REORGANIZATION AGREEMENT
This agreement (this "Agreement") is made and entered into as of July 31,
2003 by and among:
- Softstone, Inc., a Delaware corporation ("SOFS");
- Xxxxx X. Xxxx;
- Xxxx X. Xxxx;
- Xxxxx X. Xxxx;
- TS Electronics Corporation, a Delaware corporation ("TSEC"); and
- Xxxx Xxxxxx, and Xxxx Xxxxxxxxx (the "TSEC Shareholders")
Xxxxx, Xxxx and Xxxxx Xxxx shall sometimes be referred to herein as "the Boyds."
RECITALS
WHEREAS, SOFS's common stock is currently traded on the OTC Bulletin
Board, and SOFS is required by the Securities Exchange Act of 1934 to file
periodic reports with the Securities and Exchange Commission (the "Commission");
and
WHEREAS, SOFS's business is the brokering of crumb rubber, the pursuit
of opportunities regarding a patented process for the devulcanization of
vulcanized rubber, and the pursuit of opportunities for reconstituting reject
tires into useful products; and
WHEREAS, the Boyds own approximately 50% of the outstanding Common
Stock of SOFS, which shares are "control" shares and thereby subject to the
Commission's Rule 144 but many of which shares have been held for periods in
excess of two years and would be freely transferable 91 days after any of the
Boyds ceased to be an affiliate of SOFS; and
Exhibit 10.4
Page 1 of 29 Pages
WHEREAS, the parties hereto wish to effect a tax-free business combination
between SOFS and TSEC by making TSEC a wholly-owned subsidiary of SOFS, and
WHEREAS, following the reorganization, SOFS Sub wishes to transfer its
rubber business to the Boyds in exchange for their obtaining the release of all
debt owed by SOFS:
NOW THEREFORE, in consideration of the following representations, promises
and undertakings, the parties hereto hereby agree as follows:
1. Reorganization of SOFS.
-------------------------
1.1 SOFS shall be reorganized, as follows:
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(a) Prior to the Closing Date, SOFS (1) shall have effected a
stock consolidation whereby all outstanding shares of SOFS common stock shall
have been consolidated into 600,000 shares, (2) shall have organized a new
Oklahoma limited liability company that initially will be a wholly-owned
subsidiary ("SOFS Sub") of SOFS with Gene and Xxxxx Xxxx named as the managers,
(3) effective subsequent to the stock consolidation, shall have transferred to
SOFS Sub (i) all the assets of SOFS, (ii) 50,000 shares of common stock of SOFS,
and (iii) 100,000 SOFS common stock purchase warrants, each warrant exercisable
at $1.25 a share, such warrants to expire one year after the Closing Date with
the shares underlying the warrants to be registered with the first registration
statement filed by the post-merger company after a 6-month lockup period but no
later than 9 months after the Closing Date if the warrants are in the money and
(4) shall have obtained the written consent of the record owners of a majority
of the outstanding shares of common stock of SOFS to the reorganization of SOFS
as set forth in this Reorganization Agreement with the consent of the Boyds
voting their shares in the same proportion for or against the reorganization as
the shareholders who give their written consent or objection vote.
(b) On the Closing Date, the TSEC Shareholders shall purchase from
SOFS 5,350,000 shares of common stock of SOFS in a private placement under Rule
506 of Regulation D of the Securities Act of 1933, as amended (the "Securities
Act"), in exchange for the transfer to SOFS of all the capital stock of TSEC.
Each of the TSEC Shareholders shall be a person or entity that would qualify as
Exhibit 10.4
Page 2 of 29 Pages
an "accredited investor," as such term is defined in Rule 501 under Regulation D
of the Securities Act, or as a "non-U.S. person", as such term is defined in the
Commission's Regulation S. The certificates issued in connection with such
purchase shall bear a restrictive legend in substantially the following form:
The securities represented hereby have not been registered under the
Securities act of 1933, as amended (the "Act"), or under the securities laws of
certain states. These securities are subject to restrictions on transferability
and resale and may not be transferred or resold except as permitted under the
Act and the applicable state securities laws, pursuant to registration or an
exemption therefrom. Investors should be aware that they may be required to
bear the financial risks of this investment for an indefinite period of time.
The issuer of these securities may require an opinion of counsel in form and
substance satisfactory to the issuer to the effect that any proposed transfer or
resale is in compliance with the act and any applicable state securities laws.
(c) On the Closing Date, the Boyds shall demonstrate to TSEC's
satisfaction that they have paid or obtained the written release of all
pre-Closing liabilities of SOFS, specifically excluding any claims or
liabilities that may arise as a result of or in connection with the
reorganization of SOFS as contemplated by this Agreement. The Boyds and SOFS Sub
will be indemnified by TSEC for any liabilities that may arise as a result of a
breach by TSEC or the TSEC Shareholders of any representation, warranty,
condition or covenant contained in this Reorganization Agreement as provided in
Section 5.1(h). Similarly, TSEC and the TSEC Shareholders shall be indemnified
by SOFS Sub against any liabilities arising either from a failure of SOFS Sub or
the Boyds to discharge or pay all liabilities of SOFS that existed up to the
time of the closing of the transaction described in this Reorganization
Agreement or relating to any breach by SOFS or the Boyds of any representation,
warranty, condition or covenant contained in this Reorganization Agreement.
These cross-indemnifications are contained in the First and Second
Indemnification Agreements, forms of which are attached hereto as Exhibits 5.1
(h) and 6.1 (h).
(d) On the Closing Date, all but one of the directors of SOFS
shall resign, and the remaining SOFS director shall elect a designee of TSEC to
fill this vacancy and become a director of SOFS ("the TSEC Director Designee").
Exhibit 10.4
Page 3 of 29 Pages
The remaining SOFS director shall then resign as a director of SOFS, and the
present SOFS officers shall resign as officers of SOFS.
(e) On the Closing Date, the TSEC Director Designee shall
fill the vacancies created on the SOFS board by electing persons selected by
TSEC.
(f) As a result of the transaction described above in
paragraph 1.1 (b) and by the operation of law, TSEC shall become a wholly-owned
subsidiary of SOFS. SOFS's name shall be changed to "TS Electronics, Inc." or
such other name as may be designated by TSEC.
(g) Subsequent to the Closing, SOFS shall prepare an information
statement stating that the written consent was obtained of a majority of the
outstanding shares to the transfer to the Boyds of all of SOFS's interest in
SOFS Sub (the "SOFS Sub Transaction") and to the other provisions of this
Reorganization Agreement. The purchase price the Xxxx'x shall pay for SOFS Sub
shall be the written release by the Boyds of all debt of SOFS owed to the Boyds
and their paying or their obtaining the written release of debt owed by SOFS to
all other creditors (the "SOFS Sub Consideration"). The information statement
shall be prepared in compliance with Regulation 14A under the Securities
Exchange Act of 1934, as amended, shall be filed with the SEC and shall be
mailed to the SOFS shareholders that did not give their written consent as
described above.
(h) The Boyds and the TSEC Shareholders shall each execute a
lockup agreement (the "Lockup Agreement"), effectively locking up their shares
of SOFS common stock until the earlier to occur of (1) the expiration of nine
months following the Closing Date or (2) the effectiveness at the SEC of a TSEC
registration statement filed to register for resale shares of TSEC securities
sold to institutional or other investors after the Closing Date.
2. Representations by SOFS. SOFS represents as follows:
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2.1 DUE ORGANIZATION. SOFS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
Exhibit 10.4
Page 4 of 29 Pages
authorized to transact its business and is in good standing in each state in
which its ownership of assets or conduct of business requires such
qualifications. All actions taken by the current directors and stockholders of
the Company have been valid and in accordance with applicable law.
2.2 COMPANY AUTHORITY. Subject to shareholder approval of the transactions
contemplated by this Agreement, SOFS has the right, power, legal capacity and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and the documents, instruments and certificates to be
executed and delivered by it pursuant to this Agreement. The execution and
delivery of and performance of the obligations contained in this Agreement by
SOFS and all documents, instruments and certificates made or delivered by SOFS
pursuant to this Agreement, and the transactions contemplated hereby, have been
duly authorized by all necessary action on the part of SOFS.
2.3 VALID EXECUTION. Subject to shareholder approval of the
transactions contemplated by this Agreement, the terms and provisions of this
Agreement and all documents, instruments and certificates made or delivered from
time to time by SOFS hereunder and thereunder shall constitute valid and legally
binding obligations of SOFS, enforceable against SOFS in accordance with the
terms hereof and thereof.
2.4 DUE AUTHORIZATION. The execution and delivery of this Agreement
by SOFS do not require any consent of, notice to or action by any person or
governmental authority. The performance of this Agreement by SOFS and the
consummation by SOFS of the transactions contemplated hereby will not require
any consent of, notice to or action by any person or governmental authority.
2.5 NO VIOLATION OF CORPORATE DOCUMENTS OR AGREEMENTS. The making
and performance of this Agreement by SOFS and the consummation of the
transactions contemplated hereby will not result in a breach or violation by
SOFS of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument to which SOFS is
bound, any statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to SOFS or any of the properties
of SOFS.
Exhibit 10.4
Page 5 of 29 Pages
2.6 FINANCIAL STATEMENTS. Attached hereto as Exhibit 2.6 are
financial statements of SOFS for its fiscal years ended June 30, 2001 and June
30, 2002, which have been audited in accordance with GAAP as set forth in the
auditor's report, and interim unaudited financial statements for the period from
July 1, 2002 through March 31, 2003. These financial statements present fairly
the financial condition and results of operations of its business, in accordance
with generally accepted accounting principles. Since March 31, 2003 (the
"Balance Sheet Date"), there has been no material adverse change in the assets
or liabilities, or in the business or condition, financial or otherwise, or in
the results of operations or prospects, of SOFS, whether as a result of any
legislative or regulatory change, revocation of any license or rights to do
business, fire, explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation, act of God, public force or otherwise and no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operation or prospects, of SOFS
except in the ordinary course of business.
2.7 DIRECTORS AND OFFICERS. As of the date hereof, the executive officers
and directors of SOFS are Xxxxx X. Xxxx, Xxxxxxxxx X. Xxxxxx, Xxxx X. Xxxx and
Xxx Xxxxxxx.
2.8 AUTHORIZED CAPITAL AND CERTAIN RIGHTS. SOFS has authorized capital of
30 million shares of Common Stock. Of these shares and before giving effect to
the stock consolidation described in paragraph 1.3 (a), 13,200,698 are issued
and outstanding. No person has an option or a right to acquire any of the
unissued shares of SOFS common stock. All of the outstanding shares of SOFS
common stock have been duly authorized and validly issued and are fully paid and
nonassessable. None of the outstanding shares of SOFS common stock were issued
in violation of the Securities Act or any state securities laws.
2.9 NO CLAIMS. There is no claim, grievance, action, proceeding or
governmental investigation pending, or to SOFS's knowledge, threatened against
SOFS that would materially affect its assets or business.
Exhibit 10.4
Page 6 of 29 Pages
2.10 SEC REPRESENTATIONS. Through the date hereof, SOFS has filed all
forms, reports and documents with the Commission required to be filed by it("SEC
Reports"). SOFS has delivered and/or made available to TSEC true and complete
copies of the required SEC Reports. Such SEC Reports, at the time filed,
complied in all material respects with the requirements of the federal and state
securities laws and the rules and regulations of the Commission thereunder
applicable to such SEC Reports. None of the SEC Reports, including without
limitation, any financial statements or schedules included therein, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading.
2.11 NO LITIGATION. SOFS is not a party to any suit, action, arbitration,
or legal, administrative, or other proceeding, or pending governmental
investigation. SOFS is not subject to or in default with respect to any order,
writ, injunction, or decree of any federal, state, local, or foreign court,
department, agency, or instrumentality.
2.12 NO TAXES. To the best of SOFS's knowledge, it is not liable for any
income, sales, withholding, real or personal property taxes to any governmental
agencies whatsoever. All United States federal, state, county, municipality
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of SOFS have been or will be filed as of the Closing Date and all material taxes
due pursuant to such returns or pursuant to any assessment received by SOFS have
been or will be paid as of the Closing Date, except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of SOFS in respect of taxes or other
governmental charges have been established in accordance with GAAP.
2.13 MATERIAL AGREEMENTS (a) Other than as fully described and previously
disclosed in SOFS's Forms 10-KSB and 10-QSBfilings, SOFS is not currently
carrying on any business and is not a party to any contract, agreement, lease or
order which would subject it to any performance or business obligations or
restrictions in the future after the closing of the transactions contemplated by
this Agreement.
Exhibit 10.4
Page 7 of 29 Pages
(a) There are no executory contracts to which SOFS is a party,
including employment agreements and leases.
(b) SOFS has no stockholder contracts or agreements.
(c) SOFS is not in default under any contract or any other document.
(d) SOFS has no written or oral contracts with any third party except
with its transfer agent, Securities Transfer Corporation, 0000 Xxxxxx Xxxxxxx,
Xxxxx 000, Xxxxxx, XX 00000.
(e) SOFS has no outstanding powers of attorney and no obligations
concerning the performance of TSEC concerning this Agreement.
(f) SOFS has all material Permits ("Permits" means all licenses,
franchises, grants, authorizations, permits, easements, variances, exemptions,
consents, certificates, orders and approvals necessary to own, lease and operate
the properties, of, and to carry on the business of SOFS); (ii) all such Permits
are in full force and effect, and SOFS has fulfilled and performed all material
obligations with respect to such Permits; (iii) no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit, and (iv) SOFS has no reason to believe
that any governmental body or agency is considering limiting, suspending or
revoking any such Permit.
(g) Neither SOFS nor, to the SOFS's knowledge, any employee or agent
of SOFS has made any payments of funds of SOFS , or received or retained any
funds, in each case in violation of any law, rule or regulation or of a
character required to be disclosed by SOFS in any of the SEC Reports.
(h) There are no outstanding judgments or UCC financing instruments or
UCC Securities Interests filed against SOFS or any of its properties.
(i) SOFS has no debt, loan, or obligations of any kind, to any of its
directors, officers, stockholders, or employees, which will not be satisfied at
the Closing.
Exhibit 10.4
Page 8 of 29 Pages
(j) SOFS does not have and will not have any assets at the time of
Closing other than as disclosed in the Company's Form 10-KSB's Audited Financial
Statements. SOFS does not own any real estate or any interests in real estate.
SOFS does not own any patents, copyrights, or trademarks other than as disclosed
in the SOFS's 10-KSB. SOFS does license the intellectual property of others but
owes no fees or royalties on the same.
2.14 NO LIABILITIES. SOFS does not have any debt, liability, or obligation of
any nature, whether accrued, absolute, contingent, or otherwise, and whether due
or to become due, that is not reflected on SOFS's financial statements in
Exhibit 2.6 attached hereto.
2.15 COMPLIANCE WITH LAW. To the best of its knowledge, SOFS has complied
with, and is not in violation of any provision of laws or regulations of
federal, state or local government authorities and agencies. There are no
pending or threatened proceedings against SOFS by any federal, state or local
government, or any department, board, agency or other body thereof.
2.16 SURVIVAL. The representations and warranties herein by SOFS will be
true and correct in all material respects on and as of the Closing with the same
force and effect as though said representations and warranties had been made on
and as of the Closing Date and will, except, as otherwise provided herein,
survive the Closing for a period of two (2) years.
3. Representations of the Boyds. The Boyds, respectively, jointly and
-------------------------------
severally represent as follows:
3.1 SHARE OWNERSHIP. The numbers of shares of SOFS that each of the
officers and directors of SOFS owns of record, beneficially or otherwise, as of
July 31, 2003, are as follows:
Shares
-------
Xxxxx X. Xxxx 1,586,337
Xxxx X. Xxxx 4,363,566
Xxxxx Xxxx 545,446
Xxxxxxxxx X. Xxxxxx 675,419
Xxx Xxxxxxx 127,225
Exhibit 10.4
Page 9 of 29 Pages
The numbers of shares of SOFS owned of record or beneficially on July
31, 2003 by persons that may be deemed to be insiders are as follows:
Total Shares
-------------
Xxxxxx Xxxxxx 255,800
Art Beroff 150,000
Xxxxx Xxxx 545,446
Xxxx Xxxx 4,363,566
Xxxxx Xxxx 1,586,337
Xxxxxxx X. Xxxx 50,000
Xxxx Xxxxxx 150,000
Xxxxxx Caccuamatta 454,792
Mariantonietta Denti 173,623
Xx Xxxxxx 216,816
Xxxxxxx Xxxxxx 51,950
Xxxxxx X. Xxxxx 278,777
Xxxxxxx Xxxx 299,792
Xxxxxxxxx X. Xxxxxx 675,419
Xxxxxxx Family L.P. 170,196
Templemore Partners 299,792
Xxx Xxxxxxx 127,225
The Boyds hereby agree, respectively, to exert their best efforts to
persuade the above-referenced persons that may be deemed to be insiders to
execute a lockup agreement similar in form and substance to the Lockup Agreement
executed by the Boyds in accordance with Section 1(h) hereof.
3.2 TRANSFER OF TITLE. The Boyds are the record or beneficial owners of the
shares described above, free and clear of all liens and encumbrances. All of the
Boyds' shares have been duly authorized and are validly issued, fully paid and
non-assessable. There are no existing agreements, options, warrants, rights,
calls or commitments of any kind to which any of the Boyds is a party or by
which any of such persons is bound providing for the issuance of any shares, or
for the repurchase or redemption of shares, of SOFS's capital stock, and there
are no outstanding securities or other instruments convertible into or
exchangeable for shares of such capital stock and no commitments to issue such
securities or instruments.
3.3 NO MATERIAL MISSTATEMENT. Neither SOFS, nor the Boyds, has made any
material misstatement of fact or omitted to state any material fact necessary or
desirable to make complete, accurate and not misleading every representation,
warranty and agreement set forth herein.
Exhibit 10.4
Page 10 of 29 Pages
3.4 SOFS REPRESENTATIONS. The Boyds, respectively, adopt and remake as
their own, respectively, on a joint and several basis each and every
representation made by SOFS in Article 2.
3.5 NO LIABILITIES. There are no liabilities of the Boyds of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, which could be charged as a liability to SOFS, and to the best
knowledge of Boyds there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability.
4. Representations of TSEC and each of the TSEC Shareholders. TSEC and each
-------------------------------------------------------------
of the TSEC Shareholders represents as follows:
4.1 DUE ORGANIZATION. TSEC is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and is authorized to
transact its business and is in good standing in each state in which its
ownership of assets or conduct of business requires such qualifications.
4.2 AUTHORIZED CAPITAL AND CERTAIN RIGHTS. The authorized capital stock of
TSEC consists of 45,000,000 shares of common stock, $0.001 par value, of which
90,000 shares are issued and outstanding (the "TSEC Shares"). The TSEC
Shareholders are the record and beneficial owners of all the TSEC Shares, free
and clear of all liens and encumbrances. No legend or other reference to any
purported lien or encumbrance appears upon any certificate representing the TSEC
Shares. All of the TSEC Shares have been duly authorized and are validly issued,
fully paid and non-assessable. There are no existing agreements, options,
warrants, rights, calls or commitments of any kind to which TSEC or any TSEC
Shareholder is a party or by which any of such persons or entities is bound
providing for the issuance of any shares, or for the repurchase or redemption of
shares, of TSEC's capital stock, and there are no outstanding securities or
other instruments convertible into or exchangeable for shares of such capital
stock and no commitments to issue such securities or instruments. None of the
TSEC Shares were issued in violation of the Securities Act or any state
securities laws.
Exhibit 10.4
Page 11 of 29 Pages
4.3 COMPANY AUTHORITY. The TSEC Shareholders and TSEC have the right,
power, legal capacity and authority to execute and deliver this Agreement and to
perform their obligations under this Agreement and the documents, instruments
and certificates to be executed and delivered by the TSEC Shareholders and TSEC
pursuant to this Agreement. The execution and delivery of and performance of the
obligations contained in this Agreement by the TSEC Shareholders and TSEC and
all documents, instruments and certificates made or delivered by the TSEC
Shareholders and TSEC pursuant to this Agreement, and the transactions
contemplated hereby, have been or as of the Closing Date will be duly authorized
by all necessary action on the part of the TSEC Shareholders and TSEC. Each TSEC
Shareholder has, and on the Closing Date will have, good and marketable title to
the TSEC Shares proposed to be sold by such TSEC Shareholder and upon delivery
of and payment for such shares hereunder, SOFS will acquire good and marketable
title thereto, free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts or other defects of title
whatsoever.
4.4 VALID EXECUTION. The terms and provisions of this Agreement and all
documents, instruments and certificates made or delivered from time to time by
the TSEC Shareholders and TSEC hereunder and thereunder constitute valid and
legally binding obligations of the TSEC Shareholders and TSEC, enforceable
against the TSEC Shareholders and TSEC in accordance with the terms hereof and
thereof.
4.5 DUE AUTHORIZATION. The execution and delivery of this Agreement by the
TSEC Shareholders and TSEC do not require any consent of, notice to or action by
any person or governmental authority, which consent, notice or action has not
been made, given or otherwise accomplished, and satisfactory evidence thereof
has been delivered to the any one of the Boyds. The performance of this
Agreement by the TSEC Shareholders and TSEC and the consummation by the TSEC
Shareholders and TSEC of the transactions contemplated hereby will not require
any consent of, notice to or action by any person or governmental authority.
4.6 NO VIOLATION OF CORPORATE DOCUMENTS OR AGREEMENTS. The making and
performance of this Agreement by each of the TSEC Shareholders and TSEC and the
consummation of the transactions contemplated hereby will not result in a breach
Exhibit 10.4
Page 12 of 29 Pages
or violation by such TSEC Shareholder or TSEC of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such TSEC Shareholder or TSEC is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such TSEC Shareholder or TSEC or any
of the properties of such TSEC Shareholder or TSEC.
4.7 BUSINESS PLAN AND COMPANY QUESTIONNAIRE. A current business plan of
TSEC (the "TSEC Business Plan") and written responses to a company questionnaire
earlier furnished to TSEC by Kenan will be furnished by e-mail to Kenan within
seven days after the execution of this Agreement. The TSEC Business Plan and
responses to the questionnaire will be accurate and correct in all material
respects.
4.8 FINANCIAL STATEMENTS. Attached hereto as Exhibit 4.8 are unaudited
financial statements of TSEC for its fiscal years ended September 30, 2002 and
September 30, 2002 and unaudited financial statements for its interim periods
ended March 31, 2003 and March 31, 2002, prepared in accordance with the
Commission's Regulation S-B, Item 310. These financial statements present fairly
the financial condition and results of operations of its business, in accordance
with U.S. generally accepted accounting principles. TSEC covenants that it shall
timely provide, for inclusion in a Form 8-K to be filed with the Commission
within 60 days after the Closing, audited financial statements (U. S. GAAP) for
its fiscal years 2001 and 2002 and unaudited interim financial statements as
required by the Commission's Regulation S-B, Item 310.
4.9 DIRECTORS AND OFFICERS. As of the date hereof, the executive officers
and directors of TSEC are: Xxxx Xxxxxx and Xxxx Xxxxxxxxx.
4.10 There are no known material liabilities of TSEC, contingent or
matured, which are not reflected on the balance sheet dated as of March 31,
2003, and which arose in the ordinary course of business.
4.11 NO CLAIMS. There is no claim, grievance, action, proceeding or
governmental investigation pending, or to TSEC's knowledge, threatened against
TSEC or affecting its assets or business.
Exhibit 10.4
Page 13 of 29 Pages
4.12 REPRESENTATIONS. Neither TSEC nor any of the TSEC Shareholders has
made any material misstatement of fact or omitted to state any material fact
necessary or desirable to make complete, accurate and not misleading every
representation, warranty and agreement set forth herein or to be included in any
document contemplated herein.
5. Conditions Precedent to SOFS's and the Boyds's Obligations.
------------------------------------------------------------------
5.1 Conditions Precedent. The obligations of SOFS and the Boyds to
consummate the transactions contemplated on or before the Closing Date are
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) TSEC and the TSEC Shareholders shall have materially performed and
complied with all covenants, conditions and obligations required by this
Agreement to be performed or complied with by TSEC or the TSEC Shareholders on
or before the Closing Date.
(b) All representations and warranties of TSEC and the TSEC
Shareholders contained in this Agreement, the Exhibits, and in any document,
instrument or certificate that shall be delivered by TSEC or the TSEC
Shareholders under this Agreement shall be materially true, correct and complete
on and as though made on the Closing Date.
(c) During the period from the date of this Agreement through
and including the Closing Date: (i) there shall not have occurred any material
adverse change affecting TSEC; (ii) TSEC shall not have sustained any loss or
damage that materially affects its ability to conduct its business; (iii) the
performance by TSEC or the TSEC Shareholders shall not have been rendered, by a
change in circumstances or actions by third parties (including, without
limitation, a change in any law or actions by a governmental authority),
impossible, illegal, commercially impracticable or capable of accomplishment
only on terms and conditions which require SOFS to incur substantially greater
costs or burdens than SOFS or the Boyds reasonably anticipated on the date of
this Agreement.
Exhibit 10.4
Page 14 of 29 Pages
(d) As of the Closing Date, no action or proceeding shall be
completed, pending or threatened against SOFS or any of the Boyds that has or
may result in a judgment, decree or order that would prevent or make unlawful
the consummation of the transactions under this Agreement or have a material
adverse effect on SOFS or any of the Boyds and there shall be in effect no order
restraining or prohibiting the consummation of the transactions contemplated
under this Agreement nor any proceedings pending with respect thereto.
(e) TSEC and the TSEC Shareholders shall have tendered to SOFS and
the Boyds all documents, certificates, payments and other items required by
Section 7 hereof to be delivered to SOFS and the Boyds.
(f) A disinterested majority of the shares held by SOFS
Shareholders shall have approved of the transactions contemplated by this
Agreement.
(g) TSEC and each of the TSEC shareholders shall have received any
consents necessary to perform their obligations under this Agreement.
(h) TSEC shall have agreed to indemnify the Boyds and SOFS Sub
against certain liabilities that may arise as a result of actions taken by TSEC,
its officers and agents in connection with the reorganization of SOFS, by
executing an indemnification agreement, a form of which is attached hereto as
Exhibit 5.1(h) (the "First Indemnification Agreement"). Similarly, SOFS Sub
shall have agreed to indemnify TSEC and the TSEC Shareholders against any
liabilities arising either from a failure of SOFS Sub or the Boyds to discharge
or pay all liabilities of SOFS that existed up to the time of the closing of the
transaction described in this Reorganization Agreement or relating to any breach
by SOFS or the Boyds of any representation, warranty, condition or covenant
contained in this Reorganization Agreement, by executing an indemnification
agreement, a form of which is attached hereto as Exhibit 6.1(h) (the "Second
Indemnification Agreement").
(i) SOFS shall have received any and all permits, authorizations,
approvals and orders under federal and state securities laws for the issuance of
SOFS's Common Stock, without the imposition of any conditions adverse to SOFS.
Exhibit 10.4
Page 15 of 29 Pages
(j) The Boyds shall have executed a Lock-up Agreement in accordance
with Section 1(h) hereof.
THE SALES OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT
BEEN QUALIFIED WITH THE COMMISSIONERS OF CORPORATIONS OF THE STATES OF DELAWARE
OR DELAWARE, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION UNDER THE LAWS
OF THOSE STATES. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
5.2 Waiver.
-------
(a) SOFS and the Boyds may waive any or all of the conditions set
forth in Section 5.1 hereof in whole or in part; and no such waiver of a
condition shall constitute a waiver by SOFS and the Boyds of any of their other
rights or remedies under this Agreement or otherwise at law or in equity if TSEC
or any of the TSEC Shareholders should be in default of any of their covenants,
agreements, representations or warranties under this Agreement.
6. Conditions Precedent to TSEC's and the TSEC Shareholders' Obligations.
---------------------------------------------------------------------------
6.1 Conditions Precedent. The obligation of TSEC and the TSEC Shareholders
to consummate the transactions contemplated on or before the Closing Date are
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) SOFS and the Boyds shall have materially performed and
complied with all covenants, conditions and obligations required by this
Agreement to be performed or complied with by SOFS and the Boyds on or before
the Closing Date.
(b) All representations and warranties of SOFS and the Boyds
contained in this Agreement, the Exhibits, and in any document, instrument or
certificate that shall be delivered by SOFS and the Boyds under this Agreement
shall be materially true, correct and complete on and as though made on the
Closing Date.
Exhibit 10.4
Page 16 of 29 Pages
(c) During the period from the date of this Agreement through
and including the Closing Date: (i) there shall not have occurred any material
adverse change affecting SOFS; (ii) SOFS shall not have sustained any loss or
damage that materially affects its ability to conduct its business; (iii) the
performance by SOFS and the Boyds shall not have been rendered, by a change in
circumstances or actions by third parties (including, without limitation, a
change in any law or actions by a governmental authority), impossible, illegal,
commercially impracticable or capable of accomplishment on terms and conditions
which require TSEC to incur substantially greater costs or burdens than TSEC
reasonably anticipated on the date of this Agreement;(iv) SOFS shall not (x)
enter into any contract, written or oral, or business transaction, merger or
consolidation, (y) incur any debts, loan or obligations or (z) or enter into any
agreements with its officers, directors or stockholders, without the express
written consent of TSEC; (v) SOFS shall not amend or change its articles of
incorporation or bylaws, or issue any further shares of SOFS common stock
without the express written consent of TSEC; (vi) SOFS shall not issue any stock
options, warrants or other rights or interests in SOFS common stock; (vii) SOFS
shall not declare any dividend in cash or stock, or any other benefit to its
stockholders; (viii) SOFS shall not institute any bonus, employee benefit,
profit sharing, stock option, pension plan or any other similar arrangement and
(ix) SOFS shall arrange for the closure of its current bank account and deliver
all bank statements pertaining to such account to TSEC.
(d) As of the Closing Date, no action or proceeding shall be
completed, pending or threatened against TSEC that has or may result in a
judgment, decree or order that would prevent or make unlawful the consummation
of the transactions under this Agreement or have a material adverse effect on
TSEC and the TSEC Shareholders and there shall be in effect no order restraining
or prohibiting the consummation of the transactions contemplated under this
Agreement nor any proceedings pending with respect thereto.
(e) SOFS and the Boyds shall have tendered to TSEC and the
TSEC Shareholders all documents, certificates, payments and other items required
by Section 7 hereof to be delivered to TSEC and the TSEC Shareholders.
Exhibit 10.4
Page 17 of 29 Pages
(f) The holders of a majority of the outstanding shares of
voting stock of SOFS shall have approved the transactions contemplated by this
Agreement.
(g) SOFS and the Boyds shall have received any consents
necessary to perform their obligations under this Agreement.
(h) SOFS Sub shall have indemnified TSEC and the TSEC
Shareholders for any liabilities of SOFS assumed by SOFS Sub and certain other
liabilities described in paragraph 1.3 (c) of this Agreement, pursuant to the
terms of an indemnification agreement, a form of which is attached hereto as
Exhibit 5.1 (h) (the "Second Indemnification Agreement").
(i) At Closing, SOFS Sub shall provide to SOFS agreements
releasing any and all unpaid debts owed by SOFS to the Boyds and to any and all
other creditors, such releases to be in form and content satisfactory to TSEC.
6.2 Waiver.
-------
TSEC and the TSEC Shareholders may waive any or all of the conditions
set forth in Section 5.1 hereof in whole or in part; and no such waiver of a
condition shall constitute a waiver by TSEC and the TSEC Shareholders of any of
its other rights or remedies under this Agreement or otherwise at law or in
equity if SOFS or any of the Boyds should be in default of any of their
covenants, agreements, representations or warranties under this Agreement.
7. Closing.
--------
7.1 The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place no later than August 11, 2003 (the "Closing Date")
unless such date is extended by written agreement of TSEC and SOFS.
7.2 The Closing shall be effected pursuant to and in accordance with a form
of escrow agreement substantially in the form of Exhibit 7.2 (the "Escrow
Agreement").
8. Post-Closing Covenants. TSEC and the TSEC Shareholders covenant that
----------------------
SOFS shall:
Exhibit 10.4
Page 18 of 29 Pages
8.1 Continue to file timely with the Securities and Exchange Commission
(the "Commission") all periodic reports and proxy or information statements
required under the Securities Exchange Act of 1934, as amended.
8.2 Maintain its status as a company whose Common Stock is quoted on the
OTC Bulletin Board or shall change its status to a company whose Common Stock is
listed on The Nasdaq Stock Market or a major stock exchange.
8.3 Not reverse split its stock for a period of at least two years from the
closing date hereof; provided, however, that this period may be reduced to one
year in the event that such is required by a broker-dealer investment banking
firm in connection with an equity financing, of at least $2 million, for TS
Electronics Corporation that closes; and provided further, that this period may
be reduced to less than one year upon TS Electronics Corporation's obtaining the
written consent of Xxxxxx.
8.4 On the Closing Date, authorize the sale to the Boyds, and transfer to
the Boyds, all of the outstanding capital stock of SOFS Sub in exchange for the
SOFS Sub Consideration, as contemplated in Section 1.1(g).
9. Applicable Law. The law of New York shall apply to the effect and
---------------
interpretation of this Agreement.
10. Execution in Counterparts. This Agreement and any of the documents
---------------------------
described herein that are necessary for the Closing may be executed in
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
11. Further Assurances. If, at any time before, on or after the Closing
-------------------
Date, any further action by any of the parties to this Agreement is necessary or
desirable to carry out the purposes of this Agreement, such party shall take all
such necessary or desirable action or use such party's best efforts to cause
such action to be taken.
12. Expenses. TSEC shall bear all expenses incurred by it in connection
---------
with the negotiation, preparation or execution of this Agreement, and SOFS shall
Exhibit 10.4
Page 19 of 29 Pages
bear all expenses incurred by it in connection with the negotiation, preparation
or execution of this Agreement.
13. Applicable Law; Arbitration. Each party hereto consents to the
-------------------------------
jurisdiction over it of the courts of the State of New York and of the courts of
the United States located in New York and agrees that personal service of all
process may be made by registered or certified mail pursuant to the provisions
of Section 14.
14. Notices. Any notice or demand desired or required to be given
--------
hereunder shall be in writing and deemed given when personally delivered, sent
by facsimile, overnight courier or deposited in the mail (postage prepaid,
certified or registered, return receipt requested) and addressed as set forth
below or to such other address as any party shall have previously designated by
such a notice. Any notice delivered personally or by facsimile shall be deemed
to be received on the date of personal delivery or confirmed transmission by
facsimile; any notice sent by overnight courier shall be deemed to be received
upon confirmation one business day after the date sent; and any notice mailed
shall be deemed to be received on the date stamped on the receipt.
If to TSEC: TS Electronics
XinMao Xxxxxxxxxx Xxxx, X0, Xxxxx 0X-X
Xxxxxxx, Xxxxx
If to the TSEC TS Electronics
Shareholders: XinMao Xxxxxxxxxx Xxxx, X0, Xxxxx 0X-X
Xxxxxxx, Xxxxx
If to SOFS
or SOFS Sub: Xxxxx Xxxx, President
Softstone, Inc.
000 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Copy to: Xxxxxx X. Xxxxx, Esq.
Fuller, Tubb, Xxxxxxx and Xxxxxx
000 Xxxxxx X. Xxxx Xxx., Xxxxx 0000
Xxxxxxxx Xxxx, XX 00000
Exhibit 10.4
Page 20 of 29 Pages
If to the Boyds: Xxxxx Xxxx
000 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Copy to: Xxxxxx X. Xxxxx, Esq.
Fuller, Tubb, Xxxxxxx and Xxxxxx
000 Xxxxxx X. Xxxx Xxx., Xxxxx 0000
Xxxxxxxx Xxxx, XX 00000
15. Parties in Interest. All of the terms and provisions of this Agreement
--------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether herein so
expressed or not.
16. Severability. Any provision of this Agreement that is invalid or
-------------
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining provisions of this Agreement or affecting the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
17. Amendment. Except as otherwise provided herein, the parties hereto may
----------
modify or supplement this Agreement at any time, but only in a writing duly
executed by each of the parties hereto.
18. Headings. The headings preceding the text of sections of this
---------
Agreement are for convenience only and shall not be deemed a part hereof.
19. Entire Understanding. The terms set forth in this Agreement including
---------------------
its Exhibits are intended by the parties as the final, complete and exclusive
expression of the terms of their agreement and may not be contradicted,
explained or supplemented by evidence of any prior agreement, any
contemporaneous oral agreement or any consistent additional terms. The Exhibits
attached to this Agreement are made a part of this Agreement.
Exhibit 10.4
Page 21 of 29 Pages
20. Confidentiality. The parties hereto shall not make any public
----------------
announcement regarding the transactions contemplated by this Agreement without
the prior written consent of both of TSEC and SOFS, which consent shall not be
unreasonably withheld, conditioned or delayed. Each of the parties hereto shall
keep strictly confidential any and all information furnished to it or its agents
or representatives in the course of negotiations relating to this Agreement or
any transactions contemplated by this Agreement, and such parties have
instructed their representative officers, partners, employees and other
representatives having access to such information of such obligation of
confidentiality.
21. Acknowledgment of Kenan's Conflicts of Interest. All parties to this
----------------------------------------------------
Agreement acknowledge their understanding and acceptance that Kenan, an
attorney, has represented SOFS in other matters and, to some extent, in the
transactions described herein, that he beneficially or directly owns shares of
SOFS common stock (all of which are included in the shares attributed to Kenan),
and that he has a personal interest in the transactions described herein in that
he expects to be the transferee of some of the shares and warrants to be
received by SOFS Sub. All parties to this Agreement also understand that, with
respect to the transactions contemplated by this Agreement, Kenan is
representing himself, SOFS and SOFS Sub.
Exhibit 10.4
Page 22 of 29 Pages
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above
written.
Softstone, Inc. TS Electronics Corporation
By____________________________ By____________________________
Xxxxx X. Xxxx, President Xxxx Xxxxxx, CEO
_____________________________ ______________________________
Xxxxx Xxxx Xxxx Xxxxxx
_____________________________ ______________________________
Xxxxx X. Xxxx Xxxx XxxxXxxxx
______________________________
Xxxx X. Xxxx
Exhibit 10.4
Page 23 of 29 Pages
Exhibit 2.6
Financial Statements of
Softstone, Inc.
[Insert]
Exhibit 10.4
Page 24 of 29 Pages
Exhibit 4.8
Financial Statements of
TS Electronics Corp.
Exhibit 10.4
Page 25 of 29 Pages
Exhibit 4.10
TSEC Liabilities Not Reflected in Exhibit 4.8
Exhibit 10.4
Page 26 of 29 Pages
Exhibit 5.1 (h)
FIRST INDEMNIFICATION AGREEMENT
Exhibit 10.4
Page 27 of 29 Pages
Exhibit 6.1 (h)
SECOND INDEMNIFICATION AGREEMENT
Exhibit 10.4
Page 28 of 29 Pages
Exhibit 7.2
Escrow Agreement
Exhibit 10.4
Page 29 of 29 Pages
