FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment") is made and entered into as of the 15th day of May, 2000, by and
among ▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC., a Florida corporation ("Merchant"), INNOVONICS,
INC., an Arizona corporation ("Target"), INNOVONICS ACQUISITION CORP., an
Arizona corporation that is a wholly owned subsidiary of Merchant ("Newco") and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (collectively, the "parties").
R E C I T A L S
A. The parties are signatories to that certain Agreement and Plan of
Reorganization, dated April 24, 2000 (the "Agreement"), pursuant to which Newco
will merge with and into Target in a reverse triangular merger (the "Merger"),
with Target to be the surviving corporation of the Merger.
B. The parties desire to amend and modify certain of the terms of the
Agreement as set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing, and consummation of
the Agreement, the parties hereto do hereby agree as follows:
1. Terms not defined herein shall have the meanings set forth in the
Agreement.
2. Section 1.2 of the Agreement is amended in its entirety to read as
follows:
1.2 CONVERSION OF SHARES.
1.2.1 CONVERSION OF NEWCO COMMON STOCK. The shares of the
Common Stock of Newco, no par value, which are issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for a total of 1,805,324 fully paid and non-assessable shares of the Common
Stock of Target (the "Surviving Corporation"), so that after giving effect to
such conversion and exchange, immediately following the Effective Time, 90.1% of
the outstanding shares of the Surviving Corporation will be held by Merchant and
the Retained Target Shares (as defined in Section 1.2.3 below) will represent
9.9% of the shares of the Surviving Corporation then outstanding.
1.2.2 CONVERSION OF TARGET COMMON STOCK. Each share of
the Common Stock of Target, no par value (the "Target Common Stock") issued and
outstanding immediately prior to the Effective Time (other than the Retained
Target Shares and the Dissenting Shares, as defined in Section 1.2.4 below)
will, by virtue of the Merger and at the Effective Time, and without any action
on the part of any holder thereof, be canceled and converted into the right to
receive a number of shares of validly issued, fully paid and non-assessable
Common Stock, $0.001 par value, of Merchant ("MRTO Common Stock"), determined in
accordance with the "Conversion Ratio," as defined below. The Conversion Ratio
is the quotient determined by dividing (i) 10,000,000 by (ii) the sum of (x) the
number of all shares of Target Common Stock outstanding immediately prior to the
Effective Time, minus (y) the Retained Target Shares, and (z) plus all shares of
Target Common Stock issuable (as determined immediately prior to the Effective
Time) upon the exercise of all outstanding Target Options (as defined in Section
1.3 below), but excluding 161,000 and 30,000 shares of Target Common Stock
issuable on the exercise of Target Options held by ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇, respectively (the "Terminating Options"), that will terminate as of the
Closing (as defined in Section 5.1 below) and any other Target Options not
exercised prior to, and which will terminate as of, the Closing. If there are no
Dissenting Shares and no Target Options are exercised prior to the Closing, and
no Target Options other than the Terminating Options terminate upon the Closing,
then shares of MRTO Common Stock would be issued on conversion of outstanding
shares of Target Common Stock as set forth in Schedule 2.2(a) attached hereto.
1.2.3 RETAINED TARGET SHARES. 198,365 shares of Target
Common Stock held by ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ (the "Retained Target Shares") will
remain outstanding, unaffected by the Merger, and will be retained by ▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇ following the Effective Time. The Retained Target Shares will
represent 9.9% of the shares of Target Common Stock issued and outstanding
immediately prior to the Effective Time.
1.2.4 DISSENTING SHARES. Holders of shares of Target
Common Stock who have complied with all requirements for perfecting dissenters'
rights as set forth in Sections 10-1321 and 10-1323 of the Arizona Law shall be
entitled to exercise rights with respect to the shares as to which such rights
have been perfected (the "Dissenting Shares"), to the extent provided in the
Arizona Law. Dissenting Shares will not be converted into shares MRTO Common
Stock in the Merger. Shares of Target Common Stock that are outstanding
immediately prior to the Effective Time and with respect to which dissenters'
rights under the Arizona Law may be, but have not yet been, perfected, will, if
and when such dissenters' rights can no longer be legally perfected or exercised
under the Arizona Law, be converted into shares of MRTO Common Stock as provided
in Section 1.2.2 above.
1.2.5 FRACTIONAL SHARES. No fractional shares of MRTO
Common Stock will be issued in connection with the Merger, but in lieu thereof
each holder of Target Common Stock who would otherwise be entitled to receive a
fraction of a share of MRTO Common Stock will, by virtue of the Merger and at
the Effective Time, and without any action on the part of such holder thereof,
receive a number of shares of MRTO Common Stock rounded up to the nearest whole
number. The fractional interests of each holder of Target Common Stock (each a
"Target Stockholder" and collectively the "Target Stockholders") will be
aggregated so that no Target Stockholder will receive, by virtue of rounding the
number of shares of MRTO Common Stock received hereunder to the next highest
whole number, more than one additional full share of MRTO Common Stock.
3. Section 1.4 of the Agreement is amended in its entirety to read as
follows:
1.4 ADJUSTMENTS FOR CAPITAL CHANGES. If prior to the Merger,
Merchant or Target recapitalizes either through a split-up of its outstanding
shares into a greater number, or through a combination of its outstanding shares
into a lesser number, or reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of another
class, or declares a dividend on its outstanding shares
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payable in shares or securities convertible into shares, the number of shares of
MRTO Common Stock into which shares of Target Common Stock are to be converted,
and the number of shares of Target Common Stock that will constitute Retained
Shares, will be adjusted appropriately so as to maintain the proportionate
interests of the stockholders and optionholders of Target and Merchant in the
outstanding equity of Merchant immediately following the Merger as contemplated
by this Agreement.
4. Section 1.6(d) of the Agreement is amended in its entirety to read as
follows:
(d) The directors of the Surviving Corporation will be
the directors of Newco as in place immediately prior to the Effective Time. The
officers of the Surviving Corporation will be the officers of Target as in place
immediately prior to the Effective Time.
5. Section 6.6 of the Agreement is amended in its entirety to read as
follows:
6.6 EXECUTION OF EMPLOYMENT AGREEMENTS. On or before
the Closing Date, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ shall have
entered into Employment Agreements with Target in a form approved by the
signatories thereto and Merchant. The employment agreement for ▇▇. ▇▇▇▇▇ will
include the grant of options to purchase 2,000,000 shares of Merchant's Common
Stock, exercisable at a price of $2.94 per share, with 400,000 of such options
to vest immediately and remaining 1,600,000 options to vest at a rate of 25% of
the option shares annually on the anniversary of each of the four years
commencing from the date of such agreement. The employment agreement for ▇▇.
▇▇▇▇▇ will include the grant of options to purchase 160,000 shares of Merchant's
Common Stock, exercisable at a price of $2.94 per share, with 40,000 of such
options to vest immediately and remaining 120,000 options to vest at a rate of
25% of the option shares annually on the anniversary of each of the four years
commencing from the date of such agreement. The employment agreement for ▇▇.
▇▇▇▇▇▇▇ will include the grant of options to purchase 60,000 shares of
Merchant's Common Stock, exercisable at a price of $2.94 per share, to vest at a
rate of 20% of the option shares annually on the anniversary of each of the five
years commencing from the date of such agreement.
6. Section 9.1 of the Agreement is amended in its entirety to read as
follows:
9.1 REGISTRABLE SECURITIES. As used herein the term
"Registrable Securities" means (i) the shares of MRTO Common Stock issued
pursuant to Section 1.2 of this Agreement, (ii) the Additional MRTO Shares, if
any, issued pursuant to Section 10.1 below, (iii) shares of MRTO Common Stock
issued to the Clarks for the Put Shares pursuant to Section 10.3 below, and (iv)
any shares of MRTO Common Stock issuable or issued in respect to any such
shares, including any shares issued or issuable upon any stock split, dividend
or distribution, or any recapitalization or other similar event, provided,
however, that with respect to any particular Registrable Security, a security
shall cease to be a Registrable Security when (x) it has been effectively
registered under the Securities Act, and disposed of pursuant thereto, (y)
registration under the Securities Act is no longer required for the immediate
public distribution of such security without restriction, and any restrictive
legends with respect thereto may be removed, or (z) it has ceased to be
outstanding. In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the MRTO
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Common Stock, such adjustment shall be made in the definition of "Registrable
Securities" as is appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Agreement.
7. Section 10.1(c) of the Agreement is amended in its entirety to read as
follows:
(c) The "Average Price" means the average of the
closing or last sale price for the 20 trading days ending of the Adjustment Date
on the principal market or exchange on which the MRTO Common Stock is then
traded. The "Aggregate Value" means 10,000,000 times the Average Price.
8. Section 10.4 of the Agreement is amended in its entirety to read as
follows:
10.4 RIGHT TO REACQUIRE TARGET. The Target Stockholders
shall have the right to acquire all outstanding shares of Target Common Stock in
exchange for the MRTO Common Stock issued in this transaction if (i) prior to
the second anniversary of the Closing Date, Merchant shall (w) file a bankruptcy
proceeding (or have a bankruptcy action filed against it which is not dismissed
within 60 days), (x) cease operations or become insolvent, (y) be delisted, for
a period equal to at least ten (10) days, from Nasdaq National Market, the OTC
Bulletin Board or other public exchange on which Merchant's Common Stock then
trades, or (z) be subject to an event which materially adversely affects the
Surviving Corporation or Merchant and which would significantly adversely affect
the Surviving Corporation's business; or (ii) Merchant does not fulfill its
obligations under Sections 10.5 or 10.6. If the Target Stockholders exercise
such right and have sold MRTO Common Stock, they shall be required to pay
Merchant $2.50 for each share of MRTO Common Stock not returned.
9. Schedules 2.2 and 2.2(a) of the Agreement are amended in their entirety
and replaced with the Schedules 2.2 and 2.2(a) hereto.
10. Although Newco was not duly formed on the date of the Agreement, it
hereby confirms its obligations under the Agreement, as amended hereby, in all
respects.
11. All terms not modified by this Amendment shall remain in full force and
effect.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above. This Amendment may be executed in counterparts, all
of which together shall constitute one and the same instrument.
INNOVONICS, INC.,
an Arizona corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.,
a Florida corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
INNOVONICS ACQUISITION CORP.
an Arizona corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
/s/ ▇▇▇▇▇▇ ▇.▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇,individually and in
his capacity as Target
Stockholder Representative
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The undersigned, as a holder of a Terminating Option, as defined in
Section 1.2.2 above, agrees that such option will not be exercised prior to the
Closing and that, as provided in Section 1.2.2 above, effective as of the
Closing, such Terminating Option will be terminated and be of no further force
and effect. The undersigned is not to be considered a party to the Amendment for
any other purposes.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇
SCHEDULES 2.2 AND 2.2(A)