Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
COVE APPAREL, INC.
THE PRINCIPALS OF COVE APPAREL, INC.
EUROSEAS LTD.
AND
EUROSEAS ACQUISITION COMPANY INC.
DATED AS OF AUGUST 25, 2005
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as
of August 25, 2005, by and among Euroseas Ltd., a corporation organized under
the laws of the Republic of the Xxxxxxxx Islands ("Euroseas"), Euroseas
Acquisition Company Inc., a corporation organized under the laws of the State of
Delaware ("EuroSub"), Cove Apparel, Inc., a Nevada Corporation ("Cove"), Xxxxx
Xxxxxxxx ("X. Xxxxxxxx"), Xxxxx Xxxxxxxx ("X. Xxxxxxxx"), Xxxx Xxxxxx ("Xxxxxx")
and Xxxxxx Xxxxxxx ("Xxxxxxx" and together with X. Xxxxxxxx, X. Xxxxxxxx and
Xxxxxx, each a "Cove Principal" and collectively, the "Cove Principals").
WITNESSETH:
WHEREAS, the boards of directors of each of EuroSub and Cove believe it is in
the best interests of each company and their respective stockholders that
EuroSub acquire Cove through the merger of Cove with and into EuroSub (the
"Merger") and, in furtherance thereof, have approved the Merger;
WHEREAS, pursuant to the Merger, among other things, each of the issued and
outstanding shares of Cove Capital Stock (as defined below) shall be converted
into the right to receive shares of Euroseas, par value $0.01 per share (the
"Euroseas Shares");
WHEREAS, the parties intend that the Merger shall constitute a plan of
reorganization pursuant to Section 368 of the Code (as defined below);
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WHEREAS, Cove and the Cove Shareholders, on the one hand, and Euroseas on the
other hand, desire to make certain representations, warranties, covenants and
other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS.
Except as otherwise specified herein, the following terms, when used in this
Agreement, have the respective meanings set forth below:
"ACTION" means any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly Controlling, Controlled by or under common Control with such other
Person.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by Law to be closed in the City of New
York.
"CODE" means the United States Internal Revenue Code of 1986.
"CONTROL" means, as to any Person, the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise. The terms "Controlled" and
"Controlling" shall have a correlative meaning.
"COVE CAPITAL STOCK" means collectively, the Cove Common Stock, par value $0.001
per share.
"DOLLAR" or "$" means the United States Dollar.
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"ERISA" means the United States Employee Retirement Income Security Act of 1974,
and the rules and regulations promulgated thereunder.
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of 1934.
"GAAP" means United States generally accepted accounting principles as in
effect, from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means any United States (federal, state or local) or
foreign government, governmental, regulatory or administrative authority, agency
or commission or any court, tribunal, or judicial or arbitral body.
"KNOWLEDGE OF COVE" or "KNOWLEDGE" with respect to Cove means the knowledge of
(i) any Cove Principal or (ii) any officer or director of Cove.
"KNOWLEDGE OF EUROSEAS" or "KNOWLEDGE" with respect to Euroseas means the
knowledge of any officer or director of Euroseas.
"LAW" means any United States (federal, state or local) or foreign statute, law,
ordinance, regulation, rule, code, order, judgment, injunction or decree.
"LIEN" means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, whether voluntarily
incurred or arising by operation of Law or otherwise, in respect of such
property or asset.
"MATERIAL ADVERSE EFFECT" means with respect to Euroseas or Cove, as applicable,
a material adverse effect on the business, operations, properties, assets,
condition (financial or otherwise) or results of operations of it and its
subsidiaries taken as a whole, or on its ability to consummate the transactions
contemplated hereby except (i) any effect arising from this Agreement or the
transactions contemplated hereby, (ii) any effect applicable generally to the
industries in which Cove and Euroseas operate and (iii) general economic or
financial effects.
"ORDER" means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental Authority.
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"PER SHARE MERGER CONSIDERATION" means for each share of Cove Capital Stock, the
right to receive consideration equal to 0.102969 fully paid and nonassessable
Euroseas Shares, subject to adjustment for any reverse stock split.
"PERSON" means any natural person, general or limited partnership, corporation,
limited liability company, firm, association, trust or other legal entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"PLEDGED SHARES" means 475,000 Euroseas Shares to be received in connection with
the Merger, acquired in private transactions, in the open market or otherwise)
that are pledged to Euroseas by the Cove Principals or other pledgors reasonably
acceptable to Euroseas and deposited with an independent collateral agent in
accordance with Section 9.2 below to secure the indemnification obligations of
the Cove Principals under Article IX of this Agreement.
"PRIVATE PLACEMENT TRANSACTION" means that certain private placement transaction
between Euroseas and certain private investors pursuant to that Securities
Purchase Agreement, dated as of August 25, 2005.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933.
"SUBSIDIARIES" means Xxxxx Trading Ltd., a company organized under the laws of
the Republic of the Xxxxxxxx Islands, Alterwall Business Inc., a company
organized under the laws of the Republic of Panama, Allendale Investments S.A.,
a company organized under the laws of the Republic of Panama, Alcinoe Shipping
Limited, a company organized under the laws of the Republic of Cyprus, Searoute
Maritime Limited, a company organized under the laws of the Republic of Cyprus,
OceanPride Shipping Limited, a company organized under the laws of the Republic
of Cyprus and OceanOpera Shipping Limited, a company organized under the laws of
the Republic of Cyprus, each of which is a "Subsidiary" and all of which are
Subsidiaries of Euroseas.
"TAX" or "TAXES" means all United States (federal, state or local) or foreign
income, excise, gross receipts, ad valorem, sales, use, employment, franchise,
profits, gains, property, transfer, use, payroll, intangibles or other taxes,
fees, stamp taxes, duties, charges, levies or assessments of any kind whatsoever
(whether payable directly or by
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withholding), together with any interest and any penalties, additions to tax or
additional amounts imposed by any Tax authority with respect thereto.
"TAX RETURNS" means all returns and reports (including elections, declarations,
disclosures, schedules, estimates and information returns) required to be
supplied to a Tax authority relating to Taxes.
"TRADEMARKS" means all of those trade names, trademarks, service marks, jingles,
slogans, logos, trademark and service xxxx registrations and trademark and
service xxxx applications owned, used, held for use, licensed by or leased by
Euroseasand the Subsidiaries, or Cove, as applicable, and, in each case, the
goodwill appurtenant thereto.
1.2 OTHER DEFINED TERMS.
Except as otherwise specified herein, the following terms have the respective
meanings as defined in the Sections set forth below:
TERM SECTION
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Agreement Preamble
Certificates 2.6
Closing and Closing Date 2.2
Cove Preamble
Cove Acquisition Transaction 5.2(b)
Cove Common Stock 4.2
Cove Contracts 4.5
Cove Directors 6.4
Cove Financial Statements 4.13
Cove Intellectual Property 4.17
Cove Permits 4.9(b)
Cove Principals Preamble
Cove SEC Reports 4.14
Cove Software 4.17(b)(iii)
Cove Special Meeting 3.9
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Cove Stockholders' Approval 6.4
DGCL 2.1
Dissenting Shares 2.7
Effective Time 2.2
Employment Agreements 6.11
Enforceability Exception 3.3(a)
Environmental Laws 3.7(c)
Euroseas Preamble
Euroseas Acquisition Transaction 5.2(a)
Euroseas Contracts 3.5
Euroseas Financial Statements 3.11
Euroseas Registration Statement 6.2(a)
Euroseas Shares Recitals
EuroSub Preamble
Exchange Act Listing 6.5
Exchange Agent 2.9(a)
Indemnified Party 9.3(a)
Indemnifying Party 9.3(a)
Information Statement 6.2(a)
Licensed Software 4.17(b)(ii)
Loss 9.2(a)
Merger Recitals
Merger Certificate 2.2
Notice of Claim 9.3(a)
NGCL 2.1
Owned Software 4.17(b)(i)
PFIC 3.15
Pledge Agreement 9.2(c)
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Significant Breach 9.2(b)
Stock Exchange Listing 6.5
Surviving Corporation 2.1
1.3 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned to it in
accordance with GAAP;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural include the
singular; and
(vi) any agreement, instrument or statute defined or referred to herein or in
any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented (as provided in such agreements) and includes (in the case of
agreements or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
ARTICLE II.
THE MERGER
2.1 THE MERGER.
Upon the terms and conditions set forth in this Agreement, and in accordance
with the applicable provisions of the Nevada General Corporation Law ("NGCL")
and the Delaware General Corporation Law (the "DGCL"), Cove shall be merged with
and into EuroSub at the Effective Time. At the Effective Time, the separate
corporate existence of Cove shall cease, and EuroSub shall continue as the
surviving corporation. The surviving corporation in the Merger is sometimes
referred to as the "Surviving Corporation."
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2.2 CLOSING; EFFECTIVE TIME.
The closing of the Merger (the "Closing") shall take place at 10:00 a.m. Eastern
Standard Time at the offices of Xxxxxx & Xxxxxx LLP, Xxx Xxxxxxx Xxxx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, on the first Business Day following the date on which the
last of the conditions set forth in Article VII hereof is fulfilled or waived,
or at such other time and place as Cove and EuroSub shall agree (the date on
which the closing occurs being the "Closing Date"). On the Closing Date, the
parties shall cause the Merger to be consummated by filing a Certificate of
Merger or like instrument (the "Merger Certificate") with the Secretary of State
of Nevada, in accordance with the applicable provisions of the NGCL and with the
Secretary of State of the State of Delaware, in accordance with the applicable
provisions of the DGCL (the time of acceptance by the Secretary of State of
Delaware of such filing being referred to herein as the "Effective Time").
2.3 EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of the NGCL and the DGCL. Without limiting the generality
of the foregoing, at the Effective Time, all the property, rights, privileges,
powers and franchises of Cove shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Cove shall become the debts, liabilities and
duties of the Surviving Corporation. At the Effective Time the name of the
Surviving Corporation shall be changed to "Cove Apparel, Inc."
2.4 ARTICLES OF INCORPORATION; BY-LAWS.
At the Effective Time, the Certificate of Incorporation and Bylaws of EuroSub
shall be the Articles of Incorporation and Bylaws of the Surviving Corporation.
2.5 DIRECTORS AND OFFICERS.
The directors of the Surviving Corporation immediately after the Effective Time
shall be the directors set forth in Section 2.5 of the attached Euroseas
Disclosure Schedule, plus such other directors as are appointed by EuroSub after
the date hereof, each to hold the office of director of the Surviving
Corporation in accordance with the provisions of the applicable laws of the DGCL
and the Certificate of Incorporation and Bylaws of the Surviving Corporation
until their successors are duly qualified and elected. The officers of the
Surviving Corporation immediately after the Effective Time shall be the officers
set forth in Section 2.5 of the attached Euroseas Disclosure
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Schedule, plus such other officers as are appointed by Eurosub after the date
hereof, each to hold office in accordance with the provisions of the Bylaws of
the Surviving Corporation.
2.6 CONVERSION OF COVE CAPITAL STOCK.
Subject to Sections 2.7 and 2.9(e), each share of Cove Capital Stock issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive, at the election of the holder thereof, the Per Share Merger
Consideration. At the Effective Time, all such shares of Cove Capital Stock
converted as set forth above shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of a
certificate or certificates that immediately prior to the Effective Time
represented any such shares of Cove Capital Stock (the "Certificates") shall
cease to have any rights with respect thereto, except the right to receive the
Per Share Merger Consideration upon the surrender of such Certificate, in
accordance with Section 2.9(b). Exhibit 2.6 lists, as of the Effective Time, the
number of Euroseas Shares which shall be issued to the Cove stockholders
pursuant to this Section 2.6, assuming that all outstanding Cove Capital Stock
is exchanged for, or converted to, Euroseas Shares as contemplated by this
Agreement.
2.7 APPRAISAL RIGHTS.
To the extent required under NGCL, notwithstanding any other provisions of this
Agreement to the contrary, shares of Cove Capital Stock that are outstanding
immediately prior to the Closing and which are held by Cove stockholders who
shall not have voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly, in writing, appraisal for such shares in
accordance with the applicable provisions of NGCL (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the Per
Share Merger Consideration. Such Cove stockholders shall be entitled to receive
payment of the appraised value of such shares of Cove Capital Stock held by them
in accordance with the applicable provisions of the NGCL, except that all
Dissenting Shares held by Cove stockholders who failed to perfect or who have
effectively withdrawn or lost their rights to appraisal of such shares of Cove
Capital Stock under the applicable provisions of NGCL shall thereupon be deemed
to have converted into and to become exchangeable, as of the expiration of the
statutory notice period following the Closing, of the right to receive, without
any interest thereon, the Per Share Merger Consideration, upon surrender, in the
manner provided in Section 2.6 above, of the Certificate or Certificates that
formerly
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evidenced such shares of Cove Capital Stock. Any payments required to be made to
the holders of any Dissenting Shares shall be funded by Euroseas.
2.8 ANTI-DILUTION PROVISIONS.
In the event Euroseas changes (or establishes a record date for changing) the
number of Euroseas Shares issued and outstanding prior to the Effective Time as
a result of a stock split, stock dividend, recapitalization, subdivision,
reclassification, combination, exchange of shares or similar transaction with
respect to the outstanding Euroseas Shares and the record date therefor shall be
prior to the Effective Time, the Per Share Merger Consideration shall be
proportionately adjusted to reflect such stock split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange of shares
or similar transaction.
2.9 SURRENDER OF CERTIFICATES.
(a) Exchange Agent. As of the Effective Time, Euroseas shall deposit with
such bank or trust company as may be designated by Euroseas and reasonably
acceptable to Cove (the "Exchange Agent"), for the benefit of the holders of
shares of Cove Capital Stock, for exchange in accordance with this Section 2.9,
through the Exchange Agent, the Euroseas Shares issuable pursuant to Section 2.6
in exchange for outstanding shares of Cove Capital Stock. At the time of such
deposit, Euroseas, Inc. shall irrevocably instruct the Exchange Agent to deliver
the Euroseas Shares to Cove's stockholders after the Effective Time in
accordance with the procedures set forth in this Section 2.9, subject to
Sections 2.9(f) and (g).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted into the right to receive the applicable
Per Share Merger Consideration pursuant to Section 2.6, a letter of transmittal
(in form and substance satisfactory to Euroseas and Cove), with instructions for
use in surrendering the Certificates in exchange for the applicable Per Share
Merger Consideration with respect thereto. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly completed and validly executed, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor that number of whole Euroseas Shares in
accordance with Section 2.9(e), together with certain dividends or other
distributions in accordance with Section 2.9(c), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Cove Capital Stock that is not registered in the
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transfer records of Cove, a certificate evidencing the proper number of Euroseas
Shares may be issued in exchange therefor to a person other than the person in
whose name the Certificate so surrendered is registered if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such issuance shall pay any transfer or other taxes required
by reason of the issuance of Euroseas Shares to a person other than the
registered holder of such Certificate or establish to the satisfaction of
Euroseas that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.9(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Per Share Merger Consideration that the holder thereof has the
right to receive pursuant to the provisions of Section 2.6, plus certain
dividends or other distributions in accordance with Section 2.9(c).
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to Euroseas Shares with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to Euroseas Shares represented thereby, if any, and all
such dividends and other distributions shall be paid by Euroseas to the Exchange
Agent, until the surrender of such Certificate in accordance with this Article
II. Subject to the effect of applicable escheat or similar laws, following
surrender of any such Certificate there shall be paid to the holder of whole
Euroseas Shares issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
Euroseas Shares and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole Euroseas Shares.
(d) No Further Ownership Rights in Cove Capital Stock. All certificates
evidencing Euroseas Shares issued (including any dividends or other
distributions paid pursuant to Section 2.9(c)) shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the shares of
Cove Capital Stock formerly represented by such Certificates. At the close of
business on the day on which the Effective Time occurs, the stock transfer books
of Cove shall be closed, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of Cove
Capital Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for transfer or any other reason, they shall
be canceled and exchanged as provided in this Article II.
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(e) Fractional Shares. No fractional shares of Euroseas common stock shall
be issued in the Merger. The aggregate Per Share Merger Consideration to be
issued to the holder of a Certificate previously evidencing Cove Capital Stock
shall be rounded up to the nearest whole share of Euroseas common stock.
(f) Termination of Exchange of Euroseas Shares. Any portion of the Euroseas
Shares (and any dividends or distributions thereon) that remain undistributed to
the holders of the Certificates for six months after the Effective Time shall be
delivered to Euroseas, upon demand, and any holders of the Certificates who have
not theretofore complied with this Article II shall thereafter look only to
EuroSub for, and, subject to Section 2.9(g), Euroseas, Inc. shall remain liable
for payment of their claim for the Per Share Merger Consideration, certain
dividends and other distributions in accordance with Section 2.9(c).
(g) No Liability. Notwithstanding anything to the contrary in this Section
2.9, none of the Exchange Agent, the Surviving Corporation or any party to this
Agreement shall be liable to a holder of Euroseas Shares or Cove Capital Stock
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Lost, Stolen or Destroyed Company Certificate. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificate, upon the
making of an affidavit and indemnity of that fact by the holder thereof in a
form that is reasonably acceptable to the Exchange Agent, the number of Euroseas
Shares as required pursuant to Section 2.6; provided, however, that Euroseas
may, in its reasonably commercial discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct against
any claim that may be made against Euroseas or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
2.10 DISSENTING SHARES AFTER PAYMENT OF FAIR VALUE.
Dissenting Shares, if any, after payments of fair value in respect thereto have
been made to dissenting Cove stockholders pursuant to the NGCL, shall be
cancelled.
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2.11 TAX AND ACCOUNTING CONSEQUENCES.
It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code. Each party has
consulted with, and is relying upon, its tax advisors and accountants with
respect to the tax and accounting consequences of the Merger.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EUROSEAS
Euroseas hereby represents and warrants to Cove and the Cove Principals as
follows (subject in each case to such exceptions as are set forth or
cross-referenced in the attached Euroseas Disclosure Schedule in the labeled
section corresponding to the Section of the representation or warranty to which
such exceptions relate):
3.1 ORGANIZATION AND QUALIFICATION.
(a) Euroseas has been duly organized and is validly existing as a
corporation in good standing under the laws of the Republic of the Xxxxxxxx
Islands, with power and authority (corporate and other) to own its properties
and conduct its business as currently conducted.
(b) EuroSub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. EuroSub has not engaged in any
business (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorporation. EuroSub is a
wholly-owned subsidiary of Euroseas.
(c) The copies of the respective of Incorporation and Bylaws of Euroseas
and EuroSub, as amended to date and delivered to Cove, are true and complete
copies of these documents as now in effect. The minute books of Euroseas and
EuroSub are complete and accurate in all material respects.
3.2 CAPITALIZATION.
(a) As of immediately prior to the Closing, the authorized capital stock of
Euroseas shall consist solely of 100,000,000 common shares, $0.001 par value,
and 20,000,000 preferred shares, $0.001 par value, of which 29,754,166 common
shares (excluding any shares and warrants to be issued in the Private Placement
Transaction), and no preferred shares, will be issued and outstanding. All such
common shares are owned solely by
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Friends Investment Company Inc., a corporation organized under the laws of the
Republic of the Xxxxxxxx Islands ("Friends"), are duly authorized, validly
issued and outstanding, fully paid and non-assessable and, have not been issued
in violation of the preemptive rights of any Person.
(b) The Euroseas Shares to be issued upon effectiveness of the Merger, when
issued in accordance with the terms of this Agreement, shall be duly authorized,
validly issued, fully paid and non-assessable and free of all Liens.
(c) There are no shares of Euroseas which are reserved for issuance upon
exercise of the options and/or warrants that are outstanding on the date hereof
other than any warrants issued in the Private Placement Transaction.
(d) The authorized capital stock of EuroSub as of the date hereof consists
solely of 500 shares of common stock, par value $0.001 per share, all of which
shares are issued and outstanding. All of such shares of common stock that are
issued and outstanding are owned by Euroseas, are duly authorized, validly
issued and outstanding, fully paid and non-assessable and were not issued in
violation of the preemptive rights of any Person.
3.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Each of Euroseas and EuroSub has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. Euroseas' execution and delivery of this Agreement, and its consummation
of the transactions contemplated hereby, have been duly authorized by its board
of directors and no other corporate proceedings on its part are necessary to
authorize its execution and delivery of this Agreement and its consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Euroseas and EuroSub and constitutes its valid
and binding agreement, enforceable against it in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable principles
((i) and (ii) the "Enforceability Exception").
(b) All material consents, approvals, authorizations, orders, licenses,
registrations, clearances and qualifications of or with any Governmental
Authority having jurisdiction over Euroseas or EuroSub or any of their
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properties required for the execution and delivery by Euroseas of this Agreement
to be duly and validly authorized have been obtained or made and are in full
force and effect.
(c) The performance by each of Euroseas and EuroSub of its obligations
under this Agreement and the consummation of the transactions contemplated
herein will not conflict with its Articles of Incorporation or Bylaws or result
in a breach of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Euroseas or EuroSub is a party or by which Euroseas,
orEuroSub is bound or to which any of the property or assets of Euroseas or
EuroSub is subject, nor will any such action result in any violation of the
provisions of the Articles of Incorporation or the Bylaws of Euroseas or EuroSub
or any applicable Law or any Order, rule or regulation of any Governmental
Authority having jurisdiction over Euroseas, EuroSub or any of their respective
properties. No consent, approval, authorization, order, license, registration or
qualification of or with any such Governmental Authority is required for the
consummation by Euroseas or EuroSub of the transactions contemplated by this
Agreement, except such consents, approvals, authorizations, orders, licenses,
registrations or qualifications (i) as have been obtained, or (ii) which
individually or in the aggregate are not material to Euroseas.
3.4 CONTRACTS; NO DEFAULT.
All of the material contracts and agreements of Euroseas and its Subsidiaries
(individually, a "Euroseas Contract" and collectively, the "Euroseas Contracts")
are valid and binding upon Euroseas or the Subsidiaries, as applicable, and to
the Knowledge of Euroseas, the other parties thereto, and are in full force and
effect and enforceable in accordance with their terms, subject to the
Enforceability Exception, and neither Euroseas, nor the Subsidiaries, nor to the
Knowledge of Euroseas, any other party to any Contract, has materially breached
any provision of, nor has any event occurred which, with the lapse of time or
action by a third party, could result in a material default under, the terms
thereof.
3.5 LITIGATION.
Except as set forth in Section 3.5 of the Euroseas Disclosure Schedule, there
are no outstanding Orders, and no legal or governmental investigations, actions,
suits or proceedings pending or, to the Knowledge of Euroseas, threatened
against or affecting Euroseas or any of the Subsidiaries or any of their
respective properties or to which Euroseas or any of the Subsidiaries is or may
be a party or to which any property of Euroseas or any of the Subsidiaries is or
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may be the subject which, if determined adversely to Euroseas or any of the
Subsidiaries could individually or in the aggregate have or reasonably be
expected to have, a Material Adverse Effect on Euroseas and the Subsidiaries
taken as a whole, and, to the best of the Knowledge of Euroseas, no such
proceedings are threatened or contemplated by any Governmental Authorities or
threatened by others.
3.6 TAXES.
(a) Euroseas and the Subsidiaries have duly filed with the appropriate
Governmental Authorities all material franchise, income and all other material
Tax Returns other than Tax Returns the failure to file of which would have no
Material Adverse Effect on Euroseas or the Subsidiaries. All such Tax Returns
were, when filed, and are accurate and complete in all material respects and
were prepared in conformity with applicable Laws. Euroseas and the Subsidiaries
have paid or will pay in full or have adequately reserved against all Taxes
otherwise assessed against it through the Closing Date. Neither Euroseas nor any
Subsidiary is a party to any pending action or proceeding by any Governmental
Authority for the assessment of any Tax, and no claim for assessment or
collection of any Tax has been asserted in writing against Euroseas of any of
the Subsidiaries that has not been paid. There are no Liens for Taxes upon the
assets of Euroseas or any of the Subsidiaries (other than Liens for Taxes not
yet due and payable). There is no valid basis, to the Knowledge of Euroseas, for
any assessment, deficiency, notice, 30-day letter or similar intention to assess
any Tax to be issued to Euroseas or any of the Subsidiaries by any Governmental
Authority.
(b) No stamp or other issuance or transfer taxes or duties and no capital
gains, income, withholding or other Taxes are payable by or on behalf of
Euroseas or the Subsidiaries to the Xxxxxxxx Islands or Greece or any political
subdivision or Taxing Authority thereof or therein in connection with the
issuance of the Euroseas Shares to the Cove stockholders, the issuance of or the
delivery by the Cove stockholders of the Cove Capital Stock by the holders
thereof.
3.7 NO VIOLATION OF LAW.
(a) Neither Euroseas nor any Subsidiary is in violation of or has been
given notice or been charged with any violation of, any Law or Order (including,
without limitation, any applicable environmental law, ordinance or regulation)
of any Governmental Authority, except for violations which, in the aggregate, do
not have, and would not reasonably be expected to have, a Material Adverse
Effect on Euroseas. Neither Euroseas nor any Subsidiary
16
has received any written notice that any investigation or review with respect to
it by any Governmental Authority is pending or threatened, other than, in each
case, those the outcome of which, as far as reasonably can be foreseen, would
not reasonably be expected to have a Material Adverse Effect on Euroseas.
(b) Each of Euroseas. and the Subsidiaries owns, possesses or has obtained,
all licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
Governmental Authorities, all self-regulatory organizations and all courts and
other tribunals, necessary to own or lease, as the case may be, and to operate
its properties and to carry on its business as conducted as of the date hereof,
other than such licenses, permits, certificates, consents, orders, approvals,
other authorizations, declarations and filings which individually or in the
aggregate are not material to Euroseas and the Subsidiaries taken as a whole,
and neither Euroseas nor any such Subsidiary has received any actual notice of
any proceeding relating to revocation or modification of any such license,
permit, certificate, consent, order, approval or other authorization, and each
of Euroseas and the Subsidiaries is in compliance with all Laws relating to the
conduct of its business as conducted as of the date hereof other than any
failure to so comply that would not have a Material Adverse Effect on Euroseas.
(c) Euroseas and the Subsidiaries (i) are in compliance with any and all
applicable foreign, federal, provincial, state and local Laws, including any
applicable regulations and standards adopted by the International Maritime
Organization, relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, petroleum pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses,
other approvals, authorizations and certificates of financial responsibility
required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses or
approvals would not, have a Material Adverse Effect on Euroseas and its
Subsidiaries.
(d) None of the transactions contemplated herein will violate any Foreign
Assets Control Regulations of the United States contained in Title 31, Code of
Federal Regulations, Parts 500, 505, 515 and 535.
17
3.8 PROPERTIES.
(a) Except as provided herein, Euroseas and the Subsidiaries have good and
marketable title to all of the assets and properties which they purport to own
as reflected on the most recent balance sheet comprising a portion of the
Euroseas Financial Statements, or thereafter acquired (except assets and
properties sold or otherwise disposed of since the date of such balance sheet in
the ordinary course of business). Euroseas and the Subsidiaries do not have any
leasehold interests in any properties. Neither Euroseas, the Subsidiaries nor,
to Euroseas' Knowledge, the other parties thereto are in default in the
performance of any material provision thereunder. Neither the whole nor any
material portion of the assets of Euroseas or the Subsidiaries is subject to any
Order to be sold or is being condemned, expropriated or otherwise taken by any
public authority with or without payment of compensation therefor, nor, to
Euroseas' Knowledge, has any such condemnation, expropriation or taking been
proposed. None of the material assets of Euroseas or the Subsidiaries is subject
to any restriction which would have a Material Adverse Effect on Euroseas.
(b) Each Subsidiary is the sole owner of the vessel set forth opposite its
name in Section 3.8(b) of the Euroseas Disclosure Schedule, subject to any Liens
as set forth therein. The description of each vessel set forth in Section 3.8(b)
of the Euroseas Disclosure Schedule is accurate in all material respects.
(c) The material equipment, fixtures and other personal property of
Euroseas and the Subsidiaries are in good operating condition and repair
(ordinary wear and tear excepted) for the conduct of its business as presently
being conducted, except where the failure to be in such condition or repair
would not have a Material Adverse Effect on Euroseas.
3.9 INFORMATION STATEMENT AND FORM 8-K.
None of the information to be supplied by Euroseas for inclusion in the
Information Statement, or in any amendments or supplements thereto, to be
distributed to the stockholders of Cove in connection with the meeting or
approval by consent of such stockholders (the "Cove Special Meeting") to vote
upon this Agreement and the transactions contemplated hereby, and the Form 8-K
to be filed by Cove with respect to this transaction will, at the time of the
mailing of the Information Statement and at the time of the Cove Special Meeting
and at the time of the filing of the Form 8-K contain any untrue statement of a
material fact or omit to state any material fact required to
18
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
3.10 EMPLOYEES.
To Euroseas' Knowledge, no key employee or group of employees has any plans to
terminate employment with Euroseas or any of the Subsidiaries.
3.11 FINANCIAL STATEMENTS.
Euroseas has provided Cove with its audited consolidated balance sheets as at
December 31, 2004, 2003 and 2002 and related audited consolidated statements of
income, cash flows and stockholders' equity of Euroseas and the Subsidiaries and
its unaudited consolidated balance sheet as at March 31, 2005 and related
statements of income, cash flows and stockholders' equity for the three month
period then ended (collectively, the "Euroseas Financial Statements"). The
Euroseas Financial Statements present fairly, in all material respects, the
consolidated financial position and results of operations of Euroseas and the
Subsidiaries as of the dates, period and year indicated, prepared in accordance
with GAAP (subject in the case of unaudited interim period financial statements,
to normal and recurring year-end adjustments which individually or collectively,
are not material to Euroseas) Without limiting the generality of the foregoing,
(i) as of the dates of the consolidated balance sheets comprising a portion of
the Euroseas Financial Statements, there was no material debt, liability or
obligation of any nature not reflected or reserved against in the Euroseas
Financial Statements or in the notes thereto required to be so reflected or
reserved in accordance with GAAP, and (ii) there are no assets of Euroseas or
the Subsidiaries, the value of which (in the reasonable judgment of Euroseas) is
materially overstated in the Euroseas Financial Statements. Except as disclosed
therein or in Section 3.11 of the Euroseas Disclosure Schedule or as incurred in
the ordinary course of business since December 31, 2004, Euroseas has no known
material contingent liabilities (including liabilities for Taxes) other than as
contemplated hereunder or in connection herewith. Euroseas is not a party to any
contract or agreement for the forward purchase or sale of any foreign currency
and has not invested in any "derivatives."
3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Section 3.12 of the Euroseas Disclosure Schedule or in
connection with this Agreement and the transactions contemplated hereby, since
December 31, 2004 there has not been:
19
(a) any material adverse change in the financial condition, operations,
properties, assets, liabilities or business of Euroseas or its Subsidiaries;
(b) any material damage, destruction or loss of any material properties of
Euroseas and the Subsidiaries, whether or not covered by insurance, which would
have a Material Adverse Effect on Euroseas;
(c) any material change in the manner in which the business of Euroseas and
its Subsidiaries has been conducted, which would have a Material Adverse Effect
on Euroseas;
(d) any material change in the treatment and protection of trade secrets or
other confidential information of Euroseas and the Subsidiaries, which would
have a Material Adverse Effect on Euroseas or its Subsidiaries; and
(e) any occurrence not included in paragraphs (a) through (d) of this
Section 3.12 which has resulted, or which Euroseas has reason to believe, could
reasonably be expected to result, in a Material Adverse Effect on Euroseas or
its Subsidiaries.
3.13 DIVIDENDS AND DISTRIBUTIONS.
All dividends and other distributions declared and payable on the shares of
capital stock of Euroseas and the Subsidiaries may under the current Laws of the
Republic of the Xxxxxxxx Islands, the Republic of Cyprus or the Republic of
Panama, as the case may be, be paid in United States dollars and may be freely
transferred and all such dividends and other distributions are not subject to
withholding or other taxes under the current laws and regulations of such
jurisdictions.
3.14 INVESTMENT COMPANY.
Euroseas is not an "investment company" or an entity "controlled" by an
"investment company", as such terms are defined in the Investment Company Act of
1940.
3.15 PASSIVE FOREIGN INVESTMENT COMPANY.
To Euroseas' best Knowledge, it does not believe it is a Passive Foreign
Investment Company ("PFIC") within the meaning of Section 1296 of the Code, and
does not believe it is likely to become a PFIC.
20
3.16 INSURANCE.
Euroseas and each of the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are customary and in accordance with standard industry practice in the
businesses in which they are engaged. Neither Euroseas nor any such Subsidiary
has received any notice from any insurance company that any insurance policy has
been canceled or that such insurance company intends to cancel any such policy.
Neither Euroseas nor any such Subsidiary has reason to believe that Euroseasor
any Subsidiary will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business.
3.17 FUNDS.
Neither Euroseas nor any of the Subsidiaries, nor any director, shareholder,
officer, agent, employee or other person associated with or acting on behalf of
Euroseas or any of the Subsidiaries, has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds, violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
3.18 BOOKS, RECORDS AND ACCOUNTS.
Euroseas' books, records and accounts fairly and accurately reflect in all
material respects transactions and dispositions of assets by Euroseas and the
Subsidiaries.
3.19 BROKERS AND FINDERS.
Except for Xxxx Capital Partners, LLC and Poseidon Capital Corp., Euroseas has
not employed any investment banker, broker, finder, consultant or intermediary
in connection with the transactions contemplated by this Agreement which would
be entitled to any investment banking, brokerage, finder's or similar fee or
commission in connection with this Agreement or the transactions contemplated
hereby.
3.20 NO OMISSIONS OR UNTRUE STATEMENTS.
No representation or warranty made by Euroseas to Cove in this Agreement, the
Euroseas Disclosure Schedule or in any certificate of a Euroseas officer
required to be delivered to Cove pursuant to the terms of this Agreement
21
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein in light of the circumstances in which made not misleading as
of the date hereof and as of the Closing Date.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF COVE AND THE COVE PRINCIPALS
Cove and each of the Cove Principals hereby jointly and severally represents and
warrants to Euroseas as follows (subject in each case to such exceptions as are
set forth or cross-referenced in the attached Cove Disclosure Schedule in the
labeled section corresponding to the Section of the representation or warranty
to which such exceptions relate):
4.1 ORGANIZATION AND QUALIFICATION.
Cove is a corporation duly incorporated, validly existing and in good standing
under the laws of the State of Nevada. Cove has all requisite corporate power to
carry on its business as it is now being conducted and is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
set forth in Section 4.1 of the Cove Disclosure Schedule, and to Cove's
Knowledge, such jurisdictions are the only ones in which the properties owned,
leased or operated by Cove or the nature of the business conducted by Cove makes
such qualification necessary, except where the failure to qualify (individually
or in the aggregate) will not have any Material Adverse Effect on Cove. The
copies of the Certificate of Incorporation and By-laws of Cove, as amended to
date and delivered to Euroseas, are true and complete copies of these documents
as now in effect. The minute books of Cove are complete and accurate in all
material respects.
4.2 CAPITALIZATION.
The authorized capital stock of Cove as of the date hereof consists of
55,000,000 shares of common stock, $0.001 par value per share (the "Cove Common
Stock"), of which 10,480,500 shares are issued and outstanding and 5,000,000
shares of preferred shares, $0.001 par value, none of which are outstanding. All
of the outstanding securities of Cove are duly authorized, validly issued, fully
paid and non-assessable, and were not issued in violation of the preemptive
rights of any Person. All of the outstanding securities of Cove, including the
Cove Common Stock, were issued in compliance with all applicable securities
laws. No shares of capital stock are held in the treasury of Cove. Other than as
stated in Section 4.2 of the Cove Disclosure Schedule, there are no outstanding
22
subscriptions, options, warrants, calls or rights of any kind issued or granted
by, or binding upon Cove, to purchase or otherwise acquire any shares of capital
stock of Cove or other securities of Cove. Except as stated in Section 4.2 of
the Cove Disclosure Schedule, there are no outstanding securities convertible or
exchangeable, actually or contingently, into shares of Cove Common Stock or
other securities of Cove. At the Effective Time, Cove shall have approximately
$10,000 in cash or cash equivalents after giving effect to (a) the payment or
accrual on or prior to the Effective Time of all fees, costs and expenses
incurred by Cove, including, but not limited to, the fees, costs and expenses of
(i) Cove's manufacturers, suppliers, vendors and third-party providers, (ii)
Cove's attorneys, accountants, investment bankers and consultants, and (iii) the
repayment of any outstanding loans.
4.3 SUBSIDIARIES.
Cove has no subsidiaries. Cove does not hold any equity interest in any other
Person.
4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Cove has full corporate power and authority, and the Cove Principals
have full power and authority, to enter into this Agreement and, subject to the
Cove Stockholders' Approval, to consummate the transactions contemplated hereby.
Cove's execution and delivery of this Agreement, and its consummation of the
transactions contemplated hereby, have been duly authorized by its board of
directors and no other corporate proceedings on its part are necessary to
authorize its execution and delivery of this Agreement and its consummation of
the transactions contemplated hereby, except for the Cove Stockholders' Approval
which will be solicited in accordance with Section 6.2 hereof. This Agreement
has been duly and validly executed and delivered by Cove and the Cove
Principals, and constitutes its and their valid and binding agreement,
enforceable against them in accordance with its terms, except that such
enforcement may be subject to the Enforceability Exception.
(b) Cove's and the Cove Principals' execution and delivery of this Agreement
does not, and their consummation of the transactions contemplated hereby will
not, violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of their
properties or assets under any of the terms, conditions or provisions of (i)
Cove's Certificate of Incorporation or By-laws, (ii) subject to obtaining the
Cove Stockholders' Approval, any Law or Order, injunction, writ, permit or
license of any
23
Governmental Authority applicable to them or any of their properties or assets,
or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which they are now a party or by which they or any of their
properties or assets may be bound, excluding from the foregoing clauses (ii) and
(iii), such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests, charges or encumbrances
that do not, in the aggregate, have a Material Adverse Effect on Cove.
(c) Except for the filing and clearance of the Information Statement and
the Form 8-K with the SEC pursuant to the Exchange Act and any blue sky
qualifications, if needed, no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for Cove's or the Cove Principals'
execution and delivery of this Agreement or their consummation of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, in the aggregate, have a Material
Adverse Effect on Cove.
4.5 CONTRACTS LISTED; NO DEFAULT.
All material contracts, agreements, licenses, leases, easements, permits, rights
of way, commitments and understandings, written or oral, connected with or
relating in any respect to the present or future operations of Cove are, with
the exception of this Agreement and the transactions contemplated hereby,
described in Cove's SEC Reports and listed as exhibits thereto (the "Cove
Contracts"). All such Cove Contracts are listed in Section 4.5 of the Cove
Disclosure Schedule. The Cove Contracts are valid and binding upon Cove, and to
Cove's Knowledge, the other parties thereto, and are in full force and effect
and enforceable in accordance with their terms, subject to the Enforceability
Exception and neither Cove, nor to Cove's Knowledge, any other party to any Cove
Contract, has materially breached any provision of, nor has any event occurred
which, with the lapse of time or action by a third party, could result in a
material default under, the terms thereof. To the Knowledge of Cove, no
stockholder of Cove has received any payment in violation of law from any
contracting party in connection with or as an inducement for causing Cove to
enter into any Cove Contract.
24
4.6 LITIGATION.
There is no (i) claim, action, suit or proceeding pending or, to Cove's
Knowledge, threatened against or directly relating to Cove before any
Governmental Authority, or (ii) outstanding Order, or application, request or
motion therefor, of any Governmental Authority in a proceeding to which Cove or
any of its assets was or is a party except, in the case of clauses (i) and (ii)
above, such as would not, individually or in the aggregate, either materially
impair or preclude Cove's ability to consummate the Merger or the other
transactions contemplated hereby or have a Material Adverse Effect on Cove.
4.7 TAXES.
Cove has duly filed with the appropriate Governmental Authorities all Tax
Returns required to be filed by it other than Tax Returns which the failure to
file would have no Material Adverse Effect on Cove. All such Tax Returns were,
when filed, and are accurate and complete in all material respects and were
prepared in conformity with applicable laws and regulations. Cove has paid or
will pay in full or has adequately reserved against all Taxes otherwise assessed
against it through the Closing Date. Cove is not a party to any pending action
or proceeding by any Governmental Authority for the assessment of any Tax, and
no claim for assessment or collection of any Tax has been asserted against Cove
that has not been paid. There are no Tax Liens upon the assets of Cove (other
than Liens for Taxes not yet due and payable). There is no valid basis, to
Cove's Knowledge, for any assessment, deficiency, notice, 30-day letter or
similar intention to assess any Tax to be issued to Cove by any Governmental
Authority.
4.8 EMPLOYEE PLANS.
Cove has no employee benefit plans as defined in Section 3(3) of ERISA nor any
employment agreements.
4.9 NO VIOLATION OF LAW.
(a) Cove is not in violation of and has not been given notice or been
charged with any violation of, any Law, or Order, (including, without
limitation, any applicable environmental law, ordinance or regulation) of any
Governmental Authority, except for violations which, in the aggregate, do not
have, and would not reasonably be expected to have, a Material Adverse Effect on
Cove. Cove has not received any written notice that any investigation or review
with respect to it by any Governmental Authority is pending or threatened, other
than, in
25
each case, those the outcome of which, as far as reasonably can be foreseen,
would not reasonably be expected to have a Material Adverse Effect on Cove.
(b) Cove has all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct its business as presently conducted, except for those, the absence of
which, alone or in the aggregate, would not have a Material Adverse Effect on
Cove (collectively, the "Cove Permits"). Cove (a) has duly and timely filed all
reports and other information required to be filed with any Governmental
Authority in connection with the Cove Permits, and (b) is not in violation of
the terms of any of the Cove Permits, except for such omissions or delays in
filings, reports or violations which, alone or in the aggregate, would not have
a Material Adverse Effect on Cove. Section 4.9 of the Cove Disclosure Schedule
contains a list of the Cove Permits.
(c) Cove (i) is in compliance with any and all applicable foreign, federal,
provincial, state and local Laws, including all environmental Laws and
regulations, (ii) has received all permits, licenses, other approvals and
authorizations required of it under applicable environmental Laws to conduct its
business and (iii) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses or
approvals would not, have a Material Adverse Effect on Cove.
(d) Cove has no knowledge of any claim and has not received any notice of
any claim, and no proceeding has been instituted raising any claim against Cove
or any of its properties now or formerly owned, leased or operated by it or
other assets, alleging any damage to the environment or violation of any
environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect on Cove. Cove has not stored any
hazardous materials on properties now or formerly owned, leased or operated by
it and has not disposed of any hazardous materials in a manner contrary to any
environmental Laws in each case in any manner that could reasonably be expected
to result in a Material Adverse Effect on Cove. All buildings on all real
properties now owned, leased or operated by Cove are in compliance with
applicable environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect on Cove.
26
4.10 PROPERTIES.
Cove has good and marketable title to all of the assets and properties which it
purports to own as reflected on the most recent balance sheet comprising a
portion of the Cove Financial Statements or thereafter acquired (except assets
and properties sold or otherwise disposed of since the date of such balance
sheet in the ordinary course of business). Cove has a valid leasehold interest
in all properties of which it is the lessee and each such lease is valid,
binding and enforceable against Cove, and, to the Knowledge of Cove, the other
parties thereto in accordance with its terms, subject to the Enforceability
Exception. Neither Cove nor, to Cove's Knowledge, the other parties thereto are
in default in the performance of any material provision thereunder. Neither the
whole nor any material portion of the assets of Cove is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor, to the Knowledge of Cove, has any such condemnation,
expropriation or taking been proposed. None of the material assets of Cove is
subject to any restriction which would prevent continuation of the use currently
made thereof or materially adversely affect the value thereof.
4.11 INFORMATION STATEMENT.
None of the information to be supplied by Cove for inclusion in the Euroseas
Registration Statement, the Information Statement, the Form 8-K or in any
amendments thereof or supplements thereto, at the time of the filing or the
Euroseas Registration Statement and the Form 8-K or the mailing of the
Information Statement and at the time of the Cove Special Meeting will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
4.12 BUSINESS.
Cove, since its formation, has engaged in no business other than apparel sales,
and, except for this Agreement, is not a party to any contract or agreement for
the acquisition of an operating business. Cove has no employees other than as
disclosed in the Cove SEC Reports. No Cove employee is subject to any written
employment agreement. All Cove employees are terminable at will and are not
entitled to any compensation or other remuneration upon such termination. To
Cove's Knowledge, no key employee or group of employees has any plans to
terminate employment with Cove. Cove is not a party to any union contract or
other collective bargaining agreement. Cove is
27
in compliance in all material respects with all applicable Laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and Cove has not engaged in any unfair labor practice. There is
no labor strike, slowdown or stoppage pending (or, to the Knowledge of Cove, any
labor strike or stoppage threatened) against or affecting Cove. No petition for
certification has been filed and is pending before any Governmental Authority
with respect to any employees of Cove who are not currently organized.
4.13 FINANCIAL STATEMENTS.
The financial statements of Cove (collectively, the "Cove Financial Statements")
included in Cove's SEC Reports present fairly, in all material respects, the
financial position and results of operations of Cove as of the respective dates,
years and periods indicated, prepared in accordance with GAAP, applied on a
consistent basis, and to the Knowledge of Cove, in accordance with Regulation
S-X of the SEC and, in particular, Rules 1-02 and 3-05 thereunder (subject, in
the case of unaudited interim period financial statements, to normal and
recurring year-end adjustments which, individually or collectively, are not
material to Cove). Without limiting the generality of the foregoing, (i) there
is no basis for any assertion against Cove as of the date of the most recent
balance sheet comprising a portion of the Cove Financial Statements of any
material debt, liability or obligation of any nature not fully reflected or
reserved against in the Cove Financial Statements or in the notes thereto
required to be so reflected or reserved in accordance with GAAP; and (ii) there
are no assets of Cove, the value of which (in the reasonable judgment of Cove)
is materially overstated in the Cove Financial Statements. Except as disclosed
therein or as incurred in the ordinary course of business since March 31, 2005,
Cove has no known material contingent liabilities (including liabilities for
Taxes). Cove is not a party to any contract or agreement for the forward
purchase or sale of any foreign currency and has not invested in any
"derivatives."
4.14 COVE SEC REPORTS.
The Cove Common Stock has been registered under Section 12 of the Exchange Act
on Form 8-A. Since its inception, Cove has filed all reports, registration
statements and other documents, together with any amendments thereto, required
to be filed under the Securities Act and the Exchange Act, including but not
limited to reports on Form 10-K and Form 10-Q, and Cove will file all such
reports, registration statements and other documents required to be filed by it
from the date of this Agreement to the Closing Date (all such reports,
registration statements and documents, including its Form 8-A, filed or to be
filed with the SEC, including Cove's initial registration statement
28
relating to the Cove Common Stock, with the exception of the Information
Statement, are collectively referred to as "Cove SEC Reports"). As of their
respective dates, the Cove SEC Reports complied or will comply in all material
respects with all rules and regulations promulgated by the SEC and did not or
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Cove made available to Euroseas a true and complete copy of all
of the Cove SEC Reports filed on or prior to the date hereof, and will promptly
provide to Euroseas a true and complete copy of any such reports filed after the
date hereof and prior to the Closing Date. Neither Cove nor any of its
respective directors or officers is the subject of any investigation, inquiry or
proceeding before the SEC or any state securities commission or administrative
agency.
4.15 OTC BULLETIN BOARD.
It is contemplated that prior to the Effective Date and after the filing of the
Form 8-K, the Cove Common Stock will be quoted on the OTC Bulletin Board and
that Cove will be in compliance in all respects with all rules and regulations
of the National Association of Securities Dealers, Inc. applicable to Cove and
to the inclusion for quotation of such securities on the OTC Bulletin Board.
4.16 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since December 31, 2004 there has not been:
(a) any material adverse change in the financial condition, operations,
properties, assets, liabilities or business of Cove;
(b) any material damage, destruction or loss of any material properties of
Cove, whether or not covered by insurance;
(c) any change in the manner in which the business of Cove has been
conducted;
(d) any material change in the treatment and protection of trade secrets or
other confidential information of Cove; and
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(e) any occurrence not included in paragraphs (a) through (d) of this
Section which has resulted, or which Cove has reason to believe, could
reasonably be expected to result, in a Material Adverse Effect on Cove.
4.17 INTELLECTUAL PROPERTY; SOFTWARE.
(a) Section 4.17(a) of the Cove Disclosure Schedule sets forth a complete
and correct list in all material respects of all patents, Trademarks, copyright
registrations, and applications therefor, applicable to or used in the business
of Cove, together with a complete list of all licenses granted by or to Cove
with respect to any of the above (collectively, "Cove Intellectual Property").
To Cove's Knowledge, all Cove Intellectual Property is owned by Cove, free and
clear of all Liens, except where the failure to own or use such Cove
Intellectual Property would not have a Material Adverse Effect on Cove, or is
used by Cove pursuant to valid licenses. To Cove's Knowledge, Cove is not
currently in receipt of any notice of any violation or infringement of, and Cove
is not knowingly violating or infringing in any material respect, the rights of
others in, or to any patent, unpatented invention, trademark, tradename, service
xxxx, copyright, trade secret, know-how, design, process or other intangible
asset.
(b) (i) Except as set forth on Schedule 4.17(b)(i) of the Cove Disclosure
Schedule, Cove has title to all material computer software owned or used by Coce
(other than "off-the-shelf" software not customized for its use ("Owned
Software")), free and clear of all Liens. Except as set forth in Section
4.17(b)(i) or (ii) of the Cove Disclosure Schedule, the Owned Software is not
dependent on any Licensed Software in order to operate fully in the manner in
which it is intended. The source code of any Owned Software has not been
published or knowingly disclosed to any other parties, except pursuant to
contracts requiring such other parties to keep the source code of any Owned
Software confidential. Section 4.17(b)(i) of the Cove Disclosure Schedule sets
forth the names of any parties to whom the source code has been disclosed.
(ii) Section 4.17(b)(ii) of the Cove Disclosure Schedule sets forth a
list of the agreements which require the payment of license fees, rents,
royalties or other charges by Cove with respect to all software (other than
"off-the-shelf" software that has not been customized for its use) under which
Cove is a licensee, lessee or otherwise has obtained the right to use (the
"Licensed Software"). Cove has the right and license to use, sublicense, modify
and copy Licensed Software, free and clear of any limitations or encumbrances,
except as may be set forth in Section 4.17(b)(ii) of the Cove Disclosure
Schedule or in the agreements referenced therein. Cove is in material compliance
with all provisions of each license, lease or other similar agreement pursuant
to which it has rights to use
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the Licensed Software. Except as disclosed on Section 4.17(b)(ii) of the Cove
Disclosure Schedule, none of the Licensed Software has been incorporated into or
made a part of any Owned Software or any other Licensed Software. Cove has not
published or knowingly disclosed any Licensed Software to any other party
except, in the case of Licensed Software which it leases or markets to others,
in accordance with and as permitted by any license, lease or similar agreement
relating to the Licensed Software and except pursuant to contracts requiring
such other parties to keep the Licensed Software confidential. Section
4.17(b)(ii) of the Cove Disclosure Schedule sets forth the names of any parties
to whom the Licensed Software has been disclosed. As of the date hereof, to
Cove's Knowledge, no party to whom Cove has disclosed Licensed Software has
breached such obligation of confidentiality.
(iii) The Owned Software and Licensed Software constitute all software
used in the business of Cove (collectively, the "Cove Software"). To the best of
Cove's Knowledge, the transactions contemplated herein will not cause a breach
or default under any license, lease or similar agreement relating to Cove
Software or impair the ability of Cove to use Cove Software subsequent to the
Effective Time in the same manner as Cove Software is currently used by Cove.
Cove is not knowingly infringing in any material respect any intellectual
property rights of any other person or entity with respect to Cove Software,
and, except as set forth in Section 4.17(b)(iii) of the Cove Disclosure
Schedule, to Cove's Knowledge, no other person or entity is infringing any
intellectual property rights of Cove with respect to the Cove Software.
4.18 BUSINESS LOCATIONS.
Except as set forth in Section 4.18 of the Cove Disclosure Schedule, Cove does
not own or lease real property in any state or country. Cove does not have any
executive offices or places of business except as otherwise set forth in Section
4.18 of the Cove Disclosure Schedule.
4.19 COMPENSATION OF DIRECTORS, OFFICERS AND EMPLOYEES.
Section 4.19 of the Cove Disclosure Schedule contains a true and complete list
showing (a) the names of all directors and officers of Cove and (b) the names of
all salaried persons whose aggregate compensation for purposes of Tax reporting
from Cove in the fiscal year ended September 30, 2004 was, or in the year ending
September 30, 2005 is expected to be $10,000 or more per year.
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4.20 INVESTMENT COMPANY.
Cove is not an "investment company" or an entity "controlled" by an "investment
company", as such terms are defined in the Investment Company Act of 1940.
4.21 INSURANCE.
Cove is insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are customary and in accordance with
standard industry practice in the business in which it is engaged. Cove has not
received any notice from any insurance company that any insurance policy has
been canceled or that such insurance company intends to cancel any such policy.
Cove does not have any reason to believe that Cove will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business.
4.22 FUNDS.
Neither Cove, nor any director, shareholder, officer, agent, employee or other
person associated with or acting on behalf of Cove, has used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds,
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
4.23 RELATED TRANSACTIONS.
Except as set forth in Section 4.23 of the Cove Disclosure Schedule, no Cove
Principal has (a) borrowed from or loaned to Cove or other property which has
not been repaid or returned, (b) any contractual relationship or other claims,
express, or implied, of any kind whatsoever against Cove or (c) any interest in
any property used by Cove.
4.24 BOOKS, RECORDS AND ACCOUNTS.
Cove's books, records and accounts fairly and accurately reflect in all material
respects transactions and dispositions of assets by Cove, and to the Knowledge
of Cove, the system of internal accounting controls of Cove is sufficient to
assure that: (a) transactions are executed in accordance with management's
authorization; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP, and to maintain
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accountability for assets; (c) access to assets is permitted only in accordance
with management's authorization; and (d) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
4.25 DISCLOSURE CONTROLS.
Cove has established and maintains disclosure controls and procedures (as such
term is defined in Rule 13a-15 under the Exchange Act), which (i) are designed
to ensure that material information relating to Cove is made known to Cove's
principal executive officer and its principal financial officer by others within
those entities, particularly during the preparation of the Information
Statement; (ii) have been evaluated for effectiveness as of the date of this
Agreement; and (iii) are effective in all material respects to perform the
functions for which they were established.
4.26 ABSENCE OF MATERIAL WEAKNESSES.
Based on the evaluation of its internal controls over financial reporting, Cove
is not aware of (i) any significant deficiency or material weakness in the
design or operation of internal controls over financial reporting which are
reasonably likely to adversely affect Cove's ability to record, process,
summarize and report financial information; or (ii) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the internal controls over financial reporting.
4.27 BROKERS AND FINDERS.
Cove has not employed any investment banker, broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the transactions
contemplated hereby.
4.28 NO OMISSIONS OR UNTRUE STATEMENTS.
No representation or warranty made by Cove to Euroseas in this Agreement, the
Cove Disclosure Schedule or in any certificate of a Cove officer required to be
delivered to Euroseas pursuant to the terms of this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained herein or therein in
light of the circumstances in which made not misleading as of the date hereof
and as of the Closing Date.
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ARTICLE V.
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME.
Each of Cove, the Cove Principals and Euroseas, as applicable, hereby covenants
and agrees as follows (and the Cove Principals covenant and agree to cause Cove
to comply with such covenants and agreements), from and after the date of this
Agreement and until the Effective Time, except as specifically consented to in
writing by the other party or as set forth in Section 5.1 of the respective
Disclosure Schedules:
(a) It shall conduct its business in the ordinary and usual course of
business and consistent with past practice;
(b) It shall not (i) split, combine or reclassify its outstanding capital
stock or declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise (other than a reverse stock split by Euroseas with
the prior consent of Cove, which consent shall not be unreasonably withheld or
delayed), (ii) spin-off any assets or businesses, (iii) engage in any
transaction for the purpose of effecting a recapitalization, or (iv) engage in
any transaction or series of related transactions which has a similar effect to
any of the foregoing;
(c) It shall not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of its capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock or amend or modify the terms and conditions of any of the foregoing
(except, in the case of Euroseas, it may issue shares and warrants as
contemplated in connection with the Private Placement Transaction);
(d) It shall not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock, other than as required by the governing
terms of such securities, (ii) take or fail to take any action which action or
failure to take action would cause it or its stockholders (except to the extent
that any stockholders receive cash in lieu of fractional shares) to recognize
gain or loss for Tax purposes as a result of the consummation of the Merger,
(iii) in the case of Cove, make any acquisition of any material assets or
businesses, (iv) in the case of Cove, sell any material assets or businesses,
(v) in the case of Cove, enter into any contract, agreement, commitment or
34
arrangement to do any of the foregoing; or (vi) in the case of Xxxxx Xxxxxxxx,
he or she shall not resign as a director or officer of Cove until the Effective
Time;
(e) It shall use reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
suppliers, distributors, customers, and others having business relationships
with it, and not engage in any action, directly or indirectly, with the intent
to impact adversely the transactions contemplated by this Agreement;
(f) It shall confer on a regular basis with one or more representatives of
the other to report on material operational matters and the general status of
ongoing operations; and
(g) It shall file with the SEC all forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it pursuant to the Exchange Act.
5.2 NO SOLICITATION.
(a) Euroseas agrees that, prior to the Effective Time or the termination or
abandonment of this Agreement, that Euroseas shall not give authorization or
permission to any of Euroseas' directors, officers, employees, agents or
representatives to, and each shall use all reasonable efforts to see that such
persons do not, directly or indirectly, solicit, initiate, facilitate or
encourage (including by way of furnishing or disclosing information) any merger,
consolidation, other business combination involving Euroseas or any of the
Subsidiaries, acquisition of all or any substantial portion of the assets or
capital stock of Euroseas or any of the Subsidiaries or inquiries or proposals
concerning or which may reasonably be expected to lead to any of the foregoing
(other than purchases and sales of vessels and/or vessel owning companies) (a
"Euroseas Acquisition Transaction") or negotiate, explore or otherwise knowingly
communicate in any way with any third party (other than Cove or its Affiliates)
with respect to any Euroseas Acquisition Transaction or enter into any
agreement, arrangement or understanding requiring Euroseas to abandon, terminate
or fail to consummate the Merger or any other transaction expressly contemplated
by this Agreement, or contemplated to be a material part thereof. Euroseas shall
advise Cove in writing of any bona fide inquiries or proposals relating to any
Euroseas Acquisition Transaction within one business day following receipt by
Euroseas of any such inquiry or proposal. Euroseas shall also promptly advise
any person seeking an Euroseas Acquisition Transaction that it is bound by the
provisions of this Section 5.2(a).
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(b) Cove and each of the Cove Principals agrees that, prior to the
Effective Time or the termination or abandonment of this Agreement, that neither
Cove nor the Cove Principals shall, and shall not give authorization or
permission to any of Cove's directors, officers, employees, agents or
representatives to, and each shall use all reasonable efforts to see that such
persons do not, directly or indirectly, solicit, initiate, facilitate or
encourage (including by way of furnishing or disclosing information) any merger,
consolidation, other business combination involving Cove, acquisition of all or
any substantial portion of the assets or capital stock of Cove, or inquiries or
proposals which may reasonably be expected to lead to any of the foregoing (a
"Cove Acquisition Transaction") or negotiate, explore or otherwise knowingly
communicate in any way with any third party (other than the Euroseas) with
respect to any Cove Acquisition Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transaction expressly contemplated by this
Agreement, or contemplated to be a material part thereof. Cove shall advise
Euroseas in writing of any bona fide inquiries or proposals relating to a Cove
Acquisition Transaction, within one business day following Cove's receipt of any
such inquiry or proposal. Cove shall also promptly advise any person seeking a
Cove Acquisition Transaction that it is bound by the provisions of this Section
5.2(b). Nothing herein shall preclude Cove from making any SEC required
disclosures contemplated in this Agreement.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1 ACCESS TO INFORMATION.
Each of Cove and Euroseas shall afford to the other and the other's accountants,
counsel, financial advisors and other representatives reasonable access during
normal business hours throughout the period prior to the Effective Time to all
properties, books, contracts, commitments and records (including, but not
limited to, Tax Returns) of it and, during such period, shall furnish promptly
(a) a copy of each report, schedule and other document filed or received by it
during such period pursuant to the requirements of federal or state securities
laws or filed by it during such period with the SEC in connection with the
transactions contemplated by this Agreement or which may have a Material Adverse
Effect on it and (b) such other information concerning its business, properties
and personnel as the other shall reasonably request; provided, however, that no
investigation pursuant to this Section 6.1 shall affect any representation or
warranty made herein or the conditions to the obligations of the respective
parties to consummate the Merger. All non-public documents and information
furnished to Cove, the Cove Principals or Euroseas, as the
36
case may be, in connection with the transactions contemplated by this Agreement
shall be deemed to have been received, and shall be held by the recipient, in
confidence, except that Cove, the Cove Principals and Euroseas, as applicable,
may disclose such information as may be required under applicable Law or as may
be necessary in connection with the preparation of the Euroseas Registration
Statement, the Information Statement and the Form 8-K. Each party shall promptly
advise the others, in writing, of any change or the occurrence of any event
after the date of this Agreement and prior to the Effective Time having, or
which, insofar as can reasonably be foreseen, in the future would reasonably be
expected to have, any Material Adverse Effect on Euroseas or Cove, as
applicable.
6.2 EUROSEAS REGISTRATION STATEMENT.
(a) Euroseas covenants and agrees to file with the SEC as soon as shall be
reasonably practicable following the date of this Agreement (but in no event
later than 60 days following the consummation of the Private Placement
Transaction and provided Cove shall have supplied Euroseas with the Information
Statement to be included therein), at its sole cost and expense, a registration
statement on Form F-1 or F-4 or comparable form (the "Euroseas Registration
Statement") which shall include an information statement/prospectus (the
"Information Statement") relating to the solicitation of the Cove Stockholders'
Approval of, and covering the issuance of the Euroseas Shares in, the Merger,
shares of Friends and the shares of Euroseas common stock issued to the
investors in the Private Placement Transaction. Euroseas shall use all
reasonable best efforts to have the Euroseas Registration Statement declared
effective by the SEC as promptly as practicable thereafter. Euroseas shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities Laws in
connection with the issuance of Euroseas Shares in the Merger. No filing of, or
amendment or supplement to, or correspondence to the SEC or its staff with
respect to, the Euroseas Registration Statement or the Information Statement
will be made by Euroseas, without providing Cove a reasonable opportunity to
review and comment thereon. Euroseas will advise Cove, promptly after it
receives notice thereof, of the time when the Euroseas Registration Statement
has become effective or any supplement or amendment has been filed to the
Euroseas Registration Statement or the Information Statement, the issuance of
any stop order, the suspension of the qualification of Euroseas Shares issuable
in connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Euroseas Registration Statement, the
Information Statement or comments thereon and responses thereto or requests by
the SEC for additional information. If at any time prior to
37
the Effective Time any information relating to Cove or Euroseas, or any of their
respective Affiliates, officers or directors, should be discovered by Cove or
Euroseas which should be set forth in an amendment or supplement to any of the
Euroseas Registration Statement or the Information Statement, so that any of
such documents would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of Cove.
(b) Cove and Euroseas shall promptly furnish to each other all information,
and take such other actions, as may reasonably be requested in connection with
any action by any of them in connection with the preparation and filing of the
Euroseas Registration Statement, the Information Statement and the Form 8-K and
shall cooperate with one another and use their respective best efforts to
facilitate the expeditious consummation of the transactions contemplated by this
Agreement.
6.3 SEC FILINGS BY COVE.
Cove shall file with the SEC, as soon as reasonably practicable following the
filing of the Euroseas Registration Statement, any document required to be filed
by it in connection with the Merger and the Cove Stockholders' Approval
contemplated by this Agreement, including, without limitation, any documents
required under the SEC's Regulation 14A and 14C.
6.4 STOCKHOLDERS' APPROVAL.
Cove shall use its reasonable best efforts to obtain Cove stockholder approval
and adoption (collectively, the "Cove Stockholders' Approval") of this Agreement
and the transactions contemplated hereby, as soon as practicable in accordance
with applicable Nevada law and the Cove By-laws following the date upon which
the Euroseas Registration Statement is declared effective by the SEC. Cove
shall, through its board of directors, recommend to the holders of Cove Common
Stock approval of this Agreement and the transactions contemplated by this
Agreement. The persons who are then the directors of Cove (the "Cove
Directors"), in their capacities as members of the board of directors of Cove
but subject to their fiduciary duty to the stockholders of Cove, in connection
with
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the solicitation of consents pursuant to the Information Statement, shall
unanimously recommend the approval and adoption of the Merger and this Agreement
by the stockholders of Cove.
6.5 STOCK EXCHANGE LISTING/EXCHANGE ACT LISTING.
Cove and Euroseas shall each use its reasonable best efforts to file, at or
before the Effective Time, authorization for listing of the Euroseas Shares on
the NASDAQ SmallCap Market, The American Stock Exchange Inc. or, if permissible,
the NASDAQ National Market (the "Stock Exchange Listing"). In addition, Euroseas
shall, as soon as reasonably practicable, file a registration statement under
the Exchange Act and use its reasonable best efforts to cause the SEC to declare
such registration statement effective with respect to the listing of the
Euroseas Shares issued in the Merger and the shares of Euroseas common stock
issued in the Private Placement Transaction (the "Exchange Act Listing").
6.6 COVE WARRANTS AND COVE OPTIONS.
There are no Cove warrants or options outstanding and Cove shall not issue any
warrants, options or other securities.
6.7 AGREEMENT TO COOPERATE.
Subject to the terms and conditions herein provided, each of the parties hereto
shall cooperate and use their respective best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable efforts to obtain all necessary or appropriate waivers, consents and
approvals to effect all necessary registrations, filings and submissions and to
lift any injunction or other legal bar to the Merger (and, in such case, to
proceed with the Merger as expeditiously as possible), subject, however, to
obtaining the Cove Stockholders' Approval; and provided that nothing in this
Section 6.7 shall affect any responsibility or obligation specifically allocated
to any party in this Agreement.
6.8 PUBLIC STATEMENTS.
The parties shall consult with each other prior to issuing any press release or
any written public statement with respect to this Agreement or the transactions
contemplated hereby. Cove shall not issue any such press release or any other
public statement with respect to this Agreement or the transactions contemplated
hereby absent the prior written consent of Euroseas (which consent shall not be
unreasonably withheld or delayed), except that such prior
39
written consent shall not be required if, in the reasonable judgment of Cove
based upon the advice of counsel, seeking and obtaining prior written consent
would prevent the timely dissemination of such release or statement in violation
of the Exchange Act or other applicable Law or Order.
6.9 CORRECTIONS TO THE INFORMATION STATEMENT AND THE EUROSEAS REGISTRATION
STATEMENT.
Prior to the Closing Date, each of Euroseas and Cove and the Cove Principals
shall correct promptly any information provided by it to be used specifically in
the Euroseas Registration Statement, the Information Statement and the Form 8-K
that shall have become false or misleading in any material respect and shall
take all steps necessary to file with the SEC and have cleared by the SEC any
amendment or supplement to the Euroseas Registration Statement, the Information
Statement and the Form 8-K so as to correct the same and to cause appropriate
dissemination thereof to the stockholders of Cove, to the extent required by
applicable Law.
6.10 DISCLOSURE SUPPLEMENTS.
From time to time prior to the Closing Date, and in any event immediately prior
to the Closing Date, each of Cove, the Cove Principals and Euroseas shall
promptly supplement or amend its Disclosure Schedule with respect to any matter
hereafter arising that, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule or that is necessary to correct any information in such
Disclosure Schedule that is or has become inaccurate. Notwithstanding the
foregoing, if any such supplement or amendment discloses a Material Adverse
Effect, the conditions to the other party's obligations to consummate the Merger
set forth in Article VII hereof shall be deemed not to have been satisfied.
ARTICLE VII.
CONDITIONS
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) Cove shall have obtained the Cove Stockholders' Approval;
40
(b) The Euroseas Registration Statement shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order;
(c) Euroseas shall have applied for the Stock Exchange Listing and the
Exchange Act Listing.
(d) No preliminary or permanent injunction or other order or decree by any
Governmental Authority which prevents or materially burdens the consummation of
the Merger shall have been issued and remain in effect (each party agreeing to
use its reasonable efforts to have any such injunction, order or decree lifted);
(e) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any Governmental Authority, which would prevent or
materially burden the consummation of the Merger;
(f) All consents, orders and approvals legally required for the
consummation of the Merger and the transactions contemplated hereby shall have
been obtained and be in effect at the Effective Time without any material
limitations or conditions.
7.2 CONDITIONS TO OBLIGATIONS OF EUROSEAS TO EFFECT THE MERGER.
Unless waived by Euroseas, the obligation of Euroseas to effect the Merger shall
also be subject to the fulfillment at or prior to the Closing Date of the
following additional conditions:
(a) Cove and the Cove Principals shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of Cove
and the Cove Principals contained in this Agreement shall be true and correct in
all material respects (except for those representations and warranties which are
themselves limited by a reference to materiality, which shall be true and
correct in all respects other than as modified) on and as of (i) the date made
and (ii) the Closing Date (in each case except in the case of representations
and warranties expressly made solely with reference to a particular date which
shall be true and correct in all material respects as of such date); and
Euroseas shall have received a certificate of each of the Cove Principals and of
the president of Cove to that effect;
(b) Euroseas shall have received an opinion of Xxxxxxxxxxx & Xxxxxxxx
Xxxxxxxxx Xxxxxx, LLP ("K&L"), counsel to Cove, dated the Closing Date, in form
and substance reasonably satisfactory to Euroseas, which shall include, among
other things, an opinion that the Merger should qualify as a reorganization
within the
41
meaning of Code Section 368. In rendering such opinion, K&L shall be entitled to
rely upon certain factual representations, customary for transactions of the
type contemplated by this Agreement, made to it by authorized officers of
Euroseas and Cove, including, but not limited to the following: (i) no more than
fifty percent of each of the total voting power and the total value of the
Euroseas Shares will be received in the Merger, in the aggregate, by
shareholders of Cove; (ii) no more than fifty percent of each of the total
voting power and the total value of the Euroseas Shares will be owned, in the
aggregate, immediately after the Merger by U.S. persons who are either officers
or directors of Cove or who owned at least five percent of either the total
voting power or the total value of the stock of Cove immediately prior to the
Merger; (iii) any Cove shareholder who owns at least five percent of either the
total voting power or the total value of the Euroseas Shares immediately after
the Merger shall enter into a five-year agreement to recognize gain with respect
to Cove stock or securities exchanged pursuant to the Merger in the form
provided by Treasury Regulation Section 1.367(a)-8; (iv) Euroseas satisfies the
"active trade or business test" set forth in Treasury Regulation Section
1.367(a)-3(c)(3); and (v) Cove shall, and Euroseas shall ensure that Cove shall,
comply with the information reporting requirements set forth in Treasury
Regulation Section 1.367(a)-3(c)(6).
(c) Euroseas shall have received a "comfort" letter from the independent
public accountants for Cove, dated the date of the Information Statement and the
Closing Date (or such other date reasonably acceptable to Euroseas) with respect
to certain financial statements of Cove and other related financial information
included in the Information Statement in customary form;
(d) Since the date of this Agreement there shall not have been any Material
Adverse Effect with respect to Cove, the likelihood of which was not previously
disclosed to Euroseas by Cove in the Cove Disclosure Schedule and which would
have a Material Adverse Effect on Euroseas, and Cove shall have engaged in no
business activity since the date of its incorporation other than conducting a
public offering of its securities, the apparel business and, thereafter, seeking
to effect a merger or similar business combination with an operating business;
(e) Euroseas shall have received a certificate from the corporate Secretary
of Cove, together with a certified copy of the resolutions duly authorized by
Cove's board of directors authorizing the Merger and, if applicable, the
transactions contemplated by this Agreement;
42
(f) Euroseas shall have received a certificates of good standing for Cove
from the Secretary of State of the State of Nevada dated as of a date that is
within five (5) days of the Closing Date;
(g) Cove shall have furnished to the Euroseas such additional certificates
and other customary closing documents as Euroseas may have reasonably requested
as to any of the conditions set forth in this Section 7.2;
(h) At the Effective Time, Cove shall have approximately $10,000 in cash or
cash equivalents after giving effect to the payment or accrual on or prior to
the Effective Time of all fees, costs, expenses and liabilities incurred by
Cove, including, but not limited to, the fees, costs and expenses of (i) Cove's
manufacturers, suppliers, vendors and third-party providers, (ii) Cove's
attorneys, accountants, investment bankers and consultants in connection with
the transactions contemplated by this Agreement and (iii) the repayment of any
outstanding loans;
(i) The Pledge Agreement shall have been executed pursuant to which the
Cove Principals have pledged or caused the Pledged Shares to be pledged to
Euroseas by the Cove Principals or pledgors reasonably acceptable to Euroseas
and deposited with an independent collateral agent (in the amount and in
accordance with the method set forth in Article IX) to secure the
indemnification obligations of the Cove Principals under this Agreement;
(j) Euroseas shall have raised at least $21 million in the Private
Placement Transaction on terms reasonably satisfactory to Euroseas;
(k) At Closing, Cove's capitalization shall be unchanged from that set
forth in Section 4.2 and all loans made to Cove and all other outstanding debt
and all other liabilities shall have been paid in full;
(l) Euroseas shall have received written resignations and releases from
each of Cove's directors and officers and which resignations and releases, by
their respective terms, shall become effective immediately prior to the
Effective Time; provided however that Xxxx Xxxxxx shall remain an at will
employee of Cove and the Surviving Corporation, as contemplated by Section 10.10
of this Agreement;
(m) Cove shall have conducted the operation of its business in material
compliance with all applicable Laws and all approvals required of Cove under
applicable law to enable Cove to perform its obligations under this Agreement
shall have been obtained;
43
(n) Cove shall have moved its principal headquarters from California to the
Cayman Islands and shall have filed all documentation and paid all fees
necessary to locate its principal headquarters in the Cayman Islands and to
terminate its authorization to do business in California; and
(o) All corporate proceedings of Cove in connection with the Merger and the
other transactions contemplated by this Agreement and all agreements,
instruments, certificates, and other documents delivered to Euroseas by or on
behalf of Cove pursuant to this Agreement shall be reasonably satisfactory to
Euroseas and its counsel.
7.3 CONDITIONS TO OBLIGATIONS OF COVE TO EFFECT THE MERGER.
Unless waived by Cove, the obligations of Cove to effect the Merger shall also
be subject to the fulfillment at or prior to the Closing Date of the additional
following conditions:
(a) Euroseas shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of Euroseas contained in this
Agreement shall be true and correct in all material respects (except for those
representations and warranties which are themselves limited by a reference to
materiality, which shall be true and correct in all respects, other than as
modified) on and as of (i) the date made and (ii) the Closing Date (in each case
except in the case of representations and warranties expressly made solely with
reference to a particular date which shall be true and correct in all material
respects as of such date); and Cove shall have received a Certificate of the
president of Euroseas to that effect;
(b) Cove shall have received an opinion of Xxxxxx & Xxxxxx LLP, counsel to
Euroseas, dated the Closing Date, in form and substance reasonably satisfactory
to Cove;
(c) Cove shall have received a "comfort" letter from Deloitte & Touche LLP,
independent certified public accountants for Euroseas, dated the date of the
Information Statement and the Closing Date (or such other date reasonably
acceptable to Cove) with respect to certain financial statements of Euroseas and
other related financial information included in the Information Statement in
customary form;
44
(d) At Closing, Euroseas' capitalization shall be unchanged from that as
set forth in Section 3.2, except as may be adjusted for the issuance of the
shares and warrants, if any, in the Private Placement Transaction;
(e) Cove shall have received a certificate of the corporate Secretary of
Euroseas, together with a certified copy of the resolutions duly authorized by
the board of directors and Euroseas authorizing the Merger and the transactions
contemplated by this Agreement;
(f) Cove shall have received a certificate of good standing for Euroseas
from the Registrar of Corporations of the Republic of the Xxxxxxxx Islands dated
as of a date that is within five (5) days of the Closing Date;
(g) Euroseas shall have furnished to Cove such additional certificates and
other customary closing documents as Cove may have reasonably requested as to
any of the conditions set forth in this Section 7.3;
(h) Since the date of this Agreement there shall not have been any Material
Adverse Effect with respect to Euroseas and its Subsidiaries, the likelihood of
which was not previously disclosed to Cove by Euroseas;
(i) All corporate proceedings of Euroseas in connection with the Merger and
the other transactions contemplated by this Agreement and all agreements,
instruments, certificates and other documents delivered to Cove by or on behalf
of Euroseas pursuant to this Agreement shall be in substantially the form called
for hereunder or otherwise reasonably satisfactory to Cove and its counsel.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION.
This Agreement may be terminated at any time prior to the Closing Date, whether
before or after approval by the stockholders of Cove:
(a) by mutual consent in writing of Cove and Euroseas;
45
(b) unilaterally upon written notice by Cove to Euroseas upon the
occurrence of a Material Adverse Effect with respect to Euroseas, the likelihood
of which was not previously disclosed to Cove in writing by Euroseas prior to
the date of this Agreement;
(c) unilaterally upon written notice by Euroseas to Cove upon the
occurrence of a Material Adverse Effect with respect to Cove, the likelihood of
which was not previously disclosed to Euroseas in writing by Cove prior to the
date of this Agreement;
(d) unilaterally upon written notice by Cove to Euroseas in the event a
material breach of any material representation or warranty of Euroseas contained
in this Agreement (unless such breach shall have been cured within ten (10) days
after the giving of such notice by Cove), or the willful failure of Euroseas to
comply with or satisfy any material covenant or condition of Euroseas contained
in this Agreement;
(e) unilaterally upon written notice by Euroseas to Cove in the event of a
material breach of any material representation or warranty of Cove or the Cove
Principals contained in this Agreement (unless such breach shall have been cured
by Cove or the Cove Principals within ten (10) days after the giving of such
notice by Euroseas), or Cove's or the Cove Principals' willful failure to comply
with or satisfy any material covenant or condition of Cove or the Cove
Principals contained in this Agreement, or if Cove fails to obtain the Cove
Stockholders' Approval;
(f) unilaterally upon written notice by either Cove or Euroseas to the
other if the Merger is not consummated for any reason not specified or referred
to in the preceding provisions of this Section 8.1 by the close of business on
February 28, 2006, provided however that no party may avail itself of this
ground for termination if such failure to consummate the Merger is caused by
such party either in breach of this Agreement or by not proceeding in good faith
towards the consummation of the Merger; or
(g) unilaterally upon written notice by Euroseas to Cove in the event that
by September 1, 2005, Euroseas shall not have raised at least $21 million in the
Private Placement Transaction on terms reasonably satisfactory to Euroseas.
46
8.2 EFFECT OF TERMINATION.
In the event of termination of this Agreement by either Cove or the Euroseas, as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no further obligation on the part of either Euroseas or Cove (except as
set forth in the penultimate sentence of Section 6.1 (with respect to
confidential and nonpublic information) and Section 8.5, which shall survive
such termination). Nothing in this Section 8.2 shall relieve any party from
liability for any breach of this Agreement.
8.3 AMENDMENT.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto and in compliance with applicable law.
8.4 WAIVER.
At any time prior to the Effective Time, the parties hereto may (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 contained herein or in any document delivered pursuant thereto and
(iii) waive compliance with any of the agreements or conditions 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.
8.5 EXPENSES.
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, except as otherwise
specifically provided for herein, and except as provided in that certain
Engagement Agreement dated April 21, 2005 between Xxxx Capital Partners, LLC and
Eurobulk Ltd., which provides for the payment of certain expenses of this
transaction by Eurobulk Ltd., which expenses shall be paid by Euroseas if the
Merger is consummated.
47
ARTICLE IX.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The respective representations, warranties, obligations, agreements and promises
of the parties contained in this Agreement and in any exhibit, schedule,
certificate or other document delivered pursuant to this Agreement, shall
survive for a period of two years following the Closing Date.
9.2 INDEMNIFICATION.
(a) Euroseas hereby agrees to indemnify and hold harmless Cove and the Cove
stockholders (in the aggregate, in proportion to each such Cove stockholder's
ownership of the capital stock of Cove, on a fully diluted basis) and each of
their Affiliates and their respective fiduciaries, directors, officers,
controlling persons, representatives and agents against and hold them harmless
from any loss, liability, claim, damage or expense (including reasonable legal
fees and expenses and costs of investigation) (a "Loss") arising, directly or
indirectly, out of or in connection with (i) any material breach of any
representation or warranty of Euroseas contained in this Agreement, or (ii) any
breach of any covenant or agreement of Euroseas contained in this Agreement.
(b) Cove and each of the Cove Principals hereby jointly and severally
agrees to indemnify and hold harmless Euroseas and each of its Affiliates and
its respective fiduciaries, directors, officers, controlling persons,
representatives and agents against and hold them harmless from any Loss arising,
directly or indirectly, out of or in connection with (i) any material breach of
any representation or warranty of Cove or a Cove Principal contained in this
Agreement, (ii) any breach of any covenant or agreement of Cove or a Cove
Principal contained in this Agreement, (iii) any liabilities of Cove (other than
accounts payable incurred in the ordinary course of business to the extent they
do not exceed net current assets) occurring or accruing prior to the Effective
Time, including but not limited to any securities law violations; (iv) any claim
by any Cove stockholder related to any sale or transfer of shares of Cove Common
Stock by the Cove Principals prior to the Effective Time. The sole recourse
Euroseas shall have against the Cove Principals for any such Loss shall be to
the Pledged Shares, unless the Loss arises, directly or indirectly, out of or in
connection with any breach of a representation or warranty that was knowing,
intentional, grossly negligent or reckless (each, a "Significant Breach"), in
which event Euroseas' recourse against the Cove Principals shall not be limited
to the Pledged Shares. Instead, with respect to any Loss resulting from a
Significant
48
Breach that cannot be fully satisfied by recourse to all of the Pledge Shares,
then in addition to all of the Pledged Shares, such indemnity shall continue on
a several basis against the Cove Principals responsible for the Significant
Breach (including those who knew of the Significant Breach or should have known
of the Significant Breach but for their gross negligence, wilful misconduct or
recklessness).
(c) In furtherance of the foregoing, on or prior to the Closing Date, the
Cove Principals shall pledge or cause to be pledged to Euroseas an aggregate of
at least 475,000 Euroseas Shares (after giving effect to the Merger and the
exchange of Cove Common Stock for Euroseas Shares in connection therewith) by
pledgors reasonably acceptable to Euroseas and such Pledged Shares shall be
deposited with an independent collateral agent to secure the indemnification
obligations of the Cove Principals under this Article IX. Such Pledged Shares
will be governed by the terms of a pledge agreement (the "Pledge Agreement")
with an independent collateral agent selected by Euroseas and reasonably
acceptable to the Cove Principals. The Cove Principals by virtue of the approval
of this Agreement, (i) consent to, and will cause and authorize Euroseas on
their behalf to, deposit the Pledged Shares with the collateral agent, and (ii)
agree to be bound by the indemnification provisions of this Article IX. The
Pledge Agreement shall contain, among other things, irrevocable instructions by
the pledgors to Euroseas authorizing Euroseas to deposit any Euroseas Shares to
be received by pledgors in connection with the Merger directly with the
collateral agent, if necessary to satisfy the pledge requirement hereunder.
(d) Notwithstanding anything to the contrary contained herein, any
indemnification by the Cove Principals pursuant to this Article IX shall be paid
at the discretion of the Cove Principals in the form of either (x) wire transfer
or bank check, or (y) in accordance with the procedures set forth in the Pledge
Agreement. To the extent the proceeds of sale pursuant to the Pledge Agreement
are not sufficient to satisfy their indemnification obligations hereunder, the
Cove Principals shall not be obligated for any remaining amounts except as set
forth in Section 9.2(b) above with respect to a Significant Breach, in which
event the applicable Cove Principals shall pay any remaining amounts owed by
wire transfer or bank check.
(e) The Pledge Agreement shall provide that (i) unless (A) Euroseas
provides written notice to the Cove Principals, the pledgors under the Pledge
Agreement and the collateral agent of a claim for indemnification against the
Cove Principals on or prior to the one year anniversary of the Effective Time
and (B) files a lawsuit within 60 days after providing such notice, then 40% of
the Pledged Shares shall be released from the collateral
49
account to the pledgors without the need of any consent thereto by Euroseas, and
(ii) unless (A) Euroseas provides written notice to the Cove Principals, the
pledgors under the Pledge Agreement and the collateral agent of a claim for
indemnification against the Cove Principals on or prior to the 18-month
anniversary of the Effective Time and (B) files a lawsuit within 60 days after
providing such notice, the remaining Pledged Shares shall be released from the
collateral account to the pledgors without the need of any consent thereto by
Euroseas. The fees and expenses of the collateral agent shall be shared equally
between Euroseas and the pledgors.
9.3 THIRD-PARTY CLAIMS.
(a) If any party entitled to be indemnified hereunder (an "Indemnified
Party") receives notice of the assertion of any claim in respect of Losses, such
Indemnified Party shall give the party who may become obligated to provide
indemnification hereunder (the "Indemnifying Party") written notice describing
such claim or fact in reasonable detail (the "Notice of Claim") promptly (and in
any event within ten (10) Business Days after receiving any written notice from
a third party). The failure by the Indemnified Party to timely provide a Notice
of Claim to the Indemnifying Party shall not relieve the Indemnifying Party of
any liability, except to the extent that the Indemnifying Party is prejudiced by
the Indemnified Party's failure to provide timely notice hereunder.
(b) In the event any Indemnifying Party notifies the Indemnified Party
within ten (10) Business Days after the Indemnified Party has given notice of
the matter that the Indemnifying Party is assuming the defense thereof: (i) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice (and at its expense) reasonably satisfactory to the
Indemnified Party; (ii) the Indemnified Party may retain separate co-counsel at
its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel to the extent
the Indemnified Party reasonably concludes that the counsel the Indemnifying
Party has selected has a conflict of interest); (iii) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Indemnifying Party
which consent shall not be unreasonably withheld; and (iv) the Indemnifying
Party will not consent to the entry of any judgment with respect to the matter,
or enter into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Indemnified Party from all
liability with respect thereto, and, in a settlement or compromise which does
not involve only the payment of money by the Indemnifying Party, without the
prior written consent of the Indemnified Party which consent shall not be
unreasonably withheld.
50
(c) In the event the Indemnifying Party does not notify the Indemnified
Party within ten (10) Business Days after the Indemnified Party has received a
Notice of Claim that the Indemnifying Party is assuming the defense thereof,
then the Indemnified Party shall have the right, subject to the provisions of
this Article IX, to undertake the defense, compromise or settlement of such
claim for the account of the Indemnifying Party. Unless and until the
Indemnifying Party assumes the defense of any claim, the Indemnifying Party
shall advance to the Indemnified Party any of its reasonable attorneys' fees and
other costs and expenses incurred in connection with the defense of any such
action or proceeding. Each Indemnified Party shall agree in writing prior to any
such advance that, in the event it receives any such advance, such Indemnified
Party shall reimburse the Indemnifying Party for such fees, costs and expenses
to the extent that it shall be determined that it was not entitled to
indemnification under this Article IX.
(d) In the event that the Indemnifying Party undertakes the defense of any
claim, the Indemnifying Party will keep the Indemnified Party advised as to all
material developments in connection with such claim, including, but not limited
to, promptly furnishing the Indemnified Party with copies of all material
documents filed or served in connection therewith.
ARTICLE X.
GENERAL PROVISIONS
10.1 NOTICES.
All notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally (effective upon delivery), sent by a
reputable overnight courier service for next business day delivery (effective
the next business day) or sent via facsimile (effective upon receipt of the
telecopy in complete, readable form) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) If to Cove or to the Cove Principals, to:
Cove Apparel, Inc.
0000 Xxxxxxxx, Xxxxx 00
Xxx Xxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx, President
FAX: (000) 000-0000
51
with a copy to:
Xxxx Xxxxxxxx
Xxxxxxxxxxx & Lockhart, Nicholson, Xxxxxx
00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxxxx Xxxxx
Xxx Xxxxxxx, XX 00000
FAX: (000) 000-0000
(b) If to Euroseas, to:
Euroseas Ltd.
Aethrion Center
00 Xx Xxxxxxxxxxxx Xxx
000-00 Xxxxxxxx, Xxxxxx
FAX: x00-000-0000000
with a copy to:
Xxxxxx & Xxxxxx LLP
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
FAX: (000) 000-0000
and to:
Broad and Xxxxxx
000 X. Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxx, Xxxxxxx 00000
Attention: A. Xxxxxx Xxxxxxxx, Esq.
FAX: (000) 000-0000
10.2 INTERPRETATION.
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
10.3 MISCELLANEOUS.
This Agreement (including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof (and except as otherwise set forth herein
expressly in that certain Term Sheet dated April 21, 2005 between Cove and
Eurobulk Ltd.); (ii) shall not be assigned by contract, operation of law or
otherwise, and any attempt to do so shall be void; and (iii) shall be governed
in all respects, including validity, interpretation and effect, by the laws of
the State of New York (without giving effect to the provisions thereof relating
to conflicts of law).
52
10.4 SUBMISSION TO JURISDICTION.
Each of the parties hereto hereby irrevocably and unconditionally submits, for
itself and its property, to the non-exclusive jurisdiction of the Supreme Court
of the State of New York sitting in the Borough of Manhattan in The City of New
York and of the United States District Court for the Southern District of New
York sitting in the Borough of Manhattan in The City of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to any matter set forth in this Agreement, and each of the parties
hereto hereby irrevocably agree that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
Euroseas, Cove and the Cove Principals each hereby irrevocably waive, to the
fullest extent that they may legally do so, the defense of an inconvenient forum
to the maintenance of such action or proceeding. Euroseas, Cove and the Cove
Principals each irrevocably consent to the service of any and all process in any
action or proceeding by the delivery of copies of such process to it at its
notice address in Section 10.1. Euroseas, Cove and the Cove Principals each
agree that a final judgment in any such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law.
10.5 WAIVER OF JURY TRIAL.
THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY (BUT NO OTHER JUDICIAL
REMEDIES) IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED HEREBY.
10.6 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same
agreement. In pleading or proving this Agreement, it shall not be necessary to
produce or account for more than one fully executed original.
10.7 BENEFITS OF AGREEMENT.
Nothing in this Agreement, expressed or implied, shall give to any Person, other
than the parties hereto and their successors hereunder, and the stockholders of
Cove, any benefit or any legal or equitable right, remedy or claim
53
under this Agreement, except that the holders of Cove Capital Stock on the
Closing Date shall be third party beneficiaries of Article IX of this Agreement.
10.8 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement, except as otherwise provided in Section
10.7 of this Agreement.
10.9 CAPTIONS.
The captions of sections and subsections of this Agreement are for reference
only, and shall not affect the interpretation or construction of this Agreement.
10.10 OTHER OBLIGATIONS.
EuroSub shall be capitalized with $25,000. Cove and its successor, will be
maintained by Euroseas as an operating wholly owned subsidiary as may be
required in order to achieve continuity of business enterprise of its apparel
business, to achieve tax free reorganization treatment under Section
368(a)(2)(D) or 368(a)(2)(E) of the Code as applicable to Cove and its
shareholders in the transaction. Euroseas will use its best efforts to employ
Xxxx Xxxxxx as an at will employee for this purpose and Xxxx Xxxxxx agrees to
perform such services and to provide an office in the Cayman Islands for this
purpose at no cost or expense to Euroseas and Euroseas shall not be required to
provide any financing to Cove and its successor, but rather, the Cove Principals
shall provide, or cause to be provided, such financing and office, if necessary,
for this purpose. Thereafter, the Surviving Corporation may be dissolved,
liquidated or sold in the sole discretion of Euroseas. Following the Merger,
Euroseas and Eurosub will comply with the record-keeping and information filing
requirements of United States Treasury Regulations Section 1.368-3. Euroseas
shall ensure that Cove shall comply with the reporting requirements set forth in
Treasury Regulations Section 1.367(a)-3(c)(6) and 1.367(a)-3(c)(7) with respect
to the Merger.
10.11 AMENDMENTS.
This Agreement may be amended only in a writing signed by each of the parties
hereto.
54
IN WITNESS WHEREOF, Cove, the Cove Principals, Euroseas and EuroSub have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
EUROSEAS ACQUISITION COMPANY, INC.
By: /s/ Xxxxxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxxxxx X. Xxxxxx
Title: President
EUROSEAS LTD.
By: /s/ Xxxxxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxxxxx X. Xxxxxx
Title: President
COVE APPAREL, INC.
By: /s/ Xxxxx Xxxxxxxx
------------------------------------
Name: Xxxxx Xxxxxxxx
Title: President
/s/ Xxxxx Xxxxxxxx
----------------------------------------
Xxxxx Xxxxxxxx
/s/ Xxxxx Xxxxxxxx
----------------------------------------
Xxxxx Xxxxxxxx
/s/ Xxxx Xxxxxx
----------------------------------------
Xxxx Xxxxxx
/s/ Xxxxxx Xxxxxxx
----------------------------------------
Xxxxxx Xxxxxxx
55
