SETTLEMENT AND RELEASE AGREEMENT
SETTLEMENT
AND RELEASE AGREEMENT
SETTLEMENT
AND RELEASE AGREEMENT, dated as of November 20, 2006 (this “Agreement”),
by
and between YTB International, Inc., a Delaware corporation (“YTB”)
and
Laurus Master Fund, Ltd., a company incorporated under the Exempt Companies
Ordinance of the Cayman Islands (“Laurus”).
WHEREAS,
Laurus acquired (i) 2,050,000 shares (the “January
Shares”)
of
common stock, par value $0.01 per share, of YTB (“Common
Stock”)
and a
warrant, dated January 26, 2005 (the “January
Warrant”)
to
purchase 800,000 shares of Common Stock (the “January
Warrant Shares”),
pursuant to a Securities Purchase Agreement, dated January 26, 2005 (the
“January
SPA”)
and a
$2,000,000 Convertible Term Note (the “Note”)
which
has been converted into shares of Common Stock and (ii) 800,000 shares of Common
Stock (the “October
Shares”)
and a
warrant, dated October 31, 2005 (the “October
Warrant”)
to
purchase 400,000 shares of Common Stock (the “October
Warrant Shares”
and
together with the January Shares, the October Shares and the January Warrant
Shares, the “Original
Securities”),
pursuant to a Securities Purchase Agreement, dated October 31, 2005 (the
“October
SPA”);
WHEREAS,
in connection with the January SPA, Laurus and YTB entered into a Registration
Rights Agreement, dated January 26, 2005 (the “January
Registration Rights Agreement”),
and
in connection with the October SPA, Laurus and YTB entered into a Registration
Rights Agreement, dated October 31, 2005 (together with the January Registration
Rights Agreement, the “Registration
Rights Agreements”),
pursuant to which YTB agreed to provide certain registration rights with respect
to the Original Securities under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws (the Registration
Rights Agreements, the January SPA, the Note, the January Warrant, the October
SPA and the October Warrant, and each agreement or other document entered into
in connection with or pursuant to such agreements and documents, referred to
herein as the “Original
Documentation”);
WHEREAS,
YTB filed with the Securities and Exchange Commission (“SEC”)
a Form
8-K, dated January 30, 2006, reporting that the financial statements included
in
YTB’s Annual Report for the years ended December 31, 2004 and December 31, 2003
and the financial statements included in YTB’s Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004, March
31, 2005, June 30, 2005 and September 30, 2005 should no longer be relied upon;
and
WHEREAS,
YTB and Laurus desire to settle any disputes, suits, claims, charges, penalties,
damages, liquidated damages, fees, liabilities and causes of action arising
out
of, based upon or with respect to any Effectiveness Failure (as defined below)
or any Share Sale Loss (as defined below) and for this reason, have entered
into
this Agreement;
NOW
THEREFORE, in consideration of the mutual agreements contained herein, the
parties agree as follows:
1.
Additional
Shares.
Subject
to the terms and conditions of this Agreement, and in reliance on the respective
representations, warranties and covenants contained herein, within five days
of
the execution and delivery of this Agreement by each of the parties, YTB shall
deliver to Laurus a stock certificate registered in the name of Laurus for
200,000 shares of Common Stock (the “Additional
Shares”
and,
together with the Original Securities, the “Shares”)
which
shall bear the following legend:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
2. Termination
of Original Documentation.
To the
extent that the agreements or other documents constituting the Original
Documentation are in effect, as of the date hereof all of the agreements and
other documents constituting the Original Documentation, excluding only the
January Warrant and the October Warrant, are hereby terminated and of no further
force and effect, and each of Laurus and YTB shall have no further rights or
obligations thereunder or with respect thereto.
3. Registration
of the Shares.
Within
45 days after YTB files (i) an Annual Report for the year ended December 31,
2005, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
2006,
June 30, 2006 and September 30, 2006, (iii) restated Annual Reports for the
years ended December 31, 2004 and December 31, 2003 and (iv) restated Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004,
September 30, 2004, March 31, 2005, June 30, 2005 and September 30, 2005, YTB
shall use its reasonable best efforts to file with the SEC a Registration
Statement on Form SB-2 covering the resale of the Shares. YTB shall use its
reasonable best efforts to cause such Registration Statement to be declared
effective by the SEC. In connection with the foregoing, the indemnification
provisions set forth on Annex A hereto shall apply.
4. Representations
and Warranties of Laurus.
Laurus
represents and warrants to YTB as of the date hereof as follows:
(a) Laurus
is
duly organized and validly existing and in good standing under the laws of
the
jurisdiction of its incorporation, has the requisite corporate power and
authority to execute, deliver this agreement and to consummate the transactions
contemplated hereby, and has taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement; and
(b)
Laurus
is
acquiring the Additional Shares, shall acquire the January Warrant Shares and
the October Warrant Shares, and has acquired the other Original Securities
and
the January Warrant and October Warrant, solely for the purpose of investment
and not with a view to, or for offer or sale in connection with, any
distribution thereof other than in compliance with all applicable laws,
including United States federal securities laws. Laurus agrees that the Shares,
the January Warrant and October Warrant may not be sold, transferred, offered
for sale, pledged, hypothecated or otherwise disposed of without registration
under the Securities Act of 1933, as amended (the “Securities
Act”)
and
any applicable state securities laws, except pursuant to an exemption from
such
registration under the Securities Act and such laws. Laurus is able to bear
the
economic risk of holding the Shares, the January Warrant and October Warrant
for
an indefinite period (including total loss of its investment), and (either
alone
or together with its advisors) has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits
and
risk of its investment.
5. Representations
and Warranties of YTB.
YTB
represents and warrants to Laurus as of the date hereof and as of the date
of
the issuance of the Additional Shares as follows:
(a) YTB
is
duly organized and validly existing and in good standing under the laws of
the
jurisdiction of its incorporation, has the requisite corporate power and
authority to execute and deliver this agreement and to consummate the
transactions contemplated hereby, and has taken all necessary corporate action
to authorize the execution, delivery and performance of this
Agreement;
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(b) The
execution of this Agreement by YTB does not, and the performance by YTB of
its
obligations hereunder will not, constitute a material violation of, materially
conflict with or result in a material default under any contract, commitment,
agreement, understanding, arrangement or restriction of any kind to which YTB
is
a party or by which YTB is bound or constitute a violation of, conflict with
or
result in a default under any judgment, decree or order applicable to YTB;
(c) Neither
the execution and delivery of this Agreement nor the performance by YTB of
its
obligations hereunder will violate any provision of law applicable to YTB or
require any consent or approval of, or filing with or notice to any public
body
or authority under, any provision of law applicable to YTB other than notice
or
filings pursuant to the federal securities laws; and
(d)
The
Additional Shares are duly authorized and, upon issuance in accordance with
the
terms of this Agreement will be validly issued, fully paid, and non-assessable
and free from all liens.
6. Release
and Waiver.
Effective as of the Release Effective Date (as defined below), Laurus, for
itself and its affiliates and successors and assigns (a) hereby releases and
discharges YTB and its directors and officers, affiliates, representatives,
attorneys, agents, successors and assigns from all suits, claims, charges,
penalties, damages, liquidated damages, fees, liabilities and causes of action,
whatsoever, whether known or unknown, in law or equity or otherwise, which
Laurus or its affiliates, successors and assigns have or may have against any
or
all of them arising out of, based upon or with respect to (i) any failure by
YTB
prior to the Release Effective Date to file or obtain and maintain effectiveness
of a Registration Statement as required under either of the Registration Rights
Agreements (an “Effectiveness
Failure”)
and
(ii) any losses suffered by Laurus or any of its affiliates on the sale of
any
of the Shares prior to the Release Effective Date (“Share
Sale Loss”)
(provided however that such release shall not apply to any obligations of YTB
to
indemnify Laurus or its affiliates for damages payable to third parties), and
(b) hereby waives any liquidated damages that may have accrued through the
date
hereof or may accrue in the future under the Registration Rights Agreements,
including under Section 2 of each of the Registration Rights
Agreements.
“Release
Effective Date”
shall
mean the first date upon which (i) YTB and Laurus shall each have duly executed
and YTB shall have delivered to Laurus its respective counterparts to this
Agreement and (ii) Laurus, or its designee, shall have received the Additional
Shares, which Additional Shares shall be duly authorized, validly issued, fully
paid and non-assessable and free from all liens.
7. Expenses.
All
fees and expenses incurred by any of the parties hereto shall be borne by the
party incurring such fees and expenses and all sales, transfer or other similar
taxes payable in connection with this Agreement will be borne by the party
incurring such taxes.
8. Brokerage.
Each of
YTB and Laurus represents and warrants to the other that the negotiations
relevant to this Agreement have been carried on by each of YTB, on the one
hand,
and Laurus, on the other hand, directly with the other, and that there are
no
claims for finder’s fees or brokerage commissions or other like payments in
connection with this Agreement.
9. Further
Assurances.
Each
party shall use its best efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
applicable law, and to execute and deliver such documents and other papers,
as
may be required to carry out the provisions of this Agreement and consummate
and
make effective the transactions contemplated hereby.
10. Miscellaneous.
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(a) This
Agreement constitutes the entire agreement and supersedes all prior agreements
and understandings, whether oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may not be amended orally,
but only by an instrument in writing signed by each of the parties to this
Agreement.
(b) This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective directors, officers, heirs, legal representatives,
attorneys, successors and assigns.
(c) This
Agreement shall be governed by and construed and enforced in accordance with
the
laws of the State of New York, without reference to the conflict of laws
principles thereof. The parties consent to the jurisdiction and venue of the
Courts of the State of New York within the County of New York and the United
States District Court of the Southern District of New York in connection with
any claim or controversy arising out of or relating to this Agreement.
(d) All
notices and other communications under this Agreement shall be in writing and
delivery thereof shall be deemed to have been made when transmitted by hand
delivery, commercial overnight delivery service, telegram, telex, telecopier
or
facsimile transmission, when confirmed, to the party entitled to receive the
same at the address indicated below or at such other address as such party
shall
have specified by written notice to the other parties hereto given in accordance
herewith:
| (i) |
if
to YTB, addressed to:
|
Xxx
Xxxxxxx Xxxx Xxxx Xxxxx
Xxxxxxxxxxxx,
Xxxxxxxx 00000
Attn:
Xxxx X. Xxxxx,
Chief
Financial Officer
Fax:
(000) 000-0000
with
a
copy to:
Xxxxxxxxx
Traurig, LLP
The
MetLife Building
000
Xxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxxxxx X. Xxxxx
Fax:
(000) 000-0000
|
(ii)
|
if
to Laurus, addressed to:
|
c/o
Laurus Capital Management LLC
Attn:
Portfolio Services
000
Xxxxx
Xxxxxx - 00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
(e) Any
waiver by any party of a breach of any provision of this Agreement shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Agreement. The failure of a
party to insist upon strict adherence to any term of this Agreement or one
or
more sections shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other
terms
of this Agreement. This Agreement may be executed in counterparts.
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IN
WITNESS WHEREOF, and intending to be legally bound hereby, YTB and Laurus have
executed this Agreement on the date first above written.
| YTB INTERNATIONAL, INC. | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
| LAURUS MASTER FUND, LTD. | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title: | ||
5
Annex
A
(a) In
the
event of a registration of any Shares under the Securities Act, YTB will
indemnify and hold harmless Laurus, and its officers, directors and each other
person, if any, who controls Laurus within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
Laurus, or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which any of the Shares are registered under the Securities Act pursuant
to this Agreement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse Laurus, and each such person for any reasonable legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided,
however,
that
YTB will not be liable in any such case if and to the extent that any such
loss,
claim, damage or liability arises out of or is based upon an untrue statement
or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by or on behalf of Laurus or any such person in
writing specifically for use in any such document.
(b) In
the
event of a registration of any Shares under the Securities Act, Laurus will
indemnify and hold harmless YTB, and its officers, directors and each other
person, if any, who controls YTB within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
YTB or such persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact which was furnished in writing by Laurus to
YTB
expressly for use in (and such information is contained in) any Registration
Statement under which any of the Shares are registered under the Securities
Act
pursuant to this Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or
are based upon the omission or alleged omission to state therein a material
fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse YTB and each such person for any reasonable
legal
or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided,
however,
that
Laurus will be liable in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in
conformity with information furnished in writing to YTB by or on behalf of
Laurus specifically for use in any such document. Notwithstanding the provisions
of this paragraph, Laurus shall not be required to indemnify any person or
entity in excess of the amount of the aggregate net proceeds received by Laurus
in respect of the Shares in connection with any such registration under the
Securities Act.
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(c) Promptly
after receipt by a party entitled to claim indemnification hereunder (an
“Indemnified
Party”)
of
notice of the commencement of any action, such Indemnified Party shall, if
a
claim for indemnification in respect thereof is to be made against a party
hereto obligated to indemnify such Indemnified Party (an “Indemnifying
Party”),
notify the Indemnifying Party in writing thereof, but the omission so to notify
the Indemnifying Party shall not relieve it from any liability which it may
have
to such Indemnified Party other than under this Annex A and shall only relieve
it from any liability which it may have to such Indemnified Party under this
Annex A if and to the extent the Indemnifying Party is prejudiced by such
omission. In case any such action shall be brought against any Indemnified
Party
and it shall notify the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such Indemnified Party, and, after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume and undertake
the
defense thereof, the Indemnifying Party shall not be liable to such Indemnified
Party under this Annex A for any legal expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof; if the Indemnified
Party retains its own counsel, then the Indemnified Party shall pay all fees,
costs and expenses of such counsel, provided,
however,
that,
if the defendants in any such action include both the indemnified party and
the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the Indemnifying Party or if the interests
of the Indemnified Party reasonably may be deemed to conflict with the interests
of the Indemnifying Party, the Indemnified Party shall have the right to select
one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and
fees
of such separate counsel and other expenses related to such participation to
be
reimbursed by the Indemnifying Party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) Laurus, or any officer,
director or controlling person of Laurus, makes a claim for indemnification
pursuant to this Annex A but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Annex A provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of Laurus or such officer,
director or controlling person of Laurus in circumstances for which
indemnification is provided under this Annex A; then, and in each such case,
YTB
and Laurus will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that Laurus is responsible only for the portion represented
by the percentage that the public offering price of its securities offered
by
the Registration Statement bears to the public offering price of all securities
offered by such Registration Statement, provided,
however,
that,
in any such case, (A) Laurus will not be required to contribute any amount
in
excess of the public offering price of all such securities offered by it
pursuant to such Registration Statement; and (B) no person or entity guilty
of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty
of
such fraudulent misrepresentation.
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