EXCHANGE AGREEMENT
BY AND AMONG
CHISTE CORPORATION,
HYDROGEN, LLC,
AND EACH MEMBER OF HYDROGEN, LLC
DATED AS OF MAY 13, 2005
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (the "Agreement") is made and entered into as of
May 13, 2005, by and among Chiste Corporation, a Nevada corporation ("Chiste"),
HydroGen, LLC, an Ohio limited liability company ("Company"), and each of the
persons listed under the caption "Members" on the signature page hereof,
together with each person becoming a Member prior to the closing of the
transactions contemplated hereunder, whether though the purchase of Interests
under the Private Placement as defined in Section 3.3(b) hereof or otherwise,
each of whom shall execute a counterpart signature page of this Agreement or an
accession agreement agreeing to be bound by the terms and conditions hereof,
such persons being all of the members of the Company. The Members shall be
referred to herein collectively as the "Members" and individually as the
"Member".
RECITALS
A. The Members own all of the Interests (as defined in Section 1.1) of the
Company.
X. Xxxxxxx Reverse Merger Fund, LLC, a Delaware limited liability company
("KRM Fund") owns the majority of the outstanding shares of common stock of
Chiste.
X. Xxxxxx desires to acquire all of the Interests from the Members in
exchange for certain of Chiste's equity securities, and the Members desire to
contribute all of the outstanding Interests to Chiste in exchange for certain
equity securities of Chiste, on the terms and conditions hereinafter set forth.
D. The parties intend, by executing this Agreement, to implement a
tax-deferred exchange of property governed by Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
EXCHANGE OF INTERESTS
1.1 Exchange. At the Closing and subject to and upon the terms and
conditions of this Agreement, the Members agree to contribute, transfer, assign
and deliver to Chiste, and Chiste agrees to acquire from the Members, all of the
outstanding membership interests of the Company ("Interests") owned by the
Members as specifically set forth on Schedule 1.1 hereto. As of Closing, the
Interests shall constitute all of the issued and outstanding Interests of the
Company. The exchange of Interests contemplated hereunder and the other
transactions contemplated hereunder shall be referred to herein as the
"Transaction" or the "Transactions".
1.2 Closing. Unless this Agreement shall have been terminated pursuant to
Article IX hereof, the closing of the Transaction (the "Closing") shall take
place at the offices of Xxxxxxxx Xxxxxx, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000-0000 at a time and date to be specified by the parties, which shall
be no later than the third business day after the satisfaction or waiver of the
conditions set forth in Article VII, or at such other time, date and location as
the parties hereto agree in writing (the "Closing Date").
1.3 Exchange Consideration. In exchange for the Interests, Chiste shall
issue to the Members such number of shares of Series B Convertible Preferred
Stock, par value $0.001 per share, of Chiste as set forth on Schedule 1.1
("Chiste's Preferred Shares"), which shall represent, together with the shares
of Series B Convertible Preferred Stock to be purchased by certain registered
investment companies managed by Security Management Company, LLC (collectively,
"Security Funds") in connection with a proposed $7,000,000 investment in Chiste
following the Closing ("Investment") and the options to acquire such number of
Chiste's Common Stock to be issued to certain Members in substitution for
certain options to acquire Interests in the Company as set forth on Schedule
1.1, 95.175% of the issued and outstanding shares of common stock of Chiste, on
an as converted basis and fully diluted basis immediately following the Closing
and the Investment.
1.4 Allocation of Chiste's Preferred Shares. At the Closing, Chiste's
Preferred Shares to be issued to the Members shall be issued to the respective
Members in proportion to their respective ownership of the Interests immediately
prior to Closing as described in Schedule 1.1 hereto.
1.5 Delivery of Assignment of Interests. At Closing, the Company shall
deliver to Chiste a certificate duly executed and authorized by each of its
managers and/or managing members certifying to the ownership of the Interests by
each Member as set forth on Schedule 1.1 hereof, and each Member shall deliver
an assignment or other acceptable instrument of transfer of the Interests owned
by such Member, duly executed by such Member with (i) all such other documents
as may be required to vest in Chiste good and marketable title to the Interests
free and clear of any and all Liens (as defined in Section 2.3 hereof) and (ii)
all necessary transfer and any other required documentary stamps. The Company
shall record the transfers of the Interests described in this Section 1.5 on its
transfer books.
1.6 Issuance of Certificates Representing Chiste's Preferred Shares. At
Closing, Chiste shall issue Chiste's Preferred Shares to the Members as provided
in Section 1.4 above. Chiste's Preferred Shares, when issued, shall be
restricted shares and may not be sold, transferred or otherwise disposed of by
the Members without registration under the Securities Act of 1933, as amended
("Securities Act") or an available exemption from registration under the
Securities Act. The certificates representing Chiste's Preferred Shares will
contain the appropriate restrictive legends.
1.7 Tax Consequences. It is intended by the parties hereto that the
Transaction shall constitute a tax-deferred exchange of property governed by
Section 351 of the Code.
1.8 Taking of Necessary Action; Further Action. 1.9 If, at any time after
the Closing, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Chiste with full right, title and
possession to the Interests, the Members will take all such lawful and necessary
action.
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1.9 Transaction Deposit. Chiste and Company hereby acknowledge Company's
prior payment to Chiste of a $50,000 deposit ("Deposit").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MEMBERS WITH RESPECT TO INTERESTS
Each Member for himself only, and not with respect to any other Member,
hereby severally represents and warrants to, and covenants with, Chiste with
respect to such Member as follows:
2.1 Ownership of Stock. Each Member is both the record and beneficial
owner of the Interests set forth beside such Member's name on Schedule 1.1
hereto. Each Member is not the record or beneficial owner of any other
Interests. The information set forth on Schedule 1.1 with respect to each Member
is accurate and complete.
2.2 Authority of Members. Each Member that is a natural person has full
power and authority and is competent to (i) execute, deliver and perform this
Agreement, and each ancillary document which each such Member has executed or
delivered or is to execute or deliver pursuant to this Agreement (including the
Voting Agreement), and (ii) carry out each such Member's obligations hereunder
and thereunder, without the need for any Governmental Action/Filing (as defined
herein). Each Member that is a corporate or other entity has obtained all due
authorization and has full power for the execution, delivery and performance of
this Agreement and each ancillary document which each such Member has executed
or delivered or is to execute or deliver pursuant to this Agreement (including
the Voting Agreement) and to carry out each such Member's obligations hereunder
and thereunder without the need for any Governmental Action/Filing. The
execution, delivery and performance by each Member of this Agreement and each
ancillary document does not and will not conflict with, result in a breach of,
or constitute a default or require a consent or action under, any agreement or
other instrument to or by which such Member is a party or is bound or to which
any of the properties or assets of such Member are subject, or any Legal
Requirement (as defined herein) to which such Member is subject, or result in
the creation of any Lien (as defined in Section 2.3) on the Interests. This
Agreement, and each Member's ancillary documents to be executed and delivered by
such Member at the Closing, has been duly executed and delivered by such Member
(and each ancillary document to be executed and delivered by such Member at or
after the Closing will be duly executed and delivered by such Member), and this
Agreement constitutes, and each ancillary document, when executed and delivered
by such Member will constitute, such Member's legal, valid and binding
obligation, enforceable against such Member in accordance with its terms. For
purposes of this Agreement, (x) the term "Governmental Action/Filing" shall mean
any franchise, license, certificate of compliance, authorization, consent,
order, permit, approval, consent or other action of, or any filing, registration
or qualification with, any federal, state, municipal, foreign or other
governmental, administrative or judicial body, agency or authority, and (y) the
term "Legal Requirements" means any federal, state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Entity (as defined in Section 3.5(b)),
and all requirements set forth in applicable Contracts (as defined in Section
3.19(a)).
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2.3 Title To Interests. Each Member has and shall transfer to Chiste at
the Closing, good and marketable title to the Interests shown as owned of record
by such Member on Schedule 1.1 to this Agreement, free and clear of all liens,
claims, charges, encumbrances, pledges, mortgages, security interests, options,
rights to acquire, proxies, voting trusts or similar agreements, restrictions on
transfer or adverse claims of any nature whatsoever ("Liens"). Each Member has
not and will not, directly or indirectly, assign or otherwise transfer his right
to receive all or any portion of any amount which may become payable pursuant to
this Agreement or any ancillary document or any interest therein.
2.4 Pre-emptive and Conversion Rights. At Closing, no Member has any
pre-emptive rights or rights to acquire any Interests that have not been waived
or exercised.
2.5 Repayment of Affiliate Obligations. At the Closing Date, all amounts
owed to the Company by each Member (regardless of whether such amounts are due
and payable) shall have been paid in full.
2.6 Acquisition of Chiste's Preferred Shares for Investment.
(a) Each Member is acquiring Chiste's Preferred Shares for
investment for Member's own account and not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof, and each Member has no
present intention of selling, granting any participation in, or otherwise
distributing the same. Each Member further represents that he does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of Chiste's Preferred Shares.
(b) Each Member understands that Chiste's Preferred Shares are not
registered under the Securities Act, that the issuance of Chiste's Preferred
Shares (and the underlying Conversion Shares) is intended to be exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
Chiste's reliance on such exemption is predicated on the Member's
representations set forth herein. Each Member represents and warrants that: (i)
he is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D under the Act, (ii) he can bear the economic risk of his respective
investments, and (iii) he possesses such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
the investment in Chiste and its securities.
(c) Each Member acknowledges that neither the U.S. Securities
Exchange Commission ("SEC"), nor the securities regulatory body of any state or
other jurisdiction, has received, considered or passed upon the accuracy or
adequacy of the information and representations made in this Agreement.
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(d) Each Member acknowledges that he has carefully reviewed such
information as he has deemed necessary to evaluate an investment in Chiste and
its securities. To the full satisfaction of each Member, he has been furnished
all materials that he has requested relating to Chiste and the issuance of
Chiste's Preferred Shares hereunder, and each Member has been afforded the
opportunity to ask questions of Chiste's representatives to obtain any
information necessary to verify the accuracy of any representations or
information made or given to the Members. Notwithstanding the foregoing, nothing
herein shall derogate from or otherwise modify the representations and
warranties of Chiste set forth in this Agreement, on which each of the Members
have relied in making an exchange of his Interests for Chiste's Preferred
Shares.
(e) Each Member understands that Chiste's Preferred Shares (and the
underlying Conversion Shares) may not be sold, transferred, or otherwise
disposed of without registration under the Securities Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering Chiste's Preferred Shares (and the underlying Conversion Shares) or any
available exemption from registration under the Securities Act, Chiste's
Preferred Shares (and the underlying Conversion Shares) may have to be held
indefinitely. Each Member further acknowledges that Chiste's Preferred Shares
(and the underlying Conversion Shares) may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of Rule 144
are satisfied (including, without limitation, Chiste's compliance with the
reporting requirements under the Securities Exchange Act of 1934, as amended
("Exchange Act")).
ARTICLE III
REPRESENTATIONS AND WARRANTIES BY COMPANY WITH RESPECT TO COMPANY
The Company, hereby represents and warrants to, and covenants with, Chiste
and KRM Fund, as follows:
3.1 Organization and Qualification.
(a) Company is a limited liability company duly formed or organized,
validly existing and in good standing under the laws of the State of Ohio and
has the requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Company to be conducted. To its knowledge, Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being or currently planned by Company to be conducted,
except where the failure to have such Approvals could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect (as
defined in Section 11.2(b)) on Company. Complete and correct copies of the
articles of formation or organization and operating agreement (or other
comparable governing instruments with different names) (collectively referred to
herein as "Charter Documents") of Company, as amended and currently in effect,
have been heretofore delivered to Chiste. Company is not in violation of any of
the provisions of the Company's Charter Documents.
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(b) Company is duly qualified or licensed to do business as a
foreign company and is in good standing in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company.
(c) The minute books or the equivalent of Company to the extent of
their existence contain true and accurate records of meetings and true, complete
and accurate records of consents in lieu of meetings of its managers and
managing members (and any committees thereof), similar governing bodies and
members ("Corporate Records"), since the time of Company's organization. Copies
of such Corporate Records of Company have been heretofore delivered to Chiste.
(d) The ownership records of Company' Interests are true, complete
and accurate records of the ownership of the Interests as of the date of such
records and contain all transfers of such Interests since the time of Company's
organization ("Interests Record"). Copies of such Interests Records of Company
have been heretofore delivered to Chiste.
3.2 Subsidiaries. The Company has no subsidiaries.
3.3 Capitalization.
(a) At the close of business on the business day prior to the date
hereof, Schedule 1.1 hereto contains all of the outstanding Interests of the
Company including those Interests expected to be issued by the Company in
connection with the Private Placement or otherwise prior to Closing. At Closing,
the Company shall deliver to Chiste a current and updated Schedule 1.1 showing
all Interests outstanding immediately prior to Closing (including all Interests
issued in connection with the Private Placement), which Schedule 1.1 shall be
substituted for and replace the Schedule 1.1 attached hereto as of the date of
this Agreement with all references to Schedule 1.1 herein referring to the
Schedule 1.1 to be delivered at Closing. All Interests on Schedule 1.1 have been
validly issued, fully paid and are nonassessable. Except as set forth in
Schedule 1.1 and Schedule 3.3, there are no outstanding securities, convertible
securities, options, warrants or derivative securities, and there are no
agreements or commitments obligating the Company to issue or grant any of the
foregoing, including any pre-emptive or similar rights. All outstanding
Interests, options, warrants and other securities of the Company have been
issued in compliance with (i) all applicable securities laws and (in all
material respects) other applicable laws and regulations, and (ii) all
requirements set forth in any applicable contracts. Except as described in
Schedule 3.3 hereto, there are no commitments or agreements of any character to
which Company is bound obligating Company to accelerate the vesting of any
options or warrants as a result of the Transactions. Company has heretofore
delivered to Chiste true, complete an accurate copies of all options, warrants
and other securities of the Company including any and all documents and
agreements relating thereto.
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(b) Except as set forth in Schedule 3.3 hereto, there are no equity
securities, partnership interests or similar ownership interests of any class of
any equity security of Company, or any securities exchangeable or convertible
into or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Schedule 3.3 hereof and except for that private placement offering of
Interests by the Company on a $5,000,000 minimum, $10,000,000 maximum basis, for
a minimum of 40 units and a maximum of 80 units in the Company, with any
conversions of the Company's outstanding debt into units in the offering not
counting towards the minimum offering ("Private Placement"), there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Company is a party or by
which it is bound obligating Company to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any Interests, shares of capital
stock, partnership interests or similar ownership interests of Company or
obligating Company to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement.
(c) Except as contemplated by this Agreement and except as set forth
in Schedule 3.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which Company is a party or by which Company is bound with respect to any
Interests, equity securities, partnership interests or similar ownership
interests of any class of the Company, and there are no agreements to which the
Company is a party, or which the Company has knowledge of, which conflict with
this Agreement or the transactions contemplated herein or otherwise prohibit the
consummation of the transactions contemplated hereunder..
3.4 Authority Relative to this Agreement. Company has all necessary power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and, to consummate the transactions contemplated hereby
(including the Transaction). The execution and delivery of this Agreement and
the consummation by Company of the transactions contemplated hereby (including
the Transaction) have been duly and validly authorized by all necessary
corporate action on the part of Company (including the approval by its managers
or managing members or other comparable governing body), and no other
proceedings on the part of Company are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby, other than prior to the
Closing the approval of this Agreement and the Transaction by Members holding
80% of the outstanding Interests at the Closing. This Agreement has been duly
and validly executed and delivered by Company and, assuming the due
authorization, execution and delivery thereof by the other parties hereto,
constitutes the legal and binding obligation of Company, enforceable against
Company in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and public
policy.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company and
the Members do not, and the performance of this Agreement by the Company and the
Members shall not, (i) conflict with or violate the Company's Charter Documents,
(ii) to its knowledge, subject to obtaining the adoption of this Agreement and
the Transaction by Members immediately prior to the Closing holding at least 80%
of the outstanding Interests, conflict with or violate any Legal Requirements,
or (iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or materially
impair Company's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company pursuant to, any Material Contracts,
except, with respect to clauses (ii) or (iii), for any such conflicts,
violations, breaches, defaults or other occurrences that would not, individually
and in the aggregate, have a Material Adverse Effect on the Company.
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(b) The execution and delivery of this Agreement by Company and the
Members do not, and the performance of their obligations hereunder will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any court, administrative agency, commission, governmental or
regulatory authority, domestic or foreign (a "Governmental Entity"), except (i)
for applicable requirements, if any, of the Securities Act, the Exchange Act,
state securities laws ("Blue Sky Laws"), and the rules and regulations
thereunder, and appropriate documents with the relevant authorities of other
jurisdictions in which Company is qualified to do business, and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Company or, after
the Closing, Chiste, or prevent consummation of the Transaction or otherwise
prevent the parties hereto from performing their obligations under this
Agreement.
3.6 Compliance. To the knowledge of the Company, it has complied with and
is not in violation of any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on Company. To
Company's knowledge, the businesses and activities of Company have not been and
are not being conducted in violation of any Legal Requirements. Company is not
in default or violation of any term, condition or provision of any applicable
Charter Documents or Contracts. Except as set forth on Schedule 3.6, to the
Company's knowledge no written notice of non-compliance with any Legal
Requirements has been received by Company (and the Company has no knowledge of
any material such notice delivered to any other Person). The Company is not in
violation of any material term of any contract or covenant relating to
employment, patents, proprietary information disclosure, non-competition or
non-solicitation.
3.7 Financial Statements.
(a) Company has provided to Chiste a correct and complete copy of
the audited financial statements (including, in each case, any related notes
thereto) of Company for all fiscal years ended prior to December 31, 2003 and
2004, each prepared in accordance with generally accepted accounting principles
of the United States ("U.S. GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto), and each
fairly presents in all material respects the financial position of Company at
the respective dates thereof and the results of its operations and cash flows
for the periods indicated, and each does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
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(b) Company will provide to Chiste prior to Closing a correct and
complete copy of the unaudited financial statements (including, in each case,
any related notes thereto) of Company for the three-month period ended March 31,
2005, complied as to form in all material respects with, prepared in accordance
with the published rules and regulations of any applicable Governmental Entity
and with U.S. GAAP applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto), and each fairly presents in
all material respects the financial position of Company at the respective dates
thereof and the results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal adjustments which were not or are not expected to have a
Material Adverse Effect on Company.
(c) To Company's knowledge, the books of account and other financial
records of Company have been maintained in accordance with good business
practice.
3.8 No Undisclosed Liabilities. Except as set forth in Schedule 3.8
hereto, Company has no liabilities individually in excess of $5,000 and in the
aggregate in excess of $50,000 (absolute, accrued, contingent or otherwise) of a
nature required to be disclosed on a balance sheet or in the related notes to
the financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Company, except: (i) liabilities provided
for in or otherwise disclosed in the interim balance sheets of Company as of
December 31, 2004 prepared in accordance with U.S. GAAP, which have been
delivered to Chiste, and (ii) such liabilities arising in the ordinary course of
Company's business since December 31, 2004, none of which would have a Material
Adverse Effect on the Company.
3.9 Absence of Certain Changes or Events. Except as set forth in Schedule
3.9 hereto or in the interim balance sheets of Company as of December 31, 2004,
since December 31, 2003, there has not been: (i) any Material Adverse Effect on
Company, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, securities or property) in respect of, any
of Company's Interests, or any purchase, redemption or other acquisition by the
Company of any of Company's Interests or any other securities of Company or any
options, warrants, calls or rights to acquire any such Interests or other
securities, (iii) any split, combination or reclassification of any of Company's
capital, (iv) any granting by Company of any increase in compensation or fringe
benefits, except for normal increases of cash compensation in the ordinary
course of business consistent with past practice, or any payment by Company of
any bonus, except for bonuses made in the ordinary course of business consistent
with past practice, or any granting by Company of any increase in severance or
termination pay or any entry by Company into any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent or the terms of which are materially altered
upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company into any licensing or other agreement
with regard to the acquisition or disposition of any Intellectual Property (as
defined in Section 3.18 hereof) other than licenses in the ordinary course of
business consistent with past practice or any amendment or consent with respect
to any licensing agreement filed or required to be filed by Company with respect
to any Governmental Entity, (vi) any material change by Company in its
accounting methods, principles or practices, (vii) any change in the auditors of
Company, (viii) except for the Private Placement, any issuance of Interests or
other securities of Company, or (ix) any revaluation by Company of any of their
respective assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable or any sale of
assets of Company other than in the ordinary course of business.
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3.10 Litigation. Except as disclosed in Schedule 3.10 hereto, there are no
claims, suits, actions or proceedings pending, or to the knowledge of Company
threatened against Company, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to have a Material
Adverse Effect on Company or have a Material Adverse Effect on the ability of
the parties hereto to consummate the Transaction.
3.11 Employee Benefit Plans.
(a) To Company's knowledge, since January 1, 2003, all employee
compensation, incentive, fringe or benefit plans, programs, policies,
commitments or other arrangements (whether or not set forth in a written
document) covering any active or former employee, director or consultant of
Company, or any trade or business (whether or not incorporated) which is under
common control with Company, with respect to which Company has liability
(collectively, the "Plans") has been maintained and administered in all material
respects in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Plans, and all liabilities with respect to the Plans have been properly
reflected in the financial statements of Company. Since January 1, 2003, no
suit, action or other litigation (excluding claims for benefits incurred in the
ordinary course of Plan activities) has been brought or is continuing, or to the
knowledge of Company is threatened, against or with respect to any such Plan. To
Company's knowledge, there are no audits, inquiries or proceedings pending or,
to the knowledge of Company, threatened by any governmental agency with respect
to any Plans. To Company's knowledge, all contributions, reserves or premium
payments required to be made or accrued as of the date hereof to the Plans have
been timely made or accrued. To Company's knowledge, each Plan can be amended,
terminated or otherwise discontinued after the Closing in accordance with its
terms, without liability to Chiste or Company (other than ordinary
administration expenses and expenses for benefits accrued but not yet paid).
(b) Except as disclosed on Schedule 3.11 hereto, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any Member, manager, managing member, officer, director or
employee of Company under any Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any Plan, or (iii) result in the acceleration
of the time of payment or vesting of any such benefits.
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3.12 Labor Matters. Except as disclosed in Schedule 3.12 hereto, Company
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by Company nor does the Company know of
any activities or proceedings of any labor union to organize any such employees.
3.13 Restrictions on Business Activities. Except as disclosed on Schedule
3.13 hereto, to the Company's knowledge there is no agreement, commitment,
judgment, injunction, order or decree binding upon Company or to which Company
is a party which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Company, any
acquisition of property by Company or the conduct of business by Company as
currently conducted other than such effects, individually or in the aggregate,
which have not had and could not reasonably be expected to have a Material
Adverse Effect on Company.
3.14 Title to Property.
(a) All leases of real property held by Company and all personal
property and other property and assets of Company (other than real property)
owned, used or held for use in connection with the business of Company (the
"Personal Property") obligating the Company to make annual payments in excess of
$15,000 are shown or reflected on the interim balance sheets of Company prepared
in accordance with U.S. GAAP or in Schedule 3.14. To its knowledge, Company owns
and has good and marketable title to the Personal Property, and all such assets
and properties are in each case held free and clear of all Liens, except for
Liens disclosed in the financial statements of Company prepared in accordance
with U.S. GAAP or in Schedule 3.14 hereto, none of which Liens has or will have,
individually or in the aggregate, a Material Adverse Effect on such property or
on the present or contemplated use of such property in the businesses of
Company.
(b) To Company's knowledge, all leases pursuant to which Company
leases from others material real or personal property are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default of Company or, to
Company's knowledge, any other party (or any event which with notice or lapse of
time, or both, would constitute a material default), except where the lack of
such validity and effectiveness or the existence of such default or event of
default could not reasonably be expected to have a Material Adverse Effect on
Company.
3.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes" refers to any and all federal, state, local and foreign taxes,
including, without limitation, gross receipts, income, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, assessments, governmental
charges and duties together with all interest, penalties and additions imposed
with respect to any such amounts and any obligations under any agreements or
arrangements with any other person with respect to any such amounts and
including any liability of a predecessor entity for any such amounts.
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(b) Tax Returns and Audits. Except as set forth in Schedule 3.15
hereto, to Company's knowledge:
(i) Company has timely filed all federal, state, local and
foreign returns, estimates, information statements and reports relating to Taxes
("Returns") required to be filed by Company with any Tax authority prior to the
date hereof, except such Returns which are not material to Company. All such
Returns are true, correct and complete in all material respects. Company has
paid all Taxes shown to be due on such Returns.
(ii) All Taxes that Company is required by law to withhold or
collect have been duly withheld or collected, and have been timely paid over to
the proper governmental authorities to the extent due and payable.
(iii) Company has not been delinquent in the payment of any
material Tax nor is there any material Tax deficiency outstanding, proposed or
assessed against Company, nor has Company executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of Company by
any Tax authority is presently in progress, nor has Company been notified of any
request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by Company has
been proposed in writing, formally or informally, by any Tax authority to the
Company or any representative thereof.
(vi) Company has no liability for any material unpaid Taxes
which have not been accrued for or reserved on Company's balance sheets included
in the audited financial statements for the most recent fiscal year ended,
whether asserted or unasserted, contingent or otherwise, which is material to
Company, other than any liability for unpaid Taxes that may have accrued since
the end of the most recent fiscal year in connection with the operation of the
business of Company in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of
Company.
(vii) Company has not taken any action and does not know of
any fact, agreement, plan or other circumstance that is reasonably likely to
prevent the Transaction from qualifying as a tax-deferred exchange of property
within the meaning of Section 351 of the Code.
3.16 Environmental Matters. Except as disclosed in Schedule 3.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to Company's knowledge: (i)
Company has complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Company (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Company were not
contaminated with Hazardous Substances during the period of ownership or
operation by Company; (iv) Company is not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) Company has
not been associated with any release or threat of release of any Hazardous
Substance; (vi) Company has not received any notice, demand, letter, claim or
request for information alleging that Company may be in violation of or liable
under any Environmental Law; and (vii) Company is not subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
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As used in this Agreement, the term "Environmental Law" means any
federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health and safety,
or natural resources; (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
As used in this Agreement, the term "Hazardous Substance" means any
substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
3.17 Brokers; Third Party Expenses. Except in connection with the Private
Placement, Company nor, to Company's knowledge, any Member has not incurred, nor
will they incur, directly or indirectly, any liability for brokerage, finders'
fees, agent's commissions or any similar charges in connection with this
Agreement or any transactions contemplated hereby. Except as disclosed on
Schedule 3.17, no membership interests, ownership interests, equity securities,
convertible securities, warrants, options, or other derivative securities of
Company or Chiste are payable to any third party by Company or nay Member as a
result of this Transaction.
3.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and
all United States common law and statutory rights in, arising out of, or
associated therewith: (i) United States patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("Patents"); (ii) inventions (whether patentable
or not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (iii) United States copyrights,
copyrights registrations and applications therefor, and all other rights
corresponding thereto; (iv) material domain names, uniform resource locators
("URLs") and other names and locators associated with the Internet ("Domain
Names"); (v) industrial designs and any United States registrations and
applications therefor; (vi) United States trade names, logos, common law
trademarks and service marks, trademark and service xxxx registrations and
applications therefor (collectively, "Trademarks"); (vii) all databases and data
collections and all rights therein; (viii) all moral and economic rights of
authors and inventors, however denominated, and (ix) any similar or equivalent
rights to any of the foregoing (as applicable).
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"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or licensed to, Company.
"Registered Intellectual Property" means all Intellectual Property
that is the subject of a United States application, certificate, filing,
registration or other document issued, filed with, or recorded by any private,
state, government or other legal authority.
"Company Registered Intellectual Property" means all of the United
States Registered Intellectual Property owned by, or filed in the name of,
Company.
"Company Products" means all current versions of products or service
offerings of Company.
(a) Except as disclosed on Schedule 3.18, to the Company's
knowledge, the Company Intellectual Property and Company Products are not
subject to any material proceeding or outstanding decree, order, judgment,
contract, license, agreement or stipulation restricting in any manner the use,
transfer or licensing thereof by Company, or which may affect the validity, use
or enforceability of such Company Intellectual Property or Company Product,
which in any such case could reasonably be expected to have a Material Adverse
Effect on Company.
(b) Except as disclosed on Schedule 3.18 hereto, to the Company's
knowledge, Company either owns and has good and title to each material item of
Company Intellectual Property owned by it free and clear of any Liens (excluding
licenses and related restrictions granted in the ordinary course) or has one or
more licenses sufficient for Company's use of Company Intellectual Property; and
Company is the owner or licensee of all material registered Trademarks used in
connection with the operation or conduct of the business of Company including
the sale of any products or the provision of any services by Company.
(c) The operation of the business of Company as such business
currently is conducted, including (i) the design, development, manufacture,
distribution, reproduction, marketing or sale of the products or services of
Company (including Company Products) and (ii) Company's use of any product,
device or process, to the Company's knowledge and except as could not reasonably
be expected to have a Material Adverse Effect, has not and does not and will not
infringe or misappropriate the Intellectual Property of any third party or
constitute unfair competition or trade practices under the laws of any
jurisdiction.
3.19 Agreements, Contracts and Commitments.
(a) Schedule 3.19 hereto sets forth a complete and accurate list of
all Material Contracts (as hereinafter defined), specifying the parties thereto.
For purposes of this Agreement, (i) the term "Contracts" shall mean all
contracts, agreements, leases, mortgages, indentures, notes, bonds, liens,
licenses, permits, franchises, purchase orders, sales orders, arbitration
awards, judgments, decrees, orders, documents, instruments, understandings and
commitments, or other instrument or obligation (including without limitation
outstanding offers or proposals) of any kind, whether written or oral, to which
Company is a party or by or to which any of the properties or assets of Company
may be bound, subject or affected (including without limitation notes or other
instruments payable to Company) and (ii) the term "Material Contracts" shall
mean (x) each Contract (I) providing for payments (past, present or future) to
Company in excess of $50,000 in the aggregate or (II) under which or in respect
of which Company presently has any liability or obligation of any nature
whatsoever (absolute, contingent or otherwise) in excess of $50,000, (y) each
Contract which otherwise is or may be material to the business, operations,
assets or condition (financial or otherwise) of Company, and (z) without
limitation of subclause (x) or subclause (y), each of the following Contracts:
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(i) any mortgage, indenture, note, installment obligation or
other instrument, agreement or arrangement for or relating to any borrowing of
money by or from Company, or any officer, director or 5% or more stockholder
("Insider") of Company;
(ii) any guaranty, direct or indirect, by Company or any
Insider of Company of any obligation for borrowings, or otherwise, excluding
endorsements made for collection in the ordinary course of business;
(iii) any Contract made other than in the ordinary course of
business or (x) providing for the grant to any preferential rights to purchase
or lease any asset of Company or (y) providing for any right (exclusive or
non-exclusive) to sell or distribute, or otherwise relating to the sale or
distribution of, any product or service of Company;
(iv) any obligation to register any shares of the capital
stock or other securities of Company with any Governmental Entity;
(v) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business, assets or stock of other
Persons;
(vi) any collective bargaining agreement with any labor union;
(vii) any lease or similar arrangement for the use by Company
of personal property;
(viii) any Contract granting or purporting to grant, or
otherwise in any way relating to, any mineral rights or any other interest
(including, without limitation, a leasehold interest) in real property; and
(ix) any Contract to which any Insider of Company is a party.
(b) Each Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Material Contracts (or written summaries in the case of oral
Material Contracts) and of all outstanding offers or proposals of Company have
been heretofore delivered to Chiste.
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(c) Except as set forth in Schedule 3.19, neither Company nor to the
Company's knowledge any other party thereto is in breach of or in default under,
and no event has occurred which with notice or lapse of time or both would
become a breach of or default under, any Contract, and no party to any Material
Contract has given any written notice of any claim of any such breach, default
or event, which, individually or in the aggregate, are reasonably likely to have
a Material Adverse Effect on Company. Each Contract to which the Company is a
party or by which it is bound that has not expired by its terms is in full force
and effect, except where such failure to be in full force and effect is not
reasonably likely to have a Material Adverse Effect on Company.
3.20 Insurance. Schedule 3.20 sets forth the Company's insurance policies
and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers, directors, managers and managing members
(collectively, the "Insurance Policies") of Company which Company reasonably
believes are adequate in amount and scope for the business in which it is
engaged.
3.21 Governmental Actions/Filings. To the knowledge of Company, Company
has been granted and holds, and has made, all Governmental Actions/Filings
(including, without limitation, the Governmental Actions/Filings required for
(i) emission or discharge of effluents and pollutants into the air and the water
and (ii) the manufacture and sale of all products manufactured and sold by it)
necessary to the conduct by Company of its business (as presently conducted and
as necessary for currently proposed business to be conducted) or used or held
for use by Company, all of which are listed in Schedule 3.21 hereto, and true,
complete and correct copies of which have heretofore been delivered to Chiste.
Each such Governmental Action/Filing is in full force and effect and, expect as
disclosed in Schedule 3.21 hereto, will not expire prior to December 31, 2005,
and Company is in compliance with all of its obligations with respect thereto.
To the knowledge of Company, no event has occurred and is continuing which
requires or permits, or after notice or lapse of time or both would require or
permit, and consummation of the transactions contemplated by this Agreement or
any ancillary documents will not require or permit (with or without notice or
lapse of time, or both), any modification or termination of any such
Governmental Actions/Filings. Except as set forth in Schedule 3.21, to Company's
knowledge no Governmental Action/Filing is necessary to be obtained, secured or
made by Company to enable it to continue to conduct its businesses and
operations and use its properties after the Closing in a manner which is
consistent with current practice.
For purposes of this Agreement, the term "Governmental Action/Filing"
shall mean any franchise, license, certificate of compliance, authorization,
consent, order, permit, approval, consent or other action of, or any filing,
registration or qualification with, any federal, state, municipal, foreign or
other governmental, administrative or judicial body, agency or authority.
3.22 Interested Party Transactions. Except as set forth in the Schedule
3.22 hereto, no employee, officer, director, manager, managing member or Member
of Company or a member of his or her immediate family is indebted to Company,
nor is Company indebted (or committed to make loans or extend or guarantee
credit) to any of them, other than (i) for payment of salary for services
rendered, (ii) reimbursement for reasonable expenses incurred on behalf of
Company, and (iii) for other employee benefits made generally available to all
employees. Except as set forth in Schedule 3.22, to the Company's knowledge,
none of such individuals has any direct or indirect ownership interest in any
Person with whom Company is affiliated or with whom Company has a contractual
relationship, or any Person that competes with Company, except that each
employee, officer, director, manager, managing member or member of Company and
members of their respective immediate families may own less than 5% of the
outstanding stock in publicly traded companies that may compete with Company.
Except as set forth in Schedule 3.22, to the knowledge of the Company, no
employee, officer, director, manager, managing member or member or any member of
their immediate families is, directly or indirectly, interested in any material
contract with Company (other than such contracts as relate to any such
individual ownership of membership or interests in or other securities of
Company).
16
3.23 Board Approval. The board of managers of Company or similar governing
body (including any required committee or subgroup of thereof) has, as of the
date of this Agreement, unanimously approved, subject to the approval of Members
owning not less than 80% of the outstanding Interests, this Agreement and the
transactions contemplated hereby, and resolved to seek the Members' approval and
adoption of this Agreement and approval of the Transaction as provided in
Company's Charter Documents.
3.24 Management. During the past five year period, to Company's knowledge,
no current or former manager or managing member of Company has been the subject
of:
(a) a petition under the Federal bankruptcy laws or any other
insolvency or moratorium law or has a receiver, fiscal agent or similar officer
been appointed by a court for such person, or any partnership in which such
person was a general partner at or within two years before the time of such
filing, or any corporation or business association of which such person was an
executive officer at or within two years before the time of such filing;
(b) a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations that do not relate to
driving while intoxicated or driving under the influence);
(c) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the United
States Commodity Futures Trading Commission or an associated person of any
of the foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or employee of
any investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) Engaging in any type of business practice; or
17
(iii) Engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any violation
of Federal, state or other securities laws or commodities laws;
(d) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any Federal, state or local authority barring,
suspending or otherwise limiting for more than 60 days the right of any such
person to engage in any activity described in the preceding sub-paragraph, or to
be associated with persons engaged in any such activity;
(e) a finding by a court of competent jurisdiction in a civil action
or by the U.S. Securities and Exchange Commission ("SEC") to have violated any
securities law, regulation or decree and the judgment in such civil action or
finding by the SEC has not been subsequently reversed, suspended or vacated; or
(f) a finding by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.
3.25 Representations and Warranties Complete. The representations and
warranties of Company included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made. Any disclosure on one schedule will be deemed notice of
and disclosure by Company in respect of any other representation and warranty of
Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHISTE
Chiste represents and warrants to, and covenants with, Company, as
follows:
4.1 Organization and Qualification.
(a) Chiste is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Nevada and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Chiste to be conducted. To its knowledge, Chiste is in possession of all
Approvals necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being or currently
planned by Chiste to be conducted, except where the failure to have such
Approvals could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Chiste. Complete and correct copies of the
Charter Documents of Chiste, as amended and currently in effect, have been
heretofore delivered to Company. Chiste is not in violation of any of the
provisions of the Chiste's Charter Documents.
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(b) Chiste is duly qualified or licensed to do business as a foreign
corporation and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Chiste.
4.2 Subsidiaries. Except for ICON Acquisition, Inc., a Delaware
corporation and wholly-owned subsidiary of Chiste incorporated on September 20,
2004 ("ICON Sub"), which has been inactive since incorporation, Chiste has no
Subsidiaries and does not own, directly or indirectly, any ownership, equity,
profits or voting interest in any Person and, other than this Agreement, has no
agreement or commitment to purchase any such interest, and Chiste has not agreed
and is not obligated to make nor is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan, commitment or undertaking of any nature, as of the date hereof or
as may hereafter be in effect under which it may become obligated to make, any
future investment in or capital contribution to any other entity.
4.3 Capitalization.
(a) The authorized capital stock of Chiste consists of 65,000,000
shares of common stock, par value $0.001 per share ("Chiste Common Stock") and
10,000,000 shares of preferred stock, par value $0.001 per share, of which
1,500,000 shares will be designated as Series B Convertible Preferred Stock
pursuant to the Certificate of Designations of Series B Convertible Preferred
Stock attached hereto as Exhibit A) ("Chiste Preferred Stock"). At the close of
business on the business day prior to the date hereof, (i) 9,396,629 shares of
Chiste Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable; (ii) no shares of Chiste Preferred Stock
were issued and outstanding; (iii) no shares of Chiste Common Stock were
reserved for issuance upon the exercise of outstanding options to purchase
Company Common Stock granted to certain employees of Company or other parties
("Company Stock Options"); (iv) 2,400,000 shares of Chiste Common Stock were
reserved for issuance upon the exercise of outstanding warrants to purchase
Chiste Common Stock ("Chiste Warrants"); and (v) no shares of Chiste Common
Stock were reserved for issuance upon the conversion of the Chiste Preferred
Stock or any outstanding convertible notes, debentures or securities
("Convertible Securities"). All shares of Chiste Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instrument pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. All outstanding shares of Chiste
Common Stock and all outstanding Chiste Warrants have been issued and granted in
compliance with (i) all applicable securities laws and (in all material
respects) other applicable laws and regulations, and (ii) all requirements set
forth in any applicable Contracts. Chiste has heretofore been delivered to
Company true, complete an accurate copies of the Chiste Warrants including any
and all documents and agreements relating thereto. Prior to Closing, there will
an aggregate of 1,500,000 shares of authorized but unissued shares of Series B
Convertible Preferred Stock, par value $0.001 per share ("Series B Preferred
Stock"), which, subject to the approval of Chiste's stockholders which in any
case shall be required to have occurred subsequent to the Closing ("Stockholder
Approval"): (i) shall be convertible into 185.35215 shares of Common Stock for
each share of Series B Preferred Stock, subject to adjust for the Reverse Split
("Conversion Shares"). Upon the issuance of the shares of the Series B Preferred
Stock, and, subject to the Stockholder Approval, the Conversion Shares issuable
upon conversion thereof, when issued, will be validly issued, fully paid and
non-assessable. The term "Reverse Split" is defined in Section 6.17 hereof.
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(b) There are no equity securities, partnership interests or similar
ownership interests of any class of any equity security of Chiste, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for this Agreement or as set forth
in Schedule 4.3, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Chiste is a party or by which it is bound obligating Chiste to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
Chiste or obligating Chiste to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, equity security, call, right,
commitment or agreement. Following the Closing, Chiste's board of directors as
constituted following the Closing is expected to consider and to authorize and
approve the Investment with Security Funds and the terms and conditions thereof
and the execution of any agreements related to the Investment. Except as
contemplated by this Agreement and except as set forth in Schedule 4.3 hereto,
there are no registration rights, and there is no voting trust, proxy, rights
plan, antitakeover plan or other agreement or understanding to which Chiste is a
party or by which it is bound with respect to any equity security of any class
of Chiste.
4.4 Authority Relative to this Agreement. Chiste has full corporate power
and authority to: (i) execute, deliver and perform this Agreement, and each
ancillary document which Chiste has executed or delivered or is to execute or
deliver pursuant to this Agreement, and (ii) carry out Chiste's obligations
hereunder and thereunder and, to consummate the transactions contemplated hereby
(including the Transaction). The execution and delivery of this Agreement and
the consummation by Chiste of the transactions contemplated hereby (including
the Transaction) have been duly and validly authorized by all necessary
corporate action on the part of Chiste (including the approval by its Board of
Directors), and no other corporate proceedings on the part of Chiste are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, other than the filing and acceptance of the Certificate of
Designations for the Series B Preferred Stock. This Agreement has been duly and
validly executed and delivered by Chiste and, assuming the due authorization,
execution and delivery thereof by the other parties hereto, constitutes the
legal and binding obligation of Chiste, enforceable against Chiste in accordance
with its terms, except as may be limited by: (a) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity and public policy, and (b)
the Stockholder Approval. Upon the Stockholder Approval, which in any case shall
be required to have occurred subsequent to the Closing, the Series B Preferred
Stock will be convertible into duly authorized, validly issued, fully paid and
nonassessable shares of Chiste's Common Stock.
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4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Chiste and the
execution and delivery of each ancillary document to be delivered by Chiste
hereunder do not, and the performance of this Agreement and each such ancillary
document by Chiste shall not: (i) conflict with or violate Chiste's Charter
Documents, (ii) conflict with or violate any Legal Requirements, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or materially impair Chiste's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Chiste pursuant to, any Contracts, except, with respect to clauses
(ii) or (iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually and in the aggregate, have a Material
Adverse Effect on Chiste.
(b) Except for: (i) the filing of the Certificate of Designations
for the Series B Preferred Stock ("Certificate of Designations") with the
appropriate authorities and pursuant to the laws of the State of Nevada and (ii)
the requirement to obtain the Stockholder Approval, which in any case shall be
required to have occurred subsequent to the Closing, the execution and delivery
of this Agreement by Chiste does not, and the performance of its obligations
hereunder will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Entity, except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws, and the rules and regulations thereunder, and appropriate documents
with the relevant authorities of other jurisdictions in which Company is
qualified to do business, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Chiste, or prevent consummation of the Transaction or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
4.6 Compliance. To Chiste's knowledge, Chiste has complied with, is not in
violation of, any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on Chiste. To
Chiste's knowledge, the businesses and activities of Chiste have not been and
are not being conducted in violation of any Legal Requirements. Chiste is not in
default or violation of any material term, condition or provision of its Charter
Documents. Except as set forth on Schedule 4.6, to Chiste's knowledge, no
written notice of non-compliance with any Legal Requirements has been received
by Chiste.
4.7 SEC Filings; Financial Statements.
(a) Chiste has made available to Company a correct and complete
copy, or there has been available on XXXXX copies, of each report, registration
statement and definitive proxy statement filed by Chiste with the SEC for the 36
months prior to the date of this Agreement (the "Chiste SEC Reports"), which, to
Chiste's knowledge, are all the forms, reports and documents required to be
filed by Chiste with the SEC for the 36 months prior to the date of this
Agreement. As of their respective dates, to Chiste's knowledge, the Chiste SEC
Reports: (i) were prepared in accordance and complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
Chiste SEC Reports, and (ii) did not at the time they were filed (and if amended
or superseded by a filing prior to the date of this Agreement then on the date
of such filing and as so amended or superceded) contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
set forth in the preceding sentence, Chiste makes no representation or warranty
whatsoever concerning the Chiste SEC Reports as of any time other than the time
they were filed.
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(b) To Chiste's knowledge, each set of financial statements
(including, in each case, any related notes thereto) contained in Chiste SEC
Reports, including each Chiste SEC Report filed after the date hereof until the
Closing, comply as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
U.S. GAAP applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or, in the case of unaudited
statements, do not contain footnotes as permitted by Form 10-QSB of the Exchange
Act) and each fairly presents in all material respects the financial position of
Chiste at the respective dates thereof and the results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal adjustments which were not or
are not expected to have a Material Adverse Effect on Chiste taken as a whole.
(c) Chiste has previously furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Chiste with the SEC
pursuant to the Securities Act or the Exchange Act.
4.8 No Undisclosed Liabilities. Except as set forth in Schedule 4.8
hereto, Chiste has no liabilities (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related notes
to the financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Chiste, except (i) liabilities provided for
in or otherwise disclosed in Chiste SEC Reports filed prior to the date hereof,
(ii) liabilities incurred since December 31, 2004 in the ordinary course of
business, none of which would have a Material Adverse Effect on Chiste, and
(iii) those liabilities and obligations specifically set forth in Section 6.12.
4.9 Absence of Certain Changes or Events. Except as set forth in Schedule
4.9 hereto or in Chiste SEC Reports filed prior to the date of this Agreement,
and except as contemplated by this Agreement, since December 31, 2004, there has
not been: (i) any Material Adverse Effect on Chiste, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Chiste's capital stock, or any
purchase, redemption or other acquisition by Chiste of any of Chiste's capital
stock or any other securities of Chiste or any options, warrants, calls or
rights to acquire any such shares or other securities, (iii) except for the
designation of the Series B Preferred Stock, any split, combination or
reclassification of any of Chiste's capital stock, (iv) any granting by Chiste
of any increase in compensation or fringe benefits, except for normal increases
of cash compensation in the ordinary course of business consistent with past
practice, or any payment by Chiste of any bonus, except for bonuses made in the
ordinary course of business consistent with past practice, or any granting by
Chiste of any increase in severance or termination pay or any entry by Chiste
into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Chiste of the nature contemplated hereby, (v) entry by
Chiste into any licensing or other agreement with regard to the acquisition or
disposition of any Intellectual Property other than licenses in the ordinary
course of business consistent with past practice or any amendment or consent
with respect to any licensing agreement filed or required to be filed by Chiste
with respect to any Governmental Entity, (vi) any material change by Chiste in
its accounting methods, principles or practices, except as required by
concurrent changes in U.S. GAAP, (vii) any change in the auditors of Chiste,
(vii) except for the issuance of 135,000 shares of Chiste's Common Stock to a
financial consultant on April 5, 2005 in payment for services rendered, any
issuance of capital stock of Chiste, or (viii) any revaluation by Chiste of any
of their respective assets, including, without limitation, writing down the
value of, or any sale of, assets of Chiste other than in the ordinary course of
business.
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4.10 Litigation. Except as set forth on Schedule 4.10 hereto or in Chiste
SEC Reports, there are no claims, suits, actions or proceedings pending or to
Chiste's knowledge, threatened against Chiste, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on Chiste or have a Material Adverse Effect on
the ability of the parties hereto to consummate the Transaction.
4.11 Employee Benefit Plans. Except as disclosed on Schedule 4.11 hereto,
Chiste does not maintain, and has no liability under, any Plan, and neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of Chiste, or (ii) result
in the acceleration of the time of payment or vesting of any such benefits.
4.12 Labor Matters. Chiste is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
Chiste, nor does Chiste know of any activities or proceedings of any labor union
to organize any such employees.
4.13 Restrictions on Business Activities. To Chiste's knowledge, there is
no agreement, commitment, judgment, injunction, order or decree binding upon
Chiste or to which Chiste is a party which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any business practice
of Chiste, any acquisition of property by Chiste or the conduct of business by
Chiste as currently conducted other than such effects, individually or in the
aggregate, which have not had and could not reasonably be expected to have, a
Material Adverse Effect on Chiste.
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4.14 Title to Property. Chiste does not own or lease any Real Property or
Personal Property. There are no options or other contracts under which Chiste
has a right or obligation to acquire or lease any interest in Real Property or
Personal Property.
4.15 Taxes. Except as set forth in Schedule 4.15 hereto, to Chiste's
knowledge:
(a) Chiste has timely filed all Returns required to be filed by
Chiste with any Tax authority prior to the date hereof, except such Returns
which are not material to Chiste. All such Returns are true, correct and
complete in all material respects. Chiste has paid all Taxes shown to be due on
such Returns.
(b) All Taxes that Chiste is required by law to withhold or collect
have been duly withheld or collected, and have been timely paid over to the
proper governmental authorities to the extent due and payable.
(c) Chiste has not been delinquent in the payment of any material
Tax nor is there any material Tax deficiency outstanding, proposed or assessed
against Chiste, nor has Chiste executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(d) No audit or other examination of any Return of Chiste by any Tax
authority is presently in progress, nor has Chiste been notified of any request
for such an audit or other examination.
(e) No adjustment relating to any Returns filed by Chiste has been
proposed in writing, formally or informally, by any Tax authority to Chiste or
any representative thereof.
(f) Chiste has no liability for any material unpaid Taxes which have
not been accrued for or reserved on Chiste's balance sheets included in the
audited financial statements for the most recent fiscal year ended, whether
asserted or unasserted, contingent or otherwise, other than any liability for
unpaid Taxes that may have accrued since the end of the most recent fiscal year
in connection with the operation of the business of Chiste in the ordinary
course of business.
(g) Chiste has not taken any action and does not know of any fact,
agreement, plan or other circumstance that is reasonably likely to prevent the
Transaction from qualifying as a tax-deferred exchange of property within the
meaning of Section 351 of the Code.
4.16 Environmental Matters. Except as disclosed in Schedule 4.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to Chiste's knowledge: (i)
Chiste has complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Chiste (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Chiste were not
contaminated with Hazardous Substances during the period of ownership or
operation by Chiste; (iv) Chiste is not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) Chiste has
not been associated with any release or threat of release of any Hazardous
Substance; (vi) Chiste has not received any notice, demand, letter, claim or
request for information alleging that Chiste may be in violation of or liable
under any Environmental Law; and (vii) Chiste is not subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
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4.17 Brokers. Except for Chiste's obligations under the Financial Advisory
Agreement (as defined in Section 6.12), Chiste has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agent's commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
4.18 Intellectual Property. Chiste does not own, license or otherwise have
any right, title or interest in any Intellectual Property or Registered
Intellectual Property.
4.19 Agreements, Contracts and Commitments.
(a) Except for the Financial Advisory Agreement, any agreement with
Computershare Trust Company ("Transfer Agent"), the agreement with Vero
Management, LLC which will be terminated prior to Closing, or as set forth on
Schedule 4.19 or in Chiste SEC Reports, to Chiste's knowledge, there are no
contracts, agreements, leases, mortgages, indentures, note, bond, liens,
license, permit, franchise, purchase orders, sales orders, arbitration awards,
judgments, decrees, orders, documents, instruments, understandings and
commitments, or other instrument or obligation (including without limitation
outstanding offers or proposals) of any kind, whether written or oral, to which
Chiste is a party or by or to which any of the properties or assets of Chiste
may be bound, subject or affected ("Chiste Contracts").
(b) To Chiste's knowledge, each Chiste Contract was entered into at
arms' length and in the ordinary course, is in full force and effect and is
valid and binding upon and enforceable against each of the parties thereto.
True, correct and complete copies of all Chiste Contracts (or written summaries
in the case of oral Chiste Contracts) and of all outstanding offers or proposals
of Chiste have been heretofore delivered to Company.
(c) Neither Chiste nor, to the knowledge of Chiste, any other party
thereto is in breach of or in default under, and no event has occurred which
with notice or lapse of time or both would become a breach of or default under,
any Chiste Contract, and no party to any Chiste Contract has given any written
notice of any claim of any such breach, default or event, which, individually or
in the aggregate, are reasonably likely to have a Material Adverse Effect on
Chiste. Each agreement, contract or commitment to which Chiste is a party or by
which it is bound that has not expired by its terms is in full force and effect,
except where such failure to be in full force and effect is not reasonably
likely to have a Material Adverse Effect on Chiste.
4.20 Insurance. Chiste does not maintain any Insurance Policies.
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4.21 Governmental Actions/Filings. To its knowledge, Chiste has been
granted and holds, and has made, all Governmental Actions/Filings necessary to
the conduct by Chiste of its businesses (as presently conducted) or used or held
for use by Chiste, all of which are listed in Schedule 4.21 hereto, and true,
complete and correct copies of which have heretofore been delivered to Company.
Each such Governmental Action/Filing is in full force and effect and, expect as
disclosed in Schedule 4.21 hereto, will not expire prior to December 31, 2005,
and Chiste is in compliance with all of its obligations with respect thereto. To
Chiste's knowledge, no event has occurred and is continuing which requires or
permits, or after notice or lapse of time or both would require or permit, and
consummation of the transactions contemplated by this Agreement or the ancillary
documents will not require or permit (with or without notice or lapse of time,
or both), any modification or termination of any such Governmental
Actions/Filings. Except as set forth in Schedule 4.21, to Chiste's knowledge, no
Governmental Action/Filing is necessary to be obtained, secured or made by
Chiste to enable it to continue to conduct its businesses and operations and use
its properties after the Closing in a manner which is consistent with current
practice.
4.22 Interested Party Transactions. Except as set forth in the Schedule
4.22 hereto or in the Chiste's SEC Reports, no employee, officer, director or
stockholder of Chiste or a member of his or her immediate family is indebted to
Chiste, nor is Chiste indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than (i) for payment of salary for
services rendered, (ii) reimbursement for reasonable expenses incurred on behalf
of Chiste, and (iii) for other employee benefits made generally available to all
employees. Except as set forth in Schedule 4.22, to Chiste's knowledge, none of
such individuals has any direct or indirect ownership interest in any Person
with whom Chiste is affiliated or with whom Chiste has a material contractual
relationship, or any Person that competes with Chiste, except that each
employee, stockholder, officer or director of Chiste and members of their
respective immediate families may own less than 5% of the outstanding stock in
publicly traded companies that may compete with Chiste. Except as set forth in
Schedule 4.22, to Chiste's knowledge, no officer, director or stockholder or any
member of their immediate families is, directly or indirectly, interested in any
material contract with Chiste (other than such contracts as relate to any such
individual ownership of capital stock or other securities of Chiste).
4.23 Indebtedness; Chiste Assets. Except as set forth on Schedule 4.23,
Chiste has no indebtedness for borrowed money. Immediately prior to the Closing,
Chiste will have no assets, except for cash reserves earmarked for the payment
of certain accounts payable and accrued expenses of Chiste with respect to the
period prior to Closing which remain unpaid, which Chiste shall be responsible
for payment following the Closing pursuant to Section 6.12 hereof ("Cash
Reserve").
4.24 Over-the-Counter Bulletin Board Quotation. Chiste Common Stock is
quoted on the Over-the-Counter Bulletin Board ("OTC BB"). There is no action or
proceeding pending or, to Chiste's knowledge, threatened against Chiste by
NASDAQ or NASD, Inc. ("NASD") with respect to any intention by such entities to
prohibit or terminate the quotation of Chiste Common Stock on the OTC BB.
4.25 Exchange Act Compliance. The Company is in compliance with, and
current in, all of the reporting, filing and other requirements under the
Exchange Act, the shares of the Company's common stock have been duly and
properly registered under Section 12(g) of the Exchange Act, and the Company is
in compliance with all of the requirements under, and imposed by, Section 12(g)
of the Exchange Act, except where a failure to so comply is not reasonably
likely to have a Material Adverse Effect on Chiste.
26
4.26 Board Approval. The board of directors of Chiste (including any
required committee or subgroup of the board of directors of Chiste) has, as of
the date of this Agreement, unanimously approved this Agreement and the
transactions contemplated hereby (except for the Investment, which shall be
presented to Chiste's newly-constituted board of directors following Closing for
consideration and approval).
4.27 Private Placement Information. The written information with respect
to Chiste that is included in the memorandum for the Private Placement, or any
supplement thereto ("Memorandum"), to the extent the same has been approved by
Chiste in advance, is true and complete in all material respects and does not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading, under the circumstance under which they were made.
4.28 Representations and Warranties Complete. The representations and
warranties of Chiste included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made. Any disclosure on one schedule will be deemed notice of
and disclosure by Chiste in respect of any other representation and warranty of
Chiste.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business by Company and Chiste. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Closing, the Company and Chiste
shall, except to the extent that the other party shall otherwise consent in
writing, carry on its business in the usual, regular and ordinary course
consistent with past practices, in substantially the same manner as heretofore
conducted and in compliance with all applicable laws and regulations (except
where noncompliance would not have a Material Adverse Effect), pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies to (i) preserve
substantially intact its present business organization, (ii) keep available the
services of its present officers, managers and employees, and (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others with which it has significant business dealings. In addition, except as
permitted or required by the terms of this Agreement or set forth on the
Schedule 5.1 hereto, without the prior written consent of the other party,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement pursuant to its terms or the
Closing, each of Company and Chiste shall not do any of the following:
27
(a) Waive any stock repurchase rights, accelerate, amend or (except
as specifically provided for herein) change the period of exercisability of
options or restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer, manager
or employee except pursuant to applicable law, written agreements outstanding,
or policies existing on the date hereof and as previously or concurrently
disclosed in writing or made available to the other party, or adopt any new
severance plan, or amend or modify or alter in any manner any severance plan,
agreement or arrangement existing on the date hereof;
(c) Transfer or license to any person or otherwise extend, amend or
modify any material rights to any Intellectual Property of Company or Chiste, as
applicable, or enter into grants to transfer or license to any person future
patent rights, other than in the ordinary course of business consistent with
past practices provided that in no event shall Company or Chiste license on an
exclusive basis or sell any Intellectual Property of Company or Chiste, as
applicable;
(d) Except in respect of the Private Placement and the Investment,
employment agreements in the ordinary course or otherwise scheduled or set forth
in this Agreement, declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock, membership interests or ownership interests, or split,
combine or reclassify any capital stock, membership interests or ownership
interests, or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock, membership interests or
ownership interests;
(e) Purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock, membership interests or ownership interests of
Company and Chiste, as applicable, except repurchases of unvested shares,
membership interests or ownership interests at cost in connection with the
termination of the employment relationship with any employee pursuant to stock
option or purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber,
or agree to any of the foregoing with respect to, any shares of capital stock,
membership interests or ownership interests or any securities convertible into
or exchangeable for shares of capital stock, membership interests or ownership
interests, or subscriptions, rights, warrants or options to acquire any shares
of capital stock, membership interests or ownership interests or any securities
convertible into or exchangeable for shares of capital stock, membership
interests or ownership interests, or enter into other agreements or commitments
of any character obligating it to issue any such shares, membership interests,
ownership interests or convertible or exchangeable securities (except relating
to employment and similar agreements and the Private Placement and the proposed
Investment);
(g) Amend its Charter Documents (except with respect to Company to
add provisions relating to "drag along rights", employment related issues and
the sale of Interests in the Private Placement);
28
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of Chiste or Company, as applicable, or enter into any joint ventures,
strategic partnerships or alliances or other arrangements that provide for
exclusivity of territory or otherwise restrict such party's ability to compete
or to offer or sell any products or services;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice and, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of such party;
(j) Incur any indebtedness for borrowed money in excess of $100,000
in the aggregate or guarantee any such indebtedness of another person, issue or
sell any debt securities or options, warrants, calls or other rights to acquire
any debt securities of Chiste or Company, as applicable, enter into any "keep
well" or other agreement to maintain any financial statement condition or enter
into any arrangement having the economic effect of any of the foregoing other
than purchase agreements relating to preparing for production, marketing and
selling Company product and services;
(k) Adopt or amend any employee benefit plan, policy or arrangement,
any employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer letters
and agreements entered into in the ordinary course of business consistent with
past practice), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees or
consultants, except in the ordinary course of business consistent with past
practices and other than for new hires in the ordinary course;
(l) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of this
Agreement) other than the payment, discharge, settlement or satisfaction, in the
ordinary course of business consistent with past practices or in accordance with
their terms, or liabilities recognized or disclosed in the most recent financial
statements (or the notes thereto) of Company or of Chiste, as applicable, or
incurred since the date of such financial statements, or waive the benefits of,
agree to modify in any manner, terminate, release any person from or knowingly
fail to enforce any confidentiality or similar agreement to which Company is a
party or of which Company is a beneficiary or to which Chiste is a party or of
which Chiste is a beneficiary, as applicable;
(m) Except in the ordinary course of business consistent with past
practices, modify, amend or terminate any Material Contract of Company or
Chiste, as applicable, or waive, delay the exercise of, release or assign any
material rights or claims thereunder;
29
(n) Except as required by U.S. GAAP, revalue any of its assets or
make any change in accounting methods, principles or practices;
(o) Incur or enter into any agreement, contract or commitment
requiring such party to pay in excess of $100,000 in any 12 month period, other
than in the ordinary course or otherwise provided in this Agreement and
employment agreements which may be entered into by the Company;
(p) Engage in any action that could reasonably be expected to cause
the Transaction to fail to qualify as a "reorganization" under Section 351 of
the Code;
(q) Settle any litigation;
(r) Make or rescind any Tax elections that, individually or in the
aggregate, could be reasonably likely to adversely affect in any material
respect the Tax liability or Tax attributes of such party, settle or compromise
any material income tax liability or, except as required by applicable law,
materially change any method of accounting for Tax purposes or prepare or file
any Return in a manner inconsistent with past practice;
(s) Form, establish or acquire any Subsidiary;
(t) Permit the any Person to exercise any of its discretionary
rights under any Plan to provide for the automatic acceleration of any
outstanding options, the termination of any outstanding repurchase rights or the
termination of any cancellation rights issued pursuant to such plans; or
(u) Agree in writing or otherwise agree, commit or resolve to take
any of the actions described in Section 5.1 (a) through (t) above.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Board of Directors of Chiste. At Closing, the current board of
directors of Chiste shall deliver duly adopted resolutions to: (a) set the size
of Chiste's board of directors to five (5) members effective as of the Closing;
and (b) elect the following persons to Chiste's board of directors effective as
of the Closing: (i) Xxxxxx Xxxxxxxx and Xxx Blomen, each of whom shall be
management members of Chiste's board of directors ("Management Members"); (ii)
one member designated by KRM Fund, which person shall be an independent director
and a financial expert, qualified and available to serve on Chiste's audit and
compensation committee, and otherwise acceptable to the Members ("Chiste
Designated Member"); and (iii) two persons, each of whom shall have been
selected by the Members and shall be independent directors ("Independent
Members"); and (c) accepting the resignations of the current officers and
directors of the Chiste effective as of the Closing ("Resolutions"). At Closing,
the current officers and director of Chiste shall deliver their resignations, as
appropriate, as officers and directors of Chiste to be effective upon the
Closing (the "Resignations"). Prior to Closing, the Company shall deliver or
cause to be delivered to Chiste completed and signed director and officer
questionnaires ("Questionnaires") in the English language for each of the
Management Members, Chiste Designated Member, Independent Members and each
officer to be appointed by Chiste following Closing. The foregoing designations
of the Management Members and Independent Members (and the officers to be
appointed by Chiste following Closing) shall be subject to Chiste's receipt of
the completed and signed Questionnaires and any third party investigation
reports and background checks which Chiste believes reasonably necessary, which
shall be acceptable to Chiste in its sole reasonable discretion ("D&O
Information"), and such designated persons qualifications to serve in such
officer and director capacities under applicable Legal Requirements. Chiste's
board of directors shall at all times satisfy the applicable requirements for
board composition and corporate governance under the Xxxxxxxx-Xxxxx Act of 2002
(the "SOX Act"), the rules and regulations promulgated by the SEC and other
governmental agencies, and the rules of the exchange on which Chiste's
securities are, or are expected to be, listed or quoted.
30
6.2 Undertaking by Company Accountant. On or before the Closing, the
Company shall obtain, and deliver to Chiste, an undertaking from Xxxxxxxxx Xxxxx
Xxxxxxx LLP ("Accountant"), in a form and substance satisfactory to Chiste,
providing that: (i) the Accountant has agreed to an engagement with Chiste to
serve as its certified public accountants following the Closing for purposes of
auditing and reviewing the financial statements of Chiste and Company to comply
with Chiste's ongoing reporting requirements under the Exchange Act including,
without limitation, the filing of Forms 10-Q, 10-K, and 8-K, (ii) the
transaction contemplated hereunder will not disqualify or otherwise prohibit the
Accountant from rendering the foregoing engagement services or from undertaking
such services in a timely manner, (iii) the Accountant is duly registered with
the U.S. Public Company Accounting Oversight Board ("PCAOB"), (iv) the
Accountant shall provide its consent to the use of their audited financial
statements and accompanying reports for Chiste and Company, as applicable, in
any regulatory filing by Chiste prior to or following the Closing, and (v)
consenting to the use of its name and the disclosure of its engagement by Chiste
in the Change of Accountant Form 8-K (as defined in Section 6.3) ("Accountant
Undertaking"). A signed copy of the engagement letter between Chiste and
Accountant shall be attached to the Accountant Undertaking.
6.3 Consent by Former Accountants; Change of Accountants. On or prior to
the Closing, the Company shall obtain, and deliver to Chiste, the written
consent from any former accountants of the Company, in a form and substance
satisfactory to Chiste, to the use of their audited financial statements and
accompanying reports for the Company to the extent that such financial
statements and reports are required to be included in any regulatory filing by
Chiste prior to or following the Closing ("Former Accountant Consents"). At
Closing, Chiste shall prepare the Form 8-K announcing the change in Chiste's
certifying accountants from Xxxxxxx, Xxxxx & Xxxxxxx, PLC ("Chiste's
Accountant") to the Accountant effective as of the Closing ("Change of
Accountant Form 8-K"), in a form acceptable to Chiste and in a format acceptable
for XXXXX filing. The Change of Accountant Form 8-K shall be filed with the SEC
at or within four (4) business days following Closing, and prior to the filing
thereof, Chiste's Accountant shall have issued its resignation letter to Chiste
resigning from the engagement and consenting to the use of its name and the
disclosure of its resignation in the Change of Accountant Form 8-K ("Resignation
Letter").
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6.4 Filing of Form 10-K; Preparation of Audited Financial Statements.
Prior to the Closing, Chiste shall prepare its financial statements for the year
ended March 31, 2005 in conformity with U.S. GAAP and complete the audit thereof
by Chiste's Accountant, and Chiste shall prepare and file with the SEC its
annual report on Form 10-K for the year ended March 31, 2005 ("2005 Form 10-K").
6.5 Other Actions.
(a) At least ten (10) days prior to Closing, Chiste shall prepare
the information statement required by Rule 14f-1 promulgated under the Exchange
Act ("14f-1 Information Statement"), and Chiste shall file the 14f-1 Information
Statement with the SEC and mail the same to each of Chiste's stockholders.
(b) At least five (5) days prior to Closing, Company shall prepare
the Form 8-K announcing the Closing, which shall include all information
(financial or otherwise) that may from time to time be required by the SEC to be
included on any report, statement or form to be filed with the SEC in connection
with a reverse merger transaction with a public shell, the Company U.S. GAAP
Financial Statements (as defined below), and the Company Pro Forma Financial
Statements (defined below) ("Transaction Form 8-K"), which shall be in a form
acceptable to Chiste and in a format acceptable for XXXXX filing. Prior to
Closing, the Company shall prepare the press release announcing the consummation
of the Transaction hereunder ("Press Release"). At the Closing, Chiste shall
file the Transaction Form 8-K with the SEC and distribute the Press Release.
(c) At Closing, Company shall deliver to Chiste audited financial
statements for Company for the last two fiscal years ended and unaudited
financials statements for Company for the most recent interim period ended,
which financials statements shall comply in all material respects with the
published rules and regulations of the SEC, shall be prepared in accordance with
U.S. GAAP applied on a consistent basis throughout the periods involved, and
shall fairly present in all material respects the financial position of Company
at the respective dates thereof and the results of its operations and cash flows
for the periods indicated ("Company U.S. GAAP Financial Statements").
(d) The Company U.S. GAAP Financial Statements for the last two
fiscal years shall have been audited by, and the interim financial statements
have been reviewed by, the Accountant.
(e) At Closing, Company shall deliver to Chiste pro forma financial
statements for the Company and Chiste, on a consolidated basis, giving effect to
the Transaction, for such periods as required by the SEC to be included in a
Form 8-K or any other report or form required to be filed with the SEC at or
after Closing with respect to the Transaction, all prepared in all material
respects with the published rules and regulations of the SEC and in accordance
with U.S. GAAP applied on a consistent basis throughout the periods involved
("Company Pro Forma Financial Statements"). The Company Pro Forma Financial
Statements shall have been reviewed by the Accountant and shall be in a format
acceptable for inclusion on the Transaction 8-K.
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Company and Chiste shall cooperate with each other and use (and shall
cause their respective Subsidiaries to use) their respective reasonable best
efforts to take or cause to be taken all actions, and do or cause to be done all
things, necessary, proper or advisable on its part under this Agreement and
applicable laws to consummate the Transaction and the other transactions
contemplated hereby as soon as practicable, including preparing and filing as
soon as practicable all documentation to effect all necessary notices, reports
and other filings and to obtain as soon as practicable all consents,
registrations, approvals, permits and authorizations necessary or advisable to
be obtained from any third party and/or any Governmental Entity in order to
consummate the Transaction or any of the other transactions contemplated hereby.
Subject to applicable laws relating to the exchange of information and the
preservation of any applicable attorney-client privilege, work-product doctrine,
self-audit privilege or other similar privilege, each of Company and Chiste
shall have the right to review and comment on in advance, and to the extent
practicable each will consult the other on, all the information relating to such
party, and any of Company's Subsidiaries, that appear in any filing made with,
or written materials submitted to, any third party and/or any Governmental
Entity in connection with the Transaction and the other transactions
contemplated hereby. In exercising the foregoing right, each of Company and
Chiste shall act reasonably and as promptly as practicable.
6.6 Required Information. In connection with the preparation of the
Transaction Form 8-K, 14f-1 Information Statement, and Press Release, and for
such other reasonable purposes, Company and Chiste each shall, upon request by
the other, furnish the other with all information concerning themselves, their
respective subsidiaries, directors, officers, managers, managing members,
stockholders and Members (including the directors and officers of Chiste to be
elected effective as of the Closing pursuant to Section 6.1 hereof) and such
other matters as may be reasonably necessary or advisable in connection with the
Transaction, or any other statement, filing, notice or application made by or on
behalf of Company and Chiste or any of their respective subsidiaries to any
third party and/or any Governmental Entity in connection with the Transaction
and the other transactions contemplated hereby. Each party warrants and
represents to the other party that all such information shall be true and
correct in all material respects and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
6.7 Confidentiality; Access to Information.
(a) Any confidentiality agreement or letter of intent previously
executed by the parties shall be superseded in its entirety by the provisions of
this Agreement. Each party agrees to maintain in confidence any non-public
information received from the other party, and to use such non-public
information only for purposes of consummating the transactions contemplated by
this Agreement. Such confidentiality obligations will not apply to (i)
information which was known to the one party or their respective agents prior to
receipt from the other party; (ii) information which is or becomes generally
known; (iii) information acquired by a party or their respective agents from a
third party who was not bound to an obligation of confidentiality; and (iv)
disclosure required by law. In the event this Agreement is terminated as
provided in Article IX hereof, each party will return or cause to be returned to
the other all documents and other material obtained from the other in connection
with the Transaction contemplated hereby.
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(b) Access to Information.
(i) Company will afford Chiste and its financial advisors,
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of Company during the period prior to the Closing to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel of Company, as Chiste
may reasonably request. No information or knowledge obtained by Chiste in any
investigation pursuant to this Section 6.7 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Transaction.
(ii) Chiste will afford Company and its financial advisors,
underwriters, accountants, counsel and other representatives reasonable access
during normal business hours, upon reasonable notice, to the properties, books,
records and personnel of Chiste during the period prior to the Closing to obtain
all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of Chiste,
as Company may reasonably request. No information or knowledge obtained by
Company in any investigation pursuant to this Section 6.7 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Transaction.
6.8 No Solicitation. Other than with respect to the Transaction, each of
Company and Chiste agrees that neither it nor any of its officers, directors,
managers, or managing members shall, and that it shall direct and use its
reasonable best efforts to cause its and its agents and other representatives
(including any investment banker, attorney or accountant retained by it) not to,
directly or indirectly, initiate, solicit, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer with respect to (i) a merger,
reorganization, share exchange, consolidation or similar transaction involving
it, (ii) any sale, lease, exchange, mortgage, pledge, transfer or purchase of
all or substantially all of the assets or equity securities of it, taken as a
whole, in a single transaction or series of related transactions or (iii) any
tender offer or exchange offer for 20% or more of the outstanding shares of
Chiste Common Stock or Company's Interests (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal"). Each of Company and
Chiste further agrees that neither it nor of its officers, directors, managers,
or managing members shall, and that it shall direct and use its reasonable best
efforts to cause its agents and representatives not to, directly or indirectly,
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. Each of the Company and Chiste agrees that it will
immediately cease and cause to be terminated any existing discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. Each of the Company and Chiste agrees that it will take
the necessary steps to promptly inform the individuals or entities referred to
in the first sentence hereof of the obligations undertaken in this Section 6.8.
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Notwithstanding anything contained in this Agreement to the contrary,
nothing contained in this Agreement shall prevent the board of directors of
Chiste, or their respective representatives from, prior to the time Chiste's
stockholders have approved this Transaction (A) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal, if
applicable, or otherwise complying with the Exchange Act; (B) providing
information in response to a request therefore by a person who has made a bona
fide unsolicited Acquisition Proposal; (C) engaging in any negotiations or
discussions with any person who has made a bona fide unsolicited Acquisition
Proposal or otherwise facilitating any effort or attempt to implement an
Acquisition Proposal; or (D) withdrawing or modifying the approval or
recommendation by Chiste's board of directors of this Agreement, approving or
recommending any Acquisition Proposal or causing the applicable party to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement relating to any Acquisition Proposal, if, and only to
the extent that in each such case referred to in clause (B), (C) or (D) above,
Chiste's board of directors determines in good faith, after consultation with
outside legal counsel that such action is necessary to act in a manner
consistent with the directors' fiduciary duties under applicable law and
determines in good faith after consultation with its financial advisors that the
person or group making such Acquisition Proposal has adequate sources of
financing to consummate such Acquisition Proposal and that such Acquisition
Proposal, if consummated as proposed, is materially more favorable to the
stockholders of Chiste from a financial point of view (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal") and determines
in good faith that such Superior Proposal is reasonably capable of being
consummated, taking into account legal, financial, regulatory and other aspects
of the proposal and the person making the proposal.
6.9 Public Disclosure. Except to the extent previously disclosed or to the
extent the parties believe that they are required by applicable law or
regulation to make disclosure, prior to Closing, no party shall issue any
statement or communication to the public regarding the Transaction without the
consent of the other party, which consent shall not be unreasonably withheld. To
the extent a party hereto believes it is required by law or regulation to make
disclosure regarding the Transaction, it shall, if possible, immediately notify
the other party prior to such disclosure. Notwithstanding the foregoing, the
parties hereto agree that Chiste will prepare and file a Current Report on Form
8-K pursuant to the Exchange Act to report the execution of this Agreement and
that any party hereto may file any reports as required by the Exchange Act
including, without limitation, any reports on Schedule 13D.
6.10 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Transaction and the other transactions contemplated by
this Agreement, including using commercially reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VII to be satisfied, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents, approvals,
orders and authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the taking of
all reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the obtaining of
all consents, approvals or waivers from third parties required as a result of
the transactions contemplated in this Agreement, (iv) the defending of any
suits, claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments reasonably necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement. In connection with and
without limiting the foregoing, Chiste and its board of directors and Company
and its board of directors shall, if any state takeover statute or similar
statute or regulation is or becomes applicable to the Transaction, this
Agreement or any of the transactions contemplated by this Agreement, use its
commercially reasonable efforts to enable the Transaction and the other
transactions contemplated by this Agreement to be consummated as promptly as
practicable on the terms contemplated by this Agreement. Notwithstanding
anything herein to the contrary, nothing in this Agreement shall be deemed to
require Chiste or Company to agree to any divestiture by itself or any of its
affiliates of shares of capital stock, membership interests or ownership
interest or of any business, assets or property, or the imposition of any
material limitation on the ability of any of them to conduct their business or
to own or exercise control of such assets, properties and stock.
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(b) Company and Members shall give prompt notice to Chiste upon
becoming aware that any representation or warranty made by them contained in
this Agreement has become untrue or inaccurate, or of any failure of Company or
Members to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, such that the conditions set forth in Article VII would
not be satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(c) Chiste shall give prompt notice to Company and Members upon
becoming aware that any representation or warranty made by it contained in this
Agreement has become untrue or inaccurate, or of any failure of Chiste to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Article VII would not be satisfied; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
6.11 Treatment as a Tax-Deferred Exchange. Neither Chiste nor Company nor
Members shall take any action prior to or following the Transaction that could
reasonably be expected to cause the Transaction to fail to qualify as a
tax-deferred exchange of property under Section 351 of the Code.
6.12 Absence of Material Liabilities. Immediately prior to Closing, Chiste
shall have no liabilities or obligations requiring the payment of monies, other
than obligations under or with respect to: (i) a certain Financial Advisory
Agreement, in the form attached hereto as Exhibit B ("Financial Advisory
Agreement"), (ii) any agreements with the Transfer Agent, (iii) the Chiste
Contracts disclosed under Section 4.19 hereto, and (iv) accounts payable and
accrued expenses of Chiste with respect to the period prior to Closing. Chiste
will establish the Cash Reserve provided for in Section 4.23 in an amount equal
to the monetary obligations of Chiste prior to Closing due to the Transfer
Agent, pursuant to Chiste Contracts disclosed under Section 4.19 (other than the
Financial Advisory Agreement) and in respect of all accounts payable and accrued
expenses of Chiste (collectively, the "Pre-Closing Cash Obligations"). Upon
Closing, to the extent not satisfied by Chiste prior to or at Closing, the
Pre-Closing Cash Obligations will be paid solely from the Cash Reserve.
Following the Closing, Company shall pay and satisfy Chiste's obligations under
the Financial Advisory Agreement, agreements with the Transfer Agent, and Chiste
Contracts (except to the extent of the Company Closing Payments, defined in
Section 6.13, which shall be paid at Closing in accordance with Section 6.13).
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6.13 Cash Payments at Closing for Financial Advisory Agreement. At
Closing, Company shall pay the reverse merger fees of $325,000 under the
Financial Advisory Agreement less the amount of the Deposit made under Section
1.9 (such sum being referred to herein, as the "Company Closing Payment"). At
Closing, the Deposit made under Section 1.9 shall be paid to Xxxxxxx Securities,
LLC ("Xxxxxxx Securities") in partial payment of the reverse merger fees under
the Financial Advisory Agreement ("Chiste Closing Payment").
6.14 Business Records. At Closing, Chiste shall cause to be delivered to
Company all records and documents relating to Chiste, which Chiste possesses,
including, without limitation, books, records, government filings, Returns,
Charter Documents, Corporate Records, Stock Records, consent decrees, orders,
and correspondence, director and stockholder minutes and resolutions, stock
ownership records, financial information and records, electronic files
containing any financial information and records, and other documents used in or
associated with Chiste ("Business Records").
6.15 Registration Statements; Registration Rights. During the one (1) year
period following the Closing, each Member who is or becomes an officer,
director, and employee of Chiste or any of its subsidiaries following Closing
agrees not to include any Conversion Shares underlying, or issued upon
conversion of, such Chiste's Preferred Shares received under this Agreement by
each of them, or any other person which the SEC deems to be an underwriter or
that would otherwise affect Chiste's ability to have declared an effective an
at-market resale registration statement, in any registration statement filed by
the Chiste. The provisions of this Section 6.15 shall be binding on all
transferees of each such Member. Following Closing, Chiste agrees to include in
any registration statement filed by Chiste any securities with respect to which
registration rights have been granted under any registration rights agreements
currently in existence between: (i) Chiste and any stockholder, or (ii) the
Company and any Member which is assumed by Chiste in connection with this
Agreement as set forth on Schedule 6.15 hereto. Company has granted to investors
in the Private Placement the right to demand registration of the Conversion
Shares underlying Chiste's Preferred Shares received by them in exchange for
their Interests, which registration obligations shall be assumed by Chiste in
connection with this Agreement.
6.16 Treatment of Company Options. Prior to Closing, Company will obtain
from all persons who have any right to acquire securities of the Company,
including but not limited to, any rights pursuant to options, warrants,
convertible equity or debt instruments, agreements and plans, modifications of
such provisions terminating the rights to acquire securities of the Company and
to the extent necessary or appropriate substituting therefore the right to
acquire securities of Chiste in comparable amounts, on similar terms, as set
forth on Schedule 1.1. Schedule 6.16 sets forth a summary of each agreement by
which the holder has a right to acquire securities of the Company, including the
number and character of the securities and a description of the payment or other
obligation to be performed to obtain the securities of Company.
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6.17 Proxy Statement; Special Meeting. As soon as practicable following
the Closing, Chiste shall prepare and file with the SEC a proxy statement and
shall cause such proxy statement to be mailed to the holders of Chiste's
securities entitled to vote at a meeting of stockholders in connection with a
special meeting of stockholders for the purpose of obtaining the approval of the
holders of Chiste's securities entitled to vote at a meeting of stockholders of
each of the following actions (the "Actions"), such meeting having been called,
noticed, convened, held or conducted by Chiste, and all proxies having been
solicited by Chiste, in each case in compliance with applicable Legal
Requirements ( the "Stockholders Meeting"):
(a) To approve a 1 for 25 reverse stock split with special treatment
for certain of Chiste's stockholders to preserve round lot stockholders
("Reverse Split"); and
(b) To approve the change of the name of Chiste; and
(c) All such other actions as shall be necessary or desirable in
connection with or related to the foregoing actions in (a) through (b) above.
6.18 Equity Performance Plan. Chiste agrees during the period ended one
year after Closing, it will not seek shareholder approval or register any equity
performance or stock option plan in excess of 500,000 shares of Chiste's Common
Stock on a post-Reverse Split basis.
ARTICLE VII
CONDITIONS TO THE TRANSACTION
7.1 Conditions to Obligations of Each Party to Effect the Transaction. The
respective obligations of each party to this Agreement to effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Transaction illegal or
otherwise prohibiting consummation of the Transaction, substantially on the
terms contemplated by this Agreement. All waiting periods, if any, under any law
in any jurisdiction in which the Company or Chiste has material operations
relating to the transactions contemplated hereby has expired or terminated early
and all material approvals required to be obtained prior to the Transaction in
connection with the transactions contemplated hereby shall have been obtained.
The parties expressly acknowledge and agree that any SEC rulemaking requiring
enhanced disclosure of reverse merger transactions with a public shell will not
be a reason for either party to terminate this Agreement or deemed a failure of
any condition set forth herein; provided, however, that Company's failure to
provide any enhanced disclosure required by SEC rulemaking in the Transaction
Form 8-K on or before the Closing in accordance with Section 6.5(b) shall be a
failure of the condition set forth in Section 7.1(i) and shall give Chiste
reason to terminate this Agreement in accordance with Section 9.1(b).
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(b) Tax Opinion. Prior to the Closing, Company shall have received a
written opinion from its tax counsel, in form and substance reasonably
satisfactory to Company, to the effect that the Transaction will constitute a
reorganization or tax-free exchange within the meaning of Section 351 of the
Code and such opinions shall not have been withdrawn. The parties to this
Agreement agree to make such reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
(c) Debt Holder Consents. The lenders under any Company credit
facilities, secured loans, mortgages and other indebtedness for borrowed money
shall have consented in writing to the Transaction (to the extent such consent
is required as a result of the transactions contemplated hereunder) and have
agreed to continue the existing financing agreements on the same or more
favorable terms and conditions as in existence on the date hereof or have
converted their credit arrangements, as of the Closing, into Interests which
shall be exchanged for Chiste's Preferred Shares.
(d) Required Approvals. This Agreement and the Transaction have been
duly approved and adopted, by the requisite vote of the Members under the laws
of the State of Ohio and the Company Charter Documents, and by the requisite
actions of the Board of Directors of Chiste under the laws of the State of
Nevada and the Chiste Charter Documents.
(e) Certificate of Designations. Prior to Closing, the Board of
Director of Chiste shall have adopted, and Chiste shall have filed with and have
accepted by the Secretary of State of the State of Nevada, the Certificate of
Designations attached hereto as Exhibit A.
(f) Information Statements. At least ten (10) days prior to Closing,
Chiste shall have filed the 14f-1 Information Statement with the SEC, and Chiste
shall have mailed the 14f-1 Information Statement to each of the stockholders of
Chiste, and Chiste shall have otherwise complied with all of the provisions
under Rule 14f-1 under the Exchange Act.
(g) Private Placement. Company shall have received signed
subscriptions to purchase Interests in the Company under the Private Placement,
which subscriptions shall represent gross proceeds of not less than $5,000,000
(excluding any conversion of the Company's outstanding debt), with such gross
proceeds having been fully funded into an escrow account established for the
Private Placement the release of which to Company is conditioned only upon the
Closing and the closing of the Investment. The funds under the Private Placement
shall have been raised on a pre-money valuation not less than $15,000,000. Each
investor under the Private Placement shall have executed this Agreement or a
counterpart hereof (or an accession agreement agreeing to be bound by the terms
hereof in a form acceptable to Chiste) under which the investor agrees to
exchange the Interests received by such investor for Chiste's Preferred Shares
on the same terms and conditions as each other Member.
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(h) Agreement of All Members. All Members owning any Interests in
the Company prior to or at Closing shall have executed this Agreement, a
counterpart signature hereof, or an accession agreement under which such Member
agrees to be bound by the terms of this Agreement, pursuant to which such Member
agrees to exchange his Interest in the Company for Chiste's Preferred Shares on
the same terms and conditions as each other Member and to otherwise to be bound
by the terms and conditions hereof applicable to Members.
(i) Transaction Form 8-X. Xxxxxx shall have filed the Transaction
Form 8-K with the SEC at Closing.
(j) Derivative Modification Agreement. Company shall have obtained
modification agreements to all options, warrants, and other agreements
eliminating any and all rights to acquire securities of the Company set forth on
Schedule 6.16.
(k) Agreements Terminating Pre-Emptive Rights. Company shall have
obtained agreements terminating all pre-emptive rights to acquire securities of
Company.
(l) Vero Termination Agreement. Chiste shall have terminated its
agreement with Vero Management, LLC, effective at Closing.
(m) Voting Agreements. Chiste stockholders of all classes of
securities entitled to vote who hold at least a majority of the voting power of
Chiste's stockholders immediately after the Closing (but after giving effect to
the proposed Investment) shall have executed and delivered such voting
agreements as are acceptable to Chiste and the Company which will provide, among
other things, that such stockholders vote their shares of Chiste's voting
securities in favor of the Actions and to elect the Chiste Designated Director
to Chiste's board of directors for the one (1) year period following Closing.
(n) Blue Sky Laws. Chiste's Preferred Shares to be issued under this
Agreement are exempt from, or have been qualified under, the Blue Sky Laws of
each appropriate jurisdiction to the satisfaction of Chiste and Company and
their respective counsels.
(o) Company's Management Waiver. Xxxxxx Xxxxxxxx, Xxx Blomen, Xxxxxx
Xxxxxx, Xxxxx Xxxxxxxx, Xxxxxxx Xxxxxx, Xxxxx Xxxxxxxx and Xxxxx Xxxxxx
(collectively, "Company Management") shall have delivered to Chiste a written
instrument waiving the right to receive any liquidation preference under
Chiste's Preferred Shares received by them under this Agreement or any Chiste
Preferred Shares directly or indirectly owned or controlled by them or any of
their respective transferees.
7.2 Additional Conditions to Obligations of Members and Company. The
obligations of Company and Members to consummate and effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively
and only by the Company:
(a) Representations and Warranties. Each representation and warranty
of Chiste contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on the Closing Date.
Company and Members shall have received a certificate with respect to the
foregoing signed on behalf of Chiste by an authorized officer of Chiste ("Chiste
Closing Certificate").
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(b) Agreements and Covenants. Chiste shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, except to the extent that any failure to perform or comply (other
than a willful failure to perform or comply or failure to perform or comply with
an agreement or covenant reasonably within the control of Chiste) does not, or
will not, constitute a Material Adverse Effect with respect to Chiste taken as a
whole, and the Company and Members have received Chiste Closing Certificate to
such effect.
(c) Director and Officer Resignations and Appointments. Chiste shall
have delivered to Company the Resignations and Resolutions in a form
satisfactory to Company, effective as of the Closing. Chiste shall also have
delivered to Company evidence satisfactory to Company of the appointment of new
directors of Chiste in accordance with Section 6.1 hereof.
(d) Consents. Chiste shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Chiste taken as a whole.
(e) Material Adverse Effect. No Material Adverse Effect with respect
to Chiste shall have occurred since the date of this Agreement.
(f) No Financial Obligations. Immediately prior to the Closing,
Chiste shall have no material liabilities or obligations, other than as set
forth in Section 6.12 hereof.
(g) SEC Compliance; OTC BB Quotation. Immediately prior to Closing,
Chiste shall be in compliance with the reporting requirements under the Exchange
Act and shall be quoted on the OTC BB.
(h) Business Records; Resignation Letter. Chiste shall have
delivered to Company the Business Records and the Resignation Letter from the
Chiste's Accountants.
(i) Stockholder Voting Agreement. KRM Fund shall have delivered a
voting agreement agreeing to vote its shares of Chiste against any merger,
consolidation, sale of assets, recapitalization or other business combination
involving Chiste (other than the transactions contemplated herein).
(j) Legal Opinion. Chiste's counsel shall have delivered a legal
opinion that the transactions contemplated under this Agreement have been duly
authorized and approved by all necessary corporate action.
(k) Other Deliveries. At Closing, Chiste shall have delivered to
Company and/or Members: (i) certificates representing Chiste's Preferred Shares
to Members as set forth in Schedule 1.1 hereof and in accordance with Section
1.6, (ii) copies of resolutions and actions taken by Chiste's board of directors
in connection with the approval of this Agreement and the transactions
contemplated hereunder, and (iii) such other documents or certificates as shall
reasonably be required by Company and its counsel in order to consummate the
transactions contemplated hereunder.
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7.3 Additional Conditions to the Obligations of Chiste. The obligations of
Chiste to consummate and effect the Transaction shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Chiste:
(a) Representations and Warranties. Each representation and warranty
of Company and Members contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing. Chiste shall have received a certificate with respect to the
foregoing signed on behalf of Company by an authorized officer of Company and by
each Member with respect to the foregoing ("Closing Certificate")
(b) Agreements and Covenants. Company and Members shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date except to the extent that any failure to perform or comply
(other than a willful failure to perform or comply or failure to perform or
comply with an agreement or covenant reasonably within the control of Company or
Members) does not, or will not, constitute a Material Adverse Effect on Company,
and Chiste shall have received the Closing Certificate to such effect.
(c) Consents. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Company.
(d) Material Adverse Effect. No Material Adverse Effect with respect
to Company shall have occurred since the date of this Agreement.
(e) Company Financial Statements. Company shall have delivered to
Chiste the Company U.S. GAAP Financial Statements and the Company Pro Forma
Financial Statements as required by Section 6.5 hereof, which financial
statements shall be acceptable to Chiste and shall be included in the
Transaction 8-K to be filed at Closing.
(f) Accountant Undertaking; Prior Accountant Consents. Company shall
have delivered to Chiste in a timely manner the Accountant Undertaking and the
Former Accountant Consents, in a form satisfactory to Chiste.
(g) Employment Agreements. Each Management Member shall have
executed and delivered employment agreements with the Company, which agreements
shall be in full force and effect as of the Closing Date.
(h) Closing Payments. Company shall have made the Company Closing
Payment required by Section 6.13, and the Chiste shall have made the Chiste
Closing Payment required by Section 6.13 hereof.
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(i) D&O Information. Chiste shall have delivered the Questionnaires
in a timely manner, and the D&O Information shall be acceptable to Chiste.
(j) Change of Accountant Form 8-K; Press Release. Company shall have
delivered the Change of Accountant Form 8-K and Press Release to Chiste, each in
a form acceptable to Chiste.
(k) Financial Advisory Agreement. The Financial Advisory Agreement
between Chiste and Xxxxxxx Securities, LLC, in the form of Exhibit B hereto, has
been duly authorized and approved by Chiste's board of directors.
(l) Repayment of Affiliate Obligations. At the Closing Date, all
amounts owed to Company by each Member or their affiliates (regardless of
whether such amounts are due and payable) shall have been paid in full.
(m) Legal Opinion. Company's counsel shall have delivered a legal
opinion that the transactions contemplated under this Agreement have been duly
authorized and approved by all necessary corporate action by the Company and its
Members.
(n) Other Deliveries. At Closing, Company and/or Members shall have
delivered to Chiste: (i) certificates representing the Interests owned by
Members, together with an assignment, in accordance with Section 1.5, (ii)
copies of resolutions and actions taken Company's board of managers or
comparable governing body in connection with the approval of this Agreement and
the transactions contemplated hereunder, and (iii) such other documents or
certificates as shall reasonably be required by Chiste and its counsel in order
to consummate the transactions contemplated hereunder.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival. Except as specifically set forth in Articles II and VIII
hereof and in Sections 6.15, 6.17, 6.18, 9.6 and 10.1 hereof, all
representations, warranties, agreements and covenants contained in or made
pursuant to this Agreement or contained in any Schedule hereto shall not survive
the Closing, and no claims made by virtue of such representations, warranties,
agreements and covenants shall be made or commenced by any party hereto from and
after the Closing.
8.2 Member Indemnification Obligation with Respect to Member
Representations. Each Member, for himself only, and not with respect to any
other Member, hereby indemnifies and holds harmless, and agrees to indemnify and
hold harmless, Chiste (from and after the Closing), and its respective
directors, officers, shareholders, members, managers, employees and agents
(collectively, the "Chiste Indemnified Parties") against (i) any and all
liabilities, obligations, losses, damages, claims, actions, Liens and
deficiencies which exist, or which may be imposed on, incurred by or asserted
against any one or more of the Chiste Indemnified Parties, (1) based upon,
resulting from or arising out of, or as to which there was, any breach or
inaccuracy of any representation or warranty contained in Article II of this
Agreement, or any statement, agreement or covenant made by such Member in or
pursuant to this Agreement, any Exhibit or Schedule hereto or thereto, or any
certificate or document delivered by such Member, as Member, at the Closing, or
(2) based upon, resulting from or arising out of any present or future claim,
action, suit or proceeding brought or asserted against any Chiste Indemnified
Party by or on behalf of any Person who, at any time prior to the Closing, had
(or purports to have had) any interest in the Interests held by such Member, and
(ii) any cost or expense (including reasonable attorneys' fees and court costs)
incurred by the Chiste Indemnified Parties or any of them in connection with the
foregoing (including, without limitation, any cost or expense incurred by the
Chiste Indemnified Parties in enforcing their rights pursuant to this Section
8.2) (collectively, the "Damages" for purposes of this Section 8.2).
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A Chiste Indemnified Party may apply all demands or claims for
indemnification under this Section 8.2 against any payment to be made by or on
behalf of such Chiste Indemnified Party or any of its affiliates to or for the
account of such Member by means of set-off, reduction or otherwise. No Chiste
Indemnified Party shall be required to make any claim or demand against Company
or any other Person prior to the making of any claim or demand for
indemnification or at any other time. The rights of the Chiste Indemnified
Parties under this Section 8.2 are in addition to such other rights and remedies
which they may have under this Agreement or otherwise. The amount of any and all
Damages suffered by Chiste Indemnified Parties under this Section 8.2 shall be
recovered, and all claims of Chiste Indemnified Parties pursuant to this Section
8.2 shall be brought, by Chiste on behalf of such Chiste Indemnified Parties.
Notwithstanding any other provision of this Agreement, except for any
Misrepresentation Claim (as defined in this Section 8.2) with respect to which
such Member has Knowledge (as defined in this Section 8.2), no demand or claim
for indemnification under this Section 8.2 may be made after 11:59 p.m. U.S.
Eastern Time on the date one (1) year following the Closing Date. No demand or
claim for indemnification under this Section 8.2 for any Misrepresentation Claim
may be made after 11:59 p.m. U.S. Eastern Time on the second anniversary of the
Closing Date if such Member had Knowledge (as hereinafter defined) with respect
to such Misrepresentation Claim.
For purposes of this Agreement, (1) the term "Misrepresentation Claim"
means a claim or demand for indemnification based upon, resulting from or
arising out of any material breach or inaccuracy of a warranty or representation
and such material breach or inaccuracy was the direct and primary cause of the
Damages for which indemnification is sought; and (2) the term "Knowledge" means
in respect of any Misrepresentation Claim, as of the Closing Date or at any time
prior thereto, (a) actual knowledge of the material breach or inaccuracy upon
which such Misrepresentation Claim is based, or (b) actual knowledge of facts
which would cause a reasonable person, having knowledge and a full understanding
of the terms of this Agreement, to be aware of or recognize the material breach
or inaccuracy upon which the Misrepresentation Claim is based.
8.3 Procedure for Indemnification Claims.
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(a) The persons seeking indemnity under this Article VIII are
referred to collectively herein as "Indemnified Parties", and the Persons from
whom indemnification is sought pursuant to this Article VIII are referred to
herein as "Indemnifying Parties".
(b) If at any time an Indemnified Party determines to assert a right
to indemnification hereunder, the Indemnified Party shall give to the
Indemnifying Party written notice describing the matter for which
indemnification is sought in reasonable detail. In the event that a demand or
claim for indemnification is made hereunder with respect to a matter the amount
or extent of which is not yet known or certain, the notice of demand for
indemnification shall so state, and, where practicable, shall include an
estimate of the amount of the matter. The failure of an Indemnified Party to
give notice of any matter to the Indemnifying Party shall not relieve the
Indemnifying Party of any liability which the Indemnifying Party may have to any
Indemnified Party.
(c) Within 15 days after receipt of the notice referred to in clause
(b) above, the Indemnifying Party from whom indemnification is sought shall (i)
if true, acknowledge in writing his responsibility for all or part of such
matter, and shall pay or otherwise satisfy the portion of such matter as to
which responsibility is acknowledged or take such other action as is reasonably
satisfactory to the Indemnified Party to resolve any such matter that involves
anyone not a party hereto or (ii) give written notice to the Indemnified Party
of his intention to dispute or contest all or part of such responsibility. Upon
delivery of such notice of intention to contest, the parties shall negotiate in
good faith to resolve as promptly as possible any dispute as to responsibility
for, or the amount of, any such matter. Failure to respond to a notice claiming
indemnification shall be deemed a denial of responsibility therefore.
(d) In the event that the Indemnified Party is required to expend
any amount in enforcing its rights of indemnification hereunder, the
Indemnifying Parties will, jointly and severally, promptly upon request, pay
such amounts to the Indemnified Party if indemnification is required to be made
hereunder.
(e) Each Indemnifying Party shall have the right to employ separate
counsel in any action or claim which is brought against any Indemnified Party in
respect of which indemnity may be sought from it, and to participate in the
defense of such action or claim, if such Indemnifying Party confirms in writing
its responsibility for such action or claim; provided, however, that (i) the
Indemnified Party or Parties shall retain control of such action or claim and
(ii) the fees and expenses of such separate counsel shall be at the expense of
the Indemnifying Party.
ARTICLE IX
TERMINATION; AMENDMENT AND WAIVER; RESCISSION
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of Chiste and Company;
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(b) by either Chiste or Company if the Transaction shall not have
been consummated by June 15, 2005 for any reason; provided, however, that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Transaction to occur on or before such date
and such action or failure to act constitutes a breach of this Agreement;
(c) by either Chiste or Company if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Transaction, which order, decree, ruling or other action is final and
nonappealable;
(d) by Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of Chiste set forth in this
Agreement, or if any representation or warranty of Chiste shall have become
materially untrue, in either case such that the conditions set forth in Section
7.2(a) or Section 7.2(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in Chiste's representations and warranties or
breach by Chiste is curable by Chiste prior to the Closing Date, then the
Company may not terminate this Agreement under this Section 9.1(d) for thirty
(30) days after delivery of written notice from Company to Chiste of such
breach, provided Chiste continues to exercise commercially reasonable efforts to
cure such breach (it being understood that Company may not terminate this
Agreement pursuant to this Section 9.1(d) if it shall have materially breached
this Agreement or if such breach by Chiste is cured during such thirty (30)-day
period);
(e) by Chiste, upon a material breach of any representation,
warranty, covenant or agreement on the part of Company or Members set forth in
this Agreement, or if any representation or warranty of Company or Members shall
have become materially untrue, in either case such that the conditions set forth
in Section 7.3(a) or Section 7.3(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have become
untrue, provided, that if such inaccuracy in Company's or Members'
representations and warranties or breach by Company or Members is curable by
Company or Members prior to the Closing Date, then Chiste may not terminate this
Agreement under this Section 9.1(e) for thirty (30) days after delivery of
written notice from Chiste to Company and Members of such breach, provided
Company and Members continues to exercise commercially reasonable efforts to
cure such breach (it being understood that Chiste may not terminate this
Agreement pursuant to this Section 9.1(e) if it shall have materially breached
this Agreement or if such breach by Company or Members is cured during such
thirty (30)-day period): or
(f) by Chiste, if the Company is unable to obtain the signature of
each Member to this Agreement, a counterpart signature page hereof, or an
accession agreement agreeing to be bound by the terms hereof on or before May
30, 2005.
9.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 9.1 above will be effective immediately upon (or, if the
termination is pursuant to Section 9.1(d) or Section 9.1(e) and the proviso
therein is applicable, thirty (30) days after) the delivery of written notice of
the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 9.1, this Agreement shall
be of no further force or effect and the Transaction shall be abandoned, except
(i) as set forth in this Section 9.2, Section 9.3 and Article XI (General
Provisions), each of which shall survive the termination of this Agreement, (ii)
if this Agreement is terminated by Chiste under Sections 9.1(e) or 9.1(f), the
Deposit made pursuant to Section 1.9 shall be retained by Chiste as liquidated
damages and (iii) if this Agreement is terminated by Company under Section
9.1(d), the Deposit made pursuant to Section 1.9 shall be returned by Chiste to
Company.
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9.3 Fees and Expenses. Except as provided in Sections 6.12 and 6.13 and
Section 9.2 in respect of the Deposit, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses whether or not the Transaction is
consummated. The parties further agree that, whether or not the Transaction is
consummated, the Company shall be responsible for any and costs and expenses
incurred in connection with the preparation and filing of the Transaction Form
8-K (including the Company Financial Statements and Pro Forma Financial
Statements contained therein).
9.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of
Chiste, Company and Members; provided, however, each Member hereby irrevocably
appoints Xxxxxx Xxxxxxxx and Xxxxxx Xxxxxx, and each of them, as their
attorney-in-fact and authorizes and empowers each of them to act for and on
behalf of such Member (each with full power of substitution in the premises) in
connection with any amendment or proposed amendment to this Agreement, such
appointment being irrevocable and coupled with an interest.
9.5 Extension; Waiver. At any time prior to the Closing, any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
9.6 Rescission. Notwithstanding anything contained in this Agreement,
Xxxxxxxx Xxxxxx shall hold, following the Closing, the certificates of Chiste's
Preferred Shares to be delivered to the Members hereunder, and the certificates
representing the Interests owned by Members, together with assignments thereof,
until Chiste has provided written notice to Xxxxxxxx Xxxxxx of the closing of
the Investment. In the event the Investment fails to close for whatever reason
within three business (3) days following the Closing (or such later time as
mutually agreed to by the Company, Chiste and KRM Fund, but not more than ten
(10) business days following the Closing, the parties hereto agree that this
Agreement and the Voting Agreement are hereby rescinded and the transactions
hereunder shall be voided ab initio (the "Rescission"). In the event of the
Rescission, (i) Xxxxxxxx Xxxxxx shall promptly deliver to Chiste the
certificates representing Chiste's Preferred Shares (subject to adjustment for
any stock dividend, stock split, recapitalization, merger, consolidation,
combination or exchange of shares occurring after the Closing with respect to
such Chiste Preferred Shares); (ii) Xxxxxxxx Xxxxxx shall promptly deliver to
each Member the certificates representing the Interests owned by each Member
prior to Closing, together with assignments thereof; and (iii) Xxxxxxxx Xxxxxx
shall deliver the signed resignations of all of the then current officers and
directors of Chiste together with a written consent action of all of the then
current directors appointing Xxxxx X. Xxxxxxx as the sole director of Chiste.
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Notwithstanding anything contained herein to the contrary, in the event
this Agreement and the Voting Agreement are rescinded and the transactions
consummated hereunder voided ab initio, the Company and each Member who held a
position as officer or director of Chiste following Closing, jointly and
severally, agree to indemnify and hold harmless, Chiste against (i) any and all
liabilities, obligations, losses, damages, claims, actions, Liens and
deficiencies which exist, or which may be imposed on, incurred by or asserted
against Chiste or any of its assets, based upon, resulting from or arising out
of, the management, operation and ownership of Chiste from and after the Closing
and through and including the effective date of the Rescission, and (ii) any
cost or expense (including reasonable attorneys' fees and court costs) incurred
by Chiste in connection with the foregoing (including, without limitation, any
cost or expense incurred by Chiste in enforcing its rights pursuant to this
Section 9.6). The parties hereto agree that the provisions of this Section 9.6
shall survive the Closing.
ARTICLE X
POST-CLOSING COVENANTS
10.1 Company acknowledges that the agreements contained in this Section
10.1 are an integral part of the transactions contemplated by this Agreement and
that, without these agreements, Chiste would not enter into this Agreement. The
parties hereto acknowledge and agree that the failure by Chiste or Company to
satisfy, perform and comply with the covenants set forth in this Section 10.1
("Post-Closing Covenants") following the Closing will have a material adverse
effect on Chiste and the investment of KRM Fund in Chiste. During the period
beginning upon the Closing and ending on the first anniversary of the Closing,
Chiste agrees to satisfy, perform and comply with, and Company agrees to cause
Chiste to satisfy, perform, and comply with, the following agreements and
covenants:
(a) Respond in a timely manner, and to the satisfaction of the SEC,
to any review or inquiry by the SEC to the Transaction Form 8-K or any amendment
thereto.
(b) Comply with the terms and conditions of the Voting Agreement and
Financial Advisory Agreement.
(c) Hold meetings of Chiste's board of directors at least once each
fiscal quarter; and schedule regular meetings for the audit and compensation
committee, with advance notice to all directors, and insure that such committee
meetings are properly held as scheduled.
(d) File within the statutory time limits any required filings or
notifications with the SEC, NASDAQ, NASD and any other federal, state, foreign
government or regulatory agency including any agency or organization with
jurisdiction over any exchange on which the Chiste's securities are listed or
quoted.
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(e) Engage certified public accountants that are at all times
registered with PCAOB and, in the event Chiste's certified public accountants
resign or are terminated for any reason, Chiste shall promptly engage a new
certified public accountant registered with PCAOB.
(f) Add independent directors, create audit, compensation and other
committees, and comply with the provisions of the Xxxxxxxx-Xxxxx Act of 2002,
and take such other actions as required by applicable laws and regulations
regarding corporate governance.
(g) Adopt proper disclosure, xxxxxxx xxxxxxx and code of ethics
policies to the extent required by law or applicable regulation.
(h) Pay, when due, all transfer agent fees, listing fees and any
other fees the non-payment of which may adversely effect compliance with
applicable laws and regulations (including securities laws and regulations) or
the listing or quotation of Chiste's securities.
(i) File all tax returns of any kind in a timely manner, and pay,
when due, all tax obligations of any kind or nature.
10.2 Other Provisions. Notwithstanding anything contained herein to the
contrary, the provisions of this Article X shall survive (and not be affected in
any respect by) the Closing.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Chiste, to:
Chiste Corporation
000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 00
Xxxx Xxxxx, XX XXX 00000
Attn: Xxxxx X. Xxxxxxx, President
(000) 000-0000 telephone
(000) 000-0000 telecopy
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(b) if to Company or Members, to:
HydroGen, LLC
Attention: Xxxxxx Xxxxxxxx
0000 Xxxxx 00 Xxxxx
Xxxxxxxxx Xxxxx, XX 00000
_________________ telephone
_________________ fax
with a copy to:
Xxxxxxxx Xxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
(000) 000-0000 telephone
(000) 000-0000 telecopy
11.2 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect Subsidiaries of such entity.
Reference to the Subsidiaries of an entity shall be deemed to include all direct
and indirect Subsidiaries of such entity. References to the Company shall be
deemed to include the Company and all of its direct or indirect Subsidiaries.
(b) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), revenues, financial condition or results of operations of such entity
and its Subsidiaries, if any, taken as a whole (it being understood that neither
of the following alone or in combination shall be deemed, in and of itself, to
constitute a Material Adverse Effect: (a) changes attributable to the public
announcement or pendency of the transactions contemplated hereby, (b) changes in
general national or regional economic conditions, (c) changes affecting the
industry generally in which Company or Chiste operates, or (d) any SEC
rulemaking requiring enhanced disclosure of reverse merger transactions with a
public shell).
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(c) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(b) For purposes of this Agreement, all monetary amounts set forth
herein are referenced in United States dollars, unless otherwise noted.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Schedules hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that Sections 10.b. and 10.c. of the Letter of Intent shall
continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder (except as specifically provided in this
Agreement). KRM Fund is a third-party beneficiary of the certain provisions
contained herein to which KRM Fund derives a benefit and, with respect to such
provisions, KRM Fund has the right to enforce them as if it were a signatory to
this Agreement.
11.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
11.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, USA, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
11.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
11.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the first sentence of this Section 11.9, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
11.10 Arbitration. Any disputes or claims arising under or in connection
with this Agreement or the transactions contemplated hereunder shall be resolved
by binding arbitration. Notice of a demand to arbitrate a dispute by either
party shall be given in writing to the other at their last known address.
Arbitration shall be commenced by the filing by a party of an arbitration demand
with the American Arbitration Association ("AAA") in its office in New York, New
York USA. The arbitration and resolution of the dispute shall be resolved by a
single arbitrator appointed by the AAA pursuant to AAA rules. The arbitration
shall in all respects be governed and conducted by applicable AAA rules, and any
award and/or decision shall be conclusive and binding on the parties. The
arbitration shall be conducted in New York, New York USA. The arbitrator shall
supply a written opinion supporting any award, and judgment may be entered on
the award in any court of competent jurisdiction. Each party shall pay its own
fees and expenses for the arbitration, except that any costs and charges imposed
by the AAA and any fees of the arbitrator for his services shall be assessed
against the losing party by the arbitrator. In the event that preliminary or
permanent injunctive relief is necessary or desirable in order to prevent a
party from acting contrary to this Agreement or to prevent irreparable harm
prior to a confirmation of an arbitration award, then either party is authorized
and entitled to commence a lawsuit solely to obtain equitable relief against the
other pending the completion of the arbitration in a court having jurisdiction
over the parties. All rights and remedies of the parties shall be cumulative and
in addition to any other rights and remedies obtainable from arbitration.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CHISTE CORPORATION
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------------------
Xxxxx X. Xxxxxxx, President
HYDROGEN, LLC
By: /s/ Xxxxxx Xxxxxxxx
--------------------------------------------
Xxxxxx Xxxxxxxx, President/Managing Member
MEMBERS: MEMBERS:
FuelCell Holdings, LLC HMR, LP
By: /s/ Xxxx Xxxxxx By: /s/ Xxxxx Xxxxxxx
--------------- -----------------
Title: Manager Title: General Partner
/s/ Xxxxxx Xxxxxxxx /s/ Xxx Blomen
------------------- --------------
Xxxxxx Xxxxxxxx Xxx Blomen
/s/ Xxxxxx Xxxxxx /s/ Xxxxx Xxxxxxxx
----------------- ------------------
Xxxxxx Xxxxxx Xxxxx Xxxxxxxx
/s/ Xxxxxxx Xxxxxx /s/ Xxxxx Xxxxxxxx
------------------ ------------------
Xxxxxxx Xxxxxx Xxxxx Xxxxxxxx
/s/ Xxxxx Xxxxxx
----------------
Xxxxx Xxxxxx
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COUNTERPART SIGNATURE PAGE TO EXCHANGE AGREEMENT
FOR MEMBERS
THIS EXCHANGE AGREEMENT (the "Agreement") is made and entered into as of
May 13, 2005, by and among Chiste Corporation, a Nevada corporation ("Chiste"),
HydroGen, LLC, an Ohio limited liability company ("Company"), and each of the
persons listed under the caption "Members" on the signature page hereof,
together with each person becoming a Member prior to the closing of the
transactions contemplated hereunder, whether though the purchase of Interests
under the Private Placement as defined in Section 3.3(b) hereof or otherwise,
each of whom shall execute a counterpart signature page of this Agreement or an
accession agreement agreeing to be bound by the terms and conditions hereof,
such persons being all of the members of the Company.
IN WITNESS WHEREOF, the undersigned, being a Member of the Company has
executed this Agreement on and effective for all purposes as of the date first
written above.
MEMBER:
___________________________
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Index of Exhibits and Schedules
Exhibits
--------
Exhibit A - Certificate of Designations of Series B Preferred Stock
Exhibit B - Financial Advisory Agreement
Schedules
---------
Schedule 1.1 - Company Members and Interests Ownership
Company Disclosure Schedules
Chiste Disclosure Schedules
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