EXHIBIT 2.1
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AMENDED AND RESTATED
SHARE EXCHANGE AGREEMENT
BY AND AMONG
NEWBRIDGE CAPTIAL, LLC,
BUSHWOOD, LLC
SUMMIT TRADING LIMITED
ARIES CAPITAL PARTNERS, LLC
AND
FLAMEMASTER CORPORATION
▇▇▇▇▇▇ ▇▇▇▇▇, ALTIUS INVESTMENTS CORPORATION
AND ▇▇▇▇▇▇ ▇▇▇▇▇▇
DATED: AS OF MARCH 8, 2005
EXHIBITS
Exhibit A FlameMaster Series A Preferred Stock Certificate of Designation
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Exhibit B FlameMaster Series B Preferred Stock Certificate of Designation
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Exhibit C FlameMaster Warrants
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Exhibit D Exchange Stock Allocation Exhibit
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Exhibit E Investor Group Subscription Agreement
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Exhibit F Investor Group Registration Rights Agreement
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Exhibit G Lockup Agreement
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AMENDED AND RESTATED SHARE EXCHANGE AGREEMENT
THIS AMENDED AND RESTATED SHARE EXCHANGE AGREEMENT (this "AGREEMENT") is made
and entered into the 8th of March 2005, by and among NEWBRIDGE CAPITAL LLC, a
California limited liability company ("NEWBRIDGE"), BUSHWOOD LLC, a California
limited liability company ("BUSHWOOD") and SUMMIT TRADING LIMITED, a Bahamian
holding corporation ("SUMMIT"); ARIES CAPITAL PARTNERS, LLC, an Arizona limited
liability company ("ARIES"); FLAMEMASTER CORPORATION, a Nevada corporation
("FlameMaster"); ▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇"), ALTIUS INVESTMENTS CORPORATION, a
California corporation ("ALTIUS"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇, C/O GOD'S UNIVERSAL LIFE
CHURCH ("▇▇▇▇▇▇").
▇▇▇▇▇, Altius and ▇▇▇▇▇▇ are hereinafter sometimes collectively referred to as
the "FLAMEMASTER PRINCIPAL STOCKHOLDERS." Newbridge, Bushwood and Summit are
hereinafter sometimes collectively referred to as the "MEMBERS". The Members,
Aries and "Holdings" (as hereinafter defined) are hereinafter sometimes
collectively referred to as the "COMPANY AFFILIATES." The Members, Aries,
FlameMaster and the FlameMaster Principal Stockholders are referred to herein
individually as a "PARTY" and collectively as the "PARTIES."
PREAMBLE
WHEREAS, Aries is the record and beneficial owner of 100% of the issued and
outstanding members interest of BEST HOLDINGS ACQUISITION COMPANY, LLC, an
Arizona limited liability company ("HOLDINGS"); and
WHERAS, Holdings is the record and beneficial owner of 100% of the issued and
outstanding shares of capital stock of BEST CANDY & TOBACCO CO., an Arizona
corporation (the "COMPANY"); and
WHEREAS, FlameMaster has proposed to acquire 100% of the outstanding members'
equity of Aries pursuant to an exchange transaction (the "EXCHANGE") whereby,
pursuant to the terms and subject to the conditions of this Agreement, the
Members shall exchange 100% of the issued and outstanding members interest in
Aries (the "ARIES EQUITY"), for the "EXCHANGE STOCK" (as that term is
hereinafter defined); and;
WHEREAS, on November 12, 2004, the Parties entered into a share exchange
agreement (the "ORIGINAL AGREEMENT"), and now desire to amend and restate the
Original Agreement in its entirety pursuant to the terms of this Agreement; and
WHEREAS, the Parties intend that the Exchange qualify as a tax free exchange
transaction within the meaning of Section 351 of the Internal Revenue Code of
1986, as amended (the "CODE"); and
WHEREAS, the Company Affiliates are undertaking to conclude arrangements with
the Investor Group (as hereinafter defined) to make an equity investment of up
to $4,500,000 equity investment in FlameMaster in accordance with the terms and
conditions described in the Investor Group Subscription Agreement, or on such
other terms and conditions as shall be acceptable to FlameMaster; and
WHEREAS, the Parties are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the provisions of
Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES ACT").
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NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations and warranties contained herein, the Parties hereto, intending
to be legally bound, hereby agree as follows:
CERTAIN DEFINITIONS
In addition to the definitions contained in SCHEDULE 1 annexed hereto,
incorporated by reference herein and made a part hereof, as used in this
Agreement, the following additional terms shall have the meanings set forth
below:
"APPLICABLE LAW" means any domestic or foreign law, statute, regulation, rule,
policy, guideline or ordinance applicable to the businesses of the Parties, the
Exchange and/or the Parties.
"ARIES EQUITY" means the authorized, issued and outstanding members interest of
Aries.
"BEST GROUP" shall mean the collective reference to Aries, Holdings and the
Company and/or any additional Person engaged in the Business of the Company that
may be acquired by Aries, Holdings or the Company
"BUSINESS OF THE COMPANY" means the sale, distribution and marketing of candy
and tobacco products and any other related items to wholesales, convenience
stores and other retailers in the States of Arizona, California and any other
State in which the Company or any now existing or hereafter created or acquired
Subsidiary of the Company conducts business.
"COMPANY AFFILIATES" shall mean the collective reference to Holdings, Aries, the
Members and the Affiliates of such Persons.
"COMPANY COMMON STOCK" means the authorized shares of common stock of the
Company, without par value.
"COMPANY SHARES" means, at any applicable point in time, the issued and
outstanding shares of the Company Common Stock.
"COMPANY SHARE PURCHASE AGREEMENT" means the agreement for purchase of corporate
shares, dated August __, 2004, among Aries, Holdings and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ (collectively, the "PRIOR COMPANY PARENTS"), pursuant to which
Holdings purchased 100% of the Company Shares.
"DOLLAR" and "$" means lawful money of the United States of America.
"GAAP" means generally accepted accounting principles in the United States of
America as promulgated by the American Institute of Certified Public Accountants
and the Financial Accounting Standards Board or any successor institutes
concerning the treatment of any accounting matter.
"EXCHANGE STOCK" means the shares of FlameMaster Series A Preferred Stock to be
issued on the Closing Date to the Members of Aries in exchange for 100% of the
Aries Equity.
"FLAMEMASTER COMMON STOCK" means the authorized, issued and outstanding shares
of common stock of FlameMaster, $0.01 par value per share.
"FLAMEMASTER SERIES A PREFERRED STOCK" means the 100,000 shares of 5% non-voting
Series A convertible preferred stock of FlameMaster, to be issued on the Closing
Date to the Members of Aries as
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the Exchange Stock and, and which shall contain the rights, privileges and
designations set forth in the FlameMaster Series A Preferred Stock Certificate
of Designation.
"FLAMEMASTER SERIES A PREFERRED STOCK CERTIFICATE OF DESIGNATION" means the
certificate of designation of the rights and privileges of the FlameMaster
Series A Preferred Stock in substantially the form of EXHIBIT A annexed hereto
and made a part hereof.
"FLAMEMASTER SERIES B PREFERRED STOCK" means the 45,000 shares of 5% Series B
convertible preferred stock of FlameMaster, that may be purchased from
FlameMaster on or following the Closing Date by the Investor Group for
$4,500,000, and which shall contain the rights, privileges and designations set
forth in the FlameMaster Series B Preferred Stock Certificate of Designation.
"FLAMEMASTER SERIES B PREFERRED STOCK CERTIFICATE OF DESIGNATION" means the
certificate of designation of the rights and privileges of the FlameMaster
Series B Preferred Stock in substantially the form of EXHIBIT B annexed hereto
and made a part hereof.
"FLAMEMASTER SECURITIES FILINGS" means the collective reference to (a) all
filings of periodic reports by FlameMaster on Form 10-K, Form 10-Q, Form 8-K
under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")
and (b) all Rule 14A Final Proxy Statements and Rule 14C Information Statements
filed by FlameMaster under the Exchange Act.
"FLAMEMASTER WARRANTS" means the warrants to purchase an aggregate of up to
2,875,000 shares of FlameMaster Common Stock to be issued by FlameMaster to the
Investor Group, in substantially the form of EXHIBIT C annexed hereto and made a
part hereof.
"FULLY-DILUTED ARIES EQUITY" means, at any applicable point in time, the issued
and outstanding Aries Equity, on a fully-diluted basis, after giving effect to
(a) all issued and outstanding Aries Equity, (b) any Aries Equity issuable upon
exercise of any outstanding options, warrants or other rights to purchase Aries
Equity, and/or (c) all Aries Equity issuable upon conversion of any outstanding
notes or other securities convertible into or exchangeable for Aries Equity.
"FULLY-DILUTED HOLDINGS' EQUITY" means, at any applicable point in time, the
issued and outstanding Holdings Equity, on a fully-diluted basis, after giving
effect to (a) all issued and outstanding Holdings Equity, (b) any Aries Holdings
issuable upon exercise of any outstanding options, warrants or other rights to
purchase Holdings Equity, and/or (c) all Holdings Equity issuable upon
conversion of any outstanding notes or other securities convertible into or
exchangeable for Holdings Equity.
"FULLY-DILUTED COMPANY SHARES" means, at any applicable point in time, the
issued and outstanding shares of the Company capital stock, on a fully-diluted
basis, after giving effect to (a) all issued and outstanding shares of the
Company Common Stock, (b) all issued and outstanding shares of the Company
preferred stock, if any, (c) all shares of the Company capital stock issuable
upon exercise of any outstanding options, warrants or other rights to purchase
the Company capital stock, and/or (d) all shares of the Company capital stock
issuable upon conversion of any outstanding notes, preferred stock, or other
securities convertible into or exchangeable for shares of the Company capital
stock.
"FULLY-DILUTED FLAMEMASTER SHARES" means, as at the Closing Date, the aggregate
number of shares of FlameMaster Common Stock that would be issued and
outstanding, on a fully-diluted basis, after giving effect to (a) all issued and
outstanding shares of FlameMaster Common Stock, (b) all shares of FlameMaster
Common Stock that are issuable upon conversion of any FlameMaster Series A
Preferred Stock, (c) all shares of FlameMaster capital stock issuable upon
exercise of any outstanding options, warrants or other rights to purchase
FlameMaster capital stock, and/or (d) all shares of FlameMaster
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capital stock issuable upon conversion of any outstanding notes or other debt
securities convertible into or exchangeable for shares of FlameMaster capital
stock; PROVIDED, HOWEVER, the term Fully-Diluted FlameMaster Shares or
Fully-Diluted FlameMaster Common Stock DOES NOT INCLUDE or give effect to
dilution resulting from the issuance of additional shares of FlameMaster Common
Stock upon conversion of the FlameMaster Series B Preferred Stock or exercise of
the FlameMaster Warrants issued on the Closing Date to the Investor Group.
"INTELLECTUAL PROPERTY" means all (i) patent and patent rights, trademarks and
trademark rights, trade names and trade name rights, copyrights and copyright
rights, service marks and service ▇▇▇▇ rights, and all pending applications for
and registration of the same; (ii) brand names, trade dress, business and
product names, logos and slogans, and (iii) proprietary technology, including
all know-how, trade secrets, quality control standards, reports (including test
reports), designs, processes, market research and other data, computer software
and programs (including source codes and related documentation), formulae,
inventions and other ideas, methodologies, and technical information, (iv)
claims of the owner of any intellectual property for infringement of its rights
by a third party, no matter when arising, and (v) other intellectual property.
"INVESTOR GROUP FINANCING" means the purchase by either (a) Monarch Pointe Fund,
Ltd., Mercator Momentum Fund, LP and Mercator Momentum Fund III, LP
(collectively, the "M.A.G. GROUP"), or (b) such other investors as shall be
introduced to FlameMaster by Company Affiliates and who shall be acceptable to
the Board of Directors of FlameMaster (collectively, with the M.A.G. Group, the
"INVESTOR GROUP") of the Investor Group Securities.
"INVESTOR GROUP SECURITIES" means either (a) up to $4,500,000 of FlameMaster
Series B Preferred Stock and FlameMaster Warrants, pursuant to the Investor
Group Subscription Agreement, or (b) such other FlameMaster securities and in
such other amounts as shall be acceptable to the Board of Directors in the
exercise of their sole discretion.
"INVESTOR GROUP REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement, dated of even date herewith and in the form of EXHIBIT F annexed
hereto, pursuant to which FlameMaster shall agree to register for resale under
the Securities Act of 1933, as amended, all shares of FlameMaster Common Stock
issuable upon conversion of the FlameMaster Series B Preferred Stock and the
FlameMaster Warrants.
"INVESTOR GROUP SUBSCRIPTION AGREEMENT" means the subscription agreement, dated
of even date herewith and in the form of EXHIBIT E annexed hereto, pursuant to
which the M.A.G. Group may purchase the FlameMaster Series B Preferred Stock and
FlameMaster Warrants.
"HOLDINGS' EQUITY" means the authorized, issued and outstanding members interest
of Holdings.
"MATERIAL ADVERSE EFFECT" with respect to any entity or group of entities means
any event, change or effect that has or would have a materially adverse effect
on the assets, properties, business, financial condition, results of operations
or prospects of such entity or group of entities, when taken as a consolidated
whole.
"NASDAQ" shall mean The Nasdaq Stock Exchange, Inc.
"NASDAQ LISTING APPROVAL" shall have the meaning set forth in Section 4.4(k) of
this Agreement.
"PERSON" means any individual, corporation, partnership, trust or unincorporated
organization or a government or any agency or political subdivision thereof.
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"TRIGGERING EVENT" shall have the meanings specified in Section 1.5 of this
Agreement.
ARTICLE I
THE EXCHANGE AND RELATED TRANSACTIONS
1.1 OWNERSHIP OF THE COMPANY SHARES AND ARIES EQUITY. At the Closing Date,
there are an aggregate of 313,378 shares of Company Common Stock issued and
outstanding (the "COMPANY SHARES"). Such Company Shares represent the
Fully-Diluted Company Shares. As at the date hereof and as at the Closing Date:
(a) all of the Fully-Diluted Company Shares is and shall be owned of record and
beneficially solely by Holdings, (b) 100% of Holdings Equity is and shall be
owned of record and beneficially solely by Aries, and (c) 100% of the Aries
Equity is and shall be owned of record and beneficially solely by the Members.
SCHEDULE 1.1 annexed hereto sets forth the names and addresses of the direct and
indirect beneficial owners of the members interest or other equity of each of
the Members of Aries.
1.2 TRANSFER OF ARIES EQUITY. Subject to the terms and conditions of this
Agreement, at the Closing and in consideration for the Exchange Stock, each of
the Members shall transfer, convey, assign, set over and deliver ("Transfer") to
FlameMaster with full title guarantee, and FlameMaster shall acquire and accept
from the Members, all and not less than all of Aries Equity, free and clear of
all Encumbrances. As a result of the Transfer by the Members of Aries Equity,
FlameMaster shall become the indirect owner of 100% of the Fully-Diluted Holding
Equity and the Fully-Diluted Company Shares.
1.3 ISSUANCE OF THE EXCHANGE STOCK.
(a) At the Closing and in sole consideration for the Transfer of
Aries Equity and Company Shares, FlameMaster shall deliver to the Members, in
such proportionate amounts as among them as are set forth on EXHIBIT D annexed
hereto and made a part hereof (the "EXCHANGE STOCK ALLOCATION EXHIBIT"), stock
certificates evidencing the 100,000 shares of FlameMaster Series A Preferred
Stock that represents the Exchange Stock. Upon full conversion thereof into
shares of FlameMaster Common Stock, in accordance with the terms of the Series A
Preferred Stock Certificate of Designation and this Agreement, such Exchange
Stock, shall equal ninety percent (90%) of Fully-Diluted FlameMaster Shares as
at the Closing Date, after giving effect to the issuance thereof.
(b) As at the date of this Agreement, and after giving effect to the
7:1 forward stock split referred to in Section 1.4 below, as at the date of this
Agreement, and as at the Closing Date, FlameMaster shall have issued and
outstanding an aggregate of (i) 1,253,000 shares of FlameMaster Common Stock
issued and outstanding, (ii) 895,965 shares of FlameMaster Common Stock issued
and held in treasury (the "FLAMEMASTER TREASURY SHARES"), and (iii)
approximately 4,900 shares of FlameMaster Common Stock issuable upon exercise of
outstanding options and warrants. The aggregate of approximately 2,146,900
shares of FlameMaster Common Stock issued and issuable represents the
Fully-Diluted FlameMaster Shares; as a result of which, the Exchange Stock to be
delivered by FlameMaster at Closing shall, upon full conversion thereof into
FlameMaster Common Stock, represent an aggregate of approximately 19,322,100
shares of FlameMaster Common Stock. In the event that, for any reason the number
of Fully-Diluted FlameMaster Shares as at the Closing Date shall be greater or
less than 2,146,900 Fully-Diluted FlameMaster Shares, the aggregate number of
shares of FlameMaster Common Stock into which the Exchange Stock shall be
convertible shall be appropriately increased or decreased to reflect the intent
of Section 1.3(a) above.
1.4 STOCK SPLIT. Effective January 7, 2005, Flamemaster consummated a 7:1
forward stock split of the outstanding FlameMaster Common Stock, as a result of
which the approximately
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179,000 shares of Flamemaster Common Stock issued and outstanding prior to such
forward stock split became an aggregate of 1,253,000 issued and outstanding
shares of FlameMaster Common Stock, of which 578,186 shares of Flamemaster
Common Stock are held by the public and satisfy the 500,000 publicly-held shares
requirement of Nasdaq Marketplace rule 4310(c)(7)(a).
1.5 DIVIDEND OF FAC STOCK.
(a) Subject at all times to the provisions of Section 1.5(b) below,
pursuant to the written consents of the FlameMaster Majority Stockholders
described in Section 4.3(g) of this Agreement, upon: (i) the filing with the SEC
and effectiveness of a Form 14C Information Statement; (ii) the mailing of such
Information Statement to all FlameMaster holders of record of Common Stock as of
a date (the "COMMON STOCK RECORD DATE") that shall be not earlier than sixty
(60) days prior to the date of the proposed FAC Stock Dividend (the "FAC STOCK
DIVIDEND DATE"); and (iii) the expiration of all applicable waiting periods
under the Securities Exchange Act of 1934, as amended, FlameMaster shall
dividend and distribute (the "FAC STOCK DIVIDEND") to all of its stockholders of
record as of the Common Stock Record Date, 100% of the capital stock (the
"DIVIDEND SHARES") of Flamemaster Aerospace Corporation, a wholly-owned
Subsidiary of FlameMaster ("FAC").
(b) Notwithstanding anything to the contrary, express or implied
contained in this Agreement or in any Exhibit hereto (including the Series A
Preferred Stock Certificate of Designation and the Series B Preferred Stock
Certificate of Designation), the FAC Stock Dividend shall be consummated by
FlameMaster immediately following the EARLIEST to occur of any of the following
events (each a "TRIGGERING EVENT"):
(i) receipt by FlameMaster of Nasdaq Listing Approval of the FAC
Stock Dividend and the acquisition of the Aries Equity contemplated by this
Agreement;
(ii) at any time prior to receipt of Nasdaq Listing Approval;
PROVIDED, that (i) Nasdaq shall have previously approved in writing such FAC
Stock Dividend, (ii) the existing board of directors and executive management of
FlameMaster shall continue as the entire members of the board of directors and
executive management of FlameMaster until the earlier to occur of Nasdaq Listing
Approval or May 31, 2005; and (iii) the consummation of such FAC Stock Dividend
shall not, by itself, cause Flamemaster to be delisted from trading on Nasdaq;
(iii) receipt of written notice from either any Member of Aries
or any member of the Investor Group of its or their intention to convert into
FlameMaster Common Stock any of their shares of FlameMaster Series A Preferred
Stock or Series B Preferred Stock; or
(iv) FlameMaster Common Stock being delisted from trading on the
Nasdaq; or
(v) May 31, 2005, unless such date shall be extended by mutual
agreement of FlameMaster, the Members and M.A.G. Capital LLC or any other
representative of the Investor Group (the "INVESTOR GROUP REPRESENTATIVE").
(c) As at the applicable FAC Stock Dividend Date, except for the Best
Group, FAC shall: (i) operate all of the businesses operated by FlameMaster
and/or any of its Subsidiaries; and (ii) own all of the assets and properties of
FlameMaster and assume all of the liabilities of FlameMaster, including but not
limited to bank accounts, stock accounts and any other financial instruments,
accounts and transactions (other than those assets and liabilities relating
solely to the Best Group and FlameMaster's ownership of the Aries Equity,
Members Equity and Fully-Diluted Company Shares). In
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addition, FlameMaster shall transfer to FAC all of the 895,965 issued
FlameMaster Treasury Shares.
1.6 CLOSING AND CLOSING DATE.
The Closing of the Transfer of Aries Equity and the issuance by
FlameMaster of the Exchange Stock to the Members (the "CLOSING") shall take
place at the offices of FlameMaster as soon as practicable following the date of
execution of this Agreement, but not later than Friday, March 11, 2005. The date
on which the Closing is held is referred to in this Agreement as the "CLOSING
DATE."
1.7 DELIVERIES AT CLOSING BY THE COMPANY AFFILIATES. At the Closing,
subject to the terms and conditions of this Agreement, the Company Affiliates
shall execute and/or deliver (as applicable), or cause to be executed and/or
delivered, to FlameMaster, the documents and instruments referred to in this
Section 1.7:
(a) an assignment duly executed by each of the Members, assigning and
transferring to FlameMaster all right, title and interest in and to all of Aries
Equity, and otherwise in good form for Transfer;
(b) a 90-day lockup for 90% of all shares of FlameMaster Common Stock
owned by the FlameMaster Principal Stockholders and the Members and a six month
lockup for 80% of the shares of FlameMaster Common Stock owned by the
FlameMaster Principal Stockholders and the Members, all pursuant to the lockup
agreement duly executed by each of the Members and the FlameMaster Principal
Stockholders in substantially the form of EXHIBIT G attached hereto (the "LOCKUP
AGREEMENT"); and
(c) such other Documents as may be reasonably requested by
FlameMaster and approved in good faith by the Company Affiliates and their
counsel, that are necessary to effect the Closing.
1.8 DELIVERIES By FLAMEMASTER. Subject to the terms and conditions of this
Agreement, at the Closing and thereafter (as set forth below), FlameMaster shall
execute and deliver or cause to be executed and delivered to Aries:
(a) at the Closing, stock certificates evidencing all of the shares
of the Exchange Stock, duly registered in the name of the Members, in accordance
with the Exchange Stock Allocation Exhibit (EXHIBIT D), or as among Affiliates
of the Members, as such Persons may notify FlameMaster in writing prior to the
Closing Date;
(b) at the Closing, the duly executed Series A Preferred Stock
Certificate of Designation in the form of EXHIBIT A annexed hereto to be
recorded in the office of the Secretary of State of the State of Nevada as soon
as practicable following the Closing Date;
(c) at the Closing or thereafter upon consummation of the Investor
Group Financing, the duly executed Series B Preferred Stock Certificate of
Designation in the form of EXHIBIT B annexed hereto to be recorded in the office
of the Secretary of State of the State of Nevada, or such other instruments
evidencing the Investor Group Securities;
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(d) at the Closing or thereafter upon consummation of the Investor
Group Financing, the FlameMaster Warrants issued to the Investor Group in the
form of EXHIBIT C annexed hereto, or such other instruments evidencing the
Investor Group Securities;
(e) at the Closing or thereafter upon consummation of the Investor
Group Financing, a duly executed Investor Group Subscription Agreement in the
form of EXHIBIT E annexed hereto;
(f) at the Closing or thereafter upon consummation of the Investor
Group Financing, a duly executed Investor Group Registration Rights Agreement in
the form of EXHIBIT F annexed hereto; and
(g) at the Closing or thereafter upon consummation of the Investor
Group Financing, such other Documents as may be reasonably requested by the
Investor Group and acceptable to FlameMaster as shall be necessary to consummate
the Investor Group Financing.
1.9 RESTRICTIONS ON RESALE
(a) The Exchange Stock. The Exchange Stock, the FlameMaster Series B
Preferred Stock and the FlameMaster Warrants (collectively, the "TRANSACTION
SECURITIES") will not be registered under the Securities Act, or the securities
laws of any state, and cannot be transferred, hypothecated, sold or otherwise
disposed of until; (i) a registration statement with respect to such securities
is declared effective under the Securities Act, or (ii) FlameMaster receives an
opinion of counsel for the stockholders, reasonably satisfactory to counsel for
FlameMaster, that an exemption from the registration requirements of the
Securities Act is available.
The certificates representing the Transaction Securities shall contain a
legend substantially as follows:
"THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER
SUCH ACT, OR FLAMEMASTER CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER REASONABLY SATISFACTORY TO COUNSEL FOR FLAMEMASTER CORPORATION THAT
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE."
(b) All Exchange Stock for which Aries Equity shall have been
exchanged pursuant to this Article II shall be deemed to have been issued in
full satisfaction of all rights pertaining to the Aries Equity.
(c) All certificates (if any) representing the Aries Equity converted
into the right to receive Exchange Stock pursuant to this Article I shall be
furnished to FlameMaster subsequent to delivery thereof to the Exchange Agent
pursuant to this Agreement.
(d) On the Closing Date, the transfer books of each of Aries,
Holdings and the Company shall be deemed to be closed and no transfer of Aries
Equity, Holdings Equity or Company Shares shall thereafter be recorded thereon.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FLAMEMASTER
Except as set forth in the FlameMaster Securities Filings and/or in
schedules to this Agreement, disclosure in any one of which shall apply to any
and all representations and warranties made in this Agreement, and except as
otherwise disclosed in writing to the Members, FlameMaster and the FlameMaster
Principal Stockholders hereby jointly and severally represent and warrant to the
Company Affiliates, as of the date of this Agreement and as of the Closing Date,
as follows; it being understood and agreed that with respect to all
representations and warranties set forth in Sections 2.5 through 2.17,
inclusive, the term "FlameMaster shall be deemed to mean and include FlameMaster
and all of its consolidated Subsidiaries, including, without limitation, FAC:
2.1 ORGANIZATION, STANDING AND POWER.
FlameMaster is a company duly incorporated, validly existing and in
good standing under the laws of the State of Nevada and has corporate power and
authority to conduct its business as presently conducted by it and to enter into
and perform this Agreement and to carry out the transactions contemplated by
this Agreement. FlameMaster is duly qualified to do business as a foreign
corporation doing business in each state in which it owns or leases real
property and where the failure to be so qualified and in good standing would
have a Material Adverse Effect on FlameMaster or its business. Except for FAC or
as set forth in the Securities Filings, FlameMaster does not have an ownership
interest in any corporation, partnership (general or limited), limited liability
company or other entity, whether foreign or domestic (collectively such
ownership interests including capital stock).
2.2 CAPITALIZATION.
(a) There are 60,500,000 shares of capital stock of FlameMaster
authorized, consisting of 60,000,000 shares of FlameMaster Common Stock and
500,000 shares of nonvoting preferred stock (the "FLAMEMASTER PREFERRED STOCK").
As of the date of this Agreement, there are (i) 1,253,000 shares of FlameMaster
Common Stock issued and outstanding, (ii) 895,965 issued FlameMaster Treasury
Shares; (iii) no shares of FlameMaster Preferred Stock issued and outstanding,
and (iv) outstanding warrants and stock options, entitling the holders to
purchase an aggregate of 4,900 shares of FlameMaster Common Stock at exercise
prices of approximately $80.00 per share ("FLAMEMASTER OPTIONS AND WARRANTS").
(b) As at the date hereof, the FlameMaster Principal Stockholders and
▇▇▇▇▇ ▇▇▇▇▇ are the record and beneficial owners of an aggregate of
approximately 48% of the outstanding shares of FlameMaster Common Stock. The
balance of the FlameMaster Common Stock issued and outstanding includes
FlameMaster Common Stock in the public float and restricted FlameMaster Common
Stock. Except as disclosed in Section 2.2(a) above, no FlameMaster Common Stock
have been reserved for issuance to any Person, and there are no other
outstanding rights, warrants, options or agreements for the purchase of
FlameMaster Common Stock except as provided in this Agreement. All outstanding
FlameMaster Common Stock are validly issued, fully paid, non-assessable, not
subject to pre-emptive rights and have been issued in compliance with all state
and federal securities laws or other Applicable Law.
(c) As at the date of this Agreement and on the Closing Date of the
Exchange, the Fully-Diluted FlameMaster Shares shall be not more than 2,146,900
shares FlameMaster Common Stock. The foregoing does not give effect to dilution
resulting from the issuance of additional shares of FlameMaster Common Stock
upon conversion of the FlameMaster Series A Preferred Stock or exercise of the
FlameMaster Warrants.
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2.3 AUTHORITY FOR AGREEMENT.
The execution, delivery, and performance of this Agreement by
FlameMaster has been duly authorized by all necessary corporate and shareholder
action, and this Agreement, upon its execution by the Parties, will constitute
the valid and binding obligation of FlameMaster enforceable against it in
accordance with and subject to its terms, except as enforceability may be
affected by bankruptcy, insolvency or other laws of general application
affecting the enforcement of creditors' rights. The execution, delivery and
performance of this Agreement and compliance with its provisions by FlameMaster
will not violate any provision of Applicable Law and will not conflict with or
result in any breach of any of the terms, conditions, or provisions of, or
constitute a default under (whether with or without notice or lapse of time or
both), FlameMaster's Certificate of Incorporation or Bylaws, in each case as
amended, or, in any material respect, any indenture, lease, loan agreement or
other agreement or instrument to which FlameMaster is a party or by which it or
any of its properties are bound, or any decree, judgment, order, statute,
injunction, charge, rule or regulation or other restriction of any governmental
agency applicable to FlameMaster except to the extent that any breach or
violation of any of the foregoing would not constitute or result in a Material
Adverse Effect on FlameMaster. Except as set forth in Schedule 2.3, no consent,
filing with or notification to, or approval or authorization of any
governmental, regulatory or other authority is required on the part of
FlameMaster in connection with the execution, delivery and performance of this
Agreement.
2.4 ISSUANCE FLAMEMASTER EXCHANGE STOCK
The Exchange Stock issuable to Aries or other Company Affiliates will
when issued pursuant to this Agreement be duly and validly authorized and
issued, fully paid and non-assessable.
2.5 FINANCIAL STATEMENTS.
(a) FlameMaster (i) has made available to the Company Affiliates
copies of its audited financial statements at December 31, 2001, 2002 and 2003
and for the three fiscal years then ended, and the comparative unaudited
financial statement as at June 30, 2004 and June 30, 2003 and for the six month
periods then ended, and (ii) when available, will promptly furnish to the
Company Affiliates the comparative unaudited financial statements as at
September 30, 2004 and September 30, 2003 and for the nine month periods then
ended (collectively, "FLAMEMASTER FINANCIAL STATEMENTS").
(b) Each set of financial statements (including, in each case, any
related notes thereto) contained in the FlameMaster Financial Statements was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto). Such
financial statements fairly present the consolidated financial position of
FlameMaster as at the dates thereof and the consolidated results of their
operations and their consolidated cash flows for the periods then ended,
subject, in the case of unaudited interim financial statements, to normal,
recurring year-end audit adjustments.
(c) To the knowledge of FlameMaster and the FlameMaster Principal
Stockholders, except as disclosed in the consolidated financial statements
contained in the FlameMaster Financial Statements, in the FlameMaster Securities
Filings or on Schedule 2.5(c) hereof, since June 30, 2004 there has been no
FlameMaster Material Adverse Effect.
(d) Except as otherwise disclosed in the consolidated financial
statements contained in the FlameMaster Financial Statements, FlameMaster does
not have any liabilities or obligations that would be required to be disclosed
on a balance sheet prepared in accordance with GAAP.
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2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 2003, except
as disclosed on Schedule 2.6 or in FlameMaster Securities Filings:
(a) there has not been (i) any Material Adverse Effect on the
business, operations, properties, assets, or condition of FlameMaster or (ii)
any damage, destruction, or loss to FlameMaster (whether or not covered by
insurance) materially and adversely affecting the business, operations,
properties, assets, or condition of FlameMaster;
(b) FlameMaster has not (i) amended its articles of incorporation;
(ii) declared or made, or agreed to declare or make, any payment of dividends or
distributions of any assets of any kind whatsoever to stockholders or purchased
or redeemed, or agreed to purchase or redeem, any outstanding capital stock;
(iii) waived any rights of value which in the aggregate are extraordinary or
material considering the business of FlameMaster; (iv) made any material change
in its method of management, operation, or accounting; (v) entered into any
other material transaction; (vi) made any accrual or arrangement for payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer or employee; (vii) increased the rate of
compensation payable or to become payable by it to any of its officers or any of
its employees whose monthly compensation exceeds $5,000; or (viii) made any
increase in any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with its officers, directors, or employees;
(c) FlameMaster has not (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or liability (absolute
or contingent) except liabilities incurred in the ordinary course of business;
(ii) paid any material obligation or liability (absolute or contingent) other
than current liabilities reflected in or shown on the most recent FlameMaster
balance sheet, and current liabilities incurred since that date in the ordinary
course of business; (iii) sold or transferred, or agreed to sell or transfer,
any of its assets, properties, or rights (except assets, properties, or rights
not used or useful in its business which, in the aggregate have a value of less
than $5,000), or canceled, or agreed to cancel, any debts or claims (except
debts or claims which in the aggregate are of a value of less than $5,000); (iv)
made or permitted any amendment or termination of any contract, agreement, or
license to which it is a party if such amendment or termination is material,
considering the business of FlameMaster; or (v) issued, delivered, or agreed to
issue or deliver any stock, bonds or other corporate securities including
debentures (whether authorized and unissued or held as treasury stock);
(d) to the best knowledge of FlameMaster and the FlameMaster Principal
Stockholders, FlameMaster has not become subject to any law or regulation which
has or in the future is reasonably likely to have a Material Adverse Effect; and
(e) as at the Closing Date, after giving effect to consummation of the
FAC Stock Dividend, the aggregate FlameMaster liabilities which would be
required to be disclosed on a balance sheet prepared in accordance with GAAP
will not exceed $100,000 in the aggregate.
2.7 INTELLECTUAL PROPERTY AND INTANGIBLE ASSETS.
To the knowledge of FlameMaster, FlameMaster has full legal right,
title and interest in and to all of the intellectual property utilized in the
operation of its business. No rights of any other person are violated by the use
by FlameMaster of any intellectual property. None of the intellectual property
utilized in the operation of the business of FlameMaster has ever been declared
invalid or unenforceable, or is the subject of any pending or, to the knowledge
of FlameMaster, threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like claim,
action or proceeding.
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2.8 GOVERNMENTAL CONSENT
No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission or any third party, including a
party to any agreement with FlameMaster, is required by or with respect to
FlameMaster in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws.
2.9 LITIGATION
There is no action, suit, investigation, audit or proceeding pending
against, or to the best knowledge of FlameMaster threatened against or
affecting, FlameMaster or any of its assets or properties before any court or
arbitrator or any governmental or other body, agency or official.
2.10 INTERESTED PARTY TRANSACTIONS
FlameMaster is not indebted to any officer or director of FlameMaster
(except for compensation and reimbursement of expenses incurred in the ordinary
course of business and payment of which is not overdue), and no such person is
indebted to FlameMaster, except as disclosed in the reports filed with the
Securities and Exchange Commission.
2.11 COMPLIANCE WITH APPLICABLE LAWS.
The business of FlameMaster has not been, and is not being, conducted
in violation of any Applicable Law, except for possible violations which both
individually and also in the aggregate have not had and are not reasonably
likely to have a Material Adverse Effect. No investigation or review by any
governmental entity with respect to FlameMaster is pending or, to the knowledge
of FlameMaster after reasonable inquiry, threatened, nor has any governmental
entity indicated an intention to conduct the same, except for investigations or
reviews which both individually and also in the aggregate would not have, nor be
reasonably likely to have, a Material Adverse Effect. FlameMaster is a fully
compliant reporting company under the Securities Exchange Act of 1934, as
amended, and has not been threatened or subject to delisting on any exchange on
which it is traded.
2.12 NO UNDISCLOSED LIABILITIES.
There are no liabilities or debts of FlameMaster of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability or debt.
2.13 TAX RETURNS AND PAYMENT
FlameMaster has duly and timely filed all Tax Returns required to be
filed by it and has duly and timely paid all Taxes shown thereon to be due,
except as reflected in the FlameMaster Financial Statements. Except as disclosed
in the FlameMaster Financial Statements, there is no claim for Taxes that is a
lien against the property of FlameMaster other than liens for Taxes not yet due
and payable, none of which Taxes is material. FlameMaster has not received
notification of any audit of any Tax Return of FlameMaster being conducted or
pending by a Tax authority, no extension or waiver of the statute of limitations
on the assessment of any Taxes has been granted by FlameMaster which is
currently in effect,
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and FlameMaster is not a party to any agreement, contract or arrangement with
any Tax authority or otherwise, which may result in the payment of any amount in
excess of the amount reflected on the FlameMaster Financial Statements.
2.14 LABOR AND EMPLOYMENT MATTERS
FlameMaster has no employment agreements with any employees, other
than as set forth on Schedule 2.14; all of which employment agreements shall
either be (a) assigned with the written consent of the employee to FAC, or (b)
terminated as at the Closing Date. FlameMaster is not a party to or bound by any
collective bargaining agreement or any other agreement with a labor union, and,
to the knowledge of FlameMaster, there has been no effort by any labor union or
any other person during the twenty-four (24) months prior to the date hereof to
organize any employees or consultants of FlameMaster who are not already members
of a collective bargaining unit into one or more collective bargaining units,
nor, to the knowledge of the FlameMaster, are any such efforts being conducted.
There is no pending or, to the knowledge of FlameMaster, threatened labor
dispute, strike or work stoppage which affects or which may affect the business
of FlameMaster, or which may interfere with its continued operations. To the
knowledge of FlameMaster, neither FlameMaster nor any agent, representative or
employee thereof has within the last twenty-four (24) months committed any
unfair labor practice as defined in the National Labor Relations Act, as
amended, and there is no pending or threatened charge or complaint against
FlameMaster by or with the National Labor Relations Board or any representative
thereof. There has been no strike, walkout or work stoppage involving any of the
employees or consultants of FlameMaster during the twenty-four (24) months prior
to the date hereof. FlameMaster has complied, in all material respects, with
applicable laws, rules and regulations relating to employment, civil rights and
equal employment opportunities or other employment practices, including but not
limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, the
Americans with Disabilities Act, as amended and the Immigration Reform and
Control Act of 1986, as amended. FlameMaster has received no notice of any claim
before any governmental body brought by or on behalf of any employee,
prospective employee, former employee, retiree, labor organization or other
representative of employees or any governmental body or, to the knowledge of
FlameMaster is any such claim threatened against FlameMaster. FlameMaster is not
a party to, or otherwise bound by, any order relating to its employees or
employment practices. FlameMaster has paid in full to all of its employees all
wages, salaries, commissions, bonuses, benefits and other compensation due and
payable to such employees. No current or former employee of FlameMaster is (i)
absent on a military leave of absence and/or eligible for rehire under the terms
of the Uniformed Services Employment and Reemployment Rights Act, or (ii) absent
on a leave of absence under the Family and Medical Leave Act.
2.15 EMPLOYEE BENEFITS
There is no employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and (ii)
no other benefit plan, program, contract or arrangement of any kind whatsoever,
covering the employees or consultants of FlameMaster or which is sponsored,
maintained or contributed to by FlameMaster or to which FlameMaster has an
obligation to contribute (all such employee benefit plans and other benefit
plans, programs, contracts or arrangements hereinafter individually and
collectively called the "EMPLOYEE BENEFIT PLAN(S)").
2.16 BUSINESS; LIABILITIES.
The sole operating business of FlameMaster is fully described into
Form 10-KSB/A, filed with the SEC on June 24, 2004, for its fiscal year ended
December 31, 2003. Except for the business described in such FlameMaster
Securities Filing, FlameMaster has no operating business and no operating
subsidiaries other than FAC. As at the Closing Date, after giving effect to the
FAC Stock Dividend, FlameMaster
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shall have no greater than $100,000 of total balance sheet and contingent
liabilities, and no commitments to incur liabilities.
2.17 FLAMEMASTER SECURITIES FILINGS
All FlameMaster Securities Filings under the Exchange Act are true,
correct and complete in all material respects, are not misleading and do not
omit to state any material fact which is necessary to make the statements
contained in such public filings not misleading in any material respect. All
FlameMaster Securities Filings under the Exchange Act have been timely made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE MEMBERS AND ARIES.
Each of the Members and Aries jointly and severally represents and warrants to
FlameMaster as follows; provided, that all references in this Article III to
Schedules shall mean the disclosure schedules provided to the Members, Aries and
Holding by the Prior Company Parents pursuant to the Company Share Purchase
Agreement:
3.1 ORGANIZATION, STANDING AND AUTHORITY; OWNERSHIP OF SHARES. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Arizona, and Aries and Holdings are each limited liability
companies organized under the laws of the State of Arizona. Each of the Company
Affiliates have the full corporate power and corporate authority to execute,
deliver and perform this Agreement and each Related Agreement to which it is a
party. Each of Aries, Holdings and the Company are qualified to do business and
is in good standing in each jurisdiction in which the nature of its business or
the properties owned or leased by it requires qualification. Each of the Company
Affiliates has all right, power and authority to execute and deliver this
Agreement and each Related Agreement to which it is a party and to perform its
obligations hereunder and thereunder. The Members are the record and beneficial
owners of the Fully-Diluted Aries Equity; Aries is the record and beneficial
owner of the Fully-Diluted Holdings Equity; and Holdings is the record and
beneficial owner of the Fully-Diluted Company Shares; in each case, free and
clear of all liens, claims, security interests and encumbrances of any type or
description and there are no options, agreements or other Encumbrances of any
other person, firm or corporation in existence which could restrict or limit the
respective the Members ability to transfer to FlameMaster good and marketable
title to all of Aries Equity free and clear of all such liens, claims, security
interests and encumbrances. Holdings was formed solely for the purpose of
acquiring the Company Shares and independently engages in no trade or business
or other activity.
3.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance of
this Agreement and all Related Agreements by the Company Affiliates to which it
is a party have been duly authorized by all necessary corporate and individual
action. This Agreement constitutes, and each Related Agreement when executed by
the Company Affiliates will constitute, the valid and binding obligation of each
of the Company Affiliates, enforceable against it, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
in general and subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3.3 CONTRACTUAL CONSENTS OF THIRD PARTIES. Except as set forth on Schedule
3.3, the execution, delivery and performance by each of the Company Affiliates
of this Agreement and each Related Agreement to which it or he is or will be a
party, and the consummation of the transactions contemplated hereby and thereby
by the Company Affiliates will not (a) violate or conflict with the respective
memoranda of association or articles of association of Aries, Holdings or the
Company, (b)
16
conflict with, or result in the breach of, or termination of, or constitute a
default under (whether with notice or lapse of time or both), or accelerate or
permit the acceleration of the performance required by, any Contract, order,
judgment or decree, to which the Company or any of the Company Affiliates is a
party or by which any of its or his properties are bound or subject, (c)
constitute a violation of any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
governmental agency, or court to which the Company or any of the Company
Affiliates is subject or (d) result in the creation of any Encumbrance upon the
Aries Equity, the Holdings Equity, the Company Shares, or the assets or
properties of the Company.
3.4 FINANCIAL STATEMENTS. The Company Affiliates have provided to
FlameMaster, and FlameMaster acknowledges receipt of, true, complete and correct
copies of the (a) the audited balance sheet of Aries as at June 30, 2004 (the
"ARIES BALANCE SHEET"); and (b) the reviewed balance sheets of the Company as at
December 31, 2001, December 31, 2002 and December 31, 2003, and the related
reviewed statements of income and statements of cash flows for the three fiscal
years ended December 31, 2003 (the "COMPANY ANNUAL FINANCIAL STATEMENTS") and
for the six months ended June 30, 2003 (together with the Company Annual
Financial Statements, the "COMPANY FINANCIAL STATEMENTS"). The Company Annual
Financial Statements were reviewed (but not audited) by ▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇,
certified public accountants (the "COMPANY ACCOUNTANTS") and all Company
Financial Statements were prepared in accordance with the books and records of
the Company and using the Accounting Principles consistently applied. To the
best knowledge of the Company Affiliates, the Company Annual Financial
Statements are capable of being audited by the Company Accountants, and the
Company can provide FlameMaster with an unconditional audit of the Company
Annual Financial Statements, for the three (3) fiscal years ended December 31,
2004, by a date that shall be not later than sixty (60) days following the
Closing Date, all in accordance with the requirements of Section 4.3(n) of this
Agreement (collectively, the "AUDITED FINANCIAL STATEMENTS"). Each of Holdings
and Aries are recently formed entities and have no historical financial
statements, except for the Aries Balance Sheet.
3.5 ABSENCE OF MATERIAL ADVERSE CHANGE; DISTRIBUTIONS. Since December 31,
2003, the Company has operated only in the ordinary course and since that date,
there has not been any change in the business, operations, results of
operations, assets or condition (financial or otherwise) of the Company that has
had or might reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing, except (i) as a direct result of the
acquisition by Aries and Aries of 100% of the Company Shares from the Prior
Company Parents pursuant to the Company Share Purchase Agreement, or (ii) as
otherwise set forth on Schedule 3.5, since that date:
(a) the Company has not, in a single transaction or a series of
related transactions, sold, transferred, or disposed of any of its assets,
tangible or intangible, which, individually or in the aggregate, have a fair
market value in excess of $50,000, other than sale of products and services in
the ordinary course of business;
(b) the Company has not entered into any Material Contract;
(c) no Person (including the Company Affiliates) has accelerated,
terminated, modified, or cancelled any Material Contract;
(d) the Company has not incurred any loans or borrowings or granted
or suffered to exist any Encumbrance upon any of its assets, tangible or
intangible;
(e) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $50,000 or outside the
ordinary course of business;
17
(f) the Company has not made any capital investment in, any loan to,
or any acquisition of the securities or (otherwise than in the ordinary course
of business) assets of, any other Person (or series of related capital
investments, loans, and (otherwise than in the ordinary course of business)
acquisitions);
(g) the Company has not issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed or otherwise become liable for any
indebtedness except in the ordinary course of business;
(h) the Company has not delayed or postponed the payment of accounts
payable or other Liabilities or accelerated the delivery of any products or
services or the collection of any accounts receivable;
(i) the Company has not cancelled, compromised, waived, or released
any material right or claim;
(j) the Company has not licensed, sold or otherwise transferred any
rights under or with respect to any Intellectual Property;
(k) there has been no change made or authorized in the articles of
incorporation or bylaws of the Company;
(l) the Company has not issued any of its capital stock, or granted
any options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;
(m) the Company has not directly or indirectly, (i) made, paid or
declared any dividend or distribution in respect of its capital stock, or
repurchased or redeemed any such capital stock or (ii) entered into any
transaction, commitment or understanding with the Company Affiliates or any of
their Affiliates or for the benefit of any of them, other than transactions in
the ordinary course of the Company's business;
(n) the Company has not experienced any damage or destruction to or
loss of (whether or not covered by insurance) to its property in excess of
$100,000 in the aggregate;
(o) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(p) the Company has not granted any increase in the base compensation
of any of its directors, officers, or employees outside the ordinary course of
business;
(q) the Company has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, or employees (or
taken any such action with respect to any other Employee Benefit Plan);
(r) the Company has not made any other change in employment terms for
any of its directors, officers, and employees outside the ordinary course of
business;
(s) the Company has not made or pledged to make any charitable or
other capital contribution;
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(t) there has not been any other occurrence, event, incident, action,
failure to act, or transaction outside the ordinary course of business involving
the Company;
(u) the Company has not made an election with respect to Taxes that
was not previously made, nor has it changed or revoked an election with respect
to Taxes that was previously made; and
(v) the Company has not committed or agreed, orally or in writing, to
any of the foregoing and the giving of notice by any Person or the passage of
time will not result in the occurrence of any of the foregoing.
3.6 CUSTOMER AND SUPPLIERS.
Schedule 3.6 sets forth, for the fiscal periods ended December 31,
2003 and the nine months ended September 30, 2004, the top ten major customers
and the top five major suppliers of the Company indicating materials and/or
services supplied or purchased and a list identifying unwritten key arrangements
with same, including rebate and incentive arrangements.
3.7 ACCOUNTS RECEIVABLE. The Company has provided to FlameMaster a copy of
the schedule of their accounts receivable as of September 30, 2004, together
with an aging analysis.
3.8 NO LITIGATION; COMPLIANCE WITH LAWS; PERMITS. Except as set forth on
Schedule 3.8 annexed hereto:
(a) There is no outstanding claim or other Proceeding pending by or
against, or, to the knowledge of the Company Affiliates, threatened by or
against, the Company (including at law or in equity or before or by any
Governmental Authority or arbitrator), or affecting or relating to, Aries
Equity, the Company Shares or the assets of the Company.
(b) Except where non-compliance would have a Material Adverse Effect,
the Company is in compliance in all material respects with all applicable laws,
including all laws relating to (i) employment, including any relating to
workers' compensation, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, and the payment of
social security and similar taxes and (ii) the environment, health, and safety,
in each case, applicable to the Company, its business and its assets and
properties.
(c) No written notice has been received by the Company during the
past three years from any Governmental Authority alleging any violation of law
by the Company.
(d) The Company has all Permits, including without limitation all
Permits that are required pursuant to environmental, health or safety laws for
the occupation of its facilities used or held for use by the Company and the
operation of its business, that are material and necessary for the conduct and
operation of its businesses as currently conducted, including owning and using
the assets and properties of the Company in the manner the Company currently
owns and uses the same ("Material Permits"). The Material Permits are listed in
Schedule 3.8 and are valid and in full force and effect. The Company are in
material compliance with the terms and conditions of all Material Permits. No
Permit and no notice to any Governmental Authority is required on the part of
the Company Affiliates in connection with the execution, delivery and
performance of this Agreement or any Related Agreement.
3.9 NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule 3.9
annexed hereto, the Company has no Liability (and, to the knowledge of the
Company Affiliates, there is no basis for any
19
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against them giving rise to any Liability), except
for (a) Liabilities set forth on the June 30, 2004 Balance Sheet and in the
amount set forth therein, and (b) trade accounts payable and Liabilities which
have arisen after the date of the June 30, 2004 Balance Sheet in the ordinary
course of business (none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of law).
3.10 TAXES. Except as set forth on Schedule 3.10:
(a) The Company has filed with the appropriate Taxing Authorities all
Tax returns that they were or are required to file. All such Tax returns were
correct and complete in all material respects. All Taxes owed by the Company
that are or have been due and payable have been paid. The Company are not
currently the beneficiary of any extension of time within which to file any Tax
Return. In the past seven years, no claim has ever been made by an authority in
a jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction, and, to the knowledge of the Company,
there is no basis for such a claim. There are no Encumbrances on any of the
assets of the Company that relate to Taxes (other than Taxes not yet due and
payable).
(b) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Tax Liability of the
Company either (i) claimed or raised by any authority in writing to the Company
or (ii) as to which the Company has knowledge based upon personal contact with
any agent of such authority. Schedule 3.10 lists all Tax returns filed with
respect to the Company for taxable periods ended on or after December 31, 2001,
indicates those Tax returns that have been audited, and indicates those Tax
returns that currently are the subject of audit. The Company has delivered to
FlameMaster correct and complete copies of all Tax returns, examination reports,
and statements of deficiencies assessed against or agreed to by the Company
since December 31, 2001.
(d) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The unpaid Taxes of the Company (i) did not, as of September 30,
2004, exceed its reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth on the face of the September 30, 2004 Balance Sheet and (ii) will not
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of such Company in filing their
Tax Returns.
3.11 MATERIAL CONTRACTS. Schedule 3.11 contains a true, complete and
correct list of each Material Contract. The Company Affiliates have made
available to FlameMaster true complete and correct copies of all written
Material Contracts. To the knowledge of the Company Affiliates, each of the
Material Contracts is valid and in full force and effect. Except for defaults
that, individually or in the aggregate, have not had and will not have a
Material Adverse Effect (a) neither the Company nor, to the knowledge of the
Company Affiliates, any other party to any Material Contract is in default under
the terms thereof and (b) there has been no written claims of any material
default. No party to any Material Contract has notified the Company Affiliates
of its intention to cease to perform any material obligations required to be
performed by it thereunder or withhold any material payment required to be made
by it thereunder.
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3.12 LABOR MATTERS. Except as disclosed on Schedule 3.12, during the past
three years, there has not been, (a) any strike, slowdown, picketing or
organized work stoppage by any of the Employees, (b) any proceeding pending
against or, to the knowledge of the Company Affiliates, threatened against, the
Company relating to the alleged material violation of any law pertaining to
labor relations or other employment matters, including any charge or complaint
filed by an employee or union with any Governmental Authority, (c) any
application for certification of a collective bargaining representative or other
effort to organize any of its respective Employees for the purpose of forming or
joining a union, or (d) any lockout of any Employees by the Company.
3.13 EMPLOYEE BENEFIT PLANS AND BENEFIT ARRANGEMENTS. The Company has
provided to FlameMaster copies of all existing Employee Benefit Plans and all
such Employee Benefit Plans are listed on Schedule 3.13.
(a) Each Employee Benefit Plan (and each related trust, insurance
contract, or fund) complies in form and in operation in all material respects
with the applicable requirements of the applicable laws in England governing
pensions and other Employee Benefit Plans.
(b) The Company' execution of, and the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee, officer, director, agent or consultant of the Company to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement or (ii) accelerate the time of payment or
vesting, or increase the amount of any compensation or other benefit (whether
under any Employee Benefit Plan or otherwise) to any such employee, officer,
director, agent or consultant.
(c) There are no pending claims by or on behalf of any Employee
Benefit Plan or by or on behalf of any individual participant or beneficiary of
an Employee Benefit Plan alleging breach of fiduciary duty or breach of any
provision of the Employee Benefit Plan to pay benefits on the part of the
Company or any of its officers, directors or employees, nor to the knowledge of
the Company Affiliates, is there any threatened claim or any basis for such a
claim.
3.14 PERSONAL PROPERTY; INTELLECTUAL PROPERTY RIGHTS. Except as set forth
on Schedule 3.14 annexed hereto:
(a) All of the personal property (other than Intellectual Property)
reflected in the June 30, 2004 Balance Sheet is in existence (except for
dispositions made in the ordinary course of business since the date of the
September 30, 2004 Balance Sheet). The Company has good and marketable title to
all of its assets and properties, free and clear of all Encumbrances and such
assets and properties consist of all of the assets and properties required by
the Company to conduct its business consistent with past practice. To the
knowledge of the Company Affiliates, there are no material defects, latent or
patent, in the personal property. The machinery or equipment of the Company is
in proper operating condition and repair (subject to normal wear and tear).
(b) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property used for the
operation of the Company' business as presently conducted.
3.15 EMPLOYEES. The Company has furnished FlameMaster with a true, correct
and complete list of the name, start date, current annual salary, amount of any
bonuses paid for the fiscal year ended December 31, 2003 of each employee of the
Company ("Company Employee"). Except as set forth on Schedule 3.15, (a) to the
knowledge of the Company Affiliates, no Company Employee recently has threatened
to terminate his or her employment, (b) neither the Company nor, to the
knowledge of the
21
Company Affiliates, any Company Employee, is restricted, directly or indirectly,
by any Contract, including any agreement regarding confidentiality, from
carrying on the business of the Company; (c) there are no claims pending or, to
the knowledge of the Company Affiliates, threatened regarding compensation
(including but not limited to claims related to sales commissions, minimum wage
or overtime) or any other conditions or terms of employment or the termination
thereof concerning the business of the Company; (d) there have been no promises
or undertakings by the Company to continue the employment of any employee or
contractor for a fixed or stated duration or to continue or increase the
compensation of any employee or contractor (otherwise than as provided in the
relevant contract); (e) the Company has no liability with respect to independent
contractors who perform or have performed services for the Company under any
Employee Benefit Plan or other benefit arrangements of any kind whatsoever or
under applicable law; and (f) the Company has kept complete and up-to-date
employment records required by applicable law to be created and maintained in
connection with its business.
3.16 REAL PROPERTY. Except as set forth on Schedule 3.16, the Company does
not own, directly or indirectly, any leasehold interest in real property, and
all facilities leased or subleased thereunder are supplied with utilities and
other services necessary for the operation of said facilities.
3.17 TITLE TO ARIES EQUITY, HOLDINGS EQUITY AND COMPANY SHARES. The Members
are the true and lawful registered holder of Aries Equity, free and clear of all
Encumbrances. Aries is the true and lawful registered holder of the Holdings
Equity, free and clear of all Encumbrances. Holdings is the true and lawful
registered holder of the Company Shares, free and clear of all Encumbrances.
Upon the consummation of the Exchange, FlameMaster will receive good and valid
title to all of Aries Equity and indirect good and valid title to the Company
Shares, free and clear of all Encumbrances. Other than the rights and
obligations arising under this Agreement, none of Aries Equity, Holdings Equity
or Company Shares is subject to any options, warrants, convertible securities or
other rights of any other Person to acquire the same. None of Aries Equity,
Holdings Equity or Company Shares is subject to any Encumbrances or restrictions
on transfer thereof except those imposed by applicable laws. The Company Shares
represents and as at the Closing Date will represent the Fully-Diluted Company
Shares. All of Aries Equity, Holdings Equity and Company Shares is duly
authorized and validly issued and fully paid. None of such securities was issued
in violation of any preemptive or preferential right.
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS
4.1 MANAGEMENT AND OPERATION OF FLAMEMASTER
Each of the Parties do hereby jointly and severally covenant and agree
that, during the period from and after the Closing Date until the EARLIEST to
occur of any of the Triggering Events:
(a) the board of directors of FlameMaster and FAC in effect
immediately prior to the date of this Agreement shall continue to be the entire
board of directors of both FlameMaster and FAC;
(b) the business of each of FlameMaster and FAC shall continue to be
managed solely by the existing boards of directors and executive officers of
such Persons;
(c) the Members shall continue to manage the Business of the Company
and the Best Group;
(d) the Parties shall use their collective best efforts to obtain
Nasdaq Listing Approval; and
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(e) none of the shares of the Exchange Stock shall be convertible by
any holder thereof into shares of FlameMaster Common Stock, and none of the
shares of FlameMaster Series B Preferred Stock shall be convertible by any
holder thereof into shares of FlameMaster Common Stock; and
(f) no Party shall take any action that in any manner could reasonably
be expected to adversely affect the ability of FlameMaster to consummate the FAC
Stock Dividend.
Upon the occurrence of a Triggering Event, all of the members of the FlameMaster
executive officers and members of the FlameMaster board of directors shall
tender their written resignations and Persons designated by, or otherwise
satisfactory to, the Members and/or the Investor Group Representative shall be
elected to fill the vacancies on the FlameMaster board of directors, to serve
until the next annual meeting of stockholders of FlameMaster or until their
successors are appointed and qualified.
4.2 COVENANTS OF COMPANY AFFILIATES. From and after the Closing Date and
until the occurrence of a Triggering Event, each of the Company Affiliates
agrees that it shall take such steps as lie within its powers to insure that,
without the prior written consent of FlameMaster, neither Aries, Holdings nor
the Company shall do any of the following:
(a) amend its articles of organization, Certificate of Incorporation
or Bylaws;
(b) pay or agree to pay to any employee, officer or director
compensation that is in excess of the current compensation level of such
employee, officer or director other than salary increases or payments made in
the ordinary course of business or as otherwise provided in any contracts or
agreements with any such employees;
(c) except for the contemplated investment by Aries or the Company
(the "GILA INVESTMENT") in Gila Electric and Music Company, d/b/a Gila Candy &
Tobacco ("GILA"), merge or consolidate with any other entity or acquire or agree
to acquire any other entity;
(d) sell, transfer, or otherwise dispose of any material assets
required for the operations of the Company's business except in the ordinary
course of business, consistent with past practices;
(e) except as may be created or assumed in connection with the Gila
Investment, create, incur, assume, or guarantee any material indebtedness for
money borrowed except in the ordinary course of business, or create or suffer to
exist any mortgage, lien or other encumbrance on any of its material assets,
except those in existence on the date hereof or those granted pursuant to
agreements in effect on the date of this Agreement or provided to or by
FlameMaster;
(f) except as may be created or assumed in connection with the Gila
Investment, make any material capital expenditure or series of capital
expenditures except in the ordinary course of business;
(g) declare or pay any dividends on or make any distribution of any
kind with respect to Aries Equity, Holdings Equity or Company Shares; PROVIDED,
HOWEVER, that from and after the Closing Date through and on or before the
occurrence of a Triggering Event (i) FlameMaster may pay to the holders of its
Common Stock quarterly cash dividends and may repurchase up to 250 shares of
FlameMaster Common Stock each quarter, and (ii) Aries may distribute to all or
certain of its Members all of the assets and properties of Aries, other than (A)
100% of the issued and outstanding members interest of Holdings (which Holdings
Equity shall continue to be owned of record and beneficially by Aries through
and including the Closing Date), and (B) all net proceeds of the Investor Group
Financing
23
that is the subject of the FlameMaster Loan (which net proceeds shall be
invested by Aries solely as working capital for the Best Group and to acquire
Gila);
(h) fail to notify FlameMaster immediately in the event of any
material loss of or damage to the Company and its material assets;
(i) fail to pay premiums in respect of all present insurance coverage
of the types and in the amounts as are in effect as of the date of this
Agreement;
(j) fail to seek to preserve the present material employees,
reputation and business organization of the Company or its relationship with its
significant clients and others having business dealings with it;
(k) issue any additional Aries Equity, Holdings Equity or Company
Shares or share capital of the Company or take any action affecting the
capitalization of Aries, Holdings or the Company or the Fully-Diluted Aries
Equity, Fully-Diluted Holdings Equity or Fully-Diluted Company Shares;
(l) fail to use commercially reasonable efforts to comply with and not
be in default or violation under any known law, regulation, decree or order
applicable to the Company's business, operations or assets where such violation
would have a Material Adverse Effect;
(m) grant any severance or termination pay to any director, officer or
any other employees of the Company, other than pursuant to agreements in effect
on the date of this Agreement or as otherwise disclosed in the documents
delivered pursuant to this Agreement;
(n) change any of the accounting principles or practices used by it,
except as may be required as a result of a change in law or in GAAP, whether in
respect of Taxes or otherwise;
(o) terminate or waive any material right of substantial value other
than in the ordinary course of business;
(p) except in connection with the Gila Investment, cause or permit
Aries to engage in any business or other activity, other than its ownership of
the Holdings Equity and Company Shares; or
(q) except in connection with the Gila Investment, enter into any
material contract or commitment other than in the ordinary course of business.
4.3 COVENANTS OF FLAMEMASTER AND THE FLAMEMASTER PRINCIPAL STOCKHOLDERS.
FlameMaster and the FlameMaster Principal Stockholders each covenant
and agree that, from and after the Closing Date and until the occurrence of a
Triggering Event, FlameMaster and each FlameMaster Subsidiary shall, and the
FlameMaster Principal Stockholders shall undertake that FlameMaster and each
FlameMaster Subsidiary shall, other than as contemplated by this Agreement,
conduct its business as presently operated and solely in the ordinary course,
and consistent with such operation, and, in connection therewith, without the
written consent of the Members and the Investor Group Representative, neither
FlameMaster, nor any FlameMaster Subsidiary, shall:
(a) amend its Certificate of Incorporation or Bylaws;
(b) issue any shares of FlameMaster Common Stock or other securities;
24
(c) pay or agree to pay to any employee, officer or director
compensation that is in excess of the current compensation level of such
employee, officer or director other than salary increases or payments made in
the ordinary course of business or as otherwise provided in any contracts or
agreements with any such employees;
(d) merge or consolidate with any other Person or acquire or agree to
acquire any other Person;
(e) create, incur, assume, or guarantee any indebtedness for money
borrowed except in the ordinary course of business, or create or suffer to exist
any mortgage, lien or other Encumbrance on any of its assets, except those in
existence on the date hereof or those granted pursuant to agreements in effect
on the date of this Agreement or provided to or by the Company and/or any of
their respective Affiliates;
(f) make any capital expenditure or series of capital expenditures
except in the ordinary course of business;
(g) except for the FAC Stock Dividend, declare or pay any dividends
on or make any distribution of any kind with respect to the FlameMaster shares;
(h) fail to pay premiums in respect of all present insurance coverage
of the types and in the amounts as are in effect as of the date of this
Agreement;
(i) fail to shall seek to preserve the present employees, reputation
and business organization of FlameMaster and its relationship with its clients
and others having business dealings with it;
(j) change its outstanding capital stock or issue any shares or take
any action affecting the capitalization of FlameMaster;
(k) fail to use commercially reasonable efforts to comply with and not
be in default or violation under any law, regulation, decree or order applicable
to FlameMaster's business or operations where such violation would have a
Material Adverse Effect;
(l) grant any severance or termination pay to any director, officer or
any other employees of FlameMaster, other than pursuant to agreements in effect
on the date of this Agreement or as otherwise disclosed in the documents
delivered pursuant to this Agreement;
(m) change any of the accounting principles or practices used by it,
except as may be required as a result of a change in law or in GAAP, whether in
respect of Taxes or otherwise;
(n) terminate or waive any right of substantial value other than in
the ordinary course of business;
(o) enter into any material contract or commitment;
(p) except for the FAC Stock Dividend, sell, transfer or otherwise
dispose of any assets;
(q) fail to notify the Members immediately in the event of any
material loss of or damage to any of FlameMaster's assets; or
(r) fail to comply with the terms of this Exchange Agreement.
25
4.4 ADDITIONAL COVENANTS AND AGREEMENTS. The Parties hereto do hereby
mutually covenant and agree as to the matters set forth in this Section 4.4
below:
(a) Tax-free Reorganization. The Parties intend that the Exchange
qualify as a Tax-free exchange under Sections 351 of the Code, as amended, and
the Parties will take the position for all purposes that the Exchange shall
qualify under such Section.
(b) Announcement. No Party shall issue any press release or otherwise
make any public statement with respect to this Agreement or the transactions
contemplated hereby without the prior consent of the other Parties hereto (which
consent shall not be unreasonably withheld or delayed), except as may be
required by applicable law or securities regulation. Notwithstanding anything in
this Section 4.4 to the contrary, the Parties will, to the extent practicable,
consult with each other before issuing, and provide each other the opportunity
to review and comment upon, any such press release or other public statements
with respect to this Agreement and the transactions contemplated hereby whether
or not required by Applicable Law.
(c) Best Efforts. Each of the Parties agree to use their respective
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable (subject to applicable laws)
to consummate and make effective Nasdaq Listing Approval and the FAC Stock
Dividend and other transactions contemplated by this Agreement as promptly as
practicable following the Closing Date, including, but not limited to:
(i) The preparation and filing of all forms, registrations and
notices required to be filed with the SEC or any other governmental entity to
consummate the FAC Stock Dividend and Nasdaq Listing Approval, including without
limitation, any approvals, consents, orders, exemptions or waivers by any third
party or governmental entity; and
(ii) The preparation and filing of all forms, registrations and
notices required to be filed with The Nasdaq Stock Market, in order to obtain
the Nasdaq Listing Approval.
(d) FlameMaster Stockholder Consent and Consummation of FAC Stock
Dividend. FlameMaster has obtained the irrevocable and unconditional written
consents of the holders of a majority of the outstanding FlameMaster Common
Stock, including the FlameMaster Principal Stockholders to: (i) the issuance of
the Exchange Stock and the transactions contemplated by this Agreeemnt, and (ii)
the FAC Stock Dividend; and (iii) the sale of the FlameMaster Series B Preferred
Stock to the Investor Group and the filing by FlameMaster of the FlameMaster
Series A Preferred Stock Certificate of Designation and the FlameMaster Series B
Preferred Stock Certificate of Designation with the Secretary of State of the
State of Nevada (collectively, the "STOCKHOLDER CONSENTS"). As soon as
practicable following the Closing Date, FlameMaster shall have prepared and
filed with the SEC a Form 14C Information Statement describing the Exchange, the
issuance of the Exchange Stock and other transactions contemplated by this
Agreement and the FAC Stock Dividend, in such detail as counsel to FlameMaster
and Aries shall reasonably require (the "INFORMATION STATEMENT"). Prior to
consummation of the FAC Stock Dividend (i) the Information Statement shall be
mailed to the existing FlameMaster stockholders of record on the FAC Dividend
Record Date, (ii) all requisite waiting periods shall have expired, and (iii)
FlameMaster shall have consummated the FAC Stock Dividend of the Dividend Shares
of FAC.
(e) Terms of the Investor Group Financing. The Parties hereto do
hereby mutually agree that the terms and conditions of the Investor Group
Financing, if pursuant to the Investor Group Subscription Agreement and in the
form of FlameMaster Series B Preferred Stock and FlameMaster Warrants are
acceptable in all respects to FlameMaster and the other Parties hereto. In the
event that the terms and conditions of the Investor Group Financing shall be
different than the foregoing, such terms
26
and conditions shall be acceptable to the Board of Directors of FlameMaster in
the exercise of its sole and absolute discretion.
(f) Net Proceeds from Investor Group Financing. It is expressly
understood and agreed that the proceeds from the Investor Group Financing (net
of fees, expenses and commissions applicable thereto) shall be applied as
follows: (i) $300,000 shall be retained by FlameMaster as working capital until
consummation of the Triggering Event, at which time $120,000 shall be retained
by FAC, and (ii) the balance of such net proceeds shall be loaned by FlameMaster
to Aries (the "ARIES LOAN"), to be used solely by Aries to (A) enable it or the
Company to make the Gila Investment, and (B) provide ongoing working capital to
the Company, all upon such terms and conditions as shall be reasonably
acceptable to FlameMaster.
(g) Acceleration of Triggering Event. The Parties hereto do hereby
agree that in the event that, in the reasonable opinion of FlameMaster or the
Investor Group Representative, it appears the Nasdaq Listing Approval for the
transactions contemplated by this Agreement shall not be obtainable by May 31,
2005, if at all, then and in such event, at any time following May 1, 2005 and
upon the written request of FlameMaster or the Investor Group, the Parties shall
(i) accelerate the Triggering Event and the FAC Stock Dividend, (ii) withdraw
the original listing application of the Best Group on the Nasdaq Stock Exchange,
and (iii) seek to list the FlameMaster Common Stock for trading on the NASD
Over-the-Counter Bulletin Board or another recognized securities exchange.
(h) Approval by FlameMaster Principal Stockholders. By their execution
and delivery of this Agreement, each of the FlameMaster Principal Stockholders
does hereby approve, adopt and ratify this Exchange Agreement, the Exchange, the
FAC Stock Dividend and all of the transactions contemplated hereby and pursuant
to all exhibits hereto.
(i) Resignation of Officers and Directors. Following the Closing Date
and upon the occurrence of a Triggering Event, all existing officers of
FlameMaster and all current members of the board of directors of FlameMaster
shall tender their written resignations as officers and directors of
FlameMaster, such resignations to be executed and delivered as deeds and to
contain acknowledgements that the officer or member has no claims for
compensation or otherwise against FlameMaster, whether for compensation for loss
of office or otherwise.
(j) Amended and Restated Certificate of Incorporation. Simultaneous
with or prior to consummation of the FAC Stock Dividend, FlameMaster shall have
amended and restated the FlameMaster certificate of incorporation to INTER ALIA,
change its corporate name to Best Distribution Corporation (or such other name
as shall be acceptable to the Members) and shall have filed the such amended and
restated FlameMaster certificate of incorporation with the Secretary of State of
the State of Nevada.
(k) Compliance with Nasdaq Listing Requirements. Promptly following
the Closing Date, FlameMaster and the Members shall jointly submit an original
listing application with The Nasdaq Stock Market to list the shares of
FlameMaster Common Stock for trading on the Nasdaq SmallCap Market following
consummation of the FAC Stock Dividend (the "NASDAQ LISTING APPLICATION"). In
addition, the Parties shall promptly and fully respond to all comments and
requests for additional information as may be received from the Nasdaq Stock
Market. The Parties shall use their collective best efforts to obtain on or
before May 31, 2005 (unless such date shall be extended by mutual consent of
FlameMaster and the Investor Group Representative) a letter or other written
authorization from The Nasdaq Stock Market agreeing to the continued listing of
the shares of FlameMaster Common Stock for trading on the Nasdaq SmallCap Market
following consummation of such FAC Stock Dividend (the "NASDAQ LISTING
APPROVAL").
27
Notwithstanding anything to the contrary, express or implied, contained in this
Exchange Agreement or in any Exhibit hereto, in the event that Nasdaq Listing
Approval shall not be obtained by May 31, 2005 (unless such date shall be
extended by mutual consent of FlameMaster and the Investor Group
Representative), FlameMaster shall promptly: (i) withdraw the Nasdaq Listing
Application, (ii) consummate the FAC Stock Dividend, and (iii) apply to list
shares of FlameMaster Common Stock for trading on the NASD OTC-Bulletin Board or
another national securities exchange.
(l) Operations and Corporate Governance. Following the occurrence of a
Triggering Event and consummation of the FAC Stock Dividend contemplated by this
Exchange Agreement:
(i) The principal headquarters of the Company shall remain in
Arizona, and FlameMaster will locate its principal executive offices in Los
Angeles, California or such other location in the United States as shall be
acceptable to the Board of Directors of FlameMaster;
(ii) Not less than three of the members of the board of directors
of FlameMaster shall be independent directors within the meaning of the Sarbanes
Oxley Act of 2002 as applicable to members of the audit committee of a "listed
issuer;" and
(iii) FlameMaster and its Subsidiaries (including the Company)
shall, if applicable, comply with all of the Nasdaq Stock Exchange Marketplace
Rules and shall comply with all relevant provisions of the Sarbanes Oxley Act of
2002.
(m) Audited Financial Statements. Not later than 60 days following to
the Closing Date, Aries shall cause the Company to provide to FlameMaster true,
complete and correct copies of the Audited Financial Statements. The Audited
Financial Statements will: (i) be prepared in accordance with GAAP and present
fairly the financial position of the Company as at December 31, 2002, December
31, 2003 and December 31, 2004, and the results of operations for the fiscal
periods then ended, (ii) comply in all material respects with Regulation S-X, as
promulgated under the United States Securities Act of 1933, as amended and (iii)
have been prepared using the Accounting Principles, applied consistently.
(n) Non-Competition and Other Restrictive Covenants Agreement
(i) During the three (3) year period immediately following the
Closing Date (the "Restrictive Period"), each of FlameMaster, the Company and
the Company Affiliates severally agrees not to, directly or indirectly, and to
cause its Affiliates not to, directly or indirectly, whether as an owner,
proprietor, security-holder, equity holder, partner, officer, director,
employee, manager or consultant or in any other capacity (collectively,
"CAPACITY"), compete with the business currently engaged in by FAC, as disclosed
in the FlameMaster Form 10-K/A dated as of June 24, 2004. Conversely, during
such Restrictive Period, each of FAC and the FlameMaster Principal Stockholders
severally agrees not to, directly or indirectly, and to cause its Affiliates not
to, directly or indirectly, whether as an owner, proprietor, security-holder,
equity holder, partner, officer, director, employee, manager or consultant or in
any other Capacity, compete with the Company Business.
(ii) Each of the Parties acknowledges and agrees that (i) each of
the covenants set forth in this Section 4.4(m) is necessary for the protection
of the other Parties and that the nature and scope of each such covenant is
reasonable; (ii) there may be no adequate remedy at law for any breach of said
covenants, and therefore, the Party or Parties being harmed by a breach or
threatened breach by any other Party or Parties of the foregoing covenants set
forth in this Section 4.4(m) shall be entitled to injunctive relief without the
necessity of posting any bond or showing any actual damages in the event of a
breach or threatened breach thereof.
28
(o) Expenses of Registration of Securities. Prior to consummation of
the Triggering Event, all costs and expenses applicable to the preparation of
registration statements and amendments thereto in connection with registering
Investor Group Securities for resale or otherwise, shall be borne solely by the
Company Affiliates, and FlameMaster shall incur no costs or expenses in respect
thereof.
ARTICLE V
CONDITIONS OF CLOSING
5.1 Conditions Precedent to Obligations of FlameMaster. Consummation of
the issuance of the Exchange Stock by FlameMaster is subject to the fulfillment
on or prior to the Closing Date of each of the following conditions:
(a) The representations and warranties contained in Article III hereof
(with specific reference, inclusive of the Disclosure Schedule) shall be true
and correct at and as of the Agreement Date and shall be true and correct in all
material respects at and as of the Closing Date as if made on the Closing Date,
provided that the representation and warranties that are qualified as to
materiality shall be true and correct in all respects at and as of the Closing
Date as if made on the Closing Date.
(b) The Company Affiliates and the Company shall each have performed
or complied in all material respects with all obligations, agreements and
covenants required to be performed by them or it hereunder or under the Related
Agreements (as appropriate) prior to or on the Closing Date, including all
covenants and agreements on their part to be performed, as set forth in Article
IV above.
(c) There shall not have occurred since September 30, 2004 any
Material Adverse Effect or any event which could reasonably be expected to have
a Material Adverse Effect on the business, operations, results of operations,
condition, financial or otherwise, or prospects of the Company or its assets and
properties.
(d) No action, claim, suit, investigation, litigation or proceeding
shall be pending or threatened before any court, or governmental agency or other
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following the
Closing or later consummation thereof, (iii) affect adversely the right of
FlameMaster to own Aries Equity and Company Shares and to control the Company
and the Business, (iv) affect adversely the right of the Company to own its
assets and to operate the Business or any portion thereof or (v) be reasonably
likely to result in a Material Adverse Effect (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect).
5.2 Conditions Precedent to Obligations of the Members. Consummation of
the Exchange of Aries Equity by the Members is subject to the fulfillment on or
prior to the Closing Date of each of the following conditions:
(a) The representations and warranties of FlameMaster and the
FlameMaster Principal Stockholders contained herein and in any Related Agreement
shall be true and correct as of the date hereof and shall be true and correct in
all material respects as of the Closing Date, provided that the representation
and warranties that are qualified as to materiality shall be true and correct in
all respects at and as of the Closing Date as if made on the Closing Date.
(b) FlameMaster and the FlameMaster Principal Stockholders shall each
have performed or complied in all material respects with all obligations,
agreements and covenants required to
29
be performed by them or it hereunder prior to or on the Closing Date, including
all covenants and agreements on their part to be performed, as set forth in
Article IV above.
(c) FlameMaster shall have delivered and/or properly assigned to the
Company Affiliates at or prior to the Closing all of the documents, agreements
and instruments required to be delivered or assigned by any one or more of such
Persons pursuant to this Agreement.
(d) No action, claim, suit, investigation, litigation or proceeding
shall be pending or threatened before any court, or governmental agency or other
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement, or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following the
Closing or later consummation thereof or (iii) affect adversely the right of
FlameMaster to own the Company Shares and control the Company and the Business.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Affiliates. Subject to the provisions
of this Article VI, each of the Company Affiliates hereby jointly and severally
agrees to indemnify, defend and hold harmless each FlameMaster Indemnified Party
from and against any and all Losses incurred or suffered arising out of any
material breach of any warranty that is contained in Article III in this
Agreement and which is binding upon the Company Affiliates.
6.2 Indemnification by FlameMaster and the FlameMaster Principal
Stockholders. Subject to the provisions of this Article VI, FlameMaster and the
FlameMaster Principal Stockholders hereby jointly and severally agree to
indemnify, defend and hold harmless each Company Affiliate Indemnified Party
from and against any and all Losses incurred or suffered arising out of any
breach of any representation or warranty in this Agreement and/or in any Related
Agreement made or given by FlameMaster and the FlameMaster Principal
Stockholders or any one or more of them.
6.3 Other Indemnification Arrangements.
(a) Notwithstanding the other provisions of this Article VI, no
Indemnitor shall be liable under this Article VI or otherwise for a breach of
representation or warranty unless the Indemnitee gives notice of a claim against
such Indemnitor giving reasonable details of the claim and the events which gave
rise to the claim and, if practicable, the Indemnitee's genuine pre-estimate of
the amount of the claim not later than 18 months (the "Claims Period") after the
Closing Date (and for the avoidance of doubt, claims asserted in writing before
such date shall be deemed timely made regardless of whether litigation or
arbitration proceedings are commenced by such date) and proceedings in respect
of any claim so notified are commenced (by the issue and service of a claim
form) within six months of such notification if the claim is not settled within
such six month period. Such limitation shall not apply to Indemnifiable Claims
arising out of an inaccuracy of a statement, or a breach of warranty, as
applicable, set forth in Section 3.20, which shall survive the Claims Period
without limitation.
(b) The obligations with respect to any Indemnifiable Claim arising
under Section 6.1 or otherwise are subject to the limitations that the
FlameMaster Indemnified Parties may not make or bring any claim against any of
the Company Affiliates in respect of any Indemnifiable Claims unless the
aggregate amount of all Losses therefor from time to time incurred or suffered
(and/or threatened to be incurred or suffered) by all FlameMaster Indemnified
Parties collectively exceeds $100,000 (the
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"Threshold"), after which point the FlameMaster Indemnified Parties shall be
entitled to indemnification for the amount of such Losses only in excess of the
Threshold. All Losses of all FlameMaster Indemnified Parties shall be aggregated
in determining whether the Threshold has been reached. If the Closing occurs,
the Company Affiliates shall have no right of contribution against the Company,
or any of its directors, officers of employees (except where such person is also
one of the Company Affiliates) for any Indemnifiable Claims arising under
Section 6.1(a) or otherwise that relate solely to this Agreement, but may have
such right with regard to Indemnifiable Claims arising under the Related
Agreements.
(c) Except only for fraud or willful misrepresentation on their
respective parts, the aggregate Liabilities of the Company Affiliates, on one
hand, and the FlameMaster Principal Stockholders, on the other hand, in respect
of this Agreement shall not exceed the sum of $2,500,000.
(d) Indemnitee agrees to give to the Indemnitor prompt written notice
of any claim with respect to which it may be entitled to indemnity or damages
hereunder (but the obligations of Indemnitor under this Article 6.3 or otherwise
shall not be impaired by failure to give such notice except to the extent said
failure actually causes Losses to, or prejudices the rights of Indemnitor).
Indemnitor shall have the right to (and shall upon the request of Indemnitee)
assume, with counsel reasonably satisfactory to Indemnitee, the defense of any
such claim brought by a third party. After Indemnitor's written confirmation of
the assumption of the defense of any such claim and its obligation to indemnify
and hold harmless Indemnitee in respect thereof Indemnitor shall not be
responsible for the legal fees and expenses of counsel independently retained by
Indemnitee during the continuance of such assumption (but shall be liable for
any such fees and expenses other than during the continuance of such
assumption). Indemnitor may effect any settlement, adjustment or other
compromise (collectively, "Settlement") of any such claim without the consent of
Indemnitee if Indemnitor has paid, or made adequate provision for the payment
of, the amount of such Settlement at the time thereof and obtained a complete
release respecting any such claims against the Indemnitee, as applicable,
provided that before entering into any Settlement that involves any remedy other
than the payment of money by Indemnitor, Indemnitor shall obtain the prior
written consent of Indemnitee, which shall not be unreasonably withheld, denied
or delayed. Indemnitee may, at its election, employ counsel at its own expense
in connection with the handling of any such claim. Indemnitee shall have the
right to enter into any Settlement of any such claim provided Indemnitee shall
not be entitled to any indemnification or damages hereunder in connection with
the payment of any amounts pursuant to any Settlement agreed to by it unless
such Settlement is consented to in writing by Indemnitor, which consent shall
not be unreasonably withheld, denied or delayed. The Parties agree to cooperate
with each other in connection with the defense, negotiation or Settlement of any
claim of a third party.
(e) The Indemnitee shall not be entitled to claim more than once in
respect of the same loss or damage.
(f) The Indemnitee shall not have any claim under this Agreement in
respect of any matter to the extent that the facts which might result in a claim
or possible claim were fairly disclosed in any Schedule or in this Agreement or
the other documents referred to in this Agreement.
(g) No Indemnitor shall have a liability for a claim under this
Agreement unless and until such claim reaches final determination, which means:
(i) the relevant Indemnitor(s) and the Indemnitee agreeing a
settlement in respect of the relevant claim or it being otherwise satisfied; or
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(ii) an order or a decree of a court of competent jurisdiction
being given in proceedings in respect of a relevant claim and such order or
decree being final and not or no longer appealable.
(h) If any claim under this Agreement is based upon a liability that
is contingent only an Indemnitor shall not be liable to make any payment to an
Indemnitee, unless and until such contingent liability becomes an actual
liability and is discharged and in the case of a claim under the warranties set
out in Section 3 loss is proven.
(i) Where an Indemnitee is at any time entitled to recover from some
other Person any sum in respect of any matter giving rise to a claim under this
Agreement the Indemnitee shall (and shall procure that the relevant Corporation
shall (as appropriate)) undertake all reasonable steps to enforce such recovery
prior to taking any actions (other than notifying the Indemnitor of the claim)
against an Indemnitor and in the event that an Indemnitee or a Corporation or
the Company shall recover any amount from such other Person the amount of the
claim against an Indemnitor shall be reduced by the amount recovered less the
reasonable costs incurred by the Indemnitee or the relevant Corporation or the
Company in recovering that sum from such other person.
(j) If an Indemnitor makes any payment to an Indemnitee or either
Corporation in relation to any claim under this Agreement and the Indemnitee or
any Corporation or the Company subsequently receives from a third party any
amount referable to, or any benefit which would not have been received but for
the circumstances giving rise to, the subject matter of that claim, the
Indemnitee shall, once it or either Corporation or the Company has received such
amount or benefit, immediately repay or procure the repayment to the Indemnitor
of either:
(i) the amount of such receipt (after deducting an amount equal
to the reasonable costs of the Indemnitee or either Corporation or the Company
incurred in recovering such receipt and any taxation payable on it); or if
lesser,
(ii) the amount paid in respect of such claim by the Indemnitor
together with any interest or repayment supplement paid to the Indemnitee or the
Corporation or the Company in respect of it.
(k) Nothing in this Section shall in any way affect or prejudice the
Indemnitee's common law duty to mitigate its loss.
(l) FlameMaster hereby acknowledges and agrees that none of the
Company Affiliates nor any person on their behalf makes or has made any
representation or promise or gives or has given any warranty, assurance or
undertaking to FlameMaster with respect to the matters provided for in this
Agreement other than as expressly set out in Article III. FlameMaster hereby
further acknowledges and admits that it has not entered into this Agreement (or
any of the documents referred to in it or executed at Closing) in reliance on
any representation, promise, warranty, assurance or undertaking, written or oral
to or by whomsoever made other than the warranties set out in Article III.
Conversely, the Company Affiliates hereby acknowledges and agrees that neither
FlameMaster, the FlameMaster Principal Stockholders nor any person on their
behalf makes or has made any representation or promise or gives or has given any
warranty, assurance or undertaking to the Company Affiliates respect to the
matters provided for in this Agreement other than as expressly set out in
Article II. The Company Affiliates hereby further acknowledges and admits that
it has not entered into this Agreement (or any of the documents referred to in
it or executed at Closing) in reliance on any representation, promise,
32
warranty, assurance or undertaking, written or oral to or by whomsoever made
other than the warranties set out in Article II.
(m) Neither the Company Affiliates, on one hand, nor FlameMaster or
the FlameMaster Principal Stockholders, on the other hand, shall have any
liability in respect of any matter of which the other Party or Parties or their
professional advisers were aware, or which a prudent investor having taken
professional advice ought reasonably to be aware, as a result of its due
diligence review.
ARTICLE VII
MISCELLANEOUS
7.1 Entire Agreement, Survival.
(a) This Agreement, and the documents referred to in it, constitute
the entire agreement and understanding of the Parties and supersede any previous
agreements made or existing between the Parties or any of them before or
simultaneously with this Agreement and relating to the subject matter of this
Agreement (all of which shall be deemed to have been terminated by mutual
consent with effect from the date of this Agreement). For the avoidance of
doubt, the provisions of the Company Share Purchase Agreement shall continue in
full force and effect.
(b) Each of the Parties acknowledges and agrees that on entering into
this Agreement, and the documents referred to herein, does not rely on, and
shall have no remedy in respect of, any statement, representation, warranty or
understanding (whether negligently or innocently made) of any person (whether
party to this Agreement or not) other than as expressly set out in this
Agreement.
(c) The only remedy available to a Party for a breach of this
Agreement shall be for breach of contract under the terms of this Agreement.
(d) Nothing in this Section 7.1shall, however, operate to limit or
exclude any liability for fraud.
(e) Except as otherwise permitted by this Agreement no change to its
terms shall be effective unless it is in writing and signed by or on behalf of
each of the Parties.
7.2 Jurisdiction and Governing Law.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada.
(b) The Parties hereby submit to the exclusive jurisdiction of the
courts of Nevada for all purposes in connection with this Agreement.
7.3 Schedules; Tables of Contents and Headings, Notices. Any section of
the Disclosure Schedule required to be attached and not attached to this
Agreement on the Agreement Date shall be deemed to have been attached thereto
with the following thereon: "None." The table of contents and section headings
of this Agreement and titles given to Schedules to this Agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this Agreement. All notices and other communications under
this Agreement shall be in writing and shall be deemed given when (a) delivered
personally (including by confirmed legible Facsimile transmission and
33
contemporaneous first-class mailing for overnight delivery), (b) delivered by a
responsible overnight courier service, or (b) five business days after being
deposited first class, or airmail class if to a different country, in the mails,
in each such case delivered or mailed to the Parties at the addresses set forth
below (or to such address as a Party may have specified by notice given to the
other Parties pursuant to this provision).
7.4 Separability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect (a) such provision
shall be enforced to the maximum extent permissible under applicable law, and
(b) the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
7.5 Miscellaneous Provisions.
(a) All rights and remedies of any Party under any provision of this
Agreement shall be in addition to any other rights and remedies provided for by
any law of any kind (including all forms of legal and equitable relief,
including specific performance), all rights and remedies contemplated in the
preceding part of this sentence shall be independent and cumulative, and may, to
the extent permitted by law, be exercised concurrently or separately, and the
exercise of any one right or remedy shall not be deemed to be an election of
such right or remedy or to preclude or waive the exercise of any other right or
remedy.
(b) Any Party may waive compliance by another with any of the
provisions of this Agreement provided that (i) no waiver of any provision shall
be construed as a waiver of any other provision, (ii) any waiver must be in
writing and shall be strictly construed, and (iii) a waiver in any one instance
shall not be deemed a waiver in any subsequent instance.
(c) This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors and permitted assigns. No assignment
of this Agreement or of any rights or obligations hereunder, and no declaration
of trust in respect of any such rights or the benefit of this Agreement, may be
made by any Party (by operation of law or otherwise) without the prior written
consent of the other Parties and any attempted assignment or declaration of
trust without the required consent shall be void.
(d) This Agreement may be executed via fax and in counterparts, each
of which shall be an original, but which together shall constitute one and the
same Agreement.
(e) Each Party (severally) shall indemnify and hold harmless the other
Parties from and against any and all claims for investment bankers, brokers,
finders or similar commissions ("THIRD PARTY COMMISSION") made by any Person as
a result of this Agreement and the transactions contemplated hereunder to the
extent that any such Third Party Commission was incurred, or alleged to have
been incurred, by or through that Party.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
FLAMEMASTER CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: President and CEO
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
ALTIUS INVESTMENTS CORPORATION
BY: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇, PRESIDENT
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
NEWBRIDGE CAPITAL, LLC
BY: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, MANAGING MEMBER
BUSHWOOD LLC
BY: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, MANAGING MEMBER
SUMMIT TRADING LIMITED
BY: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, AUTHORIZED AGENT
ARIES CAPITAL PARTNERS LLC
BY: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
NAME: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
TITLE: MANAGING MEMBER
Signature Page of Amended and Restated Share Exchange Agreement
35
SCHEDULE 1
----------
DEFINITIONS
In addition to the other terms defined in the Agreement, the following
terms shall have the following meanings when used in this Agreement:
"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, alone or together with other Persons, controls or is controlled
by or is under common control with such Person. "CONTROL" "controlled by" and
"under common control with", as and with respect to any Person, means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such Person.
"AGREEMENT DATE" means the date of this Agreement.
"BENEFIT ARRANGEMENTS" means life and health insurance,
hospitalization, savings, bonus, deferred compensation, incentive compensation,
holiday, vacation, severance pay, sick pay, sick leave, disability, educational
assistance, tuition refund, service award, company car, scholarship, relocation,
fringe benefit, contracts and policies or practices of the Company providing
employee or executive compensation or benefits to Employees, whether written or
unwritten, other than Employee Benefit Plans.
"COMPANY AFFILIATES INDEMNIFIED PARTY" means each of the Company
Affiliates and any permitted assignee of any the Company Affiliates.
"CONFIDENTIAL INFORMATION" means information with respect to the
Company relating to customers, suppliers, pricing information, other financial
information, techniques and capabilities, product information, market
information, processes, formulae, trade secrets, advertising and marketing
plans, current strategies and contractual relations; provided, that Confidential
Information does not mean information (i) that is or becomes part of the public
domain through no fault of the Company Affiliates, a Person party to or contract
with the Company relating to confidential or proprietary information of the
Company or any Affiliate, agent ore representative, or (ii) that may be required
to be disclosed by law or by any Governmental Authority.
"CONSENTS" means consents, authorization, approvals, actions, waivers
and similar writings.
"CONTRACT" means any contract, mortgage, indenture, lease, sublease,
note, bond, deed of trust, license, sublicense, purchase order, sales order,
undertaking, understanding, plan, commitment, arrangement, instrument, or other
agreement, oral or written, formal or informal.
"DOCUMENT" means any Contract, financial statement, registration,
certificate (including officer's certificates), application, other writing or
other document.
"EMPLOYEE BENEFIT PLANS" means: (i) each "employee benefit plan," as
defined in Section 3(3) of ERISA (including any Multiemployer Plan), and (ii)
all other pension, retirement, supplemental retirement, deferred compensation,
excess benefit, profit sharing, bonus, incentive, stock purchase, stock
ownership, stock option, stock appreciation right or other equity-based
incentive, severance, salary continuation, supplemental unemployment benefits,
termination, change-of-control, health, life, disability, vacation, holiday and
fringe benefit plan, program, contract or arrangement (whether written or
unwritten, qualified or nonqualified, funded or unfunded and including any that
have been frozen or terminated) sponsored, maintained, contributed to, or
required to be contributed to, by either of the Company, or under which either
of the Company has or could have any Liability.
36
"EMPLOYEES" means all employees of the Company, including employees on
approved leaves of absence (whether family leave, workers compensation, medical
leave or otherwise).
"ENCUMBRANCE" means any mortgage, pledge, lien, charge, encumbrance,
lease, security interest, license, easement, restriction, encroachment,
condition, covenant, claim, exception, option, equity, right, other interest or
other encumbrance of any kind or nature (whether absolute, accrued, disputed,
contingent or otherwise).
"FINANCIAL STATEMENTS" means each of the Balance Sheets and the annual
and interim statements of operations, changes in cash flow and changes in
stockholders equity referred to in Section 3.4.
"FLAMEMASTER INDEMNIFIED PARTY" means FlameMaster and any permitted
assignee of FlameMaster.
"GOVERNMENTAL AUTHORITY" means any United States and/or foreign
federal, state, local or other governmental authority of any kind or nature,
including any department, subdivision, commission, board, bureau, regulatory
agency, agency or instrumentality thereof, any court and any administrative
agency, and any comparable body performing any governmental functions.
"INDEMNIFIABLE CLAIM" means any claim or other Proceeding with respect
to which an Indemnitee may be entitled to indemnification or damages under this
Agreement.
"INDEMNITEE" means the Party or other Person seeking indemnification
or damages pursuant to this Agreement.
"INDEMNITOR" means the Party that is required or requested to provide
indemnification or damages pursuant to this Agreement.
"INTELLECTUAL PROPERTY" means all (i) patent and patent rights,
trademarks and trademark rights, trade names and trade name rights, copyrights
and copyright rights, service marks and service ▇▇▇▇ rights, and all pending
applications for and registrations of the same; (ii) brand names, trade dress,
business and product names, logos and slogans, and (iii) proprietary technology,
including all know-how, trade secrets, quality control standards, reports
(including test reports), designs, processes, market research and other data,
computer software and programs (including source codes and related
documentation), formulae, inventions and other ideas, methodologies, and
technical information, (iv) claims of the owner of any intellectual property for
infringement of its rights by a third party, no matter when arising, and (v)
other intellectual property.
"LAW" means, as to any Person, the certificate of incorporation and
by-laws, and any statute, rule, regulation, ordinance, code, guideline, law,
judicial decision, determination, order (including any injunction, judgment,
writ, award or decree) or Consent of a court, other Governmental Authority or
arbitrator, in each case applicable to or binding upon such Person, including
the conduct of its business, or any of its assets or revenues or to which such
Person or any of its assets or revenues are subject.
"LIABILITIES" means any liabilities, commitments or other obligations
of any kind or nature whatsoever, accrued, fixed, contingent or otherwise,
liquidated or unliquidated, direct or indirect, ▇▇▇▇▇▇ or inchoate, determined,
determinable or non-determinable, due or to become due.
"LOSSES" means any and all Liabilities, losses, claims (including
allegations), demands, other Proceedings, damages, deficiencies, assessments,
judgments, fines, penalties, reasonable costs (including remediation, renewal or
response costs, and costs of investigation), and reasonable expenses (including
37
reasonable legal fees and expenses, including reasonable legal fees and expenses
incurred in the enforcement of the obligations under Section 6.1 or Section
6.2).
"NRS" means the Nevada Revised Statutes of the State of Nevada, United
States of America
"PERMITS" means all authorizations, licenses, registrations,
franchises, variances, consents, clearances, waivers, certificates, other
approvals and similar writings granted or issued by any Governmental Authority.
"PERSON" means any individual, corporation, partnership, limited
liability company, trust, association, Governmental Authority or any other
entity.
"PROCEEDINGS" means any claims, controversies, demands, actions,
lawsuits, investigations, proceedings or other disputes, formal or informal,
including any by, involving or before any arbitrator or any Governmental
Authority.
"REAL PROPERTY" means all of the real property owned and/or leased by
the Company, including any portion thereof, listed in Schedule 3.19 and more
particularly described in the Lease.
"RELATED AGREEMENT" means any Contract (including all Contracts
delivered at the Closing) arising out of the execution, delivery or performance
of this Agreement or the Company Share Purchase Agreement (and terms that are
defined in the Company Share Purchase Agreement but are not defined in this
Agreement shall have the same meanings in this definition) (whether executed
prior to, at or subsequent to the Closing), including, without limitation (a)
the Lock-up Agreement and (b) the Restated FlameMaster Charter.
"TAXATION AUTHORITY" means the Inland Revenue, H.M. Customs & Excise
or any other statutory, governmental, federal, state, provincial or local
government authority, body or official.
"TAXES" means any and all taxes or assessments of any kind or nature
whatsoever, whether imposed in the United Kingdom, the United States or
elsewhere in the world, including any and all income, franchise, gross receipts,
sales, alternative, add-on, minimum, employment, real property, personal
property, business, capital stock, use and occupancy, AD VALOREM, transfer,
license, excise, stamp, other transfer, estimated, withholding, service, payroll
and recording taxes and any related penalties, charges, interest and other
additions thereto.
"TO THE KNOWLEDGE" (and reasonably similar terms) means "to the best
of the knowledge and belief of the Person or Persons making such representation,
after reasonable inquiry of the management of the Company or FlameMaster, as
applicable."
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