AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made
this 1st day of May, 2003, by and among CHESHIRE DISTRIBUTORS, INC., a Delaware
corporation having its principal place of business at 000 Xxxx 00xx Xxxxxx, 0xx
xxxxx, Xxx Xxxx, XX 00000 ("Cheshire"), LINSANG ACQUISITION CORP., a Delaware
corporation having its principal place of business at 000 Xxxx 00xx Xxxxxx, 0xx
xxxxx, Xxx Xxxx, XX 00000 ("Linsang Mergerco"), LINSANG MANUFACTURING, INC., a
Delaware corporation having its principal place of business at 0000 Xxxxxxxx
Xxxxx Xxxx, Xxxxxxxxxx, XX 00000 ("LMI") and Laurus Master Fund, Ltd., a Cayman
Islands corporation, with an address at 000 Xxxx 00xx, 0xx xxxxx, Xxx Xxxx XX
00000, Keshet, L.P. a BVI limited partnership, with an address at 000 Xxxx 00xx,
0xx xxxxx, Xxx Xxxx XX 00000, Keshet Fund, L.P., a New York limited partnership,
with an address at Xxxx Xxxxxx & Co. Xxxxxxx House 2nd floor, 18 Peel Road,
Douglas, Isle of Man IM1-4LZ, Nesher, Ltd., an Isle of Man corporation with an
address at Xxxx Xxxxxx & Co. Xxxxxxx House 2nd floor 00 Xxxx Xxxx, Xxxxxxx, Xxxx
xx Xxx XX0-0XX (xxx "Cheshire Stockholders") and Xxxx Xx, an individual with an
address c/o LMI, 0000 Xxxxxxxx Xxxxx Xxxx, Xxxxxxxxxx, XX 00000 (the "LMI
Stockholder").
WHEREAS, LMI has issued an aggregate of 40,336,958 shares ("Shares") of
its Common Stock, par value $.01 per share; and
WHEREAS, Cheshire is authorized to issue 100,000,000 shares of common
stock, par value $.001 per share (the "Cheshire Common Stock") of which
99,952,374 shares (the "Issued Cheshire Shares") are issued and outstanding and
shall use its best efforts to cause its stockholders to approve a 1-for-100
reverse stock split (the "Reverse Split"), resulting in approximately 999,523
shares of Cheshire Common Stock outstanding. The Cheshire Common Stock is
referred to herein as the "Cheshire Shares"; and
WHEREAS, Linsang Mergerco is a wholly owned subsidiary of Cheshire and
is authorized to issue 1,000 shares of common stock, par value $.01 (referred to
as the "Linsang Mergerco Shares"), all of which such Linsang Mergerco Shares are
issued and outstanding and owned by Cheshire; and
WHEREAS, the respective Boards of Directors of Cheshire, Linsang
Mergerco and LMI (together with Cheshire and Linsang Mergerco, the "Companies")
deem it advisable and generally to the advantage and welfare of the Companies,
and their respective shareholders, that Linsang Mergerco be merged with and into
LMI under the terms and conditions hereinafter set forth (the "Merger"), the
Merger to be effected pursuant to the Delaware General Corporation Law and the
Merger to be a tax free reorganization under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises, covenants and
conditions hereof, the parties hereto do mutually agree as follows:
1. Votes on Merger and Related Matters. (a) Linsang Mergerco and LMI
(the "Constituent Corporations") shall each, as soon as practicable but prior to
Closing (as defined below)
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(i) cause a special meeting of its shareholders to be called to consider and
vote upon the Merger on the terms and conditions hereinafter set forth, or (ii)
obtain written consent of such shareholders, as applicable, as is necessary to
approve the Merger. If the Merger is approved in accordance with applicable law,
subject to the further conditions and provisions of this Agreement, a closing of
this Agreement shall be held (the "Closing") and a Certificate of Merger (the
"Certificate of Merger"), and all other documents or instruments deemed
necessary or appropriate by the parties hereto to effect the Merger, shall be
executed and filed with the Secretary of State of the State of Delaware as
promptly as possible thereafter. The Certificate of Merger so filed shall be
substantially in the form of Exhibit A annexed hereto, with such changes therein
as the Board of Directors of each of Linsang Mergerco and LMI shall mutually
approve.
(b) As soon as practicable, Cheshire shall use reasonable efforts to
obtain the written consent of its stockholders for the approval of (i) a
Certificate of Amendment to Cheshire's Certificate of Incorporation to approve
the change of name of the Cheshire to "LMIC, Inc." (the "Name Change") and the
Reverse Split. Approving the Name Change and Reverse Split shall not be a
condition to the consummation of the Merger.
2. Representations, Warranties and Covenants of LMI. LMI represents,
warrants and covenants as follows, except to the extent set forth on the
schedule of exceptions in the form of Schedule A annexed hereto and made a part
hereof:
2.1 Organization; Capitalization. LMI is, and on the effective
date of the Merger (the "Effective Date") will be, a duly organized and a
validly existing corporation in good standing under the laws of its state of
formation. There are issued and outstanding, and on the Effective Date there
will be issued and outstanding, only the Shares, all of which are, and on the
Effective Date will be, duly authorized and validly issued. There are, and on
the Effective Date there will be, no outstanding rights, options or warrants to
purchase any equity interest in LMI, and there will be no other or any other
issued or outstanding securities of any nature convertible into or exercisable
or exchangeable for equity of LMI. No person has any right of first refusal,
right of participation, or any similar right with respect to dispositions of the
Shares.
2.2 Authority. LMI has, and on the Effective Date will have, full
power and authority to enter into this Agreement and, subject to any third party
approval in accordance with the laws of the State of Delaware, to consummate the
transactions contemplated hereby. This Agreement and the transactions
contemplated hereby have been duly approved by the Board of Directors of LMI
and, prior to the Closing, by all stockholders of LMI whose consent is required
under applicable law.
2.3 Binding Agreement. This Agreement has been duly executed and
delivered by LMI and constitutes the legal, valid and binding obligation of LMI,
enforceable against it in accordance with the terms hereof, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application relating to or affecting the enforcement of rights hereunder
or general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
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2.4 No Conflicts. The execution and delivery by LMI of this
Agreement, the consummation and performance of the transactions herein
contemplated, and compliance with the terms of this Agreement by LMI will not
conflict with, result in a breach of or constitute or give rise to a default
under (i) any indenture, mortgage, deed of trust or other agreement, instrument
or contract to which LMI is now a party or by which it or any of its assets or
properties are bound; (ii) LMI's certificate of incorporation and bylaws, in
each case as amended; or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any government, governmental instrumentality
or court, domestic or foreign, having jurisdiction over Linsang or any of its
business or properties wherein such breach could have a material adverse effect
on LMI or any of its business or properties.
2.5 Subsidiaries. LMI does not have, and on the Effective Date
will not have, any subsidiaries, nor does it own any direct or indirect interest
in any other business entity.
2.6 Foreign Qualifications. LMI is, and on the Effective Date will
be, qualified or licensed as a foreign corporation in all jurisdictions where
its business or ownership of assets so requires, except where the failure to be
qualified or licensed would not be reasonably expected to have a material
adverse effect on the business of LMI. The business of LMI does not require it
to be registered as an investment company or investment adviser, as such terms
are defined under the Investment Company Act of 1940 and the Investment Advisers
Act of 1940, each as amended.
2.7 Financial Statements. All financial statements of LMI
previously delivered to Cheshire, and attached hereto as Annex A (the "Financial
Statements") fairly present in all material respects the financial position,
results of operations and other information purported to be shown therein of
LMI, at the dates and for the respective periods to which they apply. All such
financial statements have been prepared in conformity with generally accepted
accounting principles consistently applied throughout the periods involved, and
have been adjusted for all normal and recurring accruals.
2.8 No Adverse Events. Since the date of the LMI Financial
Statements, otherwise as set forth therein:
(i) there has not been any material adverse change in the
financial position or condition of LMI, its liabilities, assets or any
damage, loss or other change in circumstances materially affecting LMI,
its business or assets or LMI' right to carry on its business, other
than changes in the ordinary course of business or due to general
economic, industry or political conditions;
(ii) there has not been any damage, destruction, loss or other
event (whether or not covered by insurance) materially and adversely
affecting LMI, its business or assets ;
(iii) there has not been any material increase in the
compensation payable or to become payable by LMI to any of LMI'
officers, employees or agents or any bonus, payment or arrangement made
to or with any of them;
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(iv) LMI's business has been and continues to be carried on in
the ordinary course;
(v) LMI has not discharged or satisfied or paid any lien or
encumbrance or obligation or liability other than current liabilities
in the ordinary course of business; and
(vi) no capital expenditures in excess of $50,000 individually
or $100,000 in total have been authorized or made.
2.9 Ordinary Course of Business. Except for transactions occurring
in the ordinary course of business, there has not been, and on the Effective
Date there will not have been, any transactions involving LMI since December 31,
2002 in an amount in excess of $50,000.
2.10 Liabilities; Claims. There are, and on the Effective Date
will be, no liabilities (including, but not limited to, tax liabilities) or
claims against LMI (whether such liabilities or claims are contingent or
absolute, direct or indirect, matured or unmatured) not appearing on the
Financial Statements, other than (i) liabilities incurred in the ordinary course
of business since December 31, 2002, (ii) taxes accrued on earnings since
December 31, 2002 which are not yet due or payable, or (iii) liabilities which
do not exceed $50,000.
2.11 Tax Returns. All federal, state, county and local income,
excise, property and other tax returns required to be filed by LMI are true and
correct in all material respects and have been timely filed, and all required
taxes, fees or assessments have been paid or an adequate reserve therefor has
been established in the Financial Statements. The federal income tax returns and
state and foreign income tax returns of LMI have not been audited by the
Internal Revenue Service ("IRS") or any other taxing authority within the past
five (5) years. Neither the IRS nor any state, local or other taxing authority
has proposed any additional taxes, interest or penalties with respect to LMI or
any of its operations or businesses. There are no pending, or to the knowledge
of LMI, threatened, tax claims or assessments, and there are no pending, or to
the knowledge of LMI, threatened, tax examinations by any taxing authorities.
LMI has not given any waivers of rights (which are currently in effect) under
applicable statutes of limitations with respect to the federal income tax
returns of LMI for any year.
2.12 Title to Assets. Except as provided for in the Financial
Statements, LMI, has, and on the Effective Date will have, good and marketable
title to all of its furniture, fixtures, equipment and other assets owned by
LMI, and such assets are owned free and clear of all security interests,
pledges, liens, restrictions and encumbrances of every kind and nature. LMI is
the owner of its inventory as set forth in the Financial Statements and has good
and marketable title thereto. Except as provided in the Financial Statements,
LMI's assets comprise all of the property and assets of its business, and no
other person or entity owns any assets used by LMI in operating the business of
LMI, whether under a lease, rental agreement or other arrangement.
2.13 Accounts Receivable. The accounts receivable as set forth in
the Financial Statements represent amounts due for goods sold or services
rendered by LMI in the ordinary course
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of business and, except as reserved for in the Financial Statements, LMI
believes are collectable in the ordinary course of business, without any claims
by the obligor for set-off or counter-claims.
2.14 Material Contracts. A copy (or summary if oral) of all
agreements, contracts, arrangements, understandings and commitments, whether
written or oral, to which LMI is or on the Effective Date will be, a party, or
from which LMI will receive substantial benefits and which are material to LMI
(collectively, "LMI Contracts"), have been delivered to Cheshire or its counsel.
Any LMI Contracts entered into between the date hereof and the Effective Date
will be delivered to Cheshire or its counsel prior to Closing. The validity and
enforceability of, and rights of LMI contained in, each such LMI Contract shall
not be adversely effected by the Merger or the transactions contemplated hereby
or any actions taken in furtherance hereof. To its knowledge, LMI is not in
material default under any LMI Contract.
2.15 Legal Proceedings. There are, and on the Effective Date there
will be, no legal, administrative, arbitral or other proceedings, claims,
actions or governmental investigations of any nature pending, or to LMI's
knowledge, threatened, involving LMI, individually or in the aggregate, in which
an unfavorable determination could result in suspension or termination of LMI's
business or authority to conduct such business in any jurisdiction or could
result in the payment by LMI of more than $50,000, or challenging the validity
or propriety of the transactions contemplated by this Agreement. LMI is not a
party to any order, judgment or decree which will, or might reasonably be
expected to, materially adversely affect the business, operations, properties,
assets or financial condition of LMI.
2.16 Certain Transactions. Since December 31, 2002 there have
been, and through the Effective Date there will be (i) no bonuses or
extraordinary compensation to any of the officers or directors of LMI, (ii) no
loans made to or any other transactions with any of the officers or directors of
LMI or their families and (iii) no dividends or other distributions declared or
paid by LMI.
2.17 Insurance. LMI has, and on the Effective Date will have,
maintained casualty and liability policies and other insurance policies with
respect to its business which are appropriate and customary for businesses
similar in size, industry and risk profile. Copies of all of the policies of
insurance and bonds presently in force with respect to LMI, including without
limitation those covering properties, buildings, machinery, equipment, worker's
compensation, officers and directors and public liability, have been made
available to Cheshire. All such insurance is outstanding and in full force and
effect, with all premiums thereon duly paid, and LMI has not received any notice
of cancellation of any such policies.
2.18 Intellectual Property. LMI has, and on the Effective Date
will have, no patents, patent applications, trademarks, trademark registrations
or applications, trade names, copyrights, copyright registrations or
applications, or other intellectual property. To its knowledge, LMI has not
infringed upon any third party's intellectual property.
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2.19 Compliance with Laws. LMI has, and on the Effective Date will
have, in all material respects operated its business and conducted its affairs
in compliance with all applicable laws, rules and regulations, except where the
failure to so comply did not have or would not be expected to have a material
adverse effect on its business or property.
2.20 Related Party Contracts. There are, and on the Effective Date
there will be, no loans, leases or other LMI Contracts outstanding between LMI
and any of its officers, directors or any person related to or affiliated with
any such officers or directors.
2.21 Officer and Director Information. During the past five year period
neither LMI, nor any of its officers or directors, nor any person intended upon
consummation of the Merger to be nominated by LMI to become an officer or
director of Cheshire or any successor entity or subsidiary, has been the subject
of:
(a) a petition under the Federal bankruptcy laws or any other
insolvency or moratorium law or has a receiver, fiscal agent or similar officer
been appointed by a court for the business or property of LMI or such person, or
any partnership in which LMI or any such person was a general partner at or
within two years before the time of such filing, or any corporation or business
association of which LMI or any such person was an executive officer at or
within two years before the time of such filing;
(b) a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations which do not relate to
driving while intoxicated or driving under the influence);
(c) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining LMI or any such person from, or otherwise limiting, the
following activities:
(i) Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the United States Commodity
Futures Trading Commission or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any violation of
Federal, state or other securities laws or commodities laws;
(d) any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any Federal, state or local authority barring, suspending or
otherwise limiting for more than 60 days the right of LMI or any such person to
engage in any activity described in the preceding sub-paragraph, or to be
associated with persons engaged in any such activity;
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(e) a finding by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission (the "Commission") to have
violated any securities law, regulation or decree and the judgment in such civil
action or finding by the Commission has not been subsequently reversed,
suspended or vacated; or
(f) a finding by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or finding has
not been subsequently reversed, suspended or vacated. All items described in
clauses (a) through (f) above are collectively referred to herein as "Bad
Events."
2.22 Benefit Plans. LMI does not have any pension plan, profit sharing
or similar employee benefit plan.
2.23 Consents and Approvals. Except for the consent and approval of the
stockholders of LMI and the filing of the Certificate of Merger, no consents or
approvals of, or filings or registrations with, any third party or any public
body or authority are necessary in connection with (i) the execution and
delivery by LMI of this Agreement and (ii) the consummation by LMI of the Merger
and of all other transactions contemplated hereby.
2.24 Finder's Fees. LMI knows of no person who rendered any service in
connection with the introduction of the Companies to any of the other Companies,
for a "finder's fee" or similar type of fee in connection with the Merger and
the other transactions contemplated hereby.
2.25 Employee Matters. No employees of LMI are on strike or to the best
of LMI's knowledge threatening any strike or work stoppage. LMI does not have
any obligations under any collective bargaining or labor union agreements, nor
is LMI involved in any material controversy with any of its employees or any
organization representing any of its employees. LMI believes its relationships
with its employees are good.
2.26 Disclosure. None of the information supplied or to be supplied by
or about LMI herein or for inclusion or incorporation by reference in any
information to be supplied to holders of Cheshire Common Stock concerning the
Merger contains any untrue statement of a material fact or omits 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.
2.27 Actions Prior to Closing. From the date hereof through the
Closing, LMI shall not, other than in the ordinary course of business,
consistent with past practice, without due consent of Cheshire:
(a) sell, lease, assign, transfer or otherwise dispose of any
material assets;
(b) agree to assume or assume, guarantee, endorse or otherwise in
any way be or become responsible or liable for, directly or indirectly, any
material contingent obligation;
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(c) participate or engage in any discussions or negotiations with
any person regarding, or enter into any transaction concerning, a merger, stock
exchange or consolidation, other than with the other parties hereto, or
liquidate or dissolve itself (or suffer any liquidation or dissolution) or
convey, sell, lease, transfer or otherwise dispose of, in one transaction or a
series of related transactions, all or a substantial part of its property,
business, assets or, capital stock or securities convertible into equity, or
make any material change in the present method of conducting business;
(d) make any amendment to its certificate of incorporation or
bylaws;
(e) enter into or amend any employment agreements or increase the
salary or bonus of any existing employee;
(f) create, incur, assume or suffer to exist, any mortgage,
pledge, lien, charge, security interest or encumbrance of any kind upon any of
its property, assets, income or profits, whether now owned or hereafter
acquired;
(g) declare or authorize any dividends or distributions on any
shares of capital stock of LMI.
2.28 Charter Documents. The charter documents of LMI have not been
altered since its incorporation, except as filed in the record books of LMI.
2.29 Corporate Minute Books. The corporate minute books of LMI are
complete and the minutes and consents contained therein accurately reflect the
actions that were taken at a duly called and held meeting or by consent without
a meeting. All actions by LMI which required director or shareholder approval
are reflected on the corporate minute books of LMI. LMI is not in violation or
breach of, or in default with respect to, any term of its Certificate of
Incorporation (or other charter documents) or by-laws.
3. Representations, Warranties and Covenants Regarding Linsang
Mergerco. Cheshire and Linsang Mergerco each jointly and severally represents,
warrants and covenants as follows with respect to Linsang Mergerco:
3.1 Organization; Capitalization. Linsang Mergerco is, and on the
Effective Date will be, a duly organized and validly existing corporation in
good standing under the laws of the State of Delaware, authorized to issue only
the Linsang Mergerco Shares. On the Effective Date there will be issued and
outstanding all of the Linsang Mergerco Shares, which shall be fully paid and
nonassessable and all of which shall be owned solely by Cheshire. There are no,
and on the Effective Date there will be no, issued or outstanding options or
warrants to purchase Linsang Mergerco Shares or any issued or outstanding
securities of any nature convertible into Linsang Mergerco Shares, or any
agreements or understandings to issue any Linsang Mergerco Shares, options or
warrants.
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3.2 Authority. Linsang Mergerco has, and on the Effective Date will
have, full power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. This Agreement and the transactions
contemplated hereby have been duly approved by the Board of Directors of Linsang
Mergerco.
3.3 No Business Activity. Linsang Mergerco has been organized solely
for the purpose of consummating the Merger and, since its inception, has had no
business activity of any nature other than those related to its organization or
as contemplated by this Agreement.
3.4 Issuance of Securities. Since its inception, Linsang Mergerco has
not issued or committed itself to issue, and to the Effective Date will not
issue or commit to issue, any Linsang Mergerco Shares or any options, rights,
warrants, or other securities convertible into Linsang Mergerco Shares, except
for the issuance of the Linsang Mergerco Shares to Cheshire.
3.5 Consents and Approvals. Except for the consent and approval of the
Board of Directors and shareholder of Linsang Mergerco, and the filing of the
Certificate of Merger, no consents or approvals of, or filings or registrations
with, any third party or any public body or authority are necessary in
connection with (i) the execution and delivery by Linsang Mergerco of this
Agreement and (ii) the consummation by Linsang Mergerco of the Merger and the
other transactions contemplated hereby.
3.6 No Conflicts. The execution and delivery by Linsang Mergerco of
this Agreement, the consummation and performance of the transactions herein
contemplated, and compliance with the terms of this Agreement by Linsang
Mergerco will not conflict with, result in a breach of or constitute or give
rise to a default under any indenture, mortgage, deed of trust or other
agreement, instrument or contract to which Linsang Mergerco is now a party or by
which it or any of its assets or properties are bound or its Certificate of
Incorporation or the bylaws of Linsang Mergerco, or any law, order, rule or
regulation, writ, injunction, judgment or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over Linsang
Mergerco or any of its businesses or properties.
3.7 Subsidiaries. Linsang Mergerco has, and on the Effective Date will
have, no subsidiaries, nor does it own any direct or indirect interest in any
other business entity.
3.8 Financial Condition. Except for (i) the incurring of expenses of
its organization, (ii) the issuance of the Linsang Mergerco Shares to Cheshire,
(iii) the incurring of expenses relating to this Agreement and the consummation
of the transactions contemplated by this Agreement, and (iv) the consummation of
the Merger, Linsang Mergerco has had, and on the Effective Date will have had,
no business and no financial or other transactions of any nature whatsoever.
3.9 Liabilities. Linsang Mergerco has, and on the Effective Date will
have, no liabilities (including, but not limited to, tax liabilities) nor are
there, or on the Effective Date will there be, any claims against Linsang
Mergerco (whether such liabilities or claims are contingent or absolute, direct
or indirect, and matured or unmatured) except for liabilities for its
organization expenses or expenses incurred in connection with the Merger and the
consummation of the transactions contemplated by this Agreement.
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3.10 Assets. Linsang Mergerco has, and on the Effective Date
will have no fixtures, furniture, equipment, inventory, accounts receivable or
other assets.
3.11 Contracts. Linsang Mergerco has, and on the Effective
Date will have, no contracts or commitments to which it is, or on the Effective
Date will be, a party, except for this Agreement and other documents and
instruments contemplated hereby in connection with the Merger.
3.12 Legal Proceedings. There are, and on the Effective Date
there will be, no legal, administrative, arbitral or other proceedings, claims,
actions or governmental investigations of any nature against Linsang Mergerco,
or challenging the validity or propriety of the transactions contemplated by
this Agreement and, to Linsang Mergerco's best knowledge, there is no reasonable
basis for any other proceeding, claim, action or governmental investigation
against Linsang Mergerco. Linsang Mergerco is not a party to any order, judgment
or decree which will, or might reasonably be expected to, materially adversely
affect the business, operations, properties, assets or financial condition of
Linsang Mergerco.
3.13 Employee Matters; Related Party Transactions. Since the
inception of Linsang Mergerco there have been, and to the Effective Date there
will be (i) no salaried or otherwise compensated employees and no bonuses paid
to any officer or director of Linsang Mergerco; (ii) no loans made to or any
transactions with any officer or director of Linsang Mergerco; (iii) no
dividends or other distributions declared or paid by Linsang Mergerco; and (iv)
no purchase by Linsang Mergerco of any Linsang Mergerco Shares.
3.14 Intellectual Property. Linsang Mergerco has no patents,
patent applications, trademarks, trademark registrations, tradenames,
copyrights, copyright registrations or applications therefor or any other
intellectual property.
3.15 Compliance with Laws. Since its inception, Linsang
Mergerco has, and on the Effective Date will have, in all material respects
conducted its affairs in compliance with all applicable laws, rules and
regulations.
3.16 Officer and Director Information. During the past five
year period, no officer or director of Linsang Mergerco has been the subject of
any Bad Event.
3.17 Benefit Plans. Linsang Mergerco has no pension plan,
profit sharing or similar employee benefit plan.
3.18 Finder's Fees. Linsang Mergerco knows of no person who
rendered any service in connection with the introduction of the Companies to any
of the other Companies, for a "finder's fee" or similar type of fee in
connection with the Merger and the other transactions contemplated hereby.
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3.19 Charter Documents. The charter documents of Linsang Mergerco have
not been altered since its incorporation, except as filed in the record books of
Linsang Mergerco.
3.20 Corporate Minute Books. The corporate minute books of Linsang
Mergerco are complete and the minutes and consents contained therein accurately
reflect the actions that were taken at a duly called and held meeting or by
consent without a meeting. All actions by Linsang Mergerco which required
director or stockholder approval are reflected on the corporate minute books of
Linsang Mergerco. Linsang Mergerco is not in violation or breach of, or in
default with respect to, any term of its Certificate of Incorporation (or other
charter documents) or by-laws.
4. Representations, Warranties and Covenants of Cheshire. Cheshire represents,
warrants and covenants as follows, except to the extent set forth in the
Schedule of Exceptions in the form of Schedule B annexed hereto and made part
hereof ("Cheshire Schedule of Exceptions"):
4.1 Organization; Capitalization. Cheshire is a duly organized and
validly existing corporation in good standing under the laws of the State of
Delaware, authorized to issue an aggregate of 100,000,000 shares of Cheshire
Common and no other shares of capital stock. On the Effective Date, giving
effect to the Reverse Split and the Merger, there will be issued and outstanding
approximately 5,587,038 shares of Cheshire Common Stock, all of which such
issued and outstanding shares will be validly issued, fully paid and
nonassessable. In the event the stockholders do not approve the Reverse Split
and the Reverse Split has not occurred, on the Effective Date there will be
issued and outstanding no more than 100,000,000 shares of Cheshire Common Stock,
all of which such issued and outstanding shares will be validly issued, fully
paid and nonassessable. On the Effective Date, there will be no other issued and
outstanding shares of capital stock of Cheshire, except for the Issued Cheshire
Shares. Except as contemplated by this Agreement, on the Effective Date there
will be no issued or outstanding securities and no issued or outstanding
options, warrants or other rights, or commitments or agreements of any kind,
contingent or otherwise, to purchase or otherwise acquire Cheshire Shares or any
issued or outstanding securities of any nature convertible into Cheshire Shares.
There is no proxy or any other agreement, arrangement or understanding of any
kind authorized, effective or outstanding which restricts, limits or otherwise
affects the right to vote any Cheshire Shares.
4.2 Binding Agreement. This Agreement and the transactions contemplated
hereby have been duly approved by the Board of Directors of Cheshire. This
Agreement has been duly executed and delivered by Cheshire and constitutes the
legal, valid and binding obligation of Cheshire enforceable against it in
accordance with the terms hereof, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws of general application
relating to or affecting the enforcement of rights hereunder or general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.3 Recent Business Operations. The business of Cheshire and the
Cheshire Subsidiaries (as hereinafter defined), since January 1, 1996 has been
limited solely to the search for an acquisition or merger partner and certain
transactions described in its filings with the Commission since January 1, 1996,
and except for transactions related to conversion of debt or other obligations
and merger or acquisition activities of one of its subsidiaries, it has not
engaged in any other business or activity since January 1, 1996.
11
4.4 Foreign Qualifications. Cheshire is, and on the Effective Date will
be, duly authorized, qualified and licensed under any and all applicable laws,
regulations, ordinances or orders of public authorities to carry on its business
in the places and in the manner as presently conducted. The business of Cheshire
does not require it to be registered as an investment company or investment
advisor, as such terms are defined under the Investment Company Act and the
Investment Advisors Act of 1940.
4.5 Subsidiaries. Cheshire has, and on the Effective Date will have, no
subsidiaries, except for Linsang Mergerco (the "Cheshire Subsidiaries"), nor
does it own any direct or indirect interest in any other business entity.
4.6 Financial Statements. The financial statements of Cheshire,
consisting of its Balance Sheets, Statement of Operations, Statement of
Stockholders' Equity and Statement of Cash Flows, all as at or for periods
ending December 31, 2001 and December 31, 2002, and all together with
accompanying notes, if any, are complete and correct in all material respects,
present fairly the financial position of Cheshire, the results of operations and
changes in financial position for the period covered thereby, and were prepared
in accordance with generally accepted accounting principles consistently
applied, and have been adjusted for all normal and recurring accruals. All the
financial statements referenced herein regarding Cheshire are collectively
referred to as the "Cheshire Financial Statements", all of which have been
delivered to LMI and are true, correct and complete in all material respects.
4.7 No Adverse Changes. There has not been, and on the Effective Date
there will not have been, any material change in the financial condition of
Cheshire and the Cheshire Subsidiaries from that set forth in the Cheshire
Financial Statements except for (i) transactions in the ordinary course of
business, (ii) transactions relating to this Agreement, and (iii) the incurring
of expenses and liabilities relating to this Agreement.
4.8 Liabilities. There are, and on the Effective Date will be, no
liabilities (including, but not limited to, tax liabilities) or claims against
Cheshire or the Cheshire Subsidiaries (whether such liabilities or claims are
contingent or absolute, direct or indirect, accrued or unaccrued and matured or
unmatured) not appearing on the Cheshire Financial Statements, except for (i)
liabilities for expenses incurred relating to this Agreement and the
consummation of the transactions contemplated hereby and (ii) liabilities and
commitments incurred or made in the ordinary course of Cheshire's business or
taxes incurred on earnings since December 31, 2002.
4.9 Tax Returns. All Federal, state, county and local income, excise,
property or other tax returns required to be filed by Cheshire and the Cheshire
Subsidiaries have been timely filed and all required taxes, fees and assessments
have been paid or an adequate reserve therefore has been provided for in the
Cheshire Financial Statements. The federal income tax returns and state and
foreign income tax returns of Cheshire and the Cheshire Subsidiaries have not
been audited by the IRS or any other taxing authority within the past five (5)
years. Neither the IRS nor any state, local
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or other taxing authority has proposed any additional taxes, interest or
penalties with respect to Cheshire, or any of its operations or businesses or
the Cheshire Subsidiaries. There are no pending, or to the knowledge of
Cheshire, threatened, tax claims or assessments, and there are no pending, or to
the knowledge of Cheshire, threatened, tax examinations by any taxing
authorities. Neither Cheshire or the Cheshire Subsidiaries has given any waivers
of rights (which are currently in effect) under applicable statutes of
limitations with respect to the federal income tax returns of Cheshire and the
Cheshire Subsidiaries for any year.
4.10 Assets. Cheshire and the Cheshire Subsidiaries have, and on the
Effective Date will have, no fixtures, furniture, equipment, inventory, accounts
receivable or other assets.
4.11 Material Contracts. Cheshire and the Cheshire Subsidiaries each
have, and on the Effective Date will have, no material contracts to which it is,
or on the Effective Date will be, a party.
4.12 No Conflicts. The execution and delivery by Cheshire of this
Agreement, the consummation and performance of the transactions herein
contemplated and compliance with the terms of this Agreement by Cheshire will
not conflict with, result in a breach of or constitute a default under (i) any
indenture, mortgage, deed of trust or other agreement, instrument or contract to
which Cheshire or the Cheshire Subsidiaries is now a party or by which it or any
of its assets or properties is bound; (ii) the Certificate of Incorporation or
the bylaws of Cheshire and the Cheshire Subsidiaries, in each case as amended;
or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree
of any government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over Cheshire or the Cheshire Subsidiaries or any of their
respective business or properties.
4.13 Legal Proceedings. There are, and on the Effective Date there will
be, no legal, administrative, arbitral or other proceedings, claims, actions or
governmental investigations of any nature pending or to Cheshire's knowledge
threatened, against Cheshire or any of the Cheshire Subsidiaries, including, but
not limited to any shareholder claims or derivative actions, or challenging the
validity or propriety of the transactions contemplated by this Agreement, and,
to Cheshire's best knowledge, there is no reasonable basis for any proceeding,
claim, action or governmental investigation against Cheshire or any of the
Cheshire Subsidiaries. Cheshire and the Cheshire Subsidiaries are not a party to
any order, judgment or decree.
4.14 Certain Transactions. There have been, and to the Effective Date
there will be (i) no salaried or otherwise compensated employees and no bonuses
paid to any officer or director of Cheshire or the Cheshire Subsidiaries; (ii)
no loans made to or transactions with any officer or director of Cheshire or the
Cheshire Subsidiaries; (iii) no dividends or other distributions declared or
paid by Cheshire; and (iv) no purchase by Cheshire or any third party of any of
the Cheshire Shares.
4.15 Issuances of Securities. Cheshire has not, except for the Issued
Cheshire Shares, issued or committed itself to issue, and to the Effective Date
will not issue or commit itself to issue, any Cheshire Shares or any options,
rights, warrants, or other securities convertible into Cheshire Shares, except
as contemplated by this Agreement.
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4.16 Intellectual Property. Cheshire and the Cheshire Subsidiaries have
no patents, patent applications, trademarks, trademark registrations, trade
names, copyrights, copyright registrations or applications therefor. Cheshire
has no knowledge of any infringements by Cheshire or the Cheshire Subsidiaries
of any third party's intellectual property.
4.17 Compliance with Laws. Cheshire and the Cheshire Subsidiaries have,
and on the Effective Date will have, in all material respects operated their
respective business and conducted their affairs in compliance with all
applicable laws, rules and regulations, except where the failure to so comply
did not have and would not be expected to have a material adverse effect on its
business or property. To the best of its knowledge, Cheshire and the Cheshire
Subsidiaries are not in violation of any Federal, state or local environmental
law or regulation.
4.18 Related Party Transactions. On the Effective Date there will be no
loans, leases, commitments, arrangements or other contracts of any kind or
nature outstanding between (i) Cheshire or any of the Cheshire Subsidiaries or
(ii) any officer or director of Cheshire or the Cheshire Subsidiaries or any
person related to or affiliated with any officer or director of Cheshire or any
of the Cheshire Subsidiaries.
4.19 Officers and Directors. During the past five year period, no
current officer or director of Cheshire or the Cheshire Subsidiaries has been
the subject of any Bad Event.
4.20 Employee Benefit Plans. Cheshire and the Cheshire Subsidiaries
have no pension plan, profit sharing or similar employee benefit plan.
4.21 Consents. Except for the consent and approval of the Board of
Directors of Cheshire and Linsang Mergerco, the filing of the Certificate of
Merger and the filing of Commission Form 8-K, no consents or approvals of, or
filings or registrations with, any third party or any public body or authority
are necessary in connection with (i) the execution and delivery by Cheshire of
this Agreement or (ii) the consummation by Cheshire of the Merger and the other
transactions contemplated hereby. Cheshire has, and on the Effective Date will
have, full power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby.
4.22 Finder's Fees. Cheshire knows of no person who rendered any
service in connection with the introduction of the Companies to any of the other
Companies, for a "finder's fee" or similar type of fee in connection with the
Merger and the other transactions contemplated hereby.
4.23 Employees. Cheshire and the Cheshire Subsidiaries have no
employees.
4.24 Disclosure. None of the information supplied or to be supplied by
or about Cheshire or the Cheshire Subsidiaries to LMI concerning the Merger
contains any untrue statement of a material fact or omits 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.
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4.25 Registration. The Cheshire Common Stock is, and at the Effective
Date will be, validly registered as a class pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
4.26 Listing and Maintenance Requirements. The Cheshire Common Stock is
listed on the NASD OTCBB. Cheshire has not, in the 24 months preceding the date
hereof, received notice from the NASD OTCBB or any other market or exchange on
which the Cheshire Common Stock is or has been listed or quoted to the effect
that Cheshire is not in compliance with the listing or maintenance requirements
of such market. Cheshire is, and has no reason to believe that it will not in
the foreseeable future continue to be, in compliance with all such listing and
maintenance requirements. Cheshire has not, in the 24 months preceding the date
hereof, received notice any notice of violations or delisting from the
Commission.
4.27 SEC Reports; Financial Statements. Cheshire has filed all reports
required to be filed by it under the Securities Act of 1933, as amended (the
"Securities Act") and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, since the effective date of its registration statement filed with
the Commission on Form 10-SB (the foregoing materials being collectively
referred to herein as the "SEC Reports" on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted 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. The financial statements of Cheshire included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Cheshire and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
4.28 Internal Accounting Controls. Cheshire and the Cheshire
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. There
are no disagreements of any kind presently existing, or reasonably anticipated
by Cheshire to arise, between the accountants and lawyers formerly or presently
employed by Cheshire, which could reasonably be expected to delay the
transactions contemplated hereby, including the filing of Form 8-K following the
Effective Date,
15
and Cheshire is current with respect to any fees owed to its accountants and
lawyers. Cheshire has established disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for Cheshire and designed such
disclosure controls and procedures to ensure that material information relating
to Cheshire, including its subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which Cheshire's Form 10-K (or 10-KSB) or 10-Q (or 10-QSB), as the case may be,
is being prepared. The Cheshire's certifying officers have evaluated the
effectiveness of Cheshire's controls and procedures as of a date within 90 days
prior to the filing date of the Form 10-KSB for the year ended December 31, 2002
(such date, the "Evaluation Date"). Cheshire presented in the Form 10-KSB for
the year ended December 31, 2002 the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in Cheshire's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to
Cheshire's and its certifying officer's knowledge, in other factors that could
significantly affect the Cheshire's internal controls.
4.29 Charter Documents. The charter documents of Cheshire and its
subsidiaries have not been altered since the incorporation of each,
respectively, except as filed in the record books of Cheshire.
4.30 Corporate Minute Books. The corporate minute books of Cheshire and
its subsidiaries are complete and each of the minutes and consents contained
therein accurately reflect the actions that were taken at a duly called and held
meeting or by consent without a meeting. All actions by Cheshire and its
subsidiaries which required director or stockholder approval are reflected on
the corporate minute books of Cheshire and its subsidiaries. Cheshire and its
subsidiaries are not in violation or breach of, or in default with respect to,
any term of their respective Certificates of Incorporation (or other charter
documents) or by-laws.
5. Representations to Survive Closing. All of the representations,
covenants and warranties contained in this Agreement (including all statements
contained in any certificate or other instrument delivered by or on behalf of
Cheshire, Linsang Mergerco, the Cheshire Stockholders, the LMI Stockholder or
LMI pursuant hereto or in connection with the transactions contemplated hereby)
shall survive the Closing for a period of two (2) years from the Effective Date.
6. Surviving Corporations. The surviving entity in the Merger shall be
LMI. LMI's name, identities, certificate of incorporation, bylaws, existence,
purposes, powers, objects, franchises, rights and immunities shall be unaffected
and unimpaired by the Merger, except as described in the Certificate of Merger.
7. Treatment of Securities of Constituent Corporations in the Merger.
The terms and conditions of the Merger, the mode of carrying the same into
effect, and the manner and basis of converting the securities of each of the
Constituent Corporations are as follows:
7.1 Treatment of Shares. At the Effective Date, in the event the
Reverse Split has become effective, the Shares shall be converted by virtue of
the Merger, into an aggregate of approximately 4,587,038 shares of Cheshire
Common Stock ("LMI Shares"), on the basis of .113718
16
shares of Cheshire Common Stock for each Share, without any action on the part
of the holders thereof. In the event the Reverse Split has not become effective
on or before the Effective Date the Shares shall be converted by virtue of the
Merger, and at the Effective Date, into an aggregate of 566,666,667 shares of
Cheshire Common Stock, on the basis of 11.3718 shares of Cheshire Common Stock
for each Share, without any action on the part of the holders thereof. In the
event the Reverse Split has not taken place on or before the Effective Date, the
conversion of the Shares into shares of Cheshire Common Stock shall be performed
in accordance with this Section, and the LMI Shares issuable to the LMI
shareholders shall be issued as follows: (1) as soon as practicable after the
Effective Date, Cheshire shall cause to be issued to the LMI shareholders a
total of 47,626, and (2) thereafter, Cheshire shall use its best efforts to: (A)
obtain stockholder approval to amend its certificate of incorporation to
increase the authorized shares of common stock so as to permit the additional
share issuance and reservation required by this subparagraph, and (B) cause to
be issued to the LMI shareholders an additional 458,656,193 shares and
approximately 108,010,474 shares to be reserved for issuance pursuant to Section
7.2 below. The Cheshire Stockholders, by their signatures hereto, agree to vote
in favor of any such amendment to the certificate of incorporation required by
this subsection. Upon such surrender, Shares so surrendered shall be owned of
record and beneficially by Cheshire. Upon conversion, any fractional Cheshire
Common Stock resulting from conversion shall be rounded up to the next highest
whole number.
7.2 Treatment of LMI Options and Convertible Debt. Up to 2,949,313
currently existing options to purchase Shares and 6,544,608 Shares issuable upon
convertible debt convertible shall be replaced at closing by options and
convertible debt to purchase Cheshire Common Stock on the same basis of
conversion as set forth in Section 7.1 above.
7.3 Existence of Linsang Mergerco. The separate existence and corporate
organization of Linsang Mergerco, except insofar as it may be continued by
statute, shall cease on Effective Date and LMI shall become a wholly owned
subsidiary of Cheshire.
8. Rights and Liabilities of Surviving Corporation in Merger. On and
after the Effective Date, LMI, as the surviving corporation of the Merger, shall
succeed to and possess, without further act or deed, all of the estate, rights,
privileges, powers and franchises, both public and private, and all of the
property, real, personal, and mixed, of Linsang Mergerco; all debts due to
Linsang Mergerco on whatever account shall be vested in LMI; all claims,
demands, property, rights, privileges, powers, franchises and every other
interest of Linsang Mergerco shall be as effectively the property of LMI as they
were of Linsang Mergerco; the title to any real estate by deed or otherwise in
Linsang Mergerco shall not revert or be in any way impaired by reason of the
Merger, but shall be vested in LMI; all rights of creditors and all liens upon
any property of Linsang Mergerco shall be preserved unimpaired, limited in lien
to the property affected by such lien at the Effective Date; and all debts,
liabilities and duties of Linsang Mergerco shall thenceforth attach to LMI and
may be enforced against it to the same extent as if such debts, liabilities and
duties had been incurred or contracted by it.
9. Further Assurances of Title. As and when requested by LMI, or by any
of its successors or assigns, Linsang Mergerco shall execute and deliver, or
cause to be executed and delivered, all such deeds and instruments and will take
or cause to be taken all such further action as
17
LMI may deem necessary or desirable in order to vest in and confirm to LMI title
to and possession of the property acquired by LMI by reason or as a result of
the Merger, and otherwise to carry out the intent and purposes hereof, and the
officers, directors of LMI and Cheshire, as applicable, are fully authorized in
the name of LMI or Cheshire or otherwise to take any and all such action.
10. Conditions of Obligations of Linsang Mergerco and Cheshire. The
obligation of Linsang Mergerco and Cheshire to consummate the Merger is subject
to the following conditions prior to the Effective Date:
10.1 Compliance with Representations and Warranties. LMI shall be
in compliance with its representations, warranties and covenants contained
herein in all material respects, and Linsang Mergerco and Cheshire each shall
receive from LMI certificates to such effect from the President of LMI as of the
Effective Date.
10.2 Losses. LMI shall not have suffered a loss on account of
fire, flood, accident or other calamity of such a character as to interfere
materially with the continuous operation of its business or materially affect
adversely its condition, financial or otherwise, regardless of whether or not
such loss shall have been insured.
10.3 No Material Adverse Change. Except as disclosed in this
Agreement or in the schedules annexed hereto, no material adverse change in the
aggregate shall have occurred in the financial condition, business, properties,
assets, liabilities, results of operations or prospects of LMI since December
31, 2002.
10.4 Disposition of Assets. None of the properties or assets of
LMI shall have been sold or otherwise disposed of other than in the ordinary
course of business in accordance with past practice during such period, except
with the prior written consent of Cheshire.
10.5 Conditions. LMI shall have performed and complied with the
provisions and conditions of this Agreement on its part to be performed and
complied with.
10.6 Filings and Approvals. All applicable filings and regulatory
approvals required to be made or obtained by LMI have been made or obtained.
10.7 Other Approvals. This Agreement and the transactions
contemplated hereby shall have been approved by appropriate action of the Board
of Directors and stockholders, as required, of LMI and resolutions to that
effect to Cheshire and its counsel, shall have been delivered to Cheshire.
10.8 Compliance with Securities Laws. There shall have been full
compliance with the applicable securities or "blue sky" laws and regulations of
any state or other governmental body having jurisdiction over the Merger.
10.9 Opinions of Counsel. Cheshire shall have received an opinion
from counsel to LMI in form and substance reasonably satisfactory to Cheshire's
counsel.
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10.10 Investment Representation. LMI shall have obtained an
instrument, in the form annexed hereto as Exhibit B, from the stockholders of
LMI, including a representation that the shares of Cheshire Common Stock being
acquired as a result of the transactions contemplated by this Agreement are
being acquired for investment purposes only and not with a view to, or sale in
connection with, any distribution within the meaning of the Securities Act.
10.11 Issuance of Note. Simultaneously with the cancellation of
those certain promissory notes in the aggregate principal amount of $734,156 of
Cheshire in favor of Laurus Master Fund, Ltd., listed on the attached Schedule B
(the "Original Note"), LMI agrees to cause a new promissory note in the original
principal amount of $600,000, in the form annexed hereto as Exhibit C, to be
issued by Cheshire to Laurus Master Fund, Ltd. (the "New Note").
Compliance with the provisions of this Section 10 shall be
evidenced by the certificate of the President and Secretary of LMI.
11. Conditions of Obligations of LMI. The obligations of LMI to
consummate the Merger are subject to the following conditions prior to the
Effective Date:
11.1 Compliance with Representations and Warranties. Linsang
Mergerco and Cheshire shall be in compliance with their respective
representations, warranties and covenants contained herein, and LMI shall have
received from each of Linsang Mergerco and Cheshire a certificate to such effect
from their respective Presidents as of the Effective Date.
11.2 Losses. Linsang Mergerco and Cheshire shall not have suffered
any loss on account of fire, flood, accident or other calamity of such a
character as to interfere materially with the continuous operation of their
respective businesses or materially adversely affect their respective condition,
financial or otherwise, regardless of whether or not such loss shall have been
insured.
11.3 No Material Transactions. No material transactions shall have
been entered into by Linsang Mergerco or Cheshire, other than transactions in
the ordinary course of business, since December 31, 2002, other than as referred
to in this Agreement or in connection herewith, except with the prior written
consent of LMI.
11.4 No Material Adverse Change; Due Diligence. No material
adverse change shall have occurred in the financial condition, business,
properties, assets, liabilities, results of operations or prospects of Linsang
Mergerco or Cheshire since December 31, 2002, other than as referred to in this
Agreement.
11.5 Disposal of Assets. None of the properties or assets of
Linsang Mergerco or Cheshire shall have been sold or otherwise disposed of,
other than in the ordinary course of business since December 31, 2002, except
with the written consent of LMI.
11.6 Compliance with Conditions. Linsang Mergerco and Cheshire
shall each have performed and complied with the provisions and conditions of
this Agreement on its part to be performed and complied with.
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11.7 Filings and Approvals. All applicable filings required to be
made and regulatory approvals, as well as any other third party approvals,
obtained by Cheshire have been made or obtained, including the filing of
required information pursuant to Section 14(f) of the Exchange Act with the
Commission.
11.8 Board Resignations. Cheshire shall have held a meeting of its
Board of Directors at which meeting all of its directors except one (the
"Cheshire Board Member") shall have resigned seriatim and the persons designated
by LMI shall have been elected as directors of Cheshire, to fill the vacancies
created thereby all subject to the consummation of the Merger. Upon such
election, the Cheshire Board Member shall resign.
11.9 Opinions. LMI shall have received opinions from counsel to
Linsang Mergerco and Cheshire in form and substance reasonably satisfactory to
LMI's counsel.
11.10 Certifying Officers. The current Chief Executive Officer and
Chief Financial Officer of Cheshire shall each have agreed to provide to the
appropriate officers of Cheshire following the Merger, a letter, in form and
substance satisfactory to LMI, containing the certifications required under the
Xxxxxxxx-Xxxxx Act of 2002, with respect to any filings to be made with the
Commission after the Merger that include financial statements or information
about the pre-Merger operations of Cheshire.
11.11 10-QSB and Tax Returns. Cheshire shall have timely filed its
annual report on Form 10-QSB, for the year quarter March 31, 2003, with the
Commission and shall have filed all tax returns and paid all applicable taxes
for the year ended December 31, 2002.
Compliance with the provisions of this Section 11 shall be
evidenced by the certificates of the respective Presidents and Secretaries of
each of Linsang Mergerco and Cheshire to be delivered at Closing.
12. Other Covenants.
12.1 Amendment of Cheshire Certificate of Incorporation and
Reverse Split. The Cheshire Stockholders each agrees that he will vote all
shares of Cheshire capital stock beneficially owned or controlled by him in
favor of the amendment of Cheshire's Certificate of Incorporation to change its
corporate name to LMIC, Inc. and in favor of the Reverse Split.
12.2 Election of Directors. The Cheshire Stockholders each agree
that, for a period of three years following the Closing, he will vote all shares
of Cheshire capital stock beneficially owned or controlled by him in favor of
the election of four persons chosen by Xxxx Xx, and reasonably acceptable to the
Cheshire Board of Directors, as members of the Board of Directors of Cheshire.
The persons initially chosen by Xxxx Xx to be elected as a member of the Board
of Directors of Cheshire, and who are acceptable to the Cheshire Board of
Directors, are Xxxx Xx, Xxxx Xxxxxxx, Xxxxxx X. Xxxxxxxxx and Xxxx X. Xxxxxxxx.
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12.3 Indemnification. (a) The Cheshire Stockholders, jointly and
severally, agree to indemnify and hold harmless LMI, its affiliates and
stockholders, directors, officers, employees, agents, successors in interest,
assigns and representatives from and against any and all losses, claims, damages
or liabilities or expenses (including reasonable attorneys' fees) which may be
incurred or suffered by any such party and which, directly or indirectly, arise
out of or result from the operations of Cheshire prior to the Effective Date,
including, without limitation, any breaches of representations, warranties and
covenants of Cheshire contained herein. The Cheshire Stockholders' indemnity
obligations under this Section 12.3(a) shall be limited, in the aggregate, to
$100,000. Any indemnity claim pursuant to this Section 12.3(a) shall first be
offset against the then outstanding balance owed to Laurus Master Fund, Ltd.
pursuant to the New Note. The aggregate limit set forth above shall not apply to
any and all costs, liabilities or expenses (including reasonable attorneys'
fees) related to the action between Cheshire and Xxxxx Xxxxxx as described on
the Cheshire Schedule of Exceptions.
(b) LMI and the LMI Stockholder, jointly and severally, agree to
indemnify and hold harmless Cheshire and the Cheshire Stockholders, directors,
officers, employees, agents, successors in interest, assigns and representatives
from and against any and all losses, claims, damages or liabilities or expenses
(including reasonable attorneys' fees) which may be incurred or suffered by
Cheshire or the Cheshire Stockholders which, directly or indirectly, arise out
of or result from the operations of LMI prior to the Effective Date including,
without limitation, any breaches of representations, warranties and covenants of
Cheshire contained herein. The LMI Stockholder's indemnity obligations under
this Section 12.3(b) shall be limited, in the aggregate, to $100,000.
12.4 Post-Merger Operations of LMI. If, within the earlier of (i)
two years from the Effective Date or (ii) the date that the New Note is paid in
full (such earlier of the foregoing two clauses, the "Trigger Date"), LMI shall
permanently cease all business operations for a period in excess of sixty days,
or any proceeding shall be instituted by or against LMI seeking to adjudicate it
bankrupt or insolvent, or seeking liquidation, winding up, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or relief of debtors, or seeking the entry of an order for relief or for the
appointment of a receiver, trustee or other similar official for it or for any
substantial part of its property, and in the case of any such proceeding
instituted against LMI (but not instituted by LMI), either such proceeding shall
remain undismissed or unstayed for a period of ninety (90) days or any of the
actions sought in such proceeding (including, without limitation, the entry of
an order for relief against, or the appointment of a receiver, trustee or other
similar official for, LMI or any substantial part of its property) shall be
granted or shall occur, then the parties hereto agree to unwind this
transaction, whereby (i) the LMI Shares, to the extent not previously sold or
transferred by a current stockholder of LMI, shall be returned to Cheshire and
cancelled, (ii) the Shares and the business, assets, liabilities and operations
of LMI are returned to the pre-Merger stockholders of LMI and (iii) the New Note
shall be cancelled or returned to Cheshire, such that LMI and the pre-Merger
stockholders of LMI shall have no obligations with respect to such New Note. The
LMI Stockholder agrees not to sell, transfer or otherwise dispose of his LMI
Shares to any third party in a private transaction prior to the Trigger Date,
unless such third party agrees to be bound by the provisions of this Section
12.4. The LMI Stockholder shall be permitted to sell his LMI Shares pursuant to
Rule 144 of the Securities Act prior to and following the Trigger Date.
21
12.5 Covenants Not to Xxx. (a) The Cheshire Stockholders, on
behalf of themselves and each of their respective affiliates, successors and
assigns, each irrevocably covenant and agree that they shall forever refrain
from initiating, filing, instituting, maintaining, or proceeding upon, or
encouraging, advising, or voluntarily assisting any other person or entity to
initiate, institute, maintain, or proceed upon, any claims, demands,
obligations, liabilities, indebtednesses, breaches of contract, breaches of duty
or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes
of actions, debts, sums of money, accounts, compensations, contracts,
controversies, promises, damages, costs, attorneys' fees, losses and expenses,
of every type, kind, nature, description or character, and irrespective of how,
why, or by reason of what facts, whether heretofore, now existing or hereafter
arising, or which could, might, or may be claimed to exist, or whatever kind or
name, whether known or unknown, suspected or unsuspected, liquidated or
unliquidated, each as though fully set forth herein at length, against Cheshire
(or its current or former officers, directors, agents or employees), which in
any way arise out of, are connected with or related to the operations of
Cheshire prior to the Effective Date.
(b) The LMI Stockholder irrevocably covenants and agrees that he
shall forever refrain from initiating, filing, instituting, maintaining, or
proceeding upon, or encouraging, advising, or voluntarily assisting any other
person or entity to initiate, institute, maintain, or proceed upon, any claims,
demands, obligations, liabilities, indebtednesses, breaches of contract,
breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance,
cause or causes of actions, debts, sums of money, accounts, compensations,
contracts, controversies, promises, damages, costs, attorneys' fees, losses and
expenses, of every type, kind, nature, description or character, and
irrespective of how, why, or by reason of what facts, whether heretofore, now
existing or hereafter arising, or which could, might, or may be claimed to
exist, or whatever kind or name, whether known or unknown, suspected or
unsuspected, liquidated or unliquidated, each as though fully set forth herein
at length, against Cheshire or LMI (or their respective officers, directors,
agents or employees), which in any way arise out of, are connected with or
related to the operations of LMI prior to the Effective Date.
12.6 Exhibits. The parties acknowledge that the form of New Note
has not been prepared as of the date hereof. The parties each agree to negotiate
and finalize the form of New Note within 7 days from the date hereof. If the New
Note is finalized within 7 days from the date hereof, then any party hereto
shall have the right to terminate this Agreement on 15 days' prior written
notice to the other parties hereto.
12.7 Financing. The parties hereto agree to negotiate the purchase
and security agreement between Access Capital, Inc. and LMI, and agree that all
documents required to be executed and delivered therewith (the "Access
Agreements") shall be in a form satisfactory to all parties thereto, and the
transactions contemplated thereby shall be consummated within 7 days from the
date hereof. In the event that the Access Agreements are not in a form
satisfactory to all parties thereto within 7 days from the date hereof or if the
transactions contemplated by the Access Agreements are not consummated within
seven days from the date hereof, LMI shall have the right to terminate this
Agreement.
22
13. Abandonment. This Agreement and the Merger may be abandoned (a) by
any of the Companies, acting by its Board of Directors, at any time prior to its
adoption by the stockholders, if such adoption is required, (b) by any of the
Companies, acting by its Board of Directors, by written notice to the other
parties hereto, at any time in the event of the failure of any condition in
favor of such entity as to which the consummation of the Merger is subject, or
(c) by the consent of all the Companies, acting each by its Board of Directors,
at any time prior to the Effective Date. In the event of abandonment of this
Agreement, the same shall become wholly void and of no effect, and there shall
be no further liability or obligation hereunder on the part of any of the
Companies, their respective Boards of Directors or any other party to this
Agreement.
14. Closing or Termination. In the event the Closing of this Agreement
shall not take place due to failure of any condition of Closing required herein,
then any party shall have the right to terminate this Agreement, in which event
no party shall have any further right or obligation as against any other. If LMI
shall fail to close for any reason other than failure of any condition of
Closing required herein to be performed on the part of Cheshire or Linsang
Mergerco, LMI shall pay to Cheshire a break-up fee of $25,000 in cash. If
Cheshire or Linsang Mergerco shall fail to close for any reason other than
failure of any condition of Closing required herein to be performed on the part
of LMI, Cheshire shall pay to LMI a break-up fee of $25,000 in cash.
Notwithstanding anything in this section to the contrary LMI shall not be liable
to Cheshire for a break-up fee if it has terminated this Agreement pursuant to
Sections 12.6 or 12.7 and Cheshire shall not be liable to LMI for a break-up fee
if it has terminated this Agreement pursuant to Sections 12.6 or 12.7.
15. Delivery of Corporate Proceedings of Cheshire and Linsang Mergerco.
At the Closing, Cheshire and Linsang Mergerco shall deliver to counsel for LMI
the originals of all of the corporate proceedings of Cheshire and Linsang
Mergerco, duly certified by their respective Secretaries, relating to this
Agreement and LMI shall deliver to counsel for Cheshire the originals of all of
the corporate proceedings of LMI, duly certified by their respective
Secretaries, relating to this Agreement.
16. Limitation of Liability. The representations and warranties made by
any party to this Agreement are intended to be relied upon only by the other
parties to this Agreement and by no other person. Nothing contained in this
Agreement shall be deemed to confer upon any person not a party to this
Agreement any third party beneficiary rights or any other rights of any nature
whatsoever.
17. Further Instruments and Actions. Each party shall deliver such
further instruments and take such further action as may be reasonably requested
by any other in order to carry out the intent and purposes of this Agreement.
18. Governing Law. This Agreement is being delivered and is intended to
be performed in the State of New York, and shall be construed and enforced in
accordance with the laws of such state, without regard to conflicts of laws
thereof.
19. Notices. All notices or other communications to be sent by any
party to this Agreement to any other party to this Agreement shall be sent by
certified mail, personal delivery or nationwide overnight courier to the
addresses hereinbefore designated, or such other addresses as may hereafter be
designated in writing by a party. Notice shall be deemed given and received on
the date of actual delivery to the address specified thereon.
23
20. Binding Agreement. This Agreement represents the entire agreement
among the parties hereto with respect to the matters described herein and is
binding upon and shall inure to the benefit of the parties hereto and their
legal representatives, successors and permitted assigns. This Agreement may not
be assigned and, except as stated herein, may not be altered or amended except
in writing executed by all of the parties hereto.
21. Counterparts. This Agreement may be executed in counterparts, all
of which, when taken together, shall constitute the entire Agreement.
22. Severability. The provisions of this Agreement shall be severable,
so that the unenforceability, validity or legality of any one provision shall
not affect the enforceability, validity or legality of the remaining provisions
hereof.
23. Joint Drafting. This Agreement shall be deemed to have been drafted
jointly by the parties hereto, and no inference or interpretation against any
party shall be made solely by virtue of such party allegedly having been the
draftsperson of this Agreement.
24. Reliance on Certificates. In rendering any opinion referred to
herein, counsel for the parties hereto may rely, as to any factual matters
involved in their respective opinions, on certificates of public officials and
of corporate and company officers, and on such other evidence as such counsel
may reasonably deem appropriate and, as to the matters governed by the laws of
jurisdictions other than the United States or the State of Delaware, an opinion
of local counsel in such other jurisdiction(s), which counsel shall be
satisfactory to the other parties in the exercise of their reasonable
discretion.
25. Public Announcements. All parties hereto agree that any public
announcement, press release or other public disclosure of the signing of this
Agreement shall be made jointly and only after all parties hereto have reviewed
and approved the language and timing of such disclosure, except as such
disclosure may be required pursuant to any legal obligation or order of any
court having proper jurisdiction over any of the parties hereto.
26. Consent. Whenever consent is required to be given by any of the
Companies to any of the other Companies hereunder in connection with any matter
contemplated hereby, such consent shall not be unreasonably withheld, delayed or
conditioned.
24
IN WITNESS WHEREOF, the parties hereto have made and executed this
Agreement as of the day and year first above written.
CHESHIRE DISTRIBUTORS, INC.,
a Delaware corporation
By: /s/ Xxx Xxxxxxxx
-----------------------
Name: Xxx Xxxxxxxx
Title: President
LINSANG ACQUISITION CORP.,
a Delaware corporation
By: /s/ Xxx Xxxxxxxx
------------------------
Name: Xxx Xxxxxxxx
Title: President
LINSANG MANUFACTURING, INC.,
a Delaware corporation
By: /s/ Xxxx Xxxxxxx
-------------------------
Name: Xxxx Xxxxxxx
Title: President
As to the provisions of Sections 5, 7 and 12 of the Agreement and Plan of
Reorganization:
Laurus Master Fund, Ltd.
By: /s/ Xxxxx Grin
----------------------------------------
Name: Xxxxx Grin
Title: Partner
Keshet, L.P.
By: /s/ Xxxx Xxxxxx
----------------------------------------
Name: Xxxx Xxxxxx
Title: Authorized Signatory
25
[SIGNATURE PAGE TO THE AGREEMENT AND PLAN OF REORGANIZATION CONTINUED]
Keshet Fund, L.P.
By: /s/ Xxxx Xxxxxx
----------------------------------------
Name: Xxxx Xxxxxx
Title: Authorized Signatory
Nesher, Ltd.
By: /s/ Xxxx Xxxxxx
----------------------------------------
Name: Xxxx Xxxxxx
Title: Authorized Signatory
As to the provisions of Sections 5 and 12 of the
Agreement and Plan of Reorganization:
/s/ Xxxx Xx
--------------------------------------------
Xxxx Xx
26
Schedule A LMI Schedule of Exceptions
Schedule B Cheshire Schedule of Exceptions
Exhibit A Certificate of Merger
Exhibit B Investment Representation
Exhibit C New Note
AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment to the Agreement and Plan of Reorganization (this
"Amendment") is made and entered into as of May 9, 2003 by and among Cheshire
Distributors, Inc. ("Cheshire"), Linsang Acquisition Corp. ("LAC"), Linsang
Manufacturing, Inc. ("LMI"), Laurus Master Fund, Ltd. ("Laurus"), Keshet, L.P.
("Keshet"), Keshet Fund, L.P. ("Keshet Fund") and Xxxx Xx (the "LMI
Stockholder") (Cheshire, LAC, LMI, Laurus, Keshet, Keshet Fund and the LMI
Stockholder shall be collectively referred to herein as the "Parties"). Terms
not defined herein shall have their respective meanings as set forth in that
certain Agreement and Plan of Reorganization dated as of May 1, 2003 (the
"Agreement") by and among the Parties.
WHEREAS, the Parties entered into the Agreement; and
WHEREAS, the Parties desire to amend the Agreement in order to revise
the exchange ratio at which holders of the Shares shall exchange such shares for
shares of Cheshire Common Stock.
NOW THEREFORE in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The first two recitals on the first page of the Agreement are hereby
amended and replaced in their entirety as follows:
"WHEREAS, LMI has issued an aggregate of 46,881,478 shares ("Shares")
of its Common Stock, par value $.01 per share; and
WHEREAS, Cheshire is authorized to issue 100,000,000 shares of common
stock, par value $.001 per share (the "Cheshire Common Stock") of which
99,952,374 shares (the "Issued Cheshire Shares") are issued and outstanding and
shall use its best efforts to cause its stockholders to approve a
1-for-66.634898 reverse stock split (the "Reverse Split"), resulting in
approximately 1,499,999 shares of Cheshire Common Stock outstanding. The
Cheshire Common Stock is referred to herein as the "Cheshire Shares"; and"
2. Section 4.1 of the Agreement is hereby amended and is hereby
replaced in its entirety as follows:
"4.1 Organization; Capitalization. Cheshire is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware, authorized to issue an aggregate of 100,000,000 shares of
Cheshire Common and no other shares of capital stock. On the Effective Date,
giving effect to the Reverse Split and the Merger, there will be issued and
outstanding approximately 9,496,899 shares of Cheshire Common Stock, all of
which such issued and outstanding shares will be validly issued, fully paid and
nonassessable. In the event the stockholders do not approve the Reverse Split
and the Reverse Split has not occurred, on the Effective Date there will be
issued and outstanding no more than 100,000,000 shares of Cheshire Common Stock,
all of which such issued and outstanding shares will be validly issued, fully
paid and nonassessable. On the Effective Date, there will be no other issued and
outstanding shares of capital stock of Cheshire, except for the Issued Cheshire
Shares. Except as contemplated by this Agreement, on the Effective Date there
will be no issued or outstanding securities and no issued or outstanding
options, warrants or other rights, or commitments or agreements of any kind,
contingent or otherwise, to purchase or otherwise acquire Cheshire Shares or any
issued or outstanding securities of any nature convertible into Cheshire Shares.
There is no proxy or any other agreement, arrangement or understanding of any
kind authorized, effective or outstanding which restricts, limits or otherwise
affects the right to vote any Cheshire Shares."
3. Sections 7.1 and 7.2 of the Agreement are hereby amended and
replaced in their entirety as follows:
"7.1 Treatment of Shares. At the Effective Date, in the event the
Reverse Split has become effective, the Shares shall be converted by virtue of
the Merger, into an aggregate of approximately 7,996,900 shares of Cheshire
Common Stock ("LMI Shares"), on the basis of .17057696 shares of Cheshire Common
Stock for each Share, without any action on the part of the holders thereof. In
the event the Reverse Split has not become effective on or before the Effective
Date the Shares shall be converted by virtue of the Merger, and at the Effective
Date, into an aggregate of approximately 525,874,226 shares of Cheshire Common
Stock, on the basis of 11.2170999817 shares of Cheshire Common Stock for each
Share, without any action on the part of the holders thereof. In the event the
Reverse Split has not taken place on or before the Effective Date, the
conversion of the Shares into shares of Cheshire Common Stock shall be performed
in accordance with this Section, and the LMI Shares issuable to the LMI
shareholders shall be issued as follows: (1) as soon as practicable after the
Effective Date, Cheshire shall cause to be issued to the LMI shareholders a
total of 47,626, and (2) thereafter, Cheshire shall use its best efforts to: (A)
obtain stockholder approval to amend its certificate of incorporation to
increase the authorized shares of common stock so as to permit the additional
share issuance and reservation required by this subparagraph, and (B) cause to
be issued to the LMI shareholders an additional 525,826,600 shares and
approximately 42,078,852 shares to be reserved for issuance pursuant to Section
7.2 below. The Cheshire Stockholders, by their signatures hereto, agree to vote
in favor of any such amendment to the certificate of incorporation required by
this subsection. Upon such surrender, Shares so surrendered shall be owned of
record and beneficially by Cheshire. Upon conversion, any fractional Cheshire
Common Stock resulting from conversion shall be rounded up to the next highest
whole number.
7.2 Treatment of LMI Options and Convertible Debt. Up to 2,951,313
currently existing options to purchase Shares and 800,000 Shares issuable upon
convertible debt convertible shall be replaced at closing by options and
convertible debt to purchase Cheshire Common Stock on the same basis of
conversion as set forth in Section 7.1 above."
In all other respects, the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF the parties hereto have executed this Amendment
effective as of the day and year first above written.
CHESHIRE DISTRIBUTORS, INC.,
a Delaware corporation
By: /s/ Xxx Xxxxxxxx
Name: Xxx Xxxxxxxx
Title: President
LINSANG ACQUISITION CORP.,
a Delaware corporation
By: /s/ Xxx Xxxxxxxx
Name: Xxx Xxxxxxxx
Title: President
2
SIGNATURE PAGE TO THE AMENDMENT (CONTINUED)
By: /s/ Xxx Xxxxxxxx
Name: Xxx Xxxxxxxx
Title: President
LINSANG MANUFACTURING, INC.,
a Delaware corporation
By: /s/ Xxxx Xxxxxxx
Name: Xxxx Xxxxxxx
Title: President
Laurus Master Fund, Ltd.
By: /s/ Xxxxxx Grin
Name: Xxxxxx Grin
Title: Partner
Keshet, L.P.
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: Authorized Signatory
Keshet Fund, L.P.
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: Authorized Signatory
Nesher, Ltd.
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: Authorized Signatory
/s/ Xxxx Xx
--------------------------------------------
Xxxx Xx
