Exhibit 2.1
AGREEMENT
BY AND AMONG
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.,
EARFUL ACQUISITION CORP.
AND
EARFUL OF BOOKS, INC.
DATED AS OF JUNE 29, 2001
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . 2
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SECTION 1.02. Effective Time. . . . . . . . . . . . . . . . . . . . . 2
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ARTICLE II REPRESENTATIONS AND WARRANTIES OF EARFUL . . . . . . . . . . 2
SECTION 2.01. Organization and Qualification; Subsidiaries. . . . . 3
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SECTION 2.02. Articles of Incorporation and By-Laws. . . . . . . . 3
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SECTION 2.03. Capitalization . . . . . . . . . . . . . . . . . . . . . 3
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SECTION 2.04. Authority . . . . . . . . . . . . . . . . . . . . . . . 4
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SECTION 2.05. No Conflict; Required Filings and Consent . . . . . 4
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SECTION 2.06. Permits; Compliance . . . . . . . . . . . . . . . . . . 5
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SECTION 2.07. Financial Statements . . . . . . . . . . . . . . . . . 5
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SECTION 2.08. No Undisclosed Liabilities . . . . . . . . . . . . . . 5
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SECTION 2.09. Absence of Certain Changes or Events. . . . . . . . 5
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SECTION 2.10. Absence of Litigation. . . . . . . . . . . . . . . . . 6
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SECTION 2.11. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 6
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SECTION 2.12. Brokers . . . . . . . . . . . . . . . . . . . . . . . . 6
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SECTION 2.13. Earful Corporate Action. . . . . . . . . . . . . . . . 6
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SECTION 2.14. Environmental Laws and Regulations. . . . . . . . . . 6
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SECTION 2.15. Employee Benefit Plans . . . . . . . . . . . . . . . . 8
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SECTION 2.16. Securities Laws . . . . . . . . . . . . . . . . . . . . 8
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF AANP AND NEWCO . . . . . . 8
SECTION 3.01. Organization and Qualification . . . . . . . . . . . . 9
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SECTION 3.02. Articles of Incorporation and By-Laws. . . . . . . . 9
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SECTION 3.03. Capitalization . . . . . . . . . . . . . . . . . . . . . 9
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SECTION 3.04. Authority . . . . . . . . . . . . . . . . . . . . . . . 10
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SECTION 3.05. No Conflict; Required Filings and Consents. . . . . 10
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SECTION 3.06. Permits; Compliance . . . . . . . . . . . . . . . . . . 11
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SECTION 3.07. Reports; Financial Statements . . . . . . . . . . . . 12
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SECTION 3.08. Absence of Certain Changes or Events. . . . . . . . 12
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SECTION 3.09. No Undisclosed Liabilities . . . . . . . . . . . . . . 12
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SECTION 3.10. Absence of Litigation . . . . . . . . . . . . . . . . 13
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SECTION 3.11. Ownership of Newco; No Prior Activities . . . . . . 13
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SECTION 3.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 13
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SECTION 3.13. Brokers . . . . . . . . . . . . . . . . . . . . . . . . 14
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SECTION 3.14. Environmental Laws and Regulations . . . . . . . . . 14
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SECTION 3.15. Contract Rights . . . . . . . . . . . . . . . . . . . . 14
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SECTION 3.16. Employee Benefit Plans . . . . . . . . . . . . . . . . 15
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SECTION 3.17. Public Offering . . . . . . . . . . . . . . . . . . . . 15
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SECTION 3.18. Acknowledgment of Xxxx Xxxx Conviction . . . . . . . 15
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ARTICLE IV ADDITIONAL AGREEMENTS; CONDITIONS TO CLOSING; TERMINATION . . . 16
SECTION 4.01. Appropriate Action; Consents; Filings 16
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SECTION 4.02. Conduct of Business by Earful Pending the Merger . 16
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SECTION 4.03. Conduct of Business by AANP Pending the Merger . 18
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SECTION 4.04. Tax Treatment . . . . . . . . . . . . . . . . . . . . 20
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SECTION 4.05. Indemnification . . . . . . . . . . . . . . . . . . . . 20
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SECTION 4.06. Conditions to Closing . . . . . . . . . . . . . . . . 25
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SECTION 4.07. Termination . . . . . . . . . . . . . . . . . .. . . . 28
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SECTION 4.08. Effect of Termination . . . . . . . . . . . . . . . . 28
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ARTICLE V GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.01. Effectiveness of Representations, Warranties and
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Agreements . . . . . . . . . . . . . . . . . . . . . . 29
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SECTION 5.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . 29
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SECTION 5.03. Certain Definitions . . . . . . . . . . . . . . . . . 31
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SECTION 5.04. Headings . . . . . . . . . . . . . . . . . . . . . . . 32
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SECTION 5.05. Severability . . . . . . . . . . . . . . . . . . . . . 32
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SECTION 5.06. Entire Agreement . . . . . . . . . . . . . . . . . . . 32
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SECTION 5.07. Assignment . . . . . . . . . . . . . . . . . . . . . . 33
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SECTION 5.08. Parties in Interest . . . . . . . . . . . . . . . . . 33
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SECTION 5.09. Failure or Indulgence Not Waiver; Remedies Cumulative . 33
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SECTION 5.10. Governing Law . . . . . . . . . . . . . . . . . . . . 33
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SECTION 5.11. Jurisdiction . . . . . . . . . . . . . . . . . . . . . 33
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SECTION 5.12. Counterparts . . . . . . . . . . . . . . . . . . . . . 34
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SECTION 5.13. Amendment . . . . . . . . . . . . . . . . . . . . . . . 34
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SECTION 5.14. Arbitration . . . . . . . . . . . . . . . . . . . . . . 34
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AGREEMENT
AGREEMENT dated as of June 29, 2001 ("Agreement"), among AMERICAN
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ABSORBENTS NATURAL PRODUCTS, INC., a Utah corporation ("AANP"), EARFUL
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ACQUISITION CORP., a Texas corporation ("Newco") and a wholly owned subsidiary
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of AANP, and AUDIOBOOKS OF TEXAS, INC d/b/a EARFUL OF BOOKS, a Texas corporation
("Earful").
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WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the Texas Business Corporation Act ("TBCA"), at
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the Effective Time (as defined herein), Newco will merge with and into Earful
(the "Merger") as a result of which the shareholders of Earful will own together
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approximately 76% of the issued and outstanding shares of the common stock,
$.001 par value, of AANP (on a fully diluted basis);
WHEREAS, the Board of Directors of Earful has determined that the
Merger is fair to, and in the best interests of, Earful and its shareholders;
has approved and adopted this Agreement and the transactions contemplated
herein; and recommended that the transactions contemplated herein be approved by
the shareholders of Earful;
WHEREAS, the Board of Directors of AANP has determined that the Merger
is in the best interests of AANP and its shareholders and has approved and
adopted this Agreement and the transactions contemplated herein;
WHEREAS, the Board of Directors of Newco has determined that the
Merger is in the best interests of Newco and its stockholder and the Board of
Directors of Newco and AANP, as the sole stockholder of Newco, have approved and
adopted this Agreement and the transactions contemplated herein;
WHEREAS, for Federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code") and that
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this Agreement and the Annexes hereto shall constitute a "plan of
reorganization" for the purposes of section 368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
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conditions set forth in this Agreement, and in accordance with the TBCA, at the
Effective Time (as defined in Section 1.02), Newco and Earful shall effect a
merger by executing the Plan and Agreement of Merger (the "Plan") in
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substantially the form attached hereto as Annex I, and by executing and filing
Articles of Merger (the "Articles"), substantially in the form attached hereto
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as Annex II, in the manner provided in Article 5.04 of the TBCA. As a result of
the Merger, the separate corporate existence of Newco shall cease and Earful
shall continue as the surviving corporation in the Merger (the "Surviving
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Corporation"). The name of the Surviving Corporation shall, concurrently upon
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filing the Articles, be changed to"Earful Audiobooks, Inc." Prior to the
Merger, AANP shall, pursuant to the terms of the Subscription Agreement, a copy
of which is attached as Annex III hereto (the "Subscription Agreement"), issue
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and deliver to Newco shares of AANP Stock, and AANP Options equivalent to the
number of shares of AANP Stock, and the number of AANP Options to be transferred
pursuant to the terms and provisions of the Plan.
SECTION 1.02. Effective Time. As promptly as practicable after
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the execution and delivery of this Agreement by each of the parties hereto and
the satisfaction or waiver of the conditions to each party's obligations, the
parties hereto shall cause the Merger to be consummated by filing the Articles
with the Secretary of State of the State of Texas, in such form as required by,
and executed in accordance with the relevant provisions of the TBCA (the date
and time of such filing being the "Effective Time").
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EARFUL
Earful hereby represents and warrants to AANP and Newco as follows:
SECTION 2.01. Organization and Qualification; Subsidiaries. Each
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of Earful and the subsidiaries of Earful listed on Schedule 2.01 (the "Earful
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Subsidiaries") is an entity validly existing and in good standing under the laws
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of the jurisdiction of its incorporation or organization, has all requisite
corporate or other power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, and is duly qualified
and in good standing to do business in each jurisdiction in which the nature of
the business conducted by it or the ownership or leasing of its properties makes
such qualification necessary.
SECTION 2.02. Articles of Incorporation and By-Laws. Earful has
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furnished to AANP complete and correct copies of the Articles of Incorporation
and the By-Laws or the equivalent organizational documents, in each case as
amended or restated, of Earful and the Earful Subsidiaries. Neither Earful nor
any of the Earful Subsidiaries is in violation of any of the provisions of its
respective Articles of Incorporation or By-Laws or equivalent organizational
documents.
SECTION 2.03. Capitalization. (a) The authorized capital stock of
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Earful consists of 10,000,000 shares of common stock, $.01 par value ("Earful
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Common"). As of the date hereof (i) 2,460,270 shares of Earful Common are
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issued and outstanding, all of the issued and outstanding shares of Earful
Common are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, Earful's Articles of
Incorporation or By-Laws or any agreement to which Earful is a party or bound
and (ii) 26,863 shares of Earful Common are reserved for issuance upon the
exercise of warrants or options to purchase shares of Earful Common ("Earful
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Options"). The Earful Common and Earful Options are referred to herein,
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collectively, as the "Earful Securities"). There are no bonds, debentures, notes
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or other indebtedness issued or outstanding having the right to vote on any
matters on which Earful's shareholders may vote. Except for the Earful Options
set forth in Schedule 2.03(a), there are no options, warrants, calls or other
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rights (including registration rights), agreements, arrangements or commitments
presently outstanding obligating Earful to issue, deliver or sell shares of its
capital stock or debt securities, or obligating Earful to grant, extend or enter
into any such option, warrant, call or other such right, agreement, arrang ement
or commitment.
(b) All the outstanding shares of capital stock or other equity
ownership interests of the Subsidiaries are duly authorized, validly issued,
fully paid and nonassessable and, except as indicated on Schedule 2.01, such
shares are owned by Earful free and clear of any security interests, liens,
claims, pledges, agreements, limitations on voting rights, charges or other
encumbrances of any nature whatsoever ("Encumbrances"). There are no options,
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warrants, calls or other rights (including registration rights), agreements,
arrangements or commitments of any character to which Earful or any Earful
Subsidiary is a party relating to the issued or unissued capital stock of, or
other equity interests in, any Earful Subsidiary.
SECTION 2.04. Authority. Upon receipt of the consent of the
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requisite number of shareholders of Earful, Earful will have all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
herein. Except for the approval of the shareholders of Earful, the execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate action
and no other corporate proceeding on the part of Earful is necessary to
authorize this Agreement or to consummate the transactions contemplated herein.
This Agreement has been duly executed and delivered by Earful and, assuming the
due authorization, execution and delivery thereof by AANP and Newco, constitutes
the legal, valid and binding obligation of Earful enforceable in accordance with
its terms (i) except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally, and without limitation, the effect of
statutory or other laws regarding fraudulent conveyances and preferential
transfers and (ii) subject to the limitations imposed by general rules of equity
(regardless of whether such enforceability is considered at law or in equity).
SECTION 2.05. No Conflict; Required Filings and Consent. Except
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as set forth on Schedule 2.05, (a) The execution and delivery of this Agreement
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by Earful does not, and the performance of this Agreement by Earful will not (i)
conflict with or violate the Articles of Incorporation or By-Laws, or the
equivalent organizational documents, in each case as amended or restated, of
Earful or any Earful Subsidiary, (ii) conflict with or violate any federal,
state, foreign or local law, statute, ordinance, rule, regulation, order,
judgment or decree (collectively, "Laws") in effect as of the date of this
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Agreement and applicable to Earful or any Earful Subsidiary or by which their
respective properties is bound or subject, 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 give to others any rights of termination,
amendment, acceleration or cancellation of, or require payment under, or result
in the creation of an Encumbrance on, any of the properties or assets of Earful
or any Earful Subsidiary pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Earful or any Earful Subsidiary is a party or by which
Earful or any Earful Subsidiary or their respective properties is bound or
subject except for breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or Encumbrances that
would not have a material adverse effect on the business, properties, assets,
condition (financial or otherwise) operations or prospects of Earful and the
Earful Subsidiaries, taken as a whole ("Earful Material Adverse Effect").
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(b) The execution and delivery of this Agreement by Earful does
not, and the performance of this Agreement by Earful will not, require Earful to
obtain any consent, approval, authorization or permit of, or to make any filing
with or notification to, any governmental or regulatory authority, domestic or
foreign ("Governmental Entities") based on laws, rules, regulations and other
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requirements of Governmental Entities in effect as of the date of this
Agreement, except for applicable requirements, if any, of (i) federal or state
securities laws and the filing and recordation of appropriate merger documents
as required by the TBCA and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, either individually or in the aggregate, prevent Earful from
performing its obligations under this Agreement or have a Earful Material
Adverse Effect.
SECTION 2.06. Permits; Compliance. Earful and each of the Earful
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Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Earful
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Permits"), and there is no action, proceeding or, to the knowledge of Earful,
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investigation pending or threatened, regarding suspension or cancellation of any
of Earful Permits. Neither Earful nor any Earful Subsidiary is in conflict
with, or in default or violation of (a) any Law applicable to Earful or any
Earful Subsidiary or by which any of their respective properties is bound or
subject or (b) any of the Earful Permits, except for any such conflicts,
defaults or violations which would not have a Earful Material Adverse Effect.
SECTION 2.07. Financial Statements. Attached hereto as Schedule
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2.07, are the unaudited consolidated financial statements of Earful as of March
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31, 2001, containing the balance sheet of Earful and the related statement of
operations and statement of shareholders' equity for the period then ended (the
"Earful Financial Statements"). To the knowledge of Earful, the Earful
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Financial Statements have been prepared in accordance with generally accepted
accounting principles and practices consistently followed by Earful and the
Earful Subsidiaries throughout the periods indicated, and fairly present the
consolidated financial position of Earful and the Earful Subsidiaries as of the
dates thereof.
SECTION 2.08. No Undisclosed Liabilities. Except as set forth on
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Schedule 2.08, to the knowledge of Earful, there are no liabilities of Earful or
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any Earful Subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, other than liabilities fully reflected or
reserved against on the Earful Financial Statements; and liabilities which,
individually or in the aggregate, would not have a Earful Material Adverse
Effect.
SECTION 2.09. Absence of Certain Changes or Events. Except as and
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to the extent disclosed herein since March 31, 2001, there has not been any
significant change by Earful or any Earful Subsidiary in their accounting
methods, principles or practices or any circumstance which would constitute a
Earful Material Adverse Effect.
SECTION 2.10. Absence of Litigation. Except as set forth in
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Schedule 2.10 attached hereto, there is no claim, action, suit, litigation,
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proceeding, arbitration or investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or, to the
knowledge of Earful, threatened against Earful or any Earful Subsidiary or any
properties or rights of Earful or any Earful Subsidiary and neither Earful nor
any Earful Subsidiary is subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
knowledge of Earful, continuing investigation by, any Governmental Entity, or
any judgment, order, writ, injunction, decree or award of any Governmental
Entity or arbitrator, including, without limitation, cease-and-desist or other
orders.
SECTION 2.11. Taxes. Earful and each of the Earful Subsidiaries
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has filed all federal, state and local tax returns required by law, or has filed
proper extensions, and has paid all Taxes (as defined in Section 5.03 hereof),
assessments and penalties due and payable. The provisions for Taxes, if any,
reflected in the most recent balance sheet included in the Earful Financial
Statements are adequate for any and all federal, state, county and local taxes
for the period ending on the date of that balance sheet and for all prior
periods, whether or not disputed. There are no present disputes as to Taxes of
any nature payable by Earful or any Earful Subsidiary.
SECTION 2.12. Brokers. Except as set forth on Schedule 2.12, no
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broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated in this
Agreement based upon arrangements made by or on behalf of Earful.
SECTION 2.13. Earful Corporate Action. The Board of Directors of
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Earful has by the unanimous vote of all directors present (a) determined that
the Merger is advisable and fair and in the best interests of Earful and its
shareholders, (b) approved the Merger in accordance with the applicable
provisions of the TBCA, and (c) recommended the approval of this Agreement and
the Merger by the holders of Earful Common and directed that the Merger be
submitted for approval by Earful's shareholders by written consent.
SECTION 2.14. Environmental Laws and Regulations. (a) Earful and
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the Earful Subsidiaries are in material compliance with all applicable foreign,
federal (including but not limited to the Outer Continental Shelf Lands Act, the
Clean Water Act, the Oil Pollution Act, the Resource Conservation and Recovery
Act, the Clean Air Act, the Comprehensive Environmental Response Compensation
and Liability Act, the Occupational Safety and Health Act and the Hazardous
Materials Transportation Act), state and local laws and regulations and common
law relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata (collectively, "Environmental Laws")), which
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compliance includes, but is not limited to, the possession by Earful and the
Earful Subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof and compliance with notification, reporting and
registration provisions under applicable Environmental Laws; neither Earful nor
any Earful Subsidiary has received notice of, or, to the knowledge of Earful, is
the subject of, any action, cause of action, claim, investigation, demand or
notice by any person or entity alleging liability under or noncompliance with
any Environmental Law ("Environmental Claim"); and to the knowledge of Earful,
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there are no circumstances that are reasonably likely to prevent or interfere
with such material compliance in the future, or to require material expenditures
to maintain such material compliance in the future.
(b) There are no Environmental Claims that are pending or, to the
knowledge of Earful or any Earful Subsidiary, threatened against Earful or any
Earful Subsidiary, or, to the knowledge of Earful and its Subsidiaries, against
any person or entity whose liability for any Environmental Claim Earful or any
Earful Subsidiary has or may have retained or assumed either contractually or by
operation of law.
(c) To the knowledge of Earful and the Earful Subsidiaries, there are
no circumstances that could form the basis for an Environmental Claim against
Earful or any Earful Subsidiary, or against any person or entity whose liability
for any Environmental Claim Earful or any Earful Subsidiary has or may have
retained or assumed either contractually or by operation of law.
SECTION 2.15. Employee Benefit Plans.
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(a) Except as set forth on Schedule 2.15, Earful and the Earful
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subsidiaries do do not have, and have not had any employee benefit plan
(including, without limitation, any "employee benefit plan," as defined in
Section 3(3) of the ERISA), or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding).
(b) Earful and the Earful subsidiaries are not parties to any
collective bargaining agreement.
(c) Earful and the Earful subsidiaries have no obligation for
retiree health, medical or life insurance benefits under any plan or
arrangement.
SECTION 2.16. Securities Laws. Each of Earful and the
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subsidiaries of Earful have complied with the requirements of applicapable
securities laws and franchise laws in connection with the offer and sale
respectively of securities and franchises. In connection with the solicitation
by Earful of Earful security holders for approval of the merger of Newco into
Earful and in connection with the receipt by Earful of AANP securities and
distribution or transfer of any AANP securities received related to the merger,
Earful has and shall comply with the requirements of applicable securities laws.
Earful, on behalf of itself and the Earful shareholders, acknowledges that the
AANP securities issued in connection with the Merger have not been registered
with the Securities and Exchange Commission, any state securities commission or
any other regulatory authority, that they are aware of the restrictions and
limitations inherent in such issuance and that they have had access to any books
and records of AANP and the opportunity to ask questions and conduct their own
due diligence investigation prior to consummating the transaction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AANP AND NEWCO
AANP and Newco hereby jointly and severally represent and warrant to
Earful that:
SECTION 3.01. Organization and Qualification. Each of AANP and
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Newco is a corporation, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary.
SECTION 3.02. Articles of Incorporation and By-Laws. AANP has
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heretofore furnished to Earful a complete and correct copy of the current
Articles of Incorporation and the By-Laws, as amended or restated to the date
hereof, of each of AANP and Newco. Neither AANP nor Newco is in violation of
any of the provisions of its Articles of Incorporation or By-Laws.
SECTION 3.03. Capitalization. (a) The authorized capital stock of
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AANP consists of 50,000,000 shares of common stock, $.001 par value ("AANP
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Common") and 10,000,000 shares of preferred stock, $0.001 par value ("AANP
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Preferred"). As of the date hereof (before giving effect to the transactions
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contemplated herein) (i) 4,273,099 shares of AANP Common are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, AANP's
Articles of Incorporation or By-Laws or any agreement to which AANP is a party
or is bound and (ii) no shares of AANP Preferred are outstanding. There are no
options, warrants, calls or other rights (including registration rights),
agreements, arrangements or commitments presently outstanding obligating AANP to
issue, deliver, sell or register shares of its capital stock or debt securities,
or obligating AANP to grant, extend or enter into any such option, warrant, call
or other such right, agreement, arrangement or commitment.
(b) All of the outstanding shares of capital stock of Newco are
duly authorized, validly issued, fully paid and nonassessable, and are owned by
AANP free and clear of any Encumbrances. There are no options, warrants, calls
or other rights (including registration rights), agreements, arrangements or
commitments of any character to which AANP or Newco is a party relating to the
issued or unissued capital stock of, or other equity interests in, Newco or
obligating AANP or Newco to grant, issue or sell any shares of the capital stock
of Newco; other than as contemplated in this Agreement and the Subscription
Agreement between AANP and Newco.
(c) The shares of AANP Common issued to Newco and to be exchanged
pursuant to the Merger as contemplated herein, upon issuance in accordance with
this Agreement and the Plan, will be duly authorized, validly issued, fully paid
and nonassessable and will not be subject to preemptive rights created by
statute, AANP's Articles of Incorporation or By-Laws or any agreement to which
AANP is a party or is bound.
(d) The AANP Common issued to Newco and exchanged pursuant to the
Merger as contemplated herein, upon issuance in accordance with this Agreement
and the Plan, will be duly authorized and validly issued, and constitute the
legal, valid and binding obligation of AANP enforceable in accordance with their
terms.
(e) Other than American Absorbents, Inc., a Texas corporation,
AANP does not have any subsidiaries or own any interest in any enterprise
(whether or not such enterprise is a corporation) except for Newco. AANP has
either sold to third parties, or dissolved in accordance with applicable law,
all other corporations, partnerships and other incorporated or unincorporated
enterprises in which it has previously had an interest, regardless of whether
such interest arose from stock ownership, management control or otherwise.
SECTION 3.04. Authority. Each of AANP and Newco has the requisite
---------
corporate or other appropriate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated herein. The execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action and no other corporate proceeding
on the part of AANP or Newco (including, without limitation, any approval by the
shareholders of AANP of this Agreement or the transactions contemplated herein)
is necessary to authorize this Agreement or to consummate the transactions
contemplated herein. This Agreement has been duly executed and delivered by
AANP and Newco and, assuming the due authorization, execution and delivery
hereof by Earful, constitutes the legal, valid and binding obligation of AANP
and Newco enforceable in accordance with its terms (i) except as limited by
bankruptcy, insolvency, reorganization, moratorium or other similar law now or
hereafter in effect relating to or affecting creditors' rights generally, and
without limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers and (ii) subject to the limitations
imposed by general rules of equity (regardless of whether such enforceability is
considered at law or in equity).
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by AANP and Newco does not, and the
performance of this Agreement by AANP and Newco will not (i) conflict with or
violate the Certificate of Incorporation or By-Laws, as amended or restated, of
AANP or Newco, (ii) conflict with or violate any Laws in effect as of the date
of this Agreement applicable to AANP or Newco or by which any of their
respective properties is bound, 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 give to others any rights of termination, amendment,
acceleration or cancellation of, or require payment under, or result in the
creation of a lien or Encumbrance on, any of the properties or assets of AANP or
Newco pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
AANP or Newco is a party or by which AANP or Newco or any of their respective
properties is bound or subject except for breaches, defaults, events, rights of
termination, amendment, acceleration or cancellation, payment obligations or
liens or Encumbrances that would not have a material adverse effect on the
business, properties, assets, condition (financial or otherwise) operations or
prospects of AANP and its subsidiaries, taken as a whole, or on the transactions
herein contemplated ("AANP Material Adverse Effect").
-------------------------------
(b) The execution and delivery of this Agreement by AANP and Newco
and the performance of this Agreement by AANP and Newco does not require AANP or
Newco to obtain any consent, approval, authorization or permit of, or to make
any filing with or notification to, any Governmental Entities, except for
applicable requirements, if any, of (i) the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended (the
---------------
"Exchange Act") or the securities laws of any other jurisdiction (the "Blue Sky
------------- --------
Laws"), the National Association of Securities Dealers, and the filing and
----
recordation of appropriate merger documents as required by TBCA and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not, either individually or in the
aggregate, prevent AANP from performing its obligations under this Agreement or
have a AANP Material Adverse Effect.
SECTION 3.06. Permits; Compliance. Each of AANP and Newco is in
--------------------
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "AANP Permits"), and there is no
------------
action, proceeding or, to the knowledge of AANP, investigation pending or
threatened, regarding suspension or cancellation of any of the AANP Permits.
Neither AANP nor Newco is in conflict with, or in default or violation of (a)
any Law applicable to AANP or Newco or by which any of their respective
properties is bound or subject or (b) any of the AANP Permits, except for any
such conflicts, defaults or violations which would not have a AANP Material
Adverse Effect. Neither AANP nor Newco has received from any Governmental
Entity any written notification with respect to possible conflicts, defaults or
violations of Laws.
SECTION 3.07. Reports; Financial Statements. (a) Except as set
-------------------------------
forth on Schedule 3.07, (x) AANP and its subsidiaries have filed (i) all forms,
-------------
reports, statements and other documents required to be filed with (A) the
Securities and Exchange Commission ("SEC"), including, without limitation (1)
---
all Annual Reports on Form 10-KSB, (2) all Quarterly Reports on Form 10-QSB, (3)
all proxy statements relating to meetings of shareholders (whether annual or
special), (4) all Reports on Form 8-K, (5) all other reports or registration
statements and (6) all amendments and supplements to all such reports and
registration statements (collectively, the "AANP SEC Reports") and (B) any
------------------
applicable Blue Sky Laws and (ii) all forms, reports, statements and other
documents required to be filed with any other applicable federal or state
regulatory authorities (all such forms, reports, statements and other documents
in clauses (i) and (ii) of this Section 3.07(a) being referred to herein,
collectively, as the "AANP Reports"). To the knowledge of AANP, the AANP
-------------
Reports were prepared in all material respects in accordance with the
requirements of applicable Law (including, with respect to the AANP SEC Reports,
the Securities Act and Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such AANP SEC Reports) and did
not at the time they were filed 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 the light of the circumstances under
which they were made, not misleading.
(b) To the knowledge of AANP, each of the financial statements
(including, in each case, any related notes thereto) contained in the AANP SEC
Reports filed prior to or on the date of this Agreement (i) have been prepared
in accordance with, and complied as to form with, the published rules and
regulations of the SEC and generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein) and (ii) fairly present the financial position of AANP as of the
respective dates thereof and the results of its operations and cash flows for
the periods indicated.
(c) Except as set forth on Schedule 3.07(c) hereto, AANP's
-----------------
auditors have issued no management letters in connection with AANP's financial
statements.
SECTION 3.08. Absence of Certain Changes or Events. Except as
---------------------------------------
disclosed in Schedule 3.08, and as and to the extent disclosed in the AANP SEC
-------------
Reports filed prior to or on the date of this Agreement, there has not been any
significant change by AANP in its accounting methods, principles or practices.
SECTION 3.09. No Undisclosed Liabilities. To the knowledge of
----------------------------
AANP, there are no liabilities of AANP, Newco or any subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than (a)
liabilities fully reflected or reserved against on the balance sheet contained
in AANP's 2000 Annual Report on Form 10-KSB for the fiscal year ended January
31, 2001 or in the unaudited consolidated balance sheet contained in the
Quarterly Report on Form 10-QSB for the fiscal quarter ended April 30, 2001; (b)
liabilities under this Agreement and fees and expenses related thereto; and (c)
liabilities which, individually or in the aggregate would not have a AANP
Material Adverse Effect.
SECTION 3.10. Absence of Litigation. Except as set forth on Schedule
--------------------- --------
3.10, there is no claim, action, suit, litigation, proceeding, arbitration or,
----
to the knowledge of AANP, investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or, to the
knowledge of AANP, threatened against AANP or Newco or any properties or rights
of AANP or Newco and neither AANP nor Newco is subject to any continuing order
of, consent decree, settlement agreement or other similar written agreement
with, or, to the knowledge of AANP, continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree or award
of any Governmental Entity or arbitrator, including, without limitation, cease
and desist or other orders.
SECTION 3.11. Ownership of Newco; No Prior Activities. (a) Newco
---------------------------------------
was formed solely for the purpose of engaging in the transactions contemplated
in this Agreement.
(b) Except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated in this
Agreement and any other agreements or arrangements contemplated in this
Agreement, Newco has not incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 3.12. Taxes. AANP has filed all returns or reports
-----
required to be filed with any taxing authority with respect to Taxes for any
period ending on or before the Effective Time, taking into account any extension
of time to file granted to or obtained on behalf of AANP or Newco, all Taxes
shown to be payable on such returns or reports that are due prior to the
Effective Time have been paid and, as of the date hereof, no deficiency for any
material amount of tax has been asserted or assessed by a taxing authority
against AANP or Newco and all liability for Taxes of AANP or Newco that are or
will become due or payable with respect to periods covered by the financial
statements referred to in Section 3.07(b) hereof have been paid or adequately
reserved for on such financial statements.
SECTION 3.13. Brokers. Except as set forth on Schedule 3.13, no
------- -------------
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated in this
Agreement based upon arrangements made by or on behalf of AANP or Newco.
SECTION 3.14. Environmental Laws and Regulations. Except as set
-----------------------------------
forth on Schedule 3.14 (a) AANP and Newco are in material compliance with all
--------------
applicable Environmental Laws, which compliance includes, but is not limited to,
the possession by AANP and Newco of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof and compliance with notification, reporting and
registration provisions under applicable Environmental Laws; neither AANP nor
Newco has received notice of, or, to the knowledge of AANP or Newco, is the
subject of any Environmental Claim; and to the knowledge of AANP, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future, or to require material expenditures to
maintain such material compliance in the future.
(b) There are no Environmental Claims that are pending or, to the
knowledge of AANP and Newco, threatened against AANP or Newco or, to the
knowledge of AANP and Newco, against any person or entity whose liability for
any Environmental Claim AANP or Newco has or may have retained or assumed either
contractually or by operation of law.
(c) To the knowledge of AANP and Newco, there are no circumstances
that could form the basis for an Environmental Claim against AANP or Newco, or
against any person or entity whose liability for any Environmental Claim AANP or
Newco has or may have retained or assumed either contractually or by operation
of law.
SECTION 3.15. Contract Rights. Except for this Agreement and the
---------------
agreements contemplated herein or as described on Schedule 3.15, neither AANP
-------------
nor Newco is a party to or bound by any contract or agreement, whether written
or oral, including, without limitation, (i) any contract or agreement for
employment, consulting or similar services, (ii) for capital expenditures or the
acquisition or construction of fixed assets, (iii) which constitutes any note,
bond, indenture or other evidence of indebtedness or guaranty or security for
indebtedness of others, (iv) for the sale of any asset, or the grant of any
right or option to purchase such asset, which constitutes a lease, or (v) which
purports to limit the freedom of AANP or any of its affiliates to compete in any
line of business or in any geographic area or to borrow money or incur
indebtedness.
SECTION 3.16. Employee Benefit Plans.
------------------------
(a) Except as set forth on Schedule 3.16, AANP and Newco do not
-------------
have, and have not had any employee benefit plan (including, without limitation,
any "employee benefit plan," as defined in Section 3(3) of the ERISA), or any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, insurance or
other plan, arrangement or understanding (whether or not legally binding).
(b) AANP and Newco are not parties to any collective bargaining
agreement.
(c) AANP and Newco have no obligation for retiree health, medical
or life insurance benefits under any plan or arrangement.
(d) Schedule 3.16 lists each employee of AANP and Newco and the
--------------
terms of employment of each such employee.
SECTION 3.17. Public Offering. The initial public offering of
-----------------
AANP was a bona fide offering to the "public" as such term is used and defined
in connection with offerings of securities subject to the Securities Act in
material compliance with the Securities Act and the rules and regulations
promulgated thereunder. All shares issued in such offering were issued in
compliance with applicable Blue Sky Laws. Attached hereto as Schedule 3.17 is a
-------------
true and correct list, as of the date hereof, of the shareholders of record of
AANP.
SECTION 3.18. Acknowledgment of Xxxx Xxxx Conviction. AANP and
-----------------------------------------
Newco each hereby acknowledge that each has been fully informed with regard to
Xxxx Xxxx'x previous criminal conviction in 1989 for tax evasion and
misapplication of bank funds. Each party has had ample opportunity to
investigate and evaluate the circumstances surrounding such conviction and the
events subsequent to such conviction and is entering into this transaction with
full knowledge of all facts and events related thereto.
ARTICLE IV
ADDITIONAL AGREEMENTS; CONDITIONS TO CLOSING; TERMINATION
SECTION 4.01. Appropriate Action; Consents; Filings. Earful and
--------------------------------------
AANP shall each use its best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
transactions contemplated in this Agreement, (ii) obtain from any Governmental
Entities any consents, licenses, permits, waivers, approvals, authorizations or
orders required to be obtained or made by AANP or Earful or any of their
subsidiaries in connection with the consummation of the transactions
contemplated herein, including, without limitation, the Merger, (iii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the Securities Act
and the Exchange Act and the rules and regulations thereunder (in the case of
AANP), and any other applicable federal or state securities laws and (B) any
other applicable Law. Earful and AANP shall furnish all information required
for any application or other filing to be made pursuant to the rules and
regulations of any applicable Law in connection with the transactions
contemplated in this Agreement.
SECTION 4.02. Conduct of Business by Earful Pending the Merger.
--------------------------------------------------
Prior to the Effective Time, unless AANP shall otherwise agree in writing (which
agreement shall not be unreasonably withheld), Earful shall conduct, and cause
each of its Subsidiaries to conduct, its business only in the ordinary and usual
course consistent with past practice. Earful shall promptly give AANP written
notice of the existence or occurrence of any condition which would make any
representation or warranty of Earful herein contained untrue if made at that
time or which might reasonably be expected to prevent the consummation of the
transactions contemplated hereby. Without limiting the generality of the
foregoing, unless AANP shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), or as otherwise expressly contemplated by this
Agreement, prior to the Effective Time, Earful shall not, nor shall it permit
any of the Earful Subsidiaries to:
(a) (i) amend its Articles of Incorporation, as amended, By-laws, as
amended, or other organizational documents, (ii) split, combine or reclassify
any shares of its outstanding capital stock, (iii) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property, or (iv)
directly or indirectly redeem or otherwise acquire any shares of its capital
stock or shares of the capital stock of any of the Earful Subsidiaries;
(b) authorize for issuance, issue (except upon the exercise of
outstanding stock options) or sell or agree to issue or sell any shares of, or
rights to acquire or convertible into any shares of, its capital stock or shares
of the capital stock of any of the Earful Subsidiaries (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise);
(c) (i) merge, combine or consolidate with another entity, (ii) acquire
or purchase an equity interest in or a substantial portion of the assets of
another corporation, partnership or other business organization or otherwise
acquire any assets outside the ordinary course of business and consistent with
past practice or otherwise enter into any material contract, commitment or
transaction outside the ordinary course of business and consistent with past
practice or (iii) sell, lease, license, waive, release, transfer, encumber or
otherwise dispose of any of its material assets outside the ordinary course of
business and consistent with past practice;
(d) (i) incur, assume or prepay any material indebtedness or any other
material liabilities other than in each case in the ordinary course of business
and consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person other than an Earful Subsidiary, in each
case other than in the ordinary course of business and consistent with past
practice or (iii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to an Earful Subsidiary;
(e) pay, satisfy, discharge or settle any material claim, liabilities
or obligations (absolute, accrued, contingent or otherwise), other than either
in the ordinary course of business and consistent with past practice;
(f) modify or amend, terminate, accelerate, cause the acceleration of,
or waive any benefit of any contract;
(g) authorize or make capital expenditures in excess of $10,000
individually, or in excess of $25,000 in the aggregate;
(h) permit any insurance policy naming Earful or any Earful Subsidiary
as a beneficiary or a loss payee to be canceled or terminated other than in the
ordinary course of business and other than with respect to replacement policies
which Earful deems to be commercially appropriate under all relevant
circumstances;
(i) (i) adopt, enter into, terminate or amend in any material respect
(except as may be required by applicable laws) any plan for the current or
future benefit or welfare of any director officer or employee, (ii) increase in
any manner the compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee or (iii) take any action to accelerate or remove
restrictions with respect to the payment of compensation or benefits under any
employee plan, agreement, contract, arrangement other than in the ordinary
course of business;
(j) make any material change in its accounting or tax, methods,
policies or procedures, except as required by law or to comply with GAAP; or
(k) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing or otherwise which would obligate Earful to a
liability in excess of $10,000 in any one year.
SECTION 4.03. Conduct of Business by AANP Pending the Merger.
--------------------------------------------------
Prior to the Effective Time, unless Earful shall otherwise agree in writing
(which agreement shall not be unreasonably withheld) or as otherwise expressly
contemplated by this Agreement, AANP shall conduct, and cause each of its
Subsidiaries to conduct, its business only in the ordinary and usual course
consistent with past practice. AANP shall promptly give Earful written notice
of the existence or occurrence of any condition which would make any
representation or warranty of AANP herein contained untrue if made at that time
or which might reasonably be expected to prevent the consummation of the
transactions contemplated hereby. Without limiting the generality of the
foregoing, unless Earful shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), or as otherwise expressly contemplated by this
Agreement, prior to the Effective Time AANP shall not, nor shall it permit any
of its Subsidiaries to:
(a) (i) amend its Articles of Incorporation, as amended, By-laws, as
amended, or other organizational documents, (ii) split, combine or reclassify
any shares of its outstanding capital stock, (iii) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property, or (iv)
directly or indirectly redeem or otherwise acquire any shares of its capital
stock or shares of the capital stock of any of its Subsidiaries;
(b) authorize for issuance, issue (except upon the exercise of
outstanding stock options) or sell or agree to issue or sell any shares of, or
rights to acquire or convertible into any shares of, its capital stock or shares
of the capital stock of any of its Subsidiaries (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise);
(c) (i) merge, combine or consolidate with another entity, (ii) acquire
or purchase an equity interest in or a substantial portion of the assets of
another corporation, partnership or other business organization or otherwise
acquire any assets outside the ordinary course of business and consistent with
past practice or otherwise enter into any material contract, commitment or
transaction outside the ordinary course of business and consistent with past
practice or (iii) sell, lease, license, waive, release, transfer, encumber or
otherwise dispose of any of its material assets outside the ordinary course of
business and consistent with past practice;
(d) (i) incur, assume or prepay any material indebtedness or any other
material liabilities other than in each case in the ordinary course of business
and consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person other than a Subsidiary of AANP, in each
case other than in the ordinary course of business and consistent with past
practice or (iii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to any Subsidiary of Parent;
(e) pay, satisfy, discharge or settle any material claim, liabilities
or obligations (absolute, accrued, contingent or otherwise), other than either
in the ordinary course of business and consistent with past practice;
(f) modify or amend, terminate, accelerate, cause the acceleration of,
or waive any benefit of any agreement of AANP;
(g) authorize or make capital expenditures in excess of $10,000
individually, or in excess of $25,000 in the aggregate;
(h) permit any insurance policy naming AANP or any Subsidiary of AANP
as a beneficiary or a loss payee to be canceled or terminated other than in the
ordinary course of business and other than with respect to replacement policies
which AANP deems to be commercially appropriate under all relevant
circumstances;
(i) (i) adopt, enter into, terminate or amend in any material respect
(except as may be required by applicable laws) any plan for the current or
future benefit or welfare of any director officer or employee, (ii) increase in
any manner the compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee, or (iii) take any action to accelerate or remove
restrictions with respect to the payment of compensation or benefits under any
employee plan, agreement, contract, arrangement other than in the ordinary
course of business;
(j) make any material change in its accounting or tax, methods,
policies or procedures, except as required by law or to comply with GAAP; or
(k) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing or otherwise which would obligate AANP to a
liability in excess of $10,000 in any one year.
SECTION 4.04. Tax Treatment. Each of Earful and AANP shall use its
-------------
best efforts to cause the Merger to qualify, and will not take any actions which
could prevent the Merger from qualifying, as a reorganization under the
provisions of section 368(a) of the Code. All of the parties acknowledge and
agree that the right to indemnification set forth in this Agreement and the
potential right to receive additional shares in satisfaction of an
indemnification obligation is not transferable with the ownership of the shares
and is held only by the shareholders of record of AANP and Earful, respectively,
as of the date of the Closing.
SECTION 4.05. Indemnification. (a) AANP hereby covenants and
---------------
agrees that it will indemnify the shareholders of Earful exchanging Earful
Common and Earful Options in connection with the Merger ("Earful Shareholders")
-------------------
from and against any Loss (as hereinafter defined) asserted against, resulting
to, imposed upon or incurred or suffered, directly or indirectly (for example,
on account of a Loss incurred by AANP after the date hereof), by such Earful
Shareholders or AANP (after the Merger) resulting or arising from any of the
following ("Earful Indemnified Claims"):
---------------------------
(i) Any inaccuracy in any of the representations and warranties
made by AANP or Newco herein or in any exhibit or schedule
attached hereto or any facts or circumstances constituting
such inaccuracy; and
(ii) Any breach or nonfulfillment by AANP or Newco of the
covenants or agreements set forth herein or in any exhibit
or schedule attached hereto or any facts or circumstances
constituting such breach or nonfulfillment;
(iii) Any violation of any environmental rule or regulation and
any claim of any employee, consultant or customer of AANP or
its affiliates that AANP violated any environmental rule or
regulation and otherwise is liable for exposure of such
employee, consultant or customer to hazardous materials.
provided, however, that Earful Shareholders shall, in the event of a claim for
such indemnification, be entitled to reimbursement for Losses in connection with
such claim only as provided herein.
(b) Earful covenants and agrees that it will indemnify the shareholders
of AANP prior to the Merger ("AANP Shareholders") from and against any Loss
-----------------
asserted against, resulting to, imposed upon or incurred or suffered, directly
or indirectly (for example, on account of a Loss incurred by AANP after the date
hereof), by such AANP Shareholders resulting or arising from any of the
following ("AANP Indemnified Claims"):
-------------------------
(i) Any inaccuracy in any of the representations and warranties
made by Earful herein or in any exhibit or schedule attached
hereto or any facts or circumstances constituting such
inaccuracy; and
(ii) Any breach or nonfulfillment by Earful of the covenants or
agreements set forth herein or in any exhibit or schedule
attached hereto or any facts or circumstances constituting
such breach or nonfulfillment;
provided, however, that AANP Shareholders shall, in the event of a claim for
such indemnification, be entitled to reimbursement for Losses in connection with
such claim only as provided herein.
(c) As used herein, "Loss" or "Losses" shall mean any damage, liability
---- ------
or loss (including, without limitation, reasonable attorneys' fees and court
costs and reasonable costs and expenses incident to, and amounts paid by the
Earful Shareholders or AANP (after the Merger), or any of their respective
affiliates, in settlement of, any claim, suit, action or proceeding) sustained,
incurred, paid or required to be paid by the Earful Shareholders or AANP (after
the Merger), or any of their respective affiliates, after the date hereof, plus
interest thereon at an annual rate of interest equal to the prime rate of
interest as stated in the Wall Street Journal on the last weekday prior to the
date of determination of such Loss.
(d) The period of indemnity for Losses (the "Indemnity Period") shall
----------------
begin on the date hereof and end at midnight on the second anniversary of the
Effective Time, and upon such expiration, the indemnifying party shall have no
further liability in respect of Earful Indemnified Claims and Earful shall have
no further liability for AANP Indemnified Claims hereunder; provided, however,
that if there is an outstanding notice of claim at the expiration of the
Indemnity Period, the Indemnity Period shall continue until each such
indemnified claim or claim related to such claimed Loss is resolved. The
Indemnity Period shall not continue as a result of the mere sending of a general
notice of a claim unsupported by a reasonable basis for believing that grounds
for indemnification exist; provided that the party receiving a notice which it
believes meets the exception set forth in the preceding clause shall raise such
objection within fifteen days of receipt thereof and the party sending such
notice shall have fifteen days thereafter to amend such notice to identify the
reasonable basis of such claim.
(e) Notwithstanding anything to the contrary contained herein, Earful
Shareholders shall not be permitted indemnification for any Earful Indemnified
Claim until the Losses incurred with respect to all Earful Indemnified Claims
aggregate $200,000, in which event Earful Shareholders shall be indemnified for
the full value of all such Earful Indemnified Claims and the full value of all
subsequent Earful Indemnified Claims for which, individually, Losses in excess
of $10,000 have been incurred or asserted.
(f) Notwithstanding anything to the contrary contained herein, AANP
Shareholders shall not be permitted indemnification for any AANP Indemnified
Claim until the Losses incurred with respect to all AANP Indemnified Claims
aggregate $200,000, in which event AANP Shareholders shall be indemnified for
the full value of all such AANP Indemnified Claims and the full value of all
subsequent AANP Indemnified Claims for which, individually, Losses in excess of
$10,000 have been incurred or asserted.
(g) Indemnification for an AANP Indemnified Claim shall be solely in
the form of issuance of additional shares of AANP Common to AANP Shareholders
(their successors, assigns and transferees) pro rata in accordance with their
ownership of AANP Stock prior to the Merger equal to the aggregate amount of the
Loss associated with such AANP Indemnified Claim through the date of issuance.
The value of such AANP Common for the purposes of this Section 4.05 only in
determining the number of shares to be issued to compensate AANP Shareholders
for such AANP Indemnified Claim shall be fixed at the fair market value per
share determined by reference to the average closing bid price of the thirty
(30) trading day period immediately preceeding the date payment is due
hereunder. No payment shall be required of the recipients of shares of AANP
Common issued pursuant to this Section 4.05 in respect to such shares, and AANP
shall provide for the transfer of funds from its surplus account to its stated
capital account as necessary in relation to the aggregate par value of the
shares so issued.
(h) Indemnification for an Earful Indemnified Claim shall be solely in
the form of issuance of additional shares of AANP Common to Earful Shareholders
(their successors, assigns and transferees) pro rata in accordance with their
ownership of AANP Stock equal to the aggregate amount of the Loss associated
with such AANP Indemnified Claim through the date of issuance. The value of
such AANP Common for the purposes of this Section 4.05 only in determining the
number of shares to be issued to compensate Earful Shareholders for such Earful
Indemnified Claim shall be fixed at the fair market value per share determined
by reference to the average closing bid price of the thirty (30) day period
immediately preceeding the date payment is due hereunder. No payment shall be
required of the recipients of shares of AANP Common issued pursuant to this
Section 4.05 in respect to such shares, and AANP shall provide for the transfer
of funds from its surplus account to its stated capital account as necessary in
relation to the aggregate par value of the shares so issued.
(i) A claim for indemnification hereunder shall be sent to AANP and
each other Representative (as defined in subsection (j) hereof) by registered or
certified mail prior to the expiration of the Indemnity Period and shall set
forth (i) a brief description of the nature of the potential or actual Loss, and
(ii) the total amount of the Loss anticipated or incurred. Upon receiving
notice, if the Representative receiving the notice rejects any Loss, such
Representative shall give written notice of such rejection within thirty days
after the date of the notice of claim. If no such rejection of a notice of a
claim shall be so sent within such 30-day period, AANP and the Representative
receiving notice of a claim for any Loss shall be deemed to acknowledge the
validity of such claim for the full amount thereof. Each Representative shall
endeavor to assert each claim for indemnification, if any, promptly after it has
actual notice of such claim, even if it has not determined the full amount of
Loss associated with such claim. In the event that the other Representative
shall have made timely rejection of any such claim, and the parties shall have
failed to resolve or compromise such claim within thirty days from the date the
receiving Representative shall have mailed notice of such rejection, then such
claim shall be settled by arbitration in Xxxxxx, Xxxxxx County, Texas. Such
arbitration shall be subject to the rules of the American Arbitration
Association, in accordance with this Section provided however, that the parties
specifically agree that the Texas Rules of Evidence shall govern the
admissibility of evidence to such arbitration. After the initiation of
arbitration, the parties shall attempt to agree upon one arbitrator. In the
absence of such agreement, there shall be three arbitrators, one designated in
writing by the Representative sending the notice and one designated in writing
by the Representative receiving notice, both of which shall be designated within
thirty days after arbitration has been initiated. The third arbitrator shall be
chosen by the two designated arbitrators within forty days after arbitration has
been initiated. All expenses of the arbitration shall be borne by the parties
to the arbitration as the arbitrator(s) shall determine. Any award shall be a
conclusive determination of the matter, shall be binding upon the parties and
shall not be contested by them. Within ten days after the liability for
indemnity hereunder is finally established, whether by the agreement
(constructive or otherwise) with a notice of claim, settlement, arbitration or
otherwise, payment shall be made in the amount of the Loss determined by the
arbitrator(s) in accordance with the terms hereof.
(j) Xxxx Xxxx is hereby appointed to act as the agent and
attorney-in-fact of the Earful Shareholders and AANP (after the Merger), in
connection with the performance of this Section 4.05, and Xxxxxx Xxxxxxxx is
hereby appointed to act as the agent and attorney-in-fact of AANP Shareholders
in connection with the performance of this Section 4.05 (individually a
"Representative" and collectively the "Representatives"), each of whom shall
-------------- ---------------
have authority including, but not limited to, executing and delivering for and
on behalf of such parties all notices, receipts, approvals, consents, waivers,
agreements, papers, instruments and other documents in connection herewith which
such Representative deems necessary or appropriate, including, without
limitation, in connection with any amendments to or waiver of any of the terms
or provisions hereof, the granting of any consent hereunder, and in all other
instances where the Earful Shareholders or the AANP Shareholders, as
appropriate, are required or permitted to take any action hereunder. Any
instruments and other deliveries to be made or delivered to any Earful
Shareholders or AANP Shareholders pursuant to this Agreement may be made or
delivered to or as directed by the Representative of such parties, and upon any
such payment or delivery the other parties hereto shall have no further
liability with respect thereto. The Earful Shareholders may, by the vote or
consent of the holders of AANP Stock and AANP Options receiving a majority of
the Merger Consideration to be paid to Earful Shareholders hereunder, from time
to time designate another person to serve as their Representative, and upon
notice to the other parties hereto, such parties shall thereafter deal with such
successor as if he were the Representative named herein. AANP Shareholders may,
by the vote or consent of the holders of AANP Stock on the date hereof, from
time to time designate another person to serve as their Representative, and upon
notice to the other parties, such parties shall thereafter deal with such
successor as if he were the Representative named herein. The appointment of
each Representative or successor Representative shall be coupled with an
interest and shall be irrevocable and binding in all respects upon each of the
Earful Shareholders and AANP Shareholders and his, her or its respective
successors, assigns, heirs and personal representatives. The Representative of
the AANP Shareholders shall be entitled to be nominated to the Board of
Directors for the duration of the indemnity obligation. If not elected, the
Representative of the AANP Shareholders shall be entitled to attend all board
meetings except for those with respect to disputes with the AANP Shareholders
(k) Exclusive Remedies. The rights of indemnification set forth in
-------------------
Section 4.05 are the exclusive remedies which any indemnified party, including
but not limited to the AANP Shareholder or Earful Shareholder shall have under
this Agreement or otherwise, the parties on behalf of themselves and the parties
on behalf of themselves and the AANP Shareholders and Earful Shareholders
represent and warrant to each other that they will not directly or indirectly,
assert any claim for indemnification or any other remedy with respect to this
Agreement or otherwise (except for claims based upon intentional fraud or
intentional misrepresentations) except as provided for in this Article 4.05 and
that this limitation is a significant inducement to the parties and their
shareholders, officers and directors to approve and consummate this Agreement
and but for this limitation the parties would not approve and consummate this
Agreement.
SECTION 4.06. Conditions to Closing.
-----------------------
(a) Conditions to Obligations of AANP to Effect the Merger. The obligations
of AANP to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following additional conditions, unless
waived in writing by AANP:
(i) Representations and Warranties. The representations and warranties
------------------------------
of Earful that are qualified with reference to an Earful Material
Adverse Effect shall be true and correct and the representations and
warranties that are not so qualified shall be true and correct except
where the failure to be true and correct would not have an Earful
Material Adverse Effect, in each case as of the date hereof and as of
the Effective Time as though made at and as of the Effective Time, and
AANP shall have received a certificate signed on behalf of Earful by
the chief executive officer or the chief financial officer of Earful
to such effect.
(ii) Performance of Obligations of Earful. Earful shall have performed
------------------------------------
all obligations required to be performed by it under this Agreement at
or prior to the Effective Time except where the failure to so perform
would not have a Earful Material Adverse Effect, and AANP shall have
received a certificate signed on behalf of the Earful by the chief
executive officer or the chief financial officer of Earful to such
effect.
(iii) Material Adverse Effect. Since the date of this Agreement, there
-----------------------
shall have been no event or occurrence which has had, or would
reasonably be expected to have, an Earful Material Adverse Effect; and
AANP shall have received a certificate signed on behalf of Earful by
the chief executive officer or the chief financial officer of Earful
to such effect.
(iv) Stockholder Approval. This Agreement and the transactions
---------------------
contemplated hereby shall have been approved and adopted by the
requisite vote of the shareholders of Earful in accordance with
applicable laws.
(b) Conditions to Obligation of the Earful to Effect the Merger. The
obligation of the Earful to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by the Earful:
(i) Representations and Warranties. The representations and warranties
------------------------------
of AANP that are qualified with reference to an AANP Material Adverse
Effect shall be true and correct and the representations and
warranties that are not so qualified shall be true and correct except
where the failure to be true and correct would not have an AANP
Material Adverse Effect, in each case as of the date hereof and as of
the Effective Time as though made at and as of the Effective Time, and
Earful shall have received a certificate signed on behalf of AANP by
the chief executive officer or the chief financial officer of AANP to
such effect.
(ii) Performance of Obligations of AANP. AANP shall have performed all
----------------------------------
obligations required to be performed by it under this Agreement at or
prior to the Effective Time except where the failure to so perform
would not have a AANP Material Adverse Effect, and the Earful shall
have received a certificate signed on behalf of AANP by the chief
executive officer or the chief financial officer of AANP to such
effect.
(iii) Material Adverse Effect. Since the date of this Agreement, there
-----------------------
shall have been no event or circumstance which has had, or would
reasonably be expected to have, a AANP Material Adverse Effect; and
the Earful shall have received a certificate on behalf of AANP by its
chief executive officer or chief financial officer to such effect.
(iv) Stockholder Approval. At least 95% of the shareholders of Earful
--------------------
shall have approved the Merger in accordance with applicable laws.
(v) Legal Opinion. Earful shall have received a legal opinion counsel
-------------
to AANP and Newco reasonably acceptable to Earful that the Merger, the
reverse stock split effected by AANP prior to signing this Agreement,
and the transactions contemplated in this Agreement do not require the
approval of the shareholders of AANP.
(vi) Resignations; Nominations. Each of the officers of AANP and all
--------------------------
directors, except Xxxxxx Xxxxxxxx, shall have resigned from their
respective positions.
(vii) Xxxxx Xxxxx. AANP shall have received a settlement agreement
------------
with Xxxxx Xxxxx acceptable to Earful.
(viii) Toxicology Report. Earful shall have received a satisfactory
------------------
toxicology report with respect to the deposits held by AANP.
(ix) Approval of Options/Warrant Transactions. The directors of Earful
----------------------------------------
shall have approved the exercise of various options and all payment
arrangements.
SECTION 4.07. Termination. This Agreement may be terminated, and the
-----------
Merger and the other transactions contemplated hereby may be abandoned, at any
time prior to the Effective Time, whether before or after approval by the
shareholders of Earful:
(a) by mutual written consent of AANP and Earful;
(b) by either AANP or Earful, if the Merger shall not have been
consummated on or before July 31, 2001 (unless, in the case of any such
termination pursuant to this Section 4.07(b), the failure of such event to occur
shall have been caused by the action or failure to act of the party seeking to
terminate this Agreement, which action or failure to act constitutes a breach of
such party's obligations under this Agreement);
(c) by either AANP or Earful, if any permanent injunction, order,
decree or ruling by any Governmental Entity of competent jurisdiction preventing
the consummation of the Merger shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this Section 4.07(c) shall have used its reasonable best efforts to remove
such injunction or overturn such action;
(d) by AANP, if (i) there has been a breach by Earful of any of its
representations or warranties, or covenants or agreements set forth in this
Agreement the effect of which is a Earful Material Adverse Effect, which breach
is not curable or, if curable, is not cured within 45 days after written notice
of such breach is given by AANP to Earful; and
(e) by Earful, if (i) there has been a breach by AANP of any of its
representations or warranties, covenants or agreements set forth in this
Agreement the effect of which is a AANP Material Adverse Effect, which breach is
not curable or, if curable, is not cured within 45 days after written notice of
such breach is given by Earful to AANP, or (ii) the shareholders of Earful fail
to approve the Merger pursuant to this Agreement.
SECTION 4.08. Effect of Termination. In the event of termination of
-----------------------
this Agreement pursuant to Section 4.07, the Merger shall be deemed abandoned
and this Agreement shall forthwith become void, except that the provisions shall
survive any termination of this Agreement; provided however, that nothing in
this Agreement shall relieve any party from liability for any material breach of
this Agreement.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.01. Effectiveness of Representations, Warranties and
---------------------------------------------------
Agreements. The representations, warranties and agreements of each party hereto
----------
shall remain operative and in full force and effect.
SECTION 5.02. Notices. All notices and other communications given
-------
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
(a) If to AANP or Newco:
000 X. 0xx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxx
Telecopier No.: (000) 000-0000
(b) If to Earful:
Earful of Books, Inc.
000 X. 0xx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxx
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxxx & Xxxxxx LLP
00 Xxx Xxxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxx
Telecopier No.: (000) 000-0000
(c) If to Xxxx Xxxx, as the Earful Representative:
c/o Earful of Books, Inc.
000 X. 0xx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxx
Telecopier No.: (000) 000-0000
(d) If to Xxxxxx Xxxxxxxx, as the AANP Representative
00000 Xxxxxxxxxxxx
Xxxx Xxxxx, Xxxxx 00000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxxx
0000 Xxxxx Xxxxxxx xx Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Telecopier No.: (000) 000-0000
After consummation of the Merger, notices to AANP shall be sent to the
address set forth for Earful.
SECTION 5.03. Certain Definitions. For purposes of this
--------------------
Agreement, the term:
"knowledge" or "known" shall mean, with respect to any matter in
question, if an executive officer of Earful or AANP, as the case may be, has
actual knowledge of such matter as of the date as of which such matter is
represented;
"Person" means an individual, corporation, limited liability Earful,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d) of the Exchange Act);
"Subsidiary" or "Subsidiaries" of Earful or AANP or any other person,
means any corporation, limited liability Earful, partnership, joint venture or
other legal entity of which Earful, AANP or such other person, as the case may
be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the capital stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity;
"Tax" or "Taxes" shall mean any and all taxes, charges, fees or
levies, payable to any federal, state, local or foreign taxing authority or
agency, including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, ad valorem, value added,
-- -------
sales, use, service, real or personal property, capital stock, license, payroll,
withholding, disability, employment, social security, workers compensation,
unemployment compensation, utility, severance, excise, stamp, windfall profits,
transfer and capital gains taxes, (ii) custom duties, imposts, charges, levies
or other similar assessments of any kind, and (iii) interest, penalties and
additions to tax imposed with respect thereto.
SECTION 5.04. Headings. The headings contained in this Agreement
--------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 5.05. Severability. If any term or other provision of
------------
this Agreement is determined to be invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
herein is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
SECTION 5.06. Entire Agreement. This Agreement (together with the
----------------
Annexes, Schedules and Exhibits hereto) constitutes the entire agreement of the
parties and supersedes all prior agreements and undertakings, both written and
oral, between the parties with respect to the subject matter hereof.
SECTION 5.07. Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise without the prior express written consent of the
other parties hereto.
SECTION 5.08. Parties in Interest. This Agreement shall be
---------------------
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 5.09. Failure or Indulgence Not Waiver; Remedies
-----------------------------------------------
Cumulative. No failure or delay on the part of any party hereto in the exercise
-
of any right hereunder shall impair such right or be construed to be a waiver
of, or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are in addition to, and not exclusive of,
any rights or remedies otherwise available.
SECTION 5.10. Governing Law. It is the intention of the parties
--------------
that the internal laws, and not the laws of conflicts, of the State of Texas
shall govern the enforceability and validity of this Agreement, the construction
of its terms and the interpretation of the rights and duties of the parties;
provided, however, that with respect to matters of law concerning the internal
-------- -------
affairs of any entity that is a party to or the subject of this Agreement, the
law of the jurisdiction of organization of such entity shall govern.
SECTION 5.11. Jurisdiction. Each party hereby irrevocably submits
------------
to the exclusive jurisdiction of the United States District Court for the
Western District of Texas or any court of the State of Texas located in the City
of Austin in any action, suit or proceeding arising in connection with this
Agreement or the transactions contemplated herein, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this Section 5.11 and shall not be deemed to be a general
submission to the jurisdiction of said Courts or in the State of Texas other
than for such purpose. All parties hereby waive any right to a trial by jury in
connection with any such action, suit or proceeding; provided, however, that
matters to be resolved through arbitration as specified herein shall be resolved
only by such arbitration, and the final arbitration award may thereafter be
enforced as provided in this Section 5.11.
SECTION 5.12. Counterparts. This Agreement may be executed in one
------------
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 5.13. Amendment. This Agreement may be amended only by
---------
written instrument executed by the parties hereto.
SECTION 5.14. Arbitration. In the event of any dispute with
-----------
respect to this Agreement or the transactions contemplated in this Agreement,
the parties agree to submit the matter to binding arbitration in accordance with
the procedures of Section 4.05. The arbitration shall be governed by the rules
of the American Arbitration Association; provided however, that the parties
specifically agree that the Texas Rules of Evidence shall govern the
admissibility of evidence to such arbitration.
IN WITNESS WHEREOF, AANP, Newco and Earful have caused this Agreement
to be executed as of the date first written above by their respective officer
thereunto duly authorized.
{Signatures on next page}
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
By:
----------------------------------------
Xxxxxx Xxxxxxxx, Chief Executive Officer
Attest:
-----------------------------
Xxxxx Xxxxx, President
EARFUL ACQUISITION CORP.
By:
----------------------------------------
Xxxxxx Xxxxxxxx, President
Attest:
-----------------------------
Xxxxxx Xxxxxxxx, Secretary
EARFUL OF BOOKS, INC.
By:
----------------------------------------
Xxxx Xxxx, President
Attest:
-----------------------------
Xxxxx Xxxxxxxxxx, Secretary
ANNEX I
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Plan" or "Merger Agreement") dated as
---- ----------------
of July 5, 2001, between EARFUL ACQUISITION CORP., a Texas corporation
("Newco"), and AUDIOBOOKS OF TEXAS, INC., a Texas corporation ("Audiobooks").
----------
Newco and Audiobooks are hereinafter collectively referred to as the
"Constituent Corporations."
W I T N E S S E T H:
-------------------
WHEREAS, Newco is a corporation duly organized and existing under the laws
of the State of Texas, having filed its Articles of Incorporation in the office
of the Secretary of State of Texas on July 5, 2001, and having total authorized
capital stock of 3,000 shares of common stock, $0.01 par value ("Newco Stock"),
-----------
of which 1,000 shares are issued and outstanding and owned by AMERICAN
ABSORBENTS NATURAL PRODUCTS, INC., a Utah corporation ("AANP"); and
----
WHEREAS, Audiobooks is a corporation duly organized and existing under the
laws of the State of Texas, having filed its Articles of Incorporation in the
office of the Secretary of State of Texas on February 7, 1994 and having total
authorized capital stock of 10,000,000 shares of common stock, $0.01 par value
("Audiobooks Common"), of which 2,460,270 shares are issued and outstanding, and
-----------------
options to purchase 26,863 shares of Audiobooks Common ("Audiobooks Options").
------------------
The Audiobooks Common, Audiobooks Preferred and Audiobooks Options are referred
to herein, collectively, as the "Audiobooks Securities").
----------------------
WHEREAS, the respective Boards of Directors of the Constituent Corporations
deem it advisable and in the best interests of the Constituent Corporations and
their shareholders that Newco be merged with and into Audiobooks, which shall be
the surviving corporation, as authorized by the statutes of the State of Texas
and pursuant to the terms and conditions hereinafter set forth, and each such
Board has duly approved this Agreement and Plan of Merger;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and for the purpose of setting forth the terms
of the merger (the "Merger") provided by this Merger Agreement, the mode of
carrying the same into effect and such other details and provisions as are
deemed necessary or desirable, the parties hereto have agreed and do hereby
agree, subject to the approval or adoption of this Merger Agreement by the
requisite vote of the shareholders of each Constituent Corporation, and subject
to the conditions hereinafter set forth, as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
-----------
conditions set forth in this Agreement, and in accordance with Texas Law, at the
Effective Time (as defined in Section 1.02), Newco shall be merged with and into
Audiobooks. As a result of the Merger, the separate corporate existence of
Newco shall cease and Audiobooks shall continue as the surviving corporation in
the Merger (the "Surviving Corporation"). The name of the Surviving Corporation
---------------------
shall be changed to "Earful Audiobooks, Inc."
SECTION 1.02. Effective Time. As promptly as practicable after the
---------------
approval hereof by the shareholders of each Constituent Corporation and the
execution and delivery of this Agreement by each of the parties hereto, the
parties hereto shall cause the Merger to be consummated by filing of articles of
merger (the "Articles of Merger") with the Secretary of State of the State of
-------------------
Texas, in such form as required by, and executed in accordance with the relevant
provisions of, Texas Law (the date and time of such filing being the "Effective
---------
Time").
----
SECTION 1.03. Effect of the Merger. At the Effective Time, the
-----------------------
effect of the Merger shall be as provided in the applicable provisions of Texas
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, except as otherwise provided herein, all the property,
rights, privileges, powers and franchises of Newco and Audiobooks shall vest in
the Surviving Corporation, and all debts, liabilities and duties of Newco and
Audiobooks shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.04. Articles of Incorporation; By-Laws. At the Effective
-----------------------------------
Time, the Articles of Incorporation and the By-laws of Audiobooks, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
and the By-Laws of the Surviving Corporation; provided that:
-------- ----
(i) Article I of the Articles of Incorporation of Audiobooks shall be
amended as follows to reflect that after the Merger, the name of the
Surviving Corporation shall be "Earful Audiobooks, Inc.";
"The name of the corporation is "Earful Audiobooks, Inc."; and
(ii) Article IV of the Articles of Incorporation of Audiobooks shall be
amended as follows to reflect that after the Merger the capitalization
of Audiobooks shall be 3,000 shares of Common Stock issued to and
outstanding in the name of AANP:
"The total number of shares of all classes of stock which the
corporation shall be authorized to issue is three thousand (3,000)
shares of common stock, $0.01 par value per share."
SECTION 1.05. Directors and Officers. The directors of Audiobooks
------------------------
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Audiobooks immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by
--------------------------
virtue of the Merger and without any action on the part of Newco, Audiobooks or
the holders of any of the following securities:
(a) Each share of Audiobooks Common issued and outstanding
immediately prior to the Effective Time, excluding any treasury shares held by
Audiobooks, shares held by AANP and Dissenting Shares (as defined in Section
2.04), if any, shall be converted into the right to receive 5.5 shares (the
"Common Stock Exchange Ratio") of fully paid, nonassessable shares of AANP
------------------------------- -----
Common.
-------
(b) Each Audiobooks Option outstanding immediately prior to the
Effective Time shall be converted into an option to purchase AANP Common ("AANP
----
Option") exercisable for that number of shares of AANP Common equal to the
product of the number of shares of Audiobooks Common covered by Audiobooks
Options immediately prior to the Effective Time multiplied by the Common Stock
Exchange Ratio rounded up to the nearest whole number of shares of AANP Common,
and the per share exercise price for the shares of AANP Common issuable upon the
exercise of such AANP Options shall be equal to the quotient determined by
dividing the exercise price per share of Audiobooks Common specified for such
Audiobooks Options under the applicable option agreement immediately prior to
the Effective Time by the Common Stock Exchange Ratio rounding the resulting
exercise price down to the nearest whole cent. The date of grant of an AANP
Option issued in exchange for an Audiobooks Option shall be deemed to be the
date on which such Audiobooks Options was originally granted. AANP Options
issued in exchange for Audiobooks Options pursuant hereto shall have the same
schedule of vesting (or acceleration) as applies to such Audiobooks Options.
(c) All Audiobooks Securities shall cease to be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such Audiobooks Securities shall
thereafter represent the right to receive the Merger Consideration (as defined
in Section 2.02(b) below). The holders of certificates previously evidencing
Audiobooks Securities outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such Audiobooks Securities, except as
otherwise provided herein or by law. Such certificates previously evidencing
Audiobooks Securities shall be exchanged for certificates evidencing shares of
AANP Common or AANP Options (collectively, the "AANP Securities"), as
----------------
appropriate, issued in consideration therefore in accordance with the allocation
procedures of this Section 2.01 and upon the surrender of such certificates in
accordance with the provisions of Section 2.02.
(d) All Audiobooks Securities held in the treasury of Audiobooks
and all Audiobooks Securities owned by AANP or any direct or indirect wholly
owned subsidiary of AANP or of Audiobooks immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
SECTION 2.02. Exchange of Certificates.
--------------------------
(a) Exchange Agent. As of the date hereof, Newco has deposited, or
---------------
caused to be deposited, with Fidelity Transfer (the "Exchange Agent"), for the
--------------
benefit of the holders of Audiobooks Securities, for exchange in accordance with
this Article II through the Exchange Agent (i) certificates evidencing such
number of shares of AANP Common equal to the Common Stock Exchange Ratio
multiplied by the number of shares of Audiobooks Common; and (ii) AANP Options
evidencing the right to purchase such number of shares of AANP Common equal to
the Common Stock Exchange Ratio multiplied by the number of shares of Audiobooks
Common represented by Audiobooks Options at an exercise price determined in
accordance with Section 2.01(c). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the AANP Securities to the holders of
Audiobooks Securities.
(b) Exchange Procedures. As soon as reasonably practicable after
--------------------
the Effective Time, Audiobooks will instruct the Exchange Agent to mail to each
holder of record of Audiobooks Securities (other than Dissenting Shares) (all
stock certificates, warrants and other documents evidencing Audiobooks Options
being collectively, the "Certificates"), (i) a letter of transmittal (which
------------
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Audiobooks may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates evidencing AANP
Securities. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the holder
of such Certificate shall be entitled to receive in exchange therefore (i)
certificates evidencing that number of shares of AANP Common which such holder
has the right to receive in respect of the shares of Audiobooks Common; and (ii)
AANP Options evidencing the right to purchase that number of shares of AANP
Common which such holder has the right to receive in respect of Audiobooks
Options. in each case in accordance with Section 2.01 (such AANP Common and AANP
Options being collectively, the "Merger Consideration") and the Certificates so
--------------------
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of shares of Audiobooks Securities, which transfer is not registered
in the transfer records of Audiobooks, a certificate evidencing the proper
number of shares of AANP Common or a AANP Option, as appropriate, may be issued
in accordance with this Article II to a transferee if the Certificate evidencing
such Audiobooks Common or Audiobooks Option is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated in this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to evidence only the right to
receive, upon such surrender, the Merger Consideration.
(c) No Further Rights in Audiobooks Common or Audiobooks Options.
--------------------------------------------------------------
All AANP Common and AANP Options issued upon conversion of Audiobooks Common or
Audiobooks Options in accordance with the terms hereof shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to the
previously issued and outstanding Audiobooks Common and Audiobooks Options.
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
--------------------
transfer books of Audiobooks shall be closed and there shall be no further
registration of transfers of shares of Audiobooks Securities thereafter on the
records of Audiobooks. On or after the Effective Time, any Certificates
presented to the Exchange Agent for any reason shall be converted into the
Merger Consideration.
SECTION 2.04. Dissenting Shares. If required under Texas Law,
------------------
notwithstanding any other provisions of this Agreement to the contrary,
Audiobooks Securities that are outstanding immediately prior to the Effective
Time and which are held by shareholders who shall have not voted in favor of the
Merger or consented thereto in writing and who shall have demanded properly in
writing appraisal for such shares in accordance with Sections 5.12 of Texas Law
(collectively, the "Dissenting Shares") shall not be converted into or represent
-----------------
the right to receive the Merger Consideration. Such stockholders shall be
entitled to receive payment of the appraised value of the Audiobooks Securities
held by them in accordance with the provisions of such sections of Texas Law,
except that all Dissenting Shares held by shareholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such Audiobooks Securities under such sections of Texas Law shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Time, for the right to receive AANP Securities, upon
surrender, in the manner provided in Section 2.02, of the certificate or
certificates that formerly evidenced such Audiobooks Securities.
ARTICLE III
APPROVAL AND EFFECTIVE TIME OF THE MERGER
-----------------------------------------
The Merger shall become effective when certified, executed and acknowledged
in accordance with the Texas Corporations Law and appropriate Articles of Merger
shall be filed and recorded in the office of the Secretary of State of the State
of Texas.
ARTICLE IV
MISCELLANEOUS PROVISIONS
------------------------
(a) For the convenience of the parties, any number of counterparts
hereof may be executed, and each such counterpart shall be deemed to be an
original instrument.
(b) It is the intention of the parties that the internal laws, and
not the laws of conflicts, of the State of Texas shall govern the enforceability
and validity of this Merger Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties; provided, however, that
-------- -------
with respect to matters of law concerning the internal affairs of any entity
that is a party to or the subject of this Merger Agreement the law of the
jurisdiction of organization of such entity shall govern.
(c) This Merger Agreement may not be altered or amended except
pursuant to an instrument in writing signed on behalf of the parties hereto.
IN WITNESS WHEREOF, Audiobooks has caused this Merger Agreement to be
signed by its President and attested by its Secretary and its corporate seal to
be affixed hereto pursuant to authorization contained in a resolution adopted by
its Board of Directors approving this Merger Agreement, and Newco has caused
this Merger Agreement to be signed by its President and attested by its
Secretary and its corporate seal to be affixed hereto pursuant to authorization
contained in a resolution adopted by its Board of Directors approving this
Merger Agreement, all on the date first above written.
EARFUL ACQUISITION CORP.
By:
-------------------------------
Xxxxxx Xxxxxxxx, President
Attest:
-------------------------------
Xxxxxx Xxxxxxxx, Secretary
AUDIOBOOKS OF TEXAS, INC.
By:
-------------------------------
Xxxx Xxxx, President
Attest:
-------------------------------
Xxxxx Xxxxxxxxxx, Secretary
ANNEX II
ARTICLES OF MERGER
OF
EARFUL ACQUISITION CORP. AND
AUDIOBOOKS OF TEXAS, INC.
The undersigned officer of the Surviving Corporation to a Plan of Merger
submits the following Articles of Merger pursuant to the provisions of Article
5.04 of the Texas Business Corporations Act ("TBCA").
ARTICLE I
NAME
----
The name and place of incorporation of each constituent corporation is:
A. EARFUL ACQUISITION CORP., a Texas corporation (the "Disappearing
Corporation");
B. AUDIOBOOKS OF TEXAS, INC., a Texas corporation (the "Surviving
Corporation").
ARTICLE II
ADOPTION OF THE PLAN OF MERGER
------------------------------
The respective Boards of Directors of the Surviving Corporation and the
Disappearing Corporation have duly and validly adopted the Plan of Merger,
containing the information required by Article 5.02 of the TBCA has been adopted
by the board of directors of each corporation that is a party to the merger.
ARTICLE III
OUTSTANDING STOCK
-----------------
On the date of the written consents of the shareholders in lieu of a
meeting, there were outstanding shares of stock in the constituent corporations
the numbers and designations of which are as follows:
A. The Surviving Corporation had Two Million, Four Hundred Sixty
Thousand Two Hundred Seventy (2,460,270) outstanding shares of common stock, par
value $0.01 per share, each share being entitled to one (1) vote for a total of
Two Million, Four Hundred Sixty Thousand Two Hundred Seventy (2,460,270)votes
entitled to be cast for or against the Plan of Merger;
B. The Disappearing Corporation had One Thousand (1,000) outstanding
shares of common stock, par value $0.01 per share, each share being entitled to
one (1) vote for a total of One Thousand (1,000) votes entitled to be cast for
or against the Plan of Merger.
ARTICLE IV
SHAREHOLDER APPROVAL
--------------------
The Plan of Merger was duly submitted to the shareholders of the Surviving
Corporation, in accordance with the laws of the State of Texas, and the
shareholders of the Disappearing Corporation in accordance with the laws of the
State of Texas, and approved thereby. By written consent, the shareholders of
the Surviving Corporation cast ____________________________ (_________) in favor
the Plan of Merger and the shareholders of the Disappearing Corporation cast One
Thousand (1,000) votes in favor and no (0) votes against the Plan of Merger
which votes cast in favor thereof are of a sufficient number for the approval of
the Plan of Merger by the constituent corporations. Notice of the written
consent by less than unanimous consent will be sent to the shareholders of the
Surviving Corporation upon filing of these Articles of Merger.
ARTICLE V
AMENDMENTS TO THE ARTICLES OF INCORPORATION
OF THE SURVIVING CORPORATION
----------------------------
The Articles of Incorporation of the Surviving Corporation shall continue
as the Articles of Incorporation of the Surviving Corporation in all respects;
except, that on the effective date of the Merger,
(i) Article I of the Articles of Incorporation of Audiobooks shall be
amended as follows to reflect that after the Merger, the name of the
Surviving Corporation shall be "Earful Audiobooks, Inc."
"The name of the corporation is Earful Audiobooks, Inc."; and
(ii) Article IV of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows:
"The total number of shares of all classes of stock which the
corporation shall be authorized to issue is three thousand (3,000)
shares of common stock, $0.01 par value per share."
ARTICLE VI
PLAN OF MERGER
--------------
A. A copy of the Plan of Merger is attached hereto as "Exhibit A" and
incorporated herein by this reference.
IN WITNESS WHEREOF, the undersigned President and Secretary of the
Constituent Corporations, execute these Articles of Merger and verify that the
statements contained herein are true and complete and are the act and deed of
the constituent corporations this the 5th day of July, 2001.
AUDIOBOOKS OF TEXAS, INC.
By:
--------------------------------
Xxxx Xxxx, President
Attest:
-----------------------------
Xxxxx Xxxxxxxxxx, Secretary
STATE OF TEXAS )
)
COUNTY OF XXXXXX )
On this 5th day of July, 2001, before me, ______________________, the
undersigned officer, personally appeared Xxxx Xxxx and Xxxxx Xxxxxxxxxx, known
personally to me to be the President and Secretary, respectively, of AUDIOBOOKS
OF TEXAS, INC., and that they, as such officers, being authorized to do so,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation by themselves as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
____________________________________
Notary Public in and for the
State of T E X A S
EARFUL ACQUISITION CORP.
By:
-----------------------------
Xxxxxx Xxxxxxxx, President
Attest:
Xxxxxx Xxxxxxxx, Secretary
STATE OF TEXAS )
)
COUNTY OF XXXXXX )
On this 5th day of July, 2001, before me, ______________________, the
undersigned officer, personally appeared Xxxxxx Xxxxxxxx known personally to me
to be the President and Secretary, respectively, of EARFUL ACQUISITION CORP.,
and that they, as such officers, being authorized to do so, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by themselves as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
____________________________________
Notary Public in and for the
State of T E X A S
ANNEX III
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Subscription Agreement"), dated as of the 5th
----------------------
day of July 2001, between AMERICAN ABSORBENTS NATURAL PRODUCTS, INC., a Utah
corporation (the "Subscriber"), and EARFUL ACQUISITION CORP., a Texas
----------
corporation (the "Company").
-------
W I T N E S S E T H:
-------------------
WHEREAS, the Subscriber and the Company have entered into that certain Agreement
(the "Agreement"), dated as of an even date herewith, by and between the
---------
Subscriber, the Company and AUDIOBOOKS OF TEXAS, INC., a Texas corporation
"Audiobooks"), which contemplates, among other actions, (i) the sale of capital
-----------
stock by the Company to the Subscriber and (ii) the merger of the Company and
Audiobooks (the "Merger");
------
WHEREAS, the Subscriber desires to acquire 1,000 of the authorized, but
unissued, shares of Common Stock, $.01 par value per share (the "Common Stock")
------------
of the Company for consideration consisting of shares, warrants and options of
the Subscriber sufficient to fulfil the obligations of the Company in the event
the Merger is consummated, and if the Merger is not consummated, for
consideration consisting of $1,000 in cash;
WHEREAS, the Company desires to sell the Common Stock to the Subscriber on such
terms; and
WHEREAS, the Plan and Agreement of Merger (the "Merger Agreement"), by and
----------------
between the Company and Audiobooks, as contemplated in the Agreement, sets forth
that all of the outstanding capital stock, warrants and options of Audiobooks
will be cancelled and exchanged for common stock, warrants and options of the
Subscriber held by the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
represen-tations, warranties and covenants herein contained, the parties hereby
agree as follows:
1. Subscription. Subject to the terms and conditions hereof and the
------------
provisions of the Agreement, the Subscriber hereby irrevocably subscribes for
1,000 shares (the "Shares") of Common Stock for the consideration set forth
herein.
2. Purchase Price. The purchase price to be paid by the Subscriber to the
---------------
Company at Closing (as defined herein) as payment for the Shares (hereinafter
called the "Purchase Price") shall be as follows:
---------------
(a) In the event that the Merger as contemplated in the Agreement is
consummated, the Purchase Price shall be the number of shares of Audiobooks
Common and Audiobooks Options (as defined in the Agreement) to be exchanged for
the cancelled shares of capital stock and options of Audiobooks at the closing
of the Merger, as more fully set forth in the Merger Agreement; or
(b) In the event that the Merger is not consummated, the Purchase Price
shall be One Thousand Dollars ($1,000.00) in cash.
3. Closing.
-------
(a) The closing ("Closing") of the purchase and sale of the Shares
-------
subscribed for hereby shall be held at the same time, place and date as the
closing contemplated in the Agreement.
(b) At the Closing, in accordance with this Subscription Agreement, the
Company shall issue and deliver to the Subscriber the Shares.
(c) At the Closing, the Subscriber shall deliver to the Company the Purchase
Price. Upon receipt of the Purchase Price the Company shall place such
consideration with the Exchange Agent pending satisfaction of the conditions to
Closing specified herein.
4. Representations and Warranties of the Company. In addition to the
--------------------------------------------------
representations and warranties set forth in the Agreement, the Company
represents and warrants to the Subscriber, as follows:
(a) The Shares to be delivered to the Subscriber at the Closing are duly
authorized and will, when issued in accordance with the terms hereof, be validly
issued and outstanding, fully paid and nonassessable, and will not be subject to
any unpaid transfer or other taxes.
(b) The Company is authorized to issue 1,000 shares of Common Stock. No
shares of the Common Stock are presently issued or outstanding. No other classes
of capital stock of the Company are authorized or outstanding.
(c) All documents and other papers delivered by or on behalf of the Company
in connection with this Subscription Agreement, the Agreement, or the
transactions contemplated therein are true, complete and authentic. No
representation, warranty, covenant or agreement of the Company, contained in
this Subscription Agreement or in the Agreement, and no document or other paper
furnished by or on behalf of the Company, to the Subscriber pursuant to this
Subscription Agreement or the Agreement, or in connection with the transactions
contemplated thereby, contains an untrue statement of material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements made, in the context in which made, not false and misleading.
(d) THE COMPANY HAS ALL RIGHT AND AUTHORITY TO EXECUTE AND DELIVER THIS
SUBSCRIPTION AGREEMENT. THIS SUBSCRIPTION AGREEMENT IS A VALID AND BINDING
AGREEMENT OF THE COMPANY ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS
TERMS EXCEPT AS THE ENFORCEABILITY HEREOF MAY BE AFFECTED BY BANKRUPTCY,
INSOLVENCY OR SIMILAR LAWS AFFECTING CREDITORS' RIGHTS GENERALLY, OR BY
COURT-APPLIED EQUITABLE REMEDIES.
5. Representations and Warranties of Subscriber. In addition to the
------------------------------------------------
representations and warranties set forth in the Agreement, Subscriber hereby
represents and warrants to the Company that:
(a) The Subscriber is aware that the Shares have not been registered under
the Securities Act of 1933, as amended (the "Act"), or the securities laws of
---
any state, and, therefore, cannot be sold, pledged, assigned or otherwise
transferred except in accordance with the registration requirements of the Act
and/or any applicable state securities laws or an exemption from such
registration requirements, and further, that only the Company can take action to
so register the Shares.
(b) All documents and other papers delivered by or on behalf of the
Subscriber in connection with this Subscription Agreement, the Agreement, or the
transactions contemplated therein are true, complete and authentic. No
representation, warranty, covenant or agreement of the Subscriber, contained in
this Subscription Agreement or in the Agreement, and no document or other paper
furnished by or on behalf of the Subscriber, to the Company pursuant to this
Subscription Agreement or the Agreement or in connection with the transactions
contemplated therein, contains an untrue statement of material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements made, in a context in which made, not false or misleading.
(c) The Subscriber has all right and authority to make such investment in
the Shares and to execute and deliver this Subscription Agreement. This
Subscription Agreement is a valid and binding agreement of the Subscriber
enforceable against the Subscriber in accordance with its terms except as the
enforceability hereof may be affected by bankruptcy, insolvency or similar laws
affecting creditor's rights generally, or by court -applied equitable remedies.
6. Conditions to Obligations of Subscriber. The obligations of Subscriber
-----------------------------------------
hereunder are, at its option, subject to the conditions that the representations
and warranties of the Company in Section 4 hereof shall be accurate as of the
Closing Date, as though such representations and warranties had been made at and
as of such time, and all of the terms, covenants and conditions of this
Subscription Agreement and the Agreement to be complied with and performed by
the Company on or before the Closing Date shall have been duly complied with and
performed.
7 Conditions to Obligations of the Company. The obligations of the Company
-----------------------------------------
hereunder are, at its option, subject to the conditions that the representations
and warranties of Subscriber in Section 5 hereof shall be accurate as of the
Closing Date, as though such representations and warranties had been made at and
as of such time, and all of the terms, covenants and conditions to this
Agreement to be complied with and performed by the Subscriber on or before the
Closing Date shall have been duly complied with and performed.
8. Consummation of Merger. It is the understanding of the parties that the
-----------------------
Merger described in the Agreement shall be consummated immediately after the
Closing of this Subscription Agreement, substantially on the terms of such
Merger as set forth in the Agreement and the Merger Agreement. In the event the
Merger is not consummated, the Purchase Price shall be modified to the
consideration as set forth in Section 2(b) hereof.
9. Indemnification. The Subscriber and the Company acknowledge that they
---------------
understand the meaning and legal consequences of the representations, warranties
and covenants set forth in Sections 4 and 5 above and that each party, and its
respective officers, directors, employees and agents have relied or will rely
upon such representations, warranties and covenants, and they hereby agree to
indemnify and hold harmless each other and their respective officers, directors,
employees and agents from and against any and all loss, claim, damage, liability
or expense, and any action in respect thereof, joint or several, to which any
such person may become subject, due to or arising out of a breach of any such
representation, warranty or covenant, together with all reasonable costs and
expenses (including attorney's fees) incurred by any such person in connection
with any action, suit, proceeding, demand, assessment or judgment incident to
any of the matters so indemnified against.
10. Survival. All representations, warranties and covenants contained in
--------
this Subscription Agreement, including without limitation the indemnification
contained in Section 8 above, shall survive the termination of this Subscription
Agreement. The parties acknowledge and agree that this Subscription Agreement
shall survive changes in the transactions, documents and instruments described
in the Agreement and the Merger Agreement, which are not material.
11. Applicable Law. It is the intention of the Company and the Subscriber
---------------
that the internal laws, and not the laws of conflicts, of the State of Texas
shall govern the enforceability and validity of this Subscription Agreement, the
construction of its terms and the interpretation of the rights and duties of the
Company and the Subscriber; provided, however, that with respect to matters of
-------- -------
law concerning the internal affairs of any entity that is a party to or the
subject of this Subscription Agreement the law of the jurisdiction of
organization of such entity shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement
as of the date first above written.
"SUBSCRIBER "
AMERICAN ABSORBENTS NATURAL PRODUCTS, INC.
BY:
----------------------------------------------
Xxxxxx Xxxxxxxx, Chief Executive Officer
"COMPANY"
EARFUL ACQUISITION CORP.
BY:
----------------------------------------------
Xxxxxx Xxxxxxxx, President
Schedule 2.01
Earful Subsidiaries
--------------------
XXXXXXXXXXXXX.XXX, INC., A TEXAS CORPORATION (90% OWNED).
Earful of Books of Houston, Inc., a Texas corporation ("Earful Houston")
Earful of Books Franchising Company, Inc., a Texas corporation (wholly owned by
Earful Houston)
Earful of Books Limited Partnership, a Texas limited partnership, of which the
Company is the 33.35% general partner. Certain directors of the Company hold
the limited partnership interests.
Schedule 2.03(a)
EARFUL OPTIONS
FIRST LAST WARRANTS STRIKE PRICE
----- ---------- -------- -------------
Xxxx Xxxx 6,863 $ 0.50
Xxxxx Xxxxxxxxxx 20,000 $ 3.34
--------
26,863
========
Schedule 2.05
Required Consents
------------------
The Company has a lease with Quarry Crossing Ltd. in San Antonio for its San
Antonio store. The terms of the lease require consent of the landlord prior to
consummation of transactions such as those contemplated in the Agreement.
Management expects to receive these consents but has not yet received them.
The various documents between the Company and the lenders arranged through Xxxx
Xxxxxxxx require consent of the debtholders prior to consummation of
transactions such as those contemplated in the Agreement. Management expects to
receive these consents but has not yet received them.
Schedule 2.07
EARFUL OF BOOKS
CONSOLIDATED STATEMENT OF PROFIT AND (LOSS)
Three Months Ending March 31, 2001
UNAUDITED
Rental $ 172,312.15
Sales 33,202.42
Franchise Revenue 27,871.80
Other 21,302.58
-------------
TOTAL REVENUE $ 254,688.95
COST OF GOODS SOLD 16,933.23
-------------
GROSS PROFIT $ 237,755.72
-------------
OPERATING EXPENSES
Employment Expenses $ 360,156.69
Rent & Utilities 208,661.47
Travel 24,673.31
Interest 40,884.95
General & Administrative 146,426.22
-------------
TOTAL OPERATING EXPENSES $ 780,802.64
Depreciation & Amortization $ 60,371.05
TOTAL DEPRECIATION AND AMORTIZATION 60,371.05
TOTAL EXPENSES $ 841,173.69
-------------
PRETAX EARNINGS $(603,417.97)
INCOME TAXES -
NET INCOME (LOSS) BEFORE $(603,417.97)
MINORITY INTEREST
Minority Interest In Loss 51,258.96
NET LOSS $(552,159.01)
=============
EARFUL OF BOOKS
CONSOLIDATED BALANCE SHEET
March 31, 2001
UNAUDITED
ASSETS
CURRENT ASSETS
Cash $ -
Accounts Receivable 1,646.93
---------------
TOTAL CURRENT ASSETS $ 1,646.93
FIXED ASSETS
Leasehold Improvements $ 300,853.70
Fixtures and Equipment 284,492.86
Book Inventory 663,627.98
---------------
TOTAL FIXED ASSETS $ 1,248,974.54
Accumulated Depreciation (773,705.59)
---------------
NET FIXED ASSEST 475,268.95
INTANGIBLE ASSETS
Goodwill & Customer List $ 283,200.00
Accumulated Amortization (269,534.13)
---------------
NET INTANGIBLE ASSETS 13,665.87
OTHER ASSETS
Other Assets $ 75,719.32
---------------
TOTAL OTHER ASSETS 75,719.32
---------------
TOTAL ASSETS $ 566,301.07
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdaft $ 51,012.77
Accounts Payable 212,056.96
Due to Franchisees 72,531.50
Accrued Expenses 378,376.55
---------------
TOTAL CURRENT LIABILITIES $ 713,977.78
DEFERRED INCOME
Deferred Franchise Fees $ 319,000.00
---------------
TOTAL DEFERRED INCOME 319,000.00
LONG-TERM DEBT
Notes Payable - Bank $ 424,168.05
Notes Payable - Other 1,261,420.55
---------------
TOTAL LONG-TERM DEBT 1,685,588.60
---------------
TOTAL LIABILITIES $ 2,718,566.38
SHAREHOLDERS' EQUITY
Common Stock $ 2,217,730.03
Retained Earnings (4,335,669.61)
Minority Interest (34,325.73)
---------------
TOTAL SHAREHOLDERS' EQUITY (2,152,265.31)
---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 566,301.07
Schedule 2.08
UNDISCLOSED LIABILITIES
City National Bank Loan - The Company has entered into a transaction with City
National Bank of Xxxxxx whereby an outstanding loan of $225,000 has been
included in a new loan of $425,000 maturing approximately one year from the date
of the new loan. Additionally, an existing $75,000 loan has been renewed and
extended for a simultaneous one year period. A new $200,000 loan was
established, maturing simultaneously with the other two outstanding loans.
These loans have been guaranteed by various directors of the Company and Xxxxxx
Xxxxxxxx.
The Company has entered into termination agreements with several warrantholders
providing for an aggregate payment obligation of the Company of $25,625 on or
before December 31, 2001.
Schedule 2.10
LITIGATION
On January 25, 2001, suit was filed in the 000xx Xxxxxxxx Xxxxx of Xxxxxx County
styled Electrocast, Inc., vs. Audiobooks of Texas, Inc. The suit is for breach
of contract concerning an agreement by the Company to have Electrocast process
certain books on tape to digital format. Amount claimed as damages by
Electrocast is approximately $3.725 million. The Company has filed a general
denial. The undersigned counsel believes that the Company has a valid defense
of repudiation of the contract upon which the suit is brought by Electrocast and
that damages, if any, are greatly overstated in that amount being sought is for
gross amount of the contract not lost profits. Minimal discovery has occurred
and no date of trial is set.
Xxxxxx XxXxxxxx, LLP was granted a judgment against Earful of Books, Inc. on
February 13, 2001 and an Abstract of Judgment was filed on March 15, 2001 for
$53,284.72 plus interest from the date of judgment. A Rule 11 Agreement has
been entered by which the Company has paid $15,000.00 with an additional payment
of $7,500.00 on the first of every month with a final payment on September 1,
2001 of the outstanding judgment in full including post-judgment interest
charged at the judgment rate of 3/4% per month.
Earful Investors, Ltd. vs. Earful of Books Franchising Co., Inc.; in the Court
of Common Pleas of Xxxxxxxx County, Ohio; No. A0102133, on April 5, 2001.
Amount $65,000, plus interest at 10%, cost of court and attorney's fees to be
determined at hearing later. They have filed Notice of Filing of Foreign
Judgment in No.GN101939; in Xxxxxx County District Court on June 22, 2001.
Earful Investors, Ltd. vs. Earful of Books Franchising Co., Inc.; in the Court
of Common Pleas of Xxxxxxxx County, Ohio; No. A01-3589, on June 4, 2001. Amount
$25,000, plus interest at 10%, cost of court and attorney's fees to be
determined at hearing later. They have filed Notice of Filing of Foreign
Judgment in No.GN101940; in Xxxxxx County District Court on June 22,
2001.
Schedule 2.12
BROKERS
Upon consummation of the Merger, Aurora Financial Services, LLC ("Aurora") has
agreed to accept 170,000 shares of AANP in full satisfaction of any and all
brokerage or financial advisory agreements with the Company. The Company also
owes Aurora approximately $21,000 in due diligence fees and expenses.
Schedule 2.15
EMPLOYEE BENEFIT PLANS
Earful has an agreement as part of Xxxx X. Xxxx'x compensation to provide to him
annually options on a set amount of stock at a fixed price.
Post Merger, the agreement will be 165,000 options per year at a price
determined by the Board of Directors.
Schedule 3.03
Capitalization
--------------
On July 6, 2000, the Company entered into an agreement with Xxxxxxxxxxxxx.xxx
for investor relation services. Xxxxxxxxxxxxx.xxx received compensation
pursuant to this agreement and failed to fulfill their contractual
responsibilities. Xxxxxxxxxxxxx.xxx has agreed to return 100,000 shares of
American Absorbents Natural Products, Inc. stock. The Company is still awaiting
the return of these shares.
Schedule 3.07
Reports: Financial Statements
-------------------------------
No 8-K was filed announcing the termination of the Merger and Plan of
Reorganization between American Absorbents Natural Products, Inc. and Centre
Capital Corporation. When both parties agreed to terminate the deal, a press
release was published announcing the termination of the merger.
The Company's previous auditor, Xxxxx Xxxxx of Salt Lake City, was convicted in
December 1999 of racketeering, racketeering conspiracy, conspiracy and multiple
counts each of money laundering, securities fraud and wire fraud. The Company
replaced Xx. Xxxxx as auditor in January of 2000. The Company's financial
statements have been audited for the years ended January 31, 2000 and 2001 by
our new accounting firm.
Schedule 3.09
No undisclosed Liabilities
----------------------------
On May 3, 2001, CEO Xxxxxx Xxxxxxxx signed, as guarantor on American Absorbents
Natural Products, Inc behalf, loan documents with City National Bank for a
$200,000 loan. American Absorbents Natural Products, Inc.'s guarantee is for
$100,000. This loan was entered into with Earful of Books.
On two occasions American Absorbents Natural Products, Inc. raised capital under
private placement documents, which provided for royalty payments to the
subscribers for zeolite that was mined, milled, and sold as provided for by the
agreement. To date, $2,500 in royalties has been paid. The financial
statements reflect the accrued and unpaid royalty at $2,295. Future royalty
payments would be due on any zeolite mined, milled, and sold as provided for by
the agreement.
Schedule 3.10
Equitable Assets and its principals, Houston Xxxxxxxxxx and Xxxxx Xxxx, have
contacted the Company in reference to the $220,000 CCCX advanced to the Company
in accordance with the Agreement and Plan of Reorganization signed August 8,
2000. Equitable Assets claims they loaned the funds and are requesting
repayment. The Company believes that Houston Xxxxxxxxxx and Xxxxx Xxxx'x
assertions are without validity. CCCX and the Company have signed mutual
releases with regards to any financial or business consideration or obligations
as a result of the original Agreement and Plan of Reorganization.
Schedule 3.13
Brokers
-------
Upon consummation of the Merger, Texas Commercial Resources, Inc. (Aurora
Financial Services, LLC) has agreed to accept 170,000 shares of American
Absorbents Natural Products, Inc in full satisfaction of any and all brokerage
and financial advisory agreements with the Company.
Schedule 3.14
Environmental Laws and Regulations
-------------------------------------
Anaconda Minerals Company originally filed the northern portions of the Xxxxxx
Basin Claims in 1975. Occidental Minerals Company filed claims covering much of
the southern portion in 1979. Drilling and evaluation of the deposit by both
companies continued into the 1980's. Since then several companies, including
PDZ Corporation, Tenneco Specialty Minerals, Steelhead Specialty Minerals, East
West Minerals, Inc. and New Gold, Inc. have had an interest in part or all of
the properties previously held by Anaconda and Occidental. The Company is in
possession of extensive trenching and core drilling data on the basin, which
data were compiled by Occidental and Anaconda. A composite geological report
dated December 14, 1993, and prepared for the Company from such data by Xxxxxxx
X. Xxxxx, an independent geologist, estimates the early sampling of the area
established numerous good-quality zeolite beds in a 0.0 xxxxxx xxxx xxxx with an
average of slightly over 70% total zeolites content, consisting primarily of
clinoptilolite, with lesser amounts of phillipsite, chabazite, mordenite and
erionite. The Company intends to avoid the beds of zeolites containing erionite
and concentrate its mining efforts solely on the beds of zeolites containing no
erionite. The Company's current operations are on the northern 4060 acres of the
Xxxxxx Basin claims, which previous core data reports indicate has a thickness
up to 300 feet of 90% clinoptilolite purity. The zeolites deposits on the
Xxxxxx Basin Claims are on or near the surface with little or no overburden,
thus reducing the cost of extraction.
Schedule 3.15
The Company has entered into a two-year agreement with Xx. Xxx Xxxxxx for
consulting services effective Dec. 15 1999 and terminating December 31st 2001.
The Company has entered into an agreement with Ibank for investor relations and
public relation services. This agreement provides for the issuance of shares
upon completion of the transaction.
On July 6, 2000, the Company entered into an agreement with Xxxxxxxxxxxxx.xxx
for investor relation services. Xxxxxxxxxxxxx.xxx received compensation
pursuant to this agreement and failed to fulfill their contractual
responsibilities. Xxxxxxxxxxxxx.xxx has agreed to return 100,000 shares of
American Absorbents Natural Products, Inc. stock. The Company is still awaiting
the return of these shares.
On July 13, 2000, the Company entered into an agreement with CEO Solutions, Inc.
to provide investor relations services. This agreement terminates July 13,
2001.
On August 21, 2000, the Company entered into an agreement with Xxxx Xxxxxx to
represent the interests of the Company in Texas and as directed by the Company.
The Company and Earful have entered into a marketing agreement with Barso Global
Management, Ltd. to market the assets of American Absorbents Natural Products,
Inc. In accordance with the agreement, American Absorbents Natural Products,
Inc. has issued 25,000 shares to Barso Global Management. Ltd.
On March 16, 2001, the Company entered into a joint venture agreement with
ChinaBusinessChain Group, LLC.
Schedule 3.16
Employees
---------
The current employees of American Absorbents Natural Products, Inc. are Xxxxxx
X. Xxxxxxxx, Chief Executive Officer and Chairman of the Board, Xxxxx X. Xxxxx,
President and Chief Financial Officer, and L. Xxxxx Xxxxx, part-time production
employee.
Shareholders List
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[attached to original]
