SEPARATION AND DISTRIBUTION AGREEMENT

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“Third Party” means any Person other than LRAD, Parametric or Affiliate thereof.

 

“Third Party Claim” shall have the meaning set forth in Section 4.7(c).

 

“Transfer” shall have the meaning set forth in Section 2.1(a).

 

Section 1.2.  References; Interpretation. References in this Agreement to the singular shall include the plural and vice versa and words of one gender shall include the other gender as the context requires. The terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement. Article, Section, Exhibit and Schedule references are to the Articles, Sections, Exhibits and Schedules to this Agreement unless otherwise specified. The word “incl uding” and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) means “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.

 

 

Section 2.1.   Transfer of Assets.

 

(a) As of the date hereof and with effect immediately prior to the Effective Time, LRAD hereby transfers, contributes, assigns, distributes and conveys to Parametric all of LRAD’s right, title and interest in and to the Parametric Assets (the “Transfer”) pursuant to, and so as to qualify as a contribution to capital under, section 351 of the Internal Revenue Code of 1986, as amended. Parametric hereby accepts such Transfer from LRAD, effective concurrently therewith.

 

(b) Except as otherwise specifically set forth in this Agreement or any Ancillary Agreement, Parametric shall not accept, assume or be responsible for any Parametric Liabilities incurred by LRAD prior to or after the Distribution Date.

 

(c) If at any time (whether prior to or after the Effective Time) either Party hereto shall receive or otherwise possess an Asset that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such Party shall promptly transfer or cause to be transferred, at such Party’s expense, for no additional consideration, such Asset, including any and all economic benefits generated from such Asset after the Effective Time, to such Party hereto.

 

(d) In furtherance of the Transfer, and simultaneously with the execution and delivery of this Agreement LRAD shall execute and deliver, and shall cause its Affiliates to execute and deliver, such bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the Transfer.

 

(e) LRAD shall be responsible for all Retained HSS Liabilities.

 

Section 2.2.  Retention and Use of Certain HSS Assets.  Notwithstanding the foregoing, the Retained HSS Assets will not be assigned by LRAD to Parametric under Section 2.1.  Following the Distribution Date, LRAD shall have the right to use the Retained HSS Assets on a royalty-free basis to (a) to fill any orders for such Retained HSS Assets that are received prior to the Distribution Date, (b) accept and fill continuing purchase orders for LRAD’s current project with Cardinal Health, Inc. through the completion of such project, (c) accept unsolicited follow-on orders for LRAD’s H450 product from current customers through December 31, 2010; provided that LRAD may not actively pursue new H450 or HSS business after the Distribution Date, and (d) provide warranty services for its H450 customers at its cost through any applicable warranty term. All Retained HSS Assets shall be automatically assigned to Parametric as of and when determined by LRAD to be unnecessary to meet the foregoing requirements. LRAD agrees that it will sell such additional HSS products in the ordinary course and without discounts in excess of 25% of its current sales prices.

 

 

Section 2.3.  Governmental Approvals; Consents.

 

(a) To the extent that the Separation requires any Governmental Approvals or Consents, the Parties shall use commercially reasonable efforts to obtain any such Governmental Approvals and Consents. If and to the extent that the transfer or assignment of any Parametric Assets would violate applicable Law or require any Governmental Approval or Consent, then, unless LRAD shall otherwise determine, the transfer or assignment of such Parametric Assets shall be deemed deferred and any such purported transfer or assignment shall be null and void until such time as all legal impediments are removed and/or each of such Governmental Approval or Consent has been obtained. No Party shall be obligated to pay any consideration to any Third Party from whom any such Consent is requested.

 

(b) If the transfer of any Parametric Assets intended to be transferred hereunder is not consummated prior to the Effective Time for any reason, then LRAD shall thereafter hold such Parametric Asset for the use and benefit of Parametric entitled thereto if permitted by law.  If and when the Governmental Approvals or Consents, or other impediments to transfer, that caused the deferral of transfer of such Asset are obtained or removed, the transfer of the applicable Asset shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.

 

(c) If the Parties are unable to obtain any required Governmental Approvals or Consents, LRAD shall continue to be bound by such Contract, license or other obligation; provided, however, that LRAD shall not be obligated to extend, renew or otherwise cause such Contract, license or other obligation to remain in effect beyond the term in effect as of the Effective Time. If and when any such Governmental Approval or Consent is obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or capable of novation, LRAD shall promptly assign, or cause to be assigned, all rights, obligations and other Liabilities thereunder to Parametric without payment of any further consideration and Parametric, without the payment of any further consideration, shall assume such rights and obligations and other Liabilities.

 

Section 2.4.  Termination of Agreements. Except with respect to this Agreement and the Ancillary Agreements (and agreements expressly contemplated herein or therein to survive by their terms) on behalf of the Parties, the Parties hereby terminate any and all written or oral agreements, arrangements, commitments or understandings, between them, effective as of the Effective Time; and each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.

 

Section 2.5.  Disclaimer of Representations and Warranties. ON BEHALF OF THE PARTIES, THE PARTIES UNDERSTAND AND AGREE THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR LIABILITIES CONTRIBUTED, TRANSFERRED, DISTRIBUTED OR ASSUMED HEREBY OR THEREBY, AS TO ANY CONSENTS OR GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY D EFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM OR OTHER ASSET OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY CONTRIBUTION, DISTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS AND, THE TRANSFEREE SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY CONSENTS OR GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT THE REQUIREMENTS OF LAWS, CONTRACTS, OR JUDGMENTS ARE NOT COMPLIED WITH.

 

 

 

Section 3.1.  The Distribution.

 

(a) Subject to Section 3.3, on or prior to the Distribution Date, for the benefit of and distribution to the holders of LRAD Common Stock on the Record Date, LRAD will deliver stock certificates, endorsed by LRAD in blank, to the distribution agent, Interwest Transfer Company (the “Agent”), representing all of the outstanding and issued shares of Param etric Common Stock then owned by LRAD. LRAD shall instruct the Agent to electronically distribute the appropriate number of such shares of Parametric Common Stock to each such holder or designated transferee or transferees of such holder.

 

(b) Subject to Section 3.3, each holder of LRAD Common Stock on the Record Date (or such holder’s designated transferee or transferees) will be entitled to receive in the Distribution as of the Effective Time one (1) share of Parametric Common Stock for each two (2) shares of LRAD Common Stock held of record on the Record Date. No fractional shares will be issued.  In the event a holder of LRAD Common Stock would otherwise be entitled to a fractional share of Pa rametric Common Stock, the number of shares of Parametric Common Stock such holder of LRAD Common Stock will receive in the Distribution will be rounded up to the nearest whole number of shares of Parametric Common Stock.  No action by any such stockholder shall be necessary for such stockholder (or such stockholder’s designated transferee or transferees) to receive the shares of Parametric Common Stock. Parametric and LRAD, as the case may be, will provide to the Agent any and all information required in order to complete the Distribution.

 

Section 3.2. Actions in Connection with the Distribution.

 

(a) Prior to the Distribution Date, LRAD and Parametric shall have prepared and mailed to the holders of LRAD Common Stock such information concerning Parametric, the Parametric Business, operations and management, the Distribution, the Separation and such other matters as LRAD shall reasonably determine and as may be required by law.

 

(b) Parametric shall have prepared and, in accordance with applicable Law, filed with the Commission the Form 10, including amendments, supplements and any such other documentation which is necessary or desirable to effectuate the Distribution, and Parametric shall have obtained all necessary approvals from the Commission with respect thereto as soon as practicable.

 

 

(c) LRAD and Parametric shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Distribution.

 

(d) DELETED.

 

(e) Parametric shall have prepared and filed an application for the original listing on the OTC Bulletin Board of the Parametric Common Stock to be distributed in the Distribution, and the OTC Bulletin Board shall have approved such application and provided the appropriate certification to the Commission.

 

(f) LRAD and Parametric shall take all reasonable steps necessary to cause the conditions set forth in Section 3.3 to be satisfied and to effect the Distribution on the Distribution Date.

 

Section 3.3. Conditions to Distribution. Subject to Section 3.2, the following are conditions to the consummation of Distribution. The conditions are for the sole benefit of LRAD and shall not give rise to or create any duty on the part of LRAD or the Board of Directors of LRAD to waive or not waive any such condition:

 

(a) The Form 10 shall have been declared effective by the Commission, with no stop order in effect with respect thereto.

 

(b) All material Government Approvals and other Consents necessary to consummate the Distribution shall have been obtained and be in full force and effect.

 

(c) No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Distribution shall be in effect and no other event outside the control of LRAD shall have occurred or failed to occur that prevents the consummation of the Distribution.

 

(d) The Board of Directors of LRAD shall have authorized and approved the Distribution and not withdrawn such authorization and approval.

 

(e) No other events or developments shall have occurred that, in the sole discretion of the Board of Directors of LRAD, would result in the Distribution having a material adverse effect on LRAD or on the stockholders of LRAD or not being in the best interest of LRAD and its stockholders.

 

 

Section 4.1. Solicitation and Hiring.  Neither LRAD nor Parametric from the Distribution Date through and including the two (2) year anniversary of the Distribution Date, without prior written consent of the other Party, will solicit, aid, encourage or induce any employee to terminate or breach an employment, contractual or other relationship with the other Party (or its Affiliates), hire or otherwise employ any employee of the other Party; provided, however, that Parametric shall be permitted to hire David Pratt, and provided, further, that nothing in this Section 4.1 shall be deemed to prohibit any general solicitation for employment through advertisements and search firms not specifically directed at employees of such other applicable Party.

 

Section 4.2. Warrant Exercises. If any warrants to purchase shares of capital stock of LRAD that are outstanding on the Distribution Date are exercised following the Distribution Date, then Parametric will issue to the holder of such warrants such number of shares of Parametric Common Stock as is required by the applicable warrant. If the closing price per share of LRAD Common Stock on the date such warrants are exercised is less than the exercise price of such warrants, then LRAD will pay to Parametric an amount equal to the number of shares of LRAD Common Stock issued upon such exercise multiplied by the difference between the exercise price and the closing price per shar e of LRAD Common Stock on the date the warrants are exercised, up to a maximum of $0.25 per share of LRAD Common Stock issued. For example if the closing price of LRAD Common Stock on the date of exercise is $2.50 and warrants to purchase 1,000,000 shares are exercised then LRAD will retain $2.50 per exercised share (or $2,500,000) and will pay to Parametric $0.17 per exercised share of LRAD Common Stock (or $170,000) for the 500,000 shares Parametric will be required to issue.

 

 

Section 4.3. Post Closing Cooperation.  LRAD agrees for a reasonable time following the Distribution Date to provide to Parametric reasonable training regarding use of certain of the Parametric Assets and manufacturing parts or elements of the HSS products.  Parametric agrees to permit LRAD to use the manufacturing equipment that is part of the Parametric Assets until December 31, 2010 to manufacture, using components and parts owned by LRAD, the additional H450 products that LRAD may require to fulfill orders and warranty obligations as permitted hereunder.  In addition to the foregoing, each of the Parties agrees to cooperate with the other P arty in good faith to provide for the manufacturing needs of such other Party.  Any additional terms and conditions of such cooperation shall be determined by the mutual, good faith agreement of the Parties.

 

Section 4.4. Insurance.

 

(a) Following the cessation of coverage of HSS products under an LRAD Policy, if (i) an occurrence for which coverage is available under any such LRAD Policy happens prior to the date of the last delivery by LRAD of an HSS product in accordance with this Agreement and (ii) a claim arising therefrom has been or is eventually asserted against Parametric (including any officer, director, employee or agent thereof), so long as such claim is reported by Parametric to the carrier (with a copy to LRAD), in accordance with the reporting provision of the applicable policy, then LRAD will (A) continue to provide Parametric with access to and coverage under the applicable LRAD Policies and (B) reasonably cooperate with Parametric and take commercially reasonable actions as may be necessary or advisable to as sist Parametric in submitting such claims under the applicable LRAD Policies, provided that Parametric shall be responsible for its portion of any deductibles or self-insured retentions or co-payments legally due and owing relating to such claims. For the avoidance of doubt, if an occurrence for which coverage is available under any such LRAD Policy happens after the Effective Time (and is not attributable and related to an occurrence which occurred prior to the Effective Time), or a claim arising from an occurrence prior to the Effective Time is not reported by Parametric to LRAD on or before the date when such occurrence must be reported to the carrier under the applicable LRAD Policy, then no payment for any damages, costs of defense, or other sums with respect to such claim shall be available to Parametric under such LRAD Policies. On or prior to the Distribution Date, Parametric shall obtain reasonable and customary insurance policies covering its operations and products following the Distribution Date.

 

(b) With respect to all LRAD Policies, Parametric agrees and covenants (on behalf of itself and each Affiliate of Parametric) (i) not to make any claim or assert any rights against LRAD, or the unaffiliated third-party insurers of such LRAD Policies, except as expressly provided under this Section 4.2, and (ii) to otherwise reasonably cooperate with LRAD and take commercially reasonable actions as may be necessary or advisable to assist LRAD in fulfilling its obligations under the applic able LRAD Policies as set forth in this Section 4.2.

 

 

Section 4.5. Confidentiality.

 

(a) Notwithstanding any termination of this Agreement and subject to Section 4.5(c), for a period of two (2) years from the Distribution Date, each Party agrees to hold, and to cause its respective Affiliates, directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence, and undertake all reasonable precautions to safeguard and protect the confidentiality of, all Information concerning the other Party that is in its possession after the Distribution Date or furnished by the other Party or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Information has been (i) in the public domain through no fault of such Party or any of their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) lawfully acquired from other sources, which are not bound by a confidentiality obligation, by such Party, or (iii) independently generated without reference to any proprietary or conf idential Information of the other Party.

 

(b) Each Party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information and who are informed and advised that the Information is confidential and subject to the obligations hereunder, except in compliance with Section 4.5(c). Without limiting the foregoing, when any Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each Party will promptly after request of the other Party either (i) destroy all copies of the Information in such Party’s possession, custody or control (including any that may be stored in any computer, word processor, or similar device, to the extent not commercially impractical to destroy such copies) including, without limitation, any copies, summaries, analyses, reports, extracts or other reproductions, in whole or in part, of such written, electronic or other tangible material or any other materials in written, electronic or other tangible format based on, reflecting or containing Information prepared by such Party, and/or (ii) return to the requesting Party, at the expense of the requesting Party, all copies of the Information furnished to such Party by or on behalf of the requesting Party.

 

(c) In the event that either Party (i) determines after consultation with counsel, in the opinion of such counsel that it is required by law to disclose any Information or (ii) receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of the other Party that is subject to the confidentiality provisions hereof, such Party shall notify the other Party prior to disclosing or providing such Information and shall cooperate at the expense of the requesting party (and to the extent legally permissible) in seeking any reasonable protective arrangements requested by such other Party. Subject to the foregoing, the Party that received such request may thereafter (1) furnish only that portion of the confidential Information that is legally re quired, (2) give notice to the other Party of the information to be disclosed as far in advance as is practical, and (3) exercise reasonable best efforts to obtain reliable assurance that the confidential nature of such Information shall be maintained.

 

Section 4.6. Litigation cooperation.

 

(a) Each of LRAD and Parametric agrees that at all times from and after the Effective Time, if an Action currently exists or is commenced by a third-party with respect to which a Party is a named defendant but such Action is otherwise not a Liability allocated to such named Party under this Agreement or any Ancillary Agreement, then the other Party shall use commercially reasonable efforts to cause such named but not liable defendant to be removed from such Action and such defendant shall not be required to make any payments or contribution in connection therewith.

 

 

(b) Each of LRAD and Parametric shall each use commercially reasonable efforts to make available to the other, upon written request, its officers, directors, employees and agents, and the officers, directors, employees and agents thereof, as witnesses to the extent that such individuals may reasonably be required in connection with any legal, administrative or other proceedings in which the requesting Party may be involved.  The requesting Party shall bear all out-of-pocket expenses in connection therewith.  On and after the Effective Time, in connection with any matter contemplated by this Section 4.6, the Parties will maintain any attorney-client privilege or work product immunity of each Party as required by this Agreement or any Ancillary Agreement.

 

Section 4.7. Indemnification

 

(a) Except as otherwise provided in this Agreement or any Ancillary Agreement, following the Distribution Date, Parametric shall indemnify, defend and hold harmless LRAD and its Affiliates, including each of their respective directors and officers, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “LRAD Indemnitees”), from and against any and all Liabilities and related losses of the LRAD Indemnitees relating to, arising out of or resulting from any of (a) the failure of Parametric or its Affiliates or any other Person to pay, perform or otherwise promptly discharge after the Distribution Date any Parametric Liab ilities incurred after the Distribution in accordance with their respective terms, (b) any untrue statement, alleged untrue statement, omission or alleged omission of a material fact in the Form 10, resulting in a misleading statement, with respect to all information contained in the Form 10, and (c) any breach by Parametric of this Agreement or any of the Ancillary Agreements.

 

(b) Except as otherwise provided in this Agreement or any Ancillary Agreement, following the Distribution Date, LRAD shall indemnify, defend and hold harmless Parametric, and its Affiliates, including each of their respective directors and officers, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Parametric Indemnitees”), from and against any and all Liabilities and related losses of the Parametric Indemnitees relating to, arising out of or resulting from any of (a) the failure of LRAD or its Affiliates to pay, perform or otherwise promptly discharge after the Distribution Date any LRAD Liabilities, (b) the LR AD Liabilities, (c) the Retained HSS Liabilities, and (d) any breach by LRAD of this Agreement or any of the Ancillary Agreements.

 

(c) If a party entitled to indemnification hereunder (an “Indemnitee”) shall receive notice or otherwise learn of the assertion by a Third Party (including any Governmental Authority) of any claim or of the commencement by any such Person of any Action (collectively, a “Third Party Claim”) with respect to which a party required to provide indemnification hereunder (an “Indemnifying Party”) may be obligated to provide indemnification to such Indemnitee, such Indemnitee shall give such Indemnifying Party and each Party to this Agreement written notice thereof as soon as reasonably practicable, but no later than thirty (30) days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. If any Party shall receive notice or otherwise learn of the assertion of a Third Party Claim which may reasonably be determined to be a Liability of the Parties, such Party shall give the other Party to this Agreement written notice thereof within thirty (30) days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Party to give notice as provided in this Section 4.7(c) shall not relieve the related Indemnifying Party of its obligations under this ARTICLE 4, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice.

 

(i)           An Indemnifying Party shall be entitled to participate in the defense of any Third Party Claim, at such Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel; provided that if the defendants in any such claim include both the Indemnifying Party and one or more Indemnitees and in such Indemnitees’ reasonable judgment a conflict of interest between such Indemnitees and such Indemnifying Party exists in respect of such claim, such Indemnitees shall have the right to employ separate counsel and in that event the reasonable fees and expenses of such separate counsel (but not more than one separate counsel reasonably satisfactory to the Ind emnifying Party) shall be paid by such Indemnifying Party. Within thirty (30) days after the receipt of notice from an Indemnitee in accordance with Section 4.7 (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee.< /div>