement, report, registration statement (with the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy statement, and other filings filed with the Securities and Exchange Commission (“SEC”) by Gateway through January 12, 2004 (collectively, the “Gateway SEC Documents”). On January 12, 2004, Gateway filed a Form 15 suspending its requirement to file reports with the SEC under the Exchange Act. Gateway has delivered to Sillerman the audited financial statements of Gateway and its subsidiaries for each of the calendar years ending December 31, 2004 through December 31, 2010 (the “Gateway Financial Statements”). As of their respective filing dates, the Gateway SEC Documents complied in all material respects with the requirements of the Exchange Act and the Securities Act, and none of the Gateway SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed Gateway SEC Document. None of Gateway’s subsidiaries is required to file any forms, reports or other documents with the SEC. The Gateway Financial Statements including the notes thereto, were complete and correct in all material respects as of their respective dates, complied as to form in all material respects with applicable accounting requirements as of their respective dates, and have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other. The Gateway Financial Statements fairly present the consolidated financial condition and operating results of Gateway and its subsidiaries at the dates and during the periods indicated therein (subject, in the case of unaudited statements, to normal, recurring year-end adjustments).

 

3.5           Absence of Certain Changes. Since December 31, 2010, neither Gateway nor any of its subsidiaries, as applicable, has (i) conducted any business; (ii) entered into any acquisition, sale or transfer of any material asset of Gateway or any of its subsidiaries; (iii) made any change in accounting methods or practices or any revaluation of any of its or any of its subsidiaries’ assets; (iv) declared, set aside or paid a dividend or other distribution with respect to the shares of Gateway, or any direct or indirect redemption, purchase or other acquisition by Gateway of any of its shares of capital stock; (v) entered into any material contract, or any amendment or termination of, or defaulted under, any material contract to which Gateway or any of its subsidiaries is a party or by which it is bound; (vi) amended or changed its Certificate of Incorporation or Bylaws; or (vii) except as disclosed on Schedule 3.13, paid or became obligated to pay any of its directors or employees. Gateway has not agreed since December 31, 2010 to do any of the things described in the preceding clauses (i) through (vii) and is not currently involved in any negotiations to take any of the actions described in the preceding clauses (i) through (vii) (other than negotiations with Sillerman and its representatives regarding the transactions contemplated by this Agreement).

 

  

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3.6           Absence of Undisclosed Liabilities. Gateway has no material obligations or liabilities of any nature (matured or unmatured, fixed or contingent) other than (i) those set forth or adequately provided for in the balance sheet of Gateway for the year ended December 31, 2010 (the “Gateway Balance Sheet”), and (ii) those incurred in connection with this Agreement.

 

3.7           Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration, audit or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of Gateway or any of its subsidiaries, threatened against Gateway or any of its subsidiaries or any of their respective properties or any of their respective officers or directors (in their capacities as such). There is no injunction, judgment, decree, order or regulatory restriction imposed upon Gateway or any of its subsidiaries or any of their respective assets or business, or, to the knowledge of Gateway and its subsidiaries, any of their respective directors or officers (in their capacities as such), that would prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement.

 

3.8           Restrictions on Business Activities. There is no agreement, judgment, injunction, order or decree binding upon Gateway or any of its subsidiaries which has or reasonably could be expected to have the effect of prohibiting or materially impairing any business practice of Gateway or any of its subsidiaries, any acquisition of property by Gateway or any of its subsidiaries or the conduct of business by Gateway or any of its subsidiaries.

 

3.9           Title to Property. Gateway owns no real property and has no leasehold interest or obligations, has good and valid title to all of its properties, interests in properties and assets, real and personal, reflected in the Gateway Balance Sheet or acquired after the Gateway Balance Sheet Date.

 

3.10           Taxes.

 

(a)           For purposes of this Agreement, the following terms have the following meanings: “Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means (i) any net income, alternative or add on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Governmental Entity (a “Tax authority”) responsible for the imposition of any such tax (domestic or foreign); (ii) any liability for the payment of any amounts of the type described in (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period; and (iii) any liability for the payment of any amounts of the type described in (i) or (ii) as a result of being a transferee of or successor to any person or as a result of any express or implied obligation to indemnify any other person, including pursuant to any Tax sharing or Tax allocation agreement. “Tax Return” means any return, statement, report or form (including, without limitation, estimated Tax returns and reports, withholding Tax returns and reports and information reports and returns) required to be filed with respect to Taxes.

 

  

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(b)           Gateway and any consolidated, combined, unitary or aggregate group for Tax purposes of which Gateway is or has been a member, have properly completed and timely filed all Tax Returns required to be filed by them and have paid all Taxes required to be paid, whether or not shown on any Tax Return. All unpaid Taxes of Gateway for periods through December 31, 2010, are reflected in the Gateway Balance Sheet. Gateway has no liability for unpaid Taxes accruing after December 31, 2010, other than Taxes arising in the ordinary course of its business subsequent to December 31, 2010.

 

(c)           There is (i) no claim for Taxes that is a lien against the property of Gateway or is being asserted against Gateway other than liens for Taxes not yet due and payable; (ii) no audit of any Tax Return of Gateway that is being conducted by a Tax authority that is currently pending or threatened, and Gateway has not been notified of any proposed Tax claims or assessments against Gateway; (iii) no extension of the statute of limitations on the assessment of any Taxes that has been granted by Gateway and that is currently in effect; and (iv) no agreement, contract or arrangement to which Gateway is a party that may result in the payment of any amount that would not be deductible by reason of Sections 280G, 162 or 404 of the Internal Revenue Code of 1986, as amended (the “Code”). Gateway has not been or will not be required to include any material adjustment in Taxable income for any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Transaction.

 

(d)           There are no Tax sharing or Tax allocation agreements to which Gateway is a party or to which it is bound. Gateway has not filed any disclosures under Section 6662 or comparable provisions of state, local or foreign law to prevent the imposition of penalties with respect to any Tax reporting position taken on any Tax Return. Gateway has never been a member of a consolidated, combined or unitary group of which Gateway was not the ultimate parent corporation. Gateway has in its possession receipts for any Taxes paid to foreign Tax authorities.

 

(e)           Gateway has not been either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Transaction.

 

(f)           Gateway has withheld (and paid over to the appropriate governmental authorities) with respect to either its employees or any third party all Taxes required to be withheld, including, but not limited to, FICA and FUTA.

 

(g)           Neither Gateway nor any of its subsidiaries has ever been a United States real property holding corporation within the meaning of Section 897 of the Code.

 

3.11           Employee Benefit Plans. Neither Gateway nor any of its subsidiaries has any employee compensation, incentive, fringe or benefit plans, programs, policies, commitments or other arrangements (whether or not set forth in a written document) covering any active or former employee, director or consultant of Gateway or any subsidiary, or any trade or business (whether or not incorporated) which is under common control with Gateway or any subsidiary, with respect to which Gateway or any subsidiary has liability.

 

  

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3.12           Labor Matters. Gateway is not a party to any collective bargaining agreement or other labor union contract applicable to persons employed by Gateway nor does Gateway know of any activities or proceedings of any labor union to organize any such employees.

 

3.13           Interested Party Transactions. Except as set forth in Schedule 3.13, Gateway is not indebted to any director or officer of Gateway (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses), and no such person is indebted to Gateway, and there are no other related party transactions of the type required to be disclosed pursuant to Items 402 or 404 of Regulation S-K under the Exchange Act.

 

3.14           Compliance With Laws. Gateway has complied with, is not in violation of, and has not received any notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business.

 

3.15           Broker’s and Finders’ Fees. Gateway has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges in connection with this Agreement or any transaction contemplated hereby, provided that Gateway after the Closing shall pay the fees of Berenson & Company in connection with the Transaction.

 

3.16           Minute Books. The minute books of Gateway made available to Sillerman contain in all material respects a complete and accurate summary of all meetings of directors and stockholders or actions by written consent of Gateway during the past five years and through the date of this Agreement, and reflect all transactions referred to in such minutes accurately in all material respects.

 

3.17           Votes Required. The approval of Gateway’s stockholders and its Board of Directors are the only approvals or votes necessary to approve this Agreement and the transactions contemplated hereby.

 

3.18           Board Approval. The Board of Directors of Gateway has (i) approved this Agreement and the Transaction, and (ii) approved the Placement pursuant to Article I.

 

3.19           Over-the-Counter Bulletin Board Quotation. The common stock of Gateway is quoted on the Pink Sheets (“OTC PK”). There is no action or proceeding pending or, to Gateway’s knowledge, threatened against Gateway by NASD, Inc. with respect to any intention by such entities to prohibit or terminate the quotation of the common stock of Gateway on the OTC PK.

 

  

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PRIMARY STOCKHOLDER

 

As an inducement to Sillerman to enter into this Agreement and to consummate the transactions contemplated hereby, as of the date hereof and as of the Closing Date, Primary Stockholder represents and warrants to Sillerman as follows:

 

4.1           Authority. Primary Stockholder has full power and authority to execute, deliver and perform this Agreement. This Agreement has been duly authorized, executed and delivered by Primary Stockholder and is a legal, valid and binding obligation of Primary Stockholder, enforceable in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (i) any provision of Primary Stockholder’s organizational documents, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Primary Stockholder or its properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, is required by or with respect to Primary Stockholder in connection with the execution and delivery of this Agreement by Primary Stockholder or the consummation by Primary Stockholder of the transactions contemplated hereby.

 

4.2           Ownership of the Common Stock of Gateway. Primary Stockholder is the record and beneficial owner of, and has good, valid and marketable title to, its shares of the common stock of Gateway listed on Schedule 4.2, free and clear of any liens or encumbrances. Primary Stockholder owns approximately 47.59% of the outstanding shares of common stock of Gateway. Primary Stockholder represents and warrants that it does not own, of record or beneficially, any shares of capital stock of Gateway or its subsidiaries (or any options, warrants, calls, rights or commitments of any character relating to the issuance, sale, purchase or redemption of any such shares or the right to receive any payment in respect thereof) other than such Primary Stockholder’s shares of Gateway’s common stock as listed on Schedule 4.2. Primary Stockholder has the sole right to vote its shares of common stock of Gateway as listed on Schedule 4.2, and none of such Primary Stockholder’s shares of common stock of Gateway is subject to any voting trust or other agreement, arrangement or restriction with respect to the voting of Primary Stockholder’s shares of common stock of Gateway, except as contemplated by this Agreement. Primary Stockholder will vote for and/or consent to all actions contemplated by this Agreement that will require the vote or consent of stockholders of Gateway.

 

4.3           Gateway’s Representations and Warranties. Gateway’s representations and warranties set forth in Article III are true and correct in all material respects. To the best of Primary Stockholder’s knowledge, the Gateway Financial Statements including the notes thereto, were complete and correct in all material respects as of their respective dates. To the best of Primary Stockholder’s knowledge, the Gateway Financial Statements fairly present the consolidated financial condition and operating results of Gateway and its subsidiaries at the dates and during the periods indicated therein (subject, in the case of unaudited statements, to normal, recurring year-end adjustments).

 

  

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ARTICLE V

CONDUCT PRIOR TO THE CLOSING DATE

 

5.1           Conduct of Business. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing Date, Gateway agrees (except to the extent expressly contemplated by this Agreement or as consented to in writing by the other party), that neither Gateway nor any of its subsidiaries will conduct any business or incur any liabilities other than pay any outstanding debts and Taxes when due subject to good faith disputes over such debts or taxes, pay or perform other obligations when due, and to use all reasonable efforts consistent with past practice and policies to preserve in good standing its and its subsidiaries’ corporate status and use its reasonable best efforts to maintain their current corporate status through the Closing Date. Gateway agrees to promptly notify Sillerman of any material event or occurrence not contemplated by this Agreement.

 

5.2           Restrictions on Conduct of Business. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing Date, except as expressly contemplated by this Agreement, Gateway shall not do, cause or permit any of the following, or allow, cause or permit any of its subsidiaries to do, cause or permit any of the following, without the prior written consent of Sillerman:

 

(a)           Charter Documents. Cause or permit any amendments to its Certificate of Incorporation or Bylaws, except that Gateway shall file with the Secretary of State of the State of Delaware a Certificate of Amendment to the Certificate of Incorporation, substantially in the form attached hereto as Exhibit A (the “Certificate of Amendment”) to increase the authorized capital stock to 300,000,000 shares of common stock, to implement a 1 for 10 reverse split of its issued and outstanding shares of common stock, and contemporaneously with the Closing, to change the name of Gateway to “Function (X) Inc.”;

 

(b)           Dividends; Changes in Capital Stock. Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service to it or its subsidiaries;

 

(c)           Stock Option Agreements, Etc. Take any action to accelerate, amend or change the period of exercisability or vesting of options or other rights granted under its stock option agreements or authorize cash payments in exchange for any options or other rights granted under any of such agreements;

 

  

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(d)           Material Contracts. Enter into any contract or commitment, or violate, amend or otherwise modify or waive any of the terms of any of its contracts, other than in the ordinary course of business consistent with past practice;

 

(e)           Issuance of Securities. Except for the Placement, issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities, other than the issuance of shares of its common stock pursuant to the conversion of preferred stock, or exercise of stock options, warrants or other rights therefor outstanding as of the date of this Agreement;

 

(f)           Exclusive Rights. Enter into or amend any agreements pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of its products or technology, except in furtherance of the transactions contemplated by this Agreement;

 

(g)           Dispositions. Sell, lease, license or otherwise dispose of or encumber any of its properties or assets which are material, individually or in the aggregate, to its and its subsidiaries’ business, taken as a whole, except in the ordinary course of business consistent with past practice;

 

(h)           Indebtedness. Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others;

 

(i)           Payment of Obligations. Pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) other than the payment, discharge or satisfaction of Taxes required to be paid prior to the Closing Date;

 

(j)           Capital Expenditures. Make any capital expenditures, capital additions or capital improvements;

 

(k)           Acquisitions. Acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire any assets which are material, individually or in the aggregate, to its and its subsidiaries’ business, taken as a whole, or acquire any equity securities of any corporation, partnership, association or business organization;

 

(l)           Taxes. Other than in the ordinary course of business, make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any material Tax Return or any amendment to a material Tax Return, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes;

 

  

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(m)           Accounting Policies and Procedures. Make any change to its accounting methods, principles, policies, procedures or practices, except as may be required by GAAP, Regulation S-X promulgated by the SEC or applicable statutory accounting principles;

 

(n)           Other. Take or agree in writing or otherwise to take, any of the actions described in Sections 5.2(a) through (m) above, or any action which would make any of its representations or warranties contained in this Agreement untrue or incorrect or prevent it from performing or cause it not to perform its covenants hereunder.

 

ARTICLE VI

ADDITIONAL AGREEMENTS

 

6.1           Access to Information.

 

(a)           Except as prohibited by applicable law, Gateway shall afford Sillerman and its accountants, counsel and other representatives, reasonable access during normal business hours during the period through the Closing Date to (i) all of Gateway’s and its subsidiaries’ properties, books, contracts, commitments and records, and (ii) all other information concerning the business, properties and personnel of Gateway and its subsidiaries as Sillerman may reasonably request. Gateway agrees to provide to Sillerman and its accountants, counsel and other representatives copies of internal financial statements promptly upon request.

 

(b)           Subject to compliance with applicable law, from the date hereof until the Closing Date, Gateway shall confer with Sillerman on a regular basis to report matters of materiality relating to the Transaction and with respect to its business.

 

(c)           No information or knowledge obtained in any investigation pursuant to this Section 6.1 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Transaction.

 

(d)           Gateway shall provide Sillerman and its accountants, counsel and other representatives reasonable access, during normal business hours during the period prior to the Closing Date, to all of Gateway’s and its subsidiaries’ Tax Returns and other records and workpapers relating to Taxes, and shall also provide the following information upon Sillerman’s request: (i) a schedule of the types of Tax Returns being filed by Gateway and each of its subsidiaries in each taxing jurisdiction, (ii) a schedule of the year of the commencement of the filing of each such type of Tax Return, (iii) a schedule of all closed years with respect to each such type of Tax Return filed in each jurisdiction, (iv) a schedule of all material Tax elections filed in each jurisdiction by Gateway and each of its subsidiaries, (v) a schedule of any deferred intercompany gain with respect to transactions to which Gateway or any of its subsidiaries has been a party, and (vi) receipts for any Taxes paid to foreign Tax authorities.

 

6.2           Public Disclosure. Unless otherwise permitted by this Agreement, Gateway and Sillerman shall consult with each other before issuing any press release or otherwise making any public statement or making any other public (or non-confidential) disclosure (whether or not in response to an inquiry) regarding the terms of this Agreement and the transactions contemplated hereby, and neither shall issue any such press release or make any such statement or disclosure without the prior approval of the other (which approval shall not be unreasonably withheld), except as may be required by law or by obligations pursuant to any listing agreement with any national securities exchange or with the NASD, in which case the party proposing to issue such press release or make such public statement or disclosure shall use its commercially reasonable efforts to consult with the other party before issuing such press release or making such public statement or disclosure.

 

  

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6.3           Consents; Cooperation.

 

(a)           Each of Gateway and Sillerman shall promptly apply for or otherwise seek, and use its reasonable best efforts to obtain, all consents and approvals required to be obtained by it for the consummation of the Transaction. The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to any federal or state antitrust or fair trade law.

 

(b)           Notwithstanding anything to the contrary in Section 6.3(a), neither Gateway nor any of its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that is not within the ordinary course of its business.

 

6.4           Legal Requirements. Gateway will, and will cause its subsidiaries to, take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement and will promptly cooperate with and furnish information to any party hereto necessary in connection with any such requirements imposed upon such other party in connection with the consummation of the transactions contemplated by this Agreement and will take all reasonable actions necessary to obtain (and will cooperate with the other parties hereto in obtaining) any consent, approval, order or authorization of, or any registration, declaration or filing with, any Governmental Entity or other person, required to be obtained or made in connection with the taking of any action contemplated by this Agreement.

 

6.5           Blue Sky Laws. Sillerman shall, at its sole expense, prepare and file, on behalf of Gateway, all notices and other filings necessary to comply with all securities and blue sky laws of all jurisdictions which are applicable to the Placement. Gateway shall use its reasonable best efforts to assist Sillerman as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the Placement, including, without limitation, execution of any applicable documents prior to the Closing.

 

6.6           Press Release. Prior to Closing, Gateway and Sillerman will prepare the press release announcing the consummation of the Transaction hereunder (“Press Release”). Simultaneously with the Closing, or at such other time as shall be agreed upon between Gateway and Sillerman, Gateway shall distribute the Press Release.

 

  

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6.7           Form 10-K. Prior to the Closing Date, Gateway shall file an Annual Report on Form 10-K for the year ended December 31, 2010 on a date to be agreed upon between Gateway and Sillerman, which Form 10-K shall comply in all material respects with the requirements of the Exchange Act and the Securities Act, and the Form 10-K shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they are made, not misleading. The financial statements of Gateway, including the notes thereto, that will be included in the Form 10-K will be complete and correct in all material respects, comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and will be prepared in accordance with GAAP applied on a consistent basis. The Form 10-K will fairly present the consolidated financial condition and operating results of Gateway and its subsidiaries at the dates and during the periods indicated therein.

 

6.8           Best Efforts and Further Assurances. Each of the parties to this Agreement shall use its best efforts to effectuate the transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to closing under this Agreement. Each party hereto, at the reasonable request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby, including, without limitation, providing all information, financial or otherwise, in response to any comments or inquiries made by the SEC with regard to the Form 10-K or financial statements of Gateway for periods prior to the Closing Date.

 

6.9           FINRA Notification. Sillerman shall, at its sole expense, prepare and file, on behalf of Gateway, the Issuer Company-Related Action Notification Form (the “FINRA Notification”) with FINRA applicable to the issuance of shares of common stock of Gateway in the Placement and in connection with the other corporate actions to be taken by Gateway as contemplated hereunder. Gateway shall use its reasonable best efforts to assist Sillerman as may be necessary to prepare and file the FINRA Notification and any responses to comments or inquiries made by FINRA with regard to the FINRA Notification.

 

6.10           Post-Closing Date Fees and Expenses. It shall be the responsibility of Gateway after the Closing to directly pay for all reasonable fees and expenses of Gateway’s and Primary Stockholder’s accountants, counsel and other representatives relating to any services rendered by such accountants, counsel and representatives after the Closing Date in furtherance of Gateway’s and Primary Stockholder’s compliance with their obligations under Article VI (“Post-Closing Date Fees and Expenses”).

 

6.11           Confidentiality. The provisions of the Confidentiality Agreement between Gateway and Robert F.X. Sillerman, dated November 11, 2010, shall remain binding and in full force and effect in accordance with the terms set forth therein.

 

  

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6.12           Other Placements. Contemporaneously with the Placement, one or more accredited investors have committed to purchase up to 14,500,000 shares which placement(s) may close promptly after the Closing.

 

6.13           J. Howard Debt. J. Howard, Inc. has made one or more advances to Gateway to support its daily operations (the “J. Howard Debt”). The Board of Directors of Gateway prior to the Closing may approve the issuance of up to 250,000 shares of common stock, to be issued at Closing to J. Howard, Inc. or its designees, as a reduction, in whole or in part, of the J. Howard Debt. Such shares shall be issued on the same terms and conditions as the shares being issued in the Placement. For avoidance of doubt, the J. Howard Debt shall be deemed to be paid in full through the issuance of shares pursuant to this Section 6.13 and any payments made pursuant to Section 8.3(a), and shall not be indebtedness of Gateway after the Closing.

 

ARTICLE VII

CONDITIONS TO THE TRANSACTION

 

7.1           Conditions to Obligations of Each Party to Effect the Transaction. The respective obligations of each party to this Agreement to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, by agreement of all the parties hereto:

 

(a)           No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Transaction shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Transaction, which makes the consummation of the Transaction illegal. In the event an injunction or other order shall have been issued, each party agrees to use its reasonable best efforts to have such injunction or other order lifted.

 

(b)           Governmental Approvals. Each of the parties to this Agreement shall have timely obtained from each Governmental Entity all approvals, waivers and consents, if any, necessary for consummation of or in connection with the several transactions contemplated hereby, including such approvals, waivers and consents as may be required under the Securities Act and under state blue sky laws in accordance with the terms hereof.

 

7.2           Additional Conditions to Obligations of Sillerman. The obligations of Sillerman to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, by Sillerman:

 

(a)           Representations, Warranties and Covenants. (i) The representations and warranties of Gateway in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality which representations and warranties as so qualified shall be true and correct in all respects) both when made and on and as of the Closing Date as though such representations and warranties were made on and as of such time (provided that those representations and warranties which address matters only as of a particular date shall be true and correct as of such date) and (ii) Gateway shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Closing Date.

 

  

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(b)           Certificate of Amendment. The Certificate of Amendment shall have been filed by Gateway with, and the filing shall have been acknowledged by, the Secretary of State of the State of Delaware.

 

(c)           Certificate of Gateway. Sillerman shall have been provided with a certificate executed on behalf of Gateway by its Chief Executive Officer certifying that the conditions set forth in Sections 7.2(a) and 7.2(b) shall have been fulfilled.

 

(d)           Form 10-K. Gateway shall have filed with the SEC a Form 10-K for the year ended December 31, 2010.

 

(e)           Third Party Consents. Sillerman shall have been furnished with evidence satisfactory to it of the consent or approval of those persons whose consent or approval shall be required in connection with the Transactions under the contracts of Gateway set forth on Schedule 7.2(e).

 

(f)           Injunctions or Restraints on Conduct of Business. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint provision limiting or restricting Gateway’s conduct or operation of the business of Gateway and its subsidiaries, following the Transaction shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other Governmental Entity, domestic or foreign, seeking the foregoing be pending.

 

(g)           No Material Adverse Changes. There shall not have occurred any event, change or effect that is materially adverse to the condition (financial or otherwise) of Gateway and its subsidiaries, taken as a whole or has a negative impact on this Agreement and the transactions contemplated hereby.

 

(h)           Officers and Directors of Gateway. Gateway shall have obtained and delivered to Sillerman copies of the resignations of those persons listed on Schedule 7.2(h) from their positions as officers of Gateway, and shall have taken all necessary action for the appointment of the persons listed on Schedule 7.2(h) to the positions set forth opposite their names, all effective at and as of the Closing.

 

(i)           Stock Quotation. The common stock of Gateway at Closing shall be quoted on the OTC PK, and there will be no action or proceeding pending or threatened against Gateway by the NASD to prohibit or terminate the quotation of common stock of Gateway on the OTC PK.

 

  

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(j)           Reverse Stock Split. Gateway shall have taken all actions to complete the 1 for 10 reverse split of its issued and outstanding shares of common stock to reduce the number of outstanding shares held by current stockholders of Gateway.

 

(k)           Indebtedness. Gateway shall have taken all actions to repay any indebtedness such that there shall be no indebtedness of Gateway outstanding after the Closing.

 

7.3           Additional Conditions to the Obligations of Gateway. The obligations of Gateway to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, by Gateway:

 

(a)           Representations, Warranties and Covenants. (i) The representations and warranties of Sillerman in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality, which representations and warranties as so qualified shall be true and correct in all respects) both when made and on and as of the Closing Date as though such representations and warranties were made on and as of such time (provided that those representations and warranties which address matters only as of a particular date shall be true and correct as of such date) and (ii) Sillerman shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Closing Date.

 

(b)           Certificate of Sillerman. Gateway shall have been provided with a certificate executed on behalf of Sillerman by an officer of Sillerman certifying that the condition set forth in Section 7.3(a) shall have been fulfilled.

 

(c)           Injunctions or Restraints on Conduct of Business. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint provision limiting or restricting Sillerman’s conduct or operation of the business of Sillerman and its subsidiaries, following the Transaction shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other Governmental Entity, domestic or foreign, seeking the foregoing be pending.

 

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

 

8.1           Termination. At any time prior to the Closing Date, this Agreement may be terminated:

 

(a)           by mutual consent of Gateway and Sillerman;

 

(b)           by either Gateway or Sillerman, if, without fault of the terminating party, the Closing shall not have occurred on or before February 18, 2011, or such later date as may be agreed upon in writing by the parties hereto;

 

  

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(c)           by Gateway, if Sillerman breaches any of its representations, warranties or obligations hereunder to an extent that would cause the condition set forth in Section 7.3(a) not to be satisfied and such breach shall not have been cured within ten (10) business days of receipt by Sillerman of written notice of such breach (and Gateway has not willfully breached any of its covenants hereunder, which breach is not cured);

 

(d)           by Sillerman, if Gateway breaches any of its representations, warranties or obligations hereunder to an extent that would cause the condition set forth in Section 7.2(a) not to be satisfied and such breach shall not have been cured within ten (10) business days of receipt by Gateway of written notice of such breach (and Sillerman has not willfully breached any of its covenants hereunder, which breach is not cured); or

 

(e)           by either Gateway or Sillerman if (i) any permanent injunction or other order of a court or other competent authority preventing the consummation of the Transaction shall have become final and nonappealable or (ii) any required approval of the stockholders of Gateway shall not have been obtained by reason of the failure to obtain the required vote upon a vote held at a duly held meeting of stockholders or at any adjournment thereof (provided that the right to terminate this Agreement under this subsection (ii) shall not be available to Gateway where the failure to obtain such stockholder approval shall have been caused by the action or failure to act of Gateway and such action or failure constitutes a breach by Gateway of this Agreement).

 

8.2           Effect of Termination. In the event of termination of this Agreement as provided in Section 8. 1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Gateway or Sillerman or their respective officers, directors, stockholders or affiliates, except to the extent that such termination results from the breach by a party hereto of any of its representations, warranties or covenants set forth in this Agreement; provided that, the provisions of Section 8.3 (Expenses and Termination Fees), this Section 8.2 and Section 9.1 (Non-Survival at Closing Date) shall remain in full force and effect and survive any termination of this Agreement. Nothing herein shall relieve any party from liability in connection with a breach by such party of the representations, warranties or covenants of such party to this Agreement.

 

8.3           Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, the fees and expenses of its advisers, accountants and legal counsel) shall be paid by the party incurring such expense, provided that:

 

(a)           if the Transaction is consummated, Sillerman agrees to pay up to $200,000, which amount shall be applied: first, to a payment to J. Howard, Inc. as reimbursement for the J. Howard Debt, and second, to Gateway’s reasonable fees and expenses (for avoidance of doubt, if the aggregate of the reimbursement for the J. Howard Debt and Gateway’s fees and expenses exceeds $200,000, such excess shall be paid by Gateway at Closing and shall not be indebtedness of Gateway after the Closing);

 

(b)           if the Transaction is consummated, it shall be the responsibility of Gateway after the Closing to pay all Post-Closing Date Fees and Expenses;

 

  

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(c)           if the Transaction is not consummated, due to Sillerman’s termination of this Agreement pursuant to Section 8.1(d) or due to Gateway’s failure to obtain approval of the Transaction from Gateway’s stockholders, Sillerman shall not be obligated to pay any of Gateway’s fees and expenses or make any reimbursement payments for the J. Howard Debt; and

 

(d)           if the Transaction is not consummated, for any reason other than the reason set forth in Section 8.3(c), Sillerman shall pay Gateway’s reasonable fees and expenses actually incurred, but shall not be obligated to make any reimbursement payments for the J. Howard Debt.

 

8.4           Amendment. The Board of Directors of Gateway and Sillerman may cause this Agreement to be amended at any time by execution of an instrument in writing signed by or on behalf of each of the parties hereto.

 

8.5           Extension; Waiver. At any time prior to the Closing Date, any party hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

 

ARTICLE IX

GENERAL PROVISIONS

 

9.1           Non-Survival at Closing Date. The representations, warranties and agreements set forth in this Agreement shall terminate at the Closing Date, except that the agreements set forth in Article I, Sections 6.1 (Access to Information), 6.5 (Blue Sky Laws), 6.8 (Best Efforts and Further Assurances), 6.9 (FINRA Notification), 6.10 (Post-Closing Date Fees and Expenses), 8.3 (Expenses and Termination Fees), 8.4 (Amendment), and this Article IX shall survive the Closing Date.

 

9.2           Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt) to the parties at the following address (or at such other address for a party as shall be specified by like notice):

 

(a)           if to Gateway, to:

 

Gateway Industries, Inc.

590 Madison Avenue, 32nd Floor

New York, NY 10022

Attention: Chief Executive Officer

Facsimile No.: (212) 520-2309

Telephone No.: (212) 758-3232

 

  

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with a copy (which shall not constitute notice to Gateway) to:

 

Olshan Grundman Frome

     Rosenzweig & Wolosky LLP

Park Avenue Tower

65 East 55th Street

New York, NY 10022

Attention: Steve Wolosky

Facsimile No.: (212) 451-2222

Telephone No.: (212) 451-2300

 

(b)           if to Sillerman, to:

 

Sillerman Investment Company LLC

650 Madison Avenue, 15th Floor

New York, NY 10022

Attention: Robert F.X. Sillerman

Facsimile No.: (212) 750-3034

Telephone No.: (212) 796-8174

 

with a copy (which shall not constitute notice to Sillerman) to:

 

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, NY 10036

Attention: Christopher S. Auguste, Esq.

Facsimile No.: (212) 715-8000

Telephone No.: (212) 715-9100

 

(c)           if to Primary Stockholder, to:

 

EMH Howard LLC

590 Madison Avenue, 32nd Floor

New York, NY 10022

Attention: Chief Executive Officer

Facsimile No.: (212) 520-2309

Telephone No.: (212) 758-3232

 

with a copy (which shall not constitute notice to Primary Stockholder ) to:

 

Olshan Grundman Frome

   Rosenzweig & Wolosky LLP 

Park Avenue Tower

65 East 55th Street

New York, NY 10022

Attention: Steve Wolosky

Facsimile No.: (212) 451-2222

Telephone No.: (212) 451-2300

 

  

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9.3           Interpretation. When a reference is made in this Agreement to Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this Agreement unless otherwise indicated. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” The phrase “made available” in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. The phrases “the date of this Agreement”, “the date hereof”, and terms of similar import, unless the context otherwise requires, shall be deemed to refer to February 7, 2011. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

9.4           Counterparts. This Agreement may be executed in one or more counterparts, including by facsimile, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

 

9.5           Entire Agreement; Nonassignability; Parties in Interest. This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including the Exhibits, the Schedules, including the Gateway Disclosure Schedule and Sillerman Disclosure Schedule, (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided. No representations, warranties, inducements, promises or agreements, oral or written, by or among the parties not contained herein shall be of any force or effect.

 

9.6           Severability. If any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.

 

9.7           Remedies Cumulative. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.

 

  

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9.8           Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the laws that might otherwise govern under applicable principles of conflicts of law. Each of the parties hereto irrevocably consents to the exclusive jurisdiction of any court located within the State of New York in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the laws of the State of New York for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process.

 

9.9           Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

 

[SIGNATURE PAGE FOLLOWS]

 

  

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IN WITNESS WHEREOF, Gateway, Primary Stockholder and Sillerman have caused this Agreement and Plan of Recapitalization to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above.

 

	  	
GATEWAY INDUSTRIES, INC.

	  	  
	  	  
	  	
By:

	

/s/ Jack Howard

	  	  	
Name:

	
Jack Howard

	  	  	
Title:

	
CEO

	  	
SILLERMAN INVESTMENT COMPANY LLC

	  	  
	  	
By:

	/s/ Robert F. X. Sillerman
	  	  	
Name:

	Robert F. X. Sillerman  
	  	  	
Title:

	Sole Member  

	  	
EMH HOWARD LLC

	  	  
	  	
By:

	

/s/ Jack Howard

	  	  	
Name:

	
Jack Howard

	  	  	
Title:

	
Managing Member

  

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