MODIFICATION AND RELEASE AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of the 22nd day of March,
2001, between Cheshire Distributors, Inc., a Delaware corporation, having an
address at 0000 Xxxx Xxxx Xxxx, Xxxxxxxx. Xxxxxxxxxxx 00000 (the "Company"), and
Keshet, LLP, the Keshet Fund, LLP and Nesher, Ltd. (the "Creditors").
WITNESSETH:
WHEREAS, the Company, as maker, executed and delivered to the Creditors
(among others), as payees thereof, certain 6 % Convertible Notes dated May 17,
2000, in the original collective principal amount of $700,000 ($320,000 to
Keshet, $205,000 to Keshet Fund and $175,000 to Nesher), as the same may have
been modified or amended to the date hereof (the "Convertible Notes") and also
issued common stock purchase warrants for 430,000 shares of the Company's common
stock to the Creditors (196,571 to Keshet, 125,929 to Keshet Fund and 107,500 to
Nesher) (the "Warrants") which Convertible Notes and Warrants were issued in
accordance with the Securities Purchase Agreement dated as of May 17, 2000 (the
"Purchase Agreement"); and
WHEREAS, the Convertible Notes are currently convertible into shares of
common stock ("Shares") of the Company at the Conversion Price provided for in
the Convertible Notes; and
WHEREAS, the Creditors have instituted suit against the Company in the
Superior Court of the State of Connecticut and the parties desire to resolve all
of their differences; and
WHEREAS, the Creditors have fully advanced to the Company the $700,000
of principal under the Convertible Notes, and the outstanding principal balance
owed by the Company under the Convertible Notes, as of the date hereof, is
$735,000, and the total outstanding principle and interest owed by the Company
under the Convertible Notes to the Creditors, as of the date hereof, is
$735,000, excluding any and all other amounts, fees or other damages due under
the Purchase Agreement and the exhibits thereto;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which the parties hereto hereby acknowledge, the parties hereto
hereby agree as follows:
1. The Company represents that there are currently outstanding
11,148,185 shares of its common stock, of which 9 million shares are owned by
Xxx Xxxxxxxxx, Xxxx Xxxxxxxxx and Gilad Gat. Other than: I) pursuant to the
terms of paragraph 4 hereof; ii) pursuant to the terms of the Convertible Notes
and the Warrants; and iii) pursuant to the terms of the convertible notes held
by holders other than the Creditors (such convertible notes are hereafter
referred to as the "Notes"), the Company is not under any obligation to issue
shares of its common stock and there are no outstanding options, other warrants
or rights to purchase or acquire the Company's common stock.
2. The Company represents that its total assets consist of $860,225 in
cash which is being held by Xxxxxxxx and Xxxxxxxx, subject to the restraint
issued by the Superior Court. The Company represents that its total indebtedness
is $3.65 million of which $2.8 million are Convertible Notes and Notes, $350,000
is a claim by the Mecklers and $500,000 are professional fees, wages and other
miscellaneous expenses (the holders of the debt other then the Convertible Notes
and Notes are hereafter referred to as the Miscellaneous Creditors). Of
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said $500,000 in miscellaneous debt, Xxxxxxxxx, Xxxxxxxxx and Gat are owed
$230,000. The company represents that it has no liabilities other than the
aforesaid indebtedness and expenses. Of the Convertible Notes and Notes, Keshet,
the Keshet Fund and Nesher collectively own $700,000 in principal and $35,000 in
accrued interest thereon (excluding any and all other amounts, fees or other
damages due thereon) and Xxxx Investments, Ltd. ("Xxxx") owns $1 million in
principal and $50,000 in accrued interest thereon (excluding any and all other
amounts, fees or other damages due thereon).
3. Subject to: i) the conversion of the Notes into 9,083,000 shares of
common stock (representing a pro rata distribution of shares to the holders of
the Notes and Creditors), as complete and full satisfaction by the Company of
all obligations to the holders of the Notes, whether under the Notes, the
Purchase Agreement or otherwise; and
ii) the transfer back to the Company and cancellation of the 9
million shares owned by Xxxxxxxxx, Xxxxxxxxx and Gat (which they agree to so
transfer); and
iii) the issuance of the shares provided for in paragraph 4 hereof;
and
iv) the acceptance by the Miscellaneous Creditors, other than
Xxxxxxxxx, Xxxxxxxxx and Gat (who agree not to receive any shares of the
company's stock pursuant to this Agreement or otherwise) of an aggregate of
4,124,000 shares of the Company's common stock in full satisfaction of their
debts (3,813,000 as their pro rata share of the 31 million shares to be issued
pursuant to paragraph 4(i) and 311,000 shares to be issued pursuant to paragraph
4(ii)); and
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v) the release by the holders of the Notes, the Mecklers and the
Miscellaneous Creditors of all claims against the Company; and
vi) the tender of resignations by the current officers and directors
of the Company and the election and appointment of the designees of the
Creditors as directors and officers of the Company, to be effective upon demand
of the Creditors;
the Creditors and the Company agree to convert the Convertible Notes into
18,104,000 shares of the Company's common stock (representing the Creditors' pro
rata share of the 31 million shares to be issued pursuant to paragraph 4),
notwithstanding any conversion rate otherwise set forth in the Convertible Notes
or the Purchase Agreement, and the Creditors agree to surrender their Warrants.
Upon such conversion, the Convertible Notes will be satisfied in full and there
shall be no further obligations of the Company to the Creditors under the
Purchase Agreement or the exhibits thereto.
4. The Company shall issue: i) 31 million new shares, to be divided as
follows: 18,104,000 to the Creditors for the conversion of the Convertible
Notes, 9,083,000 to the holders of the Notes for the conversion of the Notes and
3,813,000 to the Miscellaneous Creditors; and ii) 1,411,000 shares of its common
stock to be divided as follows: 1,100,000 to the Creditors and 311,000 to the
Miscellaneous Creditors. Xxxxxxxxx, Xxxxxxxxx and Gat agree that they shall not
receive any additional shares of the Company's stock, whether as Miscellaneous
Creditors or otherwise; and iii) 2 million shares to the Mecklers.
5. The Company agrees to pay to the Creditors, simultaneously with the
execution hereof and upon release of the restraining order on the Company's
funds currently being held at Xxxxxxxx and Xxxxxxxx, the sum of $183,750,
representing a reduction of the amounts due to
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the Creditors by Company. The Creditors agree to withdraw, without prejudice,
the lawsuit which they initiated against the Company in the Connecticut Superior
Court and to relinquish the restraint on the Company's funds currently held by
Xxxxxxxx and Xxxxxxxx.
6. The Company represents and agrees that after the conversion of all
of the Convertible Notes and Notes, the surrender and cancellation of the 9
million shares, the issuance and distribution of the shares referred to in
paragraph 4, the Creditors together with Xxxx will own 19,204,000 shares of
common stock, out of a total of 36,559,000 shares outstanding, representing at
least 52.5% of the issued and outstanding shares of the Company. The Company
agrees not to issue any other shares of its stock, or options, warrants or other
rights to acquire any stock except as provided for in this Agreement.
7. Satisfaction and Release by Creditors. Upon the payment of $183,750
and the delivery of the stock provided for herein to the Creditors, and subject
to the representations, agreements and undertakings of the Company herein, the
Company shall have no further obligation or liability to the Creditors, and the
Company and its Chairman, officers, directors, employees, affiliates, entities
which contracted with the Company and its officers and agents and their heirs,
successors and assigns shall therewith be released by the Creditors of any and
all liability or obligations of any nature and from any and all claims, demands
complaints and accusations and causes of action which the Creditors ever had,
now have, or hereafter can, shall or may have by reason of any matter, cause or
thing whatsoever, arising from events prior to the date of this Agreement,
including without limitation under the Note, Warrants, Conversion Shares or any
applicable securities laws. This release shall not cover any claims arising
under this Modification and Release Agreement. This release shall not be
effective in the event of a bankruptcy filing by or against the Company under
the Bankruptcy Act or other similar law.
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8. Satisfaction and Release by the Company, Xxxxxxxxx, Xxxxxxxxx and
Gat. Subject to the representations, agreements and undertakings of the
Creditors herein, the Creditors shall have no further obligation or liability to
the Company, Xxxxxxxxx, Xxxxxxxxx or Gat, and the Company's other officers,
directors, employees, affiliates, or entities which contracted with the Company.
The Creditors shall be released by the Company, Xxxxxxxxx, Xxxxxxxxx and Gat and
the Company's other officers, directors, employees, affiliates or entities which
contracted with the Company, their agents, heirs, successors and assigns,
jointly and severally, of any and all liability or obligations of any nature and
from any and all claims, demands complaints and accusations and causes of action
which the Company, Xxxxxxxxx, Xxxxxxxxx and Gat and the Company's other
officers, directors, employees, affiliates or entities which contracted with the
Company, their agents, heirs, successors and assigns ever had, now have, or
hereafter can, shall or may have by reason of any matter, cause or thing
whatsoever, arising from events prior to the date of this Agreement, including
without limitation under the Note, Warrants, Conversion Shares or any applicable
securities laws. This release shall not cover any claims arising under this
Modification and Release Agreement. This release shall not be effective in the
event of a bankruptcy filing by or against the Company under the Bankruptcy Act
or other similar law.
9. In the event that the Company is placed into an involuntary or
voluntary bankruptcy proceeding, the Creditors agree hereby that they vote in
favor of a plan of reorganization or liquidation of the Company (the "Plan")
which provides for the same percentage and amount of cash payment and common
stock issuance as provided for the Creditors in this Agreement and, with respect
to all creditors of the same class as the Creditors, the same amount of stock as
provided herein and, with respect to cash payments, the same percentage as
agreed by the Creditors herein. Notwithstanding the foregoing, this Section 7
shall only be operative in a bankruptcy if two thirds in dollar amount and more
than one half in number of the outstanding creditors of the Company in the same
class and status as the Creditors
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have entered into Modification and Release Agreements prior to the filing of any
such bankruptcy petition that provide for a settlement and compromise of their
claims as provided herein with respect to stock issuance and in the same
percentage as agreed by the Creditors with respect to cash payments.
10. Miscellaneous. The recitals in this Agreement shall form a
substantive part of this Agreement. This Agreement may not be changed or
terminated orally nor may any of its provisions be waived except by an agreement
in writing signed by the party to be charged. If any term or provision of this
Agreement shall be held to be invalid, illegal or unenforceable in any respect
or under any circumstances, the remainder of this Agreement and the application
thereof to other circumstances shall not be affected and shall be enforceable to
the fullest extent permitted by law. This agreement shall remain confidential
among the parties thereto and shall not be shown to any other persons or
entities.
11. The parties hereby agree that Xxxxxxx Xxxxxxxx or his designee is
hereby elected a director of the Company.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written above.
CHESHIRE DISTRIBUTORS, INC. CREDITORS:
KESHET, LP
By: /s/ Gilad Gat By: /s/
--------------------------- ---------------------------
Name: Gilad Gat Name:
Title: Vice President Title:
/s/ Xxx Xxxxxxxxx THE KESHET FUND, LP
------------------------------
Xxx Xxxxxxxxx By: /s/
---------------------------
/s/ Xxxx Xxxxxxxxx Name:
------------------------------ Title:
Xxxx Xxxxxxxxx
NESHER, LTD.
/s/ Gilad Gat
------------------------------ By: /s/
Gilad Gat ---------------------------
Name:
Title:
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