AGREEMENT AND PLAN OF MERGER
BY AND AMONG
XXXXX.XXX, INC.,
QORUS ACQUISITION, INC.,
AND
ECOTECHNOLOGY, INC.
DATED AS OF DECEMBER 15, 2005
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this 15th
day of December, 2005, by and among Xxxxx.xxx, Inc., a Florida corporation
("Parent"), Qorus Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and EcoTechnology, Inc., a Delaware
corporation ("Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2) and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Parent and Company intend to enter into a
business combination transaction by means of a merger between Merger Sub and the
Company in which the Company will merge with Merger Sub and be the surviving
entity, through an exchange of all the issued and outstanding shares of capital
stock of the Company for shares of preferred stock of the Parent.
B. The Board of Directors of the Company, Parent and Merger Sub have
determined that the Merger (as defined in Section 1.1) is fair to, and in the
best interests of, their respective companies and their respective stockholders.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
X. Xxxxxxx Reverse Merger Fund, LLC, a Delaware limited liability company
("KRM Fund") owns the majority of the outstanding shares of common stock of
Parent.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the DGCL, Merger Sub shall be merged with and into the
Company (the "Merger"), the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation." The Merger is hereinafter sometimes referred
to as the "Transaction."
1.2 Effective Time; Closing. Subject to the conditions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing with the
Secretary of State of the State of Delaware in accordance with the relevant
provisions of the DGCL a Certificate of Merger (the "Certificate of Merger")
(the time of such filing with the Secretary of State of the State of Delaware,
or such later time as may be agreed in writing by the Company and Parent and
specified in the Certificate of Merger, being the "Effective Time") as soon as
practicable on or after the Closing Date (as herein defined). The term
"Agreement" as used herein refers to this Agreement and Plan of Merger, as the
same may be amended from time to time, and all schedules hereto (including the
Company Schedules and Parent Schedules). Unless this Agreement shall have been
terminated pursuant to Section 8.1, the closing of the Merger (the "Closing")
shall take place at the offices of DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP, 000
Xxxxxxx Xxxx, Xxxxx 0000, Xxxxxxxxxx, XX 00000-0000 at a time and date to be
specified by the parties, which shall be no later than the second business day
after the satisfaction or waiver of the conditions set forth in Article VI, or
at such other time, date and location as the parties hereto agree in writing
(the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of the
Company shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by law and such Certificate of
Incorporation of the Surviving Corporation.
(b) The Bylaws of the Company shall be the Bylaws of the Surviving
Corporation.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of the Company immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of the Company immediately prior to the Effective Time.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and this Agreement and
without any action on the part of Merger Sub, the Company or the holders of any
of the following securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of common stock,
par value $0.01 per share, of the Company (the "Company Common Stock") issued
and outstanding immediately prior to the Effective Time, other than any shares
of Company Common Stock to be canceled pursuant to Section 1.6(g), will be
automatically converted (subject to Sections 1.6(e) and (f)) into the right to
receive on the Closing Date .27326419 shares of Series A Convertible Preferred
Stock, par value $0.01 per share, of Parent ("Series A Preferred Stock") (the
"Common Exchange Ratio") upon surrender of the certificate representing such
share of Company Common Stock in the manner provided in Section 1.7 (or in the
case of a lost, stolen or destroyed certificate, upon delivery of an affidavit
(and bond, if required) in the manner provided in Section 1.9). If any shares of
Company Common Stock outstanding immediately prior to the Effective Time are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable restricted stock purchase agreement or other
agreement with the Company, then the shares of Series A Preferred Stock issued
in exchange for such shares of Company Common Stock will also be unvested or
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Series A Preferred Stock may
accordingly be marked with appropriate legends. The Company shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
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(b) Conversion of Company Preferred Stock. Each share of preferred
stock, par value $0.01 per share, of Company (the "Company Preferred Stock")
issued and outstanding immediately prior to the Effective Time, other than any
shares of Company Preferred Stock to be canceled pursuant to Section 1.6(c),
will be automatically converted (subject to Sections 1.6(e) and (f)) into the
right to receive on the Closing Date 2.7326419 shares of Series A Preferred
Stock (the "Preferred Exchange Ratio") upon surrender of the certificate
representing such share of Company Preferred Stock in the manner provided in
Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 1.9). If any shares of Company Preferred Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Series A Preferred Stock issued in exchange for such shares of Company Preferred
Stock will also be unvested or subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates representing such shares of
Series A Preferred Stock may accordingly be marked with appropriate legends. The
Company shall take all action that may be necessary to ensure that, from and
after the Effective Time, Parent is entitled to exercise any such repurchase
option or other right set forth in any such restricted stock purchase agreement
or other agreement.
(c) Assumption of Company Stock Options. At the Closing, each
outstanding option to purchase shares of Company Common Stock (each, a "Company
Stock Option"), whether or not vested, shall be assumed by Parent. Each Company
Stock Option so assumed by Parent under this Agreement will continue to have,
and be subject to, the same terms and conditions of such Company Stock Option
immediately prior to the Closing (including, without limitation, any repurchase
rights or vesting provisions and provisions regarding the acceleration of
vesting on certain transactions, other than the transactions contemplated by
this Agreement), except that (i) each Company Stock Option will be exercisable
(or will become exercisable in accordance with its terms) for that number of
whole shares of common stock, par value $0.001 per share, of Parent ("Parent
Common Stock") equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Company Stock Option immediately
prior to the Closing multiplied by 273.26419 ("Option Exchange Ratio"), rounded
up to the nearest whole number of shares of Parent Common Stock, and (ii) the
per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Stock Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Company Stock Option was exercisable immediately prior to the Closing
by the Option Exchange Ratio, rounded down to the nearest whole cent
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(d) Assumption of Company Common Stock Warrants. At the Closing,
each outstanding warrant to purchase shares of Company Common Stock (each, a
"Company Common Stock Warrant") (including the Company Common Stock Warrants to
be issued under Section 1.6(e) below) shall be assumed by Parent and will
continue to have, and be subject to, the same terms and conditions of such
Company Common Stock Warrants immediately prior to the Closing, except that (i)
such Company Common Stock Warrant will be exercisable (or will become
exercisable in accordance with its terms) for that number of shares of Parent
Common Stock equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Company Common Stock Warrant
immediately prior to the Closing multiplied by the Option Exchange Ratio,
rounded up to the nearest whole number of shares of Parent Common Stock, and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Common Stock Warrant will be equal to the
quotient determined by dividing the exercise price per share of Company Common
Stock at which such Company Common Stock Warrant was exercisable immediately
prior to the Closing by the Option Exchange Ratio, rounded down to the nearest
whole cent.
(e) Conversion of Company Preferred Stock Warrants. Prior to
Closing, all outstanding warrants to purchase shares of Company Preferred Stock
(each, a "Company Preferred Stock Warrant") will be converted by agreement of
the holder and the Company from a Company Preferred Stock Warrant to purchase
one (1) share of Company Preferred Stock into a Company Common Stock Warrant to
purchase ten (10) shares of Company Common Stock at an exercise price per share
equal to 10% of the exercise price per share of Company Preferred Stock under
the Company Preferred Stock Warrant, which warrants shall be assumed by the
Parent according to Section 1.6(d).
(f) Further Actions Regarding Options and Warrants. Prior to the
Closing Date, the Company agrees to take all necessary steps to effectuate the
foregoing provisions of Sections 1.6(c), (d) and (e), including obtaining all
necessary consents and releases, if any, from the holders of Company Stock
Options, Company Common Stock Warrants and Company Preferred Stock Warrants.
(g) Cancellation of Parent-Owned Stock. Each share of Company Common
Stock held by the Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of the Company or of Parent immediately prior
to the Effective Time shall be canceled and extinguished without any conversion
or payment in respect thereof.
(h) Capital Stock of Merger Sub. Each share of common stock, par
value $0.001 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock, par value
$0.01 per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
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(i) Adjustments to Exchange Ratios. The Exchange Ratios (as defined
below) shall be adjusted to reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Stock),
extraordinary cash dividends, reorganization, recapitalization,
reclassification, combination, exchange of shares or other like change with
respect to Parent Common Stock, Company Common Stock, Company Preferred Stock
(or any options or warrants with respect to the foregoing) occurring on or after
the date hereof and prior to the Effective Time; provided, however, that the
Exchange Ratio shall not be adjusted for the modification of the Company
Preferred Stock Warrant contemplated under Section 1.6(e) above.
The Common Exchange Ratio, Preferred Exchange Ratio and Option
Exchange Ratio (collectively, the "Exchange Ratios") set forth above are based
on the issuance by Parent of convertible notes ("Notes") in the aggregate
principal amount of $10,000,000 to investors ("Debt Financing"). In the event
the aggregate principal amount of Notes issued in the Debt Financing is less
than or exceeds $10,000,000, the Exchange Ratios shall be adjusted ratably such
that the holders of the Company Common Stock, Company Preferred Stock, Company
Common Stock Options and Company Common Stock Warrants, immediately after the
closing of the Merger and the Debt Financing (after giving effect to the
Preferred Share Buy-out as defined in Section 6.1(l) hereof, but excluding any
shares of Parent Common Stock underlying the warrants issued to investors
("Investor Warrants") or the warrants issued to the placement agent ("Agent
Warrants") in connection with the Debt Financing) shall hold X% of Parent Common
Stock on a fully diluted basis. For purposes of this Agreement, X% shall be
equal to the following:
X% = 95% - ((N/(N+30,000,000))
Where: N = Aggregate principal amount of Notes issued in Debt
Financing
(j) Fractional Shares. Fractional shares of Series A Preferred Stock
will be issued by virtue of the Merger (rounded to the second decimal point).
1.7 Surrender of Certificates.
(a) Exchange Agent. Parent or such other agent or agents as Parent
may appoint shall be designated by the parties hereto to act as the exchange
agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Series A Preferred Stock. Promptly after the
Effective Time, and in no event more than three (3) business days thereafter,
Parent shall make available for exchange in accordance with this Article I, the
shares of Series A Preferred Stock issuable pursuant to Section 1.6 in exchange
for outstanding shares of Company Common Stock and Company Preferred Stock and
any dividends or distributions to which holders of such shares may be entitled
pursuant to Section 1.7(d).
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(c) Exchange Procedures. Promptly after the Effective Time, and in
no event more than three (3) business days thereafter, Parent shall mail to each
holder of record (as of the Effective Time) of a certificate or certificates
(the "Certificates"), which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock and Company Preferred Stock whose
shares were converted into the right to receive shares of Parent Preferred Stock
pursuant to Section 1.6: (i) a letter of transmittal in customary form (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to Parent and
shall contain such other customary provisions as Parent may reasonably specify),
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Series A Preferred Stock and
any dividends or other distributions pursuant to Section 1.7(d), and (iii) an
investment representation letter containing such warranties, representations and
agreements by holder as set forth in Section 1.12. Upon surrender of
Certificates for cancellation to Parent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal and investment
representation letter, duly completed and validly executed in accordance with
the instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor certificates representing the number of shares of
Series A Preferred Stock into which their shares of Company Common Stock and
Company Preferred Stock were converted into the right to receive at the
Effective Time and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, to evidence only the right to receive the applicable number of
shares of Parent Series A Preferred Stock (or Common Stock issuable upon
conversion of Series A Preferred Stock) issuable pursuant to Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the date of this Agreement with
respect to Series A Preferred Stock (or Parent Common Stock issuable upon
conversion of Series A Preferred Stock) with a record date after the Effective
Time will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Series A Preferred Stock (or Parent Common Stock issuable upon
conversion of Series A Preferred Stock) to be issued upon surrender thereof
until the holders of record of such Certificates shall surrender such
Certificates. Subject to applicable law, following surrender of any such
Certificates with a properly completed letter of transmittal and investment
representation letter, Parent shall promptly deliver to the record holders
thereof, without interest, certificates representing shares of Series A
Preferred Stock issued in exchange therefor (or Parent Common Stock issuable
upon conversion of Series A Preferred Stock) and the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such shares.
(e) Transfers of Ownership. If certificates representing shares of
Series A Preferred Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Series A Preferred Stock in any name other than that of
the registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
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(f) Required Withholding. Each of Parent, any agents appointed by
Parent and the Surviving Corporation shall be entitled to deduct and withhold
from any consideration payable or otherwise deliverable pursuant to this
Agreement to any holder or former holder of Company Common Stock or Company
Preferred Stock such amounts as are required to be deducted or withheld
therefrom under the Code or under any provision of state, local or foreign tax
law or under any other applicable legal requirement. To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all purposes
under this Agreement as having been paid to the person to whom such amounts
would otherwise have been paid.
(g) Termination of Exchange Agent Funding. Series A Preferred Stock
(or Parent Common Stock issuable upon conversion of Series A Preferred Stock)
held by the Exchange Agent (other than Parent) which have not been delivered to
holders of Certificates within six months after the Effective Time shall
promptly be paid or delivered, as appropriate, to Parent, and thereafter holders
of Certificates who have not theretofore complied with the exchange procedures
outlined in and contemplated by this Section 1.7 shall thereafter look only to
Parent (subject to abandoned property, escheat and similar laws) only as general
creditors thereof for their claim for shares of Series A Preferred Stock (or
Parent Common Stock issuable upon conversion of Series A Preferred Stock) and
any dividends or distributions pursuant to Section 1.7(d) with respect to such
shares to which they are entitled.
(h) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation, the
Company nor any party hereto shall be liable to a holder of shares of Series A
Preferred Stock (or Parent Common Stock issuable upon conversion of Series A
Preferred Stock) or Company Common Stock or Company Preferred Stock for any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock or Company
Preferred Stock. All shares of Series A Preferred Stock issued in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of Company Common Stock and Company
Preferred Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company Common Stock and
Company Preferred Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Series A Preferred Stock (or Parent Common Stock
issuable upon conversion of Series A Preferred Stock) which the shares of
Company Common Stock or Company Preferred Stock formerly represented by such
Certificates were converted into the right to receive pursuant to Section 1.6
and any dividends or distributions payable pursuant to Section 1.7(d); provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance of such certificates representing shares of Series A Preferred Stock
(or Parent Common Stock issuable upon conversion of Series A Preferred Stock)
and other distributions, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
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1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action.
1.12 Investment Representation. All shares of Series A Preferred Stock
issued in accordance with the terms hereof (including Parent Common Stock
issuable upon conversion of Series A Preferred Stock) shall, when issued, be
restricted shares and may not be sold, transferred or otherwise disposed of by
the holders thereof without registration under the Securities Act of 1933, as
amended ("Securities Act") or an available exemption from registration under the
Securities Act. The certificates representing the shares of Series A Preferred
Stock issued in accordance with the terms hereof (including Parent Common Stock
issuable upon conversion of Series A Preferred Stock) will contain the
appropriate restrictive legends, and the Parent shall issue appropriate
stop-transfer instructions to the Exchange Agent with respect to such shares of
Series A Preferred Stock (including Parent Common Stock issuable upon conversion
of Series A Preferred Stock). Except for the representation made in Section
1.12(c)(i) regarding "accredited investor" status, as to which up to 35 holders
may be permitted to not make such representation, each holder of record (as of
the Effective Time) of Certificates, which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock and Company
Preferred Stock whose shares were converted into the right to receive shares of
Series A Preferred Stock pursuant to Section 1.6, shall provide an investment
representation letter containing, among other things, the following:
(a) Each holder has and shall transfer, good and marketable title to
the shares of Company Common Stock and Company Preferred Stock owned by such
holder, free and clear of all liens, claims, charges, encumbrances, pledges,
mortgages, security interests, options, rights to acquire, proxies, voting
trusts or similar agreements, restrictions on transfer or adverse claims of any
nature whatsoever ("Liens").
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(b) Each holder is acquiring the shares of Series A Preferred Stock
(including Parent Common Stock issuable upon conversion of Series A Preferred
Stock) for investment for holder's own account and not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and such
holders have no present intention of selling, granting any participation in, or
otherwise distributing the same. Each holder further represents that he does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to any of the shares of Series A Preferred Stock (including Parent
Common Stock issuable upon conversion of Series A Preferred Stock).
(c) Each holder understands that shares of Series A Preferred Stock
(including Parent Common Stock issuable upon conversion of Series A Preferred
Stock) are not registered under the Securities Act, that the issuance of shares
of Series A Preferred Stock (including Parent Common Stock issuable upon
conversion of Series A Preferred Stock) is intended to be exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
Parent's reliance on such exemption is predicated on the holder's
representations set forth herein. Each holder represents and warrants that: (i)
he is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D under the Act, (ii) he can bear the economic risk of his respective
investments, and (iii) he possesses such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
the investment in shares of Series A Preferred Stock (including Parent Common
Stock issuable upon conversion of Series A Preferred Stock).
(d) Holders acknowledge that neither the SEC, nor the securities
regulatory body of any state has received, considered or passed upon the
accuracy or adequacy of the information and representations made in this
Agreement.
(e) Holders acknowledge that they have carefully reviewed such
information as each of them deemed necessary to evaluate an investment in shares
of Series A Preferred Stock (including Parent Common Stock issuable upon
conversion of Series A Preferred Stock). To the full satisfaction of each
holder, he has been furnished all materials that he has requested relating to
Parent and the issuance of shares of Series A Preferred Stock hereunder
(including Parent Common Stock issuable upon conversion of Series A Preferred
Stock), and each holder has been afforded the opportunity to ask questions of
Parent's representatives to obtain any information necessary to verify the
accuracy of any representations or information made or given to the holders.
Notwithstanding the foregoing, nothing herein shall derogate from or otherwise
modify the representations and warranties of Parent set forth in this Agreement,
on which each of the holders has relied in making an exchange of his shares of
Series A Preferred Stock.
(f) Each holder understands that shares of Series A Preferred Stock
(including Parent Common Stock issuable upon conversion of Series A Preferred
Stock) may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering shares of Series A
Preferred Stock (including Parent Common Stock issuable upon conversion of
Series A Preferred Stock) or any available exemption from registration under the
Securities Act, the shares of Series A Preferred Stock (including Parent Common
Stock issuable upon conversion of Series A Preferred Stock) may have to be held
indefinitely. Each holder further acknowledges that shares of Series A Preferred
Stock (including Parent Common Stock issuable upon conversion of Series A
Preferred Stock) may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of Rule 144 are satisfied
(including, without limitation, Parent's compliance with the reporting
requirements under the Exchange Act).
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(g) The representations, warranties and agreements of each holder
contained in the investment representation letter shall survive the Closing of
the Transaction.
1.13 Registration Statement. Subject to the approval of the investors
participating in the Debt Financing, Parent and the Company agree to use their
best efforts to register for re-offer and re-sale, on a registration statement
("Registration Statement") which also includes the shares of the Parent Common
Stock underlying the Notes, Investor Warrants and Agent Warrants issued in the
Debt Financing, up to 25% of the shares of Parent Common Stock underlying Series
A Preferred Stock issued in connection with this Agreement ("Registrable
Securities"), provided, however, that no shares held by persons who are not
Company Investors (as defined below) shall be included in the Registration
Statement. For purposes of this Agreement, "Company Investors" shall include all
holders of Company Common Stock and Company Preferred Stock, but excluding
holders who are the officers and directors of the Company, including their
related parties and affiliates, as of the date hereof. Parent shall give prompt
written notice (but in no event less than fifteen (15) days before the
anticipated filing date) to all holders of Registrable Securities, and such
notice shall describe the proposed registration and distribution and offer to
all holders of Registrable Securities the opportunity to register for re-offer
and re-sale the Registrable Securities, as requested by each such holder. Parent
shall include in such registration all Registrable Securities with respect to
which Parent has received written requests for inclusion therein within ten (10)
days after the holders' receipt of Parent's notice. Parent and the Company
acknowledge and agree that there can be no assurance that the Registrable
Securities, even if included on the Registration Statement, will become
registered under the Securities Act.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as disclosed on the schedules prepared by the Company to be
delivered to the Parent in accordance with Section 6.3(k) (the "Company
Schedules"), the Company hereby represents and warrants to, and covenants with,
Parent and Merger Sub, as follows:
2.1 Organization and Qualification.
(a) The Company is a corporation duly incorporated or organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to own, lease and operate
its assets and properties and to carry on its business as it is now being or
currently planned by the Company to be conducted. The Company is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders ("Approvals") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being or currently planned by the Company to
be conducted, except where the failure to have such Approvals could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect (as defined in Section 10.2 (b)) on the Company. Complete and
correct copies of the certificate of incorporation or organization and by-laws
(or other comparable governing instruments with different names) (collectively
referred to herein as "Company Charter Documents") of the Company, as amended
and currently in effect, have been heretofore delivered to Parent. The Company
is not in violation of any of the provisions of the Company Charter Documents.
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(b) The Company is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
(c) The minute books of the Company contain true, complete and
accurate records of all meetings and consents in lieu of meetings of its Board
of Directors (and any committees thereof), similar governing bodies and
stockholders ("Corporate Records"), since the time of the Company's
organization. Copies of such Corporate Records of the Company have been
heretofore delivered to Parent.
(d) The stock transfer and ownership records of the Company contain
true, complete and accurate records of the stock ownership as of the date of
such records and the transfers involving the capital stock of the Company since
the time of the Company's organization. Copies of such Stock Records of the
Company have been heretofore delivered to Parent.
2.2 Subsidiaries. Except as set forth on Schedule 2.3, the Company has no
subsidiaries.
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2.3 Capitalization.
(a) The authorized capital stock of the Company consists of
100,000,000 shares of common stock, par value $0.01 per share ("Company Common
Stock"), and 10,000,000 shares of preferred stock, par value $0.01 per share
("Company Preferred Stock"). Except as disclosed on Schedule 2.3, At the close
of business on the business day prior to the date hereof, (i) 1,463,167 shares
of Company Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable (which includes the Finder Shares to be
issued immediately prior to Closing), (ii) 6,360.50 shares of Company Preferred
Stock were issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (iii) 484,000 shares of Company Common Stock were reserved
for issuance upon the exercise of outstanding Company Stock Options granted to
employees of the Company at an exercise price per share of $10.00, (iv) 402,012
shares of Company Common Stock were reserved for issuance upon the exercise of
outstanding Company Common Stock Warrants at exercise prices per share ranging
from $5.00 to $22.50, (v) 640 shares of Company Preferred Stock were reserved
for issuance upon the exercise of outstanding Company Preferred Stock Warrants
(which, prior to Closing, shall be converted by agreement of the holder and the
Company into Company Common Stock Warrants to purchase 6,400 shares of Company
Common Stock pursuant to Section 1.6(e) hereof), and (vi) 63,605 shares of
Company Common Stock were reserved for issuance upon the conversion of
outstanding Company Preferred Stock. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instrument pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as described in Schedule
2.3 hereto, there are no commitments or agreements of any character to which the
Company is bound obligating the Company to accelerate the vesting of any Company
Stock Option as a result of the Transaction. All outstanding shares of Company
Common Stock and Company Preferred Stock and all outstanding Company Stock
Options, Company Common Stock Warrants and Company Preferred Stock Warrants have
been issued and granted in compliance with (i) all applicable securities laws
and (in all material respects) other applicable laws and regulations, and (ii)
all requirements set forth in any applicable Contracts. The Company has
heretofore delivered to Parent true, complete an accurate copies of the Company
Stock Options, Company Common Stock Warrants and Company Preferred Stock
Warrants including any and all documents and agreements relating thereto.
(b) Except as set forth in Schedule 2.3 hereto or in this Section
2.3, there are no equity securities, partnership interests or similar ownership
interests of any class of any equity security of the Company, or any securities
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except as set forth in Schedule 2.3 hereof or Section
2.3 hereof, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
the Company or obligating the Company to grant, extend, accelerate the vesting
of or enter into any such subscription, option, warrant, equity security, call,
right, commitment or agreement.
(c) Except as contemplated by this Agreement and except as set forth
in Schedule 2.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, anti-takeover plan or other agreement or
understanding to which the Company is a party or by which the Company is bound
with respect to any equity security of any class of the Company.
12
2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, to consummate the transactions
contemplated hereby (including the Transaction). The execution and delivery of
this Agreement and the consummation by the Company of the transactions
contemplated hereby (including the Transaction) have been duly and validly
authorized by all necessary corporate action on the part of the Company
(including the approval by its Board of Directors), and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby, other than the approval
of this Agreement and the Transaction by a majority of the Company's
stockholders. This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery thereof
by the other parties hereto, constitutes the legal and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity and public policy.
2.5 No Conflict; Required Filings and Consents. The execution and delivery
of this Agreement by the Company does not, and the performance of this Agreement
by the Company shall not, (i) conflict with or violate the Company Charter
Documents, (ii) subject to obtaining the adoption of this Agreement and the
Transaction by the stockholders of the Company, conflict with or violate any
Legal Requirements, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or materially impair the Company's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company pursuant to, any Contracts, except, with respect to clauses (ii) or
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually and in the aggregate, have a Material
Adverse Effect on the Company.
(a) The execution and delivery of this Agreement by the Company does
not, and the performance of their obligations hereunder will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "Governmental Entity"), except (i) for
applicable requirements, if any, of the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), state securities laws ("Blue Sky
Laws"), and the rules and regulations thereunder, and appropriate documents with
the relevant authorities of other jurisdictions in which the Company is
qualified to do business, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company or, after the Closing, the Parent, or
prevent consummation of the Transaction or otherwise prevent the parties hereto
from performing their obligations under this Agreement.
2.6 Compliance. To the knowledge of the Company, it has complied with and is not
in violation of any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on the Company. To
the Company's knowledge, the businesses and activities of the Company have not
been and are not being conducted in violation of any Legal Requirements and the
Company is not in default or violation of any term, condition or provision of
any applicable Company Charter Documents or Contracts. Except as set forth on
Schedule 2.6, to the Company's knowledge, no written notice of non-compliance
with any Legal Requirements has been received by the Company (and the Company
has no knowledge of any such notice delivered to any other Person). The Company
is not in violation of any term of any contract or covenant relating to
employment, patents, proprietary information disclosure, non-competition or
non-solicitation.
13
2.7 Financial Statements.
(a) The Company has provided to Parent a correct and complete copy
of the audited financial statements (including, in each case, any related notes
thereto) of the Company for the fiscal years ended September 30, 2004 and 2005,
prepared in accordance with the published rules and regulations of any
applicable Governmental Entity and with generally accepted accounting principles
of the United States ("U.S. GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto) and audited
in accordance with the auditing standards of the Public Company Accounting
Oversight Board ("PCAOB") by an independent accountant registered with PCAOB,
and such statements fairly present in all material respects the financial
position of the Company at the respective dates thereof and the results of its
operations and cash flows for the periods indicated, and each does 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. The audited financial statements described in this Section 2.7(a)
are referred to herein as the "U.S. GAAP Financial Statements."
(b) The Company maintains 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.
2.8 No Undisclosed Liabilities. Except as set forth in Schedule 2.8
hereto, the Company has no liabilities individually in excess of $25,000 and in
the aggregate in excess of $50,000 (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related notes
to the financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of the Company, except: (i) liabilities
provided for in or otherwise disclosed in the audited balance sheets of the
Company as of September 30, 2005 prepared in accordance with U.S. GAAP, which
have been delivered to Parent, and (ii) such liabilities arising in the ordinary
course of the Company's business since September 30, 2005, none of which would
have a Material Adverse Effect on the Company.
14
2.9 Absence of Certain Changes or Events. Except as set forth in Schedule
2.9 hereto and except for the Transactions, since September 30, 2005, there has
not been: (i) any Material Adverse Effect on the Company, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of the Company's stock, or any
purchase, redemption or other acquisition by the Company of any of the Company's
capital stock or any other securities of the Company or any options, warrants,
calls or rights to acquire any such shares or other securities, (iii) any split,
combination or reclassification of any of the Company's capital stock, (iv) any
granting by the Company of any increase in compensation or fringe benefits,
except for normal increases of cash compensation in the ordinary course of
business consistent with past practice, or any payment by the Company of any
bonus, except for bonuses made in the ordinary course of business consistent
with past practice, or any granting by the Company of any increase in severance
or termination pay or any entry by the Company into any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving the Company of the nature
contemplated hereby, (v) entry by the Company into any licensing or other
agreement with regard to the acquisition or disposition of any Intellectual
Property (as defined in Section 3.20 hereof) other than licenses in the ordinary
course of business consistent with past practice or any amendment or consent
with respect to any licensing agreement filed or required to be filed by the
Company with respect to any Governmental Entity, (vi) any material change by the
Company in its accounting methods, principles or practices, (vii) any change in
the auditors of the Company, (vii) any issuance of capital stock of the Company
or any other securities of the Company or any options, warrants, calls or rights
to acquire any such shares or other securities, or (viii) any revaluation by the
Company of any of their respective assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or accounts
receivable or any sale of assets of the Company other than in the ordinary
course of business.
2.10 Litigation. Except as disclosed in Schedule 2.10 hereto, there are no
claims, suits, actions or proceedings pending or, to the knowledge of the
Company, threatened against the Company, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on the Company or have a Material Adverse Effect
on the ability of the parties hereto to consummate the Transaction.
2.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document) covering any active or former employee, director or
consultant of the Company, or any trade or business (whether or not
incorporated) which is under common control with the Company, with respect to
which the Company has liability (collectively, the "Plans") has been maintained
and administered in all material respects in compliance with its terms and with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Plans, and all liabilities with respect
to the Plans have been properly reflected in the financial statements of the
Company. No suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought, or to the
knowledge of the Company is threatened, against or with respect to any such
Plan. There are no audits, inquiries or proceedings pending or, to the knowledge
of the Company, threatened by any governmental agency with respect to any Plans.
All contributions, reserves or premium payments required to be made or accrued
as of the date hereof to the Plans have been timely made or accrued. the Company
does not have any plan or commitment to establish any new Plan, to modify any
Plan (except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any new
Plan. Each Plan can be amended, terminated or otherwise discontinued after the
Closing in accordance with its terms, without liability to Parent Company (other
than ordinary administration expenses and expenses for benefits accrued but not
yet paid).
15
(b) Except as disclosed on Schedule 2.11 hereto or in Section 2.11,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of the Company under any
Plan or otherwise, (ii) materially increase any benefits otherwise payable under
any Plan, or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
2.12 Labor Matters. Except as disclosed in Schedule 2.12 hereto, the
Company is not a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company nor does the
Company know of any activities or proceedings of any labor union to organize any
such employees.
2.13 Restrictions on Business Activities. Except as disclosed on Schedule
2.13 hereto, to the Company's knowledge, there is no agreement, commitment,
judgment, injunction, order or decree binding upon the Company or to which the
Company is a party which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of the Company, any
acquisition of property by the Company or the conduct of business by the Company
as currently conducted other than such effects, individually or in the
aggregate, which have not had and could not reasonably be expected to have a
Material Adverse Effect on the Company.
2.14 Title to Property.
(a) All real property owned by the Company (including improvements
and fixtures thereon, easements and rights of way) (the "Real Property") is
shown or reflected on the audited balance sheets of the Company as of September
30, 2005 prepared in accordance with U.S. GAAP. The Company has good, valid and
marketable fee simple title to the Real Property, and except as set forth in the
audited financial statements of the Company as of September 30, 2005 prepared in
accordance with U.S. GAAP or on Schedule 2.14 hereto, all of the Real Property
is held free and clear of (i) all leases, licenses and other rights to occupy or
use the Real Property and (ii) all Liens, rights of way, easements,
restrictions, exceptions, variances, reservations, covenants or other title
defects or limitations of any kind, other than liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby. Schedule 2.14 hereto is a list of all
options or other contracts under which the Company has a right to acquire any
interest in real property.
16
(b) All leases of real property held by the Company and all personal
property and other property and assets of the Company (other than Real Property)
owned, used or held for use in connection with the business of the Company (the
"Personal Property") are shown or reflected on the audited balance sheets of the
Company as of September 30, 2005 prepared in accordance with U.S. GAAP. The
Company owns and has good and marketable title to the Personal Property, and all
such assets and properties are in each case held free and clear of all Liens,
except for Liens disclosed in the audited financial statements of the Company as
of September 30, 2005 prepared in accordance with U.S. GAAP or in Schedule 2.14
hereto, none of which Liens has or will have, individually or in the aggregate,
a Material Adverse Effect on such property or on the present or contemplated use
of such property in the businesses of the Company.
(c) All leases pursuant to which the Company leases from others
material real or personal property are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
material default or event of default of the Company or, to the Company's
knowledge, any other party (or any event which with notice or lapse of time, or
both, would constitute a material default), except where the lack of such
validity and effectiveness or the existence of such default or event of default
could not reasonably be expected to have a Material Adverse Effect on the
Company.
2.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes" refers to any and all federal, state, local and foreign taxes,
including, without limitation, gross receipts, income, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, assessments, governmental
charges and duties together with all interest, penalties and additions imposed
with respect to any such amounts and any obligations under any agreements or
arrangements with any other person with respect to any such amounts and
including any liability of a predecessor entity for any such amounts.
(b) Tax Returns and Audits. (c) Except as set forth in Schedule 2.15
hereto:
(i) The Company has timely filed all federal, state, local and
foreign returns, estimates, information statements and reports relating to Taxes
("Returns") required to be filed by the Company with any Tax authority prior to
the date hereof, except such Returns which are not material to the Company. All
such Returns are true, correct and complete in all material respects. The
Company has paid all Taxes shown to be due on such Returns.
(ii) All Taxes that the Company is required by law to withhold
or collect have been duly withheld or collected, and have been timely paid over
to the proper governmental authorities to the extent due and payable.
17
(iii) The Company has not been delinquent in the payment of
any material Tax nor is there any material Tax deficiency outstanding, proposed
or assessed against the Company, nor has the Company executed any unexpired
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the
Company by any Tax authority is presently in progress, nor has the Company been
notified of any request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by the Company
has been proposed in writing, formally or informally, by any Tax authority to
the Company or any representative thereof.
(vi) The Company has no liability for any material unpaid
Taxes which have not been accrued for or reserved on the Company's balance
sheets included in the audited financial statements for the most recent fiscal
year ended, whether asserted or unasserted, contingent or otherwise, which is
material to the Company, other than any liability for unpaid Taxes that may have
accrued since the end of the most recent fiscal year in connection with the
operation of the business of the Company in the ordinary course of business,
none of which is material to the business, results of operations or financial
condition of the Company.
(vii) The Company has not taken any action and does not know
of any fact, agreement, plan or other circumstance that is reasonably likely to
prevent the Transaction from qualifying as a reorganization within the meaning
of Section 368(a) of the Code.
2.16 Environmental Matters. (a) Except as disclosed in Schedule 2.16
hereto and except for such matters that, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect on the Company, to the
Company's knowledge: (i) the Company has complied with all applicable
Environmental Laws; (ii) the properties currently owned or operated by the
Company (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances; (iii) the
properties formerly owned or operated by the Company were not contaminated with
Hazardous Substances during the period of ownership or operation by the Company;
(iv) the Company is not subject to liability for any Hazardous Substance
disposal or contamination on any third party property; (v) the Company has not
been associated with any release or threat of release of any Hazardous
Substance; (vi) the Company has not received any notice, demand, letter, claim
or request for information alleging that the Company may be in violation of or
liable under any Environmental Law; and (vii) the Company is not subject to any
orders, decrees, injunctions or other arrangements with any Governmental Entity
or subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
(b) As used in this Agreement, the term "Environmental Law" means
any federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health and safety,
or natural resources; (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
18
(c) As used in this Agreement, the term "Hazardous Substance" means
any substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
2.17 Brokers; Third Party Expenses. Except for the placement agreement
entered into, or to be entered into, by and between the Company and Xxxxxxx
Securities, LLC appointing Xxxxxxx Securities, LLC as the exclusive placement
agent for the Company under the Debt Financing ("Placement Agreement") and
except for Xxxxxxxx Xxxxxxx who has agreed to receive 21,623 shares of Company
Common Stock ("Finder Shares"), upon the Closing, in full payment for his
services as a finder ("Finder Agreement"), the Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage, finders'
fees, agent's commissions or any similar charges in connection with this
Agreement or any transactions contemplated hereby, nor will the Company or
Parent be required to issue any shares of common stock, options, warrants or
other securities of either the Company or Parent to any third party as result of
this Transaction due to the provisions of any agreement entered into by the
Company relating to brokerage, finders' fees, agent's commissions or similar
agreements.
2.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or
associated therewith: (i) patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof ("Patents"); (ii) inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing;
(iii) copyrights, copyrights registrations and applications therefor,
and all other rights corresponding thereto throughout the world; (iv)
domain names, uniform resource locators ("URLs") and other names and
locators associated with the Internet ("Domain Names"); (v) industrial
designs and any registrations and applications therefor; (vi) trade
names, logos, common law trademarks and service marks, trademark and
service xxxx registrations and applications therefor (collectively,
"Trademarks"); (vii) all databases and data collections and all rights
therein; (viii) all moral and economic rights of authors and inventors,
however denominated, and (ix) any similar or equivalent rights to any
of the foregoing (as applicable).
19
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, the Company.
"Registered Intellectual Property" means all Intellectual Property that
is the subject of an application, certificate, filing, registration or
other document issued, filed with, or recorded by any private, state,
government or other legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company.
"Company Products" means all current versions of products or service
offerings of the Company.
(a) Except as disclosed on Schedule 2.18, to the Company's
knowledge, Company Intellectual Property or Company Product is not subject to
any material proceeding or outstanding decree, order, judgment, contract,
license, agreement or stipulation restricting in any manner the use, transfer or
licensing thereof by the Company, or which may affect the validity, use or
enforceability of such Company Intellectual Property or Company Product, which
in any such case could reasonably be expected to have a Material Adverse Effect
on the Company.
(b) Except as disclosed on Schedule 2.18 hereto, the Company owns
and has good and exclusive title to each material item of Company Intellectual
Property owned by it free and clear of any Liens (excluding non-exclusive
licenses and related restrictions granted in the ordinary course); and the
Company is the exclusive owner of all material registered Trademarks used in
connection with the operation or conduct of the business of the Company
including the sale of any products or the provision of any services by the
Company.
(c) The operation of the business of the Company as such business
currently is conducted, including (i) the design, development, manufacture,
distribution, reproduction, marketing or sale of the products or services of the
Company (including Company Products) and (ii) the Company's use of any product,
device or process, to the Company's knowledge and except as could not reasonably
be expected to have a Material Adverse Effect, has not and does not and will not
infringe or misappropriate the Intellectual Property of any third party or
constitute unfair competition or trade practices under the laws of any
jurisdiction.
2.19 Agreements, Contracts and Commitments. (a) Schedule 2.19 hereto sets
forth a complete and accurate list of all Material Contracts (as hereinafter
defined), specifying the parties thereto. For purposes of this Agreement, (i)
the term "Contracts" shall mean all contracts, agreements, leases, mortgages,
indentures, note, bond, liens, license, permit, franchise, purchase orders,
sales orders, arbitration awards, judgments, decrees, orders, documents,
instruments, understandings and commitments, or other instrument or obligation
(including without limitation outstanding offers or proposals) of any kind,
whether written or oral, to which the Company is a party or by or to which any
of the properties or assets of the Company may be bound, subject or affected
(including without limitation notes or other instruments payable to the Company)
and (ii) the term "Material Contracts" shall mean (x) each Contract (I)
providing for payments (past, present or future) to the Company in excess of
$50,000 in the aggregate or (II) under which or in respect of which the Company
presently has any liability or obligation of any nature whatsoever (absolute,
contingent or otherwise) in excess of $50,000, (y) each Contract which otherwise
is or may be material to the businesses, operations, assets, condition
(financial or otherwise) or prospects of the Company and (z) without limitation
of subclause (x) or subclause (y), each of the following Contracts:
20
(i) any mortgage, indenture, note, installment obligation or
other instrument, agreement or arrangement for or relating to any borrowing of
money by or from the Company, or any officer, director or 5% or more stockholder
("Insider") of the Company;
(ii) any guaranty, direct or indirect, by the Company or any
Insider of the Company of any obligation for borrowings, or otherwise, excluding
endorsements made for collection in the ordinary course of business;
(iii) any Contract made other than in the ordinary course of
business or (x) providing for the grant to any preferential rights to purchase
or lease any asset of the Company or (y) providing for any right (exclusive or
non-exclusive) to sell or distribute, or otherwise relating to the sale or
distribution of, any product or service of the Company;
(iv) any obligation to register any shares of the capital
stock or other securities of the Company with any Governmental Entity;
(v) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business, assets or stock of other
Persons;
(vi) any collective bargaining agreement with any labor union;
(vii) any lease or similar arrangement for the use by the
Company of personal property;
(viii) any Contract granting or purporting to grant, or
otherwise in any way relating to, any mineral rights or any other interest
(including, without limitation, a leasehold interest) in real property; and
(ix) any Contract to which any Insider of the Company is a
party.
(b) Each Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Material Contracts (or written summaries in the case of oral
Material Contracts) and of all outstanding offers or proposals of the Company
has have been heretofore delivered to Parent.
(c) Except as set forth in Schedule 2.19, neither the Company nor to
the best of the Company's knowledge any other party thereto is in breach of or
in default under, and no event has occurred which with notice or lapse of time
or both would become a breach of or default under, any Contract, and no party to
any Contract has given any written notice of any claim of any such breach,
default or event, which, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect on the Company. Each agreement, contract or
commitment to which the Company is a party or by which it is bound that has not
expired by its terms is in full force and effect, except where such failure to
be in full force and effect is not reasonably likely to have a Material Adverse
Effect on the Company.
21
2.20 Insurance. Schedule 2.20 sets forth the Company's insurance policies
and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors (collectively, the "Insurance
Policies") of the Company.
2.21 Governmental Actions/Filings. The Company has been granted and holds,
and has made, all Governmental Actions/Filings (including, without limitation,
the Governmental Actions/Filings required for (i) emission or discharge of
effluents and pollutants into the air and the water and (ii) the manufacture and
sale of all products manufactured and sold by it) necessary to the conduct by
the Company of its businesses as presently conducted or used or held for use by
the Company, all of which are listed in Schedule 2.21 hereto, and true, complete
and correct copies of which have heretofore been delivered to Parent. Each such
Governmental Action/Filing is in full force and effect and, expect as disclosed
in Schedule 2.21 hereto, will not expire prior to December 31, 2006, and the
Company is in compliance with all of its obligations with respect thereto. No
event has occurred and is continuing which requires or permits, or after notice
or lapse of time or both would require or permit, and consummation of the
transactions contemplated by this Agreement or any ancillary documents will not
require or permit (with or without notice or lapse of time, or both), any
modification or termination of any such Governmental Actions/Filings. Except as
set forth in Schedule 2.21, to the Company's knowledge, no Governmental
Action/Filing is necessary to be obtained, secured or made by the Company to
enable it to continue to conduct its businesses and operations and use its
properties after the Closing in a manner which is consistent with current
practice.
For purposes of this Agreement, the term "Governmental Action/Filing"
shall mean any franchise, license, certificate of compliance, authorization,
consent, order, permit, approval, consent or other action of, or any filing,
registration or qualification with, any federal, state, municipal, foreign or
other governmental, administrative or judicial body, agency or authority.
2.22 Interested Party Transactions. Except as set forth in the Schedule
2.22 hereto, no employee, officer, director or Insider of the Company or a
member of his or her immediate family is indebted to the Company, nor is the
Company indebted (or committed to make loans or extend or guarantee credit) to
any of them, other than (i) for payment of salary for services rendered, (ii)
reimbursement for reasonable expenses incurred on behalf of the Company, and
(iii) for other employee benefits made generally available to all employees.
Except as set forth in Schedule 2.22, to the Company's knowledge, none of such
individuals has any direct or indirect ownership interest in any Person with
whom the Company is affiliated or with whom the Company has a contractual
relationship, or any Person that competes with the Company, except that each
employee, Insider, officer or director of the Company and members of their
respective immediate families may own less than 5% of the outstanding stock in
publicly traded companies that may compete with the Company. Except as set forth
in Schedule 2.22, to the knowledge of the Company, no officer, director or
Insider or any member of their immediate families is, directly or indirectly,
interested in any material contract with the Company (other than such contracts
as relate to any such individual ownership of capital stock or other securities
of the Company).
22
2.23 Board Approval. The board of directors of the Company or similar
governing body (including any required committee or subgroup of thereof) has, as
of the date of this Agreement, unanimously approved, subject to the approval of
stockholders, this Agreement and the transactions contemplated hereby, and
resolved to seek the stockholders approval and adoption of this Agreement and
approval of the Transaction.
2.24 Management. During the past five year period, to the Company's
knowledge, no current or former director, executive officer or Insider of the
Company 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 such person, or any partnership
in which 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 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 that 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 any such
person from, or otherwise limiting, the following activities: (1) 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; (2) Engaging in any type of business
practice; or (3) 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 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; (e) a finding by a court of competent jurisdiction
in a civil action or by the U.S. 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.
2.25 Injunction. Neither the Company nor any of its affiliates is or has
been subject to any order, judgment, or decree of any court of competent
jurisdiction temporarily, preliminarily, or permanently enjoining such person
for failure to comply with Rule 503 under Regulation D
2.26 Representations and Warranties Complete. The representations and
warranties of the Company included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed on the schedules prepared by the Parent (the "Parent
Schedules") Parent represents and warrants to, and covenants with, the Company,
as follows:
3.1 Organization and Qualification.
(a) Parent is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Florida and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Parent to be conducted. Parent is in possession of all Approvals necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being or currently planned by Parent to be
conducted, except where the failure to have such Approvals could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent. Complete and correct copies of the Parent Charter
Documents, as amended and currently in effect, have been heretofore delivered to
the Company. Parent is not in violation of any of the provisions of the Parent
Charter Documents.
(b) Parent is duly qualified or licensed to do business as a foreign
corporation and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.
3.2 Subsidiaries. Except for Merger Sub which is a wholly-owned subsidiary
of Parent, Parent has no Subsidiaries and does not own, directly or indirectly,
any ownership, equity, profits or voting interest in any Person or have any
agreement or commitment to purchase any such interest, and Parent has not agreed
and is not obligated to make nor is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan, commitment or undertaking of any nature, as of the date hereof or
as may hereafter be in effect under which it may become obligated to make, any
future investment in or capital contribution to any other entity.
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3.3 Capitalization.
(a) The authorized capital stock of Qorus consists of: (i)
50,000,000 shares of common stock, par value $0.001 per share ("Parent Common
Stock") and (ii) 5,000,000 shares of preferred stock, par value $0.01 per share
("Parent Preferred Stock") of which 1,000,000 shares will be designated as
Series A Convertible Preferred Stock ("Series A Preferred Stock") pursuant to
the Certificate of Designations of Series A Preferred Stock attached hereto as
Exhibit A ("Certificate of Designations"). As of the close of business on the
business day immediately prior to the date hereof, Qorus has: (i) 46,174,800
shares of Parent Common Stock issued and outstanding (which excludes the
currently issued 3,010,000 shares of Parent Common Stock held in treasury which
will be cancelled prior to the Closing of the Merger), (ii) no shares of Parent
Preferred Stock were issued and outstanding; (iii) 23,200 shares of Parent
Common Stock were reserved for issuance upon the exercise of outstanding options
and warrants to purchase Parent Common Stock ("Parent Warrants"); (iv) no shares
of Parent Preferred Stock were reserved for issuance to any party (other than
the issuances contemplated under this Agreement); and (v) no shares of Parent
Common Stock were reserved for issuance upon the conversion of Parent Preferred
Stock or any outstanding convertible notes, debentures or securities
("Convertible Securities"). All outstanding shares of Parent Common Stock have
been issued and granted in compliance with (i) all applicable securities laws
and (in all material respects) other applicable laws and regulations, and (ii)
all requirements set forth in any applicable Contracts. Prior to Closing, there
will be an aggregate of 1,000,000 shares of authorized but unissued shares of
Series A Preferred Stock, which, subject to the approval of Parent's
stockholders to effect the Reverse Split, which in any case shall be required to
have occurred subsequent to the Closing ("Stockholder Approval"): (i) shall be
convertible into 1,000,000,000 shares of Parent Common Stock on a pre-Reverse
Split basis, based on a conversion rate of 1,000 shares of Parent Common Stock
on a pre-Reverse Split basis for each share of Series A Preferred Stock, and
(ii) shall be convertible into 100,000,000 shares of Parent Common Stock on a
post-Reverse Split basis. The term "Reverse Split" is defined in Section 5.14
hereof. All outstanding shares of Parent Common Stock and all outstanding Parent
Warrants have been issued and granted in compliance with (i) all applicable
securities laws and (in all material respects) other applicable laws and
regulations, and (ii) all requirements set forth in any applicable Contracts.
Parent has heretofore delivered to the Company true, complete an accurate copies
of the Parent Warrants including any and all documents and agreements relating
thereto.
(b) Except as contemplated by this Agreement, the Debt Financing,
the Preferred Share Buy-out, and the Loan Conversion (as defined in Section
6.1(l) hereof), or as described on Schedule 3.3, as of the date hereof, there is
no commitment by Parent to issue any shares of capital stock, subscriptions,
warrants, options, convertible securities, or other similar rights to purchase
or receive Parent securities or to distribute to the holders of any of its
equity securities any evidence of indebtedness, cash, or other assets. Parent is
under no obligation (contingent or otherwise) to purchase, redeem, or otherwise
acquire any of its equity or debt securities or any interest therein, and to
Parent's knowledge, there are no voting trusts or similar agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights, or proxies relating to any securities of
Parent or obligating Parent to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, equity security, call, right,
commitment or agreement. (c) Except as contemplated by this Agreement and except
as set forth in Schedule 3.3 hereto, there are no registration rights, and there
is no voting trust, proxy, rights plan, anti-takeover plan or other agreement or
understanding to which Parent is a party or by which it is bound with respect to
any equity security of any class of Parent.
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3.4 Authority Relative to this Agreement. Parent has full corporate power
and authority to: (i) execute, deliver and perform this Agreement, and each
ancillary document which Parent has executed or delivered or is to execute or
deliver pursuant to this Agreement, and (ii) carry out Parent's obligations
hereunder and thereunder and, to consummate the transactions contemplated hereby
(including the Transaction). The execution and delivery of this Agreement and
the consummation by Parent of the transactions contemplated hereby (including
the Transaction) have been duly and validly authorized by all necessary
corporate action on the part of Parent (including the approval by its Board of
Directors), and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and, assuming the due authorization, execution and delivery
thereof by the other parties hereto, constitutes the legal and binding
obligation of Parent, enforceable against Parent in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity and public policy.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent does not,
and the performance of this Agreement by Parent shall not: (i) conflict with or
violate Parent Charter Documents, (ii) conflict with or violate any Legal
Requirements, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or materially impair Parent's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Parent pursuant to, any
Contracts, except, with respect to clauses (ii) or (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that would not,
individually and in the aggregate, have a Material Adverse Effect on Parent.
(b) Except for: (i) the filing of the Certificate of Designations
with the appropriate authorities and pursuant to the laws of the State of
Florida, (ii) the filing of the articles of merger with the appropriate
authorities and pursuant to the laws of the State of Delaware, and (iii) the
requirement to obtain the Stockholder Approval which in any case shall be
required to have occurred subsequent to the Closing, the execution and delivery
of this Agreement by Parent does not, and the performance of its obligations
hereunder will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Entity, except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws, and the rules and regulations thereunder, and appropriate documents
with the relevant authorities of other jurisdictions in which Parent is
qualified to do business, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent, or prevent consummation of the Transaction or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
26
3.6 Compliance. To Parent's knowledge, Parent has complied with, is not in
violation of, any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on Parent. To
Parent's knowledge, the businesses and activities of Parent have not been and
are not being conducted in violation of any Legal Requirements. Parent is not in
default or violation of any term, condition or provision of Parent Charter
Documents. Except as set forth on Schedule 3.6, to Parent's knowledge, no
written notice of non-compliance with any Legal Requirements has been received
by the Parent Company (and the Parent has no knowledge of any such notice
delivered to any other Person). The Parent is not in violation of any term of
any contract or covenant relating to employment, patents, proprietary
information disclosure, non-competition or non-solicitation.
3.7 SEC Filings; Financial Statements.
(a) Parent has made available to the Company each report,
registration statement and definitive proxy statement filed by Parent with the
SEC for the 36 months prior to the date of this Agreement (the "Parent SEC
Reports"), which, to Parent's knowledge, are all the forms, reports, statements
and documents required to be filed by Parent with the SEC for the 36 months
prior to the date of this Agreement. As of their respective dates (and with
respect to Parent SEC Reports filed prior to September 30, 2004, to the
knowledge of Parent), the Parent SEC Reports: (i) were prepared in accordance
and complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Parent SEC Reports, and (ii) did not at
the time they were filed (and if amended or superseded by a filing prior to the
date of this Agreement then on the date of such filing and as so amended or
superceded) 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. Except to the extent set forth in the preceding sentence, Parent
makes no representation or warranty whatsoever concerning the Parent SEC Reports
as of any time other than the time they were filed.
(b) Each set of financial statements (including, in each case, any
related notes thereto) contained in Parent SEC Reports (and with respect to
financial statements (and notes thereto) contained in Parent SEC Reports filed
prior to September 30, 2004, to the knowledge of Parent), complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, was prepared in accordance with U.S. GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, do not contain
footnotes as permitted by Form 10-QSB of the Exchange Act) and each fairly
presents in all material respects the financial position of Parent at the
respective dates thereof and the results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal adjustments which were not or are not expected to
have a Material Adverse Effect on Parent taken as a whole.
27
(c) Parent has previously furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act, each of which are listed on
the Parent Schedules.
3.8 No Undisclosed Liabilities. Except as set forth in Schedule 3.8
hereto, Parent has no liabilities (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related notes
to the financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent, except (i) liabilities provided for
in or otherwise disclosed in the most recent financial statements in the Parent
SEC Reports filed prior to the date hereof, (ii) liabilities incurred since
September 30, 2005 in the ordinary course of business, none of which would have
a Material Adverse Effect on Parent, and (iii) those liabilities and obligations
specifically set forth in Section 5.11.
3.9 Absence of Certain Changes or Events. Except as set forth in Schedule
3.9 hereto, and except as contemplated by this Agreement, since September 30,
2005, there has not been: (i) any Material Adverse Effect on Parent, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of Parent's capital
stock, or any purchase, redemption or other acquisition by Parent of any of
Parent's capital stock or any other securities of Parent or any options,
warrants, calls or rights to acquire any such shares or other securities, (iii)
except for the Reverse Split contemplated following the Closing, any split,
combination or reclassification of any of Parent's capital stock, (iv) any
granting by Parent of any increase in compensation or fringe benefits, except
for normal increases of cash compensation in the ordinary course of business
consistent with past practice, or any payment by Parent of any bonus, except for
bonuses made in the ordinary course of business consistent with past practice,
or any granting by Parent of any increase in severance or termination pay or any
entry by Parent into any currently effective employment, severance, termination
or indemnification agreement or any agreement the benefits of which are
contingent or the terms of which are materially altered upon the occurrence of a
transaction involving Parent of the nature contemplated hereby, (v) entry by
Parent into any licensing or other agreement with regard to the acquisition or
disposition of any Intellectual Property other than licenses in the ordinary
course of business consistent with past practice or any amendment or consent
with respect to any licensing agreement filed or required to be filed by Parent
with respect to any Governmental Entity, (vi) any material change by Parent in
its accounting methods, principles or practices, except as required by
concurrent changes in U.S. GAAP, (vii) any change in the auditors of Parent,
(vii) except for the Debt Financing, Preferred Share Buy-out, or Loan
Conversion, any issuance of, or agreement to issue, capital stock of Parent or
any other securities of Parent or any options, warrants, calls or rights to
acquire any such shares or other securities, or (viii) any revaluation by Parent
of any of their respective assets, including, without limitation, writing down
the value of capitalized inventory or writing off notes or accounts receivable
or any sale of assets of Parent other than in the ordinary course of business.
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3.10 Litigation. Except as set forth on Schedule 3.10 hereto or in the
Parent's most recent report on Form 10-KSB or the Parent SEC Reports subsequent
thereto, there are no claims, suits, actions or proceedings pending or to
Parent's knowledge, threatened against Parent, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on Parent or have a Material Adverse Effect on
the ability of the parties hereto to consummate the Transaction.
3.11 Employee Benefit Plans. Except as disclosed on Schedule 3.11 hereto,
Parent does not maintain, and has no liability under, any Plan, and neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of Parent, or (ii) result
in the acceleration of the time of payment or vesting of any such benefits.
3.12 Labor Matters. Parent is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
Parent, nor does Parent know of any activities or proceedings of any labor union
to organize any such employees.
3.13 Restrictions on Business Activities. To Parent's knowledge, there is
no agreement, commitment, judgment, injunction, order or decree binding upon
Parent or to which Parent is a party which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any business practice
of Parent, any acquisition of property by Parent or the conduct of business by
Parent as currently conducted other than such effects, individually or in the
aggregate, which have not had and could not reasonably be expected to have, a
Material Adverse Effect on Parent.
3.14 Title to Property. Parent does not own or lease any Real Property or
Personal Property. There are no options or other contracts under which Parent
has a right or obligation to acquire or lease any interest in Real Property or
Personal Property.
3.15 Taxes. Except as set forth in Schedule 3.15 hereto, to Parent's
knowledge:
(a) Parent has timely filed all Returns required to be filed by
Parent with any Tax authority prior to the date hereof, except such Returns
which are not material to Parent. All such Returns are true, correct and
complete in all material respects. Parent has paid all Taxes shown to be due on
such Returns.
(b) All Taxes that Parent is required by law to withhold or collect
have been duly withheld or collected, and have been timely paid over to the
proper governmental authorities to the extent due and payable.
(c) Parent has not been delinquent in the payment of any material
Tax nor is there any material Tax deficiency outstanding, proposed or assessed
against Parent, nor has Parent executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
29
(d) No audit or other examination of any Return of Parent by any Tax
authority is presently in progress, nor has Parent been notified of any request
for such an audit or other examination.
(e) No adjustment relating to any Returns filed by Parent has been
proposed in writing, formally or informally, by any Tax authority to Parent or
any representative thereof.
(f) Parent has no liability for any material unpaid Taxes which have
not been accrued for or reserved on Parent's balance sheets included in the
audited financial statements for the most recent fiscal year ended, whether
asserted or unasserted, contingent or otherwise, which is material to Parent,
other than any liability for unpaid Taxes that may have accrued since the end of
the most recent fiscal year in connection with the operation of the business of
Parent in the ordinary course of business, none of which is material to the
business, results of operations or financial condition of Parent.
(g) Parent has not taken any action and does not know of any fact,
agreement, plan or other circumstance that is reasonably likely to prevent the
Transaction from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
3.16 Environmental Matters. Except as disclosed in Schedule 3.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to Parent's knowledge: (i)
Parent has complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Parent (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Parent were not
contaminated with Hazardous Substances during the period of ownership or
operation by Parent; (iv) Parent is not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) Parent has
not been associated with any release or threat of release of any Hazardous
Substance; (vi) Parent has not received any notice, demand, letter, claim or
request for information alleging that Parent may be in violation of or liable
under any Environmental Law; and (vii) Parent is not subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
3.17 Brokers. Except for Parent's obligations under the Financial Advisory
Agreement (as defined in Section 5.11) and under the Placement Agreement which
is to be assumed by Parent immediately after the Closing hereof, Parent has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agent's commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.18 Intellectual Property. Parent does not own, license or otherwise have
any right, title or interest in any Intellectual Property or Registered
Intellectual Property. To the knowledge of Parent, Parent has not, does not and
will not infringe or misappropriate the Intellectual Property of any third party
or engage in activities constituting unfair competition or trade practices under
the laws of any jurisdiction.
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3.19 Agreements, Contracts and Commitments.
(a) Except for the Financial Advisory Agreement, the Placement
Agreement, the agreements with Florida Atlantic Stock Transfer, Inc. ("Transfer
Agent"), the agreement with Vero Management, LLC which will be terminated
without liability to Parent prior to Closing, and except as set forth on
Schedule 3.19, there are no contracts, agreements, leases, mortgages,
indentures, notes, bonds, liens, licenses, permits, franchises, purchase orders,
sales orders, arbitration awards, judgments, decrees, orders, documents,
instruments, understandings and commitments, or other instrument or obligation
(including without limitation outstanding offers or proposals) of any kind,
whether written or oral, to which Parent is a party or by or to which any of the
properties or assets of Parent may be bound, subject or affected, which either
(a) creates or imposes a liability greater than $5,000, or (b) may not be
cancelled without penalty or further obligation or liability by the Company on
less than 30 days' or less prior notice ("Parent Contracts").
(b) Each Parent Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Parent Contracts (or written summaries in the case of oral Parent
Contracts) and of all outstanding offers or proposals of Parent have been
heretofore delivered to the Company.
(c) Neither Parent nor, to the knowledge of Parent, any other party
thereto is in breach of or in default under, and no event has occurred which
with notice or lapse of time or both would become a breach of or default under,
any Parent Contract, and no party to any Parent Contract has given any written
notice of any claim of any such breach, default or event, which, individually or
in the aggregate, are reasonably likely to have a Material Adverse Effect on
Parent. Each agreement, contract or commitment to which Parent is a party or by
which it is bound that has not expired by its terms is in full force and effect,
except where such failure to be in full force and effect is not reasonably
likely to have a Material Adverse Effect on Parent.
3.20 Insurance. Parent does not maintain any Insurance Policies.
3.21 Governmental Actions/Filings. Parent has been granted and holds, and
has made, all Governmental Actions/Filings necessary to the conduct by Parent of
its businesses (as presently conducted) or used or held for use by Parent, all
of which are listed in Schedule 3.21 hereto, and true, complete and correct
copies of which have heretofore been delivered to the Company. Each such
Governmental Action/Filing is in full force and effect and, expect as disclosed
in Schedule 3.21 hereto, will not expire prior to December 31, 2006, and Parent
is in compliance with all of its obligations with respect thereto. No event has
occurred and is continuing which requires or permits, or after notice or lapse
of time or both would require or permit, and consummation of the transactions
contemplated by this Agreement or the ancillary documents will not require or
permit (with or without notice or lapse of time, or both), any modification or
termination of any such Governmental Actions/Filings. Except as set forth in
Schedule 3.21, to Parent's knowledge, no Governmental Action/Filing is necessary
to be obtained, secured or made by Parent to enable it to continue to conduct
its businesses and operations and use its properties after the Closing in a
manner which is consistent with current practice.
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3.22 Interested Party Transactions. Except as set forth in the Schedule
3.22 hereto or in the Parent's most recent report on Form 10-KSB or the Parent
SEC Reports subsequent thereto, no employee, officer, director or 5% or more
stockholder of Parent or a member of his or her immediate family is indebted to
Parent, nor is Parent indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than (i) for payment of salary for
services rendered, (ii) reimbursement for reasonable expenses incurred on behalf
of Parent, and (iii) for other employee benefits made generally available to all
employees. Except as set forth in Schedule 3.22, to Parent's knowledge, none of
such individuals has any direct or indirect ownership interest in any Person
with whom Parent is affiliated or with whom Parent has a material contractual
relationship, or any Person that competes with Parent, except that each
employee, 5% or more stockholder, officer or director of Parent and members of
their respective immediate families may own less than 5% of the outstanding
stock in publicly traded companies that may compete with Parent. Except as set
forth in Schedule 3.22, to Parent's knowledge, no officer, director or
stockholder or any member of their immediate families is, directly or
indirectly, interested in any material contract with Parent (other than such
contracts as relate to any such individual ownership of capital stock or other
securities of Parent).
3.23 Indebtedness; Parent Assets. Except as set forth on Schedule 3.23,
Parent has no indebtedness for borrowed money. Immediately prior to the Closing,
Parent will have no assets, except for cash reserves earmarked for the payment
of certain accounts payable and accrued expenses of Parent with respect to the
period prior to Closing which remain unpaid, which Parent shall be responsible
for payment following the Closing pursuant to Section 5.11 hereof ("Cash
Reserve").
3.24 Over-the-Counter Bulletin Board Quotation. Parent Common Stock is
quoted on the Over-the-Counter Bulletin Board ("OTC BB"). There is no action or
proceeding pending or, to Parent's knowledge, threatened against Parent by
NASDAQ or NASD, Inc. ("NASD") with respect to any intention by such entities to
prohibit or terminate the quotation of Parent Common Stock on the OTC BB.
3.25 Board Approval. The Board of Directors of Parent (including any
required committee or subgroup of the Board of Directors of Parent) has, as of
the date of this Agreement, approved this Agreement and the transactions
contemplated hereby.
3.26 Representations and Warranties Complete. The representations and
warranties of Parent included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made.
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3.27 Representations and Warranties of Merger Sub. Merger Sub hereby
represents and warrants to, and covenants with, the Company as follows: -
(a) Organization. Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
Complete and correct copies of the certificate of incorporation and bylaws of
the Merger Sub, as currently in effect (the "Merger Sub Charter Documents"),
have been heretofore delivered to the Company. Merger Sub is not in violation of
any of the provisions of the Merger Sub Charter Documents.
(b) Authority Relative to this Agreement. Merger Sub has full
corporate power and authority to: (i) execute, deliver and perform this
Agreement, and each ancillary document which Merger Sub has executed or
delivered or is to execute or deliver pursuant to this Agreement, and (ii) carry
out Merger Sub's obligations hereunder and thereunder and, to consummate the
transactions contemplated hereby (including the Transaction). The execution and
delivery of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby (including the Transaction) have been duly and
validly authorized by all necessary corporate action on the part of Merger Sub
(including the approval by its Board of Directors), and no other corporate
proceedings on the part of Merger Sub are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Merger Sub and, assuming the due
authorization, execution and delivery thereof by the other parties hereto,
constitutes the legal and binding obligation of Merger Sub, enforceable against
Merger Sub in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and public
policy.
(c) Business of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
(d) Representations and Warranties Complete. The representations and
warranties of Merger Sub included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company and Parent. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Closing, each of the Company, Parent
and Merger Sub shall, except to the extent that the other party shall otherwise
consent in writing, carry on its business in the usual, regular and ordinary
course consistent with past practices, in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations
(except where noncompliance would not have a Material Adverse Effect), pay its
debts and taxes when due subject to good faith disputes over such debts or
taxes, pay or perform other material obligations when due, and use its
commercially reasonable efforts consistent with past practices and policies to
(i) preserve substantially intact its present business organization, (ii) keep
available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has significant business dealings. In addition, except
as required or permitted by the terms of this Agreement, without the prior
written consent of the other party, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Closing, each of the Company, Parent and Merger Sub
shall not do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or (except
as specifically provided for herein) change the period of exercisability of
options or restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or
employee except pursuant to applicable law, written agreements outstanding, or
policies existing on the date hereof and as previously or concurrently disclosed
in writing or made available to the other party, or adopt any new severance
plan, or amend or modify or alter in any manner any severance plan, agreement or
arrangement existing on the date hereof;
(c) Transfer or license to any person or otherwise extend, amend or
modify any material rights to any Intellectual Property of the Company or
Parent, as applicable, or enter into grants to transfer or license to any person
future patent rights, other than in the ordinary course of business consistent
with past practices provided that in no event shall the Company or Parent
license on an exclusive basis or sell any Intellectual Property of the Company,
or Parent as applicable;
(d) Except for the Reverse Split by Parent to be completed following
the Closing, declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Except as set forth in Schedule 4.1(e) hereof and except for the
Preferred Share Buy-out, purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of the Company and Parent, as
applicable, except repurchases of unvested shares at cost in connection with the
termination of the employment relationship with any employee pursuant to stock
option or purchase agreements in effect on the date hereof;
(f) Except the Debt Financing and the Loan Conversion, issue,
deliver, sell, authorize, pledge or otherwise encumber, or agree to any of the
foregoing with respect to, any shares of capital stock or any securities
convertible into or exchangeable for shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into or exchangeable for shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible or exchangeable securities;
34
(g) Amend their respective Charter Documents except as contemplated
by the filing of the Certificate of Designations to be filed by Parent prior to
Closing;
(h) Except as disclosed in Schedule 4.1(h) hereto, acquire or agree
to acquire by merging or consolidating with, or by purchasing any equity
interest in or a portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the business of Parent or the
Company as applicable, or enter into any joint ventures, strategic partnerships
or alliances or other arrangements that provide for exclusivity of territory or
otherwise restrict such party's ability to compete or to offer or sell any
products or services;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice and, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of such party;
(j) Except as disclosed in Schedule 4.1(j) hereto and except for the
Debt Financing, incur any indebtedness for borrowed money in excess of $50,000
in the aggregate or guarantee any such indebtedness of another person, issue or
sell any debt securities or options, warrants, calls or other rights to acquire
any debt securities of Parent or the Company, as applicable, enter into any
"keep well" or other agreement to maintain any financial statement condition or
enter into any arrangement having the economic effect of any of the foregoing;
(k) Except as disclosed in Schedule 4.1(k) hereto or as contemplated
by this Agreement, adopt or amend any employee benefit plan, policy or
arrangement, any employee stock purchase or employee stock option plan, or enter
into any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable "at
will"), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees or
consultants, except in the ordinary course of business consistent with past
practices;
(l) Except as disclosed in Schedule 4.1(1) hereto and except for the
Loan Conversion, (i) pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of this
Agreement) other than the payment, discharge, settlement or satisfaction, in the
ordinary course of business consistent with past practices or in accordance with
their terms, or liabilities recognized or disclosed in the most recent financial
statements (or the notes thereto) of the Company or of Parent included in Parent
SEC Reports, as applicable, or incurred since the date of such financial
statements, or (ii) waive the benefits of, agree to modify in any manner,
terminate, release any person from or knowingly fail to enforce any
confidentiality or similar agreement to which the Company is a party or of which
the Company is a beneficiary or to which Parent is a party or of which Parent is
a beneficiary, as applicable;
35
(m) Except as disclosed on Schedule 4.2(m) and except in the
ordinary course of business consistent with past practices, modify, amend or
terminate any Contract of the Company, or Parent, as applicable, or other
material contract or material agreement to which the Company, or Parent is a
party or waive, delay the exercise of, release or assign any material rights or
claims thereunder;
(n) Except as required by U.S. GAAP, revalue any of its assets or
make any change in accounting methods, principles or practices;
(o) Except as set forth in Schedule 4.1(o) hereto or in the ordinary
course of business consistent with past practices, incur or enter into any
agreement, contract or commitment requiring such party to pay in excess of
$50,000 in any 12 month period;
(p) Engage in any action that could reasonably be expected to cause
the Transaction to fail to qualify as a "reorganization" under Section 368(a) of
the Code;
(q) Except as set forth in Schedule 4.1(q) hereto, settle any
litigation;
(r) Make or rescind any Tax elections that, individually or in the
aggregate, could be reasonably likely to adversely affect in any material
respect the Tax liability or Tax attributes of such party, settle or compromise
any material income tax liability or, except as required by applicable law,
materially change any method of accounting for Tax purposes or prepare or file
any Return in a manner inconsistent with past practice;
(s) Form, establish or acquire any Subsidiary except as contemplated
by this Agreement;
(t) Permit any Person to exercise any of its discretionary rights
under any Plan to provide for the automatic acceleration of any outstanding
options, the termination of any outstanding repurchase rights or the termination
of any cancellation rights issued pursuant to such plans; or
(u) Agree in writing or otherwise agree, commit or resolve to take
any of the actions described in Section 4.1 (a) through (t) above.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Board of Directors of Parent. At Closing, the current board of
directors of Parent shall deliver duly adopted resolutions to: (a) set the size
of Parent's board of directors at seven (7) members effective as of the Closing;
and (b) appoint the following persons to Parent's board of directors effective
as of the Closing: (i) Xxxxxxx X. Xxxxx, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx,
Xxxxx Xxxxxxx, Xxxxx X. Xxxxxx and Xxxxx Xxxxxxxxx, each of whom is a current
director of the Company; and (ii) one member selected KRM Fund who shall be
acceptable to Xxxxxxx X. Xxxxx, which acceptance shall not be unreasonably
withheld ("KRM Designated Member"); and (c) accepting the resignations of the
current officers and directors of Parent effective as of the Closing
("Resolutions"). At Closing, the current officers and directors of Parent shall
deliver their resignations, as appropriate, as officers and directors of Parent
to be effective upon the Closing (the "Resignations"). Prior to Closing, the
Company shall deliver or cause to be delivered to Parent completed and signed
director and officer questionnaires ("Questionnaires") in the English language
for the new directors and each officer to be appointed by Parent following
Closing. The foregoing designations of the new directors (and the officers to be
appointed by Parent following Closing) shall be subject to Parent's receipt of
the completed and signed Questionnaires ("D&O Information"). As a condition to
Closing, the holders of the Company's capital stock resenting a majority of the
Company's voting power immediately prior the Closing ("Majority Holders") and
KRM Fund shall execute and deliver a certain voting agreement ("Voting
Agreement") in the form attached hereto as Exhibit B which shall provide, among
other things, that the Majority Holders will vote their Series A Preferred Stock
(or in the event of conversion, the Parent Common Stock issuable upon
conversion) to elect the KRM Designated Member to Parent's board of directors
for a period of one year following the Closing. Within ninety days following the
Closing, Parent's board of directors will satisfy the independence, audit and
compensation committee and other corporate governance requirements under the
Xxxxxxxx-Xxxxx Act of 2002 (the "SOX Act"), the rules and regulations
promulgated by the SEC, and the requirements of either NASDAQ or American Stock
Exchange ("AMEX") as selected by Parent, whether or not Parent Common Stock is
listed or quoted, or qualifies for listing or quotation, on such national
exchanges.
5.2 Undertaking by Company Accountant. On or before the Closing, the
Company shall obtain, and deliver to Parent, an undertaking from De Xxxx
Xxxxxxxx & Company ("Accountant"), in a form and substance satisfactory to
Parent, providing that: (i) the Accountant has agreed to an engagement with
Parent to serve as its certified public accountants following the Closing for
purposes of auditing and reviewing the financial statements of Parent and the
Company to comply with Parent's ongoing reporting requirements under the
Exchange Act including, without limitation, the filing of Forms 10-Q, 10-K, and
8-K, (ii) the transaction contemplated hereunder will not disqualify or
otherwise prohibit the Accountant from rendering the foregoing engagement
services or from undertaking such services in a timely manner, (iii) the
Accountant is duly registered with the PCAOB, (iv) the Accountant shall provide
its consent to the use of their audited financial statements and accompanying
reports for Parent and the Company, as applicable, in any regulatory filing by
Parent prior to or following the Closing, and (v) consenting to the use of its
name and the disclosure of its engagement by Parent in the Change of Accountant
Form 8-K (as defined in Section 5.3) ("Accountant Undertaking"). A signed copy
of the engagement letter between Parent and Accountant shall be attached to the
Accountant Undertaking.
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5.3 Change of Accountants. At Closing, Parent shall prepare the Form 8-K
announcing the change in Parent's certifying accountants from KBA Group LLP
("Parent's Accountant") to the Accountant effective as of the Closing ("Change
of Accountant Form 8-K"), in a form acceptable to the Company and in a format
acceptable for XXXXX filing. The Change of Accountant Form 8-K shall be filed
with the SEC at or within four (4) business days following Closing, and prior to
the filing thereof, Parent's Accountant shall have issued its resignation letter
to Parent resigning from the engagement and consenting to the use of its name
and the disclosure of its resignation in the Change of Accountant Form 8-K
("Resignation Letter").
5.4 Other Actions.
(a) At least ten (10) days prior to Closing, Parent shall prepare
the information statement required by Rule 14f-1 promulgated under the Exchange
Act ("14f-1 Information Statement"), and, after providing the Company with a
reasonable time to review and comment on the 14f-1 Information Statement, Parent
shall file the 14f-1 Information Statement with the SEC and mail the same to
each of Parent's stockholders.
(b) At least five (5) days prior to Closing, the Company shall
prepare the Form 8-K announcing the Closing, which shall include all information
required by such form, including the information required by Form 10-SB with
respect to the Company, any other information required in connection with Parent
ceasing to be a shell company as a result of the Transaction, the U.S. GAAP
Financial Statements and the Pro Forma Financial Statements (as defined below)
("Transaction Form 8-K"), which shall be in a form reasonably acceptable to
Parent and in a format acceptable for XXXXX filing. Prior to Closing, the
Company shall prepare the press release announcing the consummation of the
Transaction hereunder ("Press Release"). At the Closing, Parent shall file the
Transaction Form 8-K with the SEC and distribute the Press Release.
(c) At least ten (10) days prior to the Closing, the Company shall
deliver to Parent pro forma consolidated financial statements for the Company
and Parent giving effect to the Transaction, for such periods as required by the
SEC to be included in a Form 8-K or any other report or form required to be
filed with the SEC at or after Closing with respect to the Transaction, all
prepared in all material respects with the published rules and regulations of
the SEC and in accordance with U.S. GAAP applied on a consistent basis
throughout the periods involved (the "Pro Forma Financial Statements"). The Pro
Forma Financial Statements shall have been reviewed by, the Accountant and shall
be in a format acceptable for inclusion on the Transaction 8-K.
Each of the Company and Parent shall cooperate with each other and use
their respective commercially reasonable efforts to take or cause to be taken
all actions, and do or cause to be done all things, necessary, proper or
advisable on its part under this Agreement and applicable laws to consummate the
Transaction and the other transactions contemplated hereby as soon as
38
practicable, including preparing and filing as soon as practicable all
documentation to effect all necessary notices, reports and other filings and to
obtain as soon as practicable all consents, registrations, approvals, permits
and authorizations necessary or advisable to be obtained from any third party
and/or any Governmental Entity in order to consummate the Transaction or any of
the other transactions contemplated hereby. Subject to applicable laws relating
to the exchange of information and the preservation of any applicable
attorney-client privilege, work-product doctrine, self-audit privilege or other
similar privilege, each of the Company and Parent shall have the right to review
and comment on in advance, and to the extent practicable each will consult the
other on, all the information relating to such party, that appear in any filing
made with, or written materials submitted to, any third party and/or any
Governmental Entity in connection with the Transaction and the other
transactions contemplated hereby. In exercising the foregoing right, each
Company and Parent shall act reasonably and as promptly as practicable.
5.5 Required Information. In connection with the preparation of the
Transaction Form 8-K, 14f-1 Information Statement, and Press Release, and for
such other reasonable purposes, each of the Company and Parent shall, upon
request by the other, furnish the other with all information concerning
themselves, their respective subsidiaries, directors, officers, managers,
managing members, stockholders and members (including the directors and officers
of Parent to be elected effective as of the Closing pursuant to Section 5.1
hereof) and such other matters as may be reasonably necessary or advisable in
connection with the Transaction, or any other statement, filing, notice or
application made by or on behalf of each of the Company and Parent to any third
party and/or any Governmental Entity in connection with the Transaction and the
other transactions contemplated hereby. Each party warrants and represents to
the other party that all such information shall be true and correct in all
material respects and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
5.6 Confidentiality; Access to Information.
(a) To the extent the provisions of this Agreement provide greater
protection against the disclosure of confidential information by the parties
than any confidentiality agreement or letter of intent previously executed by
the parties, such provisions of such prior confidentiality agreement or letter
of intent shall be superseded by the provisions of this Agreement. Each party
agrees to maintain in confidence any non-public information received from the
other party, and to use such non-public information only for purposes of
consummating the transactions contemplated by this Agreement. Such
confidentiality obligations will not apply to (i) information which was known to
the one party or their respective agents prior to receipt from the other party;
(ii) information which is or becomes generally known; (iii) information acquired
by a party or their respective agents from a third party who was not bound to an
obligation of confidentiality; and (iv) disclosure required by law. In the event
this Agreement is terminated as provided in Article IX hereof, each party will
return or cause to be returned to the other all documents and other material
obtained from the other in connection with the Transaction contemplated hereby.
39
(b) Access to Information.
(i) The Company will afford Parent and its financial advisors,
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of the Company during the period prior to the Closing to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel of the Company, as
Parent may reasonably request. No information or knowledge obtained by Parent in
any investigation pursuant to this Section 5.6 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Transaction.
(ii) Parent will afford the Company and its financial advisors,
underwriters, accountants, counsel and other representatives reasonable access
during normal business hours, upon reasonable notice, to the properties, books,
records and personnel of Parent during the period prior to the Closing to obtain
all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of Parent,
as the Company may reasonably request. No information or knowledge obtained by
the Company in any investigation pursuant to this Section 5.6 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Transaction.
5.7 No Solicitation. Other than with respect to the Transaction, the
Company and Parent agree that neither of them nor any of their officers,
directors, managers, or managing members shall, and that they shall cause their
agents and other representatives (including any investment banker, attorney or
accountant retained by it) not to, directly or indirectly, initiate, solicit,
encourage or otherwise facilitate any inquiries or the making of any proposal or
offer with respect to (i) a merger, reorganization, share exchange,
consolidation or similar transaction involving them, (ii) any sale, lease,
exchange, mortgage, pledge, transfer or purchase of all or substantially all of
the assets or equity securities of them, taken as a whole, in a single
transaction or series of related transactions or (iii) any tender offer or
exchange offer for 20% or more of the outstanding shares of Parent Common Stock
or the Company's capital stock (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). The Company and Parent further agree
that neither of them nor any of their officers, directors, managers, or managing
members shall, and that they shall direct and use their reasonable best efforts
to cause their agents and representatives not to, directly or indirectly, engage
in any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. The Company and Parent agree that they will immediately
cease and cause to be terminated any existing discussions or negotiations with
any parties conducted heretofore with respect to any Acquisition Proposal. The
Company and Parent agree that they will take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 5.7.
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Notwithstanding anything contained in this Agreement to the contrary,
nothing contained in this Agreement shall prevent the board of directors of
Parent, or their respective representatives from, prior to the Closing (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal, if applicable, or otherwise complying with the Exchange
Act; (B) providing information in response to a request therefore by a person
who has made a bona fide unsolicited Acquisition Proposal; (C) engaging in any
negotiations or discussions with any person who has made a bona fide unsolicited
Acquisition Proposal or otherwise facilitating any effort or attempt to
implement an Acquisition Proposal; or (D) withdrawing or modifying the approval
or recommendation by Parent's board of directors of this Agreement, approving or
recommending any unsolicited Acquisition Proposal or causing the applicable
party to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement relating to any unsolicited Acquisition
Proposal, if, and only to the extent that in each such case referred to in
clause (B), (C) or (D) above, Parent's board of directors determines in good
faith, after consultation with outside legal counsel that such action is
necessary to act in a manner consistent with the directors' fiduciary duties
under applicable law and determines in good faith after consultation with its
financial advisors that the person or group making such Acquisition Proposal has
adequate sources of financing to consummate such Acquisition Proposal and that
such Acquisition Proposal, if consummated as proposed, is materially more
favorable to the stockholders of Parent from a financial point of view (any such
more favorable Acquisition Proposal being referred to as a "Superior Proposal")
and determines in good faith that such Superior Proposal is reasonably capable
of being consummated, taking into account legal, financial, regulatory and other
aspects of the proposal and the person making the proposal.
5.8 Public Disclosure. Except to the extent previously disclosed or to the
extent the parties believe that they are required by applicable law or
regulation to make disclosure, prior to Closing, no party shall issue any
statement or communication to the public regarding the Transaction without the
consent of the other party, which consent shall not be unreasonably withheld. To
the extent a party hereto believes it is required by law or regulation to make
disclosure regarding the Transaction, it shall, if possible, immediately notify
the other party prior to such disclosure. Notwithstanding the foregoing, the
parties hereto agree that Parent will prepare and file a Current Report on Form
8-K pursuant to the Exchange Act reasonably acceptable to the Company to report
the execution of this Agreement and that any party hereto may file any reports
as required by the Exchange Act including, without limitation, any reports on
Schedule 13D.
5.9 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Transaction and the other transactions contemplated by
this Agreement, including using commercially reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied, (ii) the obtaining
of all necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
41
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all consents,
approvals or waivers from third parties required as a result of the transactions
contemplated in this Agreement, (iv) the defending of any suits, claims,
actions, investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (v)
the execution or delivery of any additional instruments reasonably necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement. In connection with and without limiting the foregoing,
Parent and its board of directors and the Company and its directors, officers
and stockholders shall, if any state takeover statute or similar statute or
regulation is or becomes applicable to the Transaction, this Agreement or any of
the transactions contemplated by this Agreement, use their commercially
reasonable efforts to enable the Transaction and the other transactions
contemplated by this Agreement to be consummated as promptly as practicable on
the terms contemplated by this Agreement. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Parent or the
Company to agree to any divestiture by itself or any of its affiliates of shares
of capital stock, membership interests or ownership interest or of any business,
assets or property, or the imposition of any material limitation on the ability
of any of them to conduct their business or to own or exercise control of such
assets, properties and stock.
(b) The Company shall give prompt notice to Parent upon becoming
aware that any representation or warranty made by them contained in this
Agreement has become untrue or inaccurate, or of any failure of the Company to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by them under this Agreement, in each
case, such that the conditions set forth in Article VI would not be satisfied;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to the Company upon becoming
aware that any representation or warranty made by it contained in this Agreement
has become untrue or inaccurate, or of any failure of Parent to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each case, such that
the conditions set forth in Article VI would not be satisfied; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
5.10 Treatment as a Reorganization. Parent and the Company shall not take
any action that is reasonably likely to prevent the Transaction from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
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5.11 Absence of Material Liabilities. Immediately prior to Closing, Parent
and Merger Sub shall have no liabilities or obligations requiring the payment of
monies, other than obligations under or with respect to: (i) a certain Financial
Advisory Agreement by and between Xxxxxxx Securities, LLC, and Parent in the
form attached hereto as Exhibit C ("Financial Advisory Agreement"), (ii) any
agreement with the Transfer Agent, (iii) Parent Contracts disclosed under
Section 4.19 hereto, and (iv) accounts payable and accrued expenses of Parent in
connection with the Closing with respect to the period prior to Closing. Parent
will establish the Cash Reserve provided for in Section 3.23 in an amount equal
to the monetary obligations of Parent prior to Closing due to the Transfer
Agent, pursuant to Parent Contracts disclosed under Section 4.19 (other than the
Financial Advisory Agreement) and in respect of all unpaid accounts payable and
accrued expenses of Parent as of Closing (collectively, the "Pre-Closing Cash
Obligations"). Upon Closing, to the extent not satisfied by Parent prior to or
at Closing, the Pre-Closing Cash Obligations will be paid in full from the Cash
Reserve. Following the Closing, the Company shall pay and satisfy, or cause
Parent to pay and satisfy, all of Parent's obligations under the agreement with
the Transfer Agent and the Placement Agreement.
5.12 Cash Payments at Closing for Financial Advisory Agreement.
Immediately following the Closing and the closing of the Debt Financing, the
Company shall pay to Xxxxxxx Securities, LLC the reverse merger fees of $290,000
under the Financial Advisory Agreement (such sum being referred to herein, as
the "Company Closing Payment").
5.13 Business Records. At Closing, Parent shall cause to be delivered to
the Company all records and documents relating to Parent, which Parent
possesses, including, without limitation, books, records, government filings,
Returns, Charter Documents, Corporate Records, Stock Records, consent decrees,
orders, and correspondence, director and stockholder minutes and resolutions,
stock ownership records, financial information and records, electronic files
containing any financial information and records, and other documents used in or
associated with Parent ("Business Records").
5.14 Proxy/Information Statement. As soon as practicable after the
Closing, Parent shall cause its shareholders to approve and adopt of the
following matters (the "Stockholder Matters"):
(a) To approve a 1 for 10 reverse stock split with special treatment
for certain of Parent's stockholders to preserve round lot stockholders
("Reverse Split");
(b) To approve the change of the name of Parent to EcoTechnology,
Inc. or a name selected by the Board;
(c) To approve the adoption of a stock incentive plan ("Stock
Plan"); and
(d) All such other actions as shall be necessary or desirable in
connection with or related to the foregoing actions in (a) through (c) above.
In connection therewith, Parent shall either (i) notice a meeting of its
shareholders and with respect thereto prepare a proxy statement pursuant to
Regulation 14A promulgated under Section 14 of the Exchange Act (together with
any amendments or supplements thereto, the "Proxy Statement") or (ii) upon
receipt of the written consent of a sufficient number of its shareholders
prepare an information statement pursuant to Regulation 14C promulgated under
Section 14 of the Exchange Act (together with any amendments or supplements
thereto, the "Information Statement"). Following Closing, KRM Fund shall
reasonably cooperate with Parent and provide such information available to it as
may be necessary or required, in the reasonable determination of counsel to the
Company and to Parent, for Parent to prepare the Proxy Statement or Information
Statement.
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In the event Parent elects to solicit stockholder approval via a Proxy
Statement, as soon as practicable following the Closing, Parent shall file the
Proxy Statement with the SEC and shall cause such Proxy Statement to become
definitive and to be mailed to the holders of Parent's securities entitled to
vote at a meeting of stockholders.
In the event Parent elects to use an Information Statement and does not
solicit stockholder approval via a Proxy Statement, as soon as practicable
following the Closing, Parent shall obtain the written consent of holders of the
requisite number of voting securities of Parent approving the Stockholder
Matters, such consent to be effective twenty (20) days following the filing of
the definitive Information Statement with the SEC. Upon receipt of such written
consent, Parent will file the Information Statement with the SEC and shall cause
such Information Statement to become definitive and to be mailed to the holders
of Parent's securities entitled to vote at a meeting of stockholders.
In the event the Proxy Statement or Information Statement is reviewed by
the SEC, Parent shall respond promptly to any comments of the SEC or its staff
with respect to the Proxy Statement or Information Statement and use its
reasonable best efforts to have the Proxy Statement or Information Statement
cleared by the SEC as soon as practicable after its filing, provided, however,
in the event that the substance of any review by the SEC involves or inquires
with respect to information, filings, reports, financial statements or other
circumstances of Parent occurring, reported or filed prior to the Closing (the
"Pre-Closing Period"), KRM Fund shall, upon the reasonable request of the
Company or Parent, use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the Company and Parent in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious manner practicable,
the Proxy Statement or Information Statement, including, without limitation,
providing such information, addressing such comments, and otherwise resolving
such matters as may relate to the Pre-Closing Period and any SEC comments
relating thereto or any SEC inquiry thereof.
ARTICLE VI
CONDITIONS TO THE TRANSACTION
6.1 Conditions to Obligations of Each Party to Effect the Transaction. The
respective obligations of each party to this Agreement to effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Transaction illegal or
otherwise prohibiting consummation of the Transaction, substantially on the
terms contemplated by this Agreement. All waiting periods, if any, under any law
in any jurisdiction in which the Company or Parent has material operations
relating to the transactions contemplated hereby has expired or terminated early
and all material approvals required to be obtained prior to the Transaction in
connection with the transactions contemplated hereby shall have been obtained.
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(b) Debt Holder Consents. The lenders under any credit facilities,
secured loans, mortgages and other indebtedness of the Company for borrowed
money shall have consented in writing to the Transaction (if such consent is
required in connection with this Transaction).
(c) Required Approvals. This Agreement and the Transaction have been
duly approved and adopted, by the requisite vote, if any, of the Company's
stockholders and by the requisite actions of the Board of Directors of the
Company under the laws of the State of Delaware and the Company Charter
Documents, and by the requisite actions of the Board of Directors of Parent
under the laws of the State of Florida and the Parent Charter Documents.
(d) Certificate of Designations. Prior to Closing, the Board of
Directors of Parent shall have adopted, and Parent shall have filed with, and
had accepted by, the Secretary of State of the State of Florida, the Certificate
of Designations in the form attached hereto as Exhibit A.
(e) 14f-1 Information Statement. At least ten (10) days prior to
Closing, Parent shall have filed the 14f-1 Information Statement with the SEC,
and Parent shall have mailed the 14f-1 Information Statement to each of the
stockholders of Parent, and Parent shall have otherwise complied with all of the
provisions under Rule 14f-1 under the Exchange Act.
(f) Assumption of Options and Warrants. The Company shall have taken
all necessary steps to effectuate the provisions of Sections 1.6(c), (d) and
(e), including obtaining all necessary consents and releases, if any, from the
holders of Company Stock Options, Company Common Stock Warrants and Company
Preferred Stock Warrants. To the extent applicable, the Company shall have
obtained agreements terminating all pre-emptive rights.
(g) Financial Statements; Transaction Form 8-K. The Company shall
have delivered to Parent the U.S. GAAP Financial Statements, the Pro Forma
Financial Statements and the Transaction Form 8-K, each in a form acceptable to
Parent, which acceptance shall not be unreasonably withheld. Parent shall have
filed the Transaction Form 8-K with the SEC at Closing.
(h) Vero Termination Agreement. Parent shall have terminated its
agreement with Vero Management, LLC, effective at Closing.
(i) Voting Agreement. KRM Fund and the Majority Holders shall have
executed and delivered the Voting Agreement, in the form attached hereto as
Exhibit B.
(j) Blue Sky Laws. The issuance of Series A Preferred Stock to be
issued under this Agreement shall be exempt from, or have been qualified under,
the Blue Sky Laws of each appropriate jurisdiction to the satisfaction of Parent
and the Company and their respective counsels.
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(k) Debt Financing. Signed subscriptions shall have been received to
purchase Notes in a private placement offering exempt from registration under
the Securities Act pursuant to Regulation D promulgated thereunder ("Debt
Financing"), which subscriptions shall represent gross proceeds of not less than
$10,000,000 (or such lesser amount as mutually agreed to by Parent and the
Company), with such gross proceeds having been fully funded into an escrow
account established for the Debt Financing the release of which to Parent is
conditioned only upon the Closing of the Transaction, Parent's acceptance of
such subscriptions after the Closing and approval of the Debt Financing by
Parent's board of directors following the Closing. The conversion price of the
Notes under the Debt Financing shall be based on a fully diluted pre-money
valuation of the Company of not less than $30,000,000 (or such lesser amount as
mutually agreed to by Parent and the Company) on a fully diluted basis
immediately after completion of the Transaction and the Debt Financing (after
giving effect to the Preferred Share Buy-out, but excluding any shares of Parent
Common Stock underlying the Investor Warrants or the Agent Warrants issued in
the Debt Financing). The Debt Financing shall include the issuance of the
Investor Warrants and Agent Warrants provided the exercise price thereof shall
not be less than 110% of the conversion price of the Notes. Each Investor shall
in writing release and covenant not to xxx the exiting officers and directors of
Parent for any matter respecting the Debt Financing. The Debt Financing shall
provide that the shares of Parent Common Stock underlying the Notes, Investor
Warrants and Agent Warrants shall be included on the Registration Statement.
(l) Preferred Share Buy-out; Loan Conversion. Prior to the Closing,
the Company shall have entered into a binding agreement with certain
stockholders holding, in the aggregate, approximately 3,025.00 shares of Company
Preferred Stock and approximately 22,096 shares of Company Common Stock, to
purchase such shares immediately following the Closing and the completion of the
Debt Financing, for an aggregate purchase price not in excess of $880,000, to be
paid out of the proceeds of the Debt Financing ("Preferred Share Buy-out").
Prior to the Closing, the Company shall have entered into a binding agreement
with the debt and lease holders listed on Schedule 6.1(l) to convert their
respective debt and lease obligations listed on Schedule 6.1(l) (totaling in the
aggregate approximately $1,726,165 as of September 30, 2005) into shares of
Series A Preferred Stock immediately following the Closing and the completion of
the Debt Financing on such terms and conditions acceptable to Parent and the
investors in the Debt Financing ("Loan Conversion").
(m) Investment Representation Letter. Parent shall have obtained
from each holder of record (as of the Effective Time) of Certificates, which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock and Company Preferred Stock whose shares were converted
into the right to receive shares of Series A Preferred Stock pursuant to Section
1.6, the investment representation letters consistent with the provisions of
Section 1.12 hereof.
(n) Dissenter's Rights. Holders of no more than 70,000 shares of
Company Common Stock and Company Preferred Stock (on an as-converted basis)
shall have taken action to exercise their dissent's rights pursuant to Section
262 of the Delaware Business Corporation Law.
(o) Escrow Agreement. The parties shall have entered into the Escrow
Agreement with DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP as provided in Section 8.6.
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6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate and effect the Transaction shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub in this Agreement shall be true and correct
in all respects on and as of the date of this Agreement and at and as of the
Closing as though such representations and warranties were made on and as of
such time (except for such representations and warranties that speak
specifically as of the date hereof or as of another date, which shall be true
and correct as of such date), disregarding for the purposes of such
determination any "Material Adverse Effect" or other materiality qualifiers set
forth in such representations and warranties, except for such failures of such
representations and warranties to be so true and correct as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent. The Company shall have received a certificate with
respect to the foregoing signed on behalf of Parent by an authorized officer of
Parent ("Parent Closing Certificate") and a certificate with respect to the
foregoing signed on behalf of merger Sub by an authorized officer of merger Sub
("Merger Sub Closing Certificate")
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date, except to the extent that any failure to perform or comply
(other than a willful failure to perform or comply or failure to perform or
comply with an agreement or covenant reasonably within the control of Parent and
Merger Sub, respectively) does not, or will not, constitute a Material Adverse
Effect with respect to Parent, and the Company shall have received Parent
Closing Certificate and Merger Sub Closing Certificate to such effect.
(c) Resignations and Resolutions. Parent shall have delivered to the
Company the Resignations and Resolutions, in a form reasonably satisfactory to
the Company, effective as of the Closing. Parent shall also have delivered to
the Company evidence satisfactory to the Company of the appointment of new
directors of Parent in accordance with Section 5.1 hereof.
(d) Consents. Parent shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Parent and Merger Sub.
(e) Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement.
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(f) No Financial Obligations. Immediately prior to the Closing,
Parent shall have no material liabilities or obligations, other than as set
forth in Section 5.11 hereof.
(g) SEC Compliance. Immediately prior to Closing, Parent shall be in
compliance with the reporting requirements under the Exchange Act.
(h) Business Records; Resignation Letter. The Parent shall have
delivered to the Company the Business Records and the Resignation Letter from
Parent's Accountant.
(i) OTC Quotation. The Parent Common Stock at the Closing will be
quoted on the OTC BB.
(j) Other Deliveries. At or prior to Closing, Parent and Merger Sub
shall have delivered to the Company (i) copies of resolutions and actions taken
by Parent's board of directors and Merger Sub's board of directors,
respectively, in connection with the approval of this Agreement and the
transactions contemplated hereunder, and (ii) such other documents or
certificates as shall reasonably be required by the Company and its counsel in
order to consummate the transactions contemplated hereunder.
(k) Financial Advisory Agreement. The Financial Advisory Agreement
between Parent and Xxxxxxx Securities, LLC, in the form of Exhibit C hereto, has
been executed by the parties thereto and has been duly authorized and approved
by Parent's board of directors.
(l) Option Plan. Parent shall have terminated the 1999 Stock Option
Plan.
(m) Other Parent Registration Rights. Each holder of registration
rights with respect to Parent capital stock as set forth in Schedule 3.3 to this
Agreement shall have irrevocably waived, subject to the Closing and the closing
of the Debt Financing, such registration rights with respect to the post-Closing
registration of any shares of Parent Common Stock required to be included on the
Registration Statement (which may include certain shares of Parent Common Stock
issuable upon conversion of Parent Preferred Stock issued in the Merger).
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. The representations and
warranties of the Company in this Agreement shall be true and correct in all
respects on and as of the date of this Agreement and at and as of the Closing as
though such representations and warranties were made on and as of such time
(except for such representations and warranties that speak specifically as of
the date hereof or as of another date, which shall be true and correct as of
such date), disregarding for the purposes of such determination any "Material
Adverse Effect" or other materiality qualifiers set forth in such
representations and warranties, except for such failures of such representations
and warranties to be so true and correct as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. Parent shall have received a certificate with respect to the foregoing
signed on behalf of the Company by an authorized officer of the Company
("Company Closing Certificate").
48
(b) Agreements and Covenants. the Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them at or prior to the
Closing Date except to the extent that any failure to perform or comply (other
than a willful failure to perform or comply or failure to perform or comply with
an agreement or covenant reasonably within the control of the Company) does not,
or will not, constitute a Material Adverse Effect on the Company, and Parent
shall have received the Company Closing Certificate to such effect.
(c) Consents. the Company shall have obtained all consents, waivers,
permits and approvals required in connection with the consummation of the
transactions contemplated hereby, other than consents, waivers and approvals the
absence of which, either alone or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company.
(d) Material Adverse Effect. No Material Adverse Effect with respect
to the Company shall have occurred since the date of this Agreement.
(e) Accountant Undertaking; The Company shall have delivered to
Parent the Accountant Undertaking in a form satisfactory to Parent.
(f) Employment Agreements. Each of Xxxxxxx X. Xxxxx, Xxxxxx X.
Xxxxxx, Xxxxx X. Xxxxxxxx, Xxxx X. Xxxxxx and Xxxxxx X. Xxxxx shall have
executed and delivered employment agreements with the Company, which agreements
shall be in full force and effect as of the Closing and shall be acceptable to
Parent.
(g) D&O Information. The Company shall have delivered the fully
completed and signed Questionnaires, and the D&O Information shall be reasonably
acceptable to Parent.
(h) Voting Agreement. The Majority Holders and KRM Fund shall have
executed and delivered the Voting Agreement, in the form attached hereto as
Exhibit A.
(i) Repayment of Affiliate Obligations. At the Closing Date, all
amounts owed to the Company by each officer, director or stockholder of the
Company (regardless of whether such amounts are due and payable) shall have been
paid in full.
(j) Closing Payments. The Company shall have made the Company
Closing Payment as required by Section 5.12.
(k) Company Schedules. The Company shall have delivered to Parent
the completed schedules to this Agreement within three (3) days prior to the
Closing, and such schedules shall be acceptable to Parent which acceptance shall
not be unreasonably withheld.
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(l) Transfer Agent Authorization. The Company and its counsel shall
have delivered the Transfer Agent Authorization required by Section 9.1(d) to
Transfer Agent and KRM Fund.
(m) Other Deliveries. At or prior to Closing, the Company shall have
delivered to Parent: (i) copies of resolutions and actions taken the Company's
board of directors and stockholders in connection with the approval of this
Agreement and the transactions contemplated hereunder, and (ii) such other
documents or certificates as shall reasonably be required by Parent and its
counsel in order to consummate the transactions contemplated hereunder.
(n) Placement Agreement. At or prior to Closing, the Company shall
have executed and delivered the Placement Agreement. Immediately following the
Closing, the Parent shall have delivered its duly executed assumption of the
Company's obligations under the Placement Agreement.
(o) After Market Support Agreement. At or prior to the Closing, the
Company and Parent shall have executed and delivered a certain after market
support agreement ("AMS Agreement") with Xxxxxxx After Market Support, LLC
("KAMS"), with such terms and conditions as mutually acceptable to the Company,
Parent and KAMS.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Except as specifically set forth in Sections 1.13, 5.1, 5.11, 5.14, 8.6
and 9.1, and such other provisions contained herein which contemplates the
performance of any agreement or covenant by any party hereto after the Closing,
all representations, warranties, agreements and covenants contained in or made
pursuant to this Agreement by any party hereto or contained in any Schedule
hereto shall not survive the Closing, and no claims made by virtue of such
representations, warranties, agreements and covenants shall be made or commenced
by any party hereto from and after the Closing.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of Parent and the Company at any
time;
(b) by either Parent or the Company if the Transaction shall not
have been consummated by January 31, 2006 for any reason; provided, however,
that the right to terminate this Agreement under this Section 8.1(b) shall not
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Transaction to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
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(c) by either Parent or the Company if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Transaction, which order, decree, ruling or other action is final and
nonappealable;
(d) by Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have become
materially untrue, in either case such that the conditions set forth in Article
VI would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent prior to the Closing Date, then the Company may not terminate
this Agreement under this Section 8.1(d) for thirty (30) days after delivery of
written notice from the Company to Parent of such breach, provided Parent
continues to exercise commercially reasonable efforts to cure such breach (it
being understood that the Company may not terminate this Agreement pursuant to
this Section 8.1(d) if it shall have materially breached this Agreement or if
such breach by Parent is cured during such thirty (30)-day period);
(e) Parent, upon a material breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become materially
untrue, in either case such that the conditions set forth in Article VI would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Company's representations and warranties or breach by the Company
is curable by the Company prior to the Closing Date, then Parent may not
terminate this Agreement under this Section 8.1(e) for thirty (30) days after
delivery of written notice from Parent to the Company of such breach, provided
the Company continues to exercise commercially reasonable efforts to cure such
breach (it being understood that Parent may not terminate this Agreement
pursuant to this Section 8.1(e) if it shall have materially breached this
Agreement or if such breach by the Company is cured during such thirty (30)-day
period).
8.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 8.1 above will be effective immediately upon (or, if the
termination is pursuant to Section 8.1(d) or Section 8.1(e) and the proviso
therein is applicable, thirty (30) days after) the delivery of written notice of
the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 8.1, this Agreement shall
be of no further force or effect and the Transaction shall be abandoned, except
for and subject to the following: (i) Section 8.2, Section 8.3 and Article X
(General Provisions) shall survive the termination of this Agreement, and (ii)
nothing herein shall relieve any party from liability for any intentional or
willful breach of this Agreement.
8.3 Fees and Expenses. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses whether or not the Transaction is consummated. The
parties further agree that, whether or not the Transaction is consummated, each
party shall be responsible for any and costs and expenses incurred by them in
connection with the preparation of the Transaction Form 8-K (including the U.S.
GAAP Financial Statements and Pro Forma Financial Statements contained therein),
the Information Statement, and the 14f-1 Information Statement.
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8.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.5 Extension; Waiver. At any time prior to the Closing, any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
8.6 Rescission. The parties and DLA Xxxxx Xxxxxxx Xxxx Xxxx US, LLP ("DLA
Piper") shall enter into an agreement (the "Escrow Agreement") in substantially
the form attached hereto as Exhibit D, which shall provide that, following the
Closing, the certificates of Series A Preferred Stock to be delivered to the
Company's stockholders hereunder, and the Certificates representing the Company
Common Stock and Company Preferred Stock owned by the Company's stockholders,
until Parent and KRM Fund has provided written notice to DLA Piper of the
closing of the Debt Financing. In the event the Debt Financing fails to close
for whatever reason within three business (3) days following the Closing (or
such later time as mutually agreed to by the Company, Parent and KRM Fund, but
not more than ten (10) business days following the Closing, the parties hereto
agree that this Agreement and the Voting Agreement are hereby rescinded and the
transactions hereunder shall be voided ab initio (the "Rescission"). The Escrow
Agreement shall provide that in the event of the Rescission, (i) DLA Piper shall
promptly deliver to Parent the certificates representing Series A Preferred
Stock (subject to adjustment for any stock dividend, stock split,
recapitalization, merger, consolidation, combination or exchange of shares
occurring after the Closing with respect to such Series A Preferred Stock); (ii)
DLA Piper shall promptly deliver to each of the Company's stockholders any of
the Certificates held it; and (iii) DLA Piper shall deliver the signed
resignations of all of the then current officers and directors of Parent
together with a written consent action of all of the then current directors
appointing Xxxxx X. Xxxxxxx as the sole director of Parent.
Notwithstanding anything contained herein to the contrary, in the event
this Agreement and the Voting Agreement are rescinded and the transactions
consummated hereunder voided ab initio, the Company agrees to indemnify and hold
harmless, Parent against (i) any and all liabilities, obligations, losses,
damages, claims, actions, Liens and deficiencies which exist, or which may be
imposed on, incurred by or asserted against Parent or any of its assets, based
upon, resulting from or arising out of, the management, operation and ownership
of Parent from and after the Closing and through and including the effective
date of the Rescission, and (ii) any cost or expense (including reasonable
attorneys' fees and court costs) incurred by Parent in connection with the
foregoing (including, without limitation, any cost or expense incurred by Parent
in enforcing its rights pursuant to this Section 8.6). The parties hereto agree
that the provisions of this Section 8.6 shall survive the Closing.
52
ARTICLE IX
POST-CLOSING COVENANTS
9.1 Post-Closing Covenants. The Company acknowledges that the agreements
contained in this Section 9.1 are an integral part of the transactions
contemplated by this Agreement and that, without these agreements, Parent would
not enter into this Agreement. The parties hereto acknowledge and agree that the
failure by Parent or the Company to satisfy, perform and comply with the
covenants set forth in this Section 9.1 ("Post-Closing Covenants") following the
Closing will have a material adverse effect on Parent and the investment of KRM
Fund in Parent. During the period beginning upon the Closing and ending on the
first anniversary of the Closing, Parent agrees to utilize its commercially
reasonable efforts to, and the Company agrees to utilize its commercially
reasonable efforts to cause Parent to, satisfy the following agreements and
covenants:
(a) Remain a Section 12(g) reporting company in compliance with and
current in its reporting requirements under the Exchange Act, and to remain
quoted on, at a minimum, the OTC BB.
(b) Within ninety days following the Closing, Parent's board of
directors will satisfy the independence, audit and compensation committee and
other corporate governance requirements under the Xxxxxxxx-Xxxxx Act of 2002
(the "SOX Act"), the rules and regulations promulgated by the SEC, and the
requirements of either NASDAQ or American Stock Exchange ("AMEX") as selected by
Parent, whether or not Parent Common Stock is listed or quoted, or qualifies for
listing or quotation, on such national exchanges.
(c) Parent files within the statutory time limits any required
filings or notifications with the SEC, NASDAQ and any other federal, state or
regulatory agency including any agency or organization with jurisdiction over
any exchange on which the Parent's securities are listed or traded, and responds
in a timely manner, and to the satisfaction of the SEC, to any review or inquiry
by the SEC to the Transaction Form 8-K and the U.S. GAAP Financial Statements
contained therein.
(d) (i) Certify in writing to any person holding restricted shares
of Parent Common Stock as of the date of this Agreement that Parent has filed
all of the reports required to be filed by it under the Exchange Act to enable
such person to sell such person's restricted stock under Rule 144 or 145, as may
be applicable in the circumstances, or will inform such person in writing that
it has not filed any such report or reports, upon being informed in writing by
such person of its intent to sell any shares under Rule 144 or Rule 145
promulgated under the Securities Act (including any rule adopted in substitution
or replacement thereof), (ii) if any certificate representing any restricted
shares of Parent Common Stock is presented to Parent's Transfer Agent for
registration of transfer in connection with any sale theretofore made or to be
made under Rule 144 or 145, provided such certificate is duly endorsed for
transfer by the appropriate person(s) or accompanied by a separate stock power
duly executed by the appropriate person(s) in each case with reasonable
53
assurances that such endorsements are genuine and effective, and is accompanied
by an opinion of counsel satisfactory to Parent and its counsel that such
transfer has complied with the requirements of Rule 144 or 145 ("Opinion"), as
the case may be, promptly instruct the Transfer Agent to register such transfer
and to issue one or more new certificates representing such shares to the
transferee and, if appropriate under the provisions of Rule 144 or 145, as the
case may be, free of any stop transfer order or restrictive legend, and (iii) in
the event Parent's counsel is unwilling or unable to issue such Opinion, Parent
hereby agrees to accept, and shall instruct its counsel to accept, an Opinion of
Xxxxxxxx Xxxxxx (New York, New York), and Parent and its counsel shall hereby
authorize the Transfer Agent to accept the opinion of Xxxxxxxx Xxxxxx (or such
other reasonable counsel selected by KRM Fund) for such purposes ("Transfer
Agent Authorization"), which Transfer Agent Authorization shall be delivered to
Transfer Agent prior to Closing, with a copy to KRM Fund.
(e) Parent and the Company shall be in compliance with the AMS
Agreement.
9.2 Other Provisions. Notwithstanding anything contained herein to the
contrary, the provisions of this Article IX shall survive (and not be affected
in any respect by) the Closing. KRM Fund shall be a third party beneficiary to
provisions contained in this Article IX.
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 or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent, to:
Xxxxx.xxx, Inc.
Attn: Xxxxx X. Xxxxxxx, President
000X Xxxxxxxxx Xxxxxxxxx, Xxxxx 00
Xxxx Xxxxx, XX XXX 00000
(000) 000-0000 telephone
(000) 000-0000 telecopy
(b) if to the Company, to:
Xxxxxxx X. Xxxxx, CEO
0000 Xxxxxxxx Xxxxx Xxxxx, Xxxxx X
Xxxxxxxxxx, XX 00000
(000) 000-0000
(000) 000-0000 telecopy
54
with a copy to:
DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP
000 Xxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxxx, Esq.
(000) 000-0000
(000) 000-0000 telecopy
(c) if to KRM Fund, to:
Xx. Xxxxxxx X. Xxxxxxx, Manager
Xxxxxxx Reverse Merger Fund, LLC
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxxxxx Xxxxxxx, Xxxxxxxx XXX 00000-0000
(000) 000-0000 telephone
(000) 000-0000 telecopy
10.2 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect Subsidiaries of such entity.
Reference to the Subsidiaries of an entity shall be deemed to include all direct
and indirect Subsidiaries of such entity.
(b) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), revenues, financial condition or results of operations of such entity
(it being understood that neither of the following alone or in combination shall
be deemed, in and of itself, to constitute a Material Adverse Effect: (a)
changes attributable to the public announcement or pendency of the transactions
contemplated hereby, (b) changes in general national or regional economic
conditions, (c) changes affecting the industry generally in which the Company or
Parent operates), or (d) any SEC rulemaking requiring enhanced disclosure of
reverse merger transactions with a public shell.
55
(c) For purposes of this Agreement, the term "Legal Requirements"
means any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined in Section 2.5(b)), and all requirements
set forth in applicable Contracts (as defined in Section 2.21(a)).
(d) For purposes of this Agreement, the term "Subsidiary" shall mean
any Person in which the Company or Parent or any subsidiary thereof directly or
indirectly, owns beneficially securities or interests representing 50% or more
of (x) the aggregate equity or profit interests, or (y) the combined voting
power of voting interests ordinarily entitled to vote for management or
otherwise.
(e) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(f) For purposes of this Agreement, all monetary amounts set forth
herein are referenced in United States dollars, unless otherwise noted.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. Signatures by facsimile or in
electronic form shall be treated the same as if such signatures were original
signatures of the parties.
10.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Schedules hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the letter of intent between Parent and Company dated
November 15, 2005 is hereby terminated in its entirety and shall be of no
further force and effect; and (b) are not intended to confer upon any other
person any rights or remedies hereunder (except as specifically provided in this
Agreement). KRM Fund is a third-party beneficiary of the certain provisions
contained herein to which KRM Fund derives a benefit and, with respect to such
provisions, KRM Fund has the right to enforce them as if it were a signatory to
this Agreement.
10.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
56
10.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, USA, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
10.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the first sentence of this Section 10.9, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
10.10 Arbitration. Any disputes or claims arising under or in connection
with this Agreement or the transactions contemplated hereunder shall be resolved
by binding arbitration. Notice of a demand to arbitrate a dispute by either
party shall be given in writing to the other at their last known address.
Arbitration shall be commenced by the filing by a party of an arbitration demand
with the American Arbitration Association ("AAA") in its office in Denver,
Colorado USA. The arbitration and resolution of the dispute shall be resolved by
a single arbitrator appointed by the AAA pursuant to AAA rules. The arbitration
shall in all respects be governed and conducted by applicable AAA rules, and any
award and/or decision shall be conclusive and binding on the parties. The
arbitration shall be conducted in Denver, Colorado. The arbitrator shall supply
a written opinion supporting any award, and judgment may be entered on the award
in any court of competent jurisdiction. Each party shall pay its own fees and
expenses for the arbitration, except that any costs and charges imposed by the
AAA and any fees of the arbitrator for his services shall be assessed against
the losing party by the arbitrator. In the event that preliminary or permanent
injunctive relief is necessary or desirable in order to prevent a party from
acting contrary to this Agreement or to prevent irreparable harm prior to a
confirmation of an arbitration award, then either party is authorized and
entitled to commence a lawsuit solely to obtain equitable relief against the
57
other pending the completion of the arbitration in a court having jurisdiction
over the parties. All rights and remedies of the parties shall be cumulative and
in addition to any other rights and remedies obtainable from arbitration.
[The remainder of this page has been intentionally left blank.]
58
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
XXXXX.XXX, INC.
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------------------
Xxxxx X. Xxxxxxx, President
QORUS ACQUISITION, INC.
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------------------
Xxxxx X. Xxxxxxx, President
ECOTECHNOLOGY, INC.
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------------
Xxxxxxx X. Xxxxx, CEO
ACKNOWLEDGED AND AGREED
WITH RESPECT TO OBLIGATIONS
UNDER SECTION 5.14 HEREOF:
Xxxxxxx Reverse Merger Fund, LLC,
a Delaware limited liability company
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------
Xxxxxxx X. Xxxxxxx, Manager
59
Index of Exhibits and Schedules
Exhibits
--------
Exhibit A - Certificate of Designations
Exhibit B - Voting Agreement
Exhibit C - Financial Advisory Agreement
Exhibit D - Escrow Agreement
Schedules
---------
Company Disclosure Schedules
Parent and Merger Sub Disclosure Schedules
60
