AMENDED MERGER AND
STOCK EXCHANGE AGREEMENT
This AMENDED MERGER AND STOCK EXCHANGE AGREEMENT (this "Merger Agreement,"
hereafter the "Agreement") dated as of November 19, 2004 between REZCONNECT
TECHNOLOGIES, INC., a New York corporation ("Buyer"), ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.,
an Illinois corporation (the "Company"), and all of the holders of the common
stock of the Company identified on Exhibit A hereto (the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders own all of the issued and outstanding capital
stock of the Company; and
WHEREAS, the Stockholders desire to convey to Buyer and Buyer desires to
receive from the Stockholders, upon the terms and subject to the conditions
contained herein, all of such stock in a transaction intended to comply with
Section 368(a)(1)(B) of the Internal Revenue Code; and
WHEREAS, the Board of Directors of Buyer has approved this Agreement and
the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration had and received, the parties
hereto, upon the terms and subject to the conditions contained herein, hereby
agree as follows:
ARTICLE I
EXCHANGE OF THE COMMON STOCK
Section 1.1. Exchange of the Common Stock. Upon the terms and subject to
the conditions contained herein, the Stockholders shall convey, set over,
deliver, assign and transfer (or cause to be exchanged, conveyed, set over,
delivered, assigned and transferred) to Buyer and Buyer shall acquire from the
Stockholders, at the Closing (as defined in Section 3.1), a total of 12,800,000
shares of the Company's common stock, no par value per share ("Common Stock"),
which represents one hundred percent (100%) of all the outstanding Common Stock
of the Company. The number of shares of Common Stock to be conveyed to Buyer by
each Stockholder is set forth in Exhibit A hereto.
Section 1.2. No Obligation to Exchange in Event of Default. The obligations
of the Stockholders under Section 1.1 hereof shall be several and not joint. If
one or more of the Stockholders shall default on his or her obligation to
convey, either at or before the Closing, any or all of the Common Stock he or
she has hereby agreed to convey, Buyer shall not be obligated to consummate the
acquisition of any of the Common Stock from the remaining Stockholders, but if
any one or more of the Stockholders shall so default, Buyer
shall have the option to consummate the acquisition of the Common Stock from the
remaining Stockholders.
ARTICLE II
EXCHANGE CONSIDERATION
Section 2.1. Exchange Consideration. In full consideration for the common
stock to be conveyed, set over, delivered, assigned and transferred to Buyer
pursuant to Section 1.1 hereof, and upon the terms and subject to the conditions
contained herein, Buyer shall, in exchange for one hundred percent (100%) of the
outstanding Common Stock, issue and deliver to the Stockholders for the
following consideration: (i) 7,430,000 shares of Buyer's no par value common
stock ("Buyer's Common Stock"), and (ii) 4,092,376 shares of Buyer's Series B
Convertible Preferred Stock ("Preferred Stock"); all as set forth in more detail
in Exhibit C (all consideration collectively referred to herein as the "Exchange
Consideration"), such exchange will be at the time and in the manner provided
for in Section 2.2 hereof. The pro rata portion of the Exchange Consideration
that each Stockholder is entitled to receive is set forth in Exhibit A hereto.
Section 2.2. Payment of Exchange Consideration. At the Closing, each of the
Stockholders shall, upon the surrender to Buyer or an exchange agent selected by
Buyer of the certificates for his or her Common Stock, receive certificates
representing a pro rata portion of shares of Buyer's Common Stock and Preferred
Stock.
ARTICLE III
CLOSING
Section 3.1. Time and Place of Closing. The closing ("Closing") means the
time at which the Stockholders consummate the exchange of the Common Stock owned
by them to Buyer by delivery of the stock certificates referred to in Section
3.2(a) hereof and by delivery of the other documents referred to in Section 3.2
hereof, against delivery by Buyer of the Exchange Consideration and the
documents referred to in Section 3.3 hereof, after the satisfaction (or a duly
executed waiver thereof) of the conditions set forth in Articles VII, VIII and
IX hereof. The Closing shall take place at the offices of ▇▇▇▇ ▇▇▇▇▇ LLP, ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., New Jersey time, on
December 2, 2004 or any other date mutually agreed upon in writing by the
parties hereto.
Section 3.2. The Stockholders' and the Company's Particular Closing
Deliveries. At the Closing, in addition to any other documents specifically
required to be delivered pursuant to this Agreement, the Stockholders or the
Company, as the case may be, shall deliver to Buyer, in form and substance
reasonably satisfactory to Buyer and its counsel:
(a) certificates representing all the shares of Common Stock registered
in the name of each Stockholder, fully endorsed by each Stockholder for
transfer;
(b) the certificate of the Company required by Section 8.8 hereof;
(c) all consents required by Section 8.6 hereof; and
Section 3.3. Buyer's Particular Closing Deliveries. At the Closing, in
addition to any other documents specifically required to be delivered pursuant
to this Agreement, Buyer shall deliver to or for the Stockholders, in form and
substance satisfactory to the Stockholders and the Company's counsel:
(a) the shares of Buyer's Common Stock set forth in Section 2.2 hereof;
(b) the shares of Buyer's Preferred Stock set forth in Section 2.2
hereof;
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(c) the certificate required by Section 9.3 hereof;
(d) certified copies of resolutions of the Board of Directors of Buyer
approving this Agreement and the transactions contemplated hereby; and
(e) the opinion of counsel for Buyer, ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., dated the
date of the Closing, as required by Section 9.4 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Buyer that:
Section 4.1. Organization and Capitalization of the Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois, with an authorized capital consisting solely of
20,000,000 shares of Common Stock, no par value per share, of which 12,800,000
shares of Common Stock are issued and outstanding; all of such 12,800,000 issued
and outstanding shares of Common Stock are duly authorized, validly issued,
fully paid and nonassessable; and there are no other equity securities of any
class of the Company authorized, issued, reserved for issuance or outstanding.
There are no outstanding options, warrants, agreements or rights to subscribe
for or to purchase, or commitments to issue, shares of Common Stock. The
Stockholders are the record owners of all of the issued and outstanding shares
of Common Stock as set forth on Exhibit A hereto. Except for 800,000 shares of
common stock of the Buyer, the Company does not own, directly or indirectly, any
outstanding capital stock or securities convertible into capital stock of any
other corporation or any participating interest in any partnership, joint
venture or other business enterprise.
Section 4.2. Power and Authority; Authority for Agreement. The Company has
all requisite corporate power and authority to own, lease and operate its
properties and to conduct its business as it has been and is now conducted and
to enter into this Agreement and to perform the obligations to be performed by
it hereunder and is duly qualified or licensed as a foreign corporation in good
standing in each jurisdiction in which the character of its properties or the
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nature of its business activities require such qualification. This Agreement
constitutes the valid binding obligation of the Company.
Section 4.3. Articles of Incorporation and By-Laws of the Company. The
copies of the Articles of Incorporation of the Company, certified by the
Secretary of State of Illinois, and the By-Laws of the Company, certified by its
Secretary, heretofore delivered by or on behalf of the Stockholders to Buyer,
are true, complete and correct.
Section 4.4 Subsidiaries. The Company, as currently constituted, has no
subsidiaries.
Section 4.5. No Violation to Result. Assuming fulfillment prior to the
Closing of the conditions set forth Section 9.7 hereof, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby:
(a) are not in violation or breach of, do not conflict with or
constitute a default under, and will not accelerate or permit the
acceleration of the performance required by, any of the terms of the
charter documents or by-laws of the Company or any note, debt
instrument, security agreement or mortgage, or any other material
contract or agreement to which the Company is a party or by which the
Company or any of its properties or assets are bound;
(b) will not be an event which, after notice or lapse of time or both,
will result in any such violation, breach, conflict, default or
acceleration;
(c) will not result in violation under any law, judgment, decree,
order, rule, regulation or other legal requirement of any governmental
authority, court or arbitration tribunal whether federal, state,
provincial, municipal or local (within the U.S. or otherwise), at law
or in equity, and applicable to the Company; and
(d) will not result in the creation or imposition of any lien,
possibility of lien, encumbrance, security agreement, equity, option,
claim, charge, pledge or restriction in favor of any third person upon
any of the properties or assets of the Company.
Section 4.6. No Existing Defaults. Except as set forth in Exhibit 4.6
hereto, the Company is not in default:
(a) under any of the terms of any material note, debt instrument,
security agreement or mortgage or under any other commitment,
contract, agreement, license, lease or other instrument, whether
written or oral, to which it is a party or by which it or any of its
properties or assets is bound;
(b) under any law, judgment, decree, order, rule regulation or other
legal requirement or any governmental authority, court or arbitration
tribunal whether federal, state, provincial, municipal or local
(within the U.S. or otherwise), at law or in equity, and applicable to
it or to any of this properties or assets, which default would have a
material adverse effect on the Company; or
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(c) in the payment of any of its material monetary obligations or
debts. There exists no condition or event which, after notice or lapse
of time or both, would constitute a material default in connection
with any of the foregoing.
Section 4.7. Financial Statements. The audited financial statements of the
Company as of the comparative two year period ended December 31, 2002 and 2003
and the unaudited financial statements of the Company as of the end of and for
the six month period ended June 30, 2004 (the "Financial Statements"), will,
when delivered to Buyer after the date hereof, be complete and correct in all
material respects, fairly present the financial position of the Company and the
results of its operations as of the respective dates and for the periods
indicated thereon and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except that they are
subject to year-end adjustments. The Company does not have any material
liability or obligation, fixed, contingent, known, unknown or otherwise, not
reflected in the balance sheet to be included in the Financial Statements,
except for liabilities or obligations incurred between July 1, 2004 and the date
of this Agreement in the ordinary and usual course of business consistent with
the representations and warranties set forth herein and that would not have been
in conflict with Section 7.3. hereof if they had been incurred between the date
hereof and the Closing.
Section 4.8. No Adverse Changes. As of the date of this Agreement, except
as disclosed in Exhibit 4.8 hereto and except as otherwise permitted herein:
(a) the Company has not sustained any damage, destruction or loss, by
reason of fire, explosion, earthquake, casualty, labor trouble, requisition
or taking of property by any government or agency thereof, windstorm,
embargo, riot, act of God or public enemy, flood, volcanic eruption,
accident, other calamity or other similar or dissimilar event (whether or
not covered by insurance) adversely affecting the business, properties,
financial condition or operations of the Company;
(b) there have been no changes in the condition (financial or otherwise),
business, net worth, assets, properties, liabilities or obligations (fixed,
contingent, known, unknown or otherwise) of the Company which in the
aggregate would have a material adverse affect on the business, properties,
financial condition or operations of the Company; and
(c) the Directors and Officers of the Company have taken all necessary
action to cause the Company to perform all of the acts specified in
Sections 7.3(a) and (c) hereof and have refrained from performing any of
the acts specified in Sections 7.3(b), (d) and (e) hereof.
Solely for purposes of this Section 4.8, economic conditions prevailing
generally in the United States of America shall not be deemed to be a "material
adverse affect."
Section 4.9. Full Disclosure; Absence of Material Changes. Since June 30,
2004, there has not been any material adverse change in the financial condition,
results of operations or business of the Company taken as a whole. More
specifically, the information furnished to Buyer by the Company or by any
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of its directors, officers, employees, agents or accountants pursuant to this
Agreement (whether furnished prior to, at, or subsequent to the date hereof),
the information contained in the Exhibits referred to in this Agreement, and the
other information furnished to Buyer by the Company or by any of its directors,
officers, employees, agents or accountants at any time prior to the Closing
(pursuant to the request of Buyer or otherwise), does not and will not contain
any untrue statement of a material fact and does not and will not omit to state
any material fact necessary to make all such information not misleading.
Section 4.10. Taxes. The Company has prepared (or caused to be prepared)
and timely and properly filed (or caused to be timely and properly filed) with
the appropriate federal, state, provincial, municipal or local authorities
(within the U.S. or otherwise) all tax returns, information returns and other
reports required to be filed including without limitation all tax returns and
reports with respect to federal, state, local and foreign income taxes,
estimated taxes, excise taxes, sales taxes, use taxes, fuel taxes, gross
receipts taxes, franchise taxes, employment and payroll taxes and import duties,
whether or not measured in whole or in part by net income ("Taxes"). Such tax
returns and reports are materially complete and correct as filed. The Company
has paid or accrued (or caused to be so paid or accrued) in full all Taxes,
interest, penalties, assessments or deficiencies, if any, due to, or claimed to
be due by, any taxing authority. The Company has not executed or filed with any
taxing authority any agreement extending the period for assessment or collection
of any Taxes. The Company is not a party to any pending action or proceeding nor
to the best knowledge of its officers and directors is any such action or
proceeding threatened by any governmental authority for the assessment or
collection of Taxes. There are no liens for federal, state, local or foreign
Taxes, and no claim for assessment or collection of Taxes has been asserted
against the Company. To the directors', officers', Stockholders' and the
Company's best knowledge, there are no tax audits currently in progress or
incomplete.
Section 4.11. Title to Assets. The Company has good and marketable title to
all of its material properties and assets, free and clear of any material liens,
encumbrances, security agreements, equities, options, claims, charges, pledges,
restrictions, encroachments, defects in title and easements except for the
matters set forth on Exhibit 4.11. At the Closing, the Company will have good
and marketable title to such material properties and assets, free and clear of
any material liens, encumbrances, security agreements, equities, options,
claims, charges, pledges, restrictions, encroachments, defects in title and
easements except for those shown in the Company's Financial Statements.
Section 4.12. Machinery and Equipment. The Company owns or has adequate
rights to all machinery and equipment currently used by the Company in the
conduct of its business and, to the best knowledge of the Company, all such
machinery and equipment is in good operating condition and free from any
material defect, ordinary wear and tear excepted.
Section 4.13. Litigation. Except as set forth in Exhibit 4.13 hereto, there
is no litigation, suit, proceeding, action or claim, at law or in equity,
pending or to the best knowledge of the Company threatened against or affecting
the Company or involving any of its property or assets, before any court,
agency, authority or arbitration tribunal, including, without limitation, any
product liability, workers' compensation or wrongful dismissal claim(s),
actions, suits or proceedings relating to toxic materials, hazardous substances,
pollution or the environment. Except as set forth in such Exhibit 4.13 hereto,
the Company is not subject to or in default with respect to any notice, order,
writ, injunction or decree of any court, agency, authority or arbitration
tribunal.
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Section 4.14. Compliance with Laws. To the best knowledge of the Company,
the Company has complied with all laws, municipal by-laws, regulations, rules,
orders, judgments, decrees and other requirements and policies imposed by
governmental authority applicable to it, its properties or the operation of its
business, except where failure of comply will not have a material adverse effect
on the business, properties or financial condition of the Company as otherwise
disclosed in Exhibit 4.14 hereto. Without limiting the generality of the
foregoing, to the best knowledge of the Company, the Company is in material
compliance with:
(a) all material and applicable laws relating to the protection of
human health and safety, including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, and all
material and applicable regulations and standards issued thereunder by
the Secretary of Labor or the Occupational Safety and Health
Administrator or other governmental agency or authority acting at any
time thereunder;
(b) all material and applicable laws relating to protection of the
environment, including, without limitation, the Resource Conservation
and Recovery Act ("RCRA") and the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA")
(c) all material and applicable laws administered by the Food and Drug
Administration; and
(d) all material and applicable laws relating to equal employment
opportunity.
The Company has not received any notice or citation for noncompliance with
any of the foregoing and, to the best knowledge of the Company, there exists no
condition, situation or circumstance, nor has there existed such a condition,
situation or circumstance which, after notice or lapse of time, or both, would
constitute noncompliance with regard to any of the foregoing.
Section 4.15. Environmental Matters. The Company has not stored and is not
storing any hazardous wastes, as defined by RCRA, for 90 days or more. Except as
set forth in Exhibit 4.15:
(a) the Company has not generated, stored, transported, recycled,
disposed of or otherwise handled in any way any waste material or
hazardous substance for itself or for any other person or entity, nor
has any other person or entity stored, transported, recycled, disposed
of or otherwise handled in any way any waste material or hazardous
substances for the Company;
(b) to the best knowledge of the Company, there are no locations where
any waste material or hazardous substances from the operation of the
Company has been stored, treated, recycled or disposed of;
(c) the Company has not been required by any governmental authority to
make any expenditure to achieve or maintain compliance with any
environmental standard; and
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(d) the Company has no knowledge of any information indicating that
any person, including any employee, may have impaired health or that
the environment may have been damaged as the result of the operation
of the business of either the Company or as the result of the release
of Contaminants from the Premises. For these purposes, the term
"Contaminants" includes any pollutant, waste materials, petroleum and
petroleum products and hazardous substances, as defined by CERCLA.
Section 4.16. Licenses, Permits and Approvals. Exhibit 4.16 hereto
constitutes a true and complete list of all material licenses, permits,
approvals, qualifications or the like, issued to the Company by any government
or any governmental unit, agency, body or instrumentality, whether federal,
state, provincial, municipal or local (within the U.S. or otherwise), and all
such items are in full force and effect. No registration with, approval by,
consent or clearance from or prenotification to any governmental agency is
required in connection with the execution and performance of this Agreement by
the Stockholders except as set forth on Exhibit 4.16.
Section 4.17. True Copies. All documents furnished, or caused to be
furnished to Buyer by the Company, are true and correct copies, and there are no
amendments or modifications thereto except as set forth in such documents.
Section 4.18. Pre-Signing Conduct of Business. Except as disclosed in
Exhibit 4.18 hereto and as contemplated by this Agreement, since June 30, 2004
the Company has operated only in the ordinary course of business except that the
Company is in the process of locating a suitable space to relocate its offices.
Solely for purposes of this Section 4.18, any aspect of the Company's operations
that would have been in conflict with Section 7.3 hereof if it had occurred
between the date hereof and the Closing shall be deemed by way of non-exclusive
illustration not to be in the ordinary course of business.
Section 4.19. Survival of Representations and Warranties of the Company and
the Stockholders. The representations and warranties of the Company and the
Stockholders made in Articles IV and V of this Agreement are correct, true and
complete as of the date hereof and will be correct, true and complete as at the
Closing with the same force and effect as though such representations and
warranties had been made at the Closing, and shall not survive the Closing.
Section 4.20. Intellectual Property.
(a) The Company (which, as presently constituted, has no subsidiaries)
owns, or is licensed or otherwise possesses legally enforceable rights
to use all patents, trademarks, trade names, service marks, copyrights
and any applications therefor, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of Company as
currently conducted, except for any such failures to own, be licensed
or possess that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect as defined in subsection (b)
below.
(b) Material Adverse Effect means, with respect to any party to this
Agreement, such state of facts, event(s), change(s) or effect(s) that
had, has or would reasonably be expected to have a material adverse
effect on the assets, business, condition (financial or otherwise),
results of operations, prospects or, customer, supplier or employee
relations of such party taken as a whole.
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(c) Except as disclosed in the Company's Reports, or as is not
reasonably likely to have a Material Adverse Effect:
(i) the Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of the Company's
obligations hereunder, in violation of any licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to
which it is authorized to use any third-party patents, trademarks,
service marks and copyrights ("Company Third-Party Intellectual
Property Rights");
(ii) no claims with respect to the patents, registered and material
unregistered trademarks as well as service marks, registered
copyrights, trade names, any applications therefor owned by the
Company ("Company Intellectual Property Rights"), any trade secret
material to the Company, or Company Third-Party Intellectual Property
Rights to the extent arising out of any use, reproduction or
distribution of such Company Third Party Intellectual Property Rights
by or through the Company, are currently pending or, to the knowledge
of the Company, are overtly threatened by any person;
(iii) the Company does not know of any valid grounds for any bona fide
claims (A) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale
or license by the Company, infringes on any copyright, patent,
trademark, service ▇▇▇▇ or trade secret of any third party other than
the Company; (B) against the use by the Company, of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how
or computer software programs and applications of any third party used
in the business of the Company as currently conducted or as proposed
to be conducted; (C) challenging the ownership, validity or
effectiveness of any Company Intellectual Property Rights or other
trade secret material to the Company; or (D) challenging the license
or legally enforceable right to the use of the Company Third-Party
Intellectual Rights by the Company; and
(iv) to the knowledge of the Company, all patents, registered
trademarks and service marks as well as copyrights held by the Company
are valid, enforceable and subsisting.
Section 4.21. Company Due Diligence Investigation. The Company has
conducted its own independent review and analysis of the business, operations,
assets, liabilities, results of operations, financial condition, technology and
prospects of Buyer and acknowledges that the Company has been provided access to
the personnel, properties, premises and records of Buyer for such purpose. In
entering into this Agreement, the Company has relied solely upon its own
investigation and analysis and the representations and warranties contained
herein, and the Company:
(a) acknowledges that neither the Buyer nor any of its respective
directors, officers, shareholders, employees, affiliates, controlling
persons, agents, advisors or representatives makes or has made any
representation or warranty, either express or implied, as to the
9
accuracy of completeness of any of the information provided or made
available to the Company or its directors, officers, employees,
affiliates, controlling persons, agents or representatives; and
(b) agrees, to the fullest extent permitted by law, that neither Buyer
nor any of its directors, officers, employees, shareholders,
affiliates, controlling persons, agents, advisors or representatives
shall have any liability or responsibility whatsoever to the Buyer or
its directors, officers, employees, affiliates, controlling persons,
agents or representatives on any basis (including, without limitation,
in contract or tort, under federal or state securities laws or
otherwise) based upon any information provided or made available, or
statements made, to the Company or its directors, officers, employees,
affiliates, controlling persons, advisors, agents or representatives
(or any omissions therefrom), except that the foregoing limitations
shall not apply (i) to the extent the Buyer makes the specific
representations and warranties set forth in this Agreement and (ii) in
the case of fraud, willful misrepresentation or willful nondisclosure,
but always subject to the limitations and restrictions contained
herein.
Section 4.22. Material Contracts and Agreements. Other than as disclosed on
Exhibit 4.22, the Company is not a party to any material contracts or
agreements.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS GENERALLY
Section 5.1. Authority for Agreement. Each of the Stockholders severally
represents and warrants to Buyer that he/she has all requisite power and
authority to enter into this Agreement and to perform the obligations to be
performed by him/her hereunder and that this Agreement constitutes the valid and
binding obligation of such Stockholder. By means of a Power of Attorney in the
form attached hereto as Exhibit B ("Power of Attorney"), each of the
Stockholders has duly and effectively appointed J. ▇▇▇▇▇ ▇▇▇▇▇, J. ▇▇▇▇▇ ▇▇▇▇▇
and/or J. ▇▇▇ ▇▇▇▇▇▇▇▇, and each of them (the "Representatives"), as his/her
attorneys-in-fact with full power and authority to act in his or her place and
stead with respect to all matters relating to this Agreement, both before and
after the Closing. Buyer is entitled to rely conclusively upon the validity and
binding effect of actions taken by either Representative under the foregoing
Power of Attorney.
Section 5.2. Title of Common Stock. Each Stockholder severally represents
and warrants to Buyer that he/she is the owner, beneficially and of record, of
all of the Common Stock set forth opposite such Stockholder's name in Exhibit A
hereto, free and clear of all liens, encumbrances, security agreements,
equities, options, claims, charges, pledges and restrictions and that he/she has
the full power and unrestricted right to transfer the Common Stock to Buyer and,
assuming the conditions set forth in Article VIII have been satisfied, has
obtained all the consents and approvals of all persons (including, without
limitation, courts and governmental authorities) necessary to effect such
transfer. Upon delivery of the Common Stock to Buyer at the
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Closing as herein contemplated, Buyer shall have good and marketable title to
all of the shares of Common Stock delivered by such Stockholder free and clear
of all liens, encumbrances, security agreements, equities, options, claims,
charges, pledges and restrictions.
Section 5.3. Investment Representations. Each Stockholder understands that
the shares of Buyer's Common Stock comprising the Exchange Consideration are
being offered and sold pursuant to the exemption from registration contained in
Section 4(2) the Securities Exchange Act of 1933, as amended (the "Act"), based
in part upon their respective representations contained in this Agreement.
(a) Economic Risk. Each Stockholder is in a position to bear the
economic risk of this investment indefinitely unless the shares of the
Buyer's Common Stock purchased are registered pursuant to the Act, or
an exemption from registration is available, and the Buyer has no
present intention of registering such shares. Each Stockholder also
understands that, even if available, such exemption may not allow
him/her to transfer all or any portion of said shares, if any, under
the circumstances, in the amount or at the times he/she might propose.
Each Stockholder understands that he/she has no registration rights
with respect to the shares.
(b) Acquisition for Own Account. Each Stockholder is acquiring the
shares of Buyer's Common Stock for his/her own account for investment
and not with a view toward distribution.
(c) Ability to Protect His/Her Own Interests. Each Stockholder
represents that by reason of his/her business or financial experience,
or the business and financial experience of his/her management, he/she
has the capacity to protect his/her own interests in connection with
the transactions contemplated in this Agreement. No Stockholder is a
corporation formed for the specific purpose of consummating this
transaction.
(d) Accredited Investor. Each Stockholder represents that he or she is
an "accredited investor" as that term is defined in Regulation D
promulgated under the Act.
(e) Access to Information. Each Stockholder has been given access to
all of both the Company's and Buyer's documents, records and other
information, has received physical delivery of all those documents
which he/she has requested, and has had adequate opportunity to ask
questions of, and receive answers from, both the Company's and Buyer's
officers, employees, agents, accountants and representatives
concerning the Company's and Buyer's business, operations, financial
condition, assets, liabilities and all other matters relevant to their
investment in the shares of Buyer's Common Stock.
(f)Acknowledgment of Financial Condition of Buyer. Each Stockholder
acknowledges that he/she has been informed and is aware of the
financial condition of the Buyer as reflected in the audited
Form10-KSB financial statements for the periods ended December 31,
2002 and December 31, 2003, respectively, as well as the unaudited
financials for the six month period ended June 30, 2004, receipt of
which financials are hereby acknowledged.
11
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and its Stockholders that:
Section 6.1. Organization and Capitalization of Buyer. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York with an authorized capital consisting solely of five
million (5,000,000) shares of Preferred Stock; of which no shares are issued and
outstanding as of the date hereof; and twenty million (20,000,000) shares of
Common Stock, of which Eleven Million Forty Eight Thousand Eight Hundred
Forty-five (11,048,845) shares of Common Stock are issued and outstanding as of
the date hereof; all of such issued and outstanding shares of Buyer's Common
Stock are duly authorized, validly issued, fully paid and nonassessable. Except
as described on Exhibit 6.1 or as disclosed in the Buyer's Reports (as defined
in Section 6.6), there are no other securities of any class of Buyer authorized,
issued, reserved for issuance or outstanding. Except as described on Exhibit 6.1
or as disclosed in the Buyer's Reports (as defined in Section 6.6), there are no
outstanding options, warrants, agreements or rights to subscribe for or to
purchase, or commitments to issue, shares of Buyer's Common Stock or any other
security of Buyer or any plan for any of the foregoing. Buyer has no
subsidiaries and does not own, directly or indirectly, any outstanding capital
stock or securities convertible into capital stock of any other corporation or
any participating interest in any partnership, joint venture or other business
enterprise. Buyer is not obligated to register the resale of any Buyer capital
stock on behalf of any stockholder of Buyer under the Act.
Section 6.2. Power and Authority. Buyer has all requisite corporate power
and authority to own, lease and operate its properties and to conduct its
business as presently conducted and as proposed to be conducted and is duly
qualified or licensed as a foreign corporation in good standing in each
jurisdiction in which the character of its properties or the nature of its
business activities require such qualification.
Section 6.3. Certificate of Incorporation and By-Laws of Buyer. The copies
of the Certificate of Incorporation of Buyer, certified by the Secretary of
State of New York, and the By-laws of Buyer, certified by its Secretary,
heretofore delivered by Buyer to the Stockholders, are true, complete and
correct.
Section 6.4. Authority for Agreement; Buyer's Common Stock, Preferred Stock
and Options. The Board of Directors of Buyer has approved this Agreement and has
authorized the execution and delivery hereof. Buyer has full power, authority
and legal right to enter into this Agreement; and no approval of Buyer's
stockholders is necessary for the consummation of the transactions contemplated
hereby. The shares of Buyer's Common Stock and Preferred Stock and the Options
constituting the Exchange Consideration, when issued in accordance with the
terms of this Agreement will be duly authorized, validly issued, fully paid and
non-assessable and the Preferred Stock shall have the rights and preferences
expressed in Exhibit D.
12
Section 6.5. No Violations to Result. Assuming fulfillment prior to the
closing of the conditions set forth in Section 8.7 hereof and except as set
forth in Exhibit 6.5, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby:
(a) are not in violation or breach of, do not conflict with or
constitute a default under, and will not accelerate or permit the
acceleration of the performance required by, any of the terms of the
charter documents or by-laws of Buyer or any note, debt instrument,
security agreement or mortgage, or any other contract or agreement,
written or oral, to which Buyer is a party or by which Buyer or any of
its properties or assets are bound;
(b) will not be an event which, after notice or lapse of time or both,
will result in any such violation, breach, conflict, default or
acceleration;
(c) will not result in violation under any law, judgment, decree,
order, rule, regulation or other legal requirement of any governmental
authority, court or arbitration tribunal, whether federal, state,
provincial, municipal or local (within the U.S. or otherwise), at law
or in equity, and applicable to Buyer; and
(d) will not result in the creation or imposition of any lien,
possibility of lien, encumbrance, security agreement, equity, option,
claim, charge, pledge or restriction in favor of any third person upon
any of the properties or assets of Buyer.
Section 6.6. Exchange Act Reports and Financial Statements. The Buyer has
delivered to the Company (i) Buyer's Annual Report on Form 10-KSB for the fiscal
years ended December 31, 2003, containing Buyer's balance sheet at December 31,
2002 and December 31, 2003 and statements of income, changes in shareholders'
equity and cash flows of Buyer for the three fiscal years ended December 31,
2002 certified by ▇▇▇▇▇▇▇▇ & Associates, P.C., Fairfield, New Jersey,
independent auditors and December 31, 2003 certified by Israeloff Trattner &
Co., independent auditors, respectively; (ii) quarterly reports in Form 10-QSB
for the three quarters ended March 31, June 30, and September 30, 2004,
respectively; and (iii) all Current Reports on Form 8-K filed by Buyer since
December 31, 2002 (collectively, the "Buyer's Reports"). All Buyer's Reports as
of their respective dates (i) comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, (ii) do not contain any untrue statement of a material fact and
(iii) do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All such financial statements, including
the related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as indicated
therein) and fairly present the financial condition, assets and liabilities of
Buyer at the dates thereof and the results of operations and changes in
shareholders' equity and cash flows of Buyer for the periods stated therein,
subject, in the case of the interim financial statements, to normal and
recurring year-end audit adjustments and except that the interim financial
statements do not contain all of the notes required by generally accepted
accounting principles. In addition, Buyer does not have any material liability
or obligation, fixed, contingent, known, unknown or otherwise, not reflected in
the balance sheet included in the Buyer's Reports, and all provisions, reserves
and allowances provided for therein are adequate, except for liabilities or
obligations incurred between July 1, 2004 and the date of this Agreement in the
13
ordinary and usual course of business consistent with the representations and
warranties set forth herein and that would not have been in conflict with
Section 7.3 hereof if they had been incurred between the date hereof and the
Closing.
Section 6.7. Full Disclosures; Absence of Material Changes. From the date
hereof through the Closing, except as disclosed in Exhibit 6.7 hereto and except
as otherwise permitted herein, Buyer has not sustained any damage, destruction
or loss, by reason of fire, explosion, earthquake, casualty, labor trouble,
requisition or taking of property by any government or agency thereof,
windstorm, embargo, riot, act of God or the public enemy, flood, volcanic
eruption, accident, other calamity or other similar or dissimilar event (whether
or not covered by insurance) adversely affecting the business, properties,
financial condition or operations of Buyer taken as a whole. The information
furnished by Buyer, or by any of the directors, officers, employees, agents,
accountants or representatives of Buyer to the Company and the Stockholders
pursuant to this Agreement (whether furnished prior to, at or subsequent to the
date hereof), the information contained in the Exhibits referred to in this
Agreement and the other information furnished to the Company and the
Stockholders by Buyer, or by any of the directors, officers, employees, agents,
accountants or representatives of Buyer at any time prior to the Closing
(pursuant to the request of the Stockholders or otherwise), does not and will
not contain any untrue statement of a material fact and does not and will not
omit to state any material fact necessary to make all such information not
misleading.
Section 6.8. Taxes. Buyer has prepared (or caused to be prepared) and
timely and properly filed (or caused to be timely and properly filed) with the
appropriate federal, state, provincial, municipal or local authorities (within
the U.S. or otherwise) all tax returns, information returns and other reports
required to be filed. Such tax returns are substantially complete and correct as
filed. Buyer has paid or accrued (or caused to be so paid or accrued) in full
all Taxes, interest, penalties, assessments or deficiencies, if any, due to, or
claimed to be due by, any taxing authority. The balance sheet included in the
Buyer's Reports include appropriate provisions for all such Taxes, interest,
penalties, assessments or deficiencies, if any, for the period indicated thereon
to the extent not theretofore paid. The Buyer has not executed or filed with any
taxing authority any agreement extending the period for assessment or collection
of any Taxes. The Buyer is not a party to any pending action or proceeding, nor
is any such action or proceeding threatened, by any governmental authority for
the assessment or collection of Taxes. There are no liens for federal, state,
local or foreign Taxes, and no claim for assessment or collection of Taxes has
been asserted against Buyer. To Buyer's best knowledge, there are no tax audits
currently in progress or not complete; the Buyer is not currently subject to an
election under Section 341(f) of the Internal Revenue Code; the transaction
contemplated by this Agreement will not obligate Buyer to make payments that are
not deductible pursuant to Section 280(G) of the Internal Revenue Code; the
Buyer has disclosed on its tax returns any positions that could give rise to a
"substantial understatement" of Federal income tax pursuant to Section 6662 of
the Internal Revenue Code; and the Buyer has never been a member of a group
filing a consolidated federal income tax return.
Section 6.9. Title to Assets. Buyer has good and marketable title to all of
its material properties and assets, free and clear of any material liens,
encumbrances, security agreements, equities, options, claims, charges, pledges,
restrictions, encroachments, defects in title and easements except for the
matters set forth on Exhibit 6.9 hereto. At the Closing, Buyer will have good
14
and marketable title to such material properties and assets, free and clear of
any material liens, encumbrances, security agreements, equities, options,
claims, charges, pledges, restrictions, encroachments, defects in title and
easements except for those shown on Exhibit 6.9 hereto.
Section 6.10. Real Property. Buyer owns no real property. Buyer is a party
to the leases listed on Exhibit 6.10.
Section 6.11. Machinery and Equipment. Except as set forth on Exhibit 6.11,
Buyer owns or has adequate rights to all machinery and equipment currently used
by Buyer in the conduct of its business and to the best knowledge of Buyer, all
such machinery and equipment is in good operating condition and free from any
material defect, ordinary wear and tear excepted.
Section 6.12. Brokers. Except for G-V Capital Corp., a registered NASD
Member firm (the "Finder"), which will receive shares of Buyer's Common Stock as
compensation for advice to the Buyer in this transaction, Buyer has not
expressly or impliedly engaged any broker, finder or agent with respect to this
Agreement or any transaction contemplated hereby. It is understood that the
calculation of the Exchange Consideration will give effect to the issuance of
Buyer Common Stock to the Finder.
Section 6.13. Litigation. Except as set forth in Exhibit 6.13 hereto, there
is no litigation, suit, proceeding, action or claim at law or in equity, pending
or to Buyer's best knowledge threatened against or affecting Buyer or involving
any of its property or assets, before any court, agency, authority or
arbitration tribunal, including, without limitation, any product liability,
workers' compensation or wrongful dismissal claims, or claims, actions, suits or
proceedings relating to toxic materials, hazardous substances, pollution or the
environment. Except as set forth in such Exhibit 6.13 hereto, Buyer is not
subject to or in default with respect to any notice, order, writ, injunction or
decree of any court, agency, authority or arbitration tribunal.
Section 6.14. Compliance with Laws. To the best knowledge of Buyer, it has
complied with all laws, municipal by-laws, regulations, rules, orders,
judgments, decrees and other requirements and policies imposed by any
governmental authority applicable to it, its properties or the operation of its
business, except where the failure to comply will not have a material adverse
effect on the business, properties, financial condition or earnings of Buyer and
except as otherwise disclosed in Exhibit 6.14 hereto. Without limiting the
generality of the foregoing, to the best knowledge of Buyer, it is in material
compliance with:
(a) all laws relating to the protection of human health and safety,
including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, and all material and applicable regulations and
standards issued thereunder by the Secretary of Labor or the
Occupational Safety and Health Administrator or other governmental
agency or authority acting at any time thereunder;
(b) all material and applicable laws relating to protection of the
environment, including, without limitation, RCRA and CERCLA;
15
(c) all material and applicable laws administered by the Food and Drug
Administration; and
(d) all material and applicable laws relating to equal employment
opportunity.
Buyer has not received any notice or citation for noncompliance with any of
the foregoing, and to the best knowledge of Buyer there exists no condition,
situation or circumstance, nor has there existed such a condition, situation or
circumstance which, after notice or lapse of time, or both, would constitute
noncompliance with regard to any of the foregoing.
Section 6.15. Environmental Matters. Buyer has not stored and is not
storing any hazardous wastes, as defined by RCRA, for 90 days or more and except
as set forth in Exhibit 6.15:
(a) Buyer has not generated, stored, transported, recycled, disposed
of or otherwise handled in any way any waste material or hazardous
substance for itself or for any other person or entity, nor has any
other person or entity stored, transported, recycled, disposed of or
otherwise handled in any way any waste material or hazardous
substances for Buyer;
(b) to the best knowledge of Buyer, there are no locations where any
waste material or hazardous substances from the operation of Buyer has
been stored, treated, recycled or disposed of;
(c) Buyer has not been required by any governmental authority to make
any expenditure to achieve or maintain compliance with any
environmental standard; and
(d) Buyer has no knowledge of any information indicating that any
person, including any employee, may have impaired health or that the
environment may have been damaged as the result of the operation of
the business of Buyer or as the result of the release of Contaminants
from the Buyer Premises. For these purposes, the term "Contaminants"
includes any pollutant, waste materials, petroleum and petroleum
products and hazardous substances, as defined by CERCLA.
Section 6.16. Licenses, Permits and Approvals. Exhibit 6.16 constitutes a
true and complete list of all material licenses, permits, approvals,
qualifications or the like, issued or to be issued to Buyer by any government or
any governmental unit, agency, body or instrumentality, whether federal, state,
provincial, municipal or local (within the U.S. or otherwise) necessary for the
conduct of its trade or business, and all such items are in full force and
effect. No registration with, approval by, consent or clearance from or
prenotification to any governmental agency is required in connection with the
execution and performance of this Agreement by Buyer except as set forth on
Exhibit 6.16.
Section 6.17. True Copies. All documents furnished or caused to be
furnished to the Company and the Stockholders by Buyer are true and correct
copies, and there are no amendments or modifications thereto except as set forth
in such documents.
16
Section 6.18. Buyer's Common Stock. As and when required by the provisions
of this Agreement and subject to the terms and conditions hereof, Buyer will
reserve for issuance and issue shares of Buyer's Common Stock. The shares of
Buyer's Common Stock to be issued in accordance with this Agreement will have
been duly authorized and, upon such issuance, will be validly issued, fully paid
and nonassessable.
Section 6.19. Interest in the Company. Buyer does not own, directly or
indirectly (within the meaning of ss.318 of the Internal Revenue Code of 1986,
as amended), nor has it owned during the past 5 years, directly or indirectly
(within the meaning of ss.318 of the Internal Revenue Code of 1986, as amended)
any stock of the Company.
Section 6.20. Disposition of the Company's Shares. Buyer has no plan or
intention to sell or otherwise dispose of any of the assets of the Company
acquired in the transactions contemplated by this Agreement, except for
dispositions made in the normal and usual course of business. Buyer has no plan
or intention to reacquire any of Buyer's Common Stock and Buyer has no plan or
intention to sell or otherwise dispose of any of the Common Stock, or to
liquidate or dissolve the Company.
Section 6.21. Issuance of Stock. Buyer has no plan or present intention to
cause or permit the Company to issue additional shares of its stock that would
result in Buyer losing control of the Company within the meaning of section
368(c) of the Internal Revenue Code of 1986, as amended (the "Code").
Section 6.22. Company's Historic Business. The Buyer intends to continue
the Company's historic business.
Section 6.23. Employee Benefit Plans. Buyer does not currently have in
effect nor has Buyer had in effect since the filing of its original certificate
of incorporation any employee retirement benefit plan including but not limited
to any ERISA type plan.
Section 6.24. Reporting Company Status. Buyer is registered under Section
12(g) of the Securities Exchange Act of 1934, is required to file reports under
Sections 13 and 15 under such Exchange Act with the Securities and Exchange
Commission and has complied with all filing requirements required thereto.
Section 6.25. Claims. Buyer has no knowledge of any pending or threatened
claims against the Buyer.
Section 6.26. Intellectual Property.
(a) Buyer (which, as presently constituted, has no subsidiaries) owns,
or is licensed or otherwise possesses legally enforceable rights to
use all patents, trademarks, trade names, service marks, copyrights
and any applications therefor, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of Buyer as
currently conducted, except for any such failures to own,
17
be licensed or possess that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.
(b) Except as disclosed in Buyer's Reports, or as is not reasonably
likely to have a Material Adverse Effect (as that term is defined in
Section 4.20(b):
(i) Buyer is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of Buyer's obligations
hereunder, in violation of any licenses, sublicenses and other
agreements as to which Buyer is a party and pursuant to it is
authorized to use any third-party patents, trademarks, service marks
and copyrights ("Buyer Third-Party Intellectual Property Rights");
(ii) no claims with respect to the patents, registered and material
unregistered trademarks as well as service marks, registered
copyrights, trade names, any applications therefor owned by Buyer (the
"Buyer Intellectual Property Rights"), any trade secret material to
Buyer, or Buyer Third-Party Intellectual Property Rights to the extent
arising out of any use, reproduction or distribution of such Buyer
Third Party Intellectual Property Rights by or through Buyer, are
currently pending or, to the knowledge of Buyer, are overtly
threatened by any person;
(iii) Buyer does not know of any valid grounds for any bona fide
claims (A) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale
or license by Buyer, infringes on any copyright, patent, trademark,
service ▇▇▇▇ or trade secret of any third party other than Buyer; (B)
against the use by Buyer, of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer
software programs and applications of any third party used in the
business of Buyer as currently conducted or as proposed to be
conducted; (C) challenging the ownership, validity or effectiveness of
any Buyer Intellectual Property Rights or other trade secret material
to Buyer; or (D) challenging the license or legally enforceable right
to the use of the Buyer Third-Party Intellectual Rights by Buyer; and
(iv) to the knowledge of Buyer, all patents, registered trademarks and
service marks as well as copyrights held by Buyer are valid,
enforceable and subsisting.
Section 6.27. Buyer Due Diligence. Buyer has conducted its own independent
review and analysis of the business, operations, assets, liabilities, results of
operations, financial condition, technology and prospects of the Company and its
affiliates and acknowledges that Buyer has been provided access to the
personnel, properties, premises and records of the Company and its affiliates
for such purpose. In entering into this Agreement, Buyer has relied solely upon
its own investigation and analysis and the representations and warranties
contained herein, and Buyer:
(a) acknowledges that neither the Company nor any of its respective
directors, officers, shareholders, employees, affiliates, controlling
18
persons, agents, advisors or representatives makes or has made any
representation or warranty, either express or implied, as to the
accuracy of completeness of any of the information provided or made
available to the Company or its directors, officers, employees,
affiliates, controlling persons, agents or representatives; and
(b) agrees, to the fullest extent permitted by law, that neither the
Company nor any of its directors, officers, employees, shareholders,
affiliates, controlling persons, agents, advisors or representatives
shall have any liability or responsibility whatsoever to the Buyer or
its directors, officers, employees, affiliates, controlling persons,
agents or representatives on any basis (including, without limitation,
in contract or tort, under federal or state securities laws or
otherwise) based upon any information provided or made available, or
statements made, to the Buyer or its directors, officers, employees,
affiliates, controlling persons, advisors, agents or representatives
(or any omissions therefrom), except that the foregoing limitations
shall not apply (i) to the extent the Company makes the specific
representations and warranties set forth in this Agreement and (ii) in
the case of fraud, willful misrepresentation or willful nondisclosure,
but always subject to the limitations and restrictions contained
herein.
Section 6.28. Current Report on Form 8-K; Section 14(f) Information. Except
for information relating to the Company, the current report on Form 8-K to be
prepared by Buyer and filed after the Closing with regard to this acquisition
transaction and the information required by Section 14(f) of the Exchange Act
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading. All documents which Buyer is responsible for filing with the SEC or
any regulatory agency in connection with the acquisition will comply as to form
in all material respects with the requirements of applicable law, and all of the
information relating to Buyer in any document filed with the SEC or any other
regulatory agency in connection with this Agreement or the transactions
otherwise contemplated hereby shall be true and correct in all material
respects.
Section 6.29. No Existing Defaults. Except as set forth in Exhibit 6.29
hereto, the Buyer is not in default:
(a) under any of the terms of any material note, debt instrument,
security agreement or mortgage or under any other commitment,
contract, agreement, license, lease or other instrument, whether
written or oral, to which it is a party or by which it or any of its
properties or assets is bound;
(b) under any law, judgment, decree, order, rule regulation or other
legal requirement or any governmental authority, court or arbitration
tribunal whether federal, state, provincial, municipal or local
(within the U.S. or otherwise), at law or in equity, and applicable to
it or to any of this properties or assets, which default would have a
material adverse effect on Buyer; or
19
(c) in the payment of any of its material monetary obligations or
debts. There exists no condition or event which, after notice or lapse
of time or both, would constitute a material default in connection
with any of the foregoing
Section 6.30. Material Contracts and Agreements. Other than as disclosed on
Exhibit 6.30, Buyer is not a party to any material contracts or agreements.
Section 6.31. Survival of Representations and Warranties of Buyer. The
representations and warranties of Buyer made in this Agreement are correct, true
and complete as of the date hereof and will be correct, true and complete as at
the Closing with the same force and effect as though such representations and
warranties had been made at the Closing, and shall survive the Closing for a
period of 12 months.
ARTICLE VII
CONDUCT AND TRANSACTIONS
PRIOR TO AND AFTER CLOSING
Section 7.1. Access to Property and Records of Buyer. Buyer shall afford to
the Company and the Stockholders and their authorized representatives free and
full access to all of its assets, property, books and records, in order to
afford the Company and the Stockholders as full an opportunity of review,
examination and investigation as they shall desire to make, and the Company and
the Stockholders shall be permitted to make extracts from, or take copies of,
such books, records (including the stock record and minute books) or other
documentation or to obtain temporary possession of any thereof as may be
reasonably necessary; and the Buyer shall furnish or cause to be furnished such
reasonable financial and operating data and other information about its
business, properties and assets which the Company and the Stockholders or their
authorized representatives may request.
Section 7.2. Interim Covenants of the Buyer. From the date of this
Agreement until the Closing, except to the extent expressly permitted by or
disclosed in this Agreement or otherwise consented to by an instrument in
writing signed by the Company and the Stockholders, Buyer shall take all
necessary action so that:
(a) Buyer shall keep its business and organization intact;
(b) Buyer shall not make any change in its constituent documents,
i.e., Certificate of Incorporation or by-laws except to increase the
number of authorized common shares and as otherwise contemplated by
this Agreement;
(c) Buyer shall not form any subsidiary nor shall it issue, grant,
sell, redeemed combined, change or purchase any shares, notes or other
securities or make any commitments to do so;
20
(d) Buyer shall not effect any subdivision of its outstanding capital
stock purchase or redeem any capital stock, or declare, make or pay
any dividend, distribution or payment in respect of its capital stock
other than as contemplated by this Agreement;
(e) Buyer shall not issue any Buyer's Common Stock or Preferred Stock
except for Buyer's Common Stock to be issued upon exercise of
currently outstanding options and warrants.
(f) Buyer shall not grant or issue any options, warrants or other
rights to acquire any of its securities, whether by conversion or
otherwise, or make any commitment to do so other than as contemplated
in this Agreement;
(g) Buyer shall keep the Company appraised of its operations and any
developments thereto;
(h) Buyer agrees not to solicit or negotiate any offers with respect
to the purchase of substantially all its assets or a merger or similar
transaction prior to the termination of this Agreement;
(i) Buyer will not voluntarily go into bankruptcy and will object to
and resist any involuntary petition brought against the Buyer; and
(j) Buyer will timely and diligently perform any and all acts
necessary to convene a meeting for the shareholders' approval
necessary for this transaction.
Section 7.3. Interim Covenants of the Company. From the date of this
Agreement until the Closing, except to the extent expressly permitted by or
disclosed in this Agreement or otherwise consented to by an instrument in
writing signed by Buyer, the Company shall take all necessary action so that:
(a) the Company shall keep its business and organization intact and
shall not take or permit to be taken or do or suffer to be done
anything other than in the ordinary course of its business as the same
is presently being conducted, and shall use its best efforts to keep
available the services of its directors, officers, employees and
agents and to maintain the good will and reputation associated with
its business;
(b) the Company shall not make any change in its constituent
documents, i.e., Certificate of Incorporation or by-laws, without the
prior written consent of the Buyer;
(c) the Company shall exercise its best efforts to maintain all of its
properties and assets, tangible or intangible, in good operating
condition and repair, and take all steps necessary to keep its
operations functioning properly it being understood that the Company
is presently relocating its headquarters facility;
(d) the Company shall not purchase, sell, lease or dispose of or make
any contract for the purchase, sale, lease or disposition of or
subject
21
to lien or security interest any properties or assets other than in
the ordinary and usual course of its business consistent with the
representations and warranties of the Company and the Stockholders
contained herein and not in breach of any of the provisions of this
Article VII, in each case for a consideration at least equal to the
fair value of such property or asset; and
(e) the Company shall not enter into any contract, agreement or
commitment, including, without limiting the generality of the
foregoing, any contracts, agreement or commitment other than in the
ordinary course of its business.
Section 7.4. Public Announcements. Neither Buyer, the Company nor any
Stockholder shall make any press release or other public announcements with
respect to this Agreement or the transactions contemplated hereby without the
prior approval of the contraparty, which approval shall not be unreasonably
withheld; provided, however, that if failure to make such announcement would be
a violation of federal or state securities laws and the consents are not
practicably available on a timely basis, such a press release or public
announcement can be made without the consent of the other parties. For purposes
of the preceding sentence, each Stockholder hereby designates the Company as its
representative to give consent to a proposed press release.
Section 7.5. Compliance with Code Section 368(a)(1)(B). Each Stockholder,
the Company and Buyer hereby acknowledge that the parties hereto intend that the
transactions contemplated by this Agreement will qualify as a "reorganization"
as described in section 368(a)(1)(B) of the Code. Each Stockholder, the Company
and Buyer hereby agree to use their reasonable efforts to take all actions
necessary or appropriate to ensure that the transactions undertaken pursuant to
this Agreement will qualify as a "reorganization" as described in section
368(a)(1)(B) of the Code. In addition, each Stockholder, the Company and Buyer
hereby agree to refrain from taking any actions that are known by such party to
be, or that clearly are, inconsistent with such qualification. The obligations
of the parties under the preceding sentence shall include, without limitation,
the obligation to refrain from (i) taking any position on any federal, state, or
local income tax return that is inconsistent with the transactions undertaken
pursuant to this Agreement qualifying as a "reorganization" as described in
section 368(a)(1)(B) of the Code; (ii) taking, for a period of two (2) years
from the Closing Date, any of the actions described in Sections 6.21 through
6.23 hereof; (iii) in the case of the Buyer, providing any consideration with
respect to the Shares other than as expressly provided for herein; and (iv) in
the case of each Stockholder, within two (2) years of Closing, without the
consent of each of the other Stockholders, disposing of more than forty percent
(40%) of the Buyer's Common Stock received by such Stockholder pursuant to this
Agreement. Each Stockholder hereby agrees to provide to each other Stockholder
written notice of any disposition, within two (2) years of Closing, of any
Buyer's Common Stock.
Section 7.6. Special Stockholder Meeting. No later than 30 days after the
Closing, Buyer shall file with the Securities and Exchange Commission ("SEC") an
Information Statement for a meeting of Buyer's stockholders. The Information
Statement shall propose:
(i) increasing the Buyer's authorized capital stock to 50 million
shares;
(ii) reincorporating the Buyer into Delaware; and
22
(iii) changing the name of the Buyer to YTB International, Inc.
("YTBI").
Buyer and the Company shall use their best efforts to ensure that the
Information Statement is cleared for mailing and that the special meeting is
held at the earliest practicable date.
Section 7.7. Series B Convertible Preferred Stock. Buyer shall promptly
file with the New York Department of State an Amendment to its Certificate of
Incorporation in proper form, to designate the rights and preferences of the
Series B Preferred Stock, in accordance with the provisions specified in Exhibit
D.
Section 7.8 Second Schedule 14F Statement. As contemplated by the
Stockholders' Agreement (as defined in Section 9.11), there will be a second
Schedule 14F Statement filed with the SEC and mailed to the shareholders of the
Buyer within sixty (60) days of the Closing unless such date is extended by
mutual agreement of the parties.
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each of the agreements of Buyer to be performed by it at the Closing
pursuant to this Agreement shall be subject to the fulfillment of each of the
following conditions, any one or more of which may be waived, in whole or in
part, in writing, by Buyer.
Section 8.1. Stockholders' Approval. Stockholders owning at least 100% of
Company's Common Stock shall have executed this Agreement.
Section 8.2. Authority. All action required to be taken by, or on the part
of, the Company and the Stockholders to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken.
Section 8.3. Representations and Warranties of the Stockholders to Be True.
Each of the representations and warranties of the Company and the Stockholders
set forth in Article IV hereof shall be true and correct in all material
respects both on the date hereof and on the date of the Closing as if made at
that time, except insofar as changes shall have occurred after the date hereof
which are permitted by Section 7.3 of this Agreement.
Section 8.4. No Material Adverse Change. Since the date hereof, there shall
have been no material adverse change in the business of the Company or any
material loss to the business by fire or other casualty whether or not covered
by insurance.
Section 8.5. No Litigation. No material suit, action or other proceeding
against the Buyer, the Company or their officers or directors or stockholders
shall be pending or threatened before any court or governmental agency seeking
to restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the transactions contemplated hereby and in
23
which in the judgment of Buyer makes the consummation of the transactions
contemplated by this Agreement inadvisable.
Section 8.6. Consents Obtained. All necessary governmental and third party
consents or approvals to the transactions contemplated hereby shall have been
obtained.
Section 8.7. Legal Review. All legal matters in connection with this
Agreement and the transactions contemplated hereby, and the form and substance
of all legal proceedings and of all papers, instruments and documents used or
delivered hereunder or incidental hereto, shall be reasonably satisfactory to
Buyer, and at its request, to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., counsel for Buyer.
Section 8.8. Certificate of the Company. At the Closing, the Company shall
have delivered to Buyer a certificate signed by an authorized officer, dated the
date of the Closing, to the effect that to the best of its knowledge and belief,
after due inquiry, the conditions specified in Section 8.6 have been fulfilled.
Section 8.9. ▇▇▇▇▇ ▇▇▇▇▇. Buyer shall issue to ▇▇▇▇▇ ▇▇▇▇▇ 900,000 shares
of Buyer's Common Stock.
ARTICLE IX
CONDITIONS PRECEDENT TO THE STOCKHOLDERS' OBLIGATIONS
Each of the agreements of the Company and the Stockholders to be performed
by it or each of them at the Closing pursuant to this Agreement shall be subject
to the fulfillment of each of the following conditions, any one or more of which
may be waived, in whole or in part, in writing, by the Stockholders as
appropriate:
Section 9.1. Representations and Warranties of Buyer to Be True. The
representations and warranties of Buyer set forth in Article VI hereof shall be
true and correct both on the date hereof and on the date of the Closing as if
made at that time, except insofar as changes shall have occurred after the date
hereof which are permitted by Section 7.2 of this Agreement.
Section 9.2. Authority. All action required to be taken by, or on the part
of, Buyer to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken by the Board of Directors and Shareholders of Buyer.
Section 9.3. Officers' Certificate of Buyer. At the Closing, Buyer shall
have delivered to the Company and the Stockholders a certificate signed by the
Buyer's Chairman of the Board dated the date of the Closing, to the effect that
to the best of the knowledge and belief of such officers, after due inquiry, the
conditions specified in Sections 9.1 and 9.2 with respect to Buyer have been
fulfilled.
Section 9.4. Opinion of Buyer's Counsel. The Company and the Stockholders
shall have received from ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., counsel for Buyer, his opinion,
dated the date of Closing, in form and substance satisfactory to
24
them and their counsel, to the effect set forth in Exhibit 9.4 hereto.
Section 9.5. The Buyer Has Complied with Covenants. The Buyer shall have
performed and complied in all material respects with all agreements,
undertakings and obligations which are required to be performed or complied with
by it at or prior to the Closing.
Section 9.6. No Litigation. No material suit, action or other proceeding
against the Buyer, the Company or their officers or directors or stockholders
shall be pending or threatened before any court or governmental agency seeking
to restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the transactions contemplated hereby and in which in the
judgment of Buyer makes the consummation of the transactions contemplated by
this Agreement inadvisable.
Section 9.7. Consents Obtained. All necessary governmental and third-party
consents or approvals to the transaction contemplated hereby shall have been
obtained.
Section 9.8. Legal Review. All legal matters in connection with this
Agreement and the transactions contemplated hereby, and the form and substance
of all legal proceedings and of all papers, instruments and documents used or
delivered hereunder or incidental hereto, shall be reasonably satisfactory to
the Stockholders and, at their request, to counsel for the Company.
Section 9.9. D&O Policy. Directors and Officers' insurance coverage shall
be obtained at both the parent and the subsidiary levels, effective on the date
of Closing unless both Buyer and the Company agree as to a different date.
Section 9.10. Employment Agreements; Option Agreements. ▇▇▇▇▇▇▇ ▇▇▇▇▇'▇
employment agreement with Buyer shall be replaced, effective on Closing, by a
substitute employment agreement that will be put in place with ▇▇. ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, J. ▇▇▇▇▇ ▇▇▇▇▇ and J. ▇▇▇ ▇▇▇▇▇▇▇▇. The terms and conditions of each
employment agreement, including the compensation provisions, shall be mutually
agreed to by the respective individual and the Buyer. All employment agreements
will be with the Buyer. The Buyer at closing will issue options to purchase the
respective amounts of Buyer's Common Stock (the "Matching Options") to Messrs.
J. ▇▇▇▇▇ ▇▇▇▇▇ (100,000), J. ▇▇▇▇▇ ▇▇▇▇▇ (135,000), J. ▇▇▇ ▇▇▇▇▇▇▇▇ (135,000)
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (100,000). These Matching Options will be issued under the
Buyer's 1999 Stock Option Plan, be fully vested on the date of issuance and have
the same exercise prices and expiration dates as the options held by ▇▇. ▇▇▇▇▇
and certain other employees.
Section 9.11.Stockholders' Agreement; Resultant Corporate Structure.
Effective at Closing, a stockholders' agreement with respect to the Buyer's
outstanding stock (the "Stockholder Agreement") shall have been executed by and
between the Tomer Group (as such term is defined therein) and the ▇▇▇▇▇ Group
(as such term is defined therein). Effective at Closing, the Company
(▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.) will become a 100% owned subsidiary of Buyer; and
Buyer will have created two new 100% owned subsidiaries REZconnect Technology,
Inc. and YTB Travel Network, Inc. The respective certificates of incorporation
of the subsidiaries shall contain provisions which (limit the Board of Directors
to five (5) members and permit the Tomer Group (in the case of the Company) and
25
the ▇▇▇▇▇ Group (in the case of the RezConnect Technology, Inc. subsidiary) to
elect three (3) members to the applicable board of directors and also provide
that the applicable certificate of incorporation of such subsidiary cannot be
amended without the consent of the Tomer Group (in the case of the Company) and
the ▇▇▇▇▇ Group (in the case of the RezConnect Technology, Inc. subsidiary).
Section 9.12. Buyer's Board of Directors; Schedule 14F Statement. The
Buyer's board of directors shall have been initially expanded to six (6) members
in accordance with the provisions of the Stockholders' Agreement and the three
(3) board members designated by the Tomer Group shall have been appointed by the
incumbent board. At least ten (10) days before the Closing, the disclosure
required by Section 14(f) of the Exchange Act shall have been filed with the SEC
and mailed to Buyer's stockholders. The parties acknowledge that following the
Closing there will be a second Schedule 14F Statement filed with the SEC and
mailed to the Buyer's stockholders in connection with the expansion of the
Buyer's Board of Directors to nine (9) members.
Section 9.13. Tax Opinion. ▇▇▇▇, ▇▇▇▇▇ LLP shall prepare a tax opinion, the
tax status of this exchange of stock pursuant to Section 368 of the Internal
Revenue Code.
Section 9.14. Lockup Agreements. Effective not later than Closing, Finder
shall enter into a twelve (12) month period Lockup Agreement with regard to
Buyer's shares paid to the Finder as compensation.
Section 9.15.Assignment Agreement between YTB Travel & Cruises, Inc. and
YTB Travel Network Subsidiary. Effective at Closing, YTB Travel & Cruises, Inc.
("Assignor") will have entered into an Assignment and Assumption Agreement with
the newly created YTB Travel Network, Inc. subsidiary assigning to such
subsidiary (i) all of Assignor's rights and obligations under Assignor's
contracts with all of its Referring Travel Agents; and (ii) all right, title and
interest in and to Assignor's ARC Number.
Section 9.16. Series B Convertible Preferred Stock. The Certificate of
Amendment for designating the rights and preferences of the Preferred Stock
shall have been filed with, and accepted by, the New York Department of State.
ARTICLE X
FURTHER ASSURANCES OF THE STOCKHOLDERS
Section 10.1. Satisfaction of Conditions of the Stockholders. The
Stockholders shall not voluntarily undertake any course of action inconsistent
with the satisfaction of the requirements or conditions applicable to them set
forth in this Agreement, and the Stockholders shall promptly do all such acts
and take all such measures as may be appropriate to enable them to perform as
early as is reasonably practicable the obligations herein provided to be
performed by them. The Stockholders shall use their reasonable efforts to cause
the Closing to occur as contemplated herein at the earliest practicable date.
26
ARTICLE XI
AMENDMENT, WAIVER AND TERMINATION
Section 11.1. Amendment. This Agreement may be amended at any time in a
writing which refers to and incorporates by reference this Agreement and is
executed by all the parties hereto.
Section 11.2. Waiver. Either the Stockholders or Buyer may waive or modify
in writing compliance by the other with any of the covenants and conditions
contained in this Agreement (except such as may be imposed by law) to the extent
such party believes such action not to be materially adverse to its interest.
Section 11.3. Termination. This Agreement may be terminated at any time on
or prior to the Closing Date:
(a) By the mutual consent of Buyer, the Company and the Stockholders;
(b) By Buyer, if any of the Company's representations or warranties
contained in or made pursuant to this Agreement was not true and
complete in all material respects when made or if Seller or the
Stockholders fails to perform or comply in all material respects with
all agreements and covenants required by this Agreement to be
performed or complied with by Seller or the Stockholders or if any of
the conditions set forth in Article VIII have not been satisfied as of
the Closing Date; and
(c) By the Company or the Stockholders, if any of Buyer's
representations or warranties contained in or made pursuant to this
Agreement was not true and complete in all material respects when made
or if Buyer fails to perform or comply in all material respects with
all agreements and covenants required by this Agreement to be
performed or complied with by Buyer or if any of the conditions set
forth in Article IX have not been satisfied as of the Closing Date. In
the event of termination of this Agreement pursuant to Article IX
hereof, notice shall promptly be given by the terminating party to the
other party to this Agreement.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Arbitration. Any controversy, claim, or dispute between the
parties, directly or indirectly, concerning this Agreement or the breach hereof,
or the subject matter hereof, including questions concerning the scope and
applicability of this arbitration clause, shall be finally settled by
arbitration in New York City, New York pursuant to the rules then applying of
the American Arbitration Association. The arbitrators shall consist of one
representative selected by Buyer, one representative selected by the Company and
one representative selected by the first two arbitrators. The parties agree to
expedite the arbitration proceeding in every way, so that the arbitration
proceeding shall be commenced within thirty (30) days after request therefore is
made, and shall continue thereafter, without interruption, and that the decision
27
of the arbitrators shall be handed down within thirty (30) days after the
hearings in the arbitration proceedings are closed. The arbitrators shall have
the right and authority to assess the cost of the arbitration proceedings and to
determine how their decision or determination as to each issue or matter in
dispute may be implemented or enforced. The decision in writing of any two of
the arbitrators shall be binding and conclusive on all of the parties to this
Agreement. Should either Buyer or the Company fail to appoint an arbitrator as
required by this Section 12.1 within thirty (30) days after receiving written
notice from the other party to do so, the arbitrator appointed by the other
party shall act for all of the parties and his decision in writing shall be
binding and conclusive on all of the parties to this Agreement. Any decision or
award of the arbitrators shall be final and conclusive on the parties to this
Agreement; judgment upon such decision or award may be entered in any competent
Federal or state court located in the United States of America; and the
application may be made to such court for confirmation of such decision or award
for any order of enforcement and for any other legal remedies that may be
necessary to effectuate such decision or award.
Section 12.2. Indemnification of Company Directors and Officers.
(a) From and after the Closing, Buyer shall indemnify, defend and hold
any person any person who is now, or has been at any time prior to the
date hereof, or who becomes prior to the Closing, an officer or
director (the "Indemnified Party") of the Company against all losses,
claims, damages, liabilities, costs and expenses (including reasonable
attorney's fees and expenses), judgments, fines, losses, and amounts
paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "Claim") to the
extent that any such Claim is based on, or arises out of, (i) the fact
that such person is or was a director or officer of the Company or is
or was serving at the request of the Company as a director or officer
of another corporation, partnership, joint venture, trust or other
enterprise, or (ii) this Agreement, or any of the transactions
contemplated hereby, in each case to the extent that any such Claim
pertains to any matter or fact arising, existing, or occurring prior
to or at the Closing, regardless of whether such Claim is asserted or
claimed prior to, at or after the Closing, to the full extent
permitted under the Illinois Business Corporation Act of 1983 ("BCA"),
or the Company's Articles of Incorporation, By-laws or indemnification
agreements in effect at the date hereof, including provisions relating
to advancement of expenses incurred in the defense of any action or
suit. Without limiting the foregoing, in the event any Indemnified
Party becomes involved in any capacity in any Claim, then from and
after the Closing, Buyer and/or its consolidated successor, shall
periodically advance to such Indemnified Party its legal and other
expenses (including the cost of any investigation and preparation
incurred in connection therewith), subject to the provision by such
Indemnified Party of a written affirmation in accordance with Illinois
BCA.
(b) The parties agree that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Party as
provided in the Company's Articles of Incorporation and By-laws as in
effect as of the date hereof shall survive the Closing and shall
continue in full force and effect, without any amendment thereto, for
a period of two years from the Closing of the reorganization to the
extent such rights are consistent with Illinois BCA; provided that, in
the event any Claim or Claims are asserted or made within such two
year period, all rights to indemnification in respect of any such
Claim or
28
Claims shall continue until disposition of any and all such Claims;
provided further, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the
standards set forth under Illinois BCA, the Company's Articles of
Incorporation or By-laws, as the case may be, shall be made by
independent legal counsel in accordance with Illinois BCA and the
indemnification agreements and; provided further, that nothing in this
Section 12.2 shall impair any rights or obligations of any present or
former directors or officers of the Company.
(c) In the event Buyer or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, to
the extent necessary to effectuate the purposes of this Section 12.2,
proper provision shall be made so that the successors and assigns of
Buyer assume the obligations set forth in this Section 12.2, and none
of the actions described in clauses (i) or (ii) shall be taken until
such provision is made.
(d) Buyer shall maintain the Company's existing officers' and
directors' liability insurance policy ("D&O Insurance") for a period
of not less than six years after the Closing of the reorganization;
provided, that Buyer may substitute therefor policies of substantially
similar coverage and amounts containing terms no less advantageous to
such former directors and officers; provided, further, if the existing
D&O Insurance expires or is cancelled during such period, Buyer will
use its best efforts to obtain substantially similar D&O Insurance.
Section 12.3. Successors, Assigns and Third Parties. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; provided, however, that, except as otherwise
expressly provided herein, none of the parties hereto may make any assignment of
this Agreement or any interest herein without the prior written consent of the
other parties hereto. Nothing herein expressed or implied is intended or shall
be construed to confer upon or give to any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
Section 12.4. Governing Law. This Agreement shall in all respects be
interpreted, construed and governed by and in accordance with the internal
substantive laws of the State of New Jersey, disregarding principles of conflict
of laws and the like.
Section 12.5. Severability. Each Section, subsection and lesser section of
this Agreement constitutes a separate and distinct undertaking, covenant and/or
provision hereof. In the event that any provision of this Agreement shall
finally be determined to be unlawful, such provision shall be deemed severed
from this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
29
Section 12.6. Certain Words. Words such as "herein," "hereof," "hereby,"
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular Section or subsection of this Agreement.
Section 12.7. Notices. Except as otherwise expressly provided herein, any
notice, consent or other communication required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
received, and shall be addressed as follows:
(a) If to Buyer:
REZconnect Technologies, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇ , President
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(b) If to the Company or the Stockholders:
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ -▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇ or ▇▇▇ ▇▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ -- ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
or at such other address or addresses as the party addressed may from time to
time designate in writing. Any communication dispatched by telegram or telex
shall be confirmed by letter.
Section 12.8. Expenses. Each party hereto shall pay its own legal,
accounting and other costs and expenses incurred in connection herewith and the
transactions contemplated hereby.
Section 12.9. Confidentiality. All information disclosed heretofore or
hereafter by Buyer or the Company and the Stockholders to the other in
connection with this Agreement shall be kept confidential by such other, and
shall not be used otherwise than by such other in connection with this
Agreement, except to the extent it was known when received or as it is or
hereafter becomes lawfully obtainable from other sources, or to the extent such
30
duty as to confidentiality and non-use is waived, in writing or except as may be
required by court order or any governmental agency. Such obligation as to
confidentiality and non-use shall survive any termination of this Agreement. In
the event of termination of this Agreement, Buyer and the Stockholders shall use
all reasonable efforts to return upon request to the other (or destroy) all
documents (and reproductions thereof) received from the other (and, in the case
of reproductions, all such reproductions made by the receiving party) that
include information not within the exception contained in the first sentence of
this Section 12.9.
Section 12.10. Headings. The headings in this Agreement are intended solely
for convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
Section 12.11. Amendments to Structure of Transaction. If the transaction
as contemplated by this Agreement poses undue tax burdens, creates a materially
and adverse affect on the financial statements of the Buyer or Company or is
necessitated in order to comply with federal or state securities laws, the
parties hereto will diligently and timely use their best efforts to restructure
the transaction in a mutually agreeable manner, provided however any party
requiring any change must state the terms of the proposed restructuring and give
notice to the other parties to this Agreement in writing prior to November 30,
2004 and provided further if the parties do not agree on the proposed
restructuring of this Agreement, any party to this Agreement following a thirty
day right to cure period may terminate this Agreement by notice to the other
parties on or before December 15, 2004 and no party shall have any liability to
any other party for such termination.
Section 12.12. Counterparts or Facsimiles. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which shall constitute the same agreement and this Agreement may be executed
by facsimile signatures which shall be valid and binding.
[* * * * * *]
31
IN WITNESS WHEREOF, the parties hereto have caused their signatures to be
affixed to this Agreement as of the date first above written.
REZCONNECT TECHNOLOGIES, INC.
By: ____________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman and Chief Executive Officer
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
By: ____________________________________
Name: J. ▇▇▇▇▇ ▇▇▇▇▇
Title: Chairman and Chief Executive Officer
32
Stockholders' Signature Pages to the Amended Merger and Stock Exchange Agreement
dated November 19, 2004 between REZconnect Technologies, Inc.,
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. and the Stockholders of ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
STOCKHOLDERS
-------------------------------------------------- --------------------------------------------------
J. ▇▇▇ ▇▇▇▇▇▇▇▇, Individually J. ▇▇▇▇▇ ▇▇▇▇▇, Individually
GREAT RIVER ENTERPRISES LP
By:
-------------------------------------------------- --------------------------------------------------
J.▇▇▇▇▇ ▇▇▇▇▇, its General Partner ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Individually
(By J.▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact)
SERENITY ENTERPRISES LP
By:
-------------------------------------------------- --------------------------------------------------
▇▇▇▇▇ Stillwelt, its General Partner ▇▇▇▇ ▇▇▇▇▇▇▇, Individually
(By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact) (By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact)
By:
-------------------------------------------------- --------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, Individually ▇▇▇▇▇ ▇▇▇▇▇, Individually
(By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact) (By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact)
-------------------------------------------------- --------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Individually ▇▇▇▇▇▇ Head, Individually
(By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact) (By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact)
-------------------------------------------------- --------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Individually ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Individually
(By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact) (By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact)
-------------------------------------------------- --------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇, Individually ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Individually
(By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact) (By J. ▇▇▇▇▇ ▇▇▇▇▇, as Attorney-in-Fact)
33
Exhibit 4.18
Pre-Signing Conduct
Company has advised the Buyer that its office location at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ has been sold, and it is seeking a
replacement lease for its operations.
1
Exhibit 9.7
Consents
ARC Number Transfer
1
AMENDED MERGER AND
STOCK EXCHANGE AGREEMENT
TABLE OF CONTENTS
(This Table of Contents is not a part of this Agreement and is attached
only for convenience of reference.)
ARTICLE I
EXCHANGE OF THE COMMON STOCK
Page
Section 1.1 Exchange of the Common Stock 1
Section 1.2 No Obligation to Exchange in Event of Default 1
ARTICLE II
EXCHANGE CONSIDERATIONS
Section 2.1 Exchange Consideration 2
Section 2.2 Payment of Exchange Consideration 2
ARTICLE III
CLOSING
Section 3.1 Time and Place of Closing 2
Section 3.2 The Stockholders' and the Company's Particular Closing Deliveries 2
Section 3.3 Buyer's Particular Closing Deliveries 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
Section 4.1 Organization and Capitalization of the Company 3
Section 4.2 Power and Authority; Authority for Agreement 3
Section 4.3 Articles of Incorporation and By-Laws of the Company 4
Section 4.4 Subsidiaries 4
Section 4.5 No Violation to Result 4
Section 4.6 No Existing Defaults 4
Section 4.7 Financial Statements 5
Section 4.8 No Adverse Changes 5
Section 4.9 Full Disclosure; Absence of Material Changes 5
Section 4.10 Taxes 6
Section 4.11 Title to Assets 6
-i-
Section 4.12 Machinery and Equipment 6
Section 4.13 Litigation 6
Section 4.14 Compliance with Laws 7
Section 4.15 Environmental Matters 7
Section 4.16 Licenses, Permits and Approvals 8
Section 4.17 True Copies 8
Section 4.18 Pre-Signing Conduct of Business 8
Section 4.19 Survival of Representations and Warranties of the Company and the Stockholders 8
Section 4.20. Intellectual Property 8
Section 4.21. Company Due Diligence Investigation 9
Section 4.22 Material Contracts and Agreements 10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
STOCKHOLDERS GENERALLY
Section 5.1 Authority for Agreement 10
Section 5.2 Title of Common Stock 10
Section 5.3 Investment Representations 11
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 6.1 Organization and Capitalization of Buyer 12
Section 6.2 Power and Authority 12
Section 6.3 Certificate of Incorporation and By-Laws of Buyer 12
Section 6.4 Authority for Agreement; Buyer's Common Stock, Preferred Stock and Options 12
Section 6.5 No Violation to Result 13
Section 6.6 Exchange Act Reports and Financial Statements 13
Section 6.7 Full Disclosure; Absence of Material Changes 14
Section 6.8 Taxes 14
Section 6.9 Title to Assets 14
Section 6.10 Real Property 15
Section 6.11 Machinery and Equipment 15
Section 6.12 Brokers 15
Section 6.13 Litigation 15
Section 6.14 Compliance with Laws 15
Section 6.15 Environmental Matters 16
Section 6.16 Licenses, Permits and Approvals 16
Section 6.17 True Copies 16
Section 6.18 Buyer's Common Stock 17
Section 6.19 Interest in the Company 17
Section 6.20 Disposition of the Company's Shares 17
Section 6.21 Issuance of Stock 17
-ii-
Section 6.22 Company's Historic Business 17
Section 6.23 Employee Benefit Plans 17
Section 6.24 Reporting Company Status 17
Section 6.25 Claims 17
Section 6.26 Intellectual Property 17
Section 6.27 Buyer Due Diligence 18
Section 6.28 Current Report on Form 8-K; Section 14(f) Information 19
Section 6.29 No Existing Defaults 19
Section 6.30 Material Contracts and Agreements 20
Section 6.31 Survival of Representations and Warranties of Buyer 20
ARTICLE VII
CONDUCT AND TRANSACTIONS
PRIOR TO AND AFTER CLOSING
Section 7.1 Access to Properties and Records of Buyer 20
Section 7.2 Interim Covenants of the Buyer 20
Section 7.3 Interim Covenants of the Company 21
Section 7.4 Public Announcements 22
Section 7.5 Compliance with Code Section 368(a)(1)(B) 22
Section 7.6 Special Stockholder Meeting 22
Section 7.7 Series B Convertible Preferred Stock 23
Section 7.8 Second Schedule 14F Statement 23
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Section 8.1 Stockholders' Approval 23
Section 8.2 Authority 23
Section 8.3 Representations and Warranties of the Stockholders to be True 23
Section 8.4 No Material Adverse Change 23
Section 8.5 No Litigation 23
Section 8.6 Consents Obtained 24
Section 8.7 Legal Review 24
Section 8.8 Certificate of the Company 24
Section 8.9 ▇▇▇▇▇ ▇▇▇▇▇ 24
ARTICLE IX
CONDITIONS PRECEDENT TO THE STOCKHOLDERS' OBLIGATIONS
Section 9.1 Representations and Warranties of Buyer to be True 24
Section 9.2 Authority 24
Section 9.3 Officers' Certificate of Buyer 24
Section 9.4 Opinion of Buyer's Counsel 24
Section 9.5 The Buyer Has Complied with Covenants 25
-iii-
Section 9.6 No Litigation 25
Section 9.7 Consents Obtained 25
Section 9.8 Legal Review 25
Section 9.9 D & O Policy 25
Section 9.10 Employment Agreements; Option Agreements 25
Section 9.11 Stockholders' Agreements; Resultant Corporate Structure 25
Section 9.12 Buyer's Board of Directors; Schedule 14F Disclosures 26
Section 9.13 Tax Opinion 26
Section 9.14 Lockup Agreements 26
Section 9.15 Assignment Agreement between YTB Travel & Cruises, Inc. and YTB Travel Network 26
Subsidiary
Section 9.16 Series B Convertible Preferred Stock 26
ARTICLE X
FURTHER ASSURANCES OF THE STOCKHOLDERS
Section 10.1 Satisfaction of Conditions of the Stockholders 26
ARTICLE XI
AMENDMENT, WAIVER AND TERMINATION
Section 11.1 Amendment 27
Section 11.2 Waiver 27
Section 11.3 Termination 27
ARTICLE XII
MISCELLANEOUS
Section 12.1 Arbitration 27
Section 12.2 Indemnification of Company Directors and Officers 28
Section 12.3 Successors, Assigns and Third Parties 29
Section 12.4 Governing Law 29
Section 12.5 Severability 29
Section 12.6 Certain Words 30
Section 12.7 Notices 30
Section 12.8 Expenses 30
Section 12.9 Confidentiality 30
Section 12.10 Headings 31
Section 12.11 Amendments to Structure of Transaction 31
Section 12.12 Counterparts or Facsimiles 31
-iv-
LIST OF EXHIBITS
Exhibit A List of Stockholders
Exhibit B Power of Attorney
Exhibit C Estimate of Exchange Consideration
Exhibit D Rights and Preferences of Preferred Stock
Exhibit 4.6 No Existing Defaults
Exhibit 4.8 No Adverse Changes
Exhibit 4.11 Title to Assets
Exhibit 4.13 Litigation
Exhibit 4.14 Compliance with Laws
Exhibit 4.15 Environmental Matters
Exhibit 4.16 Licenses, Permits and Approvals
Exhibit 4.18 Pre-signing Conduct of Business
Exhibit 4.22 Material Contracts and Agreements
Exhibit 6.1 Organization and Capitalization of Buyer
Exhibit 6.5 No Violations to Result
Exhibit 6.7 Full Disclosures; Absence of Material Changes
Exhibit 6.9 Title to Assets
Exhibit 6.10 Real Property
Exhibit 6.11 Machinery and Equipment
Exhibit 6.13 Litigation
Exhibit 6.14 Compliance with Laws
Exhibit 6.15 Environmental Matters
Exhibit 6.16 Licenses, Permits and Approvals
Exhibit 6.29 No Existing Defaults
Exhibit 6.30 Material Contracts and Agreements
Exhibit 9.4 Opinion of Buyer's Counsel
-v-
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AMENDED MERGER AND
STOCK EXCHANGE AGREEMENT
dated as of
November 19, 2004
among
REZCONNECT TECHNOLOGIES, INC.
and
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
and
THE STOCKHOLDERS OF
▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
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EXHIBIT A
SHARES OF COMPANY COMMON PERCENTAGE OF BUYER
STOCKHOLDERS COMMON STOCK COMMON STOCK TO BE RECEIVED
------------ ------------ ---------------
J. ▇▇▇ ▇▇▇▇▇▇▇▇ 2,400,000 18.75%
J. ▇▇▇▇▇ ▇▇▇▇▇ 2,400,000 18.75%
Great River Enterprises, LP#1 6,800,000 53.13%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 120,000 .94%
Serenity Enterprises LP#1 120,000 .94%
▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ 125,000 .98%
▇▇▇▇▇ ▇▇▇▇▇ 200,000 1.56%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 200,000 1.56%
▇▇▇▇▇▇ Head 200,000 1.56%
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 100,000 .78%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 50,000 .39%
▇▇▇▇▇▇▇ ▇▇▇▇ 50,000 .39%
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ 35,000 .27%
TOTAL 12,800,000 100%
Prior to the Closing, the Company shall supply the Buyer with detailed
instruction as to how the Exchange Consideration is to be issued and distributed
amongst the Stockholders.
EXHIBIT C
Details of Exchange Consideration
11,351,845 Shares outstanding as of November 1, 2004
Less Adjustments
----------------
(1,000,000) Less Shares Being Cancelled Held by YTB
( 303,000) Shares Issued Contingently for Services Returned to Treasury
------------
10,048,845 Plus Adjustments
----------------
900,000 Shares to ▇▇▇▇▇ ▇▇▇▇▇
500,000 Shares to G-V Capital Corp
73,530 Shares to ▇▇▇▇ ▇▇▇▇▇
------------
1,473,530
11,522,375 Total Adjusted Shares outstanding before Merger
==========
Number of New Shares to be Issued to the Stockholders: 11,522,376
----------
Consisting of: 7,430,000
Common Shares of Buyer; and
4,092,376
Preferred Shares (Series B)
EXHIBIT D
Series B Convertible Preferred Stock
Rights and Preferences
[EXHIBIT D TO AMENDED AND RESTATED MERGER AGREEMENT]
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
REZCONNECT TECHNOLOGIES, INC.
(a New York corporation)
(Under Section 805 of New York Business Corporation Law ("BCL"))
Pursuant to the provisions of Section 805 of the BCL, the undersigned,
▇▇▇▇▇▇▇ ▇▇▇▇▇, being the President and Secretary of Rezconnect Technologies,
Inc., a corporation organized and existing under the BCL of the State of New
York (the "Corporation"), DOES HEREBY CERTIFY THAT:
FIRST: The name of the Corporation is Rezconnect Technologies, Inc. The
name under which the Corporation was formed was Playorena Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed with
the Department of the State of the State of New York on December 4, 1981, and
Certificates of Amendment were filed with such Department on the following
dates: May 4, 1984; December 21, 1984; March 20, 1987; January 8, 1990; January
10, 1990; January 25, 1999; and September 28, 1999; August 18, 2000; and
September 10, 2001.
THIRD: The Certificate of Incorporation is hereby amended by the addition
of the following provisions setting forth the number, designation, preferences
and the relative, participating, optional or other rights and the
qualifications, limitations or restrictions thereof relating to the Series B
Convertible Preferred Stock (as defined below) as fixed by the Board of
Directors of the Corporation, and in accordance with the provisions of Sections
501 and 502 of the BCL of the State of New York.
FOURTH: Pursuant to authority expressly granted and vested in the Board of
Directors of the Corporation by the provisions of its Certificate of
Incorporation, as amended, said Board of Directors duly adopted upon unanimous
written consent the following resolution:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Section 502 of the BCL and in accordance with the
provisions of its Certificate of Incorporation, a class of preferred stock of
the Corporation to be known as Series B Convertible Preferred Stock is hereby
created and provided for and the Board of Directors hereby fixes, states and
expresses the terms, designations, relative rights, preferences and limitations
of such class in addition to those set forth in said Certificate of
Incorporation, as amended, to be in their entirety as follows:
1. Designation of Series of Preferred Stock. Of the 5,000,000 undesignated
shares of the Corporation's authorized Preferred Stock, 4,092,376 shares shall
be designated and known as "Series B Convertible Preferred Stock," par value
$.001 per share (the "Series B Preferred Stock").
2. Issuance; Rank. The issuance price of the Series B Preferred Stock shall
be $1.45 per share (the "Original Purchase Price"). The Series B Preferred Stock
shall rank senior to the Common Stock and any other capital stock of the
Corporation ranking junior to the Series B Preferred Stock as to dividends and
upon liquidation, dissolution or winding up. The date on which a share of Series
B Preferred Stock was issued shall hereinafter be referred to as the "Original
Issue Date" for such share.
3. Dividends.
3.1 No dividends shall be declared or paid upon the Common
Stock or other securities ranking junior to the Series B Preferred Stock unless
equivalent dividends, on an as converted basis, are declared and paid
concurrently on the Series B Preferred Stock.
4. Liquidation, Dissolution or Winding Up.
4.1 In the event of any liquidation, dissolution or winding up
of the Corporation (a "Liquidation Event"), the assets of the Corporation
available for distribution to its stockholders, whether from capital, surplus or
earnings (the "Corporate Assets") shall be distributed as follows:
4.1.1 First, before any distribution of assets shall be
made to the holders of, Common Stock, the holderof each share of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the
Corporate Assets an amount per share equal to the Original Purchase Price
(subject to an Adjustment) plus all dividends, accrued but unpaid, on such share
up to the date of distribution of the assets of the Corporation (the
"Liquidation Preference"). If upon the occurrence of a Liquidation Event, the
Corporate Assets shall be insufficient to pay the holders
of shares of Series B Preferred Stock the Liquidation Preference, the holders of
shares of Series B Preferred Stock and any class or series of stock, ranking on
liquidation on a parity with the shares of Series B Preferred Stock, shall share
ratably in the distribution of the entire remaining Corporate Assets in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
4.1.2 Second, after distribution of the Liquidation
Preference, the remaining Corporate Assets shall be distributed among the
holders of Common Stock and the Series B Preferred Stock on a pro rata basis.
4.2 For purposes of this Section 4, the term Liquidation Event
shall be deemed to include (i) a statutory merger or consolidation of the
Corporation into or with any other corporation, or a statutory merger or
consolidation of any other corporation into or with the Corporation; (ii) a
sale, transfer, exchange or lease of all or any part of the assets of the
Corporation; and (iii) a purchase or redemption of all or a substantial part of
the outstanding shares of any class or classes of capital stock of the
Corporation.
4.3 Written notice of such Liquidation Event, stating a
payment date, the liquidation amount and the place where said liquidation amount
shall be payable, shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex, not
less than twenty (20) days prior to the payment date stated therein, to the
holders of record of the Series B Preferred Stock, such notice to be addressed
to each such holder at its address as shown by the records of the Corporation.
5. Voting.
5.1 Each holder of outstanding shares of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series B Preferred Stock held of
record by such holder are convertible (as adjusted from time to time pursuant to
Section 6 hereof) at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law and by the provisions of Section 5.2
below, the holders of shares of Series B Preferred Stock shall vote together
with the holders of Common Stock as a single class.
5.2 So long as any of the shares of Series B Preferred Stock
are outstanding, the Corporation or, as applicable, any subsidiary shall not,
without first obtaining the written consent or affirmative vote of the holders
of a majority of the then outstanding shares of Series B Preferred Stock, given
in writing or by vote at a meeting, consenting or voting, as the case may be,
separately as a class:
5.2.1 merge with or into or consolidate with any other
corporation or enter into any other similar transaction or series of related
transactions after which the holders of the Corporation's voting securities
immediately prior to such transaction or transactions own less than fifty (50%)
percent of the voting power of the surviving entity in the transaction, or all
or substantially all of the assets of the Corporation or any of its subsidiaries
are sold;
5.2.2 effectuate a liquidation, dissolution or winding
up of the Corporation or any of its subsidiaries;
5.2.3 amend, alter or repeal any provision of the
Certificate of Incorporation, the By-laws of the Corporation, in a manner that
changes or modifies the rights, preferences, or privileges of the Series B
Preferred Stock;
5.2.4 authorize any other class or series of stock
having parity with, or senior to, the Series B Preferred Stock;
5.2.5 increase the authorized number of shares of the
Series B Preferred Stock;
5.2.6 redeem or repurchase shares of the
Corporation's capital stock;
5.2.7 effectuate a reclassification or
recapitalization of' the outstanding capital stock of the Corporation;
5.2.8 effect any sale, transfer, assignment,
license or sublicense of any patent, copyright, trademark, trade name, software
or other intellectual property that is used or developed by the Corporation or
any subsidiary and is material to the conduct of its business;
5.2.9 permit any subsidiary to issue or sell, or
obligate itself to issue or sell, except to the Corporation or any wholly-owned
subsidiary, any stock or other equity securities of such subsidiary;
5.2.10 take any action which would result in
taxation of the holders of Series B Preferred Stock under Section 305 of the
Internal Revenue Code of 1986 (or any comparable provision of the Internal
Revenue Code as hereafter from time to time as amended);
5.2.11 create, form, incorporate or organize a
subsidiary of the Corporation;
5.2.12 make any change in the size or composition of
the Board of Directors of the Corporation except in accordance with the
provisions of that certain Amended Merger and Stock Exchange Agreement dated as
of November 19, 2004 by and among the Corporation, ▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
("YTB") and the stockholders of YTB (the "Merger Agreement"); and the
Stockholders' Agreement referenced in the Merger Agreement; or
5.2.13 effect any offering of the securities of the
Corporation or any of its subsidiaries.
6. Optional Conversion. The holders of shares of Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
6.1 Right to Convert. Each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Purchase Price plus the amount
of any unpaid dividends on such Series B Preferred Stock by the Conversion Price
(as defined below) in effect at the time of conversion. The conversion price at
which shares of Common Stock shall be deliverable upon conversion of Series B
Preferred Stock without payment of additional consideration by the holder
thereof (the "Conversion Price") shall initially be the Original Purchase Price.
Such initial Conversion Price, and the rate at which shares of Series B
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
Upon a Liquidation Event of the Corporation, the
Conversion Rights shall terminate at the close of business on the first full day
preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of shares of Series B Preferred Stock.
6.2 Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the shares of Series B Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Whether or not a holder would otherwise be entitled
to a fractional share shall be determined on the basis of the total number of
shares of Series B Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
6.3 Mechanics of Conversion.
6.3.1 In order for a holder to convert shares of
Series B Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series B Preferred
Stock at the office of the transfer agent for such shares (or at the principal
office of the Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert all or any
number of the shares of the Series B Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or her or its attorney-in-fact duly authorized in writing. The date of receipt
of such certificates and notice by the transfer agent (or by the Corporation if
the Corporation serves as its own transfer agent) shall be the conversion date
(the "Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of shares of
Series B Preferred Stock, or to his or her or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date.
Other than as set forth in Section 7 below, if the conversion is in connection
with an underwritten offer of securities registered pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), the conversion may, at the
option of any holder tendering shares of Series B Preferred Stock for
conversion, be conditioned upon the closing of the sale of securities pursuant
to such offering in which event the person entitled to receive the Common Stock
issuable upon such conversion of the shares of Series B Preferred Stock shall
not be deemed to have converted such shares of Series B Preferred Stock until
immediately prior to the closing of such sale of securities.
6.3.2 The Corporation shall, at all times when
the Series B Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued stock, for the purpose of effecting the
conversion of the shares of Series B Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series B Preferred Stock.
Before taking any action that would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable upon
conversion of the shares of Series B Preferred Stock, the Corporation will take
any corporate action that may, in the opinion of its counsel, be necessary in
order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Conversion Price. If at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
B Preferred Stock, in addition to such other remedies as shall be available to
the holder of such shares of Series B Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
6.3.3 All shares of Series B Preferred Stock that shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and dividends or to vote, shall
immediately cease and terminate on the Conversion Date, except only the right of
the holders thereof to receive shares of Common Stock in exchange therefor. Any
shares of Series B Preferred Stock so converted shall be retired and canceled
and shall not be reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to eliminate the authorized Series B
Preferred Stock or reduce the authorized number thereof as may be appropriate
accordingly.
6.4 Adjustments to Conversion Price for Diluting Issues:
6.4.1. Special Definitions. For purposes of this
Section 6.4, the following definitions shall apply:
(A) "Option" shall mean any rights, options or
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities (as defined below) or restricted stock, excluding rights,
options or warrants to subscribe for, purchase or otherwise acquire up to
470,000 shares of Common Stock (appropriately adjusted to reflect stock splits,
stock dividends, reorganizations, consolidations and similar changes effected
after the Original Issue Date) pursuant to any equity incentive plan or benefit
plan approved by a majority of the Directors of the Corporation and any shares
of Common Stock issued on exercise of such rights, options or warrants (such
excluded securities, the "Reserved Option Shares").
(B) "Original Issue Date" shall have the
definition set forth in Section 2.
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Series B Preferred Stock) or other
securities directly or indirectly convertible into or exchangeable for Common
Stock or Preferred Stock.
(D) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Section 6.4.3 below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
(1) any securities issued as a stock dividend,
stock split or other similar event in respect of Common
Stock outstanding on the date hereof or Series B
Preferred Stock;
(2) the Reserved Option Shares; and
(3) any conversion of the Series B Preferred
Stock.
6.4.2 No Adjustment of Conversion Price.
Notwithstanding any provision herein to the contrary, no adjustment in the
number of shares of Common Stock into which the shares of Series B Preferred
Stock are convertible shall be made, by adjustment in the applicable Conversion
Price thereof, unless the consideration per share (determined pursuant to
Section 6.4.5) for all Additional Shares of Common Stock issued or deemed to be
issued by the Corporation is less than the applicable Conversion Price in effect
on the date of, and immediately prior to, the issue of such Additional Shares of
Common Stock.
6.4.3 Issue of Options and Convertible Securities
Deemed Issuance of Additional Shares of Common Stock. If the Corporation at any
time or from time to time after the Original Issue Date shall issue any Options
or Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock (as
set forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, issuable upon the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities; and
(B) if such Options or Convertible Securities
by their terms provide, with the passage of time or otherwise, for any increase
in the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities, provided that no adjustment pursuant to this clause (B)
shall have the effect of increasing the Conversion Price to an amount that
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
6.4.4 Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common Stock. In the event the Corporation shall, after
the Original Issue Date, issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 6.4.3,
without consideration or for a consideration per share less than the Conversion
Price in effect on the date of, and immediately prior to such issue, then and in
such event, the Conversion Price shall be reduced, concurrently with such issue,
to a price (calculated to the nearest tenth of a cent) determined by multiplying
the Conversion Price by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue (including
all shares issuable upon the conversion of shares of Series B Preferred Stock)
plus the number of shares of Common Stock that the Aggregate Consideration (as
defined in Section 6.4.5 below) received by the Corporation for the total number
of Additional Shares of Common Stock so issued would purchase at the Conversion
Price in effect prior to such issue; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares issuable upon the conversion of shares of Series B
Preferred Stock) plus the number of such Additional Shares of Common Stock so
issued.
6.4.5 Determination of Consideration. For
purposes of this Section 6.4, the "Aggregate Consideration" shall mean the net
consideration received by the Corporation for the issue of all Additional Shares
of Common Stock and shall be computed as follows:
(A) Cash and Property. Such consideration
shall:
(1) insofar as it consists of cash, be computed
at the aggregate of cash received by the Corporation,
after deducting therefrom any commissions,
compensations or other expenses paid or incurred by the
Corporation for any underwriting or placement of, or
otherwise in connection with the issuance or sale of
shares;
(2) insofar as it consists of property other
than cash, be computed at the fair market value thereof
at the time of such issue, as determined in good faith
by the Board; and
(3) in the event Additional Shares of Common
Stock are issued together with other shares or
securities or other assets of the Corporation for
consideration that covers both, be the proportion of
such consideration so received, computed as provided in
clauses (1) and (2) above, as determined in good faith
by the Board.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 6.4.3, relating to
Options and Convertible Securities, shall be determined by dividing:
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities or, in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
6.4.6 Adjustment for Combinations or
Consolidation of Common Stock. If, at any time after the Original Issue Date,
the number of shares of Common Stock outstanding are decreased by a combination
of the outstanding shares of Common Stock, then following the record date fixed
for such combination (or the date of such combination, if no record date is
fixed), the applicable Conversion Price shall be increased so that the number of
shares of Common Stock issuable on conversion of each share of Series B
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
6.4.7 Adjustment for Stock Dividends, Splits,
Etc. If the Corporation shall at any time after the applicable Original Issue
Date fix a record date for the subdivision, split-up or stock dividend of shares
of Common Stock, then, following the record date fixed for the determination of
holders of shares of Common Stock entitled to receive such subdivision, split-up
or dividend (or the date of such subdivision, split-up or dividend, if no record
date is fixed), the Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series B Preferred Stock shall be increased in proportion to such increase in
outstanding shares, provided, however, that the Conversion Price shall not be
decreased at such time if the amount of such reduction would be an amount less
than $0.10, but all such amount shall be carried forward and reduction with
respect thereto made at the time of, and together with all, subsequent reduction
that, together with such amount and any other amount or amounts so carried
forward, shall aggregate $0.10 or more.
6.4.8 Adjustment for Merger or Reorganization,
Etc. In case of any consolidation, recapitalization or merger of the Corporation
with or into another corporation or the sale of all or substantially all of the
assets of the Corporation to another corporation (other than a subdivision or
combination provided for elsewhere in this Section 6 and other than a
consolidation, merger or sale that is treated as a Liquidation Event pursuant to
Section 4), each share of Series B Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other Securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such shares of Series B Preferred
Stock would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors ) shall be made in the application of the provisions in this Section 6
set forth with respect to the rights and interest thereafter of the holders of
the shares of Series B Preferred Stock, to the end that the provisions set forth
in this Section 6 (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the shares of Series B Preferred
Stock.
6.5 No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
shares of Series B Preferred Stock against impairment.
6.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 6
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
shares of Series B Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property that then would
be received upon the conversion of the shares of Series B Preferred Stock.
6.7 Notice of Record Date. In the event:
6.7.1that the Corporation takes a record of the
holders of' any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend) or
any other distribution, any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right;
6.7.2 that the Corporation subdivides or combines
its outstanding shares of Common Stock;
6.7.3 of any reclassification of the Common
Stock of the Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially all of the assets of
the Corporation; or
6.7.4 of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation; then the Corporation shall cause
to be filed at its principal office or at the office of the transfer agent of
the Series B Preferred Stock, and shall cause to be mailed to the holders of the
Series B Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten (10) days prior to the record
date specified in (A) below or twenty (20) days before the date specified in (B)
below, a notice stating:
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, Sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
7. Automatic Conversion.
7.1 Triggering Event. All outstanding shares of Series B
Preferred Stock shall automatically convert to shares of Common Stock, at the
then effective Conversion Price pursuant to Section 6, on the date that is five
(5) business days following the last to occur of the following events: (i) the
holding of a stockholders meeting authorizing and approving the amendment of the
Corporation's Certificate of Incorporation to increase the Corporation's
authorized Common Stock to 50 million shares; and a change in the name of the
Corporation to YTB International, Inc., and (ii) the filing of a Certificate of
Amendment reflecting the changes referenced in clause (i).
7.2 No Further Action. In the case of an automatic conversion
pursuant to this Section 7, the outstanding shares of Series B Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
7.3 Surrender of Certificates; Retirement and Cancellation of
Converted Shares. All certificates evidencing shares of Series B Preferred Stock
that are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Series B Preferred Stock represented thereby converted into Common
Stock for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. The Corporation
may thereafter take such appropriate action as may be necessary to reduce the
authorized Series B Preferred Stock accordingly.