EXCHANGE AGREEMENT
This
Exchange Agreement (the “Agreement”),
dated
as of the 15th
day of
May, 2006, is made and entered into by and among a21, Inc., a Texas corporation
(“a21”)
and
the persons signatory hereto, (collectively the “Shareholders”).
WHEREAS,
the
Shareholders are the holders of 10,000 shares of Series A Preferred Stock,
par
value $0.001 per share (the “Preferred Stock”), of a21, which shares of
Preferred Stock were issued to the Shareholders on May 15, 2006 (the
“Original
Issue Date”)
pursuant to the terms of that certain Merger Agreement by and among a21,
the
Shareholders and the other parties thereto dated as of May 15, 2006 (the
“Merger
Agreement”);
and
WHEREAS,
a21 is
authorized to issue one hundred million (100,000,000) shares of Common Stock
par
value $0.001 per share (“Common
Stock”);
and
WHEREAS,
pursuant to the terms of the Merger Agreement, the Shareholders are entitled
to
exchange their shares of Preferred Stock for shares of Common Stock, but
a21
does not have a sufficient number of authorized shares of Common Stock available
to issue to the Shareholders upon exchange of the Preferred Stock.
NOW,
THEREFORE,
in
consideration of the covenants and agreements set forth herein and in the
Merger
Agreement, and for other good and valuable consideration, and sufficiency
of
which are hereby acknowledged and intending to be legally bound hereby the
parties agree as follows:
1. Exchange
Rights at Option of the Holder.
At any
time prior to the receipt of a Company Notice (as defined below) or the
Redemption Date (as defined below), each share of Preferred Stock shall be
exchangeable, at the option of the holder thereof, and without the payment
of
additional consideration by the holder thereof, for such number of shares
of
fully paid, non-assessable shares of Common Stock equal to (a) the Stated
Value,
as hereinafter defined, divided by (b) the greater of the Average Price and
the
Minimum Exchange Price, each as hereinafter defined. The rate at which shares
of
Preferred Stock may be exchanged for shares of Common Stock, shall be subject
to
adjustment as provided below. “Average
Price”
shall
mean the average of the Closing Price of the Common Stock for the 20 Trading
Day
period ending one Trading Day prior to the date notice of the exchange is
sent
by a Shareholder to a21. "Closing
Price"
shall
mean the closing price of the Common Stock on the principal national securities
exchange (which for purposes of this definition shall include the Nasdaq
Stock
Market, Inc. and the OTC Bulletin Board) on which the shares of Common Stock
are
then traded, or if the shares of Common Stock are not traded on a principal
national securities exchange, the mean of the bid and asked prices of a share
of
Common Stock in the over-the-counter market. “Minimum
Exchange Price”
means
$.75. “Stated
Value”
shall
mean $315.00. "Trading
Day"
shall
mean any day on which the shares of Common Stock are traded on their principal
trading market. Therefore, assuming that the Average Price on a given day
was
less than $0.75, and the Minimum Exchange Price was $.75 per share, each
share
of Series A Preferred Stock would, as of such date, be exchangeable into
420
shares of Common Stock. If at least two-thirds of the Preferred Stock issued
in
connection with the Merger Agreement has been converted into Common Stock,
then
all other shares of Preferred Stock shall be deemed to have been converted
into
Common Stock on the last date that the last of the Shareholders owning at
least
two-thirds of the Preferred Stock converted their Preferred
Stock.
2. Exchange/Redemption
Rights at Option of a21.
(a) At
any
time after the Authorization Date (as defined below), the then outstanding
shares of Preferred Stock shall be exchangeable, at the option of a21, and
without the payment of additional consideration by the holder thereof, for
such
number of fully paid non-assessable shares of Common Stock equal to the Stated
Value divided by eighty-five percent (85%) of the Average Price at the time
of
notice by a21 to the Representative.
(b) At
any
time prior to exchange of the Preferred Shares into Common Stock, the then
outstanding shares of Preferred Stock shall be redeemable at the option of
a21,
in exchange for an amount in cash equal to the Stated Value multiplied by
the
number of shares of Preferred Stock which are to be redeemed, plus five percent
(5%) per annum on such redemption amount, compounded annually, computed from
the
Original Issue Date through and including the date the shares are
redeemed.
3. Securities
Law Representations.
Each
Shareholder by accepting the Preferred Stock represents that the Shareholder
is
acquiring the Preferred Stock for its own account or the account of an affiliate
for investment purposes and not with the view to any offering or distribution
and that the Shareholder will not sell or otherwise dispose of the Preferred
Stock or the underlying Common Stock in violation of applicable securities
laws.
Each Shareholder acknowledges that the certificates representing any shares
of
Preferred Stock or Common Stock will bear a legend indicating that such
securities have not been registered under the Securities Act of 1933, as
amended
(the “1933
Act”)
and
may not be sold by such Shareholder except pursuant to an effective registration
statement or pursuant to an exemption from the registration requirements
of the
1933 Act and in accordance with federal and state securities laws.
4. Authorized
Shares of Common Stock.
The
Shareholders understand that the Company does not currently have a sufficient
number of authorized shares of Common Stock available to issue upon exchange
of
the Preferred Stock. The Company hereby agrees to use commercially reasonable
efforts to increase the number of its authorized shares of Common Stock to
cover
the number of shares of Common Stock that would be issuable upon exchange
of the
Preferred Stock. The date on which a21 increases its authorized shares of
Common
Stock to cover the number of shares of Common Stock that would be issuable
upon
exchange of the Preferred Stock is referred to in this Agreement as the
“Authorization
Date”.
The
Company acknowledges that the Company will be obligated to pay damages to
the
Shareholders if the Authorization Date is later than July 30, 2006 pursuant
to
the terms of Section 8.5(b) of the Merger Agreement.
5. Fractional
Shares.
No
fractional shares of Common Stock shall be issued upon exchange of the shares
of
Preferred Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, a21 shall pay cash equal to such fraction multiplied
by
the then effective Closing Price of a share of Common Stock.
2
6. Mechanics
of an Exchange/Redemption.
(a) In
case
of an exchange pursuant to Section 1, in order for a holder of shares of
Preferred Stock to exchange shares of Preferred Stock for shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Preferred Stock at the principal office of a21, together with written
notice (the “Exchange
Notice”)
to a21
that such holder elects to exchange all or any number of the shares of Preferred
Stock represented by such certificate or certificates. The Exchange Notice
shall
state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by a21, certificates surrendered for exchange shall be endorsed
or
accompanied by a written instrument or instruments of transfer, in form
reasonably satisfactory to a21, duly executed by the registered holder or
such
holder’s attorney duly authorized in writing. The date of receipt of such
certificates and the Exchange Notice by a21 shall be the exchange date (the
"Exchange
Date").
i) In
the
event that the Exchange Date is prior to the Authorization Date, such holder
will not be entitled to receive the Common Stock issuable to such holder
upon
such exercise until the Authorization Date, provided that, as promptly as
practicable after the Authorization Date, a21 shall deliver to such holder
of
Preferred Stock, or to such holder’s nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder would have been
entitled as of the Exchange Date, together with cash in lieu for any fraction
of
a share.
ii) In
the
event that the Exchange Date is after the Authorization Date, a21 shall,
as
promptly as practicable after the Exchange Date, deliver to such holder of
Preferred Stock, or to such holder’s nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu for any fraction of a share.
(b) In
case
of an exchange pursuant to Section 2(a), in order for a21 to cause the holders
of shares of Preferred Stock to exchange their shares of Preferred Stock
for
shares of Common Stock, a21 shall deliver to each holder of Preferred Stock,
at
least ten days prior to the date the exchange is to take place, a written
notice
(the “Company
Notice”)
that
a21 has elected to require such holder to exchange the outstanding shares
of
Preferred Stock into shares of Common Stock, together with its calculation
of
the number of shares of Common Stock that such holder is entitled to receive
upon surrender of such holder’s shares of Preferred Stock. In order to receive
certificates representing shares of Common Stock, such holder shall surrender
the certificate or certificates for such shares of Preferred Stock at the
principal office of a21, together with the name, if any, of any person other
than the holder in which such holder wishes the certificate or certificates
for
shares of Common Stock to be issued. If required by a21, certificates
surrendered for exchange shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form reasonably satisfactory to
a21,
duly executed by the registered holder or such holder’s attorney duly authorized
in writing. For purposes of Section 2(a), the Exchange Date shall be the
date of
receipt by the holders of the shares of Preferred Stock of the Company Notice.
a21 shall, as soon as practicable after the Exchange Date, deliver to such
holder of Preferred Stock, or to such holder’s nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall
be entitled, together with cash in lieu of any fraction of a share. On and
after
the Exchange Date, such holder or such holder’s nominees shall be deemed to be
the record owner of such shares of Common Stock and have all the rights
appertaining thereto.
3
(c) In
case
of a redemption pursuant to Section 2(b), in order for a21 to cause the holders
of shares of Preferred Stock to surrender their shares of Preferred Stock
for
cash, a21 shall deliver to each holder of shares of Preferred Stock, at least
ten days prior to the date the redemption is to take place (the “Redemption
Date”),
a
written notice (the “Redemption
Notice”)
that
a21 has elected to require such holder to surrender outstanding shares of
Preferred Stock for cash, together with its calculation of the amount of
cash
(the “Price”)
that
such holder is entitled to receive upon surrender of such holder’s shares of
Preferred Stock. The Shareholders may exchange their shares of Preferred
Stock
in accordance with Section 1 up to the close of business on the business
day
immediately prior to the Redemption Date. In order to receive the Price,
such
holder shall surrender the certificate or certificates for such shares of
Preferred stock at the principal office of a21. If required by a21, certificates
surrendered shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form reasonably satisfactory to a21, duly executed
by the registered holder or such holder’s attorney duly authorized in writing.
a21 shall, as soon as practicable after receipt of the certificates for
Preferred Stock, deliver to such holder of Preferred Stock a certified or
bank
check for the Price for such shares.
(d) All
shares of Preferred Stock which shall have been surrendered or deemed to
have
been surrendered for exchange or redemption as herein provided shall be
cancelled by a21 and shall no longer be deemed to be outstanding. All rights
with respect to such cancelled shares, including the right, if any, to receive
notices and to vote, shall immediately cease and terminate on the Exchange
Date,
except only the right of the holders thereof to receive certificates
representing shares of Common Stock and cash in lieu of fractional shares
in
exchange therefor or the Price in cash as the case may be.
7. Reservation
of Shares.
a21
shall at all times after the Authorization Date when shares of Preferred
Stock
are outstanding, reserve for the purpose of effecting the exchange of the
shares
of Preferred Stock, such number of its shares of Common Stock as shall from
time
to time be sufficient to effect the exchange of all outstanding shares of
Preferred Stock.
8. Adjustments
to Exchange Price.
(a) Adjustment
for Stock Splits and Combinations.
If a21
shall at any time or from time to time after the Original Issue Date effect
a
subdivision of the outstanding shares of Common Stock, the Minimum Exchange
Price in effect immediately before that subdivision shall be proportionately
decreased. If a21 shall at any time or from time to time after the Original
Issue Date combine the outstanding shares of Common Stock, the Minimum Exchange
Price in effect immediately before the combination shall be proportionately
increased. Any adjustment under this Section 8(a) shall become effective
at the
close of business on the date the subdivision or combination becomes effective.
(b) Adjustment
for Certain Dividends and Distributions.
In the
event a21 at any time, or from time to time after the Original Issue Date
shall
make or issue, or fix a record date for the determination of holders of shares
of Common Stock entitled to receive, a dividend or other distribution payable
in
additional shares of Common Stock, then and in each such event the Minimum
Exchange Price shall be decreased as of the time of such issuance or, in
the
event such a record date shall have been fixed, as of the close of business
on
such record date, by multiplying the Minimum Exchange Price by a fraction:
4
(x)
the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the close of business on such record
date
(or, if there is no record date, immediately prior to the time of such
issuance); and
(y)
the
denominator of which shall be the total number of shares of Common Stock
issued
and outstanding immediately prior to the close of business on such record
date
(or, of there is no record date, immediately prior to the time of such issuance)
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided,
however, that if such record date shall have been fixed and such dividend
is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Minimum Exchange Price shall be recomputed as of the close of business
on
such record date.
(c) Adjustments
for Stock Splits, Reverse Stock Splits, Other Dividends and
Distributions.
In the
event a21 at any time after the Original Issue Date shall make or issue,
or fix
a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of a21 other
than
shares of Common Stock, or shall subdivide its outstanding Common Stock or
combine its outstanding Common Stock into a smaller number of shares of Common
Stock, then and in each such event a21 shall make provision so that the holders
of the shares of Preferred Stock shall receive upon exchange thereof in addition
to the number of shares of Common Stock receivable thereupon, the amount
of
securities of a21 that they would have received had the shares of Preferred
Stock been exchanged for shares of Common Stock immediately prior to the
date of
such event and had they thereafter, during the period from the date of such
event to and including the Exchange Date, retained such securities receivable
by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 8(c) with respect to the
rights
of the holders of shares of Preferred Stock.
(d) Adjustment
for Reclassification, Exchange or Substitution.
If the
shares of Common Stock issuable upon the exchange of the shares of Preferred
Stock shall be changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation,
or sale
of assets provided for below), then and in each such event the holder of
each
such share of Preferred Stock shall have the right thereafter to exchange
such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other
change,
by holders of the number of shares of Common Stock for which such shares
of
Preferred Stock might have been exchanged immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
5
(e) Adjustment
for Merger, Consolidation or Sale of Assets.
In case
of any merger or consolidation of a21 with or into another corporation, or
the
sale of all or substantially all the assets of a21 to another person, each
share
of Preferred Stock shall be exchangeable (or shall be exchanged for a security
which shall be exchangeable) for the kind and amount of shares of stock or
other
securities or property to which a holder of the number of shares of Common
Stock
deliverable upon exchange of such shares of Preferred Stock would have been
entitled upon such merger, consolidation or sale of all or substantially
all the
assets of a21.
(f) Anti
Dilution for Additional Issuances.
If a21
issues any additional shares of Common Stock, or warrants or other securities
convertible, exercisable or exchangeable for Common Stock, at a purchase,
conversion, exercise or exchange price, as the case may be, less than the
Minimum Exchange Price, the Minimum Exchange Price shall be adjusted to equal
the price determined by multiplying the Minimum Exchange Price by a fraction,
the denominator of which shall be the fully diluted number of shares of Common
Stock outstanding immediately after giving effect to such transaction, and
the
numerator of which shall be the fully diluted number of shares of Common
Stock
that would have been outstanding immediately after such transaction if the
purchase, conversion, exercise or exchange price, as the case may be, were
the
Minimum Exchange Price. For the purposes hereof, additional shares of Common
Stock shall not include shares of Common Stock or warrants or other securities
exercisable, convertible or exchangeable into Common Stock (i) issued to
officers, directors, employees of and consultants to the Company and/or its
subsidiaries pursuant to stock option, stock purchase or similar plans, (ii)
shares of Common Stock issued in connection with any event for which adjustment
is required to be made pursuant to another provision of this Agreement, or
(iii)
shares of Common Stock issued in connection with securities issued and
outstanding prior to the consummation of the transactions contemplated by
the
Merger Agreement. Notwithstanding any other provision contained herein, in
no
event may the Minimum Exchange Price be reduced to below 80% of Minimum Exchange
Price (after taking account any adjustments to the Minimum Exchange Price
pursuant to Sections 8(a)-(e)) pursuant to the provisions of this Section
8(f).
(g) No
Impairment.
Without
limiting the foregoing, a21 shall use its best efforts to carry out all the
provisions of this Section 8 and to take all such action as may be necessary
or
appropriate in order to protect against impairment the rights of the holders
of
shares of Preferred Stock to exchange their shares in accordance
herewith.
9. Other
Notices.
In case
at any time:
(a) a21
shall
declare any dividend upon Common Stock payable in cash or stock or make any
other distribution to the holders of Common Stock;
(b) a21
shall
offer for subscription pro rata to the holders of Common Stock any additional
shares of stock of any class or other rights;
(c) there
shall be any capital reorganization or reclassification of the capital stock
of
a21, or a consolidation or merger of a21 with or into another entity or
entities, or a sale, lease, abandonment, transfer or other disposition of
all or
substantially all its assets; or
6
(d) there
shall be a voluntary or involuntary dissolution, liquidation or winding up
of
a21;
then,
in
any one or more of said cases, a21 shall give, by delivery in person, certified
or registered mail, return receipt requested, telecopier or telex, addressed
to
each holder of any shares of Preferred Stock at the address of such holder
as
shown on the books of a21, (a) at least 20 days’ prior written notice of the
date on which the books of a21 shall close or a record shall be taken for
such
dividend, distribution or subscription rights or for determining rights to
vote
in respect of any such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up and (b) in the case of
any
such reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days’ prior written notice
of the date when the same shall take place. Such notice in accordance with
the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, as the case
may
be.
10. Lock-up.
(a) If
any
shares of Preferred Stock are exchanged by the holder of Preferred Stock
pursuant to Section 1 and the shares of Common Stock issued upon exchange
of the
Preferred Stock are legally salable or transferable by the holder thereof
at any
time after the issuance of the shares of Common Stock, then:
i) 1/3
of
the shares of Common Stock issued upon such exchange may be sold or otherwise
transferred by the holder of the shares of Common Stock at any time after
exchange;
ii) 1/3
of
the shares of Common Stock issued upon such exchange may be sold or otherwise
transferred by the holder of the shares of Common Stock at any time after
the
nine month anniversary of the date the exchange; and
iii) any
remaining the shares of Common Stock issued upon such exercise may be sold
or
otherwise transferred by the holder of the shares of the shares of Common
Stock
at any time after the fifteen month anniversary of the date of the
exchange.
(b) If
any
shares of Preferred Stock are exchanged by a21 pursuant to Section 2(a) and
the
shares of Common Stock issued upon exchange of the Preferred Stock are legally
salable or transferable by the holder thereof at any time after the issuance
of
the shares of Common Stock, then:
i) 1/3
of
the shares of Common Stock issued upon such exchange may be sold or otherwise
transferred by the holder of the shares of Common Stock at any time after
exchange;
7
ii) 1/3
of
the shares of Common Stock issued upon such exchange may be sold or otherwise
transferred by the holder of the shares of Common Stock at any time after
the
three month anniversary of the date the exchange; and
iii) any
remaining the shares of Common Stock issued upon such exercise may be sold
or
otherwise transferred by the holder of the shares of the shares of Common
Stock
at any time after the six month anniversary of the date of the
exchange.
11. Amendments.
This
Agreement shall not be modified, amended or terminated without the written
consent of all of the parties hereto.
12. Further
Assurances.
Each of
the parties hereto shall use its commercially reasonable efforts to do all
things necessary and advisable to make effective the transaction contemplated
hereby and shall cooperate and take such action as may be reasonably requested
by the other party in order in carry out fully the provisions and purposes
of
this Agreement and the transactions contemplated thereby.
13. Counterparts.
This
Agreement may be executed in one or more counterparts (including by facsimile)
each of which shall be deemed to be an original, or which together shall
constitute one in the same instrument.
14. Governing
Law; Venue.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of New York, without regard to principles of conflicts of law. Each
party
agrees that it will bring any action or proceeding in respect to any claim
arising out of or related to this Agreement or the transaction whether in
tort
or contract or at law and equity, exclusively in the U.S. District Court for the
Southern District of New York (the “Chosen Courts”). In connection with such
claims arising out of or related to this Agreement or the transaction, each
party irrevocably submits to the exclusive jurisdiction of the Chosen Courts,
waives any objection to laying venue in any such action or proceeding in
the
Chosen Courts, waives any objection that the Chosen Courts are on inconvenient
forum or do not have jurisdiction over any of the parties, agrees that service
of process in person or by certified or registered mail to its address will
constitute valid in person or service upon such party and its successors
and
assigns in any action or proceeding with respect to any matter as to which
it
has submitted to jurisdiction hereunder.
15. Registration
Rights.
The
Company acknowledges that the Shareholders have “piggy-back” registration rights
pursuant to the terms of Sections 8.6 and 8.7 of the Merger Agreement.
16. Taxes.
The
Company will pay, when due and payable, any and all federal and state stamp,
original issue or similar taxes which may be payable in respect of the
issue of any shares of Common Stock upon exchange of the Preferred
Stock.
[The
balance of this page is intentionally left blank.]
8
IN
WITNESS WHEREOF, this Exchange Agreement has been executed as of the day
and
year first above written.
| a21, Inc. | ||
| |
By: | |
| Title | ||
| Stockholder: | ||
| If an entity: | ||
| Name: |
|
By:
|
||
|
Name: |
||
| Title | ||
| If an individual: | ||
| Name: | ||
9
