SECURITIES EXCHANGE AGREEMENT between MH & SC, INCORPORATED and JUHL ENERGY DEVELOPMENT, INC., DANMAR AND ASSOCIATES, INC. and, for certain limited purposes, their respective stockholders June 24, 2008
between
MH
&
SC, INCORPORATED
and
XXXX
ENERGY DEVELOPMENT, INC.,
DANMAR
AND ASSOCIATES, INC.
and,
for
certain limited purposes, their respective stockholders
June
24,
2008
TABLE
OF CONTENTS
Page
No.
|
1.
The
Exchange Offer
|
6
|
|
|
1.1
|
Exchange
|
6
|
|
1.2
|
Certificate
of Incorporation, By-laws, Directors and Officers
|
6
|
|
1.3
|
Manner
and Basis of Exchanging the Shares
|
7
|
|
1.4
|
Surrender
and Exchange of Certificates
|
7
|
|
1.5
|
Parent
Common Stock
|
8
|
|
1.6
|
Tax
Consequences
|
8
|
|
1.7
|
Further
Assurances
|
8
|
|
2.
Representations
and Warranties of the Companies
|
9
|
|
|
2.1
|
Organization,
Standing, Etc
|
9
|
|
2.2
|
Qualification
|
9
|
|
2.3
|
Capitalization
of the Companies
|
9
|
|
2.4
|
Indebtedness
|
9
|
|
2.5
|
Stockholders
of the Companies
|
9
|
|
2.6
|
Acts
and Proceedings
|
9
|
|
2.7
|
Compliance
with Laws and Instruments
|
10
|
|
2.8
|
Binding
Obligations
|
10
|
|
2.9
|
Broker’s
and Finder’s Fees
|
10
|
|
2.10
|
Financial
Statements
|
10
|
|
2.11
|
Absence
of Undisclosed Liabilities
|
11
|
|
2.12
|
Changes
|
11
|
|
2.13
|
Schedule
of Assets and Contracts
|
12
|
|
2.14
|
Employees
|
13
|
|
2.15
|
Tax
Returns and Audits
|
14
|
|
2.16
|
Patents
and Other Intangible Assets
|
14
|
|
2.17
|
Employee
Benefit Plans; ERISA
|
14
|
|
2.18
|
Title
to Property and Encumbrances
|
15
|
|
2.19
|
Insurance
Coverage
|
15
|
|
2.20
|
Litigation
|
15
|
|
2.21
|
Licenses
|
15
|
|
2.22
|
Interested
Party Transactions
|
16
|
|
2.23
|
Hazardous
Waste
|
16
|
|
2.24
|
Customers,
Suppliers and Independent Contractors
|
16
|
|
2.25
|
Questionable
Payments
|
16
|
|
2.26
|
Obligations
to or by Stockholders
|
16
|
|
2.27
|
Disclosure
|
16
|
|
3.
Representations
and Warranties of Parent
|
16
|
|
|
3.1
|
Organization
and Standing
|
17
|
|
3.2
|
Corporate
Authority
|
17
|
|
3.3
|
Broker’s
and Finder’s Fees
|
17
|
|
3.4
|
Capitalization
of Parent
|
17
|
|
3.5
|
Validity
of Shares
|
18
|
|
3.6
|
SEC
Reporting and Compliance
|
18
|
|
3.7
|
Financial
Statements
|
19
|
|
3.8
|
Governmental
Consents
|
21
|
|
3.9
|
Compliance
with Laws and Other Instruments
|
21
|
|
3.10
|
Binding
Obligations
|
21
|
|
3.11
|
No
General Solicitation
|
21
|
|
3.12
|
Litigation
|
21
|
|
3.13
|
Obligations
to or by Stockholders
|
22
|
|
3.14
|
Disclosure
|
23
|
|
4.
Additional
Representations, Warranties and Covenants of the
Stockholders
|
23
|
|
|
4.1
|
Acts
and Proceedings
|
23
|
|
4.2
|
Compliance
with Laws and Instruments
|
23
|
|
4.3
|
Binding
Obligation
|
23
|
|
4.4
|
Title
to Shares
|
24
|
|
4.5
|
Information
|
24
|
|
4.6
|
Resale
of Stock
|
24
|
|
5.
Additional
Agreements
|
24
|
|
|
5.1
|
Access
and Information
|
24
|
|
5.2
|
Commercially
Reasonable Efforts
|
18
|
|
5.3
|
Publicity
|
25
|
|
5.4
|
Appointment
of Directors
|
25
|
|
5.5
|
Parent
Name Change
|
26
|
|
5.6
|
Closing
of Private Placement
|
26
|
|
5.7
|
Long-Term
Incentive Plan
|
26
|
|
5.8
|
Issuance
of Additional Shares
|
26
|
|
5.9
|
Capital
Markets Initiatives
|
26
|
|
5.10
|
Executive
Employment Agreements
|
20
|
|
6.
Closing;
Deliveries
|
26
|
|
|
6.1
|
Closing
Date
|
26
|
|
6.2
|
Closing
Deliveries of the Companies and the Stockholders
|
27
|
|
6.3
|
Deliveries
of Parent
|
28
|
|
7.
Survival
of Representations and Warranties
|
30
|
|
|
8.
Amendment
of Agreement
|
30
|
|
|
9.
Definitions
|
30
|
|
ii
|
10.
Miscellaneous
|
34
|
|
|
10.1
|
Notices
|
34
|
|
10.2
|
Entire
Agreement
|
34
|
|
10.3
|
Expenses
|
34
|
|
10.4
|
Time
|
34
|
|
10.5
|
Severability
|
34
|
|
10.6
|
Successors
and Assigns
|
35
|
|
10.7
|
No
Third Parties Benefited
|
35
|
|
10.8
|
Counterparts
|
35
|
|
10.9
|
Recitals,
Schedules and Exhibits
|
35
|
|
10.10
|
Section
Headings and Gender
|
35
|
|
10.11
|
Governing
Law
|
35
|
iii
|
Exhibits
|
|
|
A
|
Certificate
of Incorporation of Parent
|
|
B
|
By-laws
of Parent
|
|
C
|
Form
of Opinion of Companies’ Counsel
|
|
D
|
Form
of Opinion of Parent’s Counsel
|
|
E
|
Form
of Release of Xxxx Xxxxx
|
|
Companies
Disclosure Schedules
|
|
|
1.1
|
Stockholders,
Shares and Allocation of Parent Common Stock
|
|
2.3
|
Capitalization
of the Companies
|
|
2.7
|
Compliance
with Laws
|
|
2.9
|
Broker’s
and Finder’s Fees
|
|
2.10
|
Financial
Statements
|
|
2.11
|
Undisclosed
Liabilities
|
|
2.12
|
Changes
|
|
2.13(a)
|
Schedule
of Leased Real and Personal Property
|
|
2.13(b)
|
Material
Agreements
|
|
2.13(c)
|
Schedule
of Insurance
|
|
2.13(d)
|
Schedule
of Patents and Other Intangible Assets
|
|
2.14
|
Employees
|
|
2.16
|
Ownership
of Intellectual Property
|
|
2.17
|
Schedule
of Employee Benefit Plans
|
|
2.20
|
|
|
2.22
|
Interested
Party Transactions
|
|
2.26
|
Obligations
to or by Stockholders
|
|
Parent
Disclosure Schedules
|
|
|
3.6
|
SEC
Reporting
|
|
3.12
|
Compliance
with Laws
|
|
3.16
|
Obligations
to or by Stockholders
|
|
3.19
|
Interested
Party Transactions
|
|
3.21
|
Bank
Accounts and Safe Deposit Boxes
|
|
3.22
|
Intellectual
Property
|
iv
THIS
SECURITIES EXCHANGE AGREEMENT is made and entered into on June 24, 2008, by
and
between MH & SC, INCORPORATED, a Delaware corporation (“Parent”),
on
the one hand, and XXXX ENERGY DEVELOPMENT, INC. (“Xxxx
Energy”)
and
DANMAR AND ASSOCIATES, INC. (“DanMar”),
each
a Minnesota corporation (Xxxx Energy and DanMar being individually, a
“Company”
and
together, the “Companies”),
and
the respective stockholders of the Companies whose names appear on the signature
pages hereof (the “Stockholders”)
solely
for the purpose of agreeing with respect to himself or herself to Sections
1, 4,
7, 9 and 10 hereof, on the other hand.
WITNESSETH:
WHEREAS,
the Board of Directors of each of Parent and the Companies have each determined
that the Parent’s acquisition of the Companies is fair to and in the best
interests of their respective entities and the stockholders
thereof;
WHEREAS, in
furtherance thereof, it is proposed that such acquisition be accomplished by
all
of the Stockholders contributing, selling and transferring to Parent all of
their Shares (as defined below) pursuant to an offer by Parent to issue in
exchange therefor newly-issued shares of common stock, par value $.001 per
share, of Parent (“Parent
Common Stock”),
upon
the terms and subject to the conditions set forth herein (the “Exchange
Offer”);
WHEREAS,
the Board of Directors of Parent and the Board of Directors of the Companies
have approved this Agreement and transactions contemplated hereby, including
the
Exchange Offer;
WHEREAS,
to induce Parent and the Companies to enter into this Agreement, the
Stockholders have agreed to accept the Exchange Offer and become parties to
this
Agreement solely for the purpose of agreeing with respect to himself or herself
to Sections 1, 4, 7, 9 and 10 hereof; and
WHEREAS,
simultaneously with the closing of the Exchange Offer, Parent (as it will exist
as of such time) is selling units (“Units”),
with
each unit consisting of one share of its series A convertible preferred stock,
par value $.0001 per share, initially convertible into one share of Parent
Common Stock (“Parent
Preferred Stock”),
and
each Unit shall also contain one detachable Class A, Class B and Class C warrant
(“Parent
Warrants”)
to
each purchase one share of Parent Common Stock, all sold in a private placement
to accredited investors (the “Private
Placement”),
for
aggregate gross cash proceeds of $5,160,000 for 5,160,000 Units, pursuant to
the
terms of a Securities Purchase Agreement, dated as of June 24, 2008, for the
purpose of expanding the business of the Companies following the closing of
the
Exchange Offer (the “Exchange”);
NOW,
THEREFORE, in consideration of the mutual agreements and covenants hereinafter
set forth, the parties hereto agree as follows:
5
1. The
Exchange Offer.
1.1 Exchange.
(a) Subject
to the terms and conditions of this Agreement, upon execution and delivery
hereof, the Parent hereby offers to the Stockholders to acquire their Shares
solely in consideration and exchange for newly and duly issued, fully paid
and
non-assessable shares of Parent Common Stock as provided for in Section 1.3(a)
hereof. This Exchange Offer shall be deemed accepted upon execution and delivery
of this Agreement by the Stockholders.
(b) Subject
to the terms and conditions of this Agreement, at the Closing, (i) the
Stockholders shall contribute, transfer, assign and deliver to Parent, and
Parent agrees to acquire from such Stockholders, all of the outstanding Shares
owned by them as specifically set forth on Schedule
1.1
hereto,
and (ii) solely in consideration and exchange therefor, Parent shall issue
to
the Stockholders an aggregate of 15,250,000 newly and duly issued, fully paid
and non-assessable shares of Parent Common Stock in accordance with the Exchange
Ratio as provided for in Section 1.3(a) hereof.
(c) As
a
result of the Exchange, the Companies shall become wholly-owned subsidiaries
of
Parent.
1.2 Certificate
of Incorporation, By-laws, Directors and Officers.
(a) The
Certificate of Incorporation of Parent, as in effect immediately prior to the
Closing, attached as Exhibit
A
hereto,
shall be the Certificate of Incorporation of Parent from and after the Closing
until further amended in accordance with applicable law; except that ARTICLE
FIRST of the Certificate of Incorporation of Parent shall be amended immediately
prior to the closing to read in its entirety as follows: “The name of the
corporation is Xxxx Wind, Inc.”
(b) The
By-laws of Parent, as in effect immediately prior to the Closing, attached
as
Exhibit
B
hereto,
shall be the By-laws of Parent from and after the Closing until amended in
accordance with applicable law, the Certificate of Incorporation and such
By-laws.
(c) Pursuant
to Section 5.4 below, the directors and officers of Xxxx Energy in office
immediately prior to the Closing shall become the directors and officers of
Parent immediately following the Closing, and each shall hold his or her
respective office or offices thereafter until his or her successor shall have
been elected and shall have qualified in accordance with applicable law, or
as
otherwise provided in the Certificate of Incorporation or By-laws of
Parent.
6
1.3 Manner
and Basis of Exchanging the Shares.
(a) At
the
Closing, the outstanding shares of common stock of the Companies (the
“Shares”)
beneficially owned by the Stockholders, which Shares constitute all of the
issued and outstanding capital stock of the Companies, shall be contributed
and
transferred to the Parent and the Parent shall issue, and authorize its Transfer
Agent to issue, the Parent Common Stock specified below to each Stockholder
in
accordance with the following exchange ratios (the “Exchange
Ratios”).
|
Class
of Stockholder
|
No.
of
Shares
|
No.
of Shares of
Parent
Common Stock
|
Applicable
Exchange
Ratio
|
|||
|
Holders
of Xxxx Energy
Common
Stock
|
1,000
|
12,500,000
|
1:12,500
|
|||
|
Holders
of DanMar
Common
Stock
|
1,000
|
2,750,000
|
1:2,750
|
|||
|
Total
|
15,250,000
|
(b) No
fractional shares of Parent Common Stock shall be issued in the Exchange. If
the
number of Shares a Stockholder holds immediately prior to the Closing multiplied
by the applicable Exchange Ratio would result in the issuance of a fractional
share of Parent Common Stock, that product will be rounded down to the nearest
whole number of shares of Parent Common Stock if it is less than the fraction
of
one-half (.5) of one share of Parent Common Stock or rounded up to the nearest
whole number of shares of Parent Common Stock if the said product is equal
to or
greater than the fraction of one-half (.5) of one share of Parent Common Stock.
(c) Each
Share held in the treasury of either Company immediately prior to the Closing
shall be cancelled and cease to exist.
(d) After
the
Closing, there shall be no further registration of transfers of Shares on the
transfer books of the Companies that are outstanding immediately prior to the
Closing.
1.4 Surrender
and Exchange of Certificates.
(a) At
the
Closing, Parent shall deliver to its Transfer Agent a letter of instruction
to
prepare and deliver to the Companies’ counsel, who shall act as exchange agent
for the benefit of the Stockholders (the “Exchange
Agent”),
(i) certificates representing the appropriate number of shares of Parent
Common Stock issuable pursuant to Sections 1.1 and 1.3 hereof (such shares
of Parent Common Stock, the “Exchange
Fund”),
in
exchange for all outstanding Shares. The shares of Parent Common Stock evidenced
by the certificates shall be registered in the names of the Stockholders and
shall be in the denominations for each of them set forth opposite their
respective names on Schedule
1.1
hereto.
7
(b) Promptly
following the Closing, the Exchange Agent shall mail to each holder of record
of
a certificate or certificates that immediately prior to the Closing represented
outstanding Shares (the “Certificates”)
and
whose Shares were contributed to Parent and thereby converted into the right
to
receive shares of Parent Common Stock pursuant to Sections 1.1 and 1.3 hereof:
(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
delivery of the Certificates to the Exchange Agent and shall be in such form
and
have such other customary provisions as Parent and the Companies may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock that such holder
has the right to receive pursuant to the provisions of Sections 1.1 and 1.3,
and
the Certificate so surrendered shall forthwith be canceled. In the event of
a
transfer of ownership of Shares that are not registered in the transfer records
of the Companies, a certificate representing the proper number of shares of
Parent Common Stock may be issued to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent accompanied by
all
documents required to evidence and effect such transfer and by evidence that
any
applicable transfer taxes have been paid. Until surrendered as contemplated
by
this Section 1.4(b), each Certificate that immediately prior to the Closing
represented any outstanding Shares shall be deemed at and after the Closing
to
represent only the right to receive upon surrender as aforesaid the
consideration specified in Section 1.3(a) hereof for the holder
thereof.
1.5 Parent
Common Stock.
Parent
agrees that it will cause the Parent Common Stock to be issued in exchange
for
the Shares at the Closing pursuant to Section 1.3(a) to be available for such
purpose. Parent further agrees that, immediately prior to the Closing, there
will be 2,500,000 shares of Parent Common Stock issued and outstanding, not
including the securities to be issued in the Private Placement.
1.6 Tax
Consequences.
The
parties to this Agreement intend and desire that, for U.S. Federal income tax
purposes, the Exchange to take place pursuant to the Exchange Offer shall
constitute a tax-free reorganization within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code"),
and
the regulations promulgated thereunder.
1.7 Further
Assurances.
From
time to time, from and after the Closing, as and when requested by Parent or
its
successors or assigns, the proper officers and directors of the Companies as
of
the Closing shall, for and on behalf and in the name of each of the Companies
or
otherwise, shall execute and deliver all such deeds, bills of sale, assignments
and other instruments and shall take or cause to be taken such further actions
as Parent or its successors or assigns may deem necessary or desirable in order
to confirm or record or otherwise transfer to Parent title to and possession
of
all of the properties, rights, privileges, powers, franchises and immunities
of
the Companies or otherwise to carry out fully the provisions and purposes of
this Agreement.
8
2. Representations
and Warranties of the Companies.
The
Companies hereby represent and warrant to Parent, except as set forth in the
Companies’ Disclosure Schedules attached hereto, as follows:
2.1 Organization,
Standing, Etc.
Each of
the Companies is a corporation duly organized and existing in good standing
under the laws of the State of Minnesota, and has all requisite power and
authority to carry on its business, to own or lease its properties and assets,
to enter into this Agreement and to carry out the terms hereof. Copies of the
Articles of Incorporation and By-laws of each of the Companies that have been
delivered to Parent prior to the execution of this Agreement are true and
complete and have not since been amended or repealed. The Companies have no
subsidiaries or direct or indirect interest (by way of stock ownership or
otherwise) in any firm, corporation, limited liability company, partnership,
association or business, other than Community Wind Development Group LLC, a
[Minnesota] limited liability company, wholly owned by Xxxx Energy.
2.2 Qualification.
The
Companies are duly qualified to conduct business as foreign corporations and
are
in good standing in each state or other jurisdiction wherein the nature of
their
activities or properties owned or leased makes such qualification necessary,
except where the failure to be so qualified could not reasonably be expected
to
have a material adverse effect on the properties, assets, liabilities or results
of operations of the Companies taken as a whole (“Material
Adverse Effect”).
2.3 Capitalization
of the Companies.
There
are 1,000 shares of common stock of Xxxx Energy and 1,000 shares of common
stock
of DanMar issued and outstanding, and such Shares are duly authorized, validly
issued, fully paid and, none of such Shares have been issued in violation of
the
preemptive rights of any person. The offer, issuance and sale of the Shares
were
(a) exempt from the registration and prospectus delivery requirements of the
Securities Act, (b) registered or qualified (or were exempt from registration
or
qualification) under the registration or qualification requirements of all
applicable state securities laws and (c) accomplished in conformity with all
other applicable securities laws. The Companies have no outstanding options,
rights or commitments to issue Shares or other Equity Securities of such
Company, and there are no outstanding securities convertible or exercisable
into
or exchangeable for Shares or other Equity Securities of the
Companies.
2.4 Indebtedness.
The
Companies have no Indebtedness for Borrowed Money.
2.5 Stockholders
of the Companies.
Schedule
1.1
hereto
contains a true and complete list of the names and addresses of the record
owners of all of the outstanding Shares and other Equity Securities of the
Companies, together with the number and percentage of securities held. To the
best knowledge of the Companies, there is no voting trust, agreement or
arrangement among any of the beneficial holders of the Shares affecting the
nomination or election of directors or the exercise of the voting rights of
the
Shares; however, all of the Shares are in the control of two
individuals.
2.6 Acts
and Proceedings.
The
execution, delivery and performance of this Agreement has been duly authorized
by the Board of Directors of the Companies, and all of the acts and other
proceedings required for the due and valid authorization, execution, delivery
and performance of this Agreement have been or, at the Closing, shall be,
validly and appropriately taken.
9
2.7 Compliance
with Laws and Instruments.
The
execution, delivery and performance by the Companies of this Agreement and
the
consummation by the Companies of the transactions contemplated by this
Agreement: (a) will not require any authorization, consent or approval of,
or
filing or registration with, any court or governmental agency or
instrumentality, except such as shall have been obtained prior to the Closing
or
as set forth in Schedule
2.7,
(b)
will not cause the Companies to violate or contravene (i) any provision of
law,
(ii) any rule or regulation of any agency or government, (iii) any order,
judgment or decree of any court, or (iv) any provision of the Articles of
Incorporation or By-laws of the Companies, (c) will not violate or be in
conflict with, result in a breach of or constitute (with or without notice
or
lapse of time, or both) a default under, any indenture, loan or credit
agreement, deed of trust, mortgage, security agreement or other contract,
agreement or instrument to which either of the Companies is a party or by which
the Companies or any of their respective properties is bound or affected, except
where any such violation, conflict, breach or default could not reasonably
be
expected to have a Material Adverse Effect, and (d) will not result in the
creation or imposition of any Lien upon any property or asset of the Companies.
To the knowledge of the Companies, neither of the Companies is in violation
of,
or (with or without notice or lapse of time, or both) in default under, any
term
or provision of its Articles of Incorporation or By-laws or any indenture,
loan
or credit agreement, deed of trust, mortgage, security agreement or any other
material agreement or instrument to which either of the Companies is a party
or
by which either of the Companies or any of their respective properties is bound
or affected, in each case except as could not reasonably be expected to have
a
Material Adverse Effect.
2.8 Binding
Obligations.
This
Agreement constitutes the legal, valid and binding obligation of the Companies
and is enforceable against the Companies in accordance with its terms, except
as
such enforcement is limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity.
2.9 Broker’s
and Finder’s Fees.
No
Person has, or as a result of the transactions contemplated herein will have,
any right or valid claim against the Companies for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, except as
disclosed in Schedule
2.9
hereto.
2.10 Financial
Statements.
Attached hereto as Schedule
2.10
are (a)
the Companies’ audited consolidated balance sheet as of December 31, 2007, and
audited consolidated statements of operations, changes in stockholders’ equity
and cash flows for the year ended December 31, 2007, together with the related
independent auditors’ report of Boulay, Heutmaker, Xxxxxx & Co. P.L.L.P.,
and (b) the Companies’ unaudited consolidated balance sheet (the “Balance
Sheet”)
as of
March 31, 2008 (the “Balance
Sheet Date”).
Such
financial statements (i) are in accordance with the books and records of the
Companies, (ii) present fairly in all material respects the financial condition
of the Companies at the dates therein specified and the results of their
operations and changes in financial position for the periods therein specified
and (iii) have been prepared in all material respects in accordance with U.S.
generally accepted accounting principles (“GAAP”)
applied on a basis consistent with prior accounting periods (subject, in the
case of the March 31, 2008 financial statements to normal year-end adjustments
and the lack of all footnotes required for audited financial
statements).
10
2.11 Absence
of Undisclosed Liabilities.
The
Companies have no material obligation or liability (whether accrued, absolute,
contingent, liquidated or otherwise, whether due or to become due), arising
out
of any transaction entered into at or prior to the Closing, except (a) as
disclosed in Schedule
2.11
and/or
Schedule
2.12
hereto,
(b) to the extent set forth on or reserved against in the Balance Sheet or
the
Notes to the Financial Statements, (c) current liabilities incurred and
obligations under agreements entered into in the usual and ordinary course
of
business since the Balance Sheet Date, none of which (individually or in the
aggregate) have Material Adverse Affect, and (d) by the specific terms of any
written agreement, document or arrangement identified in the Schedules hereto
or
which are not required to be disclosed thereby.
2.12 Changes.
Since
the Balance Sheet Date, except as disclosed in Schedule
2.12
hereto,
the Companies have not (a) incurred any debts, obligations or liabilities,
absolute, accrued, or, to the Companies’ knowledge, contingent, whether due or
to become due, except for fees, expenses and liabilities incurred in connection
with the Private Placement, the Exchange and related transactions, and current
liabilities incurred in the usual and ordinary course of business, (b)
discharged or satisfied any Liens other than those securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the usual and ordinary course of business, (c) mortgaged, pledged or
subjected to Lien any of its assets, tangible or intangible, other than in
the
usual and ordinary course of business, (d) sold, transferred or leased any
of
its assets, except in the usual and ordinary course of business, (e) cancelled
or compromised any debt or claim, or waived or released any right, of material
value, (f) suffered any physical damage, destruction or loss (whether or not
covered by insurance) which could reasonably be expected to have a Material
Adverse Effect, (g) entered into any transaction other than in the usual and
ordinary course of business, (h) encountered any labor union difficulties,
(i)
made or granted any wage or salary increase or made any increase in the amounts
payable under any profit sharing, bonus, deferred compensation, severance pay,
insurance, pension, retirement or other employee benefit plan, agreement or
arrangement, other than in the ordinary course of business consistent with
past
practice, or entered into any employment agreement, (j) issued or sold any
Shares or other securities or granted any options (including employee options),
warrants or other rights with respect thereto, (k) declared or paid any
dividends on or made any other distributions with respect to, or purchased
or
redeemed, any of its outstanding Shares, (l) suffered or experienced any change
in, or condition affecting, the financial condition of the Companies other
than
changes, events or conditions in the usual and ordinary course of its business,
none of which (either by itself or in conjunction with all such other changes,
events and conditions) could reasonably be expected to have a Material Adverse
Effect, (m) made any change in the accounting principles, methods or practices
followed by it or depreciation or amortization policies or rates theretofore
adopted, (n) made or permitted any amendment or termination of any material
contract, agreement or license to which it is a party which has a Material
Adverse Effect, (o) suffered any material loss not reflected in the Balance
Sheet or its statement of operations for the period ended on the Balance Sheet
Date, (p) paid, or made any accrual or arrangement for payment of, bonuses
or
special compensation of any kind or any severance or termination pay to any
present or former officer, director, employee, stockholder or consultant, (q)
made or agreed to make any charitable contributions or incurred any non-business
expenses in excess of $25,000 in the aggregate, or (r) entered into any
agreement, or otherwise obligated itself, to do any of the
foregoing.
11
2.13 Schedule
of Assets and Contracts.
Attached hereto as Schedules
2.13(a) through 2.13(d)
are
various schedules listing assets and contracts of the Companies, as described
herein.
(a) Schedule
2.13(a)
contains
a true and complete list of all real property leased by the Companies, including
a brief description of each item thereof and of the nature of the Companies’
interest therein, and of all tangible personal property owned or leased by
the
Companies having a cost or fair market value of greater than $25,000, including
a brief description of each item and of the nature of the interest of either
of
the Companies therein. All the property listed in Schedule
2.13(a)
as being
leased by the Companies is held by the Companies under valid and enforceable
leases having the rental terms, termination dates and renewal and purchase
options described in Schedule
2.13(a);
and
there is not, under any such lease, any existing default or event of default
or
event which with notice or lapse of time, or both, would constitute a default
by
the Companies, and the Companies have not received any notice or claim of any
such default. Neither of the Companies owns any real property.
(b) Except
as
expressly set forth in this Agreement, the Balance Sheet or the notes thereto,
or as disclosed in Schedule
2.13(b)
hereto,
the Companies are not a party to any written or oral agreement not made in
the
ordinary course of business that is material to the Companies. Except as
disclosed in Schedule
2.13(b)
hereto,
the Companies are not a party to any written or oral (a) agreement with any
labor union, (b) agreement for the purchase of fixed assets or for the purchase
of materials, supplies or equipment in excess of normal operating requirements,
(c) agreement for the employment of any officer, individual employee or other
Person on a full-time basis or any agreement with any Person for consulting
services, (d) bonus, pension, profit sharing, retirement, stock purchase, stock
option, deferred compensation, medical, hospitalization or life insurance or
similar plan, contract or understanding with respect to any or all of the
employees of the Companies or any other Person, (e) indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement,
promissory note or other agreement or instrument relating to or evidencing
Indebtedness for Borrowed Money or subjecting any asset or property of the
Companies to any Lien or evidencing any Indebtedness, (f) guaranty of any
Indebtedness, (g) other than as set forth in Schedule
2.13(a)
hereto,
lease or agreement under which either of the Companies is lessee of or holds
or
operates any property, real or personal, owned by any other Person under which
payments to such Person exceed $25,000 per year or with an unexpired term
(including any period covered by an option to renew exercisable by any other
party) of more than 60 days, (h) lease or agreement under which either of the
Companies is lessor or permits any Person to hold or operate any property,
real
or personal, owned or controlled by the Companies, (i) agreement granting any
preemptive right, right of first refusal or similar right to any Person, (j)
agreement or arrangement with any Affiliate or any “associate” (as such term is
defined in Rule 405 under the Securities Act) of the Companies or any present
or
former officer, director or stockholder of the Companies, (k) agreement
obligating the Companies to pay any royalty or similar charge for the use or
exploitation of any tangible or intangible property, (1) covenant not to compete
or other restriction on its ability to conduct a business or engage in any
other
activity, (m) distributor, dealer, manufacturer’s representative, sales agency,
franchise or advertising contract or commitment, (n) agreement to register
securities under the Securities Act, (o) collective bargaining agreement, or
(p)
agreement or other commitment or arrangement with any Person continuing for
a
period of more than three months from the Closing Date which involves an
expenditure or receipt by the Companies in excess of $25,000. Except as
disclosed in Schedule
2.13(b),
none of
the agreements, contracts, leases, instruments or other documents or
arrangements listed in Schedule
2.13(a)
through
Schedule
2.13(d)
requires
the consent of any of the parties thereto other than one or both of the
Companies to permit the contract, agreement, lease, instrument or other document
or arrangement to remain effective following consummation of the Exchange and
the transactions contemplated hereby.
12
(c) Schedule
2.13(c)
contains
a true and complete list of all insurance policies and insurance coverage with
respect to the Companies, and their respective business, premises, properties,
assets, employees and agents.
(d) Schedule
2.13(d)
contains
a true and complete list of all patents, patent applications, trade names,
trademarks, trademark registrations and applications, copyrights, copyright
registrations and applications, and grants of licenses, both domestic and
foreign, presently owned, possessed, used or held by the Companies; and, except
as set forth in Schedule
2.16,
the
Companies own the entire right, title and interest in and to the same, free
and
clear of all Liens and restrictions. Schedule
2.13(d)
also
contains a true and complete list of all licenses granted to or by the Companies
with respect to the foregoing. Except as disclosed in Schedule
2.13(d),
none of
the Companies’ patents, patent applications, trade names, trademarks, trademark
registrations and applications, copyrights, copyright registrations and
applications and grants of licenses set forth in Schedule
2.13(d)
are
subject to any pending or, to the knowledge of the Companies and the
Stockholders, threatened challenge. Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
give any licensor or licensee of the Companies any right to change the terms
or
provisions of, terminate or cancel, any license to which either of the Companies
is a party.
(e) The
Companies have furnished to Parent true and complete copies of all agreements
and other documents and a description of all applicable oral agreements
disclosed or referred to in Schedule
2.13(a)
through
Schedule
2.13(d),
as well
as any additional agreements or documents, requested by Parent. Each of the
Companies has in all material respects performed all obligations required to
be
performed by it to date and is not in default in any respect under any of the
contracts, agreements, leases, documents, commitments or other arrangements
to
which it is a party or by which it or any of its property is otherwise bound
or
affected. To the best knowledge of the Companies, all parties having material
contractual arrangements with the Companies are in substantial compliance
therewith and none are in material default thereunder. Neither of the Companies
has outstanding any power of attorney.
2.14 Employees.
The
Companies have complied in all material respects with all laws relating to
the
employment of labor, and the Companies have encountered no material labor union
difficulties. Except as set forth in Schedule
2.14,
and
other than pursuant to ordinary arrangements of employment compensation, the
Companies are not under any obligation or liability to any officer, director,
employee or Affiliate of the Companies.
13
2.15 Tax
Returns and Audits.
All
required federal, state and local Tax Returns of the Companies have been
accurately prepared in all material respects and duly and timely filed, and
all
federal, state and local Taxes required to be paid with respect to the periods
covered by such returns have been paid to the extent that the same are material
and have become due, except where the failure so to file or pay could not
reasonably be expected to have a Material Adverse Effect. To the knowledge
of
the Companies, the Companies are not and have not been delinquent in the payment
of any Tax. To the knowledge of the Companies, the Companies have not had a
Tax
deficiency assessed against their. None of the Companies’ federal income tax
returns nor any state or local income or franchise tax returns has been audited
by governmental authorities. The reserves for Taxes reflected on the Balance
Sheet are sufficient for the payment of all unpaid Taxes payable by the
Companies with respect to the period ended on the Balance Sheet Date. There
are
no federal, state, local or foreign audits, actions, suits, proceedings,
investigations, claims or administrative proceedings relating to Taxes or any
Tax Returns of the Companies now pending, and the Companies have not received
any notice of any proposed audits, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns.
2.16 Patents
and Other Intangible Assets.
(a) Except
as
set forth in Schedule
2.16,
the
Companies (i) own or have the right to use, free and clear of all Liens, claims
and restrictions, all patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect to the foregoing used in or
necessary for the conduct of their business as now conducted or proposed to
be
conducted without infringing upon a claimed right of any Person under or with
respect to any of the foregoing and (ii) is not obligated to make any payments
by way of royalties, fees or otherwise to any owner or licensor of, any patent,
trademark, service xxxx, trade name, copyright or other intangible asset, with
respect to the use thereof or in connection with the conduct of their
business.
(b) To
the
knowledge of the Companies, the Companies own or have the unrestricted right
to
use all trade secrets, if any, including know-how, negative know-how, formulas,
patterns, programs, devices, methods, techniques, inventions, designs,
processes, computer programs and technical data (collectively, “intellectual
property”) required for the development, operation and sale of their products,
and all related technologies, products and services.
2.17 Employee
Benefit Plans; ERISA.
(a) Except
as
disclosed in Schedule
2.17
hereto,
there are no “employee benefit plans” (within the meaning of Section 3(3) of the
ERISA) nor any other employee benefit or fringe benefit arrangements, practices,
contracts, policies or programs other than programs merely involving the regular
payment of wages, commissions, or bonuses established, maintained or contributed
to by the Companies. The plans listed in Schedule
2.17
hereto
are hereinafter referred to as the “Employee
Benefit Plans.”
(b) All
current and prior material documents, including all amendments thereto, with
respect to each Employee Benefit Plan have been given to Parent or its
advisors.
14
(c) All
Employee Benefit Plans are in material compliance with the applicable
requirements of ERISA, the Internal Revenue Code of 1986, as amended (the
“Code”),
and
any other applicable state, federal or foreign law.
(d) There
are
no pending or, to the knowledge of the Companies, threatened, claims or lawsuits
which have been asserted or instituted against any Employee Benefit Plan, the
assets of any of the trusts or funds under the Employee Benefit Plans, the
plan
sponsor or the plan administrator of any of the Employee Benefit Plans or
against any fiduciary of an Employee Benefit Plan with respect to the operation
of such plan.
(e) There
is
no pending or, to the knowledge of the Companies, threatened, investigation
or
pending or possible enforcement action by the Pension Benefit Guaranty
Corporation, the Department of Labor, the Internal Revenue Service or any other
government agency with respect to any Employee Benefit Plan.
(f) No
actual
or, to the knowledge of the Companies, contingent, liability exists with respect
to the funding of any Employee Benefit Plan or for any other expense or
obligation of any Employee Benefit Plan, except as disclosed on the financial
statements of the Companies or the Schedules to this Agreement, and to the
knowledge of the Companies, no contingent liability exists under ERISA with
respect to any “multi-employer plan,” as defined in Section 3(37) or Section
4001(a)(3) of ERISA.
2.18 Title
to Property and Encumbrances.
The
Companies have good, valid and marketable title to all properties and assets
used in the conduct of their business free of all Liens and other encumbrances,
except Permitted Liens and such ordinary and customary imperfections of title,
restrictions and encumbrances as could not reasonably be expected to have a
Material Adverse Effect.
2.19 Insurance.
The
Companies have no insurance policies as of the date hereof. Except as otherwise
disclosed in the Companies’ Disclosure Schedules, no suit, proceeding or action
or threat of suit, proceeding or action has been asserted or made against the
Companies within the last two years due to alleged bodily injury, death or
property damage arising out of the function or malfunction of a product,
procedure or service designed, manufactured, sold or distributed by the
Companies.
2.20 Litigation.
Except
as disclosed in Schedule
2.20
hereto,
there is no legal action, suit, arbitration or other legal, administrative
or
other governmental proceeding pending or, to the knowledge of the Companies,
threatened against or affecting the Companies or their properties, assets or
business that could reasonably be expected to have a Material Adverse Effect.
The Companies are not in default with respect to any order, writ, judgment,
injunction, decree, determination or award of any court or any governmental
agency or instrumentality or arbitration authority.
2.21 Licenses.
The
Companies possess from the appropriate governmental authorities all licenses,
permits, authorizations, approvals, franchises and rights necessary for the
Companies to engage in the businesses currently conducted by them (except for
those, the absence of which would not reasonably be expected to have a Material
Adverse Effect), and all are in full force and effect.
15
2.22 Interested
Party Transactions.
Except
as disclosed in Schedule
2.22
hereto,
no officer, director or stockholder of the Companies or any Affiliate or
“associate” (as such term is defined in Rule 405 under the Securities Act) of
any such Person or the Companies has or has had, either directly or indirectly,
(a) an interest in any Person that (i) furnishes or sells services or products
that are furnished or sold or are proposed to be furnished or sold by the
Companies or (ii) purchases from or sells or furnishes to the Companies any
goods or services, or (b) a beneficial interest in any contract or agreement
to
which either of the Companies is a party or by which either of them may be
bound
or affected.
2.23 Hazardous
Waste.
There
is no substance or material defined or designated as hazardous or toxic waste,
material, substance or other similar term, by any environmental statute,
regulation or ordinance currently in effect, on, about, or in any of the real
property in which the Companies now have or previously had any leasehold or
ownership interest.
2.24 Customers,
Suppliers and Independent Contractors.
Since
the Balance Sheet Date, the Companies have not been advised that any material
customer, supplier or independent contractor of the Companies intends to
terminate or materially curtail its business relationship with the Companies
which could reasonably be expected to have a Material Adverse
Effect.
2.25 Questionable
Payments.
Neither
of the Companies nor to their knowledge, any director, officer, stockholder,
agent, employee or other Person associated with or acting on behalf of the
Companies, has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payments to government officials or employees
from corporate funds; established or maintained any unlawful or unrecorded
fund
of corporate monies or other assets; made any false or fictitious entries on
the
books of record of any such corporations; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
2.26 Obligations
to or by Stockholders.
Except
as disclosed in Schedule
2.26,
the
Companies have no liability or obligation or commitment to any Stockholder
or
any Affiliate or “associate” (as such term is defined in Rule 405 under the
Securities Act) of any Stockholder, nor does any Stockholder or any such
Affiliate or associate have any liability, obligation or commitment to either
of
the Companies.
2.27 Disclosure.
No
representation or warranty by the Companies herein and no information disclosed
in the schedules or exhibits hereto by the Companies, when considered as a
whole
together with all other information furnished to Parent, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make
the statements contained herein or therein not misleading.
3. Representations
and Warranties of Parent.
Parent
represents and warrants to the Companies and the Stockholders as
follows:
16
3.1 Organization
and Standing.
Parent
is a corporation duly organized and existing in good standing under the laws
of
the State of Delaware. Parent has heretofore delivered to the Companies complete
and correct copies of its Certificate of Incorporation and By-laws as now in
effect. Parent has full corporate power and authority to carry on its business
as it is now being conducted and to own or lease its properties and assets.
Parent does not have any subsidiaries or direct or indirect interest (by way
of
stock ownership or otherwise) in any firm, corporation, limited liability
company, partnership, association or business. Parent is, or as of the Closing,
will be, duly qualified to conduct business as a foreign corporation and is
in
good standing in each jurisdiction wherein the nature of its activities or
its
properties owned or leased makes such qualification necessary, except where
the
failure to be so qualified could not reasonably be expected to have a Material
Adverse Effect on Parent. True, correct and complete copies of the
organizational documents of Parent have been delivered to the Companies prior
to
the execution of this Agreement, and no action has been taken to amend or repeal
such organizational documents. Parent is not in violation or breach of any
of the provisions of its organizational documents, except for such violations
or
breaches as would not have a Material Adverse Effect.
3.2 Corporate
Authority.
Parent
has full corporate power and authority to enter into this Agreement and the
other agreements to be made pursuant thereto, and to carry out the transactions
contemplated hereby, including the Exchange and the Private Placement. All
corporate acts and proceedings required for the authorization, execution,
delivery and performance of this Agreement and the Private Placement, and such
other agreements and documents by Parent in connection therewith have been
duly
and validly taken or will have been so taken prior to the Closing. The Board
of
Directors of Parent, at a meeting duly called and held, has determined that
this
Agreement and the transactions contemplated by this Agreement are advisable
and
in the best interests of Parent’s stockholders and has duly authorized this
Agreement and the transactions contemplated by this Agreement.
3.3
Broker’s
and Finder’s Fees. No
person, firm, corporation or other entity is entitled by reason of any act
or
omission of Parent to any broker’s or finder’s fees, commission or other similar
compensation with respect to the execution and delivery of this Agreement,
or
with respect to the consummation of the transactions contemplated hereby,
including the Exchange and the Private Placement.
3.4
Capitalization
of Parent.
(a) The
authorized capital stock of Parent consists of (i) 1,000,000,000 shares of
Parent Common Stock (which shall be reduced to 100,000,000 shares of Parent
Common Stock prior to Closing), of which 2,500,000 shares are issued and
outstanding on the date hereof, and (ii) 20,000,000 shares of undesignated
preferred stock, none of which are issued or outstanding, prior to taking into
consideration the issuance of Parent Common Stock in the Exchange or Parent
Preferred Stock in the Private Placement. The Parent has no other shares of
capital stock reserved for issuance upon the exercise of any other options
or
any warrants and no shares of capital stock are reserved for issuance to any
party, including upon the conversion of any outstanding convertible notes,
debentures or securities. Parent has no outstanding options, rights, calls,
preemptive rights, subscriptions or commitments to issue any Equity Securities
of Parent.
17
(b) There
is
no plan or arrangement to issue capital stock by Parent except as set forth
in
this Agreement and the Private Placement. Except as contemplated by this
Agreement or granted in the Private Placement, there are no registration rights.
There is no voting trust, proxy, rights plan, anti-takeover plan or other
agreement or understanding to which the Parent is a party or by which it is
bound with respect to any Equity Securities of Parent.
(c) There
are
no outstanding contractual obligations (contingent or otherwise) of Parent
to
retire, repurchase, redeem or otherwise acquire any outstanding shares of
capital stock of, or other ownership interests in, Parent or to provide funds
to
or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity or person.
3.5 Validity
of Shares.
(a) All
outstanding shares of the capital stock of Parent are (i) validly issued and
outstanding, fully paid and non-assessable, (ii) were not issued in violation
of
the preemptive rights of any person, (iii) were issued in transactions that
were
(A) exempt from the registration and prospectus delivery requirements of the
Securities Act, (B) registered or qualified (or were exempt from registration
or
qualification) under the registration or qualification requirements of all
applicable state securities laws and (C) accomplished in conformity with all
other applicable securities laws.
(b) The
15,250,000 shares of Parent Common Stock to be issued at the Closing pursuant
to
Section 1.3(a) hereof, when issued and delivered in accordance with the terms
hereof, shall be duly and validly issued, fully paid and non-assessable and
not
in violation of any preemptive rights. Based, in part, on the representations
and warranties of the Stockholders as contemplated by Section 4 hereof and
assuming the accuracy thereof, the issuance of the Parent Common Stock upon
the
Exchange pursuant to Section 1.3(a) will be exempt from the registration and
prospectus delivery requirements of the Securities Act and from the
qualification or registration requirements of any applicable state blue sky
or
securities laws.
3.6 SEC
Reporting and Compliance.
(a) Parent
filed a registration statement on Form SB-2 (No. 333-141010) under the
Securities Act which became effective on December 4, 2007, and has not been
withdrawn. To Parent’s knowledge, all shares held by selling stockholders in
such registration statement, other than those held by Affiliates of Parent,
have
been sold in accordance with the Plan of Distribution set forth in such
registration statement.
(b) Since
December 4, 2007, Parent has filed with the Commission all registration
statements, proxy statements, information statements, reports, schedules, forms
and other documents required to be filed pursuant to the Securities Act, the
Exchange Act and the rules and regulations of the Commission on a timely basis
(or has received a valid extension of such time of filing and has filed any
such
reports or other documents prior to the expiration of any such extension).
Parent has not filed with the Commission a certificate on Form 15 pursuant
to
Rule 12h-3 of the Exchange Act.
(c) Parent
has delivered or made available to the Companies true and complete copies of
its
registration statement (including all amendments thereto and supplements to
the
prospectus contained therein) and reports (collectively, the “Parent
SEC Documents”)
filed
by Parent with the Commission. The Parent SEC Documents, as of their respective
dates (or, if amended, supplemented or superseded by a filing prior to the
date
hereof, then as of the date of such amendment, supplement or superseding filing)
complied in all material respects with the requirements of the Securities Act
or
the Exchange Act, as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable thereto, and did not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading.
18
(d) Except
as
set forth on Schedule
3.6,
Parent
has not filed, and nothing has occurred with respect to which Parent would
be
required to file, any report on Form 8-K since May 30, 2008. Prior to and until
the Closing, Parent will provide to the Companies copies of any and all
amendments or supplements to the Parent SEC Documents filed with the Commission
since May 30, 2008, and all subsequent registration statements and reports
filed
by Parent subsequent to the filing of the Parent SEC Documents with the
Commission and any and all subsequent documents or notices filed by the Parent
with the Commission or delivered to the stockholders of Parent.
(e) Parent
is
not an investment company within the meaning of Section 3 of the Investment
Company Act.
(f) The
shares of Parent Common Stock are quoted on the Over-the-Counter (OTC) Bulletin
Board under the symbol “MHSC.OB,” and Parent is in compliance in all material
respects with all rules and regulations of the OTC Bulletin Board applicable
to
it and the Parent Common Stock.
(g) The
Parent SEC Documents include all certifications and statements required of
it,
if any, by (i) Rule 13a-14 or 15d-14 under the Exchange Act, and (ii) 18 U.S.C.
Section 1350 (Section 906 of the Xxxxxxxx-Xxxxx Act of 2002), and each of such
certifications and statements contain no qualifications or exceptions to the
matters certified therein other than a knowledge qualification, permitted under
such provision, and have not been modified or withdrawn and neither Parent
nor
any of its officers has received any notice from the SEC or any other
Governmental Entity questioning or challenging the accuracy, completeness,
form
or manner of filing or submission of such certifications or statements.
3.7 Financial
Statements.
The
balance sheets, and statements of income, changes in financial position and
stockholders’ equity contained in the Parent SEC Documents (i) have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods (and, in the case of unaudited financial information, on a basis
consistent with year-end audits), (ii) are in accordance with the books and
records of the Parent, and (iii) present fairly in all material respects the
financial condition of the Parent at the dates therein specified and the results
of its operations and changes in financial position for the periods therein
specified. The financial statements included in the Annual Report on Form 10-KSB
for the year ended December 31, 2007 (the “Parent
Financial Statements”)
are
audited by, and include the related opinion of XxXxxxxx, Xxxxxxx &
Associates, P.C., Parent’s independent registered public accounting
firm.
19
3.8 Events
Subsequent to Financial Statements.
Since
March 31, 2008, there has not been:
(a) any
sale,
lease, transfer, license or assignment of any assets, tangible or intangible,
of
Parent;
(b) any
damage, destruction or property loss, whether or not covered by insurance,
affecting adversely the properties or business of Parent;
(c) any
declaration or setting aside or payment of any dividend or distribution with
respect to the shares of capital stock of Parent or any redemption, purchase
or
other acquisition of any such shares;
(d) any
subjection to any lien on any of the assets, tangible or intangible, of
Parent;
(e) any
incurrence of indebtedness or liability or assumption of obligations by
Parent;
(f) any
waiver or release by Parent of any right of any material value;
(g) any
compensation or benefits paid to officers or directors of Parent;
(h) any
change made or authorized in the articles of incorporation or bylaws of Parent;
(i) any
loan
to or other transaction with any officer, director or stockholder of Parent
giving rise to any claim or right of Parent against any such person or of such
person against Parent; or
(j) any
material adverse change in the condition (financial or otherwise) of the
respective properties, assets, liabilities or business of Parent.
3.9 Liabilities.
Except
as otherwise disclosed in Parent’s financial statements, Parent does not have
any liability or obligation whatsoever, either direct or indirect, matured
or
unmatured, accrued, absolute, contingent or otherwise. In addition, Parent
represents that upon Closing, Parent will not have any liability or obligation
whatsoever, either direct or indirect, matured or unmatured, accrued, absolute,
contingent or otherwise. Furthermore, there is no pending proceeding that has
been commenced against Parent that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of
the
transactions contemplated by this Agreement. To the knowledge of Parent,
no such proceeding has been threatened.
3.10 Tax
Matters.
Parent
has duly filed all federal, state, local and foreign tax returns required to
be
filed by or with respect to it with the Internal Revenue Service or other
applicable taxing authority, and no extensions with respect to such tax returns
have been requested or granted. Parent has paid, or adequately reserved against
in Parent’s financial statements, all material taxes due, or claimed by any
taxing authority to be due, from or with respect to it. To the knowledge of
Parent, there has been no material issue raised or material adjustment proposed
(and none is pending) by the Internal Revenue Service or any other taxing
authority in connection with any of Parent’s tax returns. No waiver or extension
of any statute of limitations as to any material federal, state, local or
foreign tax matter has been given by or requested from Parent. For the purposes
of this Section 3.10, a tax is due (and must therefore either be paid or
adequately reserved against in Parent’s financial statements) only on the last
date payment of such tax can be made without interest or penalties, whether
such
payment is due in respect of estimated taxes, withholding taxes, required tax
credits or any other tax.
20
3.11 Governmental
Consents.
All
consents, approvals, orders or authorizations of, or registrations,
qualifications, designations, declarations, or filings with any federal or
state
governmental authority on the part of Parent required in connection with the
consummation of the Exchange and the Private Placement have been or shall have
been obtained prior to, and be effective as of, the Closing.
3.12 Compliance
with Laws and Other Instruments.
The
execution, delivery and performance by Parent of this Agreement and the
consummation by it of the transactions contemplated by this Agreement, including
the Exchange and the Private Placement: (a) will not require any authorization,
consent or approval of, or filing or registration with, any court or
governmental agency or instrumentality, except (i) such as shall have been
obtained prior to the Closing, or (ii) as set forth in Schedule 3.12; (b) will
not cause the Parent to violate or contravene (i) any provision of law, (ii)
any
rule or regulation of any agency or government, (iii) any order, judgment or
decree of any court, or (iv) any provision of its Certificate of Incorporation
or By-laws; (c) will not violate or be in conflict with in a material manner,
result in a material breach of or constitute (with or without notice or lapse
of
time, or both) a material default under, any indenture, loan or credit
agreement, deed of trust, mortgage, security agreement or other material
contract, agreement or instrument to which the Parent is a party or by which
the
Parent or any of its properties are bound or affected, except where any such
violation, conflict, breach or default could not reasonably be expected to
have
a Material Adverse Effect; and (d) will not result in the creation or imposition
of any material Lien upon any property or asset of the Parent. Parent is not
in
violation of, or (with or without notice or lapse of time, or both) in default
under, any term or provision of its Certificate of Incorporation or By-laws,
to
its knowledge, or any indenture, loan or credit agreement, deed of trust,
mortgage, security agreement, except as could not reasonably be expected to
have
a Material Adverse Effect on the Parent, or any other material agreement or
instrument to which the Parent is a party or by which it or any of its
properties are bound or affected.
3.13 Binding
Obligations.
This
Agreement constitutes the legal, valid and binding obligation of the Parent,
and
is enforceable against the Parent, in accordance with its terms, except as
such
enforcement is limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity.
3.14 No
General Solicitation.
In
issuing the Parent Common Stock in the Exchange hereunder, neither Parent nor,
to its knowledge, anyone acting on its behalf has offered to sell the Parent
Common Stock by any form of general solicitation or advertising.
3.15 Litigation.
There
is no legal action, suit, arbitration or other legal, administrative or other
governmental proceeding pending or, to the knowledge of Parent, threatened
against or affecting Parent or its properties, assets or business. Parent is
not
in default with respect to any order, writ, judgment, injunction, decree,
determination or award of any court or any governmental agency or
instrumentality or arbitration authority.
21
3.16 Obligations
to or by Stockholders.
Except
as disclosed in the Parent SEC Documents or on Schedule
3.16,
the
Parent has no liability or obligation or commitment to any stockholder of Parent
or any Affiliate or “associate” (as such term is defined in Rule 405 under the
Securities Act) of any stockholder of Parent, nor does any stockholder of Parent
or any such Affiliate or associate have any liability, obligation or commitment
to Parent.
3.17 Material
Contracts.
Parent has provided to the Companies, prior to the date of this Agreement,
true,
correct and complete copies of each written material Parent contract, including
each amendment, supplement and modification thereto.
3.18 Employees.
Except as disclosed in the Parent SEC Documents, Parent has no employees,
independent contractors or other Persons providing services to it. Except
as would not have a Material Adverse Effect, Parent is in full compliance with
all relevant laws regarding employment, wages, hours, benefits, equal
opportunity, collective bargaining, the payment of Social Security and other
taxes, occupational safety and health and plant closing. Parent is not
liable for the payment of any compensation, damages, taxes, fines, penalties
or
other amounts, however designated, for failure to comply with any of the
foregoing laws. No director, officer or employee of Parent is a party to, or
is
otherwise bound by, any contract (including any confidentiality, non-competition
or proprietary rights agreement) with any other party that in any way adversely
affects or will materially affect (a) the performance of his or her duties
as a
director, officer or employee of Parent or (b) the ability of Parent to conduct
its business. Except as set forth in the Parent SEC Documents, each
employee of Parent is employed on an at-will basis and Parent does not have
any
contract with any of its employees which would interfere with its ability to
discharge its employees.
3.19 Interested
Party Transactions. Except as disclosed in Schedule 3.19, no
officer, director or stockholder of Parent or any Affiliate or “associate” (as
such term is defined in Rule 405 of the Commission under the Securities Act)
of
any such party, has or has had, either directly or indirectly, (a) an interest
in any Person which (a) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by Parent, or (b)
purchases from or sells or furnishes to, or proposes to purchase from, sell
to
or furnish Parent any goods or services; or (b) a beneficial interest in any
contract or agreement to which Parent is a party or by which it may be bound
or
affected.
3.20 Governmental
Inquiries. Parent has provided to the Companies a copy of each
material written inspection report, questionnaire, inquiry, demand or request
for information received by Parent from any governmental authority, and Parent’s
response thereto, and each material written statement, report or other document
filed by Parent with any governmental authority.
3.21 Bank
Accounts and Safe Deposit Boxes. Schedule 3.21 discloses the
title and number of each bank or other deposit or financial account, and each
lock box and safety deposit box used by Parent, the financial institution at
which that account or box is maintained and the names of the persons authorized
to draw against the account or otherwise have access to the account or box,
as
the case may be.
22
3.22 Intellectual
Property. Parent does not own, use or license any Intellectual
Property in its business as presently conducted, except as set forth in
Schedule 3.22.
3.23 Stock
Option Plans; Employee Benefits.
Parent
has no stock option plans providing for the grant by Parent of stock options
to
directors, officers or employees. Parent has no employee benefit plans or
arrangements covering their present and former employees or providing benefits
to such persons in respect of services provided to Parent. Neither the
consummation of the transactions contemplated hereby alone, nor in combination
with another event, with respect to each director, officer, employee and
consultant of Parent, will result in (a) any payment (including, without
limitation, severance, unemployment compensation or bonus payments) becoming
due
from Parent, (b) any increase in the amount of compensation or benefits payable
to any such individual or (c) any acceleration of the vesting or timing of
payment of compensation payable to any such individual. No agreement,
arrangement or other contract of Parent provides benefits or payments contingent
upon, triggered by, or increased as a result of a change in the ownership or
effective control of Parent.
3.24 Disclosure.
No
representation or warranty by Parent herein and no information disclosed in
the
schedules or exhibits hereto by Parent when considered as a whole together
with
all other information furnished to the Companies contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein misleading.
4. Additional
Representations, Warranties and Covenants of the Stockholders.
Each of
the Stockholders jointly represents and warrant to, and covenants with, Parent
as follows:
4.1 Acts
and Proceedings.
Such
Stockholder has full right, power and authority to enter into, deliver and
perform this Agreement and all acts and proceedings required for the
authorization, execution and delivery of this Agreement and the performance
of
this Agreement by such Stockholder have been lawfully and validly
taken.
4.2 Compliance
with Laws and Instruments.
The
execution, delivery and performance by such Stockholder of this Agreement and
each of the other documents contemplated hereby and the consummation by such
Stockholder of the transactions contemplated hereby (a) will not cause such
Stockholder to violate or contravene (i) any provision of law, (ii) any rule
or
regulation of any agency or government or (iii) any order, judgment or decree
of
any court and (b) will not violate or be in conflict with, result in a breach
of
or constitute (with or without notice or lapse of time, or both) a default
under, any indenture, loan or credit agreement, deed of trust, mortgage,
security agreement or other agreement or instrument to which such Stockholder
is
bound or affected.
4.3 Binding
Obligation.
This
Agreement and each of the other agreements and documents being entered into
by
such Stockholder in connection herewith constitutes the legal, valid and binding
obligation of such Stockholder and is enforceable against such Stockholder
in
accordance with its terms, except as such enforcement is limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors’ rights
generally and by general principles of equity.
23
4.4 Title
to Shares.
Such
Stockholder has good, valid and marketable title to all Shares indicated on
Schedule
1.1
hereto
as being owned by such Stockholder, free and clear of all Liens except as
indicated on Schedule
1.1
hereto.
To the knowledge of such Stockholder, there is no voting trust, agreement or
arrangement among any of the beneficial holders of Shares affecting the exercise
of the voting rights of such units, and such Stockholder is not a party to
or
bound or affected by any such voting trust, agreement or
arrangement.
4.5 Information.
Each
Stockholder has had an opportunity to ask and receive answers to any questions
he, she or it may have had concerning the terms and conditions of the Exchange
and the Parent Common Stock to be issued therein and has obtained any additional
information that he or she has requested.
4.6 Resale
of Stock.
Each
Stockholder is acquiring Parent Common Stock to be purchased for himself or
for
herself from the Parent for investment, and not with a view to selling or
otherwise distributing any of said Parent Common Stock in violation of the
Securities Act or the securities laws of any state; provided,
however,
that
the provisions of this paragraph shall not prejudice such Stockholder’s right at
all times to sell or otherwise dispose of all or any of the Parent Common Stock
so acquired by such Stockholder pursuant to an effective registration statement
under the Securities Act, or under an exemption from such registration available
under the Securities Act.
5. Additional
Agreements.
5.1 Access
and Information.
The
Companies and Parent shall each afford to the other and to the other’s
accountants, counsel and other representatives full access, during normal
business hours throughout the period prior to the Closing, and subsequent to
the
Closing until all pre-Closing filing requirements are met, solely for the
purposes of filing any documents required to be filed with the Commission,
to
all of its properties, books, contracts, commitments and records (including
but
not limited to tax returns) and during such period, each shall furnish promptly
to the other all information concerning its business, properties and personnel
as such other party may reasonably request, provided that no investigation
pursuant to this Section 5.1 shall affect any representations or warranties
made
herein. Each party shall hold, and shall cause its employees and agents to
hold,
in strict confidence, all such information (other than such information which:
(i) is already in such party’s possession; (ii) becomes generally available to
the public other than as a result of a disclosure by such party or its
directors, officers, managers, employees, agents or advisors; or (iii) becomes
available to such party on a non-confidential basis from a source other than
a
party hereto or its advisors provided that such source is not known by such
party to be bound by a confidentiality agreement with or other obligation of
secrecy to a party hereto or another party until such time as such information
is otherwise publicly available; provided,
however,
that
(A) any such information may be disclosed to such party’s directors, officers,
employees and representatives of such party’s advisors who need to know such
information for the purpose of evaluating the transactions contemplated hereby
(it being understood that such directors, officers, employees and
representatives shall be informed by such party of the confidential nature
of
such information), (B) any disclosure of such information may be made as to
which the party hereto furnishing such information has consented in writing,
and
(C) any such information may be disclosed pursuant to a judicial, administrative
or governmental order or request; provided,
however,
that
the requested party will promptly so notify the other party so that the other
party may seek a protective order or appropriate remedy and/or waive compliance
with this Agreement and if such protective order or other remedy is not obtained
or the other party waives compliance with this provision, the requested party
will furnish only that portion of such information which is legally required
and
will exercise its best efforts to obtain a protective order or other reliable
assurance that confidential treatment will be accorded the information
furnished).
If this
Agreement is terminated, each party will deliver to the other all documents
and
other materials (including copies) obtained by such party or on its behalf
from
the other party as a result of this Agreement or in connection herewith, whether
so obtained before or after the execution hereof.
24
5.2 Commercially
Reasonable Efforts.
Subject
to the terms and conditions herein provided, each of the parties hereto agrees
to use its commercially reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. In order to obtain any necessary
governmental or regulatory action or non-action, waiver, consent, extension
or
approval, each of Parent and the Companies agrees to take all reasonable actions
and to enter into all reasonable agreements as may be necessary to obtain timely
governmental or regulatory approvals and to take such further action in
connection therewith as may be necessary. In case at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of Parent and the Companies
shall take all such necessary action.
5.3 Publicity.
No
party shall issue any press release or public announcement pertaining to the
Exchange that has not been agreed upon in advance by Parent and the Companies,
except as Parent reasonably determines to be necessary in order to comply with
the rules of the Commission or of the principal trading exchange or market
for
Parent Common Stock and after reasonable advance notice to the
Companies.
5.4 Appointment
of Directors.
At the
Closing, Parent shall accept the resignations of the current officers and
directors of Parent as provided by Section 6.3(i) hereof, and shall increase
the
size of the Board of Directors of Parent to five (5) directors and cause the
existing directors of Xxxx Energy to be elected to the Board of Directors of
Parent. One additional Parent director may be nominated by the Lead Investor
at
any time during the three-year period after the Closing Date and at that time
the size of the Board of Directors shall be increased to accommodate such
additional director. Parent agrees that the Lead Investor’s director nominee
shall continue to be nominated for election during such period. The Lead
Investor’s nominee shall be reasonably acceptable to Parent (as constituted
following the Exchange) and, if required, considered independent under
applicable market rules. The Lead Investor appointee shall be appointed to
be a
member of the audit or compensation committees of Parent’s Board of Directors.
The Lead Investor director shall be entitled to the same cash and/or
equity-based compensation granted to other directors of Parent.
25
5.5 Parent
Name Change.
Immediately prior to the Closing, Parent shall take all required legal actions
to change its corporate name to “Xxxx Wind, Inc.” by means of an amendment to
its Certificate of Incorporation.
5.6 Closing
of Private Placement.
As of
the Closing, the Parent shall take such actions as are necessary to close on
the
sale of $5,160,000 in Units, to accredited investors only, pursuant to
Regulation D and Rule 506 promulgated under the Securities Act in accordance
with and as described in the Memorandum.
5.7 Long-Term
Incentive Plan.
Immediately following the Closing, Parent may establish a new long-term
incentive plan under which the total number of shares of Parent Common Stock
authorized for issuance shall be 2,500,000 shares of Parent Common Stock. The
new long-term incentive plan will be used for attracting and retaining
employees, management, directors and outside consultants and shall be granted
from time to time under the guidance and approval of Parent's Compensation
Committee, and in accordance with such plan.
5.8 Issuance
of Additional Shares.
At the
Closing, Parent shall issue 2,250,000 restricted shares of Parent Common Stock
to Greenview Capital, Inc., as compensation for certain advisory services
rendered on behalf of the Companies in connection with the transactions
contemplated by this Agreement. The stock certificates evidencing the shares
of
Parent Common Stock to be issued pursuant to this Section 5.8 shall bear a
customary Securities Act restrictive legend.
5.9 Capital
Markets Initiatives.
The
Companies and Parent agree to place, at the Closing, $500,000 of the net
proceeds received by Parent in the Private Placement into a segregated bank
account for capital markets initiatives and related investor relations purposes
during the twelve (12) months following the Closing with a firm or firms
reasonably acceptable to Parent. Such account shall be in the name of, and
managed by Sovereign Bancorp Ltd. (“Sovereign”)
in
trust for and for the benefit of, Parent. Sovereign shall release the funds
contained in such account and make all expenditures relating to the matters
described in this Section 5.9 with the funds contained in such account based
on
periodic authorizations of the President or Chief Executive Officer of Parent,
as reasonably approved in each case by Sovereign.
5.10 Executive
Employment Agreements.
At the
Closing, each of Xxx Xxxx and Xxxx Xxxxxx will enter into Executive Employment
Agreements with Parent or Xxxx Energy to serve in the respective positions
of
Chief Executive Officer and President through at least December 31,
2011.
6. Closing;
Deliveries.
6.1 Closing
Date.
Subject
to the terms and conditions set forth herein, the closing of the transactions
contemplated by this Agreement (the “Closing”)
shall
take place simultaneously with the execution and delivery of this Agreement
and
the consummation of the sale of Units for not less than $5,160,000 in aggregate
gross proceeds pursuant in the Private Placement (the “Closing
Date”).
All
proceedings to be taken and all documents to be executed at the Closing,
including those in connection with the Private Placement and this Agreement,
shall be deemed to have been taken, delivered and executed simultaneously,
and
no proceeding shall be deemed taken nor documents deemed executed or delivered
until all have been taken, delivered and executed. The Closing shall occur
at
the offices of Xxxxxxxxx Xxxxxxx, LLP referred to in Section 10.1 hereof. At
the
Closing, Parent shall present to the Transfer Agent for delivery to each
Stockholder the certificate representing the Parent Common Stock to be issued
pursuant to Sections 1.1 and 1.3 hereof to them in accordance with Sections
1.4
and 4 hereof. Such presentment for delivery shall be against delivery to Parent
of the certificates, opinions, agreements and other instruments referred to
in
Section 6.1 below. Parent will deliver at such Closing to the Companies the
officers’ certificate, agreements, instruments and opinion referred to in
Section 6.2 below. All of the other documents and certificates and agreements
referenced in this Section 6 will also be executed as described therein. The
Companies and the Parent may waive compliance with any of the closing deliveries
specified in this Section 6. At or immediately following the Closing, the Parent
shall cause to be delivered to the Companies all records and documents relating
to the Parent which the Parent possesses, including, without limitation, books,
records, government filings, tax returns, charter documents, corporate records,
stock record books, consent decrees, orders, and correspondence, director and
stockholder minutes and resolutions, stock ownership records, financial
information and records, electronic files containing any financial information
and records, and other documents associated with Parent.
26
6.2 Closing
Deliveries of the Companies and the Stockholders.
At
Closing, the Companies shall deliver the following documents to
Parent:
(a) A
certificate, dated the Closing Date, executed on the Companies’ behalf by each
of their Chief Executive Officer and President, certifying the
following:
(i) the
representations and warranties of each Company under this Agreement are true
and
correct in all material respects on the Closing Date;
(ii) each
Company has performed and complied in all material respects with all agreements
and conditions required by this Agreement to be performed or complied with
by it
on or before the Closing Date; and
(iii) there
does not exist on the Closing Date any Default or Event of Default or any event
or condition that, with the giving of notice or lapse of time, or both, would
constitute a Default or Event of Default, and since the Balance Sheet Date,
there has been no change that has or will have a Material Adverse Effect on
such
Company, except as a result of the transactions contemplated by this
Agreement.
(b) An
opinion of Synergy Law Group, Chicago, Illinois, counsel for the Companies,
to
the effect set forth in Exhibit
C
hereto.
(c) A
certificate, dated the Closing Date, executed by each of the Companies’
Secretary, certifying that: (i) all consents, authorizations, orders and
approvals of, and filings and registrations with, any court, governmental body
or instrumentality that are required for the execution and delivery of this
Agreement and the consummation of the Exchange shall have been duly made or
obtained, and all material consents by third parties that are required for
the
Exchange have been obtained; and (ii) no action or proceeding before any court,
governmental body or agency has been threatened, asserted or instituted to
restrain or prohibit, or to obtain substantial damages in respect of, this
Agreement or the carrying out of the transactions contemplated by this
Agreement.
27
(d) Copies
of
resolutions of the Board of Directors, certified by the Secretary of the
Companies, authorizing and approving the execution, delivery and performance
of
this Agreement and all other documents and instruments to be delivered pursuant
hereto.
(e) A
certificate of incumbency executed by the Secretary of the Companies certifying
the names, titles and signatures of the officers authorized to execute this
Agreement and any documents referred to herein, and further certifying that
the
Articles of Incorporation and By-laws of the Companies delivered to Parent
at
the time of the execution of this Agreement have been validly adopted and have
not been amended or modified.
(f) All
written consents, satisfactory in form and substance to Parent, from each party
to the leases, contracts, instruments and other documents listed in Schedule
2.13(a)
through
Schedule
2.13(d)
consenting to the change in ownership upon the effectiveness of the Exchange,
of
all of the rights and interests of the Companies in and to such leases,
contracts, instruments and documents, except to the extent the failure to so
obtain such consents could not reasonably be expected to have a Material Adverse
Effect.
(g) Evidence
as of a recent date of the good standing and existence of each of the Companies
issued by the Secretary of State of the State of Minnesota and evidence that
each Company is qualified to transact business as a foreign corporation and
is
in good standing in each state of the United States and in each other
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary.
(h) Such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as Parent or its counsel may reasonably
request.
6.3 Deliveries
of Parent.
At
Closing, Parent shall deliver the following documents to the
Companies:
(a) A
certificate, dated the Closing Date, executed on its behalf by its Chief
Executive Officer or other duly authorized officers, certifying the following:
(i) the representations and warranties of Parent under this Agreement are true
and correct in all material respects on the Closing Date; (ii) Parent has
performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it
on
or before the Closing Date; and (iii) there does not exist on the Closing Date
any Default or Event of Default or any event or condition, that with the giving
of notice or lapse of time, or both, would constitute a Default of Event of
Default, and since the Parent Balance Sheet Date, there has been no change
that
has or will have a Material Adverse Effect on the Parent.
(b) An
opinion of Xxxxxxxxx Traurig, LLP, New York, New York, special counsel for
Parent, to the effect set forth in Exhibit
F
hereto.
28
(c) A
certificate, dated the Closing Date, executed by the Secretary of Parent,
certifying that: (i) all consents, authorizations, orders and approvals of,
and
filings and registrations with, any court, governmental body or instrumentality
that are required for the execution and delivery of this Agreement and the
consummation of the Exchange shall have been duly made or obtained, and all
material consents by third parties required for the Exchange have been obtained;
and (ii) no action or proceeding before any court, governmental body or agency
has been threatened, asserted or instituted to restrain or prohibit, or to
obtain substantial damages in respect of, this Agreement or the carrying out
of
the transactions contemplated by this Agreement.
(d) Copies
of
resolutions of Parent’s Board of Directors, certified by the Secretary,
authorizing and approving the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, including the Exchange
and
the Private Placement and all other documents and instruments to be delivered
by
it pursuant hereto.
(e) A
certificate of incumbency executed by the Secretary of Parent certifying the
names, titles and signatures of the officers authorized to execute this
Agreement and any documents referred to herein, and further certifying that
the
Certificate of Incorporation (including the Certificate of Designation of the
Series A Convertible Preferred Stock) and By-laws of Parent appended thereto
have not been amended or modified.
(f) A
certificate of Island Stock Transfer Company, Parent’s transfer agent and
registrar, certifying as of the business day prior to the date any securities
are first issued in the Private Placement, and before taking into consideration
the Exchange, a true and complete list of the names and addresses of the record
owners of all of the outstanding shares of Parent Common Stock, together with
the number of shares of Parent Common Stock held by each record
owner.
(g) A
letter
from the Transfer Agent setting forth the number of shares of Parent Common
Stock that would be issued and outstanding as of the Closing Date after taking
into consideration the closing of the Exchange.
(h) An
agreement in writing from XxXxxxxx & Associates, P.C. in favor of Parent, in
form and substance reasonably satisfactory to the Companies, to deliver copies
of the audit opinions with respect to any and all financial statements of Parent
that had been audited by such firm and any consents that may be required by
Parent to be included in such financial statements in registration statements
to
be filed in the future by Parent.
(i) the
executed resignation of Xxxx Xxxxx as the sole director and officer of Parent,
and (ii) the executed release from Xxxx Xxxxx in the form attached hereto as
Exhibit
E.
(j) Evidence
as of a recent date of the good standing and corporate existence of Parent
issued by the Secretary of State of the State of Delaware and evidence that
the
Parent is qualified to transact business as a foreign corporation and is in
good
standing in each state of the United States and in each other jurisdiction
where
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary.
29
(k) Such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as the Companies or its counsel may reasonably
request.
7. Survival
of Representations and Warranties.
The
representations and warranties of the parties made in Sections 2 and 3 of this
Agreement shall survive six (6) months beyond the Closing. This Section 7 shall
not limit any claim for fraud based on such representations and warranties.
Nothing in this Section 7 shall impair or alter any covenant or agreement of
the
parties which by its terms contemplates performance after the
Closing.
8. Amendment
of Agreement.
This
Agreement may be amended or modified at any time in all respects by an
instrument in writing executed by Parent and the Companies, provided that any
amendment that materially and adversely affects the rights or changes the
obligation of any Stockholder (as opposed to the Companies) shall require the
consent of any such Stockholder.
9. Definitions.
Unless
the context otherwise requires, the terms defined in this Section 9 shall have
the meanings herein specified for all purposes of this Agreement, applicable
to
both the singular and plural forms of any of the terms herein
defined.
“Affiliate”
shall
mean any Person that directly or indirectly controls, is controlled by, or
is
under common control with, the indicated Person.
“Agreement”
shall
mean this Agreement.
“Balance
Sheet”
and
“Balance
Sheet Date”
shall
have the meanings assigned to such terms in Section 2.10 hereof.
“Certificates”
shall
have the meaning assigned thereto in Section 1.4(b).
“Closing”
and
“Closing
Date”
shall
have the meanings assigned to such terms in Section 6.1 hereof.
“Code”
shall
have the meaning assigned to it in the recitals.
“Commission”
shall
mean the U.S. Securities and Exchange Commission.
“Companies”
shall
mean both Xxxx Energy Development, Inc. and DanMar and Associates, Inc., each
a
Minnesota corporation.
“Company
Incentive Plan”
shall
have the meaning assigned to it in Section 1.5 hereof.
“Default”
shall
mean a default or failure in the due observance or performance of any covenant,
condition or agreement on the part of the Companies to be observed or performed
under the terms of this Agreement if such default or failure in performance
shall remain unremedied for ten (10) days after receipt of written notice of
such default.
30
“Employee
Benefit Plans”
shall
have the meaning assigned to it in Section 2.17 hereof.
“Equity
Security”
shall
mean any stock, interest or similar equity security of an issuer or any security
(whether stock or Indebtedness for Borrowed Money) convertible, with or without
consideration, into any stock, interest or similar equity security, or any
security (whether stock or Indebtedness for Borrowed Money) carrying any
warrant, option or right to subscribe to or purchase any stock, interest or
similar equity security, or any such warrant, option or right.
“ERISA”
shall
mean the Employee Retirement Income Securities Act of 1974, as
amended.
“Exchange”
shall
have the meaning assigned thereto in Recitals.
“Exchange
Agent”
shall
have the meaning assigned thereto in Section 1.4(b)
“Exchange
Offer”
shall
have the meaning assigned thereto in the Recitals.
“Exchange
Ratios”
shall
have the meaning assigned thereto in Section 1.3(a).
“Exchange
Act”
shall
mean the Securities Exchange Act of 1934, as amended.
“Event
of Default”
shall
mean (a) the failure of the Companies to pay any Indebtedness for Borrowed
Money, or any interest or premium thereon, within five (5) days after the same
shall become due, whether such Indebtedness shall become due by scheduled
maturity, by required prepayment, by acceleration, by demand or otherwise,
(b)
an event of default under any material agreement or instrument evidencing or
securing or relating to any such Indebtedness, or (c) the failure of the
Companies to perform or observe any material term, covenant, agreement or
condition on its part to be performed or observed under any agreement or
instrument evidencing or securing or relating to any such Indebtedness when
such
term, covenant or agreement is required to be performed or
observed.
“GAAP”
shall
mean generally accepted accounting principles in the United States, as in effect
from time to time.
"knowledge"
and
"know"
means,
when referring to any person or entity, the actual
knowledge of the Chief Executive Officer, President or Chief Financial Officer
or the person or entity of the particular matter or fact with respect to which
it is used,
“Indebtedness”
shall
mean any obligation of the Companies which under generally accepted accounting
principles is required to be shown on the balance sheet of the Companies as
a
liability, excluding however, accounts payable, accrued expenses and other
short
term liabilities.
“Indebtedness
for Borrowed Money”
shall
mean (a) all Indebtedness in respect of money borrowed including, without
limitation, Indebtedness which represents the unpaid amount of the purchase
price of any property and is incurred in lieu of borrowing money or using
available funds to pay such amounts and not constituting an account payable
or
expense accrual incurred or assumed in the ordinary course of business of the
Companies, (b) all Indebtedness evidenced by a promissory note, bond or similar
written obligation to pay money, or (c) all such Indebtedness guaranteed by
the
Companies or for which either of the Companies is otherwise contingently
liable.
31
“Investment
Company Act”
shall
mean the Investment Company Act of 1940, as amended.
“Lead
Investor”
shall
mean Vision Opportunity Master Fund, Ltd.
“Lien”
shall
mean any mortgage, pledge, security interest, encumbrance, lien or charge of
any
kind, including, without limitation, any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code
of
any jurisdiction and including any lien or charge arising by statute or other
law.
“Material
Adverse Effect”
shall
have the meaning assigned to it in Section 2.2 hereof.
“Parent”
shall
mean MH & SC, Incorporated, a Delaware corporation.
“Parent
Balance Sheet Date”
shall
have the meaning assigned to it in Section 3.14 hereof.
“Parent
Common Stock”
shall
have the meaning assigned to it in the Recitals.
“Parent
Employee Benefit Plans”
shall
have the meaning assigned to it in Section 3.17 hereof.
“Parent
Financial Statements”
shall
have the meaning assigned to it in Section 3.7 hereof.
“Parent
Preferred Stock”
shall
have the meaning assigned to it in the Recitals.
“Parent
SEC Documents”
shall
have the meaning assigned to it in Section 3.6 hereof.
“Parent
Warrants”
shall
have the meaning assigned to it in Recitals.
“Permitted
Liens”
shall
mean (a) Liens for taxes and assessments or governmental charges or levies
not
at the time due or in respect of which the validity thereof shall currently
be
contested in good faith by appropriate proceedings; (b) Liens in respect of
pledges or deposits under workmen’s compensation laws or similar legislation,
carriers’, warehousemen’s, mechanics,’ laborers,’ materialmen’s and similar
Liens, if the obligations secured by such Liens are not then delinquent or
are
being contested in good faith by appropriate proceedings; and (c) Liens
incidental to the conduct of the business of the Companies that were not
incurred in connection with the borrowing of money or the obtaining of advances
or credits and which do not in the aggregate materially detract from the value
of its property or materially impair the use made thereof by the Companies
in
its business.
32
“Person”
shall
include all natural persons, corporations, business trusts, associations,
limited liability companies, partnerships, joint ventures and other entities
and
governments and agencies and political subdivisions.
“Private
Placement”
shall
have the meaning assigned to it in the Recitals.
“Securities
Act”
shall
mean the Securities Act of 1933, as amended.
“Tax”
or
“Taxes”
shall
mean (a) any and all taxes, assessments, customs, duties, levies, fees, tariffs,
imposts, deficiencies and other governmental charges of any kind whatsoever
(including, but not limited to, taxes on or with respect to net or gross income,
franchise, profits, gross receipts, capital, sales, use, ad valorem, value
added, transfer, real property transfer, transfer gains, transfer taxes,
inventory, capital stock, license, payroll, employment, social security,
unemployment, severance, occupation, real or personal property, estimated taxes,
rent, excise, occupancy, recordation, bulk transfer, intangibles, alternative
minimum, doing business, withholding and stamp), together with any interest
thereon, penalties, fines, damages,
costs,
fees, additions to tax or additional amounts with respect thereto, imposed
by
the United States or other applicable jurisdiction; (b) any liability for the
payment of any amounts described in clause (a) as a result of being a
stockholder of an affiliated, consolidated, combined, unitary or similar group
or as a result of transferor or successor liability, including, without
limitation, by reason of Regulation section 1.1502-6; and (c) any liability
for
the payments of any amounts as a result of being a party to any Tax Sharing
Agreement or as a result of any express or implied obligation to indemnify
any
other Person with respect to the payment of any amounts of the type described
in
clause (a) or (b).
“Tax
Return”
shall
include all returns and reports (including elections, declarations, disclosures,
schedules, estimates and information returns (including Form 1099 and
partnership returns filed on Form 1065) required to be supplied to a Tax
authority relating to Taxes.
“Transfer
Agent”
means
Island Stock Transfer Company, Parent’s transfer agent and registrar.
“Units”
shall
have the meaning assigned to it in the Recitals.
33
10. Miscellaneous.
10.1 Notices.
Any
notice, request or other communication hereunder shall be given in writing
and
shall be served either personally by overnight delivery or delivered by mail,
certified return receipt and addressed to the following addresses:
| If to Parent: | MH & SC, Incorporated | |
|
0000
Xxxxxxxxxx Xxxxx
|
||
|
Xxxxxxxxx,
Xxxxxxxx 00000
|
||
|
Attention:
Xx. Xxxx Xxxxx, Chief Executive
Officer
|
| With a copy to: | Xxxxxxxxx Traurig, LLP | |
| MetLife Building | ||
| 000 Xxxx Xxxxxx, 00xx Xxxxx | ||
| Xxx Xxxx, Xxx Xxxx 00000 | ||
| Attention: Xxxxxxx X. Xxxxxxx, Esq. |
| If to the Companies: | Xxxx Energy Development, Inc./DanMar and Associates, Inc. | |
| 000 000xx Xxxxxx | ||
| Xxxxxxxxx, Xxxxxxxxx 00000 | ||
| Attention: Xx. Xxx Xxxx, President |
| With a copy to: | Synergy Law Group | |
| 000 Xxxx Xxxxxxxx Xxxxxx, Xxxxx 000 | ||
|
Xxxxxxx,
Xxxxxxxx 00000
|
||
|
Attention:
Xxxxxxx X. Xxxxxxx, Esq.
|
Notices
shall be deemed received at the earlier of actual receipt or three (3) business
days following mailing. Counsel for a party (or any authorized representative)
shall have authority to accept delivery of any notice on behalf of such
party.
10.2 Entire
Agreement.
This
Agreement, including the schedules and exhibits attached hereto and other
documents referred to herein, contains the entire understanding of the parties
hereto with respect to the subject matter hereof. This Agreement supersedes
all
prior agreements and undertakings between the parties with respect to such
subject matter.
10.3 Expenses.
Each
party shall bear and pay all of the legal, accounting and other expenses
incurred by it in connection with the transactions contemplated by this
Agreement.
10.4 Time.
Time is
of the essence in the performance of the parties’ respective obligations herein
contained.
10.5 Severability.
Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any
other jurisdiction.
34
10.6 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns and heirs; provided,
however,
that no
Stockholder shall directly or indirectly transfer or assign any of his or her
rights hereunder in whole or in part without the written consent of the Parent
and the Companies, which shall not be unreasonably withheld, and any such
transfer or assignment without said consent shall be void.
10.7 No
Third Parties Benefited.
This
Agreement is made and entered into for the sole protection and benefit of the
parties hereto (including all Stockholders who acquire shares of Parent Common
Stock), their successors, assigns and heirs, and no other Person shall have
any
right or action under this Agreement.
10.8 Counterparts.
This
Agreement may be executed in one or more counterparts, with the same effect
as
if all parties had signed the same document. Each such counterpart shall be
an
original, but all such counterparts together shall constitute a single
agreement.
10.9 Recitals,
Schedules and Exhibits.
The
Recitals, Schedules and Exhibits to this Agreement are incorporated herein
and,
by this reference, made a part hereof as if fully set forth herein.
10.10 Section
Headings and Gender.
The
Section headings used herein are inserted for reference purposes only and shall
not in any way affect the meaning or interpretation of this Agreement. All
personal pronouns used in this Agreement shall include the other genders,
whether used in the masculine, feminine or neuter gender, and the singular
shall
include the plural, and vice versa, whenever and as often as may be
appropriate.
10.11 Governing
Law.
This
Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware. This Agreement
and
the transactions contemplated hereby shall be subject to the exclusive
jurisdiction of the courts of the State of Delaware. The parties to this
Agreement agree that any breach of any term or condition of this Agreement
or
the transactions contemplated hereby shall be deemed to be a breach occurring
in
the State of Delaware by virtue of a failure to perform an act required to
be
performed in the State of Delaware. The parties to this Agreement irrevocably
and expressly agree to submit to the jurisdiction of the courts of the State
of
Delaware for the purpose of resolving any disputes among the parties relating
to
this Agreement or the transactions contemplated hereby. The parties irrevocably
waive, to the fullest extent permitted by law, any objection which they may
now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement and the transactions contemplated
hereby, or any judgment entered by any court in prospect hereof brought in
the
State of Delaware and further irrevocably waive any claim that any suit, action
or proceeding brought in the State of Delaware has been brought in an
inconvenient forum. With respect to any action before the above courts, the
parties hereto agree to service of process by certified or registered United
States mail, postage prepaid, addressed to the party in question.
35
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement to be binding
and effective as of the day and year first above written.
| PARENT: | |
| MH & SC, INCORPORATED | |
| By: | /s/ Xxxx Xxxxx |
| Xxxx Xxxxx | |
| Chief Executive Officer | |
| THE COMPANIES: | |
| XXXX ENERGY DEVELOPMENT, INC. | |
| By: | /s/ Xxx Xxxx |
| Xxx Xxxx | |
| President | |
| DANMAR AND ASSOCIATES, INC. | |
| By: | /s/ Xxx Xxxx |
| Xxx Xxxx | |
| President | |
The
undersigned Stockholders execute and deliver this Agreement for the sole purpose
of agreeing to the terms of Section 1 (The Exchange Offer), Section 4
(Additional Representations, Warranties and Covenants of the Stockholders),
Section 7 (Survival of Representations and Warranties), Section 8 (Amendment
of
Agreement), Section 9 (Definitions), and Section 10
(Miscellaneous).
| /s/ Xxx Xxxx | /s/ Xxxx Xxxxxx | |
|
Xxx
Xxxx
|
Xxxx
Xxxxxx
|
|
| /s/ Xxxx Xxxx | ||
|
Xxxx
Xxxx
|
| XXXX FAMILY LIMITED PARTNERSHIP | XXXXXX FAMILY LIMITED PARTNERSHIP | |||
| By: | /s/ Xxx Xxxx | By: | Xxxx Xxxxxx | |
| Name:Xxx Xxxx | Name: Xxxx Xxxxxx | |||
| Title: General Partner | Title: General Partner | |||
36
